SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 20182019
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. | Name of Registrant, State of Incorporation, Address of Principal Offices, and Telephone No. | IRS Employer Identification No. | ||
1-4219 | Spectrum Brands Holdings, Inc.
(a Delaware corporation) 3001 Deming Way Middleton, WI 53562 (608) 275-3340 www.spectrumbrands.com | 74-1339132 | ||
333-192634-03 | SB/RH Holdings, LLC (a Delaware limited liability company) 3001 Deming Way Middleton, WI 53562 (608) 275-3340 | 27-2812840 |
Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Spectrum Brands Holdings, Inc. | Yes |
| No |
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SB/RH Holdings, LLC | Yes |
| No |
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Indicate by check mark whether the registrants have submitted electronically and posted on their corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Spectrum Brands Holdings, Inc. | Yes |
| No |
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SB/RH Holdings, LLC | Yes |
| No |
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.company, or an emerging growth company.. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Registrant | Large Accelerated Filer | Accelerated | Non-accelerated | Smaller | |||||
Spectrum Brands Holdings, Inc. | X | ||||||||
SB/RH Holdings, LLC | X |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Spectrum Brands Holdings, Inc. | Yes |
| No |
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SB/RH Holdings, LLC | Yes |
| No |
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§232.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter
Spectrum Brands Holdings, Inc. | Yes |
| No |
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SB/RH Holdings, LLC | Yes |
| No |
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If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Spectrum Brands Holdings, Inc. |
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SB/RH Holdings, LLC |
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Securities registered pursuant to Section 12(b) of the Exchange Act:
Registrant | Title of Each Class | Trading Symbol | Name of Exchange On Which Registered | |||
Spectrum Brands Holdings, Inc. | Common Stock, $0.01 par value | SPB | New York Stock Exchange |
As of August 3, 20185, 2019, there were 48,765,552 shares outstanding 53,408,731 shares of Spectrum Brands Holdings, Inc.’s common stock, par value $0.01 per share.
SB/RH Holdings, LLC meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this report with a reduced disclosure format as permitted by general instruction H(2).
Forward-Looking Statements
We have made or implied certain forward-looking statements in this report. All statements, other than statements of historical facts included in this report, including the statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding our business strategy, future operations, financial condition, estimated revenues, projected costs, projected synergies, prospects, plans and objectives of management, as well as information concerning expected actions of third parties, are forward-looking statements. When used in this report, the words anticipate, pro forma, seeks, intend, plan, estimate, believe, expect, project, could, will, should, may and similar expressions are also intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words.
Since these forward-looking statements are based upon our current expectations of future events and projections and are subject to a number of risks and uncertainties, many of which are beyond our control and some of which may change rapidly, actual results or outcomes may differ materially from those expressed or implied herein, and you should not place undue reliance on these statements. Important factors that could cause our actual results to differ materially from those expressed or implied herein include, without limitation:
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the impact of our indebtedness on our business, financial condition and results of operations;
the impact of restrictions in our debt instruments on our ability to operate our business, finance our capital needs or pursue or expand business strategies;
any failure to comply with financial covenants and other provisions and restrictions of our debt instruments;
the impact of actions taken by significant stockholders;
the impact of fluctuations in commodity prices, costs or availability of raw materials or terms and conditions available from suppliers, including suppliers’ willingness to advance credit;
interest rate and exchange rate fluctuations;
the loss of, significant reduction in, or dependence upon, sales to any significant retail customer(s);
competitive promotional activity or spending by competitors, or price reductions by competitors;
the introduction of new product features or technological developments by competitors and/or the development of new competitors or competitive brands;
the effects of general economic conditions, including inflation, recession or fears of a recession, depression or fears of a depression, labor costs and stock market volatility or changes in trade, monetary or fiscal policies in the countries where we do business;
changes in consumer spending preferences and demand for our products;
our ability to develop and successfully introduce new products, protect our intellectual property and avoid infringing the intellectual property of third parties;
our ability to successfully implement, achieve and sustain manufacturing and distribution cost efficiencies and improvements, and fully realize anticipated cost savings;
the seasonal nature of sales of certain of our products;
the effects of climate change and unusual weather activity;
the cost and effect of unanticipated legal, tax or regulatory proceedings or new laws or regulations (including environmental, public health and consumer protection regulations);
public perception regarding the safety of products, that we manufacture or sell, including the potential for environmental liabilities, product liability claims, litigation and other claims related to products manufactured by us and third parties;
the impact of pending or threatened litigation;
the impact of cybersecurity breaches or our actual or perceived failure to protect company and personal data;
changes in accounting policies applicable to our business;
our ability to utilize our net operating loss carry-forwards to offset tax liabilities from future taxable income;
government regulations;
the impact of expenses resulting from the implementation of new business strategies, divestitures or current and proposed restructuring activities;
our inability to successfully integrate and operate new acquisitions at the level of financial performance anticipated;
the unanticipated loss of key members of senior management;
the effects of political or economic conditions, terrorist attacks, acts of war or other unrest in international markets; and
the transition to a new chief executive officer and such officer’s ability to determine and implement changes at the Company to improve the Company’s business and financial performance.
Some of the above-mentioned factors are described in further detail in the sections entitled “Risk Factors” in our annual and quarterly reports (including this report), as applicable. You should assume the information appearing in this report is accurate only as of the end of the period covered by this report, or as otherwise specified, as our business, financial condition, results of operations and prospects may have changed since that date. Except as required by applicable law, including the securities laws of the United States (“U.S.”) and the rules and regulations of the United States Securities and Exchange Commission (“SEC”), we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, to reflect actual results or changes in factors or assumptions affecting such forward-looking statements.
SPECTRUM BRANDS HOLDINGS, INC. (formerly HRG, Group, Inc.)
SB/RH HOLDINGS, LLC
TABLE OF CONTENTS
This report is a combined report of Spectrum Brands Holdings, Inc. and SB/RH Holdings, LLC. The combined notes to the condensed consolidated financial statements include notes representing Spectrum Brands Holdings, Inc. and SB/RH Holdings, LLC and certain notes related specifically to SB/RH Holdings, LLC.
PART I | FINANCIAL INFORMATION | Page |
2 | ||
Spectrum Brands Holdings, Inc. Condensed Consolidated Financial Statements (Unaudited) | ||
2 | ||
3 | ||
4 | ||
5 | ||
7 | ||
SB/RH Holdings, LLC Condensed Consolidated Financial Statements (Unaudited) | ||
8 | ||
9 | ||
10 | ||
11 | ||
12 | ||
Spectrum Brands Holdings, Inc. and SB/RH Holdings, LLC Combined (Unaudited) | ||
Combined Notes to Condensed Consolidated Financial Statements | 13 | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 43 | |
56 | ||
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| 57 |
PART II | OTHER INFORMATION | |
58 | ||
58 | ||
59 | ||
60 | ||
60 | ||
61 |
SPECTRUM BRANDS HOLDINGS, INC. (formerly HRG, Group, Inc.)
Condensed Consolidated Statements of Financial Position
As of June 30, 20182019, and September 30, 20172018
(unaudited)
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(in millions) |
| June 30, 2018 |
| September 30, 2017 | June 30, 2019 | September 30, 2018 | ||||||
Assets |
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Cash and cash equivalents |
| $ | 814.6 |
| $ | 270.1 | $ | 161.4 | $ | 552.5 | ||
Trade receivables, net |
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| 384.2 |
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| 266.0 | 568.5 | 317.1 | ||||
Other receivables |
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| 38.1 |
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| 19.7 | 62.9 | 51.7 | ||||
Inventories |
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| 546.7 |
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| 496.3 | 718.6 | 583.6 | ||||
Prepaid expenses and other current assets |
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| 69.1 |
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| 54.8 | 60.4 | 63.2 | ||||
Current assets of business held for sale |
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| 1,913.1 |
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| 28,929.2 | — | 2,402.6 | ||||
Total current assets |
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| 3,765.8 |
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| 30,036.1 | 1,571.8 | 3,970.7 | ||||
Property, plant and equipment, net |
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| 494.8 |
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| 503.9 | 464.9 | 500.0 | ||||
Deferred charges and other |
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| 418.0 |
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| 43.7 | 28.5 | 231.8 | ||||
Investments | 204.7 | — | ||||||||||
Goodwill |
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| 2,269.4 |
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| 2,277.1 | 1,451.0 | 1,454.7 | ||||
Intangible assets, net |
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| 1,564.8 |
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| 1,612.0 | 1,567.5 | 1,641.8 | ||||
Noncurrent assets of business held for sale |
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| — |
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| 1,376.9 | ||||||
Total assets |
| $ | 8,512.8 |
| $ | 35,849.7 | $ | 5,288.4 | $ | 7,799.0 | ||
Liabilities and Shareholders' Equity |
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Current portion of long-term debt |
| $ | 70.8 |
| $ | 161.4 | $ | 13.8 | $ | 26.9 | ||
Accounts payable |
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| 348.3 |
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| 373.1 | 452.7 | 584.7 | ||||
Accrued wages and salaries |
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| 49.6 |
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| 55.4 | 65.4 | 55.1 | ||||
Accrued interest |
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| 75.7 |
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| 78.0 | 34.7 | 65.0 | ||||
Other current liabilities |
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| 130.6 |
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| 125.8 | 452.1 | 159.4 | ||||
Current liabilities of business held for sale |
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| 525.3 |
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| 26,851.3 | — | 537.6 | ||||
Total current liabilities |
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| 1,200.3 |
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| 27,645.0 | 1,018.7 | 1,428.7 | ||||
Long-term debt, net of current portion |
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| 5,189.4 |
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| 5,543.7 | 2,275.2 | 4,624.3 | ||||
Deferred income taxes |
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| 314.2 |
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| 493.2 | 35.0 | 35.0 | ||||
Other long-term liabilities |
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| 119.1 |
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| 64.8 | 75.5 | 121.4 | ||||
Noncurrent liabilities of business held for sale |
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| — |
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| 156.1 | ||||||
Total liabilities |
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| 6,823.0 |
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| 33,902.8 | 3,404.4 | 6,209.4 | ||||
Commitments and contingencies (Note 17) |
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Commitments and contingencies (Note 18) |
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Shareholders' equity |
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Common Stock |
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| 2.1 |
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| 2.0 | ||||||
Common stock | 0.5 | 0.5 | ||||||||||
Additional paid-in capital |
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| 1,270.4 |
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| 1,372.9 | 2,025.3 | 1,996.7 | ||||
Accumulated deficit |
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| (78.3) |
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| (925.9) | ||||||
Accumulated other comprehensive (loss) income, net of tax |
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| (141.8) |
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| 309.0 | ||||||
Accumulated earnings (deficit) | 340.5 | (180.1) | ||||||||||
Accumulated other comprehensive loss, net of tax | (228.7) | (235.8) | ||||||||||
Treasury stock | (263.0) | — | ||||||||||
Total shareholders' equity |
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| 1,052.4 |
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| 758.0 | 1,874.6 | 1,581.3 | ||||
Noncontrolling interest |
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| 637.4 |
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| 1,188.9 | 9.4 | 8.3 | ||||
Total equity |
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| 1,689.8 |
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| 1,946.9 | 1,884.0 | 1,589.6 | ||||
Total liabilities and equity |
| $ | 8,512.8 |
| $ | 35,849.7 | $ | 5,288.4 | $ | 7,799.0 |
See accompanying notes to the condensed consolidated financial statements
SPECTRUM BRANDS HOLDINGS, INC. (formerly HRG, Group, Inc.)
Condensed Consolidated Statements of Income
For the three and nine month periods ended June 30, 20182019 and 20172018
(unaudited)
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| Three Month Periods Ended |
| Nine Month Periods Ended | Three Month Periods Ended | Nine Month Periods Ended | ||||||||||||||||||
(in millions, except per share) |
| June 30, 2018 |
| June 30, 2017 |
| June 30, 2018 |
| June 30, 2017 | June 30, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 | ||||||||||||
Net sales |
| $ | 945.5 |
| $ | 862.9 |
| $ | 2,358.1 |
| $ | 2,221.6 | $ | 1,022.2 | $ | 1,029.4 | $ | 2,809.2 | $ | 2,834.3 | ||||
Investment income |
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| — |
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| 0.1 |
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| — |
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| 1.1 | ||||||||||||
Revenue |
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| 945.5 |
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| 863.0 |
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| 2,358.1 |
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| 2,222.7 | ||||||||||||
Cost of goods sold |
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| 586.0 |
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| 531.5 |
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| 1,484.5 |
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| 1,339.2 | 660.7 | 665.2 | 1,835.3 | 1,843.4 | ||||||||
Restructuring and related charges |
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| 4.9 |
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| 11.2 |
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| 9.9 |
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| 16.4 | 0.5 | 1.5 | 1.5 | 3.5 | ||||||||
Gross profit |
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| 354.6 |
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| 320.3 |
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| 863.7 |
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| 867.1 | 361.0 | 362.7 | 972.4 | 987.4 | ||||||||
Selling |
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| 123.9 |
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| 127.9 |
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| 363.8 |
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| 353.9 | 152.1 | 147.1 | 459.1 | 453.3 | ||||||||
General and administrative |
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| 74.7 |
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| 69.3 |
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| 226.9 |
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| 228.6 | 80.6 | 76.1 | 263.6 | 238.4 | ||||||||
Research and development |
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| 6.9 |
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| 7.2 |
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| 21.1 |
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| 20.9 | 10.5 | 10.8 | 32.7 | 33.8 | ||||||||
Acquisition and integration related charges |
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| 2.3 |
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| 5.2 |
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| 12.0 |
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| 11.6 | ||||||||||||
Restructuring and related charges |
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| 20.5 |
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| 10.0 |
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| 59.1 |
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| 14.9 | 20.2 | 16.4 | 40.7 | 51.9 | ||||||||
Transaction related charges | 4.8 | 5.5 | 16.4 | 20.4 | ||||||||||||||||||||
Total operating expenses |
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| 228.3 |
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| 219.6 |
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| 682.9 |
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| 629.9 | 268.2 | 255.9 | 812.5 | 797.8 | ||||||||
Operating income |
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| 126.3 |
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| 100.7 |
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| 180.8 |
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| 237.2 | 92.8 | 106.8 | 159.9 | 189.6 | ||||||||
Interest expense |
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| 63.5 |
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| 76.1 |
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| 206.6 |
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| 232.4 | 33.9 | 63.3 | 185.1 | 206.4 | ||||||||
Other non-operating (income) expense, net |
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| (2.3) |
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| 1.3 |
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| (4.6) |
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| 1.7 | ||||||||||||
Other non-operating expense (income), net | 39.4 | (1.2) | 64.2 | (2.0) | ||||||||||||||||||||
Income (loss) from continuing operations before income taxes |
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| 65.1 |
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| 23.3 |
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| (21.2) |
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| 3.1 | 19.5 | 44.7 | (89.4) | (14.8) | ||||||||
Income tax (benefit) expense |
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| (337.8) |
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| 19.5 |
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| (464.9) |
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| 49.1 | ||||||||||||
Net income (loss) from continuing operations |
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| 402.9 |
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| 3.8 |
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| 443.7 |
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| (46.0) | ||||||||||||
Income from discontinued operations – HRG Insurance Operations, net of tax |
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| 5.9 |
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| 7.7 |
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| 465.9 |
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| 195.4 | ||||||||||||
(Loss) income from discontinued operations - GBA, net of tax |
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| (9.5) |
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| 28.3 |
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| 32.0 |
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| 99.8 | ||||||||||||
Net income |
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| 399.3 |
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| 39.8 |
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| 941.6 |
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| 249.2 | ||||||||||||
Income tax expense (benefit) | 44.2 | (354.2) | 18.2 | (476.4) | ||||||||||||||||||||
Net (loss) income from continuing operations | (24.7) | 398.9 | (107.6) | 461.6 | ||||||||||||||||||||
(Loss) income from discontinued operations, net of tax | (1.2) | 33.8 | 699.1 | 526.5 | ||||||||||||||||||||
Net (loss) income | (25.9) | 432.7 | 591.5 | 988.1 | ||||||||||||||||||||
Net income attributable to non-controlling interest |
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| 22.0 |
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| 37.7 |
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| 93.9 |
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| 117.0 | — | 27.1 | 1.2 | 104.1 | ||||||||
Net income attributable to controlling interest |
| $ | 377.3 |
| $ | 2.1 |
| $ | 847.7 |
| $ | 132.2 | ||||||||||||
Net (loss) income attributable to controlling interest | $ | (25.9) | $ | 405.6 | $ | 590.3 | $ | 884.0 | ||||||||||||||||
Amounts attributable to controlling interest |
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Net income (loss) from continuing operations attributable to controlling interest |
| $ | 377.4 |
| $ | (16.6) |
| $ | 368.1 |
| $ | (88.6) | ||||||||||||
Net (loss) income from continuing operations attributable to controlling interest | $ | (24.7) | $ | 382.9 | $ | (108.8) | $ | 390.3 | ||||||||||||||||
Net (loss) income from discontinued operations attributable to controlling interest |
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| (0.1) |
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| 18.7 |
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| 479.6 |
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| 220.8 | (1.2) | 22.7 | 699.1 | 493.7 | ||||||||
Net income attributable to controlling interest |
| $ | 377.3 |
| $ | 2.1 |
| $ | 847.7 |
| $ | 132.2 | ||||||||||||
Net (loss) income attributable to controlling interest | $ | (25.9) | $ | 405.6 | $ | 590.3 | $ | 884.0 | ||||||||||||||||
Earnings Per Share |
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Basic earnings per share from continuing operations |
| $ | 11.52 |
| $ | (0.51) |
| $ | 11.31 |
| $ | (2.75) | $ | (0.51) | $ | 11.69 | $ | (2.12) | $ | 12.00 | ||||
Basic earnings per share from discontinued operations |
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| — |
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| 0.57 |
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| 14.74 |
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| 6.85 | (0.02) | 0.70 | 13.62 | 15.17 | ||||||||
Basic earnings per share |
| $ | 11.52 |
| $ | 0.06 |
| $ | 26.05 |
| $ | 4.10 | $ | (0.53) | $ | 12.39 | $ | 11.50 | $ | 27.17 | ||||
Diluted earnings per share from continuing operations |
| $ | 11.51 |
| $ | (0.51) |
| $ | 11.26 |
| $ | (2.75) | $ | (0.51) | $ | 11.68 | $ | (2.12) | $ | 11.94 | ||||
Diluted earnings per share from discontinued operations |
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| — |
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| 0.57 |
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| 14.67 |
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| 6.85 | (0.02) | 0.69 | 13.62 | 15.10 | ||||||||
Diluted earnings per share |
| $ | 11.51 |
| $ | 0.06 |
| $ | 25.93 |
| $ | 4.10 | $ | (0.53) | $ | 12.37 | $ | 11.50 | $ | 27.04 | ||||
Dividend per share | $ | 0.42 | $ | — | $ | 1.26 | $ | — | ||||||||||||||||
Weighted Average Shares Outstanding |
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Basic |
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| 32.7 |
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| 32.3 |
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| 32.5 |
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| 32.2 | 48.8 | 32.7 | 51.3 | 32.5 | ||||||||
Diluted |
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| 32.8 |
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| 32.3 |
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| 32.7 |
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| 32.2 | 48.8 | 32.8 | 51.3 | 32.7 |
See accompanying notes to the condensed consolidated financial statements
SPECTRUM BRANDS HOLDINGS, INC. (formerly HRG, Group, Inc.)INC
Condensed Consolidated Statements of Comprehensive Income
For the three and nine month periods ended June 30, 20182019 and June 30, 20172018
(unaudited)
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| Three Month Periods Ended |
| Nine Month Periods Ended | ||||||||
(in millions) |
| June 30, 2018 |
| June 30, 2017 |
| June 30, 2018 |
| June 30, 2017 | ||||
Net income |
| $ | 399.3 |
| $ | 39.8 |
| $ | 941.6 |
| $ | 249.2 |
Other comprehensive income (loss) |
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Foreign currency translation (loss) gain |
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| (61.5) |
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| 31.9 |
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| (43.2) |
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| 4.0 |
Deferred tax effect |
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| 2.7 |
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| (1.8) |
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| 6.6 |
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| 1.7 |
Deferred tax valuation allowance |
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| (0.3) |
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| 0.2 |
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| (0.3) |
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| 0.2 |
Net unrealized gain on foreign currency translation |
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| (59.1) |
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| 30.3 |
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| (36.9) |
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| 5.9 |
Unrealized gain (loss) on derivative instruments |
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Unrealized gain (loss) on hedging activity before reclassification |
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| 40.6 |
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| (44.3) |
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| 21.4 |
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| (11.1) |
Net reclassification for loss (gain) to income from continuing operations |
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| 0.1 |
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| (0.3) |
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| (0.3) |
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| (0.6) |
Net reclassification for loss (gain) to income from discontinued operations |
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| 1.2 |
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| (2.0) |
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| 7.3 |
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| (10.6) |
Unrealized gain (loss) on hedging instruments after reclassification |
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| 41.9 |
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| (46.6) |
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| 28.4 |
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| (22.3) |
Deferred tax effect |
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| (11.5) |
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| 16.4 |
|
| (7.8) |
|
| 6.6 |
Net unrealized gain (loss) on hedging derivative instruments |
|
| 30.4 |
|
| (30.2) |
|
| 20.6 |
|
| (15.7) |
Defined benefit pension gain (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension gain (loss) before reclassification |
|
| 2.8 |
|
| (5.4) |
|
| 0.6 |
|
| (3.0) |
Net reclassification for loss to income from continuing operations |
|
| 0.3 |
|
| 0.6 |
|
| 0.8 |
|
| 1.7 |
Net reclassification for loss to income from discontinued operations |
|
| 0.5 |
|
| 0.8 |
|
| 1.6 |
|
| 2.3 |
Defined benefit pension gain (loss) after reclassification |
|
| 3.6 |
|
| (4.0) |
|
| 3.0 |
|
| 1.0 |
Deferred tax effect |
|
| (0.7) |
|
| 0.8 |
|
| (0.5) |
|
| (0.3) |
Net defined benefit pension gain (loss) |
|
| 2.9 |
|
| (3.2) |
|
| 2.5 |
|
| 0.7 |
Unrealized investment gain |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized investment gain before reclassification |
|
| — |
|
| 358.3 |
|
| 26.0 |
|
| 5.8 |
Net reclassification for loss (gain) to income from discontinued operations |
|
| — |
|
| 26.9 |
|
| (6.3) |
|
| 23.0 |
Unrealized gain on investments after reclassification |
|
| — |
|
| 385.2 |
|
| 19.7 |
|
| 28.8 |
Adjustments to intangible assets |
|
| — |
|
| (113.6) |
|
| (0.9) |
|
| 11.6 |
Deferred tax effect |
|
| — |
|
| (94.4) |
|
| (6.7) |
|
| (14.3) |
Net unrealized gain on investments |
|
| — |
|
| 177.2 |
|
| 12.1 |
|
| 26.1 |
Deconsolidation of HRG insurance operations |
|
| — |
|
| — |
|
| (445.9) |
|
| — |
Net change to derive comprehensive (loss) income for the period |
|
| (25.8) |
|
| 174.1 |
|
| (447.6) |
|
| 17.0 |
Comprehensive income |
|
| 373.5 |
|
| 213.9 |
|
| 494.0 |
|
| 266.2 |
Comprehensive (loss) income attributable to non-controlling interest |
|
| (10.1) |
|
| 71.2 |
|
| (2.5) |
|
| 118.7 |
Comprehensive income attributable to controlling interest |
| $ | 383.6 |
| $ | 142.7 |
| $ | 496.5 |
| $ | 147.5 |
Three Month Periods Ended | Nine Month Periods Ended | |||||||||||
(in millions) | June 30, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 | ||||||||
Net (loss) income | $ | (25.9) | $ | 432.7 | $ | 591.5 | $ | 988.1 | ||||
Foreign currency translation loss | (0.4) | (61.5) | (18.6) | (43.2) | ||||||||
Deferred tax effect | 0.1 | 2.7 | (4.8) | 6.6 | ||||||||
Deferred tax valuation allowance | — | (0.3) | (0.3) | |||||||||
Net unrealized loss on foreign currency translation | (0.3) | (59.1) | (23.4) | (36.9) | ||||||||
Unrealized (loss) gain on derivative instruments | ||||||||||||
Unrealized (loss) gain on hedging activity before reclassification | (6.6) | 40.6 | 16.9 | 21.4 | ||||||||
Net reclassification for (gain) loss to income from continuing operations | (2.5) | 1.8 | (8.2) | 4.0 | ||||||||
Net reclassification for (gain) loss to income from discontinued operations | — | (0.5) | 0.5 | 3.0 | ||||||||
Unrealized (loss) gain on hedging instruments after reclassification | (9.1) | 41.9 | 9.2 | 28.4 | ||||||||
Deferred tax effect | 2.4 | (11.5) | (2.6) | (7.8) | ||||||||
Net unrealized (loss) gain on hedging derivative instruments | (6.7) | 30.4 | 6.6 | 20.6 | ||||||||
Defined benefit pension gain | ||||||||||||
Defined benefit pension gain before reclassification | 0.1 | 2.8 | 0.9 | 0.6 | ||||||||
Net reclassification for loss to income from continuing operations | 0.5 | 0.6 | 1.5 | 1.9 | ||||||||
Net reclassification for loss to income from discontinued operations | — | 0.2 | 0.2 | 0.5 | ||||||||
Defined benefit pension gain after reclassification | 0.6 | 3.6 | 2.6 | 3.0 | ||||||||
Deferred tax effect | (0.1) | (0.7) | (0.7) | (0.5) | ||||||||
Net defined benefit pension gain | 0.5 | 2.9 | 1.9 | 2.5 | ||||||||
Unrealized investment gain | ||||||||||||
Unrealized investment gain before reclassification | — | — | — | 26.0 | ||||||||
Net reclassification for gain to income from discontinued operations | — | — | — | (6.3) | ||||||||
Unrealized gain on investments after reclassification | — | — | — | 19.7 | ||||||||
Adjustments to intangible assets | — | — | — | (0.9) | ||||||||
Deferred tax effect | — | — | — | (6.7) | ||||||||
Net unrealized gain on investments | — | — | — | 12.1 | ||||||||
Deconsolidation of discontinued operations | — | — | 21.9 | (445.9) | ||||||||
Net change to derive comprehensive (loss) income for the periods | (6.5) | (25.8) | 7.0 | (447.6) | ||||||||
Comprehensive (loss) income | (32.4) | 406.9 | 598.5 | 540.5 | ||||||||
Comprehensive loss attributable to non-controlling interest | (0.1) | (10.1) | (0.1) | (2.5) | ||||||||
Comprehensive (loss) income attributable to controlling interest | $ | (32.3) | $ | 417.0 | $ | 598.6 | $ | 543.0 |
See accompanying notes to the condensed consolidated financial statements
SPECTRUM BRANDS HOLDINGS, INC. (formerly HRG, Group, Inc.)INC
Condensed Consolidated Statements of Cash FlowsShareholder’s Equity
For the nine month periodsperiod ended June 30, 2018 and June 30, 2017 2019
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Month Periods Ended | ||||
(in millions) |
| June 30, 2018 |
| June 30, 2017 | ||
Cash flows from operating activities |
|
|
|
|
|
|
Net income |
| $ | 941.6 |
| $ | 249.2 |
Income from discontinued operations, net of tax |
|
| 497.9 |
|
| 295.2 |
Net income (loss) from continuing operations |
|
| 443.7 |
|
| (46.0) |
Adjustments to reconcile net income to net cash from operating activities: |
|
|
|
|
|
|
Depreciation and amortization |
|
| 99.4 |
|
| 94.3 |
Share based compensation |
|
| 6.4 |
|
| 28.5 |
Amortization of debt issuance costs and debt discount |
|
| 16.3 |
|
| 13.2 |
Write-off of unamortized discount and debt issuance costs |
|
| (0.6) |
|
| 2.5 |
Purchase accounting inventory adjustment |
|
| 0.8 |
|
| 0.8 |
Pet safety recall inventory write-off |
|
| 3.6 |
|
| 13.0 |
Dividends from subsidiaries classified as discontinued operations |
|
| 3.1 |
|
| 9.3 |
Deferred tax (benefit) expense |
|
| (497.9) |
|
| 12.1 |
Net changes in operating assets and liabilities |
|
| (223.5) |
|
| (196.7) |
Net cash used by operating activities from continuing operations |
|
| (148.7) |
|
| (69.0) |
Net cash provided by operating activities from discontinued operations |
|
| 92.3 |
|
| 299.2 |
Net cash (used) provided by operating activities |
|
| (56.4) |
|
| 230.2 |
Cash flows from investing activities |
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
| (49.2) |
|
| (51.1) |
Proceeds from sales of property, plant and equipment |
|
| 2.8 |
|
| 3.6 |
Business acquisitions, net of cash acquired |
|
| — |
|
| (304.7) |
Proceeds from sale of insurance operations |
|
| 1,546.8 |
|
| — |
Net asset-based loan repayments |
|
| — |
|
| 29.8 |
Other investing activities, net |
|
| (0.4) |
|
| (1.2) |
Net cash provided (used) by investing activities from continuing operations |
|
| 1,500.0 |
|
| (323.6) |
Net cash used by investing activities from discontinued operations |
|
| (201.8) |
|
| (991.4) |
Net cash provided (used) by investing activities |
|
| 1,298.2 |
|
| (1,315.0) |
Cash flows from financing activities |
|
|
|
|
|
|
Proceeds from issuance of debt |
|
| 555.3 |
|
| 606.9 |
Payment of debt |
|
| (1,007.6) |
|
| (253.9) |
Payment of debt issuance costs |
|
| (0.4) |
|
| (7.0) |
Purchase of subsidiary stock, net |
|
| (288.0) |
|
| (165.9) |
Purchase of non-controlling interest |
|
| — |
|
| (12.6) |
Dividend paid by subsidiary to non-controlling interest |
|
| (28.4) |
|
| (30.3) |
Share based award tax withholding payments, net of proceeds upon vesting |
|
| (24.3) |
|
| (40.7) |
Other financing activities, net |
|
| 20.7 |
|
| 5.5 |
Net cash (used) provided by financing activities from continuing operations |
|
| (772.7) |
|
| 102.0 |
Net cash provided by financing activities from discontinued operations |
|
| 116.2 |
|
| 711.1 |
Net cash (used) provided by financing activities |
|
| (656.5) |
|
| 813.1 |
Effect of exchange rate changes on cash and cash equivalents |
|
| (3.1) |
|
| (1.5) |
Net change in cash and cash equivalents |
|
| 582.2 |
|
| (273.2) |
Net change in cash and cash equivalents in discontinued operations |
|
| 37.7 |
|
| (74.2) |
Net change in cash and cash equivalents in continuing operations |
|
| 544.5 |
|
| (199.0) |
Cash and cash equivalents, beginning of period |
|
| 270.1 |
|
| 465.2 |
Cash and cash equivalents, end of period |
| $ | 814.6 |
| $ | 266.2 |
Supplemental disclosure of cash flow information |
|
|
|
|
|
|
Cash paid for interest |
| $ | 234.7 |
| $ | 207.2 |
Cash paid for taxes |
| $ | 32.7 |
| $ | 28.7 |
Non cash investing activities |
|
|
|
|
|
|
Acquisition of property, plant and equipment through capital leases |
| $ | 5.3 |
| $ | 133.7 |
Accumulated | ||||||||||||||||||||||||||
Additional | Accumulated | Other | Total | Non- | ||||||||||||||||||||||
Nine Month Period Ended June 30, 2019 | Common Stock | Paid-in | Earnings | Comprehensive | Treasury | Shareholders' | controlling | Total | ||||||||||||||||||
(in millions) | Shares | Amount | Capital | (Deficit) | (Loss) Income | Stock | Equity | Interest | Equity | |||||||||||||||||
Balances as of September 30, 2018 | 53.4 | $ | 0.5 | $ | 1,996.7 | $ | (180.1) | $ | (235.8) | $ | — | $ | 1,581.3 | $ | 8.3 | $ | 1,589.6 | |||||||||
Net loss from continuing operations | — | — | — | (29.2) | — | — | (29.2) | 0.2 | (29.0) | |||||||||||||||||
Loss from discontinued operations, net of tax | — | — | — | (83.2) | — | — | (83.2) | — | (83.2) | |||||||||||||||||
Other comprehensive loss, net of tax | — | — | — | — | (11.0) | — | (11.0) | — | (11.0) | |||||||||||||||||
Treasury stock repurchases | (0.3) | — | — | — | — | (18.5) | (18.5) | — | (18.5) | |||||||||||||||||
Restricted stock issued and related tax withholdings | 0.3 | — | 7.5 | (0.2) | — | 3.9 | 11.2 | — | 11.2 | |||||||||||||||||
Share based compensation | — | — | 3.2 | — | — | — | 3.2 | — | 3.2 | |||||||||||||||||
Dividends declared | — | — | — | (22.5) | — | — | (22.5) | — | (22.5) | |||||||||||||||||
Cumulative adjustment for adoption of new accounting standards (Note 2) | — | — | — | (3.2) | — | — | (3.2) | — | (3.2) | |||||||||||||||||
Balances as of December 30, 2018 | 53.4 | 0.5 | 2,007.4 | (318.4) | (246.8) | (14.6) | 1,428.1 | 8.5 | 1,436.6 | |||||||||||||||||
Net loss from continuing operations | — | — | — | (55.0) | — | — | (55.0) | 1.0 | (54.0) | |||||||||||||||||
Income from discontinued operations, net of tax | — | — | — | 783.6 | — | — | 783.6 | — | 783.6 | |||||||||||||||||
Sale and deconsolidation of discontinued operations | — | — | — | — | 21.9 | — | 21.9 | — | 21.9 | |||||||||||||||||
Other comprehensive income, net of tax | — | — | — | — | 2.6 | — | 2.6 | — | 2.6 | |||||||||||||||||
Treasury stock repurchases | (4.6) | — | — | — | — | (250.0) | (250.0) | — | (250.0) | |||||||||||||||||
Restricted stock issued and related tax withholdings | — | — | (0.2) | — | — | 0.4 | 0.2 | — | 0.2 | |||||||||||||||||
Share based compensation | — | — | 10.3 | — | — | — | 10.3 | — | 10.3 | |||||||||||||||||
Dividends declared | — | — | — | (22.6) | — | — | (22.6) | — | (22.6) | |||||||||||||||||
Balances as of March 31, 2019 | 48.8 | 0.5 | 2,017.5 | 387.6 | (222.3) | (264.2) | 1,919.1 | 9.5 | 1,928.6 | |||||||||||||||||
Net loss from continuing operations | — | — | — | (24.7) | — | — | (24.7) | — | (24.7) | |||||||||||||||||
Loss from discontinued operations, net of tax | — | — | — | (1.2) | — | — | (1.2) | — | (1.2) | |||||||||||||||||
Other comprehensive loss, net of tax | — | — | — | — | (6.4) | — | (6.4) | (0.1) | (6.5) | |||||||||||||||||
Restricted stock issued and related tax withholdings | — | — | (1.9) | — | — | 1.2 | (0.7) | — | (0.7) | |||||||||||||||||
Share based compensation | — | — | 9.7 | — | — | — | 9.7 | — | 9.7 | |||||||||||||||||
Dividends declared | — | — | — | (21.2) | — | — | (21.2) | — | (21.2) | |||||||||||||||||
Balances as of June 30, 2019 | 48.8 | $ | 0.5 | $ | 2,025.3 | $ | 340.5 | $ | (228.7) | $ | (263.0) | $ | 1,874.6 | $ | 9.4 | $ | 1,884.0 |
See accompanying notes to the condensed consolidated financial statements
SPECTRUM BRANDS HOLDINGS, LLCINC
Condensed Consolidated Statements of Financial PositionShareholder’s Equity
As of July 1,For the nine month period ended June 30, 2018 and September 30, 2017
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
| July 1, 2018 |
| September 30, 2017 | ||
Assets |
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 146.9 |
| $ | 168.2 |
Trade receivables, net |
|
| 384.2 |
|
| 266.0 |
Other receivables |
|
| 57.7 |
|
| 18.7 |
Inventories |
|
| 546.7 |
|
| 496.3 |
Prepaid expenses and other current assets |
|
| 68.1 |
|
| 54.2 |
Current assets of business held for sale |
|
| 1,913.1 |
|
| 603.0 |
Total current assets |
|
| 3,116.7 |
|
| 1,606.4 |
Property, plant and equipment, net |
|
| 494.2 |
|
| 503.1 |
Deferred charges and other |
|
| 43.7 |
|
| 28.4 |
Goodwill |
|
| 2,269.4 |
|
| 2,277.1 |
Intangible assets, net |
|
| 1,564.8 |
|
| 1,612.0 |
Noncurrent assets of business held for sale |
|
| — |
|
| 1,376.9 |
Total assets |
| $ | 7,488.8 |
| $ | 7,403.9 |
Liabilities and Shareholder's Equity |
|
|
|
|
|
|
Current portion of long-term debt |
| $ | 20.8 |
| $ | 19.4 |
Accounts payable |
|
| 348.0 |
|
| 371.6 |
Accrued wages and salaries |
|
| 41.2 |
|
| 49.9 |
Accrued interest |
|
| 43.3 |
|
| 48.5 |
Other current liabilities |
|
| 123.9 |
|
| 118.9 |
Current liabilities of business held for sale |
|
| 525.3 |
|
| 500.6 |
Total current liabilities |
|
| 1,102.5 |
|
| 1,108.9 |
Long-term debt, net of current portion |
|
| 4,253.5 |
|
| 3,752.3 |
Deferred income taxes |
|
| 315.1 |
|
| 493.2 |
Other long-term liabilities |
|
| 113.2 |
|
| 58.0 |
Noncurrent liabilities of business held for sale |
|
| — |
|
| 156.1 |
Total liabilities |
|
| 5,784.3 |
|
| 5,568.5 |
Commitments and contingencies (Note 17) |
|
|
|
|
|
|
Shareholder's equity |
|
|
|
|
|
|
Other capital |
|
| 2,071.4 |
|
| 2,079.0 |
Accumulated deficit |
|
| (153.3) |
|
| (42.8) |
Accumulated other comprehensive loss, net of tax |
|
| (223.5) |
|
| (209.6) |
Total shareholder's equity |
|
| 1,694.6 |
|
| 1,826.6 |
Noncontrolling interest |
|
| 9.9 |
|
| 8.8 |
Total equity |
|
| 1,704.5 |
|
| 1,835.4 |
Total liabilities and equity |
| $ | 7,488.8 |
| $ | 7,403.9 |
Accumulated | ||||||||||||||||||||||||||
Additional | Other | Total | Non- | |||||||||||||||||||||||
Nine Month Period Ended June 30, 2018 | Common Stock | Paid-in | Accumulated | Comprehensive | Treasury | Shareholders' | controlling | Total | ||||||||||||||||||
(in millions) | Shares | Amount | Capital | Deficit | (Loss) Income | Stock | Equity | Interest | Equity | |||||||||||||||||
Balances as of September 30, 2017 | 200.6 | $ | 2.0 | $ | 1,372.9 | $ | (925.9) | $ | 309.0 | $ | — | $ | 758.0 | $ | 1,188.9 | $ | 1,946.9 | |||||||||
Net income from continuing operations | — | — | — | 40.0 | — | — | 40.0 | 57.2 | 97.2 | |||||||||||||||||
Income from discontinued operations, net of tax | — | — | — | 467.4 | — | — | 467.4 | 14.2 | 481.6 | |||||||||||||||||
Other comprehensive income, net of tax | — | — | — | — | 9.5 | — | 9.5 | 2.5 | 12.0 | |||||||||||||||||
Sale and deconsolidation of HRG - Insurance Operations | — | — | — | — | (445.9) | — | (445.9) | (446.4) | (892.3) | |||||||||||||||||
Purchase of subsidiary stock | — | — | (10.3) | — | 0.6 | — | (9.7) | 1.7 | (8.0) | |||||||||||||||||
Excess of stock options and warrants | 0.1 | — | 1.4 | — | — | — | 1.4 | — | 1.4 | |||||||||||||||||
Restricted stock issued and related tax withholdings | — | — | (3.6) | — | — | — | (3.6) | (2.2) | (5.8) | |||||||||||||||||
Share based compensation | — | — | 3.3 | — | — | — | 3.3 | 2.0 | 5.3 | |||||||||||||||||
Dividend paid by subsidiary to noncontrolling interest | — | — | — | — | — | — | — | (10.7) | (10.7) | |||||||||||||||||
Balances as of December 31, 2017 | 200.7 | 2.0 | 1,363.7 | (418.5) | (126.8) | — | 820.4 | 807.2 | 1,627.6 | |||||||||||||||||
Net loss from continuing operations | — | — | — | (32.6) | — | — | (32.6) | (2.1) | (34.7) | |||||||||||||||||
Income from discontinued operations, net of tax | — | — | — | 3.7 | — | — | 3.7 | 7.6 | 11.3 | |||||||||||||||||
Other comprehensive income, net of tax | — | — | — | — | 7.0 | — | 7.0 | 5.1 | 12.1 | |||||||||||||||||
Purchase of subsidiary stock | — | — | (96.3) | — | (5.5) | — | (101.8) | (148.5) | (250.3) | |||||||||||||||||
Excess of stock options and warrants | 1.5 | 0.1 | 8.6 | — | — | — | 8.7 | — | 8.7 | |||||||||||||||||
Restricted stock issued and related tax withholdings | — | — | (0.7) | — | — | — | (0.7) | — | (0.7) | |||||||||||||||||
Share based compensation | — | — | (4.9) | — | — | — | (4.9) | (3.1) | (8.0) | |||||||||||||||||
Dividend paid by subsidiary to noncontrolling interest | — | — | — | — | — | — | — | (9.1) | (9.1) | |||||||||||||||||
Balances as of March 31, 2018 | 202.2 | 2.1 | 1,270.4 | (447.4) | (125.3) | — | 699.8 | 657.1 | 1,356.9 | |||||||||||||||||
Net income from continuing operations | — | — | — | 382.9 | — | — | 382.9 | 16.0 | 398.9 | |||||||||||||||||
Income from discontinued operations, net of tax | — | — | — | 22.7 | — | — | 22.7 | 11.1 | 33.8 | |||||||||||||||||
Other comprehensive loss, net of tax | — | — | — | — | (15.7) | — | (15.7) | (10.1) | (25.8) | |||||||||||||||||
Purchase of subsidiary stock | — | — | (10.9) | — | (0.8) | — | (11.7) | (18.3) | (30.0) | |||||||||||||||||
Excess of stock options and warrants | 1.0 | — | 10.6 | — | — | — | 10.6 | — | 10.6 | |||||||||||||||||
Restricted stock issued and related tax withholdings | — | — | (1.3) | — | — | — | (1.3) | (0.3) | (1.6) | |||||||||||||||||
Share based compensation | — | — | 1.6 | — | — | — | 1.6 | 0.7 | 2.3 | |||||||||||||||||
Dividend paid by subsidiary to noncontrolling interest | — | — | — | — | — | — | — | (8.7) | (8.7) | |||||||||||||||||
Balances as of June 30, 2018 | 203.2 | $ | 2.1 | $ | 1,270.4 | $ | (41.8) | $ | (141.8) | $ | — | $ | 1,088.9 | $ | 647.5 | $ | 1,736.4 |
See accompanying notes to the condensed consolidated financial statements
SB/RH
SPECTRUM BRANDS HOLDINGS, LLCINC.
Condensed Consolidated Statements of IncomeCash Flows
For the threenine month periods ended June 30, 2019 and nine month periods ended July 1, 2018 and July 2, 2017
(unaudited)
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| Three Month Periods Ended |
| Nine Month Periods Ended | ||||||||
(in millions) |
| July 1, 2018 |
| July 2, 2017 |
| July 1, 2018 |
| July 2, 2017 | ||||
Net sales |
| $ | 945.5 |
| $ | 862.9 |
| $ | 2,358.1 |
| $ | 2,221.6 |
Cost of goods sold |
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| 586.0 |
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| 531.5 |
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| 1,484.5 |
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| 1,339.2 |
Restructuring and related charges |
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| 4.9 |
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| 11.2 |
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| 9.9 |
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| 16.4 |
Gross profit |
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| 354.6 |
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| 320.2 |
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| 863.7 |
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| 866.0 |
Selling |
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| 123.9 |
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| 127.9 |
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| 363.8 |
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| 353.9 |
General and administrative |
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| 66.6 |
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| 57.8 |
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| 180.6 |
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| 181.7 |
Research and development |
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| 6.9 |
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| 7.2 |
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| 21.1 |
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| 20.9 |
Acquisition and integration related charges |
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| 2.3 |
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| 5.2 |
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| 12.0 |
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| 11.6 |
Restructuring and related charges |
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| 20.5 |
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| 10.0 |
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| 59.1 |
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| 14.9 |
Total operating expenses |
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| 220.2 |
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| 208.1 |
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| 636.6 |
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| 583.0 |
Operating income |
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| 134.4 |
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| 112.1 |
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| 227.1 |
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| 283.0 |
Interest expense |
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| 43.6 |
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| 39.8 |
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| 124.2 |
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| 122.0 |
Other non-operating expense, net |
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| 0.7 |
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| 1.4 |
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| 3.5 |
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| 2.3 |
Income from continuing operations before income taxes |
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| 90.1 |
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| 70.9 |
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| 99.4 |
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| 158.7 |
Income tax (benefit) expense |
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| 20.5 |
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| 19.8 |
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| (111.0) |
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| 53.3 |
Net income from continuing operations |
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| 69.6 |
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| 51.1 |
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| 210.4 |
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| 105.4 |
(Loss) income from discontinued operations, net of tax |
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| (9.5) |
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| 28.3 |
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| 32.0 |
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| 99.8 |
Net income |
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| 60.1 |
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| 79.4 |
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| 242.4 |
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| 205.2 |
Net income attributable to non-controlling interest |
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| 0.2 |
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| 1.7 |
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| 1.0 |
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| 1.5 |
Net income attributable to controlling interest |
| $ | 59.9 |
| $ | 77.7 |
| $ | 241.4 |
| $ | 203.7 |
Amounts attributable to controlling interest |
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Net income from continuing operations attributable to controlling interest |
| $ | 69.5 |
| $ | 51.1 |
| $ | 209.5 |
| $ | 105.4 |
Net (loss) income from discontinued operations attributable to controlling interest |
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| (9.6) |
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| 26.6 |
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| 31.9 |
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| 98.3 |
Net income attributable to controlling interest |
| $ | 59.9 |
| $ | 77.7 |
| $ | 241.4 |
| $ | 203.7 |
Nine Month Periods Ended | ||||||
(in millions) | June 30, 2019 | June 30, 2018 | ||||
Cash flows from operating activities | ||||||
Net income | $ | 591.5 | $ | 988.1 | ||
Income from discontinued operations, net of tax | 699.1 | 526.5 | ||||
Net (loss) income from continuing operations | (107.6) | 461.6 | ||||
Adjustments to reconcile net income to net cash from operating activities: | ||||||
Depreciation and amortization | 138.4 | 96.6 | ||||
Share based compensation | 35.8 | 7.0 | ||||
Unrealized loss on investments | 38.2 | — | ||||
Purchase accounting inventory adjustment | — | 0.8 | ||||
Pet safety recall inventory write-off | — | 3.6 | ||||
Amortization of debt issuance costs and debt discount | 8.3 | 15.7 | ||||
Write-off of unamortized discount and debt issuance costs | 36.6 | — | ||||
Dividend from subsidiaries classified as discontinued operations | — | 3.1 | ||||
Deferred tax benefit | (25.2) | (403.5) | ||||
Net changes in operating assets and liabilities | (310.6) | (360.1) | ||||
Net cash used by operating activities from continuing operations | (186.1) | (175.2) | ||||
Net cash (used) provided by operating activities from discontinued operations | (250.4) | 118.8 | ||||
Net cash used by operating activities | (436.5) | (56.4) | ||||
Cash flows from investing activities | ||||||
Purchases of property, plant and equipment | (40.3) | (56.6) | ||||
Proceeds from sales of property, plant and equipment | 0.1 | 2.8 | ||||
Proceeds from sale of discontinued operations, net of cash | 2,854.4 | 1,546.8 | ||||
Other investing activity | (0.2) | (0.5) | ||||
Net cash provided by investing activities from continuing operations | 2,814.0 | 1,492.5 | ||||
Net cash used by investing activities from discontinued operations | (5.4) | (194.3) | ||||
Net cash provided by investing activities | 2,808.6 | 1,298.2 | ||||
Cash flows from financing activities | ||||||
Proceeds from issuance of debt | 54.0 | 556.8 | ||||
Payment of debt, including premium on extinguishment | (2,475.1) | (1,010.6) | ||||
Payment of debt issuance costs | (0.1) | (0.4) | ||||
Treasury stock purchases | (268.5) | — | ||||
Purchases of subsidiary stock, net | — | (288.0) | ||||
Dividends paid to shareholders | (65.1) | — | ||||
Dividends paid by subsidiary to non-controlling interest | — | (28.4) | ||||
Share based award tax withholding payments, net of proceeds upon vesting | (3.3) | (24.3) | ||||
Other financing activities, net | (8.9) | 20.7 | ||||
Net cash used by financing activities from continuing operations | (2,767.0) | (774.2) | ||||
Net cash (used) provided by financing activities from discontinued operations | (2.2) | 117.7 | ||||
Net cash used by financing activities | (2,769.2) | (656.5) | ||||
Effect of exchange rate changes on cash and cash equivalents | (2.9) | (3.1) | ||||
Net change in cash, cash equivalents and restricted cash | (400.0) | 582.2 | ||||
Net change in cash, cash equivalents and restricted cash in discontinued operations | — | 37.7 | ||||
Net change in cash, cash equivalents and restricted cash in continuing operations | (400.0) | 544.5 | ||||
Cash, cash equivalents, and restricted cash, beginning of period | 561.4 | 254.8 | ||||
Cash, cash equivalents, and restricted cash, end of period | $ | 161.4 | $ | 799.3 | ||
Supplemental disclosure of cash flow information | ||||||
Cash paid for interest | $ | 172.1 | $ | 234.7 | ||
Cash paid for taxes | $ | 43.9 | $ | 32.7 | ||
Non cash investing activities | ||||||
Acquisition of property, plant and equipment through capital leases | $ | 2.1 | $ | 3.7 | ||
Non cash financing activities | ||||||
Issuance of shares through stock compensation plan | $ | 26.1 | $ | — |
See accompanying notes to the condensed consolidated financial statements
SB/SB/RH HOLDINGS, LLC
Condensed Consolidated Statements of Comprehensive IncomeFinancial Position
For the threeAs of June 30, 2019, and nine month periods ended July 1,September 30, 2018 and July 2, 2017
(unaudited)
(in millions) | June 30, 2019 | September 30, 2018 | ||||
Assets | ||||||
Cash and cash equivalents | $ | 156.2 | $ | 505.4 | ||
Trade receivables, net | 568.5 | 317.1 | ||||
Other receivables | 128.5 | 95.1 | ||||
Inventories | 718.6 | 583.6 | ||||
Prepaid expenses and other current assets | 60.4 | 62.9 | ||||
Current assets of business held for sale | — | 2,402.6 | ||||
Total current assets | 1,632.2 | 3,966.7 | ||||
Property, plant and equipment, net | 464.9 | 500.0 | ||||
Deferred charges and other | 35.0 | 74.2 | ||||
Investments | 204.7 | — | ||||
Goodwill | 1,451.0 | 1,454.7 | ||||
Intangible assets, net | 1,567.5 | 1,641.8 | ||||
Total assets | $ | 5,355.3 | $ | 7,637.4 | ||
Liabilities and Shareholder's Equity | ||||||
Current portion of long-term debt | $ | 13.8 | $ | 546.9 | ||
Accounts payable | 459.6 | 584.7 | ||||
Accrued wages and salaries | 65.4 | 55.4 | ||||
Accrued interest | 34.7 | 55.0 | ||||
Other current liabilities | 564.0 | 152.3 | ||||
Current liabilities of business held for sale | — | 537.6 | ||||
Total current liabilities | 1,137.5 | 1,931.9 | ||||
Long-term debt, net of current portion | 2,200.1 | 3,686.4 | ||||
Deferred income taxes | 352.1 | 287.0 | ||||
Other long-term liabilities | 75.3 | 120.4 | ||||
Total liabilities | 3,765.0 | 6,025.7 | ||||
Commitments and contingencies (Note 18) |
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Shareholder's equity | ||||||
Other capital | 2,105.8 | 2,073.0 | ||||
Accumulated deficit | (297.8) | (235.5) | ||||
Accumulated other comprehensive loss, net of tax | (228.7) | (235.7) | ||||
Total shareholder's equity | 1,579.3 | 1,601.8 | ||||
Noncontrolling interest | 11.0 | 9.9 | ||||
Total equity | 1,590.3 | 1,611.7 | ||||
Total liabilities and equity | $ | 5,355.3 | $ | 7,637.4 |
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| Three Month Periods Ended |
| Nine Month Periods Ended | ||||||||
(in millions) |
| July 1, 2018 |
| July 2, 2017 |
| July 1, 2018 |
| July 2, 2017 | ||||
Net income |
| $ | 60.1 |
| $ | 79.4 |
| $ | 242.4 |
| $ | 205.2 |
Other comprehensive income (loss) |
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Foreign currency translation (loss) gain |
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| (61.5) |
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| 31.9 |
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| (43.2) |
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| 4.0 |
Deferred tax effect |
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| 2.7 |
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| (1.8) |
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| 6.6 |
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| 1.7 |
Deferred tax valuation allowance |
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| (0.3) |
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| 0.2 |
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| (0.3) |
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| 0.2 |
Net unrealized (loss) gain on foreign currency translation |
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| (59.1) |
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| 30.3 |
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| (36.9) |
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| 5.9 |
Unrealized gain (loss) on derivative instruments |
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Unrealized gain (loss) on hedging activity before reclassification |
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| 40.6 |
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| (44.3) |
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| 21.4 |
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| (11.1) |
Net reclassification for loss (gain) to income from continuing operations |
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| 0.1 |
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| (0.3) |
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| (0.3) |
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| (0.6) |
Net reclassification for loss (gain) to income from discontinued operations |
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| 1.2 |
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| (2.0) |
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| 7.3 |
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| (10.6) |
Unrealized gain (loss) on hedging instruments after reclassification |
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| 41.9 |
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| (46.6) |
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| 28.4 |
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| (22.3) |
Deferred tax effect |
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| (11.5) |
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| 16.4 |
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| (7.8) |
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| 6.6 |
Net unrealized gain (loss) on hedging derivative instruments |
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| 30.4 |
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| (30.2) |
| �� | 20.6 |
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| (15.7) |
Defined benefit pension gain (loss) |
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Defined benefit pension gain (loss) before reclassification |
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| 2.8 |
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| (4.5) |
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| 0.6 |
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| (3.0) |
Net reclassification for loss to income from continuing operations |
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| 0.3 |
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| 0.6 |
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| 0.8 |
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| 1.7 |
Net reclassification for loss to income from discontinued operations |
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| 0.5 |
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| 0.8 |
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| 1.6 |
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| 2.3 |
Defined benefit pension gain (loss) after reclassification |
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| 3.6 |
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| (3.1) |
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| 3.0 |
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| 1.0 |
Deferred tax effect |
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| (0.7) |
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| 0.8 |
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| (0.5) |
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| (0.3) |
Net defined benefit pension gain (loss) |
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| 2.9 |
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| (2.3) |
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| 2.5 |
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| 0.7 |
Net change to derive comprehensive loss for the period |
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| (25.8) |
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| (2.2) |
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| (13.8) |
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| (9.1) |
Comprehensive income |
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| 34.3 |
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| 77.2 |
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| 228.6 |
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| 196.1 |
Comprehensive loss attributable to non-controlling interest |
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| (0.6) |
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| (0.2) |
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| (0.1) |
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| (0.4) |
Comprehensive income attributable to controlling interest |
| $ | 34.9 |
| $ | 77.4 |
| $ | 228.7 |
| $ | 196.5 |
See accompanying notes to the condensed consolidated financial statements
SB/RH HOLDINGS, LLC
CondensedCondensed Consolidated Statements of Cash FlowsIncome
For the three and nine month periodsperiods ended June 30, 2019 and July 1, 2018 and July 2, 2017
(in millions, unaudited)(unaudited)
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| Nine Month Periods Ended | ||||
(in millions) |
| July 1, 2018 |
| July 2, 2017 | ||
Cash flows from operating activities |
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Net income |
| $ | 242.4 |
| $ | 205.2 |
Income from discontinued operations, net of tax |
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| 32.0 |
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| 99.8 |
Income from continuing operations |
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| 210.4 |
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| 105.4 |
Adjustments to reconcile net income to net cash from operating activities: |
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Depreciation and amortization |
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| 99.3 |
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| 94.1 |
Share based compensation |
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| 4.0 |
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| 21.6 |
Amortization of debt issuance costs |
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| 6.0 |
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| 5.4 |
Write-off of unamortized discount and debt issuance costs |
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| — |
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| 2.5 |
Purchase accounting inventory adjustment |
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| 0.8 |
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| 0.8 |
Non-cash debt accretion |
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| 0.7 |
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| 0.6 |
Pet safety recall inventory write-off |
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| 3.6 |
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| 13.0 |
Deferred tax (benefit) expense |
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| (144.0) |
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| 16.7 |
Net changes in operating assets and liabilities |
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| (273.3) |
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| (232.9) |
Net cash (used) provided by operating activities from continuing operations |
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| (92.5) |
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| 27.2 |
Net cash (used) provided by operating activities from discontinued operations |
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| (5.0) |
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| 117.3 |
Net cash (used) provided by operating activities |
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| (97.5) |
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| 144.5 |
Cash flows from investing activities |
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Purchases of property, plant and equipment |
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| (49.2) |
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| (51.1) |
Proceeds from sales of property, plant and equipment |
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| 2.8 |
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| 3.5 |
Business acquisitions, net cash acquired |
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| — |
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| (304.7) |
Other investing activities |
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| (0.4) |
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| (1.1) |
Net cash used by investing activities from continuing operations |
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| (46.8) |
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| (353.4) |
Net cash used by investing activities from discontinued operations |
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| (27.0) |
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| (26.3) |
Net cash used by investing activities |
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| (73.8) |
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| (379.7) |
Cash flows from financing activities |
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Proceeds from issuance of debt |
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| 555.3 |
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| 556.9 |
Payment of debt |
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| (51.0) |
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| (225.0) |
Payment of debt issuance costs |
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| (0.4) |
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| (5.9) |
Purchase of non-controlling interest |
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| — |
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| (12.6) |
Payment of cash dividends to parent |
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| (351.8) |
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| (240.1) |
Net cash provided by financing activities from continuing operations |
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| 152.1 |
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| 73.3 |
Net cash provided by financing activities from discontinued operations |
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| 1.0 |
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| 2.4 |
Net cash provided by financing activities |
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| 153.1 |
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| 75.7 |
Effect of exchange rate changes on cash and cash equivalents |
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| (3.1) |
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| (1.5) |
Net change in cash and cash equivalents |
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| (21.3) |
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| (161.0) |
Cash and cash equivalents, beginning of period |
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| 168.2 |
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| 270.8 |
Cash and cash equivalents, end of period |
| $ | 146.9 |
| $ | 109.8 |
Supplemental disclosure of cash flow information |
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Cash paid for interest |
| $ | 164.2 |
| $ | 138.1 |
Cash paid for taxes |
| $ | 32.7 |
| $ | 28.7 |
Non cash investing activities |
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Acquisition of property, plant and equipment through capital leases |
| $ | 5.3 |
| $ | 133.7 |
Three Month Periods Ended | Nine Month Periods Ended | |||||||||||
(in millions) | June 30, 2019 | July 1, 2018 | June 30, 2019 | July 1, 2018 | ||||||||
Net Sales | $ | 1,022.2 | $ | 1,029.4 | $ | 2,809.2 | $ | 2,834.3 | ||||
Cost of goods sold | 660.7 | 665.2 | 1,835.3 | 1,843.4 | ||||||||
Restructuring and related charges | 0.5 | 1.5 | 1.5 | 3.5 | ||||||||
Gross profit | 361.0 | 362.7 | 972.4 | 987.4 | ||||||||
Selling | 152.1 | 147.1 | 459.1 | 453.3 | ||||||||
General and administrative | 79.3 | 66.9 | 259.8 | 192.1 | ||||||||
Research and development | 10.5 | 10.8 | 32.7 | 33.8 | ||||||||
Restructuring and related charges | 20.2 | 16.4 | 40.7 | 51.9 | ||||||||
Transaction related charges | 4.8 | 5.5 | 16.4 | 20.4 | ||||||||
Total operating expenses | 266.9 | 246.7 | 808.7 | 751.5 | ||||||||
Operating income | 94.1 | 116.0 | 163.7 | 235.9 | ||||||||
Interest expense | 33.7 | 43.4 | 125.2 | 124.0 | ||||||||
Other non-operating expense, net | 39.4 | 2.9 | 64.5 | 6.1 | ||||||||
Income (loss) from continuing operations before income taxes | 21.0 | 69.7 | (26.0) | 105.8 | ||||||||
Income tax expense (benefit) | 49.9 | 23.6 | 34.1 | (102.9) | ||||||||
Net (loss) income from continuing operations | (28.9) | 46.1 | (60.1) | 208.7 | ||||||||
(Loss) income from discontinued operations, net of tax | (1.2) | 27.8 | 699.1 | 60.6 | ||||||||
Net (loss) income | (30.1) | 73.9 | 639.0 | 269.3 | ||||||||
Net income attributable to non-controlling interest | — | 0.2 | 1.2 | 1.2 | ||||||||
Net (loss) income attributable to controlling interest | $ | (30.1) | $ | 73.7 | $ | 637.8 | $ | 268.1 | ||||
Amounts attributable to controlling interest | ||||||||||||
Net (loss) income from continuing operations attributable to controlling interest | $ | (28.9) | $ | 45.9 | $ | (61.3) | $ | 207.5 | ||||
Net (loss) income from discontinued operations attributable to controlling interest | (1.2) | 27.8 | 699.1 | 60.6 | ||||||||
Net (loss) income attributable to controlling interest | $ | (30.1) | $ | 73.7 | $ | 637.8 | $ | 268.1 |
See accompanying notes to the condensed consolidated financial statements
SB/RH HOLDINGS, LLC
Condensed Consolidated Statements of Comprehensive Income
For the three and nine month periods ended June 30, 2019 and July 1, 2018
(unaudited)
Three Month Periods Ended | Nine Month Periods Ended | |||||||||||
(in millions) | June 30, 2019 | July 1, 2018 | June 30, 2019 | July 1, 2018 | ||||||||
Net (loss) income | $ | (30.1) | $ | 73.9 | $ | 639.0 | $ | 269.3 | ||||
Other comprehensive income (loss) | ||||||||||||
Foreign currency translation loss | (0.4) | (61.5) | (18.6) | (43.2) | ||||||||
Deferred tax effect | 0.1 | 2.7 | (4.8) | 6.6 | ||||||||
Deferred tax valuation allowance | — | (0.3) | — | (0.3) | ||||||||
Net unrealized loss on foreign currency translation | (0.3) | (59.1) | (23.4) | (36.9) | ||||||||
Unrealized (loss) gain on derivative instruments | ||||||||||||
Unrealized (loss) gain on hedging activity before reclassification | (6.6) | 40.6 | 16.9 | 21.4 | ||||||||
Net reclassification for (gain) loss to income from continuing operations | (2.5) | 1.8 | (8.2) | 4.0 | ||||||||
Net reclassification for (gain) loss to income from discontinued operations | — | (0.5) | 0.5 | 3.0 | ||||||||
Unrealized (loss) gain on hedging instruments after reclassification | (9.1) | 41.9 | 9.2 | 28.4 | ||||||||
Deferred tax effect | 2.4 | (11.5) | (2.6) | (7.8) | ||||||||
Net unrealized (loss) gain on hedging derivative instruments | (6.7) | 30.4 | 6.6 | 20.6 | ||||||||
Defined benefit pension gain | ||||||||||||
Defined benefit pension gain before reclassification | 0.1 | 2.8 | 0.9 | 0.6 | ||||||||
Net reclassification for loss to income from continuing operations | 0.5 | 0.6 | 1.5 | 1.9 | ||||||||
Net reclassification for loss to income from discontinued operations | — | 0.2 | 0.2 | 0.5 | ||||||||
Defined benefit pension gain after reclassification | 0.6 | 3.6 | 2.6 | 3.0 | ||||||||
Deferred tax effect | (0.1) | (0.7) | (0.7) | (0.5) | ||||||||
Net defined benefit pension gain | 0.5 | 2.9 | 1.9 | 2.5 | ||||||||
Deconsolidation of discontinued operations | — | — | 21.9 | — | ||||||||
Net change to derive comprehensive (loss) income for the period | (6.5) | (25.8) | 7.0 | (13.8) | ||||||||
Comprehensive (loss) income | (36.6) | 48.1 | 646.0 | 255.5 | ||||||||
Comprehensive loss attributable to non-controlling interest | (0.1) | (0.6) | (0.1) | (0.1) | ||||||||
Comprehensive (loss) income attributable to controlling interest | $ | (36.5) | $ | 48.7 | $ | 646.1 | $ | 255.6 |
See accompanying notes to the condensed consolidated financial statements
SB/RH HOLDINGS, LLC
Condensed Consolidated Statements of Shareholder’s Equity
For the nine month periods ended June 30, 2019 and July 1, 2018
(unaudited)
Accumulated | ||||||||||||||||||
Other | Total | Non- | ||||||||||||||||
Other | Accumulated | Comprehensive | Shareholder's | controlling | ||||||||||||||
Nine Month Period Ended June 30, 2019 (in millions) | Capital | Deficit | (Loss) Income | Equity | Interest | Total Equity | ||||||||||||
Balances as of September 30, 2018 | $ | 2,073.0 | $ | (235.5) | $ | (235.7) | $ | 1,601.8 | $ | 9.9 | $ | 1,611.7 | ||||||
Net loss from continuing operations | — | (19.1) | — | (19.1) | 0.2 | (18.9) | ||||||||||||
Loss from discontinued operations, net of tax | — | (83.2) | — | (83.2) | — | (83.2) | ||||||||||||
Other comprehensive loss, net of tax | — | — | (11.1) | (11.1) | — | (11.1) | ||||||||||||
Restricted stock issued and related tax withholdings | 11.3 | — | — | 11.3 | — | 11.3 | ||||||||||||
Share based compensation | 2.8 | — | — | 2.8 | — | 2.8 | ||||||||||||
Dividends paid to parent | — | (30.4) | — | (30.4) | — | (30.4) | ||||||||||||
Cumulative adjustment for adoption of new accounting standards (Note 2) | — | (3.2) | — | (3.2) | — | (3.2) | ||||||||||||
Balances as of December 30, 2018 | 2,087.1 | (371.4) | (246.8) | 1,468.9 | 10.1 | 1,479.0 | ||||||||||||
Net loss from continuing operations | — | (13.4) | — | (13.4) | 1.0 | (12.4) | ||||||||||||
Income from discontinued operations, net of tax | — | 783.6 | — | 783.6 | — | 783.6 | ||||||||||||
Sale and deconsolidation of discontinued operations | — | — | 21.9 | 21.9 | — | 21.9 | ||||||||||||
Other comprehensive income, net of tax | — | — | 2.6 | 2.6 | — | 2.6 | ||||||||||||
Restricted stock issued and related tax withholdings | 0.2 | — | — | 0.2 | — | 0.2 | ||||||||||||
Share based compensation | 9.9 | — | — | 9.9 | — | 9.9 | ||||||||||||
Dividends paid to parent | — | (646.0) | — | (646.0) | — | (646.0) | ||||||||||||
Balances as of March 31, 2019 | 2,097.2 | (247.2) | (222.3) | 1,627.7 | 11.1 | 1,638.8 | ||||||||||||
Net loss from continuing operations | — | (28.9) | — | (28.9) | — | (28.9) | ||||||||||||
Loss from discontinued operations, net of tax | — | (1.2) | — | (1.2) | — | (1.2) | ||||||||||||
Other comprehensive loss, net of tax | — | — | (6.4) | (6.4) | (0.1) | (6.5) | ||||||||||||
Restricted stock issued and related tax withholdings | (0.7) | — | — | (0.7) | — | (0.7) | ||||||||||||
Share based compensation | 9.3 | — | — | 9.3 | — | 9.3 | ||||||||||||
Dividends paid to parent | — | (20.5) | — | (20.5) | — | (20.5) | ||||||||||||
Balances as of June 30, 2019 | $ | 2,105.8 | $ | (297.8) | $ | (228.7) | $ | 1,579.3 | $ | 11.0 | $ | 1,590.3 | ||||||
Accumulated | ||||||||||||||||||
Other | Total | Non- | ||||||||||||||||
Other | Accumulated | Comprehensive | Shareholder's | controlling | ||||||||||||||
Nine Month Period Ended July 1, 2018 (in millions) | Capital | Deficit | (Loss) Income | Equity | Interest | Total Equity | ||||||||||||
Balances as of September 30, 2017 | $ | 2,079.0 | $ | (42.8) | $ | (209.6) | $ | 1,826.6 | $ | 8.8 | $ | 1,835.4 | ||||||
Net income from continuing operations | — | 146.8 | — | 146.8 | 0.9 | 147.7 | ||||||||||||
Income from discontinued operations, net of tax | — | 21.7 | — | 21.7 | — | 21.7 | ||||||||||||
Other comprehensive loss, net of tax | — | — | (0.3) | (0.3) | 0.2 | (0.1) | ||||||||||||
Restricted stock issued and related tax withholdings | (3.9) | — | — | (3.9) | — | (3.9) | ||||||||||||
Share based compensation | 4.4 | — | — | 4.4 | — | 4.4 | ||||||||||||
Dividends paid to parent | — | (24.2) | — | (24.2) | — | (24.2) | ||||||||||||
Balances as of December 31, 2017 | 2,079.5 | 101.5 | (209.9) | 1,971.1 | 9.9 | 1,981.0 | ||||||||||||
Net income from continuing operations | — | 14.8 | — | 14.8 | 0.1 | 14.9 | ||||||||||||
Income from discontinued operations, net of tax | — | 11.3 | — | 11.3 | — | 11.3 | ||||||||||||
Other comprehensive income, net of tax | — | — | 11.8 | 11.8 | 0.3 | 12.1 | ||||||||||||
Restricted stock issued and related tax withholdings | (0.1) | — | — | (0.1) | — | (0.1) | ||||||||||||
Share based compensation | (8.7) | — | — | (8.7) | — | (8.7) | ||||||||||||
Dividends paid to parent | — | (274.4) | — | (274.4) | — | (274.4) | ||||||||||||
Balances as of April 1, 2018 | 2,070.7 | (146.8) | (198.1) | 1,725.8 | 10.3 | 1,736.1 | ||||||||||||
Net income from continuing operations | — | 45.9 | — | 45.9 | 0.2 | 46.1 | ||||||||||||
Income from discontinued operations, net of tax | — | 27.8 | — | 27.8 | — | 27.8 | ||||||||||||
Other comprehensive loss, net of tax | — | — | (25.2) | (25.2) | (0.6) | (25.8) | ||||||||||||
Restricted stock issued and related tax withholdings | (0.9) | — | — | (0.9) | — | (0.9) | ||||||||||||
Share based compensation | 1.6 | — | — | 1.6 | — | 1.6 | ||||||||||||
Dividends paid to parent | — | (53.2) | — | (53.2) | — | (53.2) | ||||||||||||
Balances as of July 1, 2018 | $ | 2,071.4 | $ | (126.3) | $ | (223.3) | $ | 1,721.8 | $ | 9.9 | $ | 1,731.7 |
See accompanying notes to the condensed consolidated financial statements
SB/RH HOLDINGS, LLC
Condensed Consolidated Statements of Cash Flows
For the nine month periods ended June 30, 2019 and July 1, 2018
(unaudited)
Nine Month Periods Ended | ||||||
(in millions) | June 30, 2019 | July 1, 2018 | ||||
Cash flows from operating activities | ||||||
Net income | $ | 639.0 | $ | 269.3 | ||
Income from discontinued operations, net of tax | 699.1 | 60.6 | ||||
Net (loss) income from continuing operations | (60.1) | 208.7 | ||||
Adjustments to reconcile net income to net cash from operating activities: | ||||||
Depreciation and amortization | 138.4 | 96.5 | ||||
Share based compensation | 34.7 | 4.6 | ||||
Unrealized loss on investments | 38.2 | — | ||||
Purchase accounting inventory adjustment | — | 0.8 | ||||
Pet safety recall inventory write-off | — | 3.6 | ||||
Amortization of debt issuance costs and debt discount | 5.0 | 6.7 | ||||
Write-off of unamortized discount and debt issuance costs | 12.7 | — | ||||
Deferred tax benefit | (9.2) | (49.5) | ||||
Net changes in operating assets and liabilities | (331.1) | (390.5) | ||||
Net cash used by operating activities from continuing operations | (171.4) | (119.1) | ||||
Net cash (used) provided by operating activities from discontinued operations | (250.4) | 21.6 | ||||
Net cash used by operating activities | (421.8) | (97.5) | ||||
Cash flows from investing activities | ||||||
Purchases of property, plant and equipment | (40.3) | (56.6) | ||||
Proceeds from sales of property, plant and equipment | 0.1 | 2.8 | ||||
Proceeds from sale of discontinued operations, net of cash | 2,854.4 | — | ||||
Other investing activities | (0.2) | (0.5) | ||||
Net cash provided (used) by investing activities from continuing operations | 2,814.0 | (54.3) | ||||
Net cash used by investing activities from discontinued operations | (5.4) | (19.5) | ||||
Net cash provided (used) by investing activities | 2,808.6 | (73.8) | ||||
Cash flows from financing activities | ||||||
Proceeds from issuance of debt | 54.0 | 556.8 | ||||
Payment of debt, including premium on extinguishment | (2,087.9) | (54.1) | ||||
Payment of debt issuance costs | (0.1) | (0.4) | ||||
Payment of cash dividends to parent | (696.9) | (351.8) | ||||
Other financing | (8.9) | — | ||||
Net cash (used) provided by financing activities from continuing operations | (2,739.8) | 150.5 | ||||
Net cash (used) provided by financing activities from discontinued operations | (2.2) | 2.6 | ||||
Net cash (used) provided by financing activities | (2,742.0) | 153.1 | ||||
Effect of exchange rate changes on cash and cash equivalents | (2.9) | (3.1) | ||||
Net change in cash, cash equivalents and restricted cash | (358.1) | (21.3) | ||||
Cash, cash equivalents, and restricted cash, beginning of period | 514.3 | 183.5 | ||||
Cash, cash equivalents, and restricted cash, end of period | $ | 156.2 | $ | 162.2 | ||
Supplemental disclosure of cash flow information | ||||||
Cash paid for interest | $ | 141.0 | $ | 164.2 | ||
Cash paid for taxes | $ | 43.9 | $ | 32.7 | ||
Non cash investing activities | ||||||
Acquisition of property, plant and equipment through capital leases | $ | 2.1 | $ | 3.7 |
See accompanying notes to the condensed consolidated financial statements
12
SPECTRUM BRANDS HOLDINGS, INC. (formerly HRG, Group, Inc.)
#x200eSB/RH HOLDINGS, LLC
#x200eNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
#x200e(in millions, unaudited)
This report is a combined report of Spectrum Brands Holdings, Inc. (“SBH”, formerly HRG Group, Inc.) 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 - DESCRIPTION OF BUSINESS
On July 13, 2018, subsequent to the period-end date of June 30, 2018 and prior to the issuance of this Quarterly Report, the Company completed the planned Spectrum Merger. Prior to the Spectrum Merger, SBH was a holding company, doing business as HRG Group, Inc. (“HRG”) and conducting its operations principally through its majority owned subsidiary. Effective the date of the Spectrum Merger, management of the organization was assumed by its majority owned subsidiary, Spectrum Brands Holdings, Inc. (“Spectrum”, subsequently renamed Spectrum Brands Legacy, Inc.); resulting in HRG changing its name to SBH and changing the ticker of common stock traded on the New Your Stock Exchange (“NYSE”) from the symbol “HRG” to “SPB”. See Note 4 – Acquisitions for more information pertaining to the Spectrum Merger.
Prior to the Spectrum Merger, the reportable segments consisted of (i) Consumer Products, which represented HRG’s 62.0% controlling interest in Spectrum, and (ii) Corporate and Other, which presented the holding company at HRG and other subsidiaries of HRG. Effective the date of the merger, the manner in which management views its business activities changed to reflect the reporting segments of Spectrum. See Note 18 – Segment Information for further discussion
Spectrum
Spectrum isWe are a diversified global branded consumer products company. SpectrumThe Company manages the business in four vertically integrated, product-focused segments: (i) Hardware & Home Improvement (“HHI”), (ii) Home and Personal Care (“HPC”), (iii) Global Pet Care (“PET”), and (iv) Home and Garden (“H&G”). The Company manufactures, markets and/or distributes its products in approximately 160 countries in the North America (“NA”), Europe, the Middle East & Africa (“EMEA”), Latin America (“LATAM”) and Asia-Pacific (“APAC”) regions through a variety of trade channels, including retailers, wholesalers and distributors, original equipment manufacturers (“OEMs”),and construction companies and hearing aid professionals.companies. We enjoy strong name recognition in our regions underwith our various brands and patented technologies. Our diversified global branded consumer products have positionstechnologies in several product categories and types. Spectrum manages the businesses in vertically integrated, product-focused segments: (i) Global Batteries & Appliances (“GBA”), (ii) Global Pet Supplies (“PET”), (iii) Home and Garden (“H&G”), (iv) Hardware & Home Improvement (“HHI”) and (v) Global Auto Care (“GAC”). 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 or general manager responsible for sales and marketing initiatives and the financial results for all product lines within that segment.
Effective December 29, 2017, Spectrum approved a plan to explore strategic alternatives, including a planned sale of its GBA segment and is expected to be realized by December 31, 2018. As a result, the assets and liabilities associated with GBA have been classified as held for sale in the accompanying Condensed Consolidated Balance Sheets and the respective operations of GBA have been classified as discontinued operations in the accompanying Condensed Consolidated Statements of Income and Statements of Cash Flows; and reported separately for all periods presented as the disposition represents a strategic shift that will have a major effect on the Company’s operations and financial results. See Note 3 – Divestitures for more information on the assets and liabilities classified as held for sale and discontinued operations. See Note 1819 - Segment Information for more information pertaining to Spectrum’s segments of continuing operations. The following table summarizes the respective product types, brands, and regions for each of the segments of continuing operations:
Segment | Products | Brands |
| |||
HHI | Residential Locksets: Residential locksets and door hardware including knobs, levers, deadbolts, handle sets, and electronic and connected keyless entry locks for residential and commercial applications. |
|
| |||
| Home Appliances: Small kitchen appliances including toaster ovens, coffeemakers, slow cookers, blenders, hand mixers, grills, food processors, juicers, toasters, breadmakers, and irons. | Home Appliances: Black & Decker®, Russell Hobbs®, George Foreman®, Toastmaster®, Juiceman®, Farberware®, and Breadman® | ||||
PET | Companion Animal: | Companion Animal: |
| |||
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. |
|
| |||
|
|
|
|
On January 2, 2019, the Company completed the sale of its GBL business pursuant to the GBL acquisition agreement with Energizer Holdings, Inc. (“Energizer”) for cash proceeds of $1,956.2 million, subject to customary purchase price adjustments for working capital and assumed indebtedness, recognition of tax and legal indemnifications under the acquisition agreement and an estimated $200.0 million contingent purchase price adjustment for the settlement of the planned divestiture of the Varta® consumer batteries business by Energizer in accordance with the GBL acquisition agreement. The results of operations and gain on sale for disposal of the GBL business are recognized as a component of discontinued operations.
On January 28, 2019, the Company completed the sale of its GAC business pursuant to the GAC acquisition agreement with Energizer for $938.7 million in cash proceeds and $242.1 million in stock consideration of Energizer common stock, subject to customary purchase price adjustments for working capital and assumed indebtedness, and recognition of tax and legal indemnifications in accordance with the GAC acquisition agreement. The results of operations and write-down of net assets held for sale for the disposal of the GAC business are recognized as a component of discontinued operations.
See Note 3 – Divestitures and Note 17 – Related Party Transactions in Notes to the Condensed Consolidated Financial Statements for more information on the divestitures.
SB/RH Holdings, LLC
SB/RH is a wholly owned subsidiary of Spectrum and ultimately, SBH. SB/RH along with its wholly-owned subsidiary, Spectrum Brands, Inc. (“SBI”) issued, a wholly-owned subsidiary of SB/RH incurred certain debt guaranteed by SB/RH and domestic subsidiaries.subsidiaries of SBI. See Note 11 - Debt for more information pertaining to debt. The reportable segments of SB/RH are consistent with the segments of Spectrum.SBH.
13
10
SPECTRUM BRANDS HOLDINGS, INC.
#x200eSB/RH HOLDINGS, LLC
#x200eNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
#x200e(in millions, unaudited)
NOTE 1 - DESCRIPTION OF BUSINESS (continued)
HRG – Insurance Operations
On November 30, 2017, Fidelity & Guaranty Life (“FGL”), a former majority owned subsidiary of HRG, completed its merger (the “FGL Merger”) with CF Corporation and its related entities (collectively, the “CF Entities”) in accordance with its previously disclosed Agreement and Plan of Merger (the “FGL Merger Agreement”). In addition, pursuant to a share purchase agreement, on November 30, 2017, Front Street Re (Delaware) Ltd., a wholly-owned subsidiary of HRG, sold to the CF Entities (such sale, the “Front Street Sale”) all of the issued and outstanding shares of its former wholly-owned subsidiaries, Front Street Re Cayman Ltd. and Front Street Re Ltd (collectively, “Front Street”, and together with FGL, the “Insurance Operations”). Pursuant to the share purchase agreement, on December 5, 2017, the Company repaid the $92.0 million of notes (such notes, the “HGI Energy Notes”) issued by HGI Energy, which were held directly and indirectly by Front Street and FGL. As a result of the completion of the FGL Merger and the Front Street Sale, HRG no longer has any equity interest in FGL or Front Street and HRG’s former Insurance Operations business is presented as discontinued operations for prior periods. HRG deconsolidated FGL and Front Street as of November 30, 2017. See Note 3 – Divestitures for more information pertaining to the disposition of HRG’s former Insurance Operations business.
HRG - Salus
HRG, through its subsidiary, Salus, uses VIE for securitization activities, in which Salus transfers whole loans into a trust or other vehicle such that the assets are legally isolated from the creditors of Salus. Assets held in a trust can only be used to settle obligations of the trust. The creditors of these trusts typically have no recourse to Salus except in accordance with the obligations under standard representations and warranties. When Salus is the servicer of whole loans held in a securitization trust, Salus has the power to direct the most significant activities of the trust. Salus consolidates a whole-loan securitization trust if it has the power to direct the most significant activities and also holds securities issued by the trust or has other contractual arrangements, other than standard representations and warranties that could potentially be significant to the trust.
NOTE 2 – 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 Spectrum and SBRH historical audited consolidated financial statements and notes included in the SpectrumCompany’s Annual Report on Form 10-K for the year ended September 30, 2017 as revised in Spectrum’s Current Report on Form 8-K dated March 30, 2018 towhich were retroactively adjust foradjusted due to recognition of discontinued operations for the GBAGBL and GAC divestitures and HRG’s Annual Report on Form 10-K forchange in plan to sell the year ended September 30, 2017 as revisedHPC business in HRG’s Current Report onthe Form 8-K dated March 30, 2018 to retroactively adjust for recognition of discontinued operations for the GBA divestitures.issued on April 5, 2019.
HRG’sSBH’s fiscal year ends on September 30 and the quarters endended on the last calendar day of the months of December, March and June. Spectrum’sJune prior to the completion of the Spectrum Merger on July 13, 2018 (See Note 4 – Acquisitions for further detail on the Spectrum Merger). SBH’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 nine month periodsperiod, included within this Quarterly Report for SBH, is June 30, 2019 and June 30, 2018, consistent towith the HRG fiscal calendar and the fiscal period end date for the three and nine month periods included within this Quarter Report for SBRHSB/RH is June 30, 2019 and July 1, 2018, consistent to the Spectrum fiscal calendar. The Company did not adjust for the difference in the fiscal periods between Spectrum and HRG, as such difference would be less than 93 days, pursuant to Regulation S-X Rule 3A-02.
Prior year misstatement
During the fiscal fourth quarter of the year ended September 30, 2018, the Company identified a cumulative out of period error in Income from Discontinued Operations, net of tax, from depreciation on property plant and equipment and amortization of definite-lived intangible assets that was included as part of the GBA disposal group, including both GBL and HPC operations, and recognized as a component of discontinued operations subsequent to being recognized as held for sale effective December 29, 2018. The Company has updated the consolidated financial results for the three and nine month periods ended June 30, 2018, to remove depreciation and amortization of $13.7 million and $27.0 million, respectively, from Income from Discontinued Operations, net of tax. As a result, the GBL divestiture for the three month period ended June 30, 2018 does not include depreciation & amortization from property, plant and equipment, and definite-lived intangible assets. Additionally, in November 2018, the Company made a strategic decision to cease marketing and actively pursuing a sale of the HPC division and to continue to manage and operate the business for continued use. Subsequently, the HPC net assets were reclassified as held for use and the operating results and cash flows are included within the Company’s income from continuing operations for both the three and nine month periods ended June 30, 2019 and 2018. Upon recognition of the Company’s change in plan to sell HPC, the net assets were measured at the carrying amount before HPC was classified as held for sale and adjusted for depreciation and amortization expense that would have been recognized had the business been continuously classified as held and used. There was no impairment or loss recognized when the decision to not sell was made.
Recently IssuedAdopted Accounting Standards
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue“Revenue from Contracts with Customers (Topic 606)”, which supersedes theprovides a single comprehensive model for entities to use in accounting for revenue recognition requirements in ASC 605, Revenue Recognition.arising from contracts with customers. This ASU requires revenue recognition to depict the transfer of goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new revenue recognition model requires identifying the contract and performance obligations, determining the transaction price, allocating the transaction price to performance obligations and recognizing the revenue upon satisfaction of performance obligations. ThisThe Company adopted ASU also requires additional disclosure about2014-09 and all the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assetsrelated amendments on October 1, 2018, using the modified retrospective transition method. The Company recognized from costs incurred to obtain or fulfill a contract. This ASU can be applied either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the updates recognizednew revenue standard as a reduction of $0.7 million, net of tax, to the opening balance of Accumulated Earnings at the datebeginning of the initial application along with additional disclosures. The ASU will become effective for us beginning in the first quarter of our fiscal year ending September 30, 2019. We have performed a preliminary assessment overThe comparative information has not been restated and continues to be reported under the impact of the pronouncement to the Company andaccounting standards in effect for those periods.
The following are currently performing detailed assessments over the contracts with our customers and the impact to our processes and control environment. We have not measured the impact of adoption at this point in our assessment and have not concluded on the overall materiality of the impact of adoptionchanges to the Company’s consolidated financial statementsrevenue recognition accounting policies from those previously disclosed in Note 2 – Significant Accounting Policies and disclosures, or the method of adoption, but have not identified any matters that are considered significant for further disclosure.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes the lease requirements in ASC 840, Leases. This ASU requires lessees to recognize lease assets and liabilities on the balance sheet, as well as disclosing key information about leasing arrangements. Although the new ASU requires both operating and finance leases to be disclosed on the balance sheet, a distinction between the two types still exists as the economics of leases can vary. The ASU can be applied using a modified retrospective approach, with a number of optional practical expedients relating to the identification and classification of leases that commenced before the effective date, along with the ability to use hindsight in the evaluation of lease decisions, that entities may elect to apply. As a result, the ASU will become effective for us beginning in the first quarter of our fiscal year ending September 30, 2020, with early adoption applicable. We have not measured the impact of adoption at this point in our assessment and have not concluded on the overall materiality of the impact of adoptionPractices to the Company’s consolidated financial statements,Annual Report on Form 10-K for year ended September 30, 2018 and Form 8-K issued on April 5, 2019.
Product Sales
Our customers mostly consist of retailers, wholesalers and distributors, and construction companies with the intention to sell and distribute to an end consumer. Spectrum recognizes revenue from the sale of products upon transfer of control to the customer. For the majority of our product sales, the transfer of control is recognized when we ship the product from our facilities to the customer. Timing of revenue recognition for a majority of the Company’s sales continues to be consistent. Previously, the Company deferred recognition of revenue if title and risk of loss were retained upon shipment, but the customer arranged and paid for freight such that they had physical possession and control. Under Topic 606, the Company recognizes revenue at the time of shipment for these transactions. This change did not have a material impact on the Company’s adoption of the new standard on October 1, 2018 or determinedcomparability to revenue in prior periods.
Licensing Revenue
The Company also sells licenses of its brands to third-party sellers and manufacturers for the development, production, sales & distribution of products that are not directly managed or offered by the Company. The Company maintains all right of ownership of the intellectual property and contracts with its customer for the use of the intellectual property in their operations. Under ASC 606, revenue derived from the right-to-access licenses is recognized using the over time revenue recognition method. We elected to recognize revenue under the ‘as-invoiced’ practical expedient method at the amount we are able to bill using a time-elapsed measure of progress. The Company has assessed that recognizing revenue based on a time-elapsed measure of progress, taking into consideration any minimum guarantee provisions under the contract, appropriately depicts its performance of providing access to the Company’s brands, trade names, logos, etc. This change did not have a material impact on the Company’s adoption of the new standard on October 1, 2018 or comparability to revenue recognition in prior periods.
Other Revenue
Other revenue consists primarily of installation or maintenance services that are provided to certain customers in the PET segment. The services are often associated with the sale of product but are also provided separately and timing of adoption.are considered a distinct performance obligation separate from product sales.
14
11
SPECTRUM BRANDS HOLDINGS, INC.
#x200eSB/RH HOLDINGS, LLC
#x200eNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
#x200e(in millions, unaudited)
NOTE 2 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Variable Consideration and Cash Paid to Customers
The Company measures revenue as the amount of consideration for which it expects to be entitled in exchange for transferring goods or providing services. Certain retailers and/or end customers may receive cash or non-cash incentives such as rebates, volume or trade discounts, cooperative advertising, price protection, service level penalties, and other customer-related programs, which are accounted for as variable consideration. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of revenue recognized will not occur when the uncertainty is resolved. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of the anticipated performance and all information (historical, current and forecasted) that is reasonably available. The estimated liability for sales discounts and other programs and allowances is calculated using the expected value method or most likely amount and recorded at the time of sale as a reduction of net sales.
The Company also enters into various arrangements, primarily with retail customers, which require the Company to make upfront cash payments to secure the right to distribute through such customers. The Company capitalizes these payments, provided they are supported by a volume-based arrangement with the retailer with a period of 12 months or longer, and amortizes the associated payment over the appropriate time or volume-based term of the arrangement. Capitalized payments are recognized as a contract asset and are reported in the Consolidated Statements of Financial Position as Deferred Charges and Other Assets and related amortization is treated as a reduction in Net Sales.
Product returns
In the normal course of business, Spectrum may allow customers to return product 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 receive. For the anticipated value of the returns, the adoption of Topic 606 resulted in the recognition of a return asset included in the Prepaid Expenses and Other Current Assets and the returns liability recognized in Other Current Liabilities. The Company recognized an expected returns liability of $40.5 million as of June 30, 2019, most of which the Company does not expect or anticipate a returned asset. Prior to the adoption of Topic 606, the reserve for product returns was recognized net of anticipated value of returned product as a reduction to Trade Receivable, Net on the Company’s Condensed Consolidated Statement of Financial Position and was $34.6 million as of September 30, 2018.
Practical Expedients and Exemptions
The Company accounts for shipping and handling activities which occur after control of the related goods transfers as fulfillment activities instead of assessing such activities as performance obligations. The use of the practical expedient did not impact the accounting for the adoption of Topic 606.
The Company does not adjust the promised amount of consideration for the effects of a significant financing component, as the period between the transfer of a promised good or service to a customer and the customer’s payment for the good or service is one year or less.
The Company does not assess whether promised goods or services are performance obligations if they are immaterial in the context of the contract with the customer.
The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed. The estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period is immaterial.
The Company generally expenses sales commissions and other contract and fulfillment costs when the amortization period is less than one year. The Company records these costs within selling, general and administrative expenses. For costs amortized over a period longer than one year, such asfixtures which are much more permanent in nature, the Company defers and amortizes over the supportable period based upon historical assumptions and analysis. The costs for permanent displays are incorporated into the pricing of product sold to customer.
The Company excludes all sales taxes that are assessed by a governmental authority from the transaction price.
In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments,, which addresses diversity in practice with the classification and presentation of certain cash receipts and cash payments in the statement of cash flows. The amendments in this update address the classification within the statement of cash flow for debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments, contingent payments made after a business combination, proceeds from the settlement of insurance claims and corporate-owned life insurance policies, distributions received from equity method investees, and beneficial interests in securitization transactions, among other separately identifiable cash flows when applying the predominance principle. The Company retrospectively adopted ASU is applied2016 -15 on October 1, 2018. The adoption of this standard did not have a retrospective basis, and will become effective for us beginning in the first quarter of our fiscal year ending September 30, 2019; with early adoption available. We are currently assessing thematerial impact this pronouncement will have on the consolidated financial statements of the Company and have not yet concluded on the materiality or timing of adoption.statements.
In November 2016, the FASB issued ASU No. 2016-18, Restricted Cash,, which addresses diversity in practice with the classification and presentation of restricted cash in the statement of cash flow, classifying transfers between cash and restricted cash as operating, investing, or financing activities, or as a combination of those activities, in the statement of cash flows. The amendment requires the statement of cash flows to explain the change during the period in total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents; and include with cash and cash equivalents when reconciling the beginning-of-period and end-of-period amounts shown on the statement of cash flows. The Company retrospectively adopted ASU is applied2016-18 on October 1, 2018. The Company does not have any restricted cash on the Condensed Consolidated Statement of Financial Position as of June 30, 2019; however, the Company had $8.9 million of restricted cash included in Prepaid Expenses and Other Current Assets on the Condensed Consolidated Statement of Financial Position as of September 30, 2018 that primarily consisted of funds held in escrow for a retrospective basis,contingent payment related to our PetMatrix acquisition that was subsequently paid during the current quarter. Restricted cash and will become effective for us beginningchanges in restricted cash have been reflected in the first quarterCompany’s Condensed Consolidated Statements of our fiscal year ending SeptemberCash Flows for the nine month periods ended June 30, 2019; with early adoption available. We are currently assessing the impact this pronouncement will have on the consolidated financial statements of the Company2019 and have not yet concluded on the materiality or timing of adoption.2018.
In March 2017, the FASB issued ASU No. 2017-07, Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,, which requires an employer to disaggregate the service cost component from the other components of net periodic pension costs within the statement of income. The amendment provides guidance requiring the service cost component to be recognized consistent with other compensation costs arising from service rendered by employees during the period, and all other components to be recognized separately outside of the subtotal of income from operations. Due to the adoption of ASU No. 2017-07, the components of net periodic benefit cost other than the service cost component are recognized as Other Non-Operating (Income) Expense, Net on the Statement of Income. The adoption of ASU No. 2017-07 requires a retrospective restatement of prior periods, which was inconsequential to the Company’s Condensed Consolidated Statement of Income. See Note 14 Employee Benefits Plan for further detail on the components of net periodic costs.
15
SPECTRUM BRANDS HOLDINGS, INC.
#x200eSB/RH HOLDINGS, LLC
#x200eNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
#x200e(in millions, unaudited)
NOTE 2 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
In January 2016, the FASB issued ASU No. 2016-01 Financial Instruments-Overall. This new standard enhances the reporting model for financial instruments regarding certain aspects of recognition, measurement, presentation, and disclosure. The provisions of this ASU are effective for annual reporting periods beginning after December 15, 2017, and interim reporting periods within those annual periods. This ASU is to be applied onusing a retrospective basis, and will become effective for uscumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The Company adopted this ASU in the first quarter of fiscal 2019. The adoption of this ASU did not have a material impact on the Company's consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-16“Intra-Entity Transfers of Assets Other Than Inventory”, which eliminates the exception of recognizing, at the time of transfer, current and deferred income taxes for intra-entity asset transfers other than inventory. Upon adoption of ASU 2016-16, the Company recognized the tax expense from the sale of that asset in the seller’s tax jurisdiction when the transfer occurred, even though the pre-tax effects of that transaction are eliminated in consolidation. Any deferred tax asset that arose in the buyer’s jurisdiction was also recognized at the time of the transfer. Modified retrospective adoption was required with any cumulative-effect adjustment recorded to retained earnings as of the beginning of the period of adoption. The cumulative-effect adjustment consisted of the net impact from (1) the write-off of any unamortized tax expense previously deferred and (2) recognition of any previously unrecognized deferred tax assets, net of any necessary valuation allowances. The Company implemented this ASU on October 1, 2018. During the fiscal second quarter ended March 31, 2019, the Company identified an error in the impact from adoption on the Company’s deferred tax assets of $30.7 million, impacting the cumulative impact from adoption recognized. The Company concluded that the misstatement was not material to the consolidated financial statements and corrected the cumulative adoption at the beginning of the fiscal year ending September 30, 2019;2019 in the Company’s Condensed Consolidated Statement of Shareholders’ Equity. Effectively, the cumulative impact arising from the adoption was a decrease to Accumulated Earnings as of October 1, 2018 of $2.4 million. The impact of the adoption of this standard on future periods is dependent on future asset transfers, which generally occur in connection with early adoption available.acquisitions and other business restructuring activities.
Recently Issued Accounting Standards
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes the lease requirements in ASC 840, Leases. This ASU requires lessees to recognize lease assets and liabilities on the balance sheet, as well as to disclose key information about leasing arrangements. Although the new ASU requires both operating and finance leases to be disclosed on the balance sheet, a distinction between the two types still exists as the economics of leases can vary. The ASU can be applied using a modified retrospective approach, with a number of optional practical expedients relating to the identification and classification of leases that commenced before the effective date, along with the ability to use hindsight in the evaluation of lease decisions, that entities may elect to apply. The Company will adopt ASU 2016-02 utilizing the modified retrospective transition method through a cumulative-effect adjustment at the beginning of its first quarter of 2020. We have performed a preliminary assessment of the impact of the pronouncement to the Company’s financial statements and are currently assessingperforming detailed assessments over identified lease arrangements and the impact to our processes and control environment. We have not measured the impact of adoption at this pronouncement will have on the consolidated financial statements of the Companypoint in our assessment and have not yet concluded on the overall materiality of the adoption.impact of adoption to the Company’s consolidated financial statements.
In August 2017, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities (Topic 815), which changes the designation and measurement guidance for qualifying hedging relationships and presentation of hedge results. The amendments in this update make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP, better aligning the entity’s risk management activities and financial reporting for hedging relationships. The ASU can only be applied prospectively, and will become effective for us beginning in the first quarter of our fiscal year ending September 30, 2020; with early adoption available. We are currently assessing the impact this pronouncement will have on the consolidated financial statements of the Company and have not yet concluded on the materiality or timing of the adoption.
DuringTransaction related charges
Transaction related charges consist of transaction costs from (1) qualifying acquisition transactions associated with the completion of the purchase of net assets or equity interest of a business such as a business combination, equity investment, joint venture or purchase of non-controlling interest; (2) subsequent integration related project costs directly associated with an acquired business including costs for integration of acquired operations into the Company’s shared service platforms, termination of redundant positions and locations, employee transition costs, integration related professional fees and other post business combination expenses; and (3) divestiture support and separation costs consisting of incremental costs incurred by the continuing operations after completion of the transaction to facilitate separation of shared operations, development of transferred shared service operations, platforms and personnel transferred under the transaction. Divestiture-related charges prior to completion of the transaction are recognized as a component of Income from Discontinued Operations, net of tax. Transaction costs include, but are not limited to, banking, advisory, legal, accounting, valuation, and other professional fees directly related to the respective transactions. Additionally, transaction related charges include costs attributable to the plan to market and sell the HPC operations that was subsequently classified as continuing operations for all periods presented. See Note 3 – Divestitures and Note 17 – Related Party Transactions for more information. The following table summarizes transaction related charges incurred by the Company during the three and nine month periodperiods ended December 31, 2017, the Company adopted SEC Staff Accounting Bulletin No. 118 to address the applicationJune 30, 2019 and 2018:
Three Month Periods Ended | Nine Month Periods Ended | |||||||||||
(in millions) | June 30, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 | ||||||||
HHI integration | $ | — | $ | 0.9 | $ | 0.9 | $ | 5.5 | ||||
PetMatrix integration | — | 0.8 | — | 4.5 | ||||||||
HPC divestiture | 0.6 | 2.4 | 6.1 | 7.8 | ||||||||
GBL post divestiture separation | 3.3 | — | 5.8 | — | ||||||||
GAC post divestiture separation | — | — | 0.4 | — | ||||||||
Other integration | 0.9 | 1.4 | 3.2 | 2.6 | ||||||||
Total transaction-related charges | $ | 4.8 | $ | 5.5 | $ | 16.4 | $ | 20.4 |
16
SPECTRUM BRANDS HOLDINGS, INC.
#x200eSB/RH HOLDINGS, LLC
#x200eNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
#x200e(in situations when the registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for the transition adjustment for certain income tax effects of the Tax Cuts and Jobs Act. See Note 16 – Income Taxes for additional discussion.millions, unaudited)
NOTE 3 – DIVESTITURES
GBA
As previously discussed in Note 1 - BasisThe following table summarizes the components of Presentation and NatureIncome from Discontinued Operations, Net of Operations, GBA was classified as held for saleTax in the accompanying Condensed Consolidated Balance SheetsStatement of Income for the three and nine month periods ended June 30, 2019 and 2018.
Three Month Periods Ended | Nine Month Periods Ended | |||||||||||
(in millions) | June 30, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 | ||||||||
(Loss) income from discontinued operations before income taxes - GBL | $ | (5.7) | $ | (9.7) | $ | 975.7 | $ | 17.9 | ||||
Income (loss) from discontinued operations before income taxes - GAC | 0.8 | 37.5 | (114.7) | 55.2 | ||||||||
Income from discontinued operations before income taxes - HRG Insurance Operations | — | — | — | 476.4 | ||||||||
(Loss) income from discontinued operations before income taxes | (4.9) | 27.8 | 861.0 | 549.5 | ||||||||
Income tax (benefit) expense from discontinued operations | (3.7) | (6.0) | 161.9 | 23.0 | ||||||||
(Loss) income from discontinued operations, net of tax | (1.2) | 33.8 | 699.1 | 526.5 | ||||||||
Income from discontinued operations, net of tax attributable to noncontrolling interest | — | 11.1 | — | 32.8 | ||||||||
(Loss) income from discontinued operations, net of tax attributable to controlling interest | $ | (1.2) | $ | 22.7 | $ | 699.1 | $ | 493.7 |
GBL
On January 2, 2019, the Company completed the sale of its GBL business pursuant to the GBL acquisition agreement with Energizer for cash proceeds of $1,956.2 million, resulting in a pre-tax gain on sale of $990.6 million, including the estimated settlement of customary purchase price adjustments for working capital and assumed indebtedness, recognition of tax and legal indemnifications under the acquisition agreement and an estimated contingent purchase price adjustment for the settlement of the planned divestiture of the Varta® consumer batteries business by Energizer. The results of operations and gain on sale for disposal of the GBL business are recognized as a component of discontinued operationsoperations.
The GBL acquisition agreement provides for a purchase price adjustment that is contingent upon the completion of the divestiture of the Varta® consumer battery, chargers, portable power and portable lighting business in the accompanyingEMEA region by Energizer, including manufacturing and distribution facilities in Germany. The purchase price adjustment includes a potential downward adjustment equal to 75% of the difference between the divestiture sale price and the target sale price of $600 million, not to exceed $200 million, or a potential upward adjustment equal to 25% of the excess purchase price. On May 29, 2019, Energizer entered into an agreement to sell the Varta® consumer batteries business and, in accordance with the terms and conditions of the GBL acquisition agreement, Spectrum will contribute USD $200.0 million to Energizer in connection with the sale of the Varta® consumer batteries business.
The Company and Energizer have agreed to indemnify each other for losses arising from certain breaches of the GBL acquisition agreement and for certain other matters. Spectrum has agreed to indemnify Energizer for certain liabilities relating to the assets retained by Spectrum, and Energizer has agreed to indemnify Spectrum for certain liabilities assumed by Energizer, in each case as described in the acquisition agreement. The Company has recognized $50.4 million related to indemnifications in accordance with the acquisition agreement.
As of June 30, 2019, the Company has recognized an estimated net settlement payable of $235.4 million in Other Current Liabilities and $18.9 million in Other Long-Term Liabilities on the Company’s Condensed Consolidated Financial Statements associated with the GBL acquisition agreement, including the subsequent settlement of Income. customary purchase price adjustments for working capital and assumed indebtedness, tax and legal indemnifications, contingent purchase price adjustment for the settlement of the planned Varta® consumer batteries business and other agreed-upon funding in accordance with the agreement.
Spectrum and Energizer entered into related agreements that became effective upon the consummation of the acquisition including a customary transition services agreement (“TSA”) and reverse TSA. The TSA and reverse TSA are recognized as a component of continuing operations for periods following the completion of the GBL sale. See Note 17 – Related Party Transactions for additional discussion.
The following table summarizes the assets and liabilities of GBAGBL classified as held for sale as of June 30, 2018 and September 30, 2017.2018.
|
|
|
|
|
|
|
(in millions) |
| June 30, 2018 |
| September 30, 2017 | ||
Assets |
|
|
|
|
|
|
Trade receivables, net |
| $ | 193.5 |
| $ | 260.1 |
Other receivables |
|
| 24.7 |
|
| 24.0 |
Inventories |
|
| 319.9 |
|
| 279.2 |
Prepaid expenses and other current assets |
|
| 39.6 |
|
| 39.7 |
Property, plant and equipment, net |
|
| 193.7 |
|
| 196.8 |
Deferred charges and other |
|
| 15.3 |
|
| 19.3 |
Goodwill |
|
| 344.8 |
|
| 348.9 |
Intangible assets, net |
|
| 781.6 |
|
| 811.9 |
Total assets of business held for sale |
| $ | 1,913.1 |
| $ | 1,979.9 |
Liabilities |
|
|
|
|
|
|
Current portion of long-term debt |
|
| 18.6 |
|
| 17.3 |
Accounts payable |
|
| 227.1 |
|
| 355.9 |
Accrued wages and salaries |
|
| 34.2 |
|
| 37.6 |
Other current liabilities |
|
| 94.7 |
|
| 89.8 |
Long-term debt, net of current portion |
|
| 51.2 |
|
| 51.7 |
Deferred income taxes |
|
| 37.3 |
|
| 38.2 |
Other long-term liabilities |
|
| 62.2 |
|
| 66.2 |
Total liabilities of business held for sale |
| $ | 525.3 |
| $ | 656.7 |
(in millions) | September 30, 2018 | ||
Assets | |||
Trade receivables, net | $ | 99.3 | |
Other receivables | 17.9 | ||
Inventories | 127.8 | ||
Prepaid expenses and other current assets | 23.0 | ||
Property, plant and equipment, net | 160.5 | ||
Deferred charges and other | 13.4 | ||
Goodwill | 226.6 | ||
Intangible assets, net | 304.0 | ||
Total assets of business held for sale | $ | 972.5 | |
Liabilities | |||
Current portion of long-term debt | 6.3 | ||
Accounts payable | 124.1 | ||
Accrued wages and salaries | 25.0 | ||
Other current liabilities | 82.6 | ||
Long-term debt, net of current portion | 45.0 | ||
Deferred income taxes | 20.9 | ||
Other long-term liabilities | 60.6 | ||
Total liabilities of business held for sale | $ | 364.5 |
17
12
SPECTRUM BRANDS HOLDINGS, INC.
#x200eSB/RH HOLDINGS, LLC
#x200eNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
#x200e(in millions, unaudited)
NOTE 3 – DIVESTITURES (continued)
The following table summarizes the components of Income From Discontinued Operations - GBAincome from discontinued operations before income taxes associated with the GBL divestiture in the accompanying Condensed Consolidated Statements of Operations for the three and nine month periods ended June 30, 2019 and 2018 with the close of the GBL divestiture on January 2, 2019.
Three Month Period Ended | Nine Month Period Ended | |||||||||||
(in millions) | June 30, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 | ||||||||
Net sales | $ | — | $ | 187.6 | $ | 249.0 | $ | 645.7 | ||||
Cost of goods sold | — | 118.7 | 164.6 | 410.0 | ||||||||
Gross profit | — | 68.9 | 84.4 | 235.7 | ||||||||
Operating expenses | — | 63.6 | 57.0 | 177.4 | ||||||||
Operating income | — | 5.3 | 27.4 | 58.3 | ||||||||
Interest expense | — | 13.8 | 23.3 | 39.0 | ||||||||
Other non-operating expense, net | — | 1.2 | 0.5 | 1.4 | ||||||||
Loss (Gain) on sale | 5.7 | — | (990.6) | — | ||||||||
Reclassification of accumulated other comprehensive income | — | — | 18.5 | — | ||||||||
(Loss) income from discontinued operations before income taxes | $ | (5.7) | $ | (9.7) | $ | 975.7 | $ | 17.9 |
Beginning in January 2018, the Company ceased the recognition of depreciation and 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Month Periods Ended |
| Nine Month Periods Ended | ||||||||
(in millions) |
| June 30, 2018 |
| June 30, 2017 |
| June 30, 2018 |
| June 30, 2017 | ||||
Net sales |
| $ | 442.0 |
| $ | 441.0 |
| $ | 1,473.2 |
| $ | 1,464.0 |
Cost of goods sold |
|
| 298.1 |
|
| 287.8 |
|
| 982.4 |
|
| 951.5 |
Gross profit |
|
| 143.9 |
|
| 153.2 |
|
| 490.8 |
|
| 512.5 |
Operating expenses |
|
| 137.3 |
|
| 106.2 |
|
| 403.3 |
|
| 336.6 |
Operating income |
|
| 6.6 |
|
| 47.0 |
|
| 87.5 |
|
| 175.9 |
Interest expense |
|
| 14.1 |
|
| 12.7 |
|
| 40.3 |
|
| 37.2 |
Other non-operating expense, net |
|
| 3.7 |
|
| 0.7 |
|
| 4.1 |
|
| 0.6 |
(Loss) income from discontinued operations before income taxes |
|
| (11.2) |
|
| 33.6 |
|
| 43.1 |
|
| 138.1 |
Income tax (benefit) expense |
|
| (1.7) |
|
| 5.3 |
|
| 11.1 |
|
| 38.3 |
Net (loss) income from discontinued operations |
|
| (9.5) |
|
| 28.3 |
|
| 32.0 |
|
| 99.8 |
Net income from discontinued operations attributable to non-controlling interest |
|
| 0.1 |
|
| 1.7 |
|
| 0.1 |
|
| 1.5 |
Net (loss) income from discontinued operations attributable to controlling interest |
| $ | (9.6) |
| $ | 26.6 |
| $ | 31.9�� |
| $ | 98.3 |
amortization of long-lived assets associated with GBL therefore no depreciation and amortization was recognized during the three and nine month periods ended June 30, 2019. For the nine month period ended June 30, 2018, the depreciation and amortization expense of $8.3 million was recognized. Interest expense consists of interest from debt directly held by subsidiaries of the business held for sale, including interest from capital leases, and interest on Term Loans required to be paid down using proceeds received on disposal on sale of a business within 365 days withbusiness. The Company paid down the exceptionTerm Loans after the completion of the GBL divestiture. See Note 11 – Debt for funds used for capital expenditures and acquisitions.further discussion. No impairment loss has beenwas recognized as the fair value or expected proceeds from the disposal of the businesses are anticipatedbusiness were more than the carrying value. During the nine month period ended June 30, 2019, the Company incurred transaction costs of $12.9 million associated with the divestiture, which were recognized as a component of income from discontinued operations. During the three month period ended June 30, 2019, the Company recognized adjustments to be in excessgain on sale for changes to the estimated settlement of customary purchase price adjustment, tax and legal indemnifications, and other agreed-upon funding under the asset carrying values. acquisition agreement.
During the three and nine month periods ended June 30, 2018, the Company incurred transaction costs of $24.3$21.0 million and $49.4$40.4 million, respectively, associated with the divestiture and has been recognized as a component of Income From Discontinued Operations – GBA on the Condensed Consolidated Statements of Income.respectively. Transaction costs arewere expensed as incurred and include fees for investment banking services, legal, accounting, due diligence, tax, valuation and various other services necessary to complete the transactions.transaction. After the completion of the divestiture, the Company incurred incremental costs to facilitate separation of shared operations, development of transferred shared service operations, platforms and personnel transferred under the transaction which have been recognized as Transaction Related Charges as part of continuing operations on the Company’s Condensed Consolidated Statement of Income. See Note 2 – Basis of Presentation & Significant Accounting Policies for further detail.
Energizer Holdings, Inc.GAC
On January 15, 2018 Spectrum entered into a definitive Acquisition Agreement (“Agreement”)28, 2019, the Company completed the sale of its GAC business pursuant to the GAC acquisition agreement with Energizer Holdings, Inc. (“Energizer”) where Energizer will acquire from Spectrum its Global Battery and Lighting (“GBL”) business for an aggregate purchase price of $2.0 billion$938.7 million in cash subject toproceeds and $242.1 million in stock consideration of common stock of Energizer, resulting in the write-down of net assets held for sale of $110.0 million during the nine month period ended June 30, 2019, including the estimated settlement of customary purchase price adjustments.
adjustments for working capital and assumed indebtedness, and recognition of tax and legal indemnifications in accordance with the GAC acquisition agreement. The Agreement provides that Energizer will purchase the equityresults of certain subsidiariesoperations and write-down of Spectrum, and acquire certainnet assets and assume certain liabilities of other subsidiaries used or held for sale for the purposedisposal of the GBL business. GAC business were recognized as a component of discontinued operations.
In the Agreement, Spectrum and Energizer 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, Spectrum will be subject to certain business conduct restrictions with respect to its operation of the GBL business.
SpectrumThe Company and Energizer have agreed to indemnify each other for losses arising from certain breaches of the AgreementGAC acquisition agreement and for certain other matters. In particular, the Spectrum has agreed to indemnify Energizer for certain liabilities relating to the assets retained by Spectrum, and Energizer has agreed to indemnify Spectrum for certain liabilities assumed by Energizer, in each case as described in the Agreement. acquisition agreement.
SpectrumAs of June 30, 2019, the Company has recognized an estimated net settlement receivable of $4.0 million in Non-Trade Receivables on the Company’s Condensed Consolidated Financial Statements associated with GAC acquisition agreement, including the subsequent settlement of customary purchase price adjustments for working capital and assumed indebtedness, tax and legal indemnifications, and other agreed-upon funding in accordance with the agreement.
The Company and Energizer have agreed to enterentered into related agreements ancillary to the GAC acquisition that will becomebecame effective upon the consummation of the acquisition, including a customary transition services agreementTSA and reverse transition servicesTSA, a supply agreement with the Company’s H&G business, as well as a shareholder agreement.
The consummation of the acquisition is subject to certain customary conditions, including, among other things, (i) the absence of a material adverse effect on GBL, (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)TSA 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 Agreement) 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 Agreement. The consummation of the transaction is not subject to any financing condition. On March 29, 2018, the Federal Trade Commission allowed the expiration of the 30-day Hart-Scott-Rodino waiting period, which in effect provides US regulatory approval of the sale. Wereverse TSA are proceeding with other required international regulatory approvals and continue to expect the transaction to be consummated prior to December 31, 2018.
The Agreement also contains certain termination rights, including the right of either party to terminate the Agreement if the consummation of the acquisition has not occurred on or before July 15, 2019 (the “Termination Date”). Further, if the acquisition has not been consummated by the Termination Date and all conditions precedent to Energizer’s obligation to consummate the acquisition have otherwise been satisfied except for one or more of the Antitrust Conditions, then Energizer would be required to pay Spectrum a termination fee of $100 million.
The GBL business isrecognized as a component of GBA, which also includes sharedcontinuing operations and assetsfor periods following the completion of the remaining componentsGAC sale. The supply agreement with the Company’s H&G business is recognized as a component of net sales and continuing operations. Sales from the Company’s H&G segment consisting of the Home and Personal Care (“HPC”) business. Spectrum is actively marketing the HPC business with interested parties for a separate transaction(s) expected to be entered into and consummatedGAC discontinued operations prior to December 31, 2018.the divestiture have been recognized as a component of net sales and continuing operations for all comparable periods. See Note 17 – Related Party Transactions for additional discussion.
18
13
SPECTRUM BRANDS HOLDINGS, INC.
#x200eSB/RH HOLDINGS, LLC
#x200eNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
#x200e(in millions, unaudited)
NOTE 3 – DIVESTITURES (continued)
The following table summarizes the assets and liabilities of GAC classified as held for sale as of September 30, 2018.
(in millions) | September 30, 2018 | ||
Assets | |||
Trade receivables, net | $ | 55.2 | |
Other receivables | 4.1 | ||
Inventories | 72.8 | ||
Prepaid expenses and other current assets | 2.9 | ||
Property, plant and equipment, net | 58.2 | ||
Deferred charges and other | 10.7 | ||
Goodwill | 841.8 | ||
Intangible assets, net | 384.4 | ||
Total assets of business held for sale | $ | 1,430.1 | |
Liabilities | |||
Current portion of long-term debt | 0.4 | ||
Accounts payable | 50.6 | ||
Accrued wages and salaries | 3.2 | ||
Other current liabilities | 13.3 | ||
Long-term debt, net of current portion | 31.5 | ||
Deferred income taxes | 71.6 | ||
Other long-term liabilities | 2.5 | ||
Total liabilities of business held for sale | $ | 173.1 |
The following table summarizes the components of income from discontinued operations before income taxes associated with the GAC divestiture in the accompanying Condensed Consolidated Statements of Operations for the three and nine month periods ended June 30, 2019 and 2018, with the close of the GAC divestiture on January 28, 2019.
Three Month Period Ended | Nine Month Period Ended | |||||||||||
(in millions) | June 30, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 | ||||||||
Net sales | $ | — | $ | 175.2 | $ | 87.7 | $ | 362.4 | ||||
Cost of goods sold | — | 101.3 | 52.5 | 217.8 | ||||||||
Gross profit | — | 73.9 | 35.2 | 144.6 | ||||||||
Operating expenses | — | 35.5 | 35.7 | 87.8 | ||||||||
Operating income (loss) | — | 38.4 | (0.5) | 56.8 | ||||||||
Interest expense | — | 0.5 | 0.7 | 1.5 | ||||||||
Other non-operating expense, net | — | 0.4 | 0.2 | 0.1 | ||||||||
Write-down of assets of business held for sale to fair value less cost to sell | (0.8) | — | 110.0 | — | ||||||||
Reclassification of accumulated other comprehensive income | — | — | 3.3 | — | ||||||||
Income (loss) from discontinued operations before income taxes | $ | 0.8 | $ | 37.5 | $ | (114.7) | $ | 55.2 |
The three and nine month periods ended June 30, 2018, included depreciation and amortization of $4.3 million and $12.1 million, respectively. Beginning in November 2018, the Company ceased the recognition of depreciation and amortization of long-lived assets associated with GAC, resulting in $1.4 million of depreciation and amortization recognized during the nine month period ended June 30, 2019. Interest expense consists of interest from debt directly held by subsidiaries of the business held for sale, including interest from capital leases. During the nine month period ended June 30, 2019, the Company recognized a $110.0 million write-down on net assets held for sale associated with the GAC divestiture attributable to the expected fair value to be realized from the sale, net of transaction costs. During the three month period ended June 30, 2019, the Company recognized adjustments to the write-down on net assets held for sale to fair value less cost to sell for changes to the estimated settlement of customary purchase price adjustments, tax and legal indemnifications, and other agreed-upon funding under the acquisition agreement.
During the nine month period ended June 30, 2019, the Company incurred transaction costs of $8.8 million associated with the divestiture which have been recognized as a component of income from discontinued operations on the Condensed Consolidated Statements of Income. No transaction costs were recognized in component of income from discontinued operations in the current quarter. Transaction costs are expensed as incurred and include fees for investment banking services, legal, accounting, due diligence, tax, valuation and various other services necessary to complete the transactions. After the completion of the divestiture, the Company incurred incremental costs to facilitate separation of shared operations, development of transferred shared service operations, platforms and personnel transferred under the transaction which have been recognized as Transaction Related Charges as part of continuing operations on the Company’s Condensed Consolidated Statement of Income. See Note 2 – Basis of Presentation & Significant Accounting Policies for further detail.
19
SPECTRUM BRANDS HOLDINGS, INC.
#x200eSB/RH HOLDINGS, LLC
#x200eNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
#x200e(in millions, unaudited)
NOTE 3 – DIVESTITURES (continued)
HRG - Insurance Operations
On November 30, 2017, Fidelity and Guaranty Life (“FGL”) completed the FGL Merger pursuant to which, except for certain shares specified in the FGL Merger Agreement, each issued and outstanding share of common stock of FGL was automatically canceled and converted into the right to receive $31.10 in cash, without interest. The total consideration received by HRG Group Inc. (“HRG”) as a result of the completion of the FGL Merger was $1,518.3$1,488.3 million.
Also, on November 30, 2017, Front Street Re (Delaware) Ltd. Sold(“Front Street”) sold to CF Corporation and its related entities (collectively, the CF Entities“CF Entities”) all of the issued and outstanding shares of Front Street for $65 million, which iswas subject to reduction for customary transaction expenses. In addition, $6.5 million of the purchase price was deposited in escrow for a period of 15 months to support any indemnification claims that might be made (if any) by the CF entities.
The operations of FGL were classified as held for sale in the accompanying Condensed Consolidated Statement of Financial Position at September 30, 2017 and as discontinued operations through November 30, 2017 in the accompanying Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Cash Flows.
Additionally, HRG, FS Holdco II Ltd. (“FS Holdco”) and the CF Entities entered into an agreement (the “338 Agreement”) on May 24, 2017 pursuant to which the CF Entities agreed that FS Holdco may, at its option, cause the relevant CF Entity and FS Holdco to make a joint election under Section 338(h)(10) of the Internal Revenue Code of 1986, as amended, with respect to the FGL Merger and the deemed share purchases of FGL’s subsidiaries (the “338 Tax Election”). Pursuant to the 338 Agreement, if FS Holdco elects to make the 338 Tax Election, FS Holdco and/or CF Corporation will be required to make a payment for the election to the other. On March 8, 2018, FS Holdco exercised the 338 Tax Election and the CF Entities were required to pay FS Holdco $26.6 million during the three month period ended June 30, 2018.
The following table summarizes the major categoriescomponents of assets and liabilities of FGL classified as held for saleincome from discontinued operations from discontinued operations from the HRG Insurance Operations divestiture in the accompanying Condensed Consolidated StatementStatements of Financial Position asIncome for the three and nine month periods ended June 30, 2018, with completion of Septemberdivestiture on November 30, 2017.
|
| |||
| Two Months Ended November 30, 2017 | |||
|
| |||
| $ | 6.8 | ||
| 181.9 | |||
| 154.8 | |||
| 35.1 | |||
| 378.6 | |||
Operating costs and | ||||
| 241.3 | |||
Selling, acquisition, operating and general expenses | 52.8 | |||
Amortization of intangibles | 35.8 | |||
Total operating costs and expenses | 329.9 | |||
Operating income | 48.7 | |||
Interest expense and other | 4.0 | |||
Write-down of assets of | ||||
|
| |||
| (14.2) | |||
| 445.9 | |||
| ||||
| 476.4 | |||
| ||||
| ||||
|
|
The following table summarizes the components of Income from Discontinued Operations – HRG Insurance Operations, in the accompanying Condensed Consolidated Statements of Income for the two month period ended November 30, 2017 and the three and nine month periods ended June 30, 2017.
|
|
|
|
|
|
|
|
|
|
|
| Two Months ended |
| Three months ended |
| Nine months ended | |||
(in millions) |
| November 30, 2017 |
| June 30, 2017 |
| June 30, 2017 | |||
Revenues: |
|
|
|
|
|
|
|
|
|
Insurance premiums |
| $ | 6.8 |
| $ | 12.7 |
| $ | 27.0 |
Net investment income |
|
| 181.9 |
|
| 269.4 |
|
| 778.6 |
Net investment gains |
|
| 154.8 |
|
| 102.8 |
|
| 237.5 |
Other |
|
| 35.1 |
|
| 44.0 |
|
| 127.6 |
Total revenues |
|
| 378.6 |
|
| 428.9 |
|
| 1,170.7 |
Operating costs and expenses: |
|
|
|
|
|
|
|
|
|
Benefits and other changes in policy reserves |
|
| 241.3 |
|
| 266.0 |
|
| 575.4 |
Selling, acquisition, operating and general expenses |
|
| 52.8 |
|
| 42.7 |
|
| 109.1 |
Amortization of intangibles |
|
| 35.8 |
|
| 53.5 |
|
| 210.0 |
Total operating costs and expenses |
|
| 329.9 |
|
| 362.2 |
|
| 894.5 |
Operating income |
|
| 48.7 |
|
| 66.7 |
|
| 276.2 |
Interest expense and other |
|
| 4.0 |
|
| 6.1 |
|
| 18.2 |
(Write-down) write-up of assets of business held for sale to fair value less cost to sell |
|
| (14.2) |
|
| (36.1) |
|
| 35.6 |
Reclassification of accumulated other comprehensive income |
|
| 445.9 |
|
| — |
|
| — |
Income from discontinued operations before income taxes |
|
| 476.4 |
|
| 24.5 |
|
| 293.6 |
Income tax expense |
|
| 16.5 |
|
| 16.8 |
|
| 98.2 |
Net income from discontinued operations |
|
| 459.9 |
|
| 7.7 |
|
| 195.4 |
Net income from discontinued operations attributable to non-controlling interest |
|
| 5.4 |
|
| 4.1 |
|
| 31.6 |
Net income from discontinued operations attributable to controlling interest |
| $ | 454.5 |
| $ | 3.6 |
| $ | 163.8 |
14
NOTE 3 – DIVESTITURES (continued)
Property, Plant, and Equipment and long-lived assets classified as held for sale arewere measured at the lower of their carrying value or fair value less cost to sell. As of September 30, 2017, the carrying value of HRG’s interest in FGL and Front Street exceeded their respective estimated fair value less cost to sell by $402.2 million and $19.0 million, respectively. The higher carrying value of FGL was primarily due to the increase in unrealized gains, net of offsets in FGL’s investment portfolio, with the effects of the unrealized gains, net of offsets, being recorded in accumulated other comprehensive income. Upon the completion of the FGL Merger, HRG deconsolidated its ownership interest in FGL, which resulted in the reclassification of $445.9 million of accumulated other comprehensive income attributable from FGL to income from discontinued operations duringin the nine months ended June 30,fiscal year 2018. Additionally, subsequent toafter the close of the FGL Merger, the Company recognized a $5.9 million tax benefit allocated to HRG insurance operations discontinued operations during the three month period ended June 30,third quarter of fiscal year 2018, associated with the reversal of valuation allowance realized with the completion of the Spectrum Merger.
20
SPECTRUM BRANDS HOLDINGS, INC.
#x200eSB/RH HOLDINGS, LLC
#x200eNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
#x200e(in millions, unaudited)
NOTE 3 – DIVESTITURES (continued)
HPC
In December 2017, the Company entered into a plan to divest its HPC division as a component of its GBA business, and was actively marketing the HPC business, including discussions with third parties for the potential sale of the HPC business. As a result, the HPC business met the criteria for recognition as assets held for sale and was reported as held for sale and included as a component of discontinued operations. Subsequently, in November 2018, the Company made a strategic decision to cease pursuing a sale of the HPC division and to continue to manage and operate the business for continued use. As a result, the HPC net assets were reclassified as held for use and the operating results and cash flows are included within the Company’s income from continuing operations for both the three and nine month periods ended June 30, 2019 and 2018. Upon recognition of the Company’s change in plan to sell HPC, the net assets were measured at the carrying amount before HPC was classified as held for sale and adjusted for depreciation and amortization expense that would have been recognized had the business been continuously classified as held and used. There was no impairment or loss recognized when the decision to not sell was made.
Amounts previously reported as discontinued operations for the three and nine month periods ended June 30, 2018 have been reclassified as part of the Company’s income from continuing operations and assets held for use to conform with the current period. The following tables summarize the effect of the change in plan to sell the HPC business and reclassification of the GAC business to discontinued operations on the previously reported condensed consolidated statements of income for the three and nine month periods ended June 30, 2018.
Three Months Period Ended June 30, 2018 | |||||||||||||||
(in millions) | As Previously Reported | Effect of HPC Reclassification From Held For Sale to Held and Used | After HPC Reclassification | Effect of GAC Reclassification From Held and Used to Held For Sale | After GAC Reclassification | ||||||||||
Net sales | $ | 945.5 | $ | 254.4 | $ | 1,199.9 | $ | 170.5 | $ | 1,029.4 | |||||
Cost of goods sold | 590.9 | 172.4 | 763.3 | 96.6 | 666.7 | ||||||||||
Gross profit | 354.6 | 82.0 | 436.6 | 73.9 | 362.7 | ||||||||||
Operating expenses | 228.3 | 63.1 | 291.4 | 35.5 | 255.9 | ||||||||||
Operating income | 126.3 | 18.9 | 145.2 | 38.4 | 106.8 | ||||||||||
Interest expense | 63.5 | 0.3 | 63.8 | 0.5 | 63.3 | ||||||||||
Other non-operating (income) expense, net | (2.3) | 1.5 | (0.8) | 0.4 | (1.2) | ||||||||||
Income from operations before income taxes | $ | 65.1 | $ | 17.1 | $ | 82.2 | $ | 37.5 | $ | 44.7 |
Nine Months Period Ended June 30, 2018 | |||||||||||||||
(in millions) | As Previously Reported | Effect of HPC Reclassification From Held For Sale to Held and Used | After HPC Reclassification | Effect of GAC Reclassification From Held and Used to Held For Sale | After GAC Reclassification | ||||||||||
Net sales | $ | 2,358.1 | $ | 827.5 | $ | 3,185.6 | $ | 351.3 | $ | 2,834.3 | |||||
Cost of goods sold | 1,494.4 | 559.2 | 2,053.6 | 206.7 | 1,846.9 | ||||||||||
Gross profit | 863.7 | 268.3 | 1,132.0 | 144.6 | 987.4 | ||||||||||
Operating expenses | 682.9 | 202.7 | 885.6 | 87.8 | 797.8 | ||||||||||
Operating income | 180.8 | 65.6 | 246.4 | 56.8 | 189.6 | ||||||||||
Interest expense | 206.6 | 1.3 | 207.9 | 1.5 | 206.4 | ||||||||||
Other non-operating (income) expense, net | (4.6) | 2.7 | (1.9) | 0.1 | (2.0) | ||||||||||
(Loss) income from operations before income taxes | $ | (21.2) | $ | 61.6 | $ | 40.4 | $ | 55.2 | $ | (14.8) |
During the first quarter of fiscal year 2019, the Company recognized $29.0 million of incremental depreciation and amortization expenses included in General and Administrative Expenses on the Company’s Condensed Consolidated Statements of Income associated with long-lived assets that had ceased depreciating or amortizing during the period in which the assets were held for sale in order to reflect the carrying value of HPC net assets as if they had been held for use during that period.
21
SPECTRUM BRANDS HOLDINGS, INC.
#x200eSB/RH HOLDINGS, LLC
#x200eNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
#x200e(in millions, unaudited)
NOTE 4 – ACQUISITIONS
Spectrum Merger
Effective July 13, 2018, subsequent to the fiscal period end date of June 30, 2018 and prior to the issuance of this Quarterly Report, the Company completed the planned Spectrum Merger. Prior to the Spectrum Merger, the Company was a holding company, doing business as HRG and conducting its operations principally through its majority owned subsidiaries.
In accordance with the Agreement and Plan of Merger (the “Merger Agreement”), HRG, through, HRG SPV Sub I, Inc., a Delaware corporation and direct wholly owned subsidiary of HRG (“Merger Sub”), merged with and into Spectrum, with Spectrum continuing as a wholly owned subsidiary of HRG. The certificate of incorporation of HRG was amended and restated, pursuant to which, among other things, the corporate name of HRG was changed to “Spectrum Brands Holdings, Inc.”, the Board of Directors of Spectrum were designated as the Board of Directors of the Company with an individual to be designated by Leucadia National CorporationJefferies Financial Group (“Leucadia”Jefferies”) and the officers of Spectrum became officers of the Company.SBH. Further, HRG will subsequently operatebegan operating under the name of Spectrum Brands Holdings, Inc. and the NYSE tickticker symbol of HRG Common Stock will bechanged to “SPB”.
Immediately prior to the close of the Spectrum Merger, each issued and outstanding share of HRG common stock was, by means of a reverse stock split, combined into a fraction of a share of HRG Common Stock equal to (i) the number of shares of common stock, par value $0.01 per share, of Spectrum common stock held by HRG and its subsidiaries, adjusted for HRG’s net indebtedness as of closing, certain transaction expenses of HRG that arewere unpaid as of closing and a $200.0 million upward adjustment, divided by (ii) as of immediately prior to the reverse stock split, the number of outstanding shares of HRG common stock on a fully-diluted basis. Each share of Spectrum common stock issued and outstanding (other than shares held in treasury of Spectrum or held by HRG) were converted into the right to receive one share of newly issued HRG common stock and exchanged for HRG common stock. The weighted average shares and earnings per share data on the Condensed Consolidated Statements of Income were retrospectively adjusted to reflect the impact of the reverse stock split for all periods presented. See Note 1920 – Earnings Per Share - SBH for further detail on the conversion rate and reverse stock split.
Each restricted stock award, restricted stock unit and performance stock unit granted under an equity plan of Spectrum, whether vested or unvested, were assumed by the CompanySBH and automatically converted into a corresponding equity-based award in the CompanySBH with the right to hold or acquire shares of common stock equal to the number of shares of Spectrum common stock previously underlying such award. Each new award is subject to the same terms and conditions as the corresponding Spectrum award. The Company will assumeSBH assumed all rights and obligations in respect of each equity-based plan of Spectrum. The modification of the Spectrum awards to account for the exchange did not result in incremental expense and the recognized shared based compensation expense associated with the awards are based upon the fair value at the original grant date. See Note 15 – Share Based Compensation for further discussion of Spectrum share based awards.
Prior to the close, each stock option, warrant and restricted stock award granted under an equity-based plan of HRG outstanding and unvested immediately prior to the closing became fully vested and each stock option and warrant became exercisable. Each exercisable award that is unexercised shall be adjusted (including to give effect to the reverse stock split) and shall remain outstanding, subject to the same terms and conditions as applied to the corresponding award. Immediately prior to the reverse stock split, each HRG restricted stock award shall become fully vested and be treated as a share of HRG common stock for purposes of the reverse stock split and the Merger. As a result, there are no unvested HRG equity based awards outstanding and all previously unrecognized stock compensation was recognized effective the date of close. See Note 15 – Share Based Compensation for further discussion of HRG share based awards.
The Spectrum Merger will bewas accounted for as an acquisition of a non-controlling interest under Accounting Standard Codification Topic 810-10 byinterest. Prior to completion of the Spectrum Merger, the Company recognized non-controlling interest and income attributable to non-controlling interest in the period subsequentConsolidated Financial Statements of SBH for the minority ownership of Spectrum. Effective July 13, 2018, Spectrum is a wholly owned subsidiary of SBH and all recognized non-controlled interest associated with Spectrum is part of SBH’s shareholder’s equity and income after completion of the Spectrum Merger will be fully recognized as income attributable to the period end datecontrolling interest of June 30, 2018.SBH. As previously discussed, the presentation of the Company’s condensed consolidated financial statements and certain notes to the condensed consolidated financial statements for the fiscal period ended June 30, 2018 have been updated to reflect the presentation of Spectrum’s historical financial statements.
During the three and nine month periods ended June 30, 2018, the Company incurred costs of $3.1 million, and $22.0 million, respectively, associated with the Spectrum Merger. DuringMerger and recognized as General and Administrative Expenses on the three and nine month periods ended June 30, 2017, the Company incurred costsConsolidated Statements of $1.4 million and $4.2 million associated with the Spectrum Merger. At the timeIncome of close, on July 13, 2018, the Company recognized and paid $29.8 million in transaction fees consisting of contingent financial advisors and investment bankers fees, legal costs, and outstanding compensation and bonus payments.
Acquisition & Integration Costs
The following summarizes acquisition and integration related charges, excluding costs associated with the Spectrum Merger previously discussed, for the three and nine month periods ended June 30, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Month Periods Ended |
| Nine Month Periods Ended | ||||||||
(in millions) |
| June 30, 2018 |
| June 30, 2017 |
| June 30, 2018 |
| June 30, 2017 | ||||
HHI Business |
| $ | 0.9 |
| $ | 1.8 |
| $ | 5.5 |
| $ | 5.7 |
PetMatrix |
|
| 0.8 |
|
| 1.7 |
|
| 4.5 |
|
| 2.0 |
Armored AutoGroup |
|
| — |
|
| 0.3 |
|
| 0.6 |
|
| 2.1 |
Other |
|
| 0.6 |
|
| 1.4 |
|
| 1.4 |
|
| 1.8 |
Total acquisition and integration related charges |
| $ | 2.3 |
| $ | 5.2 |
| $ | 12.0 |
| $ | 11.6 |
Acquisition and integration costs include costs directly associated with the completion of the purchase of net assets or equity interest of a business such as a business combination, equity investment, joint venture or purchase of non-controlling interest. Included costs include transactions costs; advisory, legal, accounting, valuation, and other professional fees; and integration of acquired operations onto the Company’s shared service platform and termination of redundant positions and locations.
SBH.
.
1522
SPECTRUM BRANDS HOLDINGS, INC.
#x200eSB/RH HOLDINGS, LLC
#x200eNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
#x200e(in millions, unaudited)
NOTE 5 - RESTRUCTURING AND RELATED CHARGES
PET Rightsizing InitiativeGlobal Productivity Improvement Plan – DuringAt the second quarterstart of the year ended September 30, 2017,2018, the Company implementedannounced a rightsizing initiative within Spectrum’s PET segmentcompany-wide, multi-year program referred to streamline certain operationsas Project Ignite which consists of various restructuring related initiatives to redirect resources and spending to drive growth, identify cost savings and pricing opportunities through standardization and optimization, develop organizational and operating optimization, and reduce operating costs.overall operational complexity across the Company. Since the announcement of the project and subsequent announcement and completion of the Company’s divestitures in GBL and GAC, the project shifted its focus on the development of these initiatives within the Company’s continuing operations, including transitioning the Company in the post-divestiture environment and from the Company’s continuing involvement with Energizer. Refer to Note 3 – Divestitures and Note 17 – Related Party Transactions for further discussion of continuing involvement with Energizer. The initiative includes review of global processes, opportunity spending and organization design and structures; headcount reductions and transfers; and rightsizing the rightsizing ofCompany’s shared operations and commercial business strategy in certain facilities.regions and local jurisdictions; among others. Total cumulative costs incurred associated with this initiativethe project were $38.1 million as of June 30, 2019; with $44.9 million forecasted in the foreseeable future. The project costs are expected to be approximately $16 million, of which $15.3 million has been incurred to date. The balance is anticipated to be incurred through the fiscal year ending September 30, 2018.2022.
HHI Distribution Center Consolidation – During the second quarter of thefiscal year ended September 30, 2017, the Company implemented an initiative within Spectrum’sthe HHI segment to consolidate certain operations and reduce operating costs. The initiative includes headcount reductions and the exit of certain facilities. Total costs associated with the initiative are expected to be approximately $77 million, of which $67.8 million has been incurred to date. The balance is anticipated to be incurred through September 30, 2018.
GAC Business Rationalization Initiatives – During the third quarter of the year ended September 30, 2016, the Company implemented a series of initiatives within Spectrum’s GAC segment to consolidate certain operations and reduce operating costs. These initiatives included headcount reductions and the exit of certain facilities. Total costs associated with these initiatives are expected to be approximately $48 million, of which $43.1 million has been incurred to date. The balance is anticipated to be incurred through September 30, 2018.
Other Restructuring Activities – The Company is entering or may enter into small, less significant initiatives and restructuring activities to reduce costs and improve margins throughout the organization. Individually these activities are not substantial, and occur over a shorter time period (less than 12 months).
The following summarizes restructuring and related charges for the three and nine month periods ended June 30, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Month Periods Ended |
| Nine Month Periods Ended | ||||||||
(in millions) |
| June 30, 2018 |
| June 30, 2017 |
| June 30, 2018 |
| June 30, 2017 | ||||
HHI distribution center consolidation |
| $ | 11.6 |
| $ | 9.0 |
| $ | 40.4 |
| $ | 9.1 |
GAC business rationalization initiative |
|
| 6.3 |
|
| 12.8 |
|
| 13.5 |
|
| 19.8 |
PET rightsizing initiative |
|
| 3.1 |
|
| 2.2 |
|
| 7.1 |
|
| 2.8 |
Other restructuring activities |
|
| 4.4 |
|
| (2.8) |
|
| 8.0 |
|
| (0.4) |
Total restructuring and related charges |
| $ | 25.4 |
| $ | 21.2 |
| $ | 69.0 |
| $ | 31.3 |
Reported as: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
| $ | 4.9 |
| $ | 11.2 |
| $ | 9.9 |
| $ | 16.4 |
Operating expense |
|
| 20.5 |
|
| 10.0 |
|
| 59.1 |
|
| 14.9 |
The following is a summary of restructuring and related charges for the three and nine month periods ended June 30, 2018 and 2017 and cumulative costs for current restructuring initiatives as of June 30, 2018, by cost type:
|
|
|
|
|
|
|
|
|
|
|
| Termination |
| Other |
|
| |||
(in millions) |
| Benefits |
| Costs |
| Total | |||
For the three month period ended June 30, 2018 |
| $ | 1.6 |
| $ | 23.8 |
| $ | 25.4 |
For the three month period ended June 30, 2017 |
|
| 2.4 |
|
| 18.8 |
|
| 21.2 |
For the nine month period ended June 30, 2018 |
|
| 6.8 |
|
| 62.2 |
|
| 69.0 |
For the nine month period ended June 30, 2017 |
|
| 4.5 |
|
| 26.8 |
|
| 31.3 |
Cumulative costs through June 30, 2018 |
|
| 17.8 |
|
| 116.8 |
|
| 134.6 |
Future costs to be incurred |
|
| 0.4 |
|
| 16.0 |
|
| 16.4 |
Termination costs consist of involuntary employee termination benefits and severance pursuant to a one-time benefit arrangement recognized as part of a restructuring initiative. Other costs consist of non-termination type costs related to restructuring initiativesfacilities, including such as incremental costs to consolidate or close facilities, relocate employees, cost to retrain employees to use newly deployed assets or systems, lease termination costs, and redundant or incremental transitional operating costs and customer fines and penalties incurred during transition, among others. Total cumulative costs associated with this initiative was $81.7 million. The project was completed as of December 30, 2018.
Other Restructuring Activities – The Company may enter into small, less significant initiatives and restructuring related activities 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 and related charges for the three and nine month periods ended June 30, 2019 and 2018:
Three Month Periods Ended | Nine Month Periods Ended | |||||||||||
(in millions) | June 30, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 | ||||||||
Global productivity improvement plan | $ | 19.6 | $ | — | $ | 38.1 | $ | — | ||||
HHI distribution center consolidation | — | 11.6 | 2.3 | 40.4 | ||||||||
PET rightsizing initiative | — | 3.1 | — | 7.1 | ||||||||
Other restructuring activities | 1.1 | 3.2 | 1.8 | 7.9 | ||||||||
Total restructuring and related charges | $ | 20.7 | $ | 17.9 | $ | 42.2 | $ | 55.4 | ||||
Reported as: | ||||||||||||
Cost of goods sold | $ | 0.5 | $ | 1.5 | $ | 1.5 | $ | 3.5 | ||||
Operating expense | 20.2 | 16.4 | 40.7 | 51.9 |
The following is a summary of restructuring and related charges for the three and nine month periods ended June 30, 2019 and 2018 and cumulative costs for current restructuring initiatives as of June 30, 2019, by cost type.
Termination | Other | ||||||||
(in millions) | Benefits | Costs | Total | ||||||
For the three month periods ended June 30, 2019 | $ | 4.0 | $ | 16.7 | $ | 20.7 | |||
For the three month periods ended June 30, 2018 | 1.0 | 16.9 | 17.9 | ||||||
For the nine month periods ended June 30, 2019 | 7.6 | 34.6 | 42.2 | ||||||
For the nine month periods ended June 30, 2018 | 6.3 | 49.1 | 55.4 | ||||||
Cumulative costs through June 30, 2019 | 11.4 | 122.1 | 133.5 | ||||||
Future costs to be incurred | 1.1 | 43.8 | 44.9 |
The following is a rollforward of the accrual related to all restructuring and related activities, included within Other Current Liabilities, by cost type for the three and nine month periodsperiod ended June 30, 2018. 2019.
|
|
|
|
|
|
|
|
|
| |||||||||
|
| Termination |
| Other |
|
| Termination | Other | ||||||||||
(in millions) |
| Benefits |
| Costs |
| Total | Benefits | Costs | Total | |||||||||
Accrual balance at September 30, 2017 |
| $ | 7.2 |
| $ | 9.8 |
| $ | 17.0 | |||||||||
Accrual balance at September 30, 2018 | $ | 3.1 | $ | 4.7 | $ | 7.8 | ||||||||||||
Provisions |
|
| 4.4 |
|
| 2.6 |
|
| 7.0 | 5.9 | 13.1 | 19.0 | ||||||
Cash expenditures |
|
| (7.8) |
|
| (8.2) |
|
| (16.0) | (2.5) | (2.9) | (5.4) | ||||||
Non-cash items |
|
| — |
|
| — |
|
| — | (0.5) | (0.1) | (0.6) | ||||||
Accrual balance at June 30, 2018 |
| $ | 3.8 |
| $ | 4.2 |
| $ | 8.0 | |||||||||
Accrual balance at June 30, 2019 | $ | 6.0 | $ | 14.8 | $ | 20.8 |
The following summarizes restructuring and related charges by segment for the three and nine month periods ended June 30, 20182019 and 2017,2018, cumulative costs incurred through June 30, 2018,2019, and future expected costs to be incurred by Spectrum’s segments of continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
| HHI |
| PET |
| H&G |
| GAC |
| Corporate |
| Total | ||||||
For the three month period ended June 30, 2018 |
| $ | 12.0 |
| $ | 3.7 |
| $ | 0.1 |
| $ | 7.6 |
| $ | 2.0 |
| $ | 25.4 |
For the three month period ended June 30, 2017 |
|
| 6.2 |
|
| 2.0 |
|
| — |
|
| 12.8 |
|
| 0.2 |
|
| 21.2 |
For the nine month period ended June 30, 2018 |
|
| 40.8 |
|
| 8.1 |
|
| 0.3 |
|
| 14.7 |
|
| 5.1 |
|
| 69.0 |
For the nine month period ended June 30, 2017 |
|
| 7.7 |
|
| 3.7 |
|
| — |
|
| 19.8 |
|
| 0.1 |
|
| 31.3 |
Cumulative costs through June 30, 2018 |
|
| 68.2 |
|
| 16.3 |
|
| 0.3 |
|
| 44.3 |
|
| 5.5 |
|
| 134.6 |
Future costs to be incurred |
|
| 10.1 |
|
| 0.5 |
|
| — |
|
| 4.5 |
|
| 1.3 |
|
| 16.4 |
(in millions) | HHI | HPC | PET | H&G | Corporate | Total | ||||||||||||
For the three month periods ended June 30, 2019 | $ | 1.1 | 3.2 | 1.5 | 0.4 | 14.5 | 20.7 | |||||||||||
For the three month periods ended June 30, 2018 | 12.0 | 0.2 | 3.7 | 0.1 | 1.9 | 17.9 | ||||||||||||
For the nine month periods ended June 30, 2019 | 4.3 | 4.7 | 6.4 | 1.4 | 25.4 | 42.2 | ||||||||||||
For the nine month periods ended June 30, 2018 | 40.8 | 0.5 | 8.1 | 0.3 | 5.7 | 55.4 | ||||||||||||
Cumulative costs through June 30, 2019 | 84.5 | 5.4 | 7.5 | 2.2 | 33.9 | 133.5 | ||||||||||||
Future costs to be incurred | 1.1 | — | 31.8 | — | 12.0 | 44.9 |
23
16
SPECTRUM BRANDS HOLDINGS, INC.
#x200eSB/RH HOLDINGS, LLC
#x200eNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
#x200e(in millions, unaudited)
NOTE 6 – REVENUE RECOGNITION
The Company generates all of its revenue from contracts with customers. The following table disaggregates our revenue for the three and nine month periods ended
June 30, 2019, by the Company’s key revenue streams, segments and geographic region (based upon destination):
Three Month Period Ended June 30, 2019 | |||||||||||||||
(in millions) | HHI | HPC | PET | H&G | Total | ||||||||||
Product Sales | |||||||||||||||
NA | $ | 335.9 | $ | 98.1 | $ | 153.4 | $ | 200.9 | $ | 788.3 | |||||
EMEA | 0.4 | 95.1 | 53.4 | — | 148.9 | ||||||||||
LATAM | 11.8 | 34.4 | 3.1 | 0.8 | 50.1 | ||||||||||
APAC | 6.2 | 13.7 | 8.9 | — | 28.8 | ||||||||||
Licensing | 0.3 | 2.1 | 1.8 | 0.8 | 5.0 | ||||||||||
Other | — | — | 1.1 | — | 1.1 | ||||||||||
Total Revenue | $ | 354.6 | $ | 243.4 | $ | 221.7 | $ | 202.5 | $ | 1,022.2 |
Nine Month Period Ended June 30, 2019 | |||||||||||||||
(in millions) | HHI | HPC | PET | H&G | Total | ||||||||||
Product Sales | |||||||||||||||
NA | $ | 938.2 | $ | 306.4 | $ | 432.6 | $ | 390.5 | $ | 2,067.7 | |||||
EMEA | 0.6 | 322.7 | 165.9 | — | 489.2 | ||||||||||
LATAM | 33.8 | 101.1 | 9.4 | 3.0 | 147.3 | ||||||||||
APAC | 17.2 | 43.9 | 24.6 | — | 85.7 | ||||||||||
Licensing | 0.9 | 8.2 | 5.2 | 1.4 | 15.7 | ||||||||||
Other | — | — | 3.6 | — | 3.6 | ||||||||||
Total Revenue | $ | 990.7 | $ | 782.3 | $ | 641.3 | $ | 394.9 | $ | 2,809.2 |
On October 1, 2018, the Company adopted Topic 606 applying the modified retrospective method to all contracts that were not completed as of October 1, 2018. Results for reporting periods beginning after October 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period. The adoption of Topic 606 does not have a material impact to its period revenue or net income on an ongoing basis. Refer to Note 2 – Basis of Presentation and Significant Accounting Policies and Procedures for further discussion of the implementation of Topic 606.
NOTE 67 - RECEIVABLES AND CONCENTRATION OF CREDIT RISK
The allowance for uncollectible receivables as of June 30, 20182019, and September 30, 20172018 was $28.6$4.9 million and $23.5$4.2 million, respectively. The Company has a broad range of customers including many large retail outlet chains, three of which exceed 10% of consolidated Net Sales and/or Trade Receivables. These three customers represented 40%36.7% and 39%35.0% of net sales for the three and nine month periods ended June 30, 2019 and 36.7% and 32.7% of net sales for the three and nine month periods ended June 30, 2018, respectively; and 39%42.3% and 38% of net sales for the three and nine month periods ended June 30, 2017; and 29% and 36%37.2% of Trade Receivables at June 30, 20182019 and September 30, 2017,2018, respectively.
NOTE 78 - INVENTORIES
Inventories consist of the following:
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
| ||||||
(in millions) |
| June 30, 2018 |
| September 30, 2017 | June 30, 2019 | September 30, 2018 | ||||||
Raw materials |
| $ | 104.2 |
| $ | 95.7 | $ | 82.8 | $ | 70.3 | ||
Work-in-process |
|
| 44.1 |
|
| 35.5 | 59.0 | 35.3 | ||||
Finished goods |
|
| 398.4 |
|
| 365.1 | 576.8 | 478.0 | ||||
|
| $ | 546.7 |
| $ | 496.3 | $ | 718.6 | $ | 583.6 |
NOTE 89 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
|
|
|
|
|
|
| ||||||
(in millions) |
| June 30, 2018 |
| September 30, 2017 | June 30, 2019 | September 30, 2018 | ||||||
Land, buildings and improvements |
| $ | 148.7 |
| $ | 146.6 | $ | 162.7 | $ | 161.2 | ||
Machinery, equipment and other |
|
| 406.1 |
|
| 380.8 | 519.1 | 489.3 | ||||
Capital leases |
|
| 211.7 |
|
| 210.2 | 197.8 | 199.6 | ||||
Construction in progress |
|
| 37.8 |
|
| 40.4 | 32.1 | 32.3 | ||||
Property, plant and equipment |
| $ | 804.3 |
| $ | 778.0 | $ | 911.7 | $ | 882.4 | ||
Accumulated depreciation |
|
| (309.5) |
|
| (274.1) | (446.8) | (382.4) | ||||
Property, plant and equipment, net |
| $ | 494.8 |
| $ | 503.9 | $ | 464.9 | $ | 500.0 |
Depreciation expense from property, plant and equipment for the three month periods ended June 30, 2019 and 2018 and 2017 was $17.9$19.4 million and $17.3$16.3 million, respectively; and for the nine month periods ended June 30, 2019 and 2018 was $71.8 and 2017 was $55.7$55.5, respectively. During the first quarter of fiscal year 2019 the Company recognized incremental depreciation of $13.5 million attributable to depreciation on property plant and $48.3 million, respectively.equipment of assets of HPC that were previously held for sale. See Note 3 – Divestitures for further discussion of the change in plan to sell the HPC division.
24
SPECTRUM BRANDS HOLDINGS, INC.
#x200eSB/RH HOLDINGS, LLC
#x200eNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
#x200e(in millions, unaudited)
NOTE 910 - GOODWILL AND INTANGIBLE ASSETS
Goodwill Spectrum segments, consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
(in millions) |
| HHI |
| PET |
| H&G |
| GAC |
| Total | HHI | PET | H&G | HPC | Total | |||||||||||||||
As of September 30, 2017 |
| $ | 708.7 |
| $ | 437.1 |
| $ | 196.5 |
| $ | 934.8 |
| $ | 2,277.1 | |||||||||||||||
As of September 30, 2018 | $ | 704.3 | $ | 435.9 | $ | 196.5 | $ | 118.0 | $ | 1,454.7 | ||||||||||||||||||||
Foreign currency impact |
|
| (5.4) |
|
| (1.7) |
|
| — |
|
| (0.6) |
|
| (7.7) | (1.0) | (2.2) | — | (0.5) | (3.7) | ||||||||||
As of June 30, 2018 |
| $ | 703.3 |
| $ | 435.4 |
| $ | 196.5 |
| $ | 934.2 |
| $ | 2,269.4 | |||||||||||||||
As of June 30, 2019 | $ | 703.3 | $ | 433.7 | $ | 196.5 | $ | 117.5 | $ | 1,451.0 |
As a result of the Company’s divestiture of the GBL division and decision to retain the HPC division, the Company reconsidered the way management views its business activities and reportable segments; which also changed the reporting units that the Company utilizes to recognize goodwill. Spectrum had historically recognized goodwill at its Global Batteries and Appliance (GBA) reporting unit and separate operating segment. With the separation of the GBL and HPC components, goodwill previously recognized as part of the GBA reporting unit was allocated to HPC and the GBL discontinued operations, based upon relative fair value, during the first quarter when the decision was made to retain the HPC division and separate HPC assets from the GBL assets. No goodwill impairment was recorded in connection with the GBL divestiture and change to the plan of sale of the HPC division. Refer to Note 3 - Divestitures and Note 19 - Segment information for further discussion.
Certain tradename intangible assets have an indefinite life and are not amortized. The balance of tradenames not subject to amortization was $1,021.8$1,059.6 million and $1,024.3$1,064.4 million as of June 30, 20182019 and September 30, 2017,2018, respectively. There was no impairment loss on indefinite-lived trade names for the three and nine month periods ended June 30, 2018 and 2017.
The carrying value and accumulated amortization for definite lived intangible assets subject to amortization are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
| June 30, 2018 |
| September 30, 2017 | June 30, 2019 | September 30, 2018 | ||||||||||||||||||||||||||||||
(in millions) |
| Gross Carrying Amount |
| Accumulated Amortization |
| Net |
| Gross Carrying Amount |
| Accumulated Amortization |
| Net | Gross Carrying Amount | Accumulated Amortization | Net | Gross Carrying Amount | Accumulated Amortization | Net | ||||||||||||||||||
Customer relationships |
| $ | 668.1 |
| $ | (249.3) |
| $ | 418.8 |
| $ | 671.7 |
| $ | (222.3) |
| $ | 449.4 | $ | 698.9 | $ | (322.1) | $ | 376.8 | $ | 701.3 | $ | (275.3) | $ | 426.0 | ||||||
Technology assets |
|
| 194.6 |
|
| (73.1) |
|
| 121.5 |
|
| 194.6 |
|
| (59.7) |
|
| 134.9 | 181.5 | (88.9) | 92.6 | 181.5 | (78.2) | 103.3 | ||||||||||||
Tradenames |
|
| 5.8 |
|
| (3.1) |
|
| 2.7 |
|
| 18.5 |
|
| (15.1) |
|
| 3.4 | 153.3 | (114.8) | 38.5 | 153.2 | (105.1) | 48.1 | ||||||||||||
Total |
| $ | 868.5 |
| $ | (325.5) |
| $ | 543.0 |
| $ | 884.8 |
| $ | (297.1) |
| $ | 587.7 | $ | 1,033.7 | $ | (525.8) | $ | 507.9 | $ | 1,036.0 | $ | (458.6) | $ | 577.4 |
The range and weighted average useful lives for definite-lived intangible assets are as follows:
|
|
| |||
|
|
| |||
|
|
| |||
|
|
|
Amortization expense from the intangible assets for the three month periods ended June 30, 2019 and 2018 and 2017 was $14.4$16.4 million and $15.6$11.8 million, respectively, andrespectively. Amortization expense from the intangible assets for the nine month periods ended June 30, 2019 and 2018 and 2017 was $43.8$66.6 million and $46.1$41.1 million, respectively. During the nine month period ended June 30, 2019, there was incremental amortization expense of $15.5 million attributable to amortization expense on intangible assets of HPC that were previously held for sale. See Note 3 – Divestitures for further discussion of the change in plan to sell the HPC division.
Excluding the impact of any future acquisitions 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 | Amortization | |||
2018 |
| $ | 57.5 | |||
2019 |
| 57.4 | $ | 67.6 | ||
2020 |
| 55.0 | 67.4 | |||
2021 |
| 49.7 | 65.0 | |||
2022 |
| 48.0 | 56.2 | |||
2023 | 45.7 |
25
17
SPECTRUM BRANDS HOLDINGS, INC.
#x200eSB/RH HOLDINGS, LLC
#x200eNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
#x200e(in millions, unaudited)
NOTE 1011 - DEBT
Debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
|
| SBH |
| SB/RH | SBH | SB/RH | ||||||||||||||||||||||||||||||||||||||||||
|
| June 30, 2018 |
| September 30, 2017 |
| July 1, 2018 |
| September 30, 2017 | June 30, 2019 | September 30, 2018 | June 30, 2019 | September 30, 2018 | ||||||||||||||||||||||||||||||||||||
(in millions) |
| Amount |
| Rate |
| Amount |
| Rate |
| Amount |
| Rate |
| Amount |
| Rate | Amount | Rate | Amount | Rate | Amount | Rate | Amount | Rate | ||||||||||||||||||||||||
Spectrum Brands Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Term Loan, variable rate, due June 23, 2022 |
| $ | 1,234.8 |
| 4.2 | % |
| $ | 1,244.2 |
| 3.4 | % |
| $ | 1,234.8 |
| 4.2 | % |
| $ | 1,244.2 |
| 3.4 | % | $ | — | — | % | $ | 1,231.7 | 4.4 | % | $ | — | — | % | $ | 1,231.7 | 4.4 | % | ||||||||
CAD Term Loan, variable rate, due June 23, 2022 |
|
| 32.4 |
| 5.3 | % |
|
| 59.0 |
| 4.9 | % |
|
| 32.4 |
| 5.3 | % |
|
| 59.0 |
| 4.9 | % | — | — | % | 32.8 | 5.5 | % | — | — | % | 32.8 | 5.5 | % | ||||||||||||
Revolver Facility, variable rate, expiring March 6, 2022 | 54.0 | 4.8 | % | — | — | % | 54.0 | 4.8 | % | — | — | % | ||||||||||||||||||||||||||||||||||||
6.625% Notes, due November 15, 2022 | 285.0 | 6.6 | % | 570.0 | 6.6 | % | 285.0 | 6.6 | % | 570.0 | 6.6 | % | ||||||||||||||||||||||||||||||||||||
6.125% Notes, due December 15, 2024 | 250.0 | 6.1 | % | 250.0 | 6.1 | % | 250.0 | 6.1 | % | 250.0 | 6.1 | % | ||||||||||||||||||||||||||||||||||||
5.75% Notes, due July 15, 2025 | 1,000.0 | 5.8 | % | 1,000.0 | 5.8 | % | 1,000.0 | 5.8 | % | 1,000.0 | 5.8 | % | ||||||||||||||||||||||||||||||||||||
4.00% Notes, due October 1, 2026 |
|
| 491.7 |
| 4.0 | % |
|
| 500.9 |
| 4.0 | % |
|
| 491.7 |
| 4.0 | % |
|
| 500.9 |
| 4.0 | % | 483.2 | 4.0 | % | 494.7 | 4.0 | % | 483.2 | 4.0 | % | 494.7 | 4.0 | % | ||||||||||||
5.75% Notes, due July 15, 2025 |
|
| 1,000.0 |
| 5.8 | % |
|
| 1,000.0 |
| 5.8 | % |
|
| 1,000.0 |
| 5.8 | % |
|
| 1,000.0 |
| 5.8 | % | ||||||||||||||||||||||||
6.125% Notes, due December 15, 2024 |
|
| 250.0 |
| 6.1 | % |
|
| 250.0 |
| 6.1 | % |
|
| 250.0 |
| 6.1 | % |
|
| 250.0 |
| 6.1 | % | ||||||||||||||||||||||||
6.625% Notes, due November 15, 2022 |
|
| 570.0 |
| 6.6 | % |
|
| 570.0 |
| 6.6 | % |
|
| 570.0 |
| 6.6 | % |
|
| 570.0 |
| 6.6 | % | ||||||||||||||||||||||||
Revolver Facility, variable rate, expiring March 6, 2022 |
|
| 545.5 |
| 4.6 | % |
|
| — |
| — | % |
|
| 545.5 |
| 4.6 | % |
|
| — |
| — | % | ||||||||||||||||||||||||
Other notes and obligations |
|
| 3.4 |
| 7.9 | % |
|
| 4.7 |
| 8.0 | % |
|
| 3.4 |
| 7.9 | % |
|
| 4.7 |
| 8.0 | % | 4.7 | 9.8 | % | 7.3 | 9.5 | % | 4.7 | 9.8 | % | 7.3 | 9.5 | % | ||||||||||||
Intercompany note with parent | — | % | — | — | % | — | — | % | 520.0 | 4.3 | % | |||||||||||||||||||||||||||||||||||||
Obligations under capital leases |
|
| 196.9 |
| 5.7 | % |
|
| 199.7 |
| 5.7 | % |
|
| 196.9 |
| 5.7 | % |
|
| 199.7 |
| 5.7 | % | 167.5 | 5.6 | % | 175.1 | 5.5 | % | 167.5 | 5.6 | % | 175.1 | 5.5 | % | ||||||||||||
Total Spectrum Brands, Inc. debt |
|
| 4,324.7 |
|
|
|
|
| 3,828.5 |
|
|
|
|
| 4,324.7 |
|
|
|
|
| 3,828.5 |
|
|
| 2,244.4 | 3,761.6 | 2,244.4 | 4,281.6 | ||||||||||||||||||||
Spectrum Brands Holdings, Inc. (formerly HRG) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
HRG - 7.875% Senior Secured Notes, due July 15, 2019 |
|
| — |
| — | % |
|
| 864.4 |
| 7.9 | % |
|
| — |
| — | % |
|
| — |
| — | % | ||||||||||||||||||||||||
HRG - 7.75% Senior Unsecured Notes, due January 15, 2019 |
|
| 890.0 |
| 7.8 | % |
|
| 890.0 |
| 7.8 | % |
|
| — |
| — | % |
|
| — |
| — | % | ||||||||||||||||||||||||
HGI Funding - 2017 Loan, due July 13, 2018 |
|
| 50.0 |
| 3.7 | % |
|
| 50.0 |
| 3.7 | % |
|
| — |
| — | % |
|
| — |
| — | % | ||||||||||||||||||||||||
HGI Energy - notes due June 30, 2018 |
|
| — |
| — | % |
|
| 92.0 |
| 1.5 | % |
|
| — |
| — | % |
|
| — |
| — | % | ||||||||||||||||||||||||
Spectrum Brands Holdings, Inc. | ||||||||||||||||||||||||||||||||||||||||||||||||
HRG - 7.75% Senior Notes, due January 15, 2022 | — | — | % | 890.0 | 7.8 | % | — | — | % | — | — | % | ||||||||||||||||||||||||||||||||||||
Salus - unaffiliated long-term debt of consolidated VIE |
|
| 76.6 |
| — | % |
|
| 28.9 |
| — | % |
|
| — |
| — | % |
|
| — |
| — | % | 77.0 | — | % | 77.0 | — | % | — | — | % | — | — | % | ||||||||||||
Salus - long term debt of consolidated VIE with FGL |
|
| — |
| — | % |
|
| 48.1 |
| — | % |
|
| — |
| — | % |
|
| — |
| — | % | ||||||||||||||||||||||||
Total SBH debt |
|
| 5,341.3 |
|
|
|
|
| 5,801.9 |
|
|
|
|
| 4,324.7 |
|
|
|
|
| 3,828.5 |
|
|
| 2,321.4 | 4,728.6 | 2,244.4 | 4,281.6 | ||||||||||||||||||||
Unamortized discount on debt |
|
| (20.7) |
|
|
|
|
| (20.7) |
|
|
|
|
| (2.9) |
|
|
|
|
| (3.7) |
|
|
| (0.3) | (19.8) | — | (2.8) | ||||||||||||||||||||
Debt issuance costs |
|
| (60.4) |
|
|
|
|
| (76.1) |
|
|
|
|
| (47.5) |
|
|
|
|
| (53.1) |
|
|
| (32.1) | (57.6) | (30.5) | (45.5) | ||||||||||||||||||||
Less current portion |
|
| (70.8) |
|
|
|
|
| (161.4) |
|
|
|
|
| (20.8) |
|
|
|
|
| (19.4) |
|
|
| (13.8) | (26.9) | (13.8) | (546.9) | ||||||||||||||||||||
Long-term debt, net of current portion |
| $ | 5,189.4 |
|
|
|
| $ | 5,543.7 |
|
|
|
| $ | 4,253.5 |
|
|
|
| $ | 3,752.3 |
|
|
| $ | 2,275.2 | $ | 4,624.3 | $ | 2,200.1 | $ | 3,686.4 |
Spectrum Brands Inc.
The Term Loans and Revolver Facility are subject to variable interest rates, (i) the USD Term Loan is subject to either adjusted LIBOR (International Exchange London Interbank Offered Rate), plus margin of 2.00% per annum, or base rate plus margin of 1.00% per annum, (ii) the CAD Term Loan is subject to either CDOR (Canadian Dollar Offered Rate), subject to a 0.75% floor plus 3.50% per annum, or base rate with a 1.75% floor plus 2.50% per annum, (iii) the Revolver Facility is subject to either adjusted LIBOR plus margin ranging from 1.75% to 2.25% per annum, or base rate plus margin ranging from 0.75% to 1.25% per annum.
On March 28, 2018, the Company entered into a fifth amendment to the Credit Agreement, expanding the overall capacity of the Revolver Facility by $100 million to $800 million. As a result of borrowings and payments under the Revolver Facility, at June 30, 2018, the Company had borrowing availability of $234.5$724.4 million at June 30, 2019, net of outstanding letters of credit of $18.0$20.0 million and $2.0a $1.5 million amount allocated to a foreign subsidiary.
SBH (formerly HRG)On October 31, 2018, the Company repaid its CAD Term Loan in full for $32.6 million of outstanding principal and interest.
On January 16, 2018,4, 2019, the Company repaid its USD Term Loan in full using proceeds received from the divestiture of GBL, recognizing a loss on extinguishment of the debt of $9.0 million within interest expense attributable to a non-cash charge from the write-off of deferred financing costs and original issue discount associated with the debt.
On January 30, 2019, the Company repaid its 7.75% Senior Unsecured Notes from HRG redeemed all $864.4Group in full using proceeds received from the GBL and GAC divestitures, recognizing a loss on extinguishment of the debt of $41.2 million outstandingwithin interest expense attributable to a $17.2 million premium on repayment of the debt and a non-cash charge of $24.0 million attributable to the write-off of deferred financing costs and original issue discount associated with the debt.
On March 21, 2019, the Company completed the prepayment of $285.0 million of the $570.0 million aggregate principal amount of its 7.875% Senior Secured6.625% Notes, due 2019 at a redemption price equal to 100.0% of the principal amount thereof, plus accrued and unpaid interest, in part using proceeds received from the GAC divestitures, recognizing a loss on extinguishment of the debt of $9.6 million attributable to a $6.3 million premium on repayment of the debt and a non-cash charge of $3.3 million attributable to the redemption date.write-off of deferred financing costs associated with the debt.
On January 13, 2017, HRG, through a wholly-owned subsidiary of HGI Funding, entered into a loan agreement, pursuantRefer to which it may borrow up to an aggregate amount of $150.0 million (the “2017 Loan”). The 2017 Loan bears interest at an adjusted International Exchange London Interbank Offered Rate (“LIBOR”), plus 2.35% per annum, payable quarterlyNote 3 – Divestitures for additional discussion on GAC and a commitment fee of 75 bps. During the nine months ended June 30, 2018, the 2017 Loan was terminated by the borrower.GBL divestitures.
26
On December 5, 2017, HRG Group Inc. paid off the $92.0 million aggregate principal amount of the HGI Energy Notes, which were previously held by FGL.
On July 13, 2018, subsequent to June 30, 2018, the Company paid of the $50.0 million aggregate principal amount of the HGI Funding loan prior to the close of the Spectrum Merger.
In February 2013, September 2013 and February 2015, Salus completed a collateralized loan obligation (“CLO”) securitization of up to $578.5 million notional aggregate principal amount. At June 30, 2018 and September 30, 2017, the outstanding notional aggregate principal amount of $76.6 million and $28.9 million, respectively, was taken up by unaffiliated entities, including HRG former subsidiary, FGL, and consisted entirely of subordinated debt in both periods. As of September 30, 2017, there was $48.1 million taken up by FGL and included in Assets of Businesses Held for Sale in the accompanying Condensed Consolidated Statement of Financial Position. The CLO subordinated debt is non-recourse to the Company. The obligations of the securitization is secured by the assets of the variable interest entity, primarily asset-based loan receivables and carry residual interest subject to maintenance of certain covenants. Due to losses incurred in the CLO, at June 30, 2018, and September 30, 2017, the CLO was not accruing interest on the subordinated debt.
18
SPECTRUM BRANDS HOLDINGS, INC.
#x200eSB/RH HOLDINGS, LLC
#x200eNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
#x200e(in millions, unaudited)
NOTE 1112 - DERIVATIVES
Cash Flow Hedges
Interest Rate Swaps. The Company uses interest rate swaps to manage its interest rate risk. The swaps are designated as cash flow hedges with the changes in fair value recorded in Accumulated Other Comprehensive Income (“AOCI”) and as a derivative hedge asset or liability, as applicable. The swaps settle periodically in arrears with the related amounts for the current settlement period payable to, or receivable from, the counterparties included in accrued liabilities or receivables, respectively, and recognized in earnings as an adjustment to interest from the underlying debt to which the swap is designated. Due to the expected settlement of the Company’s Term Loan using proceeds from the GBA divestitures, as discussed in Note 3- Divestitures, aAny ineffective portion of the projected cash flows was no longer deemed probable and therefore de-designated a portionunrealized gains or losses is immediately recorded into earnings. As of the hedge as ineffective. At June 30, 2018 and September 30, 2017,2018, the Company had a series of U.S. dollar denominated interest rate swaps outstanding which effectively fix the interest on floating rate debt related to the 2022 Term Loan, exclusive of lender spreads, at 1.76% for a notional principal amount of $300.0 million through May 8, 2020. The derivative netOn January 4,2019, the underlying debt and related hedge were settled. As a result, the Company recognized a gain estimatedof $3.6 million in the first quarter of fiscal year 2019, recognized as a component of discontinued operations as interest expense from the Term Loans allocated to be reclassified from AOCI into earnings over the next 12 months is $1.4 million, netdiscontinued operations per Note 3 – Divestitures. As of tax. The Company’sJune 30, 2019, there are no outstanding interest rate swap derivative financial instruments at June 30, 2018 and September 30, 2017 are as follows:
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|
| June 30, 2018 |
| September 30, 2017 | ||||||||
(in millions) |
| Notional Amount |
| Remaining Years |
| Notional Amount |
| Remaining Years | ||||
Interest rate swaps - fixed |
| $ | 300.0 |
|
| 1.9 |
| $ | 300.0 |
|
| 2.6 |
swaps hedges.
Commodity Swaps. The Company is exposed to risk from fluctuating prices for raw materials, specifically brass used in its manufacturing processes. The Company hedges a portion of the risk associated with the purchase of these materials through the use ofusing commodity swaps. The hedge contracts are designated as cash flow hedges with the fair value changes recorded in AOCI and as a hedge asset or liability, as applicable. The unrecognized changes in fair value of the hedge contracts are reclassified from AOCI into earnings when the hedged purchase of raw materials also affects earnings. The swaps effectively fix the floating price on a specified quantity of raw materials through a specified date. At June 30, 2018,2019, the Company had a series of brass swap contracts outstanding through November 2019.30, 2020. The derivative net gainsloss estimated to be reclassified from AOCI into earnings over the next 12 months is $0.1 million, net of tax. The Company had the following commodity swap contracts outstanding as of June 30, 20182019 and September 30, 2017.2018.
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| ||||||||||||
|
| June 30, 2018 |
| September 30, 2017 | June 30, 2019 | September 30, 2018 | ||||||||||||||||||
(in millions, except notional) |
| Notional |
| Contract Value |
| Notional |
| Contract Value | Notional | Contract Value | Notional | Contract Value | ||||||||||||
Brass swap contracts |
|
| 1.0 Tons |
| $ | 5.4 |
|
| 1.3 Tons |
| $ | 6.6 | 1.0 Tons | $ | 5.1 | 1.0 Tons | $ | 5.6 |
Foreign exchange contracts. 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 U.S. Dollars, Euros,Pound Sterling, Canadian Dollars, Australian Dollars, or Japanese Yen. These foreign exchange contracts are cash flow hedges of fluctuating foreign exchange related to sales of product or raw material purchases. Until the sale or purchase is recognized, the fair value of the related hedge is recorded in 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 Net Sales or purchase price variance in Cost of Goods Sold on the Condensed Consolidated Statements of Income. At June 30, 2018,2019, the Company had a series of foreign exchange derivative contracts outstanding through December 2019.24, 2020. The derivative net lossesgain estimated to be reclassified from AOCI into earnings over the next 12 months is $0.5$3.1 million, net of tax. At June 30, 20182019 and September 30, 2017,2018, the Company had foreign exchange derivative contracts designated as cash flow hedges with a notional value of $61.5$193.5 million and $67.5$261.6 million, respectively.
Net Investment Hedge
On September 20, 2016, SBI issued €425 million aggregate principle amount of 4.00% Notes. See Note 1011 - Debt for further detail. The 4.00% Notes are denominated in Euros and have been designated as a net investment hedge of the translation of the Company’s net investments in Euro denominated subsidiaries at the time of issuance. As a result, the translation of the Euro denominated debt is recognized as AOCI with any ineffective portion recognized as foreign currency translation gains or losses on the statement of income when the aggregate principal exceeds the net investment in its Euro denominated subsidiaries. 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 June 30, 2018,2019, the hedge was fully effective, and no ineffective portion was recognized in earnings.
Derivative Contracts Not Designated as Hedges for Accounting Purposes
Foreign exchange contracts. The Company periodically enters into forward and swap foreign exchange 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 U.S. Dollars, Canadian Dollars, Euros, Pounds Sterling, Taiwanese Dollars, Hong Kong DollarsRussian Ruble,Philippine Peso, or Australian 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 June 30, 2018,2019, the Company had a series of forward exchange contracts outstanding through July 2018.26, 2019. At June 30, 20182019 and September 30, 2017,2018, the Company had $76.9$1,089.3 million and $62.9$105.2 million,, respectively, of notional value of such foreign exchange derivative contracts outstanding.
27
19
SPECTRUM BRANDS HOLDINGS, INC.
#x200eSB/RH HOLDINGS, LLC
#x200eNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
#x200e(in millions, unaudited)
NOTE 1112 – DERIVATIVES(continued)
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:
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| ||||||||
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| ||||||||
(in millions) |
| Line Item |
| June 30, 2018 |
| September 30, 2017 | Line Item | June 30, 2019 | September 30, 2018 | |||||||
Derivative Assets |
|
|
|
|
|
|
|
| ||||||||
Commodity swaps - designated as hedge |
| Other receivables |
| $ | 0.1 |
| $ | 0.6 | ||||||||
Interest rate swaps - designated as hedge |
| Other receivables |
|
| 2.0 |
|
| — | Other receivables | $ | — | $ | 1.8 | |||
Interest rate swaps - designated as hedge |
| Deferred charges and other |
|
| 1.6 |
|
| 0.4 | Deferred charges and other | — | 1.0 | |||||
Foreign exchange contracts - designated as hedge |
| Other receivables |
|
| 0.7 |
|
| — | Other receivables | 4.5 | 5.5 | |||||
Foreign exchange contracts - designated as hedge |
| Deferred charges and other |
|
| — |
|
| 0.2 | Deferred charges and other | — | 0.2 | |||||
Foreign exchange contracts - not designated as hedge |
| Other receivables |
|
| 0.2 |
|
| 0.3 | Other receivables | 0.2 | 0.4 | |||||
Total Derivative Assets |
|
|
| $ | 4.6 |
| $ | 1.5 | $ | 4.7 | $ | 8.9 | ||||
Derivative Liabilities |
|
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|
|
|
|
| ||||||||
Commodity swaps - designated as hedge |
| Accounts payable |
| $ | 0.2 |
| $ | — | Accounts payable | $ | 0.2 | $ | 0.4 | |||
Interest rate swaps - designated as hedge |
| Other current liabilities |
|
| — |
|
| 0.5 | Accrued interest | — | (0.3) | |||||
Interest rate swaps - designated as hedge |
| Accrued interest |
|
| (0.3) |
|
| 0.2 | ||||||||
Foreign exchange contracts - designated as hedge |
| Accounts payable |
|
| 0.1 |
|
| 2.3 | Accounts payable | 0.5 | 0.3 | |||||
Foreign exchange contracts - designated as hedge |
| Other long term liabilities |
|
| — |
|
| 0.3 | Other long term liabilities | 0.1 | 0.2 | |||||
Foreign exchange contracts - not designated as hedge | Accounts payable | 0.6 | 0.2 | |||||||||||||
Total Derivative Liabilities |
|
|
| $ | — |
| $ | 3.3 | $ | 1.4 | $ | 0.8 |
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 June 30, 20182019 and September 30, 2017.2018.
The Company’s standard contracts do not contain credit risk related contingent features whereby the Company would be required to post additional cash collateral as a resultbecause 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 June 30, 20182019, and September 30, 2017,2018, there was no cash collateral outstanding. In addition, as of June 30, 20182019 and September 30, 2017,2018, the Company had no posted standby letters of credit related to such liability positions.
28
SPECTRUM BRANDS HOLDINGS, INC.
#x200eSB/RH HOLDINGS, LLC
#x200eNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
#x200e(in millions, unaudited)
NOTE 12 – DERIVATIVES (continued)
The following table summarizes the impact of the effective and ineffective portions of designated hedges and the gain (loss) recognized in the Consolidated Statement of Income for the three month periods ended June 30, 2019 and 2018:
Effective Portion | |||||||||||||||||||
Three Month Periods Ended | Reclassified to | Ineffective portion | |||||||||||||||||
June 30, 2019 | Gain (Loss) | Reclassified to Continuing Operations | Discontinued | Continuing Operations | Discontinued | ||||||||||||||
(in millions) | in OCI | Line Item | Gain (Loss) | Operations | Line Item | Gain (Loss) | Operations | ||||||||||||
Commodity swaps | (0.3) | Cost of goods sold | (0.1) | — | Cost of goods sold | — | — | ||||||||||||
Net investment hedge | (6.2) | Other non-operating expense | — | — | Other non-operating expense | — | — | ||||||||||||
Foreign exchange contracts | (0.1) | Net sales | — | — | Net sales | — | — | ||||||||||||
Foreign exchange contracts | — | Cost of goods sold | 2.6 | — | Cost of goods sold | — | — | ||||||||||||
Total | $ | (6.6) | $ | 2.5 | $ | — | $ | — | $ | — | |||||||||
Effective Portion | |||||||||||||||||||
Three Month Periods Ended | Reclassified to | Ineffective portion | |||||||||||||||||
June 30, 2018 | Gain (Loss) | Reclassified to Continuing Operations | Discontinued | Continuing Operations | Discontinued | ||||||||||||||
(in millions) | in OCI | Line Item | Gain (Loss) | Operations | Line Item | Gain (Loss) | Operations | ||||||||||||
Interest rate swaps | $ | 0.6 | Interest expense | $ | — | $ | 0.3 | Interest expense | $ | — | $ | 0.3 | |||||||
Commodity swaps | (3.1) | Cost of goods sold | 0.1 | 0.5 | Cost of goods sold | — | — | ||||||||||||
Net investment hedge | 31.1 | Other non-operating expense | — | — | Other non-operating expense | — | — | ||||||||||||
Foreign exchange contracts | (0.1) | Net sales | — | — | Net sales | — | — | ||||||||||||
Foreign exchange contracts | 12.1 | Cost of goods sold | (1.9) | (0.3) | Cost of goods sold | — | — | ||||||||||||
Total | $ | 40.6 | $ | (1.8) | $ | 0.5 | $ | — | $ | 0.3 |
The following table summarizes the impact of the effective and ineffective portions of designated hedges and the gain (loss) recognized in the Consolidated Statement of Income for the nine month periods ended June 30, 2019 and 2018:
Effective Portion | |||||||||||||||||||
Nine Month Periods Ended | Reclassified to | Ineffective portion | |||||||||||||||||
June 30, 2019 | Gain (Loss) | Reclassified to Continuing Operations | Discontinued | Continuing Operations | Discontinued | ||||||||||||||
(in millions) | in OCI | Line Item | Gain (Loss) | Operations | Line Item | Gain (Loss) | Operations | ||||||||||||
Interest rate swaps | $ | (0.6) | Interest expense | $ | — | $ | 2.2 | Interest expense | $ | — | $ | 1.7 | |||||||
Commodity swaps | (1.0) | Cost of goods sold | (0.3) | (4.4) | Cost of goods sold | — | — | ||||||||||||
Net investment hedge | 11.5 | Other non-operating expense | — | — | Other non-operating expense | — | — | ||||||||||||
Foreign exchange contracts | (0.2) | Net sales | (0.1) | — | Net sales | — | — | ||||||||||||
Foreign exchange contracts | 7.2 | Cost of goods sold | 8.6 | 0.5 | Cost of goods sold | — | — | ||||||||||||
Total | $ | 16.9 | $ | 8.2 | $ | (1.7) | $ | — | $ | 1.7 | |||||||||
Effective Portion | |||||||||||||||||||
Nine Month Periods Ended | Reclassified to | Ineffective portion | |||||||||||||||||
June 30, 2018 | Gain (Loss) | Reclassified to Continuing Operations | Discontinued | Continuing Operations | Discontinued | ||||||||||||||
(in millions) | in OCI | Line Item | Gain (Loss) | Operations | Line Item | Gain (Loss) | Operations | ||||||||||||
Interest rate swaps | $ | 4.3 | Interest expense | $ | — | $ | 0.6 | Interest expense | $ | — | $ | 1.0 | |||||||
Commodity swaps | (1.9) | Cost of goods sold | 0.8 | 3.0 | Cost of goods sold | — | — | ||||||||||||
Net investment hedge | 9.3 | Other non-operating expense | — | — | Other non-operating expense | — | — | ||||||||||||
Foreign exchange contracts | (0.1) | Net sales | 0.1 | — | Net sales | — | — | ||||||||||||
Foreign exchange contracts | 9.8 | Cost of goods sold | (4.9) | (6.6) | Cost of goods sold | — | — | ||||||||||||
Total | $ | 21.4 | $ | (4.0) | $ | (3.0) | $ | — | $ | 1.0 |
The following summarizes the impact of derivative instruments on the accompanying Condensed Consolidated Statements of Income for the three month periods ended June 30, 2018 and 2017, pretax:
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|
| Effective Portion |
|
| |||||||||||||||
|
|
|
|
|
|
|
|
|
| Reclassified to |
| Ineffective portion | |||||||
Three month period ended |
| Gain (Loss) |
| Reclassified to Continuing Operations |
| Discontinued |
| Continuing Operations |
| Discontinued | |||||||||
June 30, 2018 (in millions) |
| in OCI |
| Line Item |
| Gain (Loss) |
| Operations |
| Line Item |
| Gain (Loss) |
| Operations | |||||
Interest rate swaps |
| $ | 0.6 |
| Interest expense |
| $ | — |
| $ | 0.3 |
| Interest expense |
| $ | — |
| $ | 0.3 |
Commodity swaps |
|
| (3.1) |
| Cost of goods sold |
|
| 0.1 |
|
| 0.5 |
| Cost of goods sold |
|
| — |
|
| — |
Net investment hedge |
|
| 31.1 |
| Other non-operating expense |
|
| — |
|
| — |
| Other non-operating expense |
|
| — |
|
| — |
Foreign exchange contracts |
|
| (0.1) |
| Net sales |
|
| — |
|
| — |
| Net sales |
|
| — |
|
| — |
Foreign exchange contracts |
|
| 12.1 |
| Cost of goods sold |
|
| (0.2) |
|
| (2.0) |
| Cost of goods sold |
|
| — |
|
| — |
Total |
| $ | 40.6 |
|
|
| $ | (0.1) |
| $ | (1.2) |
|
|
| $ | — |
| $ | 0.3 |
|
|
|
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|
|
|
|
|
|
|
|
|
| Effective Portion |
|
| |||||||||||||||
|
|
|
|
|
|
|
|
|
| Reclassified to |
| Ineffective portion | |||||||
Three month period ended |
| Gain (Loss) |
| Reclassified to Continuing Operations |
| Discontinued |
| Continuing Operations |
| Discontinued | |||||||||
June 30, 2017 (in millions) |
| in OCI |
| Line Item |
| Gain (Loss) |
| Operations |
| Line Item |
| Gain (Loss) |
| Operations | |||||
Interest rate swaps |
| $ | (1.1) |
| Interest expense |
| $ | — |
| $ | (0.3) |
| Interest expense |
| $ | — |
| $ | — |
Commodity swaps |
|
| (0.5) |
| Cost of goods sold |
|
| 0.1 |
|
| 1.2 |
| Cost of goods sold |
|
| — |
|
| — |
Net investment hedge |
|
| (32.6) |
| Other non-operating expense |
|
| — |
|
| — |
| Other non-operating expense |
|
| — |
|
| — |
Foreign exchange contracts |
|
| 0.2 |
| Net sales |
|
| — |
|
| — |
| Net sales |
|
| — |
|
| — |
Foreign exchange contracts |
|
| (10.3) |
| Cost of goods sold |
|
| 0.2 |
|
| 1.1 |
| Cost of goods sold |
|
| — |
|
| — |
Total |
| $ | (44.3) |
|
|
| $ | 0.3 |
| $ | 2.0 |
|
|
| $ | — |
| $ | — |
20
NOTE 11 – DERIVATIVES(continued)
The following summarizes the impact of derivative instruments on the accompanying Condensed Consolidated Statements of Income for the nine month periods ended June 30, 2018 and 2017, pretax:
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| Effective Portion |
|
| |||||||||||||||
|
|
|
|
|
|
|
|
|
| Reclassified to |
| Ineffective portion | |||||||
Nine month period ended |
| Gain (Loss) |
| Reclassified to Continuing Operations |
| Discontinued |
| Continuing Operations |
| Discontinued | |||||||||
June 30, 2018 (in millions) |
| in OCI |
| Line Item |
| Gain (Loss) |
| Operations |
| Line Item |
| Gain (Loss) |
| Operations | |||||
Interest rate swaps |
| $ | 4.3 |
| Interest expense |
| $ | — |
| $ | 0.6 |
| Interest expense |
| $ | — |
| $ | 1.0 |
Commodity swaps |
|
| (1.9) |
| Cost of goods sold |
|
| 0.8 |
|
| 3.0 |
| Cost of goods sold |
|
| — |
|
| — |
Net investment hedge |
|
| 9.3 |
| Other non-operating expense |
|
| — |
|
| — |
| Other non-operating expense |
|
| — |
|
| — |
Foreign exchange contracts |
|
| (0.1) |
| Net sales |
|
| 0.1 |
|
| — |
| Net sales |
|
| — |
|
| — |
Foreign exchange contracts |
|
| 9.8 |
| Cost of goods sold |
|
| (0.6) |
|
| (10.9) |
| Cost of goods sold |
|
| — |
|
| — |
Total |
| $ | 21.4 |
|
|
| $ | 0.3 |
| $ | (7.3) |
|
|
| $ | — |
| $ | 1.0 |
|
|
|
|
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|
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|
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|
|
|
|
|
|
|
|
|
|
| Effective Portion |
|
| |||||||||||||||
|
|
|
|
|
|
|
|
|
| Reclassified to |
| Ineffective portion | |||||||
Nine month period ended |
| Gain (Loss) |
| Reclassified to Continuing Operations |
| Discontinued |
| Continuing Operations |
| Discontinued | |||||||||
June 30, 2017 (in millions) |
| in OCI |
| Line Item |
| Gain (Loss) |
| Operations |
| Line Item |
| Gain (Loss) |
| Operations | |||||
Interest rate swaps |
| $ | (1.0) |
| Interest expense |
| $ | — |
| $ | (1.0) |
| Interest expense |
| $ | — |
| $ | — |
Commodity swaps |
|
| 3.3 |
| Cost of goods sold |
|
| 0.4 |
|
| 3.4 |
| Cost of goods sold |
|
| — |
|
| — |
Net investment hedge |
|
| (9.3) |
| Other non-operating expense |
|
| — |
|
| — |
| Other non-operating expense |
|
| — |
|
| — |
Foreign exchange contracts |
|
| 0.3 |
| Net sales |
|
| — |
|
| — |
| Net sales |
|
| — |
|
| — |
Foreign exchange contracts |
|
| (4.4) |
| Cost of goods sold |
|
| 0.2 |
|
| 8.2 |
| Cost of goods sold |
|
| — |
|
| — |
Total |
| $ | (11.1) |
|
|
| $ | 0.6 |
| $ | 10.6 |
|
|
| $ | — |
| $ | — |
The following summarizes the loss associated with derivative contracts not designated as hedges in the Condensed Consolidated Statements of Income for the three and nine month periods ended June 30, 2019 and 2018, and 2017:pretax:
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| ||||||||||||||
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| Three Months Ended |
| Nine Months Ended | Three Month Periods Ended | Nine Month Periods Ended | ||||||||||||||||||||
(in millions) |
| Line Item |
| June 30, 2018 |
| June 30, 2017 |
| June 30, 2018 |
| June 30, 2017 | Line Item | June 30, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 | |||||||||||||
Foreign exchange contracts |
| Other non-operating expense (income) |
| $ | 4.4 |
| $ | (4.6) |
| $ | 1.7 |
| $ | (1.3) | Other non-operating (income) expense | $ | 15.3 | $ | 3.6 | $ | 28.5 | $ | 2.3 |
\
29
SPECTRUM BRANDS HOLDINGS, INC.
#x200eSB/RH HOLDINGS, LLC
#x200eNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
#x200e(in millions, unaudited)
NOTE 1213 - 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 Company’s consolidated assets and liabilities measured at fair value are summarized according to the fair value hierarchy as follows: The fair value of derivative instruments as of June 30, 20182019 and September 30, 20172018 are as follows (see follows.
June 30, 2019 | September 30, 2018 | |||||||||||||||||||||||||||||
Carrying | Carrying | |||||||||||||||||||||||||||||
(in millions) | Level 1 | Level 2 | Level 3 | Fair Value | Amount | Level 1 | Level 2 | Level 3 | Fair Value | Amount | ||||||||||||||||||||
Investments | $ | 204.0 | $ | — | $ | — | $ | 204.0 | $ | 204.0 | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Derivative Assets | — | 4.7 | — | 4.7 | 4.7 | — | 8.9 | — | 8.9 | 8.9 | ||||||||||||||||||||
Derivative Liabilities | — | 1.4 | — | 1.4 | 1.4 | — | 0.8 | — | 0.8 | 0.8 | ||||||||||||||||||||
Debt - SBH | — | 2,406.7 | — | 2,406.7 | 2,289.0 | — | 4,806.9 | — | 4,806.9 | 4,651.2 | ||||||||||||||||||||
Debt - SB/RH | — | 2,329.7 | — | 2,329.7 | 2,213.9 | — | 4,330.9 | — | 4,330.9 | 4,233.3 |
Investments consist of our investment in Energizer common stock and is valued at quoted market prices for identical instruments in an active market. As part of consideration received for the GAC divestiture, the Company received 5.3 million shares of Energizer common stock, valued at $242.1 million on January 28, 2019, the effective close date of the GAC divestiture. During the three and nine month periods ended June 30, 2019, the Company recognized $33.2 million and $38.2 million, respectively, of unrealized loss on investment in Energizer common stock and $1.6 million and $3.2 million, respectively, of dividend income, which were recognized as Other Non-Operating (Income) Expense, Net on the Condensed Consolidated Statements of Income.
See Note 11 -12 – Derivatives for additional detail).detail on derivative assets and liabilities.
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| June 30, 2018 |
| September 30, 2017 | ||||||||||||||||||||||||||
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| Carrying |
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| Carrying | ||
(in millions) |
| Level 1 |
| Level 2 |
| Level 3 |
| Fair Value |
| Amount |
| Level 1 |
| Level 2 |
| Level 3 |
| Fair Value |
| Amount | ||||||||||
Derivative Assets |
| $ | — |
| $ | 4.6 |
| $ | — |
| $ | 4.6 |
| $ | 4.6 |
| $ | — |
| $ | 1.5 |
| $ | — |
| $ | 1.5 |
| $ | 1.5 |
Derivative Liabilities |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 3.3 |
|
| — |
|
| 3.3 |
|
| 3.3 |
Debt - SBH |
|
| — |
|
| 5,368.2 |
|
| — |
|
| 5,368.2 |
|
| 5,260.2 |
|
| — |
|
| 5,839.0 |
|
| 92.0 |
|
| 5,931.0 |
|
| 5,705.1 |
Debt - SB/RH |
|
| — |
|
| 4,321.8 |
|
| — |
|
| 4,321.8 |
|
| 4,274.3 |
|
| — |
|
| 3,972.8 |
|
| — |
|
| 3,972.8 |
|
| 3,771.7 |
The fair value measurements of the Company’s debt are valued at quoted input prices that are directly observable or indirectly observable through corroboration with observable market data. See Note 1011 – Debt for additional detail on outstanding debt of SBH and SB/RH. See Note 11 – 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).
21
NOTE 1314 - EMPLOYEE BENEFIT PLANS
Spectrum Defined Benefit Plans
The net periodic benefit cost for the Spectrum defined benefit plans for the three and nine month periods ended June 30, 2018 and 2017 are as follows:
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|
| Three Month Periods Ended |
| Nine Month Periods Ended | ||||||||
(in millions) |
| June 30, 2018 |
| June 30, 2017 |
| June 30, 2018 |
| June 30, 2017 | ||||
Service cost |
| $ | 0.5 |
| $ | 0.7 |
| $ | 1.5 |
| $ | 2.0 |
Interest cost |
|
| 0.5 |
|
| 0.4 |
|
| 1.4 |
|
| 1.1 |
Expected return on assets |
|
| (0.4) |
|
| (0.4) |
|
| (1.1) |
|
| (1.0) |
Recognized net actuarial loss |
|
| 0.3 |
|
| 0.5 |
|
| 0.8 |
|
| 1.6 |
Net periodic benefit cost |
| $ | 0.9 |
| $ | 1.2 |
| $ | 2.6 |
| $ | 3.7 |
Weighted average assumptions |
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|
|
|
Discount rate |
| 1.13 - 7.50% |
| 1.00 - 8.68% |
| 1.13 - 7.50% |
| 1.00 - 8.68% | ||||
Expected return on plan assets |
| 1.13 - 3.50% |
| 1.00 - 3.50% |
| 1.13 - 3.50% |
| 1.00 - 3.50% | ||||
Rate of compensation increase |
| 1.37 - 7.00% |
| 2.25 - 7.00% |
| 1.37 - 7.00% |
| 2.25 - 7.00% |
Amounts reclassified from AOCI associated with employee benefit plan costs and recognized on the Condensed Consolidated Statements of Income for the three and nine month periods ended June 30, 2019 and 2018 and 2017 wereare as follows:
U.S. Plans | Non U.S. Plans | |||||||||||
(in millions) | June 30, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 | ||||||||
Three Month Period Ended | ||||||||||||
Service cost | $ | 0.1 | $ | 0.1 | $ | 0.5 | $ | 0.5 | ||||
Interest cost | 0.7 | 0.7 | 0.9 | 0.9 | ||||||||
Expected return on assets | (1.1) | (1.1) | (1.1) | (1.1) | ||||||||
Recognized net actuarial loss | 0.1 | 0.3 | 0.4 | 0.3 | ||||||||
Net periodic benefit cost | $ | (0.2) | $ | — | $ | 0.7 | $ | 0.6 | ||||
Nine Month Period Ended | ||||||||||||
Service cost | $ | 0.3 | $ | 0.3 | $ | 1.5 | $ | 1.5 | ||||
Interest cost | 2.1 | 2.0 | 2.7 | 2.8 | ||||||||
Expected return on assets | (3.3) | (3.4) | (3.2) | (3.3) | ||||||||
Recognized net actuarial loss | 0.1 | 0.8 | 1.4 | 1.1 | ||||||||
Net periodic benefit cost | $ | (0.8) | $ | (0.3) | $ | 2.4 | $ | 2.1 | ||||
Weighted average assumptions | ||||||||||||
Discount rate | 4.10% | 4.25% | 1.00 - 8.15% | 1.75 - 7.00% | ||||||||
Expected return on plan assets | 6.50% | 7.25% | 1.00 - 4.01% | 1.75 - 4.53% | ||||||||
Rate of compensation increase | N/A | N/A | 2.05 - 4.85% | 2.25 - 5.50% |
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| Three Month Periods Ended |
| Nine Month Periods Ended | ||||||||
(in millions) |
| June 30, 2018 |
| June 30, 2017 |
| June 30, 2018 |
| June 30, 2017 | ||||
Cost of goods sold |
| $ | 0.1 |
| $ | 0.3 |
| $ | 0.4 |
| $ | 1.0 |
Selling expenses |
|
| 0.1 |
|
| 0.2 |
|
| 0.3 |
|
| 0.5 |
General and administrative expenses |
|
| 0.1 |
|
| 0.1 |
|
| 0.1 |
|
| 0.2 |
Amounts reclassified from AOCI to continuing operations |
| $ | 0.3 |
| $ | 0.6 |
| $ | 0.8 |
| $ | 1.7 |
Amounts reclassified from AOCI to discontinued operations |
| $ | 0.5 |
| $ | 0.8 |
| $ | 1.6 |
| $ | 2.3 |
Contributions to itsour pension and defined benefit plans, including discretionary amounts, for the three month periods ended June 30, 2019 and 2018, were $0.3 and 2017 was $1.0$1.6 million, respectively. Contributions to our pension and defined benefit plans, including discretionary amounts, for the nine month periods ended June 30, 2019 and 2018 were $1.2 and 2017 were $2.8 million and $2.3$4.8 million, respectively.
30
HRG Defined Benefit Plans
HRG had a noncontributory defined benefit pension plan (the “HRG Pension Plan”) covering certain of its former U.S. employees. During the fiscal year ended September 30, 2016, the HRG Pension Plan was frozen which caused all existing participants to become fully vested in their benefits. On November 15, 2017, HRG’s Board of Directors approved the termination of the HRG Pension Plan. The HRG Pension Plan’s termination date was February 15, 2018. As of June 30, 2018 and September 30, 2017, the HRG Pension Plan’s unfunded projected benefit obligation was $4.5 million and $4.2 million, respectively. HRG recognized an accrual of $1.6 million for the estimated additional cost to settle above the unfunded benefit obligation. Spectrum is expected to purchase annuity contracts before the year ended September 30, 2018 to settle the obligation to HRG Pension Plan participants.
Additionally, HRG had an unfunded supplemental pension plan (the “Supplemental Plan”) which provides supplemental retirement payments to certain former senior executives of HRG. The amounts of such payments equal the difference between the amounts received under the HRG Pension Plan and the amounts that would otherwise be received if HRG Pension Plan payments were not reduced as the result of the limitations upon compensation and benefits imposed by Federal law. Effective December 1994, the Supplemental Plan was frozen.
22
SPECTRUM BRANDS HOLDINGS, INC.
#x200eSB/RH HOLDINGS, LLC
#x200eNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
#x200e(in millions, unaudited)
NOTE 1415 - SHARE BASED COMPENSATION
Share based compensation expense is recognized as General and Administrative Expenses on the Condensed Consolidated Statements of Income and consists of costs from the Spectrum equity plan and the HRG equity plan. The following is a summary of share based compensation expense for the three and nine month periods ended June 30, 2019 and 2018 for SBH and 2017.SB/RH, respectively.
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| Three Month Periods Ended |
| Nine Month Periods Ended | ||||||||
(in millions) |
| June 30, 2018 |
| June 30, 2017 |
|
| June 30, 2018 |
|
| June 30, 2017 | ||
Spectrum equity plan |
| $ | 4.9 |
| $ | 4.4 |
| $ | 5.3 |
| $ | 23.9 |
HRG equity plan |
|
| 0.4 |
|
| 0.6 |
|
| 1.1 |
|
| 4.6 |
SBH share based compensation expense |
|
| 5.3 |
|
| 5.0 |
|
| 6.4 |
|
| 28.5 |
SB/RH share based compensation expense |
|
| 4.5 |
|
| 3.9 |
|
| 4.0 |
|
| 21.6 |
Three Month Periods Ended | Nine Month Periods Ended | |||||||||||
(in millions) | June 30, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 | ||||||||
SBH | $ | 14.0 | $ | 5.7 | $ | 35.8 | $ | 7.0 | ||||
SB/RH | 13.6 | 4.9 | 34.7 | 4.6 |
Spectrum
The following summaryCompany recognizes share based compensation expense primarily from the issuance of its Restricted Stock Units (“RSUs”) based on the fair value of the activity in Spectrumawards, 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. Certain RSUs duringare performance-based awards that are dependent upon achieving specified financial metrics over a designated period of time.
During the nine month period ended June 30, 2018:
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| Spectrum |
| SB/RH | ||||||||||||
|
|
|
| Weighted |
| Fair |
|
|
| Weighted |
| Fair | ||||
|
|
|
| Average |
| Value |
|
|
| Average |
| Value | ||||
|
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| Grant Date |
| at Grant |
|
|
| Grant Date |
| at Grant | ||||
(in millions, except per share data) |
| Shares |
| Fair Value |
| Date |
| Shares |
| Fair Value |
| Date | ||||
Time-based grants |
| 0.1 |
| $ | 111.31 |
| $ | 11.0 |
| 0.1 |
| $ | 112.33 |
| $ | 9.6 |
Performance-based grants |
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|
|
Vesting in less than 24 months |
| 0.1 |
|
| 109.10 |
|
| 12.9 |
| 0.1 |
|
| 109.10 |
|
| 12.9 |
Vesting in more than 24 months |
| 0.1 |
|
| 109.45 |
|
| 12.6 |
| 0.1 |
|
| 109.45 |
|
| 12.6 |
Total performance-based grants |
| 0.2 |
| $ | 109.27 |
| $ | 25.5 |
| 0.2 |
| $ | 109.27 |
| $ | 25.5 |
Total grants |
| 0.3 |
| $ | 109.88 |
| $ | 36.5 |
| 0.3 |
| $ | 110.09 |
| $ | 35.1 |
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| Spectrum |
| SB/RH | ||||||||||||
|
|
|
| Weighted |
| Fair |
|
|
| Weighted |
| Fair | ||||
|
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|
| Average |
| Value |
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| Average |
| Value | ||||
|
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|
| Grant Date |
| at Grant |
|
|
| Grant Date |
| at Grant | ||||
(in millions, except per share data) |
| Shares |
| Fair Value |
| Date |
| Shares |
| Fair Value |
| Date | ||||
At September 30, 2017 |
| 0.8 |
| $ | 114.67 |
| $ | 87.2 |
| 0.7 |
| $ | 116.32 |
| $ | 82.4 |
Granted |
| 0.3 |
|
| 109.88 |
|
| 36.5 |
| 0.3 |
|
| 110.09 |
|
| 35.1 |
Forfeited |
| (0.1) |
|
| 116.13 |
|
| (10.0) |
| (0.1) |
|
| 116.13 |
|
| (10.0) |
Vested |
| (0.5) |
|
| 113.21 |
|
| (55.1) |
| (0.4) |
|
| 114.19 |
|
| (50.9) |
At June 30, 2018 |
| 0.5 |
| $ | 112.74 |
| $ | 58.6 |
| 0.5 |
| $ | 114.27 |
| $ | 56.6 |
2019, the Company provided to certain employees RSU awards issued under a new Long-Term Incentive Plan (“LTIP”), with a 3-year, cliff vesting schedule and having both performance conditions dependent upon achieving specified financial targets (adjusted EBITDA and adjusted free cash flow) and time-based service conditions (70% performance/30% service). LTIP awards were granted in January upon approval from the Company’s Board of Directors. In addition to the LTIP awards, the Company also provided for bridge awards that are one-time awards to certain employees for transitioning to the new LTIP from previous equity incentive compensation plans. Bridge awards vest annually, on November 21, 2019 and November 21, 2020, and have both performance conditions dependent upon achieving specified financial targets (adjusted EBITDA and adjusted free cash flow) and time-based service conditions (60% performance/40% service). Bridge awards are also payable in either RSUs or cash, or both, based upon an employee election. Bridge awards elected to be payable in RSU are recognized as equity awards and included as a component of share-based compensation expense. The new awards were granted and recognized as compensation expense in January.
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 and included as a component of share-based compensation. In addition to RSU awards, Spectrum also provides for a portion of its annual management incentive compensation plan (“MIP”) to be paid in common stock of the Company, in lieu of cash payment, and is consideredrecognized as a liability plan. Share based compensation expense associated with the annual management incentive planMIP was $3.2$4.3 million and $1.9$12.6 million for the three month periods ended June 30, 2018 and 2017, respectively, and $6.4 million and $5.7 million for the nine month periods ended June 30, 20182019, respectively, and 2017,$3.5 million and $6.8 million and for the three and nine month periods ended June 30, 2018, respectively. The remaining unrecognized pre-tax compensation cost for SBH and SB/RH at June 30, 20182019 was $1.6$56.3 million and $1.2$55.9 million, respectively. Effective the close
The following summary of the activity in Spectrum Merger, all outstanding awards under the Spectrum plan are modified and the underlying Spectrum shares are exchanged for shares in SBH.
HRG
The following is a summary of HRG share-based awardsRSUs during the nine month periods ended June 30, 2019:
SBH | SB/RH | |||||||||||||||
Weighted | Fair | Weighted | Fair | |||||||||||||
Average | Value | Average | Value | |||||||||||||
Grant Date | at Grant | Grant Date | at Grant | |||||||||||||
(in millions, except per share data) | Units | Fair Value | Date | Units | Fair Value | Date | ||||||||||
Time-based grants | 0.6 | $ | 53.25 | $ | 32.0 | 0.6 | $ | 52.50 | $ | 30.5 | ||||||
Performance-based grants | ||||||||||||||||
Vesting in less than 24 months | 0.4 | 53.09 | 24.4 | 0.4 | 53.09 | 24.4 | ||||||||||
Vesting in more than 24 months | 0.5 | 52.98 | 24.5 | 0.5 | 52.98 | 24.5 | ||||||||||
Total performance-based grants | 0.9 | $ | 53.04 | $ | 48.9 | 0.9 | $ | 53.04 | $ | 48.9 | ||||||
Total grants | 1.5 | $ | 53.12 | $ | 80.9 | 1.5 | $ | 52.83 | $ | 79.4 |
SBH | SB/RH | |||||||||||||||
Weighted | Fair | Weighted | Fair | |||||||||||||
Average | Value | Average | Value | |||||||||||||
Grant Date | at Grant | Grant Date | at Grant | |||||||||||||
(in millions, except per share data) | Shares | Fair Value | Date | Shares | Fair Value | Date | ||||||||||
At September 30, 2018 | 0.6 | $ | 107.71 | $ | 69.0 | 0.6 | $ | 108.75 | $ | 67.2 | ||||||
Granted | 1.5 | 53.12 | 80.9 | 1.5 | 52.83 | 79.4 | ||||||||||
Forfeited | (0.5) | 100.58 | (57.7) | (0.5) | 101.00 | (57.4) | ||||||||||
Vested | (0.2) | 85.16 | (15.0) | (0.2) | 83.78 | (13.7) | ||||||||||
At June 30, 2019 | 1.4 | $ | 54.63 | $ | 77.3 | 1.4 | $ | 54.33 | $ | 75.4 |
The Company also has 0.2 million shares of fully vested stock options with a weighted average exercise price of $73.29 that have various expiration dates through November 2026 that remain outstanding and exercisable as of June 30, 2019. There were no stock options granted, exercised, forfeited, or vested during the three month period ended June 30, 2018:2019.
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| Stock Options |
| Warrants |
| Restricted Stock Awards | ||||||||||||||||||
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| Weighted |
| Weighted |
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| Weighted |
| Weighted |
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| Weighted |
| Fair | ||||||
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| Average |
| Average |
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| Average |
| Average |
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| Average |
| Value | ||||||
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| Exercise |
| Grant Date |
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| Exercise |
| Grant Date |
|
|
| Grant Date |
| at Grant | ||||||
(in millions, except per share data) |
| Options |
| Price |
| Fair Value |
| Units |
| Price |
| Fair Value |
| Shares |
| Fair Value |
| Date | ||||||
As of September 30, 2017 |
| 4.0 |
| $ | 9.69 |
| $ | 3.88 |
| 0.6 |
| $ | 13.13 |
| $ | 3.22 |
| 0.1 |
| $ | 13.36 |
| $ | 1.9 |
Granted |
| — |
|
| — |
|
| — |
| — |
|
| — |
|
| — |
| 0.1 |
|
| 16.85 |
|
| 0.4 |
Exercised |
| (2.5) |
|
| (8.38) |
|
| (3.33) |
| (0.6) |
|
| (13.13) |
|
| (3.22) |
| (0.1) |
|
| (13.56) |
|
| (1.9) |
Outstanding at June 30, 2018 |
| 1.5 |
| $ | 11.82 |
| $ | 4.78 |
| — |
| $ | — |
| $ | — |
| 0.1 |
| $ | 16.85 |
| $ | 0.4 |
Vested/Exercisable at June 30, 2018 |
| 1.3 |
|
| 11.09 |
| $ | 4.53 |
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31
During the nine month period ended June 30, 2018, HRG stock option awards with a total fair value of $0.8 million vested. The intrinsic value of HRG share options exercised during the nine month period ended June 30, 2018 was $21.5 million, which HRG received $19.9 million in cash settlement. The remaining unrecognized pre-tax compensation cost for HRG at June 30, 2018 was $0.3 million. Effective the close of the Spectrum Merger, all HRG awards become fully vested and exercisable.
23
SPECTRUM BRANDS HOLDINGS, INC.
#x200eSB/RH HOLDINGS, LLC
#x200eNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
#x200e(in millions, unaudited)
NOTE 1516 - INCOME TAXES
The effective tax rate for the three and nine month periods ended June 30, 20182019 and 20172018 was as follows:
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| Three Month Periods Ended |
| Nine Month Periods Ended | Three Month Periods Ended | Nine Month Periods Ended | ||||||||||
Effective tax rate |
| June 30, 2018 |
| June 30, 2017 |
| June 30, 2018 |
| June 30, 2017 | June 30, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 | ||||
SBH |
| (518.9%) |
| 83.7% |
| 2,192.9% |
| 1,583.9% | 225.8% | (792.4%) | (20.3%) | 3,218.9% | ||||
SB/RH |
| 22.8% |
| 27.9% |
| (111.7)% |
| 33.6% | 236.5% | 33.9% | (131.4%) | (97.2%) |
On December 22, 2017,The estimated annual effective tax rate applied to the three and nine month periods ended June 30, 2019 differs from the US federal statutory rate of 21% principally due to income earned outside the U.S. that is subject to the U.S. tax on global intangible low taxed income (“GILTI”), local taxes in excess of the US tax rate, and net operating losses outside the U.S. that are not more likely than not to result in a tax benefit. The Company has U.S. net operating loss carryforwards, which do not allow it to take advantage of the foreign-derived intangible income (“FDII”) deduction. The Company’s federal effective tax rate on GILTI is therefore 21%.
The Tax Cuts and Jobs Act of December 22, 2017 (the "Tax“Tax Reform Act"Act”) was signed into law. The legislation significantly changes U.S. tax law by, among other things, lowering corporate income tax rates, implementing a dividends received deduction for dividends from foreign subsidiaries and imposing a tax on deemed repatriated accumulated earnings of foreign subsidiaries. The Tax Reform Act reducesreduced the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate,, effective January 1, 2018. The Tax Reform Act also provided for a one-time deemed mandatory repatriation of post-1986 undistributed foreign subsidiary earnings and profits (“E&P”), payable in installments over 8 years, and provided for a dividends received deduction for dividends from foreign subsidiaries.
On June 14, 2019, the U.S. Department of the Treasury and the Internal Revenue Service issued Regulations (“Regulations”) related to the foreign dividends received deduction and GILTI. The Regulations contained language that modified certain provisions of the Tax Reform Act and previously issued guidance. The Regulations are retroactive to January 1, 2018 and caused certain distributions made by the Company’s applicable U.S. statutory tax rate fornon-US subsidiaries during Fiscal 2018 to be taxable as Subpart F income on its Fiscal 2018 federal income tax return. The impacts of the Regulations were recorded in the three and nine month periods ended June 30, 2019. The Company used an additional $450.8 million in net operating losses and recognized $95.1 million in federal and state tax expense due to the impact on prior distributions among subsidiaries. The Company also recognized a $48.0 million tax benefit from recalculating its one-time deemed mandatory repatriation liability after application of the Regulations and the final calculations for its Fiscal 2018 federal income tax returns, including the ability for the Company to offset the liability in part by foreign tax credits. The Company recorded $63.9 million of foreign tax credits, but concluded it is more likely than not these credits will be approximately 24.5%.expire unused and therefore also recorded a $63.9 million valuation allowance against the deferred tax assets.
Deferred tax assetsThe income recognized as a result of the Regulations increased the likelihood that the Company could use federal net operating losses subject to certain limits, and liabilities are measured using enacted tax rates expected to apply tothere is a reasonable possibility that the Company could therefore release all or a portion of $36.7 million of valuation allowance on these losses in future periods. The Company has not generated operating taxable income in the years in which those temporary differences are expected to reverse. Asaffected subsidiaries and therefore concluded that utilization of these net operating losses is still not more likely than not.
During the nine month period ended June 30, 2018, the Company recognized a $198.7 million tax benefit from revaluing its ending net U.S. deferred tax liabilities as a result of the reduction in the U.S.US corporate income tax rate from 35% to 21% under the Tax Reform Act, the Company revalued its ending net deferred tax liabilities at December 31, 2017 and recognized a provisional $206.7$71.0 million of income tax benefit in the Company’s net income from continuing operationsexpense for the three month period ended December 31, 2017. The Company reduced the provisional tax benefit by $8.0 million inone-time deemed mandatory repatriation. During the three and nine month period ended June 30, 2018 to reflect additional information regarding the Fiscal 2018 reversing temporary differences. The Company determined the impact of the U.S. federal corporate income tax rate change on the U.S. deferred tax assets and liabilities is provisional because certain of the timing differences reversing at the Company’s Fiscal 2018 blended rate must be estimated until the Fiscal 2018 reversing timing differences are known.
As a result of the Spectrum Merger, the Company and Spectrum will join in the filing of a US consolidated tax return starting July 13, 2018. The form of the Spectrum Merger allows for the Company’s capital and net operating loss carryforwards to be able to be used to offset Spectrum’s future income and the US tax gain on the sale of the GBL business to Energizer. As a result, for the three month periodperiods ended June 30, 2018, the Company released $335.0 million of valuation allowance on its U.S. federal net deferred tax assets since it is now more likely than not that the assets will be realized. As of June 30, 2018, the Company has $229.8 million of valuation allowance recorded on US deferred tax assets, primarily net operating losses and tax credits subject to certain ownership change limitations on their use.
The Company is actively marketing the HPC business and expects to consummate a sale prior to December 31, 2018. If the portion of the purchase price allocated to the US is sufficient, there is a reasonable possibility that the Company could release valuation allowance of $40.0 million of federal net operating losses currently subject to certain limits, and additional valuation allowance on US state net operating losses. The Company does not have sufficient certainty around the purchase price or the amount that would be allocated to the US to conclude that utilization of these net operating losses is more likely than not.
During the three month period ended March 31, 2018, the Company released $4.9 million of valuation allowance against its U.S. federal and state capital losses as a result of the announced sale of the GBL business to Energizer. During the nine month period ended June 30, 2018, the Company also released $2.7 million of valuation allowance against its U.S. state net operating loss deferred tax assets since the projected US tax gain on the sale makes it more likely than not that the additional tax benefits will be realized.Spectrum Merger.
As of June 30, 2018, the Company has recorded $38.7 million of valuation allowance against its U.S. state net operating losses. It remains unclear which of the Tax Reform Act provisions will be adopted by each of the U.S. states. State conformity to the provisions of the Tax Reform Act could have a material impact on the valuation allowance recorded on U.S. state net operating losses.
The Tax Reform Act provided for a one-time deemed mandatory repatriation of post-1986 undistributed foreign subsidiary earnings and profits (“E&P”). The Company had an estimated $526.4 million of undistributed foreign E&P subject to the deemed mandatory repatriation and recognized a provisional $71.0 million of income tax expense in the Company’s net income from continuing operations for the nine month period ended June 30, 2018. The Company reduced the provisional tax expense by $6.9 million in the three month period ended June 30, 2018 to reflect additional information regarding earnings subject to repatriation tax. The mandatory repatriation tax is payable over 8 years, with the first payment due January 2019, therefore $5.7$22.9 million of the mandatory repatriation tax liability is classified as Other Current Liabilitiesstill outstanding and $65.3$2.0 million as Other Long-Term Liabilities onis due and payable in the next 12 months but will be offset by previous payments and credits.
The June 30, 2019 Condensed Consolidated Statement of Financial Position for SB/RH Holdings, LLC contains $114.9 million of income taxes payable to its parent company, calculated as of June 30, 2018. The provisional tax expense for the mandatory repatriation is based on currently available information and additional information needs to be prepared, obtained and analyzed in order to determine the final amount, including further analysis of certain foreign exchange gains or losses, earnings and profits, foreign tax credits, and estimated cash and cash equivalents as of the measurement dates in the Tax Reform Act. Tax effects for changes to these items will be recorded inif SB/RH Holdings, LLC were a subsequent quarter, as discrete adjustments to our income tax provision, once complete.separate taxpayer.
The Tax Reform Act provides for additional limitations on the deduction of business interest expense, effective with the Company’s Fiscal 2019 tax year. Unused interest deductions can be carried forward and may be used in future years to the extent the interest limitation is not exceeded in those periods. It is possible that a portion of the Company’s future U.S. interest expense could be nondeductible and impact the Company’s effective tax rate.
The Tax Reform Act also contains additional limits on deducting compensation, including performance-based compensation, in excess of $1 million paid to certain executive officers for any fiscal year, effective with the Company’s Fiscal 2019 tax year. The Company’s future compensation payments will be subject to these limits, which could impact the Company’s effective tax rate.
The Company continues to review the anticipated impacts of the global intangible low taxed income (“GILTI”) and base erosion anti-abuse tax (“BEAT”) on the Company, which are not effective until fiscal year 2019. The Company has not recorded any impact associated with either GILTI or BEAT in the tax rate for the nine month period ended June 30, 2018. The FASB allows an accounting policy election of either recognizing deferred taxes for temporary differences expected to reverse as GILTI in future years or treating such taxes as a current-period expense when incurred. Due to the complexity of calculating GILTI under the new law, we have not determined which method we will apply.
In response to the enactment of the Tax Reform Act, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. SAB 118 allows registrants to record provisional amounts during a one year measurement period in a manner similar to accounting for business combinations. The measurement period ended December 30, 2018 and the Company has recognizeddid not recognize changes in the current year to the provisional tax impacts relatedprior to deemed repatriated earnings and the revaluationclosing of deferred tax assets and liabilities and included these amounts in its consolidated financial statements for the nine month period ended June 30, 2018. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a resultmeasurement period. Portions of the Tax Reform Act.Act are unclear or have not yet been clarified and interpretations and regulations continue to be issued, which could have a material impact on what the Company has recorded to date.
32
24
SPECTRUM BRANDS HOLDINGS, INC.
#x200eSB/RH HOLDINGS, LLC
#x200eNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
#x200e(in millions, unaudited)
NOTE 1617 – RELATED PARTY TRANSACTIONS
Energizer Holdings, Inc.
Effective the close of the GBL end GAC divestitures, Spectrum and Energizer entered into a series of transition services agreements (“TSAs”) and reverse TSAs that support various shared back office administrative functions including finance, sales and marketing, information technology, human resources, real estate and supply chain, customer service and procurement; to support both the transferred GBL operations and the continuing operations of Spectrum, respectively, within the various regions in which they operate. Charges associated with TSAs and reverse TSAs are recognized as bundled service costs under a fixed fee structure by the respective service or function and geographic location and one-time pass-through charges, including warehousing, freight, among others, to and from Energizer that settled on a net basis between the two parties. The TSAs and reverse TSAs were further expanded to incorporate the activity and operations attributable to the close of the GAC divestiture. Charges to Energizer for TSA services are recognized as a reduction of the respective operating costs incurred by Spectrum and recognized as a component of operating expense or cost of goods sold depending upon the functions being supported by Spectrum. Charges from Energizer for reverse TSA services are recognized as operating expenses or cost of goods sold depending upon the functions being supported by Energizer. The TSAs and reverse TSAs have an overall expected time period of 12 months following the close of the transaction with some variability in expiration dependent upon the completed transition of the respective service or function and its geographic location and provide up to 12 additional months for a total duration of up to 24 months. During the three and nine month periods ended June 30, 2019, the Company recognized net income associated with TSAs and reverse TSAs of $1.4 million and $4.0 million, respectively, consisting of TSA charges of $6.3 million and $12.9 million, respectively, and reverse TSA costs of $4.8 million and $8.9 million, respectively. In addition to the TSAs and reverse TSAs, both the Company and Energizer will receive cash and/or make payments on behalf of the respective counterparty’s operations as part of the shared administrative functions, resulting in cash flow being commingled with the operating cash flow of the Company. The Company recognizes a net payable or receivable with Energizer for any outstanding TSA and reverse TSA related services and net working capital attributable to commingled cash flow. As of June 30, 2019, the Company has a net receivable of $4.0 million attributable to TSA and reverse TSA services, net working capital settlements and other pass-through costs included in Non-Trade Receivables on the Company’s Condensed Statement of Financial Position.
Effective the close of the GAC divestiture, the Company’s H&G segment will continue to manufacture certain GAC related products at its facilities and sell the products to Energizer as a third-party supplier on an ongoing basis, at inventory cost plus contracted markup, as agreed upon in the supply agreement. The supply agreement has a contracted term of 24 months and may be subject to early termination by either party at any time with written notice. Material and inventory on hand to support the supply agreement is recognized as inventory of the Company. During the three and nine month period ended June 30, 2019, the Company recognized $4.6 and $8.3 million, respectively, of revenue attributable to the Energizer supply agreement as a component of H&G revenue after completion of the GAC divestiture. As of June 30, 2019, the Company had an outstanding receivable of $0.9 million from Energizer in Trade Receivables, Net on the Company’s Condensed Statement of Financial Position associated with the H&G supply agreement.
As a condition to the consummation of the GAC acquisition and receipt of 5.3 million shares of Energizer common stock as consideration, the Company entered into a shareholder agreement with Energizer (“Energizer Shareholder Agreement”) which contains a 24-month standstill provision that prohibits the Company from engaging in certain transactions involving Energizer to control or influence management, board of directors or policies of Energizer. Additionally, for a period of 18 months following the closing of the GAC acquisition, the Company is required to vote in favor of Energizer’s board of director nominees and in accordance with the Energizer board’s recommendations on all other matters at any meeting of Energizer’s shareholders. Additionally, pursuant to the Energizer Shareholder Agreement, the Company has agreed not to transfer any of its Shares or other equity securities in Energizer, or engage in certain hedging transactions from the closing of the GAC acquisition until the day that is twelve months after the GAC closing date and, following such period, subject to certain limitations, not to transfer any such Energizer shares or other equity securities to any person or entity who would thereafter beneficially own more than 4.9% of Energizer’s outstanding shares of equity securities after giving effect to such transaction. Following the 18 month anniversary of the closing of the GAC acquisition, Energizer will have the right to repurchase any or all of the shares held by the Company for a purchase price per share equal to the greater of the volume-weighted average sales price per share for the ten consecutive trading days beginning on the 12th trading day immediately preceding notice of the repurchase from Energizer and 100% of the volume-weighted average sale price per share of the common stock for the 10 consecutive trading days immediately preceding the date of the GAC agreement. The Company’s investment in Energizer common stock is recognized at its fair value in Investments on the Company’s Condensed Consolidated Statement of Financial Position, with any unrealized gains or losses attributable to changes in the market price and dividend income received from Energizer being recognized as Other Non-Operating Income on the Company’s Condensed Consolidated Statements of Income.
Jefferies Financial Group
On October 16, 2017, HRG entered into an engagement letter with Jefferies LLC (“Jefferies”), a wholly owned subsidiary of Leucadia National Corporation (“Leucadia”) a significant stockholderJefferies Financial Group which owns more than 10% of the outstanding common stock of the Company. Pursuant to the Jefferies engagement letter, Jefferies agreed to act as co-advisor to the Company (with the other co-advisors acting as lead financial advisor to the HRG) with respect to HRG’s review of strategic alternatives.alternatives to HRG during the Spectrum Merger. Under the Jefferies Engagement Letter, and effective close of the Spectrum Merger on July 13, 2018, Jefferies received a $3.0 million transaction fee, including reimbursement for all reasonable out of pocket expenses incurred by Jefferies in connection therewith. In addition, HRG agreed to indemnify Jefferies for certain liabilities in connection with such engagement.
Other
During the nine month period ended June 30, 2019, the Company repurchased 158,318 shares of common stock from David Maura, Chairman and Chief Executive Officer of the Company, for $8.0 million at the current market price of the Company’s stock, at an average repurchase price of $56.02 per share.
33
SPECTRUM BRANDS HOLDINGS, INC.
#x200eSB/RH HOLDINGS, LLC
#x200eNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
#x200e(in millions, unaudited)
NOTE 1718 -COMMITMENTS AND CONTINGENCIES
The Company is a defendant in various litigation matters generally arising out of the ordinary course of business. TheBased on information currently available, the Company does not believe that any of the matters or proceedings presently pending will have a material adverse effect on its results of operations, financial condition, liquidity or cash flows.
Environmental. The Company has provided for an estimated cost of $4.2$3.8 million and $4.4$4.0 million, as of June 30, 20182019, and September 30, 2017,2018, respectively, associated with environmental remediation activities at some of its current and former manufacturing sites. 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 June 30, 20182019, and September 30, 2017,2018, the Company recognized $4.8 million and $5.3$9.8 million in product liability, accruals, respectively, included in Other Current Liabilities on the Condensed Consolidated Statement 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.Warranty. The Company recognizes an estimated liability for standard warranty 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 $7.3$6.8 million and $6.4$7.8 million of warranty accruals as of June 30, 20182019 and September 30, 2017,2018, respectively, included in Other Current Liabilities on the Condensed Consolidated Statement of Financial Statement.Position.
Product Safety Recall. On June 10, 2017, the Company initiated a voluntary safety recall of various rawhide chew products for dogs sold by Spectrum’s PET segment due to possible chemical contamination. As a result, the Company realized a loss related to the recall of $5.1 million and $16.3 million for the three and nine month periods ended June 30, 2018, which comprised of inventory write-offs of $2.0 million and $3.6 million for the three and nine month periods ended June 30, 2018, respectively, for inventory at our distribution centers and production facilities that were considered obsolete and disposed; customer losses of $0.5 million and $1.6 million, respectively, for returned or disposed product held by our customers; and $2.6 million and $11.1 million, respectively, for incremental costs of disposal and operating costs during a temporary shutdown and subsequent start-up of production facilities impacted by the recall. The Company suspended production at facilities impacted by the product safety recall, completed a comprehensive manufacturing review and subsequently recommenced production during the fourth quarter ended September 30, 2017. The impacted production facilities are subject to incremental costs during start-up requiring alternative treatment on affected product SKUs until appropriate regulatory approvals have been received. The amounts for customer losses reflect the cost of the affected products returned to or replaced by the Company and the expected cost to reimburse customers for costs incurred by them related to the recall. The incremental costs incurred directly by the company do not include lost earnings associated with interruption of production at the Company’s facilities, or the costs to put into place corrective and preventative actions at those facilities. The Company’s estimates for losses related to the recall are provisional and were determined based on an assessment of information currently available and may be revised in subsequent periods as the Company continues to work with its customers to substantiate claims received to date and any additional claims that may be received. There have been no lawsuits or claims filed against the Company related to the recalled product.
25
NOTE 1819 - SEGMENT INFORMATION
The HRG reportable business segments were historically organized in a manner that reflected HRG’s management views of those business activities prior to the Spectrum Merger. Accordingly, the Company is currently presenting the results from its business operations in two reportable segments: (i) Consumer Products and (ii) Corporate and Other. The HRG’s Corporate and Other segment includes ownership in Salus. The following schedule presents the HRG segment information for the three and nine month periods ended June 30, 2018 and 2017.
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| Three month periods ended |
| Nine month periods ended | ||||||||
(in millions) |
| June 30, 2018 |
| June 30, 2017 |
| June 30, 2018 |
| June 30, 2017 | ||||
Revenues |
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Consumer products |
| $ | 945.5 |
| $ | 862.9 |
| $ | 2,358.1 |
| $ | 2,221.6 |
Corporate and other |
|
| — |
|
| 0.1 |
|
| — |
|
| 1.1 |
Total revenues |
| $ | 945.5 |
| $ | 863.0 |
| $ | 2,358.1 |
| $ | 2,222.7 |
Operating income |
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Consumer products |
| $ | 133.3 |
| $ | 110.9 |
| $ | 210.4 |
| $ | 277.1 |
Corporate and other |
|
| (7.0) |
|
| (10.2) |
|
| (29.6) |
|
| (39.9) |
Total operating income |
|
| 126.3 |
|
| 100.7 |
|
| 180.8 |
|
| 237.2 |
Interest expense |
|
| 63.5 |
|
| 76.1 |
|
| 206.6 |
|
| 232.4 |
Other (expense) income, net |
|
| (2.3) |
|
| 1.3 |
|
| (4.6) |
|
| 1.7 |
Income (loss) from continuing operations before income taxes |
| $ | 65.1 |
| $ | 23.3 |
| $ | (21.2) |
| $ | 3.1 |
As a result of the Spectrum Merger effective July 13, 2018, subsequent to the fiscal period end date of June 30, 2018 and prior to the issuance of this Quarterly Report, management of the Company transitioned to Spectrum’s management. See Note 4 – Acquisitions for further details on the Spectrum Merger. Spectrum identifies its segments based upon the internal organization that is used by Spectrum management for making operating decisions and assessing performance as the source of its reportable segments. As a result of the date ofGBL and GAC divestitures, and changes to the merger,Company’s plan to sell its HPC division, the way management views its business activities and the reportable segments changed.Spectrum had historically recognized GBL and HPC as components to Global Batteries and Appliances (GBA) reportable segment. Effective December 29, 2017, the Company changedapproved a plan to sell its GBA segment and classified it as held for sale and excluded it from segment reporting until November 2018, when the decision was made to change its plan to sell HPC and recognize it as a component of continuing operations. See Note 3 – Divestitures for further details on GBL and GAC divestitures, and the change in plan to sell HPC. HPC has been recognized as a component of continuing operations and as a separate operating and reporting segments to be consistent with the segment reporting of Spectrum. Spectrum manufactures, markets and/or distributes multiple product lines through various distribution networks, and in multiple geographic regions. reportable segment.
Spectrum manages its continuing operations in vertically integrated, product-focused reporting segments: (i) Hardware & Home Improvement,HHI, which consists of the Spectrum’s worldwide hardware, security and plumbing business; (ii) Global Pet Supplies,PET, which consists of the Spectrum’s worldwide pet suppliescare business; (iii) Home and Garden,H&G, which consists of the Spectrum’s home and garden and insect control business and (iv) Global Auto Care,HPC, which consists of the Spectrum’s automotive appearanceworldwide small kitchen and performance products. personal care appliances businesses. Global strategic initiatives and financial objectives for each reportable segment are determined at the corporate level. Each segment is responsible for implementing defined strategic initiatives and achieving certain financial objectives and has a president or general manager responsible for the sales and marketing initiatives and financial results for product lines within the segment. Net sales relating to the segments of Spectrum for the three and nine month periods ended June 30, 20182019 and June 30, 20172018 are as follows:
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| Three month periods ended |
| Nine month periods ended | Three Month Periods ended | Nine Month Periods ended | ||||||||||||||||||
(in millions) |
| June 30, 2018 |
| June 30, 2017 |
| June 30, 2018 |
| June 30, 2017 | June 30, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 | ||||||||||||
HHI |
| $ | 372.4 |
| $ | 324.7 |
| $ | 1,016.8 |
| $ | 927.2 | $ | 354.6 | $ | 372.4 | $ | 990.7 | $ | 1,016.8 | ||||
HPC | 243.4 | 254.4 | 782.3 | 827.5 | ||||||||||||||||||||
PET |
|
| 194.7 |
|
| 190.0 |
|
| 608.3 |
|
| 576.0 | 221.7 | 194.7 | 641.3 | 608.3 | ||||||||
H&G |
|
| 203.2 |
|
| 192.4 |
|
| 370.6 |
|
| 374.2 | 202.5 | 207.9 | 394.9 | 381.7 | ||||||||
GAC |
|
| 175.2 |
|
| 155.8 |
|
| 362.4 |
|
| 344.2 | ||||||||||||
Net sales |
| $ | 945.5 |
| $ | 862.9 |
| $ | 2,358.1 |
| $ | 2,221.6 | $ | 1,022.2 | $ | 1,029.4 | $ | 2,809.2 | $ | 2,834.3 |
34
SPECTRUM BRANDS HOLDINGS, INC.
#x200eSB/RH HOLDINGS, LLC
#x200eNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
#x200e(in millions, unaudited)
NOTE 19 - SEGMENT INFORMATION (continued)
The Chief Operating Decision Maker of Spectrumthe 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 (1) shareexcludes:
Stock based compensation expense as it is a non-cash based compensation cost; (2) acquisition and integrationother incentive compensation costs that consist of costs associated with long-term compensation arrangements and other equity based compensation based upon achievement of long-term performance metrics; and generally consist of non-cash, stock-based compensation. During the year ending September 30, 2019, the Company issued certain incentive bridge awards due to changes in the Company’s long-term compensation plans that allow for cash based payment upon employee election which have been included in the adjustment but would not qualify for shared-based compensation. See Note 15 - Share Based Compensation for further discussion;
Transaction related charges consist of (1) transaction costs from qualifying acquisition transactions during the period, or subsequent integration related project costs directly associated with thean acquired business; (2) post-divestiture separation costs consisting of incremental costs incurred by the continuing operations of the Company after completion of the GBL and GAC divestitures to facilitate separation of shared operations, development of transferred shared service operations, platforms and personnel transferred as part of the divestitures and exiting of TSAs and reverse TSAs with Energizer; (3) restructuringdivestiture related transaction costs that are recognized in continuing operations due to the change in plan to cease marketing and selling of the HPC business. See Note 2 – Basis of Presentation & Significant Accounting Policies for additional details;
Restructuring and related costs,charges, which consist of project costs associated with restructuring initiatives across the segments; (4) non-cashsegments. See Note 5 - Restructuring and Related Charges for further details;
Unrealized gains and losses attributable to the Company’s investment in Energizer common stock, acquired as part of consideration received from the Company’s sale and divestiture of GAC to Energizer. See Note 3 – Divestitures for further discussion;
Foreign currency gains and losses attributable to multicurrency loans that were entered with foreign subsidiaries in exchange for the receipt of divestiture proceeds by the parent company through the distribution of the respective foreign subsidiaries’ net assets as part of the GBL and GAC divestitures. The Company has also entered into various hedging arrangements to mitigate the volatility of foreign exchange risk associated with such loans;
Incremental costs associated with a safety recall in PET;
Non-cash purchase accounting inventory adjustments recognized in earnings from continuing operations subsequent to an acquisition; (5) non-cashacquisition (when applicable);
Non-cash asset impairments or write-offs realized; (6) incrementalrealized and recognized in earnings from continuing operations (when applicable);
Incremental costs associated with the safety recall in PET; (7) transaction costsdirectly associated with the Spectrum Merger (see Note 4 - Acquisitions for further details); (8) non-recurringduring the three and nine month periods ended June 30, 2018;
Non-recurring HRG net operating costs during the three and nine month periods ended June 30, 2018, considered to be redundant or duplicative as a result of the Spectrum Merger and not considered a component of the continuing commercial products company post-merger, including compensation and benefits, directors fees, professional fees, insurance, public company costs, amongst others, and including interest and other non-recurring income that will ultimately be eliminated following the transaction, (9) nettransaction; and
Other adjustments primarily consisting of costs attributable to (1) operating results frommargin on H&G sales to GAC discontinued operations for the three and nine month periods ended June 30, 2019 and 2018 respectively; (2) expenses and cost recovery for flood damage at Company facilities in Middleton, Wisconsin during the three and nine month periods ended June 30, 2019; (3) certain fines and penalties for delayed shipments following the completion of a PET distribution center consolidation in EMEA during the nine month period ended June 30, 2019; (4) legal and litigation costs associated with Salus during the three and nine month periods ended June 30, 2019 as they are not considered a component of the continuing commercial products company;company, but continue to be consolidated by the Company after completion of the Spectrum Merger until the Salus operations can be wholly dissolved and/or deconsolidated; and (10) other. During(5) incremental costs for separation of a key executive during the three and nine month periodperiods ended June 30, 2018, other consisted of separation costs with a senior executive. 2018.
Segment Adjusted EBITDA in relation tofor the SBH reportable segments for SBH for the three and nine month periods ended June 30, 20182019 and 20172018, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| Three month periods ended |
| Nine month periods ended | Three Month Periods ended | Nine Month Periods ended | ||||||||||||||||||
SBH (in millions) |
| June 30, 2018 |
| June 30, 2017 |
| June 30, 2018 |
| June 30, 2017 | June 30, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 | ||||||||||||
HHI |
| $ | 73.9 |
| $ | 62.2 |
| $ | 179.5 |
| $ | 178.0 | $ | 67.7 | $ | 73.9 | $ | 175.9 | $ | 179.5 | ||||
HPC | 18.2 | 21.4 | 57.7 | 83.3 | ||||||||||||||||||||
PET |
|
| 34.9 |
|
| 36.1 |
|
| 104.6 |
|
| 98.7 | 39.0 | 34.9 | 100.9 | 104.6 | ||||||||
H&G |
|
| 57.0 |
|
| 59.5 |
|
| 87.7 |
|
| 100.8 | 53.3 | 57.0 | 85.9 | 87.7 | ||||||||
GAC |
|
| 50.1 |
|
| 50.7 |
|
| 84.7 |
|
| 115.9 | ||||||||||||
Total Segment Adjusted EBITDA |
|
| 215.9 |
|
| 208.5 |
|
| 456.5 |
|
| 493.4 | 178.2 | 187.2 | 420.4 | 455.1 | ||||||||
Corporate expenses |
|
| 9.5 |
|
| 9.2 |
|
| 28.8 |
|
| 28.7 | 5.3 | 9.5 | 16.7 | 28.8 | ||||||||
Interest expense | 33.9 | 63.3 | 185.1 | 206.4 | ||||||||||||||||||||
Depreciation and amortization |
|
| 32.2 |
|
| 32.9 |
|
| 99.4 |
|
| 94.3 | 35.9 | 27.9 | 138.4 | 96.6 | ||||||||
Share-based compensation |
|
| 5.3 |
|
| 5.0 |
|
| 6.4 |
|
| 28.5 | ||||||||||||
Acquisition and integration related charges |
|
| 2.3 |
|
| 5.2 |
|
| 12.0 |
|
| 11.6 | ||||||||||||
Share and incentive based compensation | 15.6 | 5.7 | 38.7 | 7.0 | ||||||||||||||||||||
Transaction related charges | 4.8 | 5.5 | 16.4 | 20.4 | ||||||||||||||||||||
Restructuring and related charges |
|
| 25.4 |
|
| 21.2 |
|
| 69.0 |
|
| 31.3 | 20.7 | 17.9 | 42.2 | 55.4 | ||||||||
Interest expense |
|
| 63.5 |
|
| 76.1 |
|
| 206.6 |
|
| 232.4 | ||||||||||||
Unrealized loss on Energizer investment | 33.2 | — | 38.2 | — | ||||||||||||||||||||
Foreign currency loss on multicurrency divestiture loans | 7.7 | — | 29.5 | — | ||||||||||||||||||||
Inventory acquisition step-up |
|
| — |
|
| 0.8 |
|
| 0.8 |
|
| 0.8 | — | — | — | 0.8 | ||||||||
Pet safety recall |
|
| 5.1 |
|
| 24.9 |
|
| 16.3 |
|
| 24.9 | — | 5.1 | 0.7 | 16.3 | ||||||||
HRG merger related transaction charges |
|
| 3.1 |
|
| 1.4 |
|
| 22.0 |
|
| 4.2 | ||||||||||||
Spectrum merger related transaction charges | — | 3.1 | — | 22.0 | ||||||||||||||||||||
Non-recurring HRG operating costs |
|
| 1.2 |
|
| 7.8 |
|
| 11.9 |
|
| 28.6 | — | 1.1 | — | 13.0 | ||||||||
Salus |
|
| (0.1) |
|
| 0.7 |
|
| 1.2 |
|
| 5.0 | ||||||||||||
Other |
|
| 3.3 |
|
| — |
|
| 3.3 |
|
| — | 1.6 | 3.4 | 3.9 | 3.2 | ||||||||
Income (loss) from operations before income taxes |
| $ | 65.1 |
| $ | 23.3 |
| $ | (21.2) |
| $ | 3.1 | $ | 19.5 | $ | 44.7 | $ | (89.4) | $ | (14.8) |
2635
SPECTRUM BRANDS HOLDINGS, INC.
#x200eSB/RH HOLDINGS, LLC
#x200eNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
#x200e(in millions, unaudited)
NOTE 1819 - SEGMENT INFORMATION (continued)
SBRH reportable segments are consistent to Spectrum reportable segments. Segment Adjusted EBITDA in relation to the SBRHfor reportable segments for SB/RH for the three and nine month periods ended June 30, 2019 and July 1, 2018 and July 2, 2017 are as follows:
|
|
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|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| Three month periods ended |
| Nine month periods ended | Three Month Periods ended | Nine Month Periods ended | ||||||||||||||||||
SBRH (in millions) |
| July 1, 2018 |
| July 2, 2017 |
| July 1, 2018 |
| July 2, 2017 | ||||||||||||||||
SB/RH (in millions) | June 30, 2019 | July 1, 2018 | June 30, 2019 | July 1, 2018 | ||||||||||||||||||||
HHI |
| $ | 73.9 |
| $ | 62.2 |
| $ | 179.5 |
| $ | 178.0 | $ | 67.7 | $ | 73.9 | $ | 175.9 | $ | 179.5 | ||||
HPC | 18.2 | 21.4 | 57.7 | 83.3 | ||||||||||||||||||||
PET |
|
| 34.9 |
|
| 36.1 |
|
| 104.6 |
|
| 98.7 | 39.0 | 34.9 | 100.9 | 104.6 | ||||||||
H&G |
|
| 57.0 |
|
| 59.5 |
|
| 87.7 |
|
| 100.8 | 53.3 | 57.0 | 85.9 | 87.7 | ||||||||
GAC |
|
| 50.1 |
|
| 50.7 |
|
| 84.7 |
|
| 115.9 | ||||||||||||
Total Segment Adjusted EBITDA |
|
| 215.9 |
|
| 208.5 |
|
| 456.5 |
|
| 493.4 | 178.2 | 187.2 | 420.4 | 455.1 | ||||||||
Corporate expenses |
|
| 9.4 |
|
| 8.9 |
|
| 28.2 |
|
| 28.4 | 5.6 | 9.4 | 15.4 | 28.1 | ||||||||
Interest expense | 33.7 | 43.4 | 125.2 | 124.0 | ||||||||||||||||||||
Depreciation and amortization |
|
| 32.2 |
|
| 32.9 |
|
| 99.3 |
|
| 94.1 | 35.9 | 27.9 | 138.4 | 96.5 | ||||||||
Share-based compensation |
|
| 4.5 |
|
| 3.9 |
|
| 4.0 |
|
| 21.6 | ||||||||||||
Acquisition and integration related charges |
|
| 2.3 |
|
| 5.2 |
|
| 12.0 |
|
| 11.6 | ||||||||||||
Share and incentive based compensation | 15.2 | 4.9 | 37.6 | 4.6 | ||||||||||||||||||||
Transaction related charges | 4.8 | 5.5 | 16.4 | 20.4 | ||||||||||||||||||||
Restructuring and related charges |
|
| 25.4 |
|
| 21.2 |
|
| 69.0 |
|
| 31.3 | 20.7 | 17.9 | 42.2 | 55.4 | ||||||||
Interest expense |
|
| 43.6 |
|
| 39.8 |
|
| 124.2 |
|
| 122.0 | ||||||||||||
Unrealized loss on Energizer investment | 33.2 | — | 38.2 | — | ||||||||||||||||||||
Foreign currency loss on multicurrency divestiture loans | 7.7 | — | 29.5 | — | ||||||||||||||||||||
Inventory acquisition step-up |
|
| — |
|
| 0.8 |
|
| 0.8 |
|
| 0.8 | — | — | — | 0.8 | ||||||||
Pet safety recall |
|
| 5.1 |
|
| 24.9 |
|
| 16.3 |
|
| 24.9 | — | 5.1 | 0.7 | 16.3 | ||||||||
Other |
|
| 3.3 |
|
| — |
|
| 3.3 |
|
|
| 0.4 | 3.4 | 2.8 | 3.2 | ||||||||
Income from continuing operations before income taxes |
| $ | 90.1 |
| $ | 70.9 |
| $ | 99.4 |
| $ | 158.7 | ||||||||||||
Income (loss) from continuing operations before income taxes | $ | 21.0 | $ | 69.7 | $ | (26.0) | $ | 105.8 |
NOTE 1920 - 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 nine month periods ended June 30, 20182019 and 20172018 are as follows:
|
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|
|
|
|
|
|
|
| ||||||||||||
|
| Three Month Periods Ended |
| Nine Month Periods Ended | Three Month Periods Ended | Nine Month Periods Ended | ||||||||||||||||||
(in millions, except per share amounts) |
| June 30, 2018 |
| June 30, 2017 |
| June 30, 2018 |
| June 30, 2017 | June 30, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 | ||||||||||||
Numerator |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Net income (loss) from continuing operations attributable to controlling interest |
| $ | 377.4 |
| $ | (16.6) |
| $ | 368.1 |
| $ | (88.6) | ||||||||||||
Net (loss) income from continuing operations attributable to controlling interest | $ | (24.7) | $ | 382.9 | $ | (108.8) | $ | 390.3 | ||||||||||||||||
(Loss) income from discontinued operations attributable to controlling interest |
|
| (0.1) |
|
| 18.7 |
|
| 479.6 |
|
| 220.8 | (1.2) | 22.7 | 699.1 | 493.7 | ||||||||
Net income attributable to controlling interest |
|
| 377.3 |
|
| 2.1 |
|
| 847.7 |
|
| 132.2 | ||||||||||||
Net (loss) income attributable to controlling interest | (25.9) | 405.6 | $ | 590.3 | $ | 884.0 | ||||||||||||||||||
Denominator |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Weighted average shares outstanding - basic |
|
| 32.7 |
|
| 32.3 |
|
| 32.5 |
|
| 32.2 | 48.8 | 32.7 | 51.3 | 32.5 | ||||||||
Dilutive shares |
|
| 0.1 |
|
| — |
|
| 0.2 |
|
| — | — | 0.1 | — | 0.2 | ||||||||
Weighted average shares outstanding - diluted |
|
| 32.8 |
|
| 32.3 |
|
| 32.7 |
|
| 32.2 | 48.8 | 32.8 | 51.3 | 32.7 | ||||||||
Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Basic earnings per share from continuing operations |
| $ | 11.52 |
| $ | (0.51) |
| $ | 11.31 |
| $ | (2.75) | $ | (0.51) | $ | 11.69 | $ | (2.12) | $ | 12.00 | ||||
Basic earnings per share from discontinued operations |
|
| — |
|
| 0.57 |
|
| 14.74 |
|
| 6.85 | (0.02) | 0.70 | 13.62 | 15.17 | ||||||||
Basic earnings per share |
| $ | 11.52 |
| $ | 0.06 |
| $ | 26.05 |
| $ | 4.10 | $ | (0.53) | $ | 12.39 | $ | 11.50 | $ | 27.17 | ||||
Diluted earnings per share from continuing operations |
| $ | 11.51 |
| $ | (0.51) |
| $ | 11.26 |
| $ | (2.75) | $ | (0.51) | $ | 11.68 | $ | (2.12) | $ | 11.94 | ||||
Diluted earnings per share from discontinued operations |
|
| — |
|
| 0.57 |
|
| 14.67 |
|
| 6.85 | (0.02) | 0.69 | 13.62 | 15.10 | ||||||||
Diluted earnings per share |
| $ | 11.51 |
| $ | 0.06 |
| $ | 25.93 |
| $ | 4.10 | $ | (0.53) | $ | 12.37 | $ | 11.50 | $ | 27.04 | ||||
Weighted average number of anti-dilutive shares excluded from denominator |
|
| — |
|
| 0.3 |
|
| — |
|
| 0.4 | 0.2 | — | 0.1 | — |
The weighted average shares and earnings per share data on the Condensed Consolidated Statements of Income were retrospectively adjusted for all periods presented to reflect the effect of the reverse stock split on July 13, 2018, associated with the closing of the Spectrum Merger. See Note 4 – Acquisitions for further discussion on Spectrum Merger. Using (i) the 20-trading-day volume-weighted average price per share of Spectrum common stock ending on July 12, 2018, (ii) the number of shares of Spectrum common stock outstanding, the number of shares of Spectrum common stock held by HRG and its subsidiaries and the number of shares of Spectrum common stock outstanding as of July 12, 2018, (iii) $328.2 million of HRG net indebtedness and transaction expenses at closing, and (iv) a $200.0 million upward adjustment contemplated by the Merger Agreement, each HRG stockholder received a reverse stock split of approximately 0.1613 of each share of HRG stock. The following is a recalculation of the weighted average shares adjusted for the impact of the reverse stock split for the three and nine month periods ended June 30, 2018 and 2017.2018.
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| Three Month Periods Ended |
| Nine Month Periods Ended | Three Month Periods Ended | Nine Month Periods Ended | ||||||||||||||||||
(in millions, except per share amounts) |
| June 30, 2018 |
| June 30, 2017 |
| June 30, 2018 |
| June 30, 2017 | June 30, 2018 | June 30, 2018 | ||||||||||||||
Basic |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
HRG weighted average shares |
|
| 203.0 |
|
| 200.4 |
|
| 201.8 |
|
| 199.8 | 203 | 201.8 | ||||||||||
HRG share conversion at 1 to 0.1613 |
|
| 32.7 |
|
| 32.3 |
|
| 32.5 |
|
| 32.2 | 32.7 | 32.5 | ||||||||||
Diluted |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
HRG weighted average shares |
|
| 203.3 |
|
| 202.6 |
|
| 202.7 |
|
| 202.4 | 203.3 | 202.7 | ||||||||||
HRG share conversion at 1 to 0.1613 |
|
| 32.8 |
|
| 32.6 |
|
| 32.7 |
|
| 32.6 | 32.8 | 32.7 |
As part of the Spectrum Merger subsequent to the period ended June 30, 2018, each share of Spectrum common stock and outstanding was converted into the right to receive one share of newly issued HRG common stock and exchange for HRG common stock. Due to the share exchange with Spectrum common stock shareholders, the total outstanding shares of the Company effectively increased 20.6 million shares in addition to the Company’s outstanding shares post-reverse stock split previously discussed.
36
27
SPECTRUM BRANDS HOLDINGS, INC.
#x200eSB/RH HOLDINGS, LLC
#x200eNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
#x200e(in millions, unaudited)
NOTE 2021 - GUARANTOR STATEMENTS – SB/RH
Spectrum Brands, Inc. (“SBI”)SBI with SB/RH as a parent guarantor (collectively, the “Parent”), with SBI’s domestic subsidiaries as subsidiary guarantors, has issued the 6.625% Notes under the 2020/22 Indenture, 6.125% Notes under the 2024 Indenture, the 5.75% Notes under the 2025 Indenture and the 4.00% Notes under the 2026 Indenture.
The following consolidating financial statements illustrate the components of the consolidated financial statements of SB/RH. The ‘Parent’ consists of the financial statements of SBI as the debt issuer, with SB/RH as a parent guarantor, without consolidated entities. SB/RH financial information is not presented separately as there are no independent assets or operations and is therefore determined not to be material. Investments in subsidiaries are accounted for using the equity method for purposes of illustrating the consolidating presentation. The elimination entries presented herein eliminate investments in subsidiaries and intercompany balances and transactions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Statement of Financial Position |
|
|
| Guarantor |
| Nonguarantor |
|
|
|
|
| Guarantor | Nonguarantor | |||||||||||||||||
As of July 1, 2018 (in millions) |
| Parent |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated | ||||||||||||||||||||
As of June 30, 2019 (in millions) | Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||||||||
Assets | Assets | Assets | ||||||||||||||||||||||||||||
Cash and cash equivalents |
| $ | 2.4 |
| $ | 0.8 |
| $ | 143.7 |
| $ | — |
| $ | 146.9 | $ | 3.2 | $ | 0.5 | $ | 152.5 | $ | — | $ | 156.2 | |||||
Trade receivables, net |
|
| 132.0 |
|
| 176.8 |
|
| 75.4 |
|
| — |
|
| 384.2 | 232.3 | 167.8 | 168.4 | — | 568.5 | ||||||||||
Intercompany receivables |
|
| — |
|
| 1,414.2 |
|
| 323.7 |
|
| (1,737.9) |
|
| — | — | 1,813.9 | 1,108.8 | (2,922.7) | — | ||||||||||
Other receivables |
|
| 48.3 |
|
| 6.1 |
|
| 14.5 |
|
| (11.2) |
|
| 57.7 | 68.3 | 5.6 | 54.6 | — | 128.5 | ||||||||||
Inventories |
|
| 166.9 |
|
| 246.4 |
|
| 151.7 |
|
| (18.3) |
|
| 546.7 | 270.8 | 214.9 | 244.9 | (12.0) | 718.6 | ||||||||||
Prepaid expenses and other |
|
| 43.1 |
|
| 9.5 |
|
| 15.5 |
|
| — |
|
| 68.1 | 27.8 | 6.5 | 26.1 | — | 60.4 | ||||||||||
Current assets of business held for sale |
|
| 1,052.2 |
|
| 83.9 |
|
| 781.1 |
|
| (4.1) |
|
| 1,913.1 | — | — | — | — | — | ||||||||||
Total current assets |
|
| 1,444.9 |
|
| 1,937.7 |
|
| 1,505.6 |
|
| (1,771.5) |
|
| 3,116.7 | 602.4 | 2,209.2 | 1,755.3 | (2,934.7) | 1,632.2 | ||||||||||
Property, plant and equipment, net |
|
| 174.5 |
|
| 177.3 |
|
| 142.4 |
|
| — |
|
| 494.2 | 188.1 | 120.7 | 156.1 | — | 464.9 | ||||||||||
Long-term intercompany receivables |
|
| 310.4 |
|
| 80.0 |
|
| 11.7 |
|
| (402.1) |
|
| — | 82.1 | 60.5 | 10.8 | (153.4) | — | ||||||||||
Deferred charges and other |
|
| 154.7 |
|
| 2.5 |
|
| 34.4 |
|
| (147.9) |
|
| 43.7 | 222.4 | (101.0) | 68.8 | (155.2) | 35.0 | ||||||||||
Investment | 204.7 | — | — | — | 204.7 | |||||||||||||||||||||||||
Goodwill |
|
| 568.6 |
|
| 1,463.4 |
|
| 237.4 |
|
| — |
|
| 2,269.4 | 629.9 | 544.2 | 276.9 | — | 1,451.0 | ||||||||||
Intangible assets, net |
|
| 392.7 |
|
| 997.6 |
|
| 174.5 |
|
| — |
|
| 1,564.8 | 732.6 | 585.1 | 249.8 | — | 1,567.5 | ||||||||||
Investments in subsidiaries |
|
| 5,044.6 |
|
| 1,382.4 |
|
| (2.8) |
|
| (6,424.2) |
|
| — | 4,327.8 | 1,625.3 | (2.9) | (5,950.2) | — | ||||||||||
Total assets |
| $ | 8,090.4 |
| $ | 6,040.9 |
| $ | 2,103.2 |
| $ | (8,745.7) |
| $ | 7,488.8 | $ | 6,990.0 | $ | 5,044.0 | $ | 2,514.8 | $ | (9,193.5) | $ | 5,355.3 | |||||
Liabilities and Shareholder's Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Current portion of long-term debt |
| $ | 14.8 |
| $ | 4.3 |
| $ | 1.8 |
| $ | (0.1) |
| $ | 20.8 | $ | 2.2 | $ | 4.6 | $ | 7.2 | $ | (0.2) | $ | 13.8 | |||||
Accounts payable |
|
| 88.0 |
|
| 154.1 |
|
| 105.9 |
|
| — |
|
| 348.0 | 102.8 | 106.3 | 250.5 | — | 459.6 | ||||||||||
Intercompany accounts payable |
|
| 1,738.9 |
|
| — |
|
| 1.0 |
|
| (1,739.9) |
|
| — | 2,664.4 | 208.5 | 15.4 | (2,888.3) | — | ||||||||||
Accrued wages and salaries |
|
| 21.8 |
|
| 3.4 |
|
| 16.0 |
|
| — |
|
| 41.2 | 33.1 | 6.5 | 25.8 | — | 65.4 | ||||||||||
Accrued interest |
|
| 43.3 |
|
| — |
|
| — |
|
| — |
|
| 43.3 | 34.7 | — | — | — | 34.7 | ||||||||||
Other current liabilities |
|
| 64.0 |
|
| 24.2 |
|
| 46.9 |
|
| (11.2) |
|
| 123.9 | 253.5 | 27.7 | 282.8 | — | 564.0 | ||||||||||
Current liabilities of business held for sale |
|
| 164.6 |
|
| 1.4 |
|
| 359.3 |
|
| — |
|
| 525.3 | — | — | — | — | — | ||||||||||
Total current liabilities |
|
| 2,135.4 |
|
| 187.4 |
|
| 530.9 |
|
| (1,751.2) |
|
| 1,102.5 | 3,090.7 | 353.6 | 581.7 | (2,888.5) | 1,137.5 | ||||||||||
Long-term debt, net of current portion |
|
| 4,156.9 |
|
| 89.5 |
|
| 7.1 |
|
| — |
|
| 4,253.5 | 2,135.5 | 53.8 | 10.8 | — | 2,200.1 | ||||||||||
Long-term intercompany debt |
|
| 11.7 |
|
| 290.9 |
|
| 97.3 |
|
| (399.9) |
|
| — | 12.7 | — | 174.8 | (187.5) | — | ||||||||||
Deferred income taxes |
|
| — |
|
| 422.3 |
|
| 46.5 |
|
| (153.7) |
|
| 315.1 | 141.9 | 305.6 | 63.1 | (158.5) | 352.1 | ||||||||||
Other long-term liabilities |
|
| 68.0 |
|
| 6.2 |
|
| 39.0 |
|
| — |
|
| 113.2 | 12.8 | 3.2 | 59.3 | — | 75.3 | ||||||||||
Total liabilities |
|
| 6,372.0 |
|
| 996.3 |
|
| 720.8 |
|
| (2,304.8) |
|
| 5,784.3 | 5,393.6 | 716.2 | 889.7 | (3,234.5) | 3,765.0 | ||||||||||
Shareholder's equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Other capital |
|
| 2,095.2 |
|
| 787.6 |
|
| (1,378.5) |
|
| 567.1 |
|
| 2,071.4 | 2,122.8 | 439.4 | (1,088.0) | 631.6 | 2,105.8 | ||||||||||
Accumulated (deficit) earnings |
|
| (153.3) |
|
| 4,452.3 |
|
| 2,940.1 |
|
| (7,392.4) |
|
| (153.3) | (297.7) | 4,095.9 | 2,911.4 | (7,007.4) | (297.8) | ||||||||||
Accumulated other comprehensive loss |
|
| (223.5) |
|
| (195.3) |
|
| (189.1) |
|
| 384.4 |
|
| (223.5) | (228.7) | (207.5) | (209.3) | 416.8 | (228.7) | ||||||||||
Total shareholder's equity |
|
| 1,718.4 |
|
| 5,044.6 |
|
| 1,372.5 |
|
| (6,440.9) |
|
| 1,694.6 | 1,596.4 | 4,327.8 | 1,614.1 | (5,959.0) | 1,579.3 | ||||||||||
Non-controlling interest |
|
| — |
|
| — |
|
| 9.9 |
|
| — |
|
| 9.9 | — | — | 11.0 | — | 11.0 | ||||||||||
Total equity |
|
| 1,718.4 |
|
| 5,044.6 |
|
| 1,382.4 |
|
| (6,440.9) |
|
| 1,704.5 | 1,596.4 | 4,327.8 | 1,625.1 | (5,959.0) | 1,590.3 | ||||||||||
Total liabilities and equity |
| $ | 8,090.4 |
| $ | 6,040.9 |
| $ | 2,103.2 |
| $ | (8,745.7) |
| $ | 7,488.8 | $ | 6,990.0 | $ | 5,044.0 | $ | 2,514.8 | $ | (9,193.5) | $ | 5,355.3 |
37
28
SPECTRUM BRANDS HOLDINGS, INC.
#x200eSB/RH HOLDINGS, LLC
#x200eNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
#x200e(in millions, unaudited)
NOTE 2021 - GUARANTOR STATEMENTS – SB/RH (continued)
Statement of Financial Position | Guarantor | Nonguarantor | |||||||||||||
As of September 30, 2018 (in millions) | Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||
Assets | |||||||||||||||
Cash and cash equivalents | $ | 276.6 | $ | 1.8 | $ | 227.0 | $ | — | $ | 505.4 | |||||
Trade receivables, net | 108.9 | 42.9 | 165.3 | — | 317.1 | ||||||||||
Intercompany receivables | — | 1,648.3 | 283.0 | (1,931.3) | — | ||||||||||
Other receivables | 65.7 | 1.8 | 27.6 | — | 95.1 | ||||||||||
Inventories | 228.5 | 162.6 | 204.6 | (12.1) | 583.6 | ||||||||||
Prepaid expenses and other | 35.3 | 4.0 | 23.6 | — | 62.9 | ||||||||||
Current assets of business held for sale | 551.2 | 1,379.0 | 482.5 | (10.1) | 2,402.6 | ||||||||||
Total current assets | 1,266.2 | 3,240.4 | 1,413.6 | (1,953.5) | 3,966.7 | ||||||||||
Property, plant and equipment, net | 222.9 | 122.1 | 155.0 | — | 500.0 | ||||||||||
Long-term intercompany receivables | 321.3 | 70.3 | 11.6 | (403.2) | — | ||||||||||
Deferred charges and other | 200.4 | 0.6 | 68.6 | (195.4) | 74.2 | ||||||||||
Goodwill | 557.4 | 611.4 | 285.9 | — | 1,454.7 | ||||||||||
Intangible assets, net | 770.4 | 609.5 | 261.9 | — | 1,641.8 | ||||||||||
Investments in subsidiaries | 4,900.7 | 1,262.5 | (2.9) | (6,160.3) | — | ||||||||||
Total assets | $ | 8,239.3 | $ | 5,916.8 | $ | 2,193.7 | $ | (8,712.4) | $ | 7,637.4 | |||||
Liabilities and Shareholder's Equity | |||||||||||||||
Current portion of long-term debt | $ | 535.0 | $ | 4.3 | $ | 7.8 | $ | (0.2) | $ | 546.9 | |||||
Accounts payable | 222.4 | 124.2 | 238.1 | — | 584.7 | ||||||||||
Intercompany accounts payable | 1,878.0 | — | 35.1 | (1,913.1) | — | ||||||||||
Accrued wages and salaries | 24.6 | 1.5 | 29.3 | — | 55.4 | ||||||||||
Accrued interest | 55.0 | — | — | — | 55.0 | ||||||||||
Other current liabilities | 59.3 | 15.3 | 77.8 | (0.1) | 152.3 | ||||||||||
Current liabilities of business held for sale | 81.7 | 157.8 | 298.1 | — | 537.6 | ||||||||||
Total current liabilities | 2,856.0 | 303.1 | 686.2 | (1,913.4) | 1,931.9 | ||||||||||
Long-term debt, net of current portion | 3,615.3 | 57.3 | 13.8 | — | 3,686.4 | ||||||||||
Long-term intercompany debt | 11.6 | 295.0 | 114.8 | (421.4) | — | ||||||||||
Deferred income taxes | 59.4 | 357.6 | 70.6 | (200.6) | 287.0 | ||||||||||
Other long-term liabilities | 71.5 | 3.1 | 45.8 | — | 120.4 | ||||||||||
Total liabilities | 6,613.8 | 1,016.1 | 931.2 | (2,535.4) | 6,025.7 | ||||||||||
Shareholder's equity: | |||||||||||||||
Other capital | 2,096.8 | 803.7 | (1,361.9) | 534.4 | 2,073.0 | ||||||||||
Accumulated (deficit) earnings | (235.6) | 4,303.0 | 2,814.5 | (7,117.4) | (235.5) | ||||||||||
Accumulated other comprehensive loss | (235.7) | (206.0) | (200.0) | 406.0 | (235.7) | ||||||||||
Total shareholder's equity | 1,625.5 | 4,900.7 | 1,252.6 | (6,177.0) | 1,601.8 | ||||||||||
Non-controlling interest | — | — | 9.9 | — | 9.9 | ||||||||||
Total equity | 1,625.5 | 4,900.7 | 1,262.5 | (6,177.0) | 1,611.7 | ||||||||||
Total liabilities and equity | $ | 8,239.3 | $ | 5,916.8 | $ | 2,193.7 | $ | (8,712.4) | $ | 7,637.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Financial Position |
|
|
| Guarantor |
| Nonguarantor |
|
|
|
|
| ||||
As of September 30, 2017 (in millions) |
| Parent |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated | |||||
Assets | |||||||||||||||
Cash and cash equivalents |
| $ | 6.0 |
| $ | 4.8 |
| $ | 157.4 |
| $ | — |
| $ | 168.2 |
Trade receivables, net |
|
| 85.4 |
|
| 102.4 |
|
| 78.2 |
|
| — |
|
| 266.0 |
Intercompany receivables |
|
| 0.7 |
|
| 1,288.1 |
|
| 335.4 |
|
| (1,624.2) |
|
| — |
Other receivables |
|
| 4.4 |
|
| 4.7 |
|
| 10.6 |
|
| (1.0) |
|
| 18.7 |
Inventories |
|
| 184.7 |
|
| 205.6 |
|
| 126.4 |
|
| (20.4) |
|
| 496.3 |
Prepaid expenses and other |
|
| 30.9 |
|
| 8.6 |
|
| 14.6 |
|
| 0.1 |
|
| 54.2 |
Current assets of business held for sale |
|
| 228.7 |
|
| 0.2 |
|
| 378.4 |
|
| (4.3) |
|
| 603.0 |
Total current assets |
|
| 540.8 |
|
| 1,614.4 |
|
| 1,101.0 |
|
| (1,649.8) |
|
| 1,606.4 |
Property, plant and equipment, net |
|
| 182.2 |
|
| 178.9 |
|
| 142.0 |
|
| — |
|
| 503.1 |
Long-term intercompany receivables |
|
| 317.2 |
|
| 96.6 |
|
| 12.5 |
|
| (426.3) |
|
| — |
Deferred charges and other |
|
| 244.2 |
|
| 3.0 |
|
| 35.6 |
|
| (254.4) |
|
| 28.4 |
Goodwill |
|
| 568.6 |
|
| 1,463.4 |
|
| 245.1 |
|
| — |
|
| 2,277.1 |
Intangible assets, net |
|
| 401.4 |
|
| 1,027.7 |
|
| 182.9 |
|
| — |
|
| 1,612.0 |
Investments in subsidiaries |
|
| 4,730.1 |
|
| 1,290.3 |
|
| — |
|
| (6,020.4) |
|
| — |
Noncurrent assets of business held for sale |
|
| 814.3 |
|
| 124.4 |
|
| 438.2 |
|
| — |
|
| 1,376.9 |
Total assets |
| $ | 7,798.8 |
| $ | 5,798.7 |
| $ | 2,157.3 |
| $ | (8,350.9) |
| $ | 7,403.9 |
Liabilities and Shareholder's Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt |
| $ | 13.8 |
| $ | 4.3 |
| $ | 5.2 |
| $ | (3.9) |
| $ | 19.4 |
Accounts payable |
|
| 122.2 |
|
| 108.3 |
|
| 141.1 |
|
| — |
|
| 371.6 |
Intercompany accounts payable |
|
| 1,629.6 |
|
| — |
|
| — |
|
| (1,629.6) |
|
| — |
Accrued wages and salaries |
|
| 27.5 |
|
| 2.3 |
|
| 20.1 |
|
| — |
|
| 49.9 |
Accrued interest |
|
| 48.5 |
|
| — |
|
| — |
|
| — |
|
| 48.5 |
Other current liabilities |
|
| 50.1 |
|
| 25.6 |
|
| 44.2 |
|
| (1.0) |
|
| 118.9 |
Current liabilities of business held for sale |
|
| 177.3 |
|
| 0.9 |
|
| 322.4 |
|
| — |
|
| 500.6 |
Total current liabilities |
|
| 2,069.0 |
|
| 141.4 |
|
| 533.0 |
|
| (1,634.5) |
|
| 1,108.9 |
Long-term debt, net of current portion |
|
| 3,650.8 |
|
| 92.1 |
|
| 9.4 |
|
| — |
|
| 3,752.3 |
Long-term intercompany debt |
|
| 12.6 |
|
| 302.1 |
|
| 102.4 |
|
| (417.1) |
|
| — |
Deferred income taxes |
|
| 177.9 |
|
| 523.5 |
|
| 52.0 |
|
| (260.2) |
|
| 493.2 |
Other long-term liabilities |
|
| 11.5 |
|
| 6.1 |
|
| 40.4 |
|
| — |
|
| 58.0 |
Noncurrent liabilities of business held for sale |
|
| 22.8 |
|
| 3.4 |
|
| 129.9 |
|
| — |
|
| 156.1 |
Total liabilities |
|
| 5,944.6 |
|
| 1,068.6 |
|
| 867.1 |
|
| (2,311.8) |
|
| 5,568.5 |
Shareholder's equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other capital |
|
| 2,107.1 |
|
| 1,089.9 |
|
| (1,075.0) |
|
| (43.0) |
|
| 2,079.0 |
Accumulated (deficit) earnings |
|
| (42.8) |
|
| 3,814.1 |
|
| 2,521.6 |
|
| (6,335.7) |
|
| (42.8) |
Accumulated other comprehensive loss |
|
| (210.1) |
|
| (173.9) |
|
| (165.2) |
|
| 339.6 |
|
| (209.6) |
Total shareholder's equity |
|
| 1,854.2 |
|
| 4,730.1 |
|
| 1,281.4 |
|
| (6,039.1) |
|
| 1,826.6 |
Non-controlling interest |
|
| — |
|
| — |
|
| 8.8 |
|
| — |
|
| 8.8 |
Total equity |
|
| 1,854.2 |
|
| 4,730.1 |
|
| 1,290.2 |
|
| (6,039.1) |
|
| 1,835.4 |
Total liabilities and equity |
| $ | 7,798.8 |
| $ | 5,798.7 |
| $ | 2,157.3 |
| $ | (8,350.9) |
| $ | 7,403.9 |
38
29
SPECTRUM BRANDS HOLDINGS, INC.
#x200eSB/RH HOLDINGS, LLC
#x200eNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
#x200e(in millions, unaudited)
NOTE 2021 - GUARANTOR STATEMENTS – SB/RH (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Statement of Income |
|
|
| Guarantor |
| Nonguarantor |
|
|
|
|
| Guarantor | Nonguarantor | |||||||||||||||||
Three month period ended July 1, 2018 (in millions) |
| Parent |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated | ||||||||||||||||||||
Three month period ended June 30, 2019 (in millions) | Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||||||||
Net sales |
| $ | 378.7 |
| $ | 851.4 |
| $ | 290.6 |
| $ | (575.2) |
| $ | 945.5 | $ | 456.8 | $ | 467.5 | $ | 451.4 | $ | (353.5) | $ | 1,022.2 | |||||
Cost of goods sold |
|
| 277.5 |
|
| 649.0 |
|
| 234.1 |
|
| (574.6) |
|
| 586.0 | 338.3 | 336.5 | 341.8 | (355.9) | 660.7 | ||||||||||
Restructuring and related charges |
|
| — |
|
| 3.2 |
|
| 1.7 |
|
| — |
|
| 4.9 | — | 0.1 | 0.4 | — | 0.5 | ||||||||||
Gross profit |
|
| 101.2 |
|
| 199.2 |
|
| 54.8 |
|
| (0.6) |
|
| 354.6 | 118.5 | 130.9 | 109.2 | 2.4 | 361.0 | ||||||||||
Selling |
|
| 40.7 |
|
| 50.7 |
|
| 32.7 |
|
| (0.2) |
|
| 123.9 | 55.4 | 38.8 | 57.9 | — | 152.1 | ||||||||||
General and administrative |
|
| 28.9 |
|
| 31.0 |
|
| 6.7 |
|
| — |
|
| 66.6 | 43.9 | 23.8 | 11.8 | (0.2) | 79.3 | ||||||||||
Research and development |
|
| 1.8 |
|
| 2.9 |
|
| 2.2 |
|
| — |
|
| 6.9 | 5.8 | 2.3 | 2.4 | — | 10.5 | ||||||||||
Acquisition and integration related charges |
|
| 0.9 |
|
| 0.7 |
|
| 0.7 |
|
| — |
|
| 2.3 | |||||||||||||||
Restructuring and related charges |
|
| 13.3 |
|
| 4.8 |
|
| 2.4 |
|
| — |
|
| 20.5 | 16.3 | 0.5 | 3.4 | — | 20.2 | ||||||||||
Transaction related charges | 3.3 | 0.3 | 1.2 | — | 4.8 | |||||||||||||||||||||||||
Total operating expense |
|
| 85.6 |
|
| 90.1 |
|
| 44.7 |
|
| (0.2) |
|
| 220.2 | 124.7 | 65.7 | 76.7 | (0.2) | 266.9 | ||||||||||
Operating income |
|
| 15.6 |
|
| 109.1 |
|
| 10.1 |
|
| (0.4) |
|
| 134.4 | |||||||||||||||
Interest expense |
|
| 37.7 |
|
| 5.4 |
|
| 0.5 |
|
| — |
|
| 43.6 | |||||||||||||||
Other non-operating (income) expense, net |
|
| (82.7) |
|
| (12.1) |
|
| 0.5 |
|
| 95.0 |
|
| 0.7 | |||||||||||||||
Income from operations before income taxes |
|
| 60.6 |
|
| 115.8 |
|
| 9.1 |
|
| (95.4) |
|
| 90.1 | |||||||||||||||
Operating (loss) income | (6.2) | 65.2 | 32.4 | 2.6 | 94.1 | |||||||||||||||||||||||||
Interest expense (income) | 41.6 | 0.5 | (8.5) | 0.1 | 33.7 | |||||||||||||||||||||||||
Other non-operating expense (income), net | 53.8 | (26.1) | 8.3 | 3.4 | 39.4 | |||||||||||||||||||||||||
(Loss) income from operations before income taxes | (101.6) | 90.8 | 32.6 | (0.9) | 21.0 | |||||||||||||||||||||||||
Income tax (benefit) expense |
|
| (9.2) |
|
| 29.3 |
|
| 0.5 |
|
| (0.1) |
|
| 20.5 | (70.9) | 114.4 | 5.8 | 0.6 | 49.9 | ||||||||||
Net income from continuing operations |
|
| 69.8 |
|
| 86.5 |
|
| 8.6 |
|
| (95.3) |
|
| 69.6 | |||||||||||||||
Income from discontinued operations, net of tax |
|
| (10.2) |
|
| 16.3 |
|
| 17.1 |
|
| (32.7) |
|
| (9.5) | |||||||||||||||
Net income |
|
| 59.6 |
|
| 102.8 |
|
| 25.7 |
|
| (128.0) |
|
| 60.1 | |||||||||||||||
Net (loss) income from continuing operations | (30.7) | (23.6) | 26.8 | (1.5) | (28.9) | |||||||||||||||||||||||||
Loss from discontinued operations, net of tax | (1.2) | — | — | — | (1.2) | |||||||||||||||||||||||||
Net (loss) income | (31.9) | (23.6) | 26.8 | (1.5) | (30.1) | |||||||||||||||||||||||||
Net income attributable to non-controlling interest |
|
| — |
|
| — |
|
| 0.2 |
|
| — |
|
| 0.2 | — | — | — | — | — | ||||||||||
Net income attributable to controlling interest |
| $ | 59.6 |
| $ | 102.8 |
| $ | 25.5 |
| $ | (128.0) |
| $ | 59.9 | |||||||||||||||
Net (loss) income attributable to controlling interest | $ | (31.9) | $ | (23.6) | $ | 26.8 | $ | (1.5) | $ | (30.1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Statement of Income |
|
|
| Guarantor |
| Nonguarantor |
|
|
|
|
| Guarantor | Nonguarantor | |||||||||||||||||
Nine Month Period Ended July 1, 2018 (in millions) |
| Parent |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated | ||||||||||||||||||||
Nine month period ended June 30, 2019 (in millions) | Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||||||||
Net sales |
| $ | 1,026.8 |
| $ | 1,873.9 |
| $ | 877.6 |
| $ | (1,420.2) |
| $ | 2,358.1 | $ | 1,322.9 | $ | 1,140.4 | $ | 1,442.1 | $ | (1,096.2) | $ | 2,809.2 | |||||
Cost of goods sold |
|
| 764.2 |
|
| 1,453.3 |
|
| 688.9 |
|
| (1,421.9) |
|
| 1,484.5 | 986.9 | 841.8 | 1,102.9 | (1,096.3) | 1,835.3 | ||||||||||
Restructuring and related charges |
|
| — |
|
| 6.5 |
|
| 3.4 |
|
| — |
|
| 9.9 | — | 0.1 | 1.4 | — | 1.5 | ||||||||||
Gross profit |
|
| 262.6 |
|
| 414.1 |
|
| 185.3 |
|
| 1.7 |
|
| 863.7 | 336.0 | 298.5 | 337.8 | 0.1 | 972.4 | ||||||||||
Selling |
|
| 131.8 |
|
| 132.0 |
|
| 100.4 |
|
| (0.4) |
|
| 363.8 | 176.2 | 99.3 | 183.8 | (0.2) | 459.1 | ||||||||||
General and administrative |
|
| 74.0 |
|
| 81.3 |
|
| 25.2 |
|
| 0.1 |
|
| 180.6 | 160.0 | 65.4 | 35.7 | (1.3) | 259.8 | ||||||||||
Research and development |
|
| 5.5 |
|
| 8.7 |
|
| 6.9 |
|
| — |
|
| 21.1 | 17.5 | 7.1 | 8.1 | — | 32.7 | ||||||||||
Acquisition and integration related charges |
|
| 5.2 |
|
| 3.8 |
|
| 3.0 |
|
| — |
|
| 12.0 | |||||||||||||||
Restructuring and related charges |
|
| 45.1 |
|
| 9.5 |
|
| 4.5 |
|
| — |
|
| 59.1 | 30.0 | 1.4 | 9.3 | — | 40.7 | ||||||||||
Transaction related charges | 24.4 | (0.3) | (7.7) | — | 16.4 | |||||||||||||||||||||||||
Total operating expense |
|
| 261.6 |
|
| 235.3 |
|
| 140.0 |
|
| (0.3) |
|
| 636.6 | 408.1 | 172.9 | 229.2 | (1.5) | 808.7 | ||||||||||
Operating income |
|
| 1.0 |
|
| 178.8 |
|
| 45.3 |
|
| 2.0 |
|
| 227.1 | |||||||||||||||
Interest expense |
|
| 107.8 |
|
| 15.6 |
|
| 0.9 |
|
| (0.1) |
|
| 124.2 | |||||||||||||||
Operating (loss) income | (72.1) | 125.6 | 108.6 | 1.6 | 163.7 | |||||||||||||||||||||||||
Interest expense (income) | 134.6 | 6.6 | (16.0) | — | 125.2 | |||||||||||||||||||||||||
Other non-operating (income) expense, net |
|
| (308.6) |
|
| (49.3) |
|
| — |
|
| 361.4 |
|
| 3.5 | (77.2) | (455.7) | (507.5) | 1,104.9 | 64.5 | ||||||||||
Income from operations before income taxes |
|
| 201.8 |
|
| 212.5 |
|
| 44.4 |
|
| (359.3) |
|
| 99.4 | |||||||||||||||
Income tax benefit |
|
| (6.6) |
|
| (98.6) |
|
| (5.9) |
|
| 0.1 |
|
| (111.0) | |||||||||||||||
Net income from continuing operations |
|
| 208.4 |
|
| 311.1 |
|
| 50.3 |
|
| (359.4) |
|
| 210.4 | |||||||||||||||
Income from discontinued operations, net of tax |
|
| 31.9 |
|
| 75.8 |
|
| 77.9 |
|
| (153.6) |
|
| 32.0 | |||||||||||||||
(Loss) income from operations before income taxes | (129.5) | 574.7 | 632.1 | (1,103.3) | (26.0) | |||||||||||||||||||||||||
Income tax (benefit) expense | (61.3) | 75.1 | 20.6 | (0.3) | 34.1 | |||||||||||||||||||||||||
Net (loss) income from continuing operations | (68.2) | 499.6 | 611.5 | (1,103.0) | (60.1) | |||||||||||||||||||||||||
Income (loss) from discontinued operations, net of tax | 698.8 | (82.0) | (7.5) | 89.8 | 699.1 | |||||||||||||||||||||||||
Net income |
|
| 240.3 |
|
| 386.9 |
|
| 128.2 |
|
| (513.0) |
|
| 242.4 | 630.6 | 417.6 | 604.0 | (1,013.2) | 639.0 | ||||||||||
Net income attributable to non-controlling interest |
|
| — |
|
| — |
|
| 1.0 |
|
| — |
|
| 1.0 | — | — | 1.2 | — | 1.2 | ||||||||||
Net income attributable to controlling interest |
| $ | 240.3 |
| $ | 386.9 |
| $ | 127.2 |
| $ | (513.0) |
| $ | 241.4 | $ | 630.6 | $ | 417.6 | $ | 602.8 | $ | (1,013.2) | $ | 637.8 |
3039
SPECTRUM BRANDS HOLDINGS, INC.
#x200eSB/RH HOLDINGS, LLC
#x200eNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
#x200e(in millions, unaudited)
NOTE 2021 - GUARANTOR STATEMENTS – SB/RH (continued)
Statement of Income | Guarantor | Nonguarantor | |||||||||||||
Three month period ended July 1, 2018 (in millions) | Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||
Net sales | $ | 487.8 | $ | 440.9 | $ | 451.0 | $ | (350.3) | $ | 1,029.4 | |||||
Cost of goods sold | 352.8 | 311.8 | 351.5 | (350.9) | 665.2 | ||||||||||
Restructuring and related charges | — | — | 1.5 | — | 1.5 | ||||||||||
Gross profit | 135.0 | 129.1 | 98.0 | 0.6 | 362.7 | ||||||||||
Selling | 55.0 | 34.0 | 58.1 | — | 147.1 | ||||||||||
General and administrative | 27.7 | 25.4 | 13.8 | — | 66.9 | ||||||||||
Research and development | 5.6 | 2.3 | 2.9 | — | 10.8 | ||||||||||
Restructuring and related charges | 13.6 | 0.1 | 2.7 | — | 16.4 | ||||||||||
Transaction related charges | 3.0 | 0.8 | 1.7 | — | 5.5 | ||||||||||
Total operating expense | 104.9 | 62.6 | 79.2 | — | 246.7 | ||||||||||
Operating income | 30.1 | 66.5 | 18.8 | 0.6 | 116.0 | ||||||||||
Interest expense | 37.7 | 4.9 | 0.8 | — | 43.4 | ||||||||||
Other non-operating (income) expense, net | (44.0) | (15.2) | 2.8 | 59.3 | 2.9 | ||||||||||
Income from operations before income taxes | 36.4 | 76.8 | 15.2 | (58.7) | 69.7 | ||||||||||
Income tax (benefit) expense | (8.9) | 29.1 | 3.5 | (0.1) | 23.6 | ||||||||||
Net income from continuing operations | 45.3 | 47.7 | 11.7 | (58.6) | 46.1 | ||||||||||
Income from discontinued operations, net of tax | 28.1 | 55.2 | 14.1 | (69.6) | 27.8 | ||||||||||
Net income | 73.4 | 102.9 | 25.8 | (128.2) | 73.9 | ||||||||||
Net income attributable to non-controlling interest | — | — | 0.2 | — | 0.2 | ||||||||||
Net income attributable to controlling interest | $ | 73.4 | $ | 102.9 | $ | 25.6 | $ | (128.2) | $ | 73.7 |
|
|
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| |||||||||||||||||
Statement of Income |
|
|
| Guarantor |
| Nonguarantor |
|
|
|
|
| Guarantor | Nonguarantor | |||||||||||||||||
Three month period ended July 2, 2017 (in millions) |
| Parent |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated | ||||||||||||||||||||
Nine month period ended July 1, 2018 (in millions) | Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||||||||
Net sales |
| $ | 299.1 |
| $ | 668.5 |
| $ | 276.1 |
| $ | (380.8) |
| $ | 862.9 | $ | 1,353.6 | $ | 1,011.7 | $ | 1,456.9 | $ | (987.9) | $ | 2,834.3 | |||||
Cost of goods sold |
|
| 205.1 |
|
| 489.0 |
|
| 216.2 |
|
| (378.8) |
|
| 531.5 | 992.5 | 726.9 | 1,110.2 | (986.2) | 1,843.4 | ||||||||||
Restructuring and related charges |
|
| — |
|
| 11.2 |
|
| — |
|
| — |
|
| 11.2 | — | 0.1 | 3.4 | — | 3.5 | ||||||||||
Gross profit |
|
| 94.0 |
|
| 168.3 |
|
| 59.9 |
|
| (2.0) |
|
| 320.2 | 361.1 | 284.7 | 343.3 | (1.7) | 987.4 | ||||||||||
Selling |
|
| 42.5 |
|
| 53.9 |
|
| 31.9 |
|
| (0.4) |
|
| 127.9 | 176.3 | 92.0 | 185.1 | (0.1) | 453.3 | ||||||||||
General and administrative |
|
| 26.3 |
|
| 23.7 |
|
| 7.8 |
|
| — |
|
| 57.8 | 79.9 | 67.7 | 44.5 | — | 192.1 | ||||||||||
Research and development |
|
| 2.1 |
|
| 2.6 |
|
| 2.5 |
|
| — |
|
| 7.2 | 17.5 | 6.6 | 9.7 | — | 33.8 | ||||||||||
Acquisition and integration related charges |
|
| 4.6 |
|
| 0.1 |
|
| 0.5 |
|
| — |
|
| 5.2 | |||||||||||||||
Restructuring and related charges |
|
| 7.8 |
|
| 1.9 |
|
| 0.3 |
|
| — |
|
| 10.0 | 45.5 | 1.2 | 5.2 | — | 51.9 | ||||||||||
Transaction related charges | 12.8 | 3.6 | 4.0 | — | 20.4 | |||||||||||||||||||||||||
Total operating expense |
|
| 83.3 |
|
| 82.2 |
|
| 43.0 |
|
| (0.4) |
|
| 208.1 | 332.0 | 171.1 | 248.5 | (0.1) | 751.5 | ||||||||||
Operating income |
|
| 10.7 |
|
| 86.1 |
|
| 16.9 |
|
| (1.6) |
|
| 112.1 | 29.1 | 113.6 | 94.8 | (1.6) | 235.9 | ||||||||||
Interest expense |
|
| 33.0 |
|
| 5.9 |
|
| 0.9 |
|
| — |
|
| 39.8 | 107.9 | 14.0 | 2.0 | 0.1 | 124.0 | ||||||||||
Other non-operating (income) expense, net |
|
| (68.4) |
|
| (14.8) |
|
| 0.8 |
|
| 83.8 |
|
| 1.4 | (285.1) | (78.2) | 2.7 | 366.7 | 6.1 | ||||||||||
Income from operations before income taxes |
|
| 46.1 |
|
| 95.0 |
|
| 15.2 |
|
| (85.4) |
|
| 70.9 | 206.3 | 177.8 | 90.1 | (368.4) | 105.8 | ||||||||||
Income tax (benefit) expense |
|
| (6.8) |
|
| 26.4 |
|
| — |
|
| 0.2 |
|
| 19.8 | (3.6) | (109.8) | 11.0 | (0.5) | (102.9) | ||||||||||
Net income from continuing operations |
|
| 52.9 |
|
| 68.6 |
|
| 15.2 |
|
| (85.6) |
|
| 51.1 | 209.9 | 287.6 | 79.1 | (367.9) | 208.7 | ||||||||||
Income from discontinued operations, net of tax |
|
| 28.5 |
|
| 22.3 |
|
| 23.9 |
|
| (46.4) |
|
| 28.3 | 57.4 | 99.1 | 49.1 | (145.0) | 60.6 | ||||||||||
Net income |
|
| 81.4 |
|
| 90.9 |
|
| 39.1 |
|
| (132.0) |
|
| 79.4 | 267.3 | 386.7 | 128.2 | (512.9) | 269.3 | ||||||||||
Net income attributable to non-controlling interest |
|
| — |
|
| — |
|
| 1.7 |
|
| — |
|
| 1.7 | — | — | 1.2 | — | 1.2 | ||||||||||
Net income attributable to controlling interest |
| $ | 81.4 |
| $ | 90.9 |
| $ | 37.4 |
| $ | (132.0) |
| $ | 77.7 | $ | 267.3 | $ | 386.7 | $ | 127.0 | $ | (512.9) | $ | 268.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Income |
|
|
| Guarantor |
| Nonguarantor |
|
|
|
|
| ||||
Nine Month Period Ended July 2, 2017 (in millions) |
| Parent |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated | |||||
Net sales |
| $ | 841.0 |
| $ | 1,510.4 |
| $ | 784.1 |
| $ | (913.9) |
| $ | 2,221.6 |
Cost of goods sold |
|
| 559.9 |
|
| 1,073.5 |
|
| 614.3 |
|
| (908.5) |
|
| 1,339.2 |
Restructuring and related charges |
|
| — |
|
| 16.4 |
|
| — |
|
| — |
|
| 16.4 |
Gross profit |
|
| 281.1 |
|
| 420.5 |
|
| 169.8 |
|
| (5.4) |
|
| 866.0 |
Selling |
|
| 127.0 |
|
| 132.8 |
|
| 95.3 |
|
| (1.2) |
|
| 353.9 |
General and administrative |
|
| 96.6 |
|
| 57.6 |
|
| 27.5 |
|
| — |
|
| 181.7 |
Research and development |
|
| 6.1 |
|
| 8.4 |
|
| 6.4 |
|
| — |
|
| 20.9 |
Acquisition and integration related charges |
|
| 9.9 |
|
| 0.4 |
|
| 1.3 |
|
| — |
|
| 11.6 |
Restructuring and related charges |
|
| 9.4 |
|
| 4.9 |
|
| 0.6 |
|
| — |
|
| 14.9 |
Total operating expense |
|
| 249.0 |
|
| 204.1 |
|
| 131.1 |
|
| (1.2) |
|
| 583.0 |
Operating income |
|
| 32.1 |
|
| 216.4 |
|
| 38.7 |
|
| (4.2) |
|
| 283.0 |
Interest expense |
|
| 104.2 |
|
| 14.0 |
|
| 3.8 |
|
| — |
|
| 122.0 |
Other non-operating (income) expense, net |
|
| (186.9) |
|
| (38.0) |
|
| (0.7) |
|
| 227.9 |
|
| 2.3 |
Income from operations before income taxes |
|
| 114.8 |
|
| 240.4 |
|
| 35.6 |
|
| (232.1) |
|
| 158.7 |
Income tax expense (benefit) |
|
| 5.4 |
|
| 54.3 |
|
| (6.2) |
|
| (0.2) |
|
| 53.3 |
Net income from continuing operations |
|
| 109.4 |
|
| 186.1 |
|
| 41.8 |
|
| (231.9) |
|
| 105.4 |
Income from discontinued operations, net of tax |
|
| 100.0 |
|
| 78.6 |
|
| 82.6 |
|
| (161.4) |
|
| 99.8 |
Net income |
|
| 209.4 |
|
| 264.7 |
|
| 124.4 |
|
| (393.3) |
|
| 205.2 |
Net income attributable to non-controlling interest |
|
| — |
|
| — |
|
| 1.5 |
|
| — |
|
| 1.5 |
Net income attributable to controlling interest |
| $ | 209.4 |
| $ | 264.7 |
| $ | 122.9 |
| $ | (393.3) |
| $ | 203.7 |
40
31
SPECTRUM BRANDS HOLDINGS, INC.
#x200eSB/RH HOLDINGS, LLC
#x200eNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
#x200e(in millions, unaudited)
NOTE 2021 - GUARANTOR STATEMENTS – SB/RH (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Comprehensive Income |
|
|
| Guarantor |
| Nonguarantor |
|
|
|
|
| ||||
Three month period ended July 1, 2018 (in millions) |
| Parent |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated | |||||
Net income |
| $ | 59.6 |
| $ | 102.8 |
| $ | 25.7 |
| $ | (128.0) |
| $ | 60.1 |
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized loss on foreign currency translation |
|
| (59.2) |
|
| (59.2) |
|
| (62.4) |
|
| 121.7 |
|
| (59.1) |
Unrealized gain on hedging derivative instruments |
|
| 30.4 |
|
| 9.2 |
|
| 9.2 |
|
| (18.4) |
|
| 30.4 |
Defined benefit pension gain |
|
| 2.9 |
|
| 2.4 |
|
| 2.4 |
|
| (4.8) |
|
| 2.9 |
Other comprehensive (loss) income |
|
| (25.9) |
|
| (47.6) |
|
| (50.8) |
|
| 98.5 |
|
| (25.8) |
Comprehensive income (loss) |
|
| 33.7 |
|
| 55.2 |
|
| (25.1) |
|
| (29.5) |
|
| 34.3 |
Comprehensive loss attributable to non-controlling interest |
|
| — |
|
| — |
|
| (0.6) |
|
| — |
|
| (0.6) |
Comprehensive income (loss) attributable to controlling interest |
| $ | 33.7 |
| $ | 55.2 |
| $ | (24.5) |
| $ | (29.5) |
| $ | 34.9 |
Statement of Comprehensive Income | Guarantor | Nonguarantor | |||||||||||||
Three month period ended June 30, 2019 (in millions) | Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||
Net (loss) income | $ | (31.9) | $ | (23.6) | $ | 26.8 | $ | (1.5) | $ | (30.1) | |||||
Other comprehensive loss, net of tax: | |||||||||||||||
Foreign currency translation loss | (0.4) | (0.4) | (4.9) | 5.4 | (0.3) | ||||||||||
Unrealized loss on derivative instruments | (6.6) | (1.8) | (1.8) | 3.5 | (6.7) | ||||||||||
Defined benefit pension gain | 0.5 | 0.5 | 0.5 | (1.0) | 0.5 | ||||||||||
Other comprehensive loss | (6.5) | (1.7) | (6.2) | 7.9 | (6.5) | ||||||||||
Comprehensive (loss) income | (38.4) | (25.3) | 20.6 | 6.4 | (36.6) | ||||||||||
Comprehensive loss attributable to non-controlling interest | — | — | (0.1) | — | (0.1) | ||||||||||
Comprehensive (loss) income attributable to controlling interest | $ | (38.4) | $ | (25.3) | $ | 20.7 | $ | 6.4 | $ | (36.5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Statement of Comprehensive Income |
|
|
| Guarantor |
| Nonguarantor |
|
|
|
|
| Guarantor | Nonguarantor | |||||||||||||||||
Nine Month Period Ended July 1, 2018 (in millions) |
| Parent |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated | ||||||||||||||||||||
Nine month period ended June 30, 2019 (in millions) | Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||||||||
Net income |
| $ | 240.3 |
| $ | 386.9 |
| $ | 128.2 |
| $ | (513.0) |
| $ | 242.4 | $ | 630.6 | $ | 417.6 | $ | 604.0 | $ | (1,013.2) | $ | 639.0 | |||||
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Other comprehensive loss, net of tax: | ||||||||||||||||||||||||||||||
Foreign currency translation loss |
|
| (37.0) |
|
| (37.0) |
|
| (39.4) |
|
| 76.5 |
|
| (36.9) | (23.4) | (24.1) | (32.0) | 56.1 | (23.4) | ||||||||||
Unrealized gain on derivative instruments |
|
| 20.6 |
|
| 13.4 |
|
| 13.4 |
|
| (26.8) |
|
| 20.6 | |||||||||||||||
Unrealized gain (loss) on derivative instruments | 6.6 | (0.8) | (0.8) | 1.6 | 6.6 | |||||||||||||||||||||||||
Defined benefit pension gain |
|
| 2.5 |
|
| 1.7 |
|
| 1.7 |
|
| (3.4) |
|
| 2.5 | 1.9 | 1.6 | 1.6 | (3.2) | 1.9 | ||||||||||
Other comprehensive income |
|
| (13.9) |
|
| (21.9) |
|
| (24.3) |
|
| 46.3 |
|
| (13.8) | |||||||||||||||
Deconsolidation of discontinued operations | 21.8 | 21.8 | 21.8 | (43.5) | 21.9 | |||||||||||||||||||||||||
Other comprehensive income (loss) | 6.9 | (1.5) | (9.4) | 11.0 | 7.0 | |||||||||||||||||||||||||
Comprehensive income |
|
| 226.4 |
|
| 365.0 |
|
| 103.9 |
|
| (466.7) |
|
| 228.6 | 637.5 | 416.1 | 594.6 | (1,002.2) | 646.0 | ||||||||||
Comprehensive loss attributable to non-controlling interest |
|
| — |
|
| — |
|
| (0.1) |
|
| — |
|
| (0.1) | — | — | (0.1) | — | (0.1) | ||||||||||
Comprehensive income attributable to controlling interest |
| $ | 226.4 |
| $ | 365.0 |
| $ | 104.0 |
| $ | (466.7) |
| $ | 228.7 | $ | 637.5 | $ | 416.1 | $ | 594.7 | $ | (1,002.2) | $ | 646.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Comprehensive Income |
|
|
| Guarantor |
| Nonguarantor |
|
|
|
|
| ||||
Three month period ended July 2, 2017 (in millions) |
| Parent |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated | |||||
Net income |
| $ | 81.4 |
| $ | 90.9 |
| $ | 39.1 |
| $ | (132.0) |
| $ | 79.4 |
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain on foreign currency translation |
|
| 30.3 |
|
| 32.3 |
|
| 31.1 |
|
| (63.4) |
|
| 30.3 |
Unrealized loss on hedging derivative instruments |
|
| (30.2) |
|
| (9.1) |
|
| (9.1) |
|
| 18.2 |
|
| (30.2) |
Defined benefit pension loss |
|
| (2.3) |
|
| (2.3) |
|
| (2.3) |
|
| 4.6 |
|
| (2.3) |
Other comprehensive (loss) income |
|
| (2.2) |
|
| 20.9 |
|
| 19.7 |
|
| (40.6) |
|
| (2.2) |
Comprehensive income |
|
| 79.2 |
|
| 111.8 |
|
| 58.8 |
|
| (172.6) |
|
| 77.2 |
Comprehensive loss attributable to non-controlling interest |
|
| — |
|
| — |
|
| (0.2) |
|
| — |
|
| (0.2) |
Comprehensive income attributable to controlling interest |
| $ | 79.2 |
| $ | 111.8 |
| $ | 59.0 |
| $ | (172.6) |
| $ | 77.4 |
Statement of Comprehensive Income | Guarantor | Nonguarantor | |||||||||||||
Three month period ended July 1, 2018 (in millions) | Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||
Net income | $ | 73.4 | $ | 102.9 | $ | 25.8 | $ | (128.2) | $ | 73.9 | |||||
Other comprehensive loss, net of tax: | |||||||||||||||
Net unrealized loss on foreign currency translation | (59.2) | (59.2) | (62.4) | 121.7 | (59.1) | ||||||||||
Unrealized gain on hedging derivative instruments | 30.4 | 9.2 | 9.2 | (18.4) | 30.4 | ||||||||||
Defined benefit pension gain | 2.9 | 2.4 | 2.4 | (4.8) | 2.9 | ||||||||||
Other comprehensive loss | (25.9) | (47.6) | (50.8) | 98.5 | (25.8) | ||||||||||
Comprehensive income (loss) | 47.5 | 55.3 | (25.0) | (29.7) | 48.1 | ||||||||||
Comprehensive loss attributable to non-controlling interest | — | — | (0.6) | — | (0.6) | ||||||||||
Comprehensive income (loss) attributable to controlling interest | $ | 47.5 | $ | 55.3 | $ | (24.4) | $ | (29.7) | $ | 48.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Statement of Comprehensive Income |
|
|
| Guarantor |
| Nonguarantor |
|
|
|
|
| Guarantor | Nonguarantor | |||||||||||||||||
Nine Month Period Ended July 2, 2017 (in millions) |
| Parent |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated | ||||||||||||||||||||
Nine month period ended July 1, 2018 (in millions) | Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||||||||
Net income |
| $ | 209.4 |
| $ | 264.7 |
| $ | 124.4 |
| $ | (393.3) |
| $ | 205.2 | $ | 267.3 | $ | 386.7 | $ | 128.2 | $ | (512.9) | $ | 269.3 | |||||
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Foreign currency translation gain |
|
| 5.9 |
|
| 8.8 |
|
| 8.1 |
|
| (16.9) |
|
| 5.9 | |||||||||||||||
Unrealized loss on derivative instruments |
|
| (15.7) |
|
| (9.9) |
|
| (9.9) |
|
| 19.8 |
|
| (15.7) | |||||||||||||||
Other comprehensive loss, net of tax: | ||||||||||||||||||||||||||||||
Net unrealized loss on foreign currency translation | (37.0) | (37.0) | (39.5) | 76.6 | (36.9) | |||||||||||||||||||||||||
Unrealized gain on hedging derivative instruments | 20.6 | 13.4 | 13.4 | (26.8) | 20.6 | |||||||||||||||||||||||||
Defined benefit pension gain |
|
| 0.8 |
|
| 0.8 |
|
| 0.8 |
|
| (1.7) |
|
| 0.7 | 2.5 | 1.7 | 1.7 | (3.4) | 2.5 | ||||||||||
Other comprehensive loss |
|
| (9.0) |
|
| (0.3) |
|
| (1.0) |
|
| 1.2 |
|
| (9.1) | (13.9) | (21.9) | (24.4) | 46.4 | (13.8) | ||||||||||
Comprehensive income |
|
| 200.4 |
|
| 264.4 |
|
| 123.4 |
|
| (392.1) |
|
| 196.1 | 253.4 | 364.8 | 103.8 | (466.5) | 255.5 | ||||||||||
Comprehensive loss attributable to non-controlling interest |
|
| — |
|
| — |
|
| (0.4) |
|
| — |
|
| (0.4) | — | — | (0.1) | — | (0.1) | ||||||||||
Comprehensive income attributable to controlling interest |
| $ | 200.4 |
| $ | 264.4 |
| $ | 123.8 |
| $ | (392.1) |
| $ | 196.5 | $ | 253.4 | $ | 364.8 | $ | 103.9 | $ | (466.5) | $ | 255.6 |
41
32
SPECTRUM BRANDS HOLDINGS, INC.
#x200eSB/RH HOLDINGS, LLC
#x200eNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
#x200e(in millions, unaudited)
NOTE 2021 - GUARANTOR STATEMENTS – SB/RH (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Statement of Cash Flows |
|
|
| Guarantor |
| Nonguarantor |
|
|
|
|
| Guarantor | Nonguarantor | |||||||||||||||||
Nine Month Period Ended July 1, 2018 (in millions) |
| Parent |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated | ||||||||||||||||||||
Net cash (used) provided by operating activities from continuing operations |
| $ | (165.3) |
| $ | (25.8) |
| $ | 91.0 |
| $ | 7.6 |
| $ | (92.5) | |||||||||||||||
Nine month period ended June 30, 2019 (in millions) | Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||||||||
Net cash provided (used) by operating activities from continuing operations | $ | 382.3 | $ | 314.1 | $ | 1,926.0 | $ | (2,793.8) | $ | (171.4) | ||||||||||||||||||||
Net cash provided (used) by operating activities from discontinued operations |
|
| 13.5 |
|
| 0.1 |
|
| 12.4 |
|
| (31.0) |
|
| (5.0) | 2.2 | 2.5 | 2.9 | (258.0) | (250.4) | ||||||||||
Net cash (used) provided by operating activities |
|
| (151.8) |
|
| (25.7) |
|
| 103.4 |
|
| (23.4) |
|
| (97.5) | |||||||||||||||
Net cash provided (used) provided by operating activities | 384.5 | 316.6 | 1,928.9 | (3,051.8) | (421.8) | |||||||||||||||||||||||||
Cash flows from investing activities |
|
| . |
|
|
|
|
|
|
|
|
|
|
|
| . | ||||||||||||||
Purchases of property, plant and equipment |
|
| (17.9) |
|
| (13.0) |
|
| (18.3) |
|
| — |
|
| (49.2) | (20.2) | (10.6) | (9.5) | — | (40.3) | ||||||||||
Proceeds from sales of property, plant and equipment |
|
| 0.8 |
|
| 0.1 |
|
| 1.9 |
|
| — |
|
| 2.8 | — | — | 0.1 | — | 0.1 | ||||||||||
Other investing activity, net |
|
| — |
|
| (0.2) |
|
| (0.2) |
|
| — |
|
| (0.4) | |||||||||||||||
Net cash used by investing activities from continuing operations |
|
| (17.1) |
|
| (13.1) |
|
| (16.6) |
|
| — |
|
| (46.8) | |||||||||||||||
Proceeds from sale of discontinued operations, net of cash | 2,854.4 | — | — | — | 2,854.4 | |||||||||||||||||||||||||
Other investing activities | (0.2) | — | — | — | (0.2) | |||||||||||||||||||||||||
Net cash provided (used) by investing activities from continuing operations | 2,834.0 | (10.6) | (9.4) | — | 2,814.0 | |||||||||||||||||||||||||
Net cash used by investing activities from discontinued operations |
|
| (13.5) |
|
| (0.1) |
|
| (13.4) |
|
| — |
|
| (27.0) | (1.1) | (2.5) | (1.8) | — | (5.4) | ||||||||||
Net cash used by investing activities |
|
| (30.6) |
|
| (13.2) |
|
| (30.0) |
|
| — |
|
| (73.8) | |||||||||||||||
Net cash provided (used) by investing activities | 2,832.9 | (13.1) | (11.2) | — | 2,808.6 | |||||||||||||||||||||||||
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Proceeds from issuance of debt |
|
| 545.5 |
|
| — |
|
| 9.8 |
|
| — |
|
| 555.3 | 54.0 | — | — | — | 54.0 | ||||||||||
Payment of debt |
|
| (35.4) |
|
| — |
|
| (15.6) |
|
| — |
|
| (51.0) | (2,084.0) | — | (3.9) | — | (2,087.9) | ||||||||||
Payment of debt issuance costs |
|
| (0.4) |
|
| — |
|
| — |
|
| — |
|
| (0.4) | (0.1) | — | — | — | (0.1) | ||||||||||
Payment of cash dividends to parent |
|
| (351.8) |
|
| — |
|
| — |
|
| — |
|
| (351.8) | (696.9) | — | — | — | (696.9) | ||||||||||
Advances related to intercompany transactions |
|
| 20.9 |
|
| 34.9 |
|
| (79.2) |
|
| 23.4 |
|
| — | (762.7) | (304.8) | (1,984.3) | 3,051.8 | — | ||||||||||
Net cash provided (used) by financing activities from continuing operations |
|
| 178.8 |
|
| 34.9 |
|
| (85.0) |
|
| 23.4 |
|
| 152.1 | |||||||||||||||
Net cash provided by financing activities from discontinued operations |
|
| — |
|
| — |
|
| 1.0 |
|
| — |
|
| 1.0 | |||||||||||||||
Net cash provided (used) by financing activities |
|
| 178.8 |
|
| 34.9 |
|
| (84.0) |
|
| 23.4 |
|
| 153.1 | |||||||||||||||
Other financing activities | (8.9) | — | — | — | (8.9) | |||||||||||||||||||||||||
Net cash used by financing activities from continuing operations | (3,498.6) | (304.8) | (1,988.2) | 3,051.8 | (2,739.8) | |||||||||||||||||||||||||
Net cash used by financing activities from discontinued operations | (1.1) | — | (1.1) | — | (2.2) | |||||||||||||||||||||||||
Net cash used by financing activities | (3,499.7) | (304.8) | (1,989.3) | 3,051.8 | (2,742.0) | |||||||||||||||||||||||||
Effect of exchange rate changes on cash and cash equivalents |
|
| — |
|
| — |
|
| (3.1) |
|
| — |
|
| (3.1) | — | — | (2.9) | — | (2.9) | ||||||||||
Net decrease in cash and cash equivalents |
|
| (3.6) |
|
| (4.0) |
|
| (13.7) |
|
| — |
|
| (21.3) | |||||||||||||||
Cash and cash equivalents, beginning of period |
|
| 6.0 |
|
| 4.8 |
|
| 157.4 |
|
| — |
|
| 168.2 | |||||||||||||||
Cash and cash equivalents, end of period |
| $ | 2.4 |
| $ | 0.8 |
| $ | 143.7 |
| $ | — |
| $ | 146.9 | |||||||||||||||
Net decrease in cash, cash equivalents and restricted cash | (282.3) | (1.3) | (74.5) | — | (358.1) | |||||||||||||||||||||||||
Cash, cash equivalents and restricted cash, beginning of period | 285.5 | 1.8 | 227.0 | — | 514.3 | |||||||||||||||||||||||||
Cash, cash equivalents and restricted cash, end of period | $ | 3.2 | $ | 0.5 | $ | 152.5 | $ | — | $ | 156.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Statement of Cash Flows |
|
|
| Guarantor |
| Nonguarantor |
|
|
|
|
| Guarantor | Nonguarantor | |||||||||||||||||
Nine Month Period Ended July 2, 2017 (in millions) |
| Parent |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated | ||||||||||||||||||||
Net cash provided (used) by operating activities from continuing operations |
| $ | 130.8 |
| $ | (19.3) |
| $ | 32.5 |
| $ | (116.8) |
| $ | 27.2 | |||||||||||||||
Nine month period ended July 1, 2018 (in millions) | Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||||||||
Net cash (used) provided by operating activities from continuing operations | $ | (155.7) | $ | (29.9) | $ | 94.5 | $ | (28.0) | $ | (119.1) | ||||||||||||||||||||
Net cash provided by operating activities from discontinued operations |
|
| 15.4 |
|
| — |
|
| 8.6 |
|
| 93.3 |
|
| 117.3 | 3.9 | 4.3 | 8.8 | 4.6 | 21.6 | ||||||||||
Net cash provided (used) by operating activities |
|
| 146.2 |
|
| (19.3) |
|
| 41.1 |
|
| (23.5) |
|
| 144.5 | |||||||||||||||
Net cash (used) provided by operating activities | (151.8) | (25.6) | 103.3 | (23.4) | (97.5) | |||||||||||||||||||||||||
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Purchases of property, plant and equipment |
|
| (16.7) |
|
| (16.3) |
|
| (18.1) |
|
| — |
|
| (51.1) | (27.6) | (8.9) | (20.1) | — | (56.6) | ||||||||||
Proceeds from sales of property, plant and equipment |
|
| — |
|
| 0.2 |
|
| 3.3 |
|
| — |
|
| 3.5 | 0.8 | 0.1 | 1.9 | — | 2.8 | ||||||||||
Business acquisitions, net cash acquired |
|
| (304.7) |
|
| — |
|
| — |
|
| — |
|
| (304.7) | |||||||||||||||
Other investing activities |
|
| — |
|
| (1.1) |
|
| — |
|
| — |
|
| (1.1) | |||||||||||||||
Other investing activity | — | (0.2) | (0.3) | (0.5) | ||||||||||||||||||||||||||
Net cash used by investing activities from continuing operations |
|
| (321.4) |
|
| (17.2) |
|
| (14.8) |
|
| — |
|
| (353.4) | (26.8) | (9.0) | (18.5) | — | (54.3) | ||||||||||
Net cash used by investing activities from discontinued operations |
|
| (15.4) |
|
| — |
|
| (10.9) |
|
| — |
|
| (26.3) | (3.9) | (4.2) | (11.4) | — | (19.5) | ||||||||||
Net cash used by investing activities |
|
| (336.8) |
|
| (17.2) |
|
| (25.7) |
|
| — |
|
| (379.7) | (30.7) | (13.2) | (29.9) | — | (73.8) | ||||||||||
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Proceeds from issuance of debt |
|
| 543.0 |
|
| — |
|
| 13.9 |
|
| — |
|
| 556.9 | 545.5 | — | 11.3 | — | 556.8 | ||||||||||
Payment of debt |
|
| (207.7) |
|
| — |
|
| (17.3) |
|
| — |
|
| (225.0) | (35.3) | — | (18.8) | — | (54.1) | ||||||||||
Payment of debt issuance costs |
|
| (5.9) |
|
| — |
|
| — |
|
| — |
|
| (5.9) | (0.4) | — | — | — | (0.4) | ||||||||||
Purchase of noncontrolling interest |
|
| (12.6) |
|
| — |
|
| — |
|
| — |
|
| (12.6) | |||||||||||||||
Payment of cash dividends to parent |
|
| (240.1) |
|
| — |
|
| — |
|
| — |
|
| (240.1) | (351.8) | — | — | — | (351.8) | ||||||||||
Advances related to intercompany transactions |
|
| 20.9 |
|
| 34.9 |
|
| (79.3) |
|
| 23.5 |
|
| — | 20.9 | 34.9 | (79.2) | 23.4 | — | ||||||||||
Net cash provided (used) by financing activities from continuing operations |
|
| 97.6 |
|
| 34.9 |
|
| (82.7) |
|
| 23.5 |
|
| 73.3 | 178.9 | 34.9 | (86.7) | 23.4 | 150.5 | ||||||||||
Net cash provided by financing activities from discontinued operations |
|
| — |
|
| — |
|
| 2.4 |
|
| — |
|
| 2.4 | |||||||||||||||
Net cash (used) provided by financing activities from discontinued operations | — | (0.1) | 2.7 | — | 2.6 | |||||||||||||||||||||||||
Net cash provided (used) by financing activities |
|
| 97.6 |
|
| 34.9 |
|
| (80.3) |
|
| 23.5 |
|
| 75.7 | 178.9 | 34.8 | (84.0) | 23.4 | 153.1 | ||||||||||
Effect of exchange rate changes on cash and cash equivalents |
|
| — |
|
| — |
|
| (1.5) |
|
| — |
|
| (1.5) | — | — | (3.1) | — | (3.1) | ||||||||||
Net decrease in cash and cash equivalents |
|
| (93.0) |
|
| (1.6) |
|
| (66.4) |
|
| — |
|
| (161.0) | |||||||||||||||
Cash and cash equivalents, beginning of period |
|
| 98.6 |
|
| 3.1 |
|
| 169.1 |
|
| — |
|
| 270.8 | |||||||||||||||
Cash and cash equivalents, end of period |
| $ | 5.6 |
| $ | 1.5 |
| $ | 102.7 |
| $ | — |
| $ | 109.8 | |||||||||||||||
Net decrease in cash, cash equivalents and restricted cash | (3.6) | (4.0) | (13.7) | — | (21.3) | |||||||||||||||||||||||||
Cash, cash equivalents and restricted cash, beginning of period | 21.3 | 4.8 | 157.4 | — | 183.5 | |||||||||||||||||||||||||
Cash, cash equivalents and restricted cash, end of period | $ | 17.7 | $ | 0.8 | $ | 143.7 | $ | — | $ | 162.2 |
33
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Introduction
The following is management’s discussion of the financial results, liquidity and other key items related to our performance and should be read in conjunction with the Condensed Consolidated Financial Statements and related notes included in Item 1 of this Quarterly Report on Form 10-Q. Unless the context indicates otherwise, the term the “Company,” “we,” “our,” or “us” are used to refer to Spectrum Brands Holdings, Inc. (formerly HRG Group, Inc.) and its subsidiaries and SB/RH Holdings, LLC and its subsidiaries, collectively.
Business Overview
Refer to Note 1 – BasisDescription of Presentation and Nature of Business in Notes to the Condensed Consolidated Financial Statements, included elsewhere in this Quarterly Report, for an overview of our business.
Divestitures
|
|
|
|
Global Batteries & Lights – On January 2, 2019, the Company completed the sale of its GBL business pursuant to the GBL acquisition agreement with Energizer for cash proceeds of $1,956.2 million, resulting in the recognition of a pre-tax gain on sale of $990.6 million, including the estimated settlement of customary purchase price adjustments for working capital and assumed indebetedness, recognition of tax and legal indemnifications under the acquisition agreement and an estimated contingent purchase price adjustment for the settlement with the planned divestiture of the Varta® consumer batteries business by Energizer of $200.0 million in accordance with the GBL acquisition agreement. The results of operations and gain on sale for disposal of the GBL business are recognized as a component of discontinued operations.
Global Auto Care – On January 28, 2019, the Company completed the sale of its GAC business pursuant to the GAC acquisition agreement with Energizer for $1.2 billion, consisting of $938.7 million in cash proceeds and $242.1 million in stock consideration of common stock of Energizer, resulting in the write-down of net assets held for sale of $110.0 million, including the estimated settlement of customary purchase price adjustments for working capital and assumed indebtedness, recognition of tax and legal indemnifications in accordance with the GAC acquisition agreement. The results of operations and write-down of net assets held for sale for the disposal of the GAC business are recognized as a component of discontinued operations.
Home & Personal Care – During the three month period ended December 30, 2018, the Company changed its plans to sell its HPC business and classified the net assets of HPC as held for use and the HPC operations have been classified as continuing operations for all periods presented. During the period in which the HPC business was held for sale, the Company incurred divestiture related expenses to market and sell the business that were previously recognized as a component of discontinued operations and ceased the recognition of depreciation and amortization on long-lived assets of the HPC disposal group, impacting the comparability of financial results when classified as continuing operations, resulting in the recognition of $29.0 million in incremental depreciation and amortization charges during the nine month period ended June 30, 2019.
HRG Insurance Operations – On November 30, 2017, FGL completed the FGL Merger with CF Corporation and the CF Entities pursuant to the FGL Merger Agreement. Pursuant to the FGL Merger Agreement, except for certain shares specified in the FGL Merger Agreement, each issued and outstanding share of common stock of FGL was automatically cancelled and converted into the right to receive $31.10 in cash. The total consideration received by the Company as a result of the completion of the FGL Merger was $1,488.3 million. In addition, pursuant to a Share Purchase Agreement, on November 30, 2017, Front Street Re (Delaware) Ltd. sold to the CF Entities all of the issued and outstanding shares of Front Street for $65.0 million, subject to customary transaction expenses. HRG insurance operations have been classified as discontinued operations for the nine month period ended June 30, 2018.
See Note 3 – Divestitures in Notes to the Condensed Consolidated Financial Statements, included elsewhere in this Quarterly Report, for more information on the assets and liabilities classified as held for sale and discontinued operations.
Spectrum Merger
On February 24, 2018, the Company entered into an agreement and plan of merger with its majority owned subsidiary, Spectrum, which effectively closed July 13, 2018. SBH hasThe Company incurred significant transaction costs associated with the Merger that may impact the comparability of the consolidated results of operations. The Spectrum Merger effectively closed on July 13, 2018, subsequent to the fiscal period ended June 30, 2018. Effective the date of close of the Spectrum Merger, management and control of the organization was assumed by its majority owned subsidiary, Spectrum, and the Company continues to operate as the commercialconsumer products company that was principally conducted by its majority owned subsidiary. See Note 4 – Acquisitions in Notes to the Condensed Consolidated Financial Statements, included elsewhere in this Quarterly Report,quarterly report, for more information on the Spectrum Merger and associated transaction costs.Merger.
Additionally, as a result of the Spectrum Merger, the Company and Spectrum will join in the filing of US consolidated tax return starting July 13, 2018. The form of the Spectrum Merger allows for the Companies capital and net operating loss carryforwards to be able to be used to offset Spectrum’s future income and the US tax gain on the sale of the GBL business to Energizer. As a result, for the three month period ended June 30, 2018, the Company released $335.0 million of valuation allowance on its net deferred tax assets since it is now more likely than not that the assets will be realized. As of June 30, 2018, the Company has $227.0 of valuation allowance recorded on US deferred tax assets, primarily net operating losses and tax credits subject to certain ownership change limitations on their use.
Acquisitions
The following acquisition activity has a significant impact on the comparability of the financial results on the consolidated financial statements.
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See Note 4 – Acquisitions to the Condensed Consolidated Financial Statements, included elsewhere in this Quarterly Report, for more information on the associated acquisition & integration costs.
Refinancing Activity
The following recent financing activity has a significant impact on the comparability of financial results on the condensed consolidated financial statements.
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On October 31, 2018, the Company repaid its CAD Term Loan in full.
On January 4, 2019, the Company repaid its USD Term Loan in full using proceeds received from the divestiture of GBL, recognizing a loss on extinguishment of the debt of $9.0 million attributable to a non-cash charge from the write-off of deferred financing costs and original issue discount associated with the debt.
On January 30, 2019, the Company repaid its 7.75% Senior Notes in full using proceeds received from the GBL and GAC divestitures, recognizing a loss on extinguishment of the debt of $41.2 million attributable to a $17.2 million premium on repayment of the debt and a non-cash charge of $24.0 million attributable to the write-off of deferred financing costs and original issue discount associated with the debt.
On March 21, 2019, the Company repaid $285.0 million of its 6.625% Senior Unsecured Notes with an outstanding principal of $570.0 million using proceeds received from the GAC divestitures, recognizing a loss on extinguishment of the debt of $9.6 million attributable to $6.3 million premium on repayment of debt and non-cash charge of $3.3 million attributable to the write-off of deferred financing costs associated with the debt.
See Note 1011 – Debt in Notes to the Condensed Consolidated Financial Statements, included elsewhere in this Quarterly Report, for more information.
Restructuring Activity
We continually seek to improve our operational efficiency, match our manufacturing capacity and product costs to market demand and better utilize our manufacturing resources. We have undertaken various initiatives to reduce manufacturing and operating costs, which may have a significant impact on the comparability of financial results on the condensed consolidated financial statements. The most significant of these initiatives are:
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Global Productivity Improvement Plan, formerly Project Ignite, which began during the year ended September 30, 2018;
HHI Distribution Center Consolidation, which began during the year ended September 30, 2017 and incurred through December 30, 2018; and
PET Rightsizing Initiative, which began during the year ended September 30, 2017 and incurred through September 30, 2018.
See Note 5 - Restructuring and Related Charges in the Notes to the Condensed Consolidated Financial Statements, included elsewhere within this Quarterly report for additional detail.
Safety RecallAdoption of New Revenue Recognition Accounting Standard
On June 10, 2017, Spectrum initiatedOctober 1, 2018, the Company adopted ASU 2014-09 “Revenue from Contracts with Customers (Topic 606)” and all the related amendments using the modified retrospective transition method, resulting in a voluntary safety recallcumulative effect adjustment of various rawhide chew products$0.7 million, net of tax, to the opening balance of retained earnings at the beginning of the fiscal year 2019. The comparative information has not been restated and continues to be reported under the accounting standards in effect for dogs sold by Spectrum’s PET segment duethose periods. The Company does not expect the adoption to possible chemical contamination. Spectrum suspended production at facilities impacted byhave a material impact on the product safety recall, completed a comprehensive manufacturing reviewcomparability of its period revenue or operating results on an ongoing basis. See Note 2 – Significant Accounting Policies and recommenced production during the fourth quarter ended September 30, 2017. Production facilities impacted by the recall are subject to incremental costs during start-up requiring alternative treatment on affected product SKUs until the appropriate regulatory approvals have been received. See Procedures and Note 17 - Commitments and Contingencies6 – Revenue Recognition in Notes to the Condensed Consolidated Financial Statements, included elsewhere withinin this Quarterly Report, for additional detail.more information.
Tax Reform
On December 22, 2017, the Tax Cuts and Jobs Act (the "Tax Reform Act") was signed into law. The legislation significantly changes U.S. tax law by, among other things, lowering corporate income tax rates, implementing a dividends received deduction for dividends from foreign subsidiaries and imposing a tax on deemed repatriated accumulated earnings of foreign subsidiaries. The Tax Reform Act reducesreduced the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. Under the Tax Reform Act, the U.S. statutory tax rate for Fiscalthe fiscal year ended September 30, 2018 will bewas approximately 24.5%. The Company has recognized the provisional tax impacts related to deemed repatriated earnings and the revaluation of deferred tax assets and liabilities and included these amounts in its condensed consolidated financial statements for the nine month period ended June 30, 2018 and may impact the comparability of the consolidated results of operations. On June 14, 2019, the U.S. Department of the Treasury and the Internal Revenue Service issued Regulations (“Regulations”) related to the foreign dividends received deduction and GILTI. The Regulations contained language that modified certain provisions of the Tax Reform Act and previously issued guidance. The Regulations are retroactive to January 1, 2018 and caused certain distributions made by the Company’s non-US subsidiaries during Fiscal 2018 to be taxable as Subpart F income on its Fiscal 2018 federal income tax return. The impacts of the Regulations were recorded in the three and nine month periods ended June 30, 2018. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result2019. Portions of the Tax Reform Act.Act are unclear or have not yet been clarified and interpretations and regulations continue to be issued, which could have a material impact on what the Company has recorded to date. See Note 1516 – Income Taxes in Notes to the Condensed Consolidated Financial Statements, included elsewhere within this Quarterly Report for additional detail.
Non-GAAP Measurements
Our consolidated and segment results contain non-GAAP metrics such as organic net sales, and adjusted EBITDA (“Earnings Before Interest, Taxes, Depreciation, Amortization”). While we believe organic net sales and adjusted EBITDA are useful supplemental information, such adjusted results are not intended to replace our financial results in accordance with Accounting Principles Generally Accepted in the United States (“GAAP”) and should be read in conjunction with those GAAP results.
Organic Net Sales. We define organic net sales as net sales excluding the effect of changes in foreign currency exchange rates and 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 rate and acquisitions. We use organic net sales as one measure to monitor and evaluate our regional and segment performance. Organic growth is calculated by comparing organic net sales to net sales in the prior year. The effect of changes in currency exchange rates is determined by translating the period’s net sales using the currency exchange rates that were in effect during the prior comparative period. Net sales are attributed to the geographic regions based on the country of destination. We exclude net sales from acquired businesses in the current year for which there are no comparable sales in the prior period. The following is a reconciliation of reported net sales to organic net sales for the three and nine month periodperiods ended June 30, 20182019 compared to net sales for the three and nine month periodperiods ended June 30, 2017, and for the nine month period June 30, 2018 compared to the net sales for the nine month period ended June 30, 2017:2018:
June 30, 2019 | |||||||||||||||||
Three Month Periods ended | Net Sales | Effect of Changes in Currency | Organic | Net Sales | Variance | ||||||||||||
HHI | $ | 354.6 | $ | 1.8 | 356.4 | $ | 372.4 | $ | (16.0) | (4.3%) | |||||||
HPC | 243.4 | 10.3 | 253.7 | 254.4 | (0.7) | (0.3%) | |||||||||||
PET | 221.7 | 3.5 | 225.2 | 194.7 | 30.5 | 15.7% | |||||||||||
H&G | 202.5 | — | 202.5 | 207.9 | (5.4) | (2.6%) | |||||||||||
Total | $ | 1,022.2 | $ | 15.6 | $ | 1,037.8 | $ | 1,029.4 | 8.4 | 0.8% | |||||||
June 30, 2019 | |||||||||||||||||
Nine Month Periods ended | Net Sales | Effect of Changes in Currency | Organic |
| Variance | ||||||||||||
HHI | $ | 990.7 | $ | 5.7 | 996.4 | $ | 1,016.8 | $ | (20.4) | (2.0%) | |||||||
HPC | 782.3 | 32.3 | 814.6 | 827.5 | (12.9) | (1.6%) | |||||||||||
PET | 641.3 | 10.6 | 651.9 | 608.3 | 43.6 | 7.2% | |||||||||||
H&G | 394.9 | — | 394.9 | 381.7 | 13.2 | 3.5% | |||||||||||
Total | $ | 2,809.2 | $ | 48.6 | $ | 2,857.8 | $ | 2,834.3 | 23.5 | 0.8% |
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| June 30. 2018 |
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| Net Sales |
| Effect of Changes in Currency |
| Net Sales Excluding Effect of Changes in Currency |
| Effect of Acquisitions |
| Organic |
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| Variance | |||||||||
HHI |
| $ | 372.4 |
| $ | (1.3) |
| $ | 371.1 |
| $ | — |
| $ | 371.1 |
| $ | 324.7 |
| $ | 46.4 |
| 14.3% |
PET |
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| 194.7 |
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| (2.9) |
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| 191.8 |
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| (14.5) |
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| 177.3 |
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| 190.0 |
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| (12.7) |
| (6.7%) |
H&G |
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| 203.2 |
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| — |
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| 203.2 |
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| — |
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| 203.2 |
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| 192.4 |
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| 10.8 |
| 5.6% |
GAC |
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| 175.2 |
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| (0.7) |
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| 174.5 |
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| — |
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| 174.5 |
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| 155.8 |
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| 18.7 |
| 12.0% |
Total |
| $ | 945.5 |
| $ | (4.9) |
| $ | 940.6 |
| $ | (14.5) |
| $ | 926.1 |
| $ | 862.9 |
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| 63.2 |
| 7.3% |
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| June 30. 2018 |
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Nine Month Periods Ended |
| Net Sales |
| Effect of Changes in Currency |
| Net Sales Excluding Effect of Changes in Currency |
| Effect of Acquisitions |
| Organic |
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| Variance | |||||||||
HHI |
| $ | 1,016.8 |
| $ | (5.9) |
| $ | 1,010.9 |
| $ | — |
| $ | 1,010.9 |
| $ | 927.2 |
| $ | 83.7 |
| 9.0% |
PET |
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| 608.3 |
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| (16.3) |
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| 592.0 |
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| (64.5) |
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| 527.5 |
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| 576.0 |
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| (48.5) |
| (8.4%) |
H&G |
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| 370.6 |
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| — |
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| 370.6 |
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| — |
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| 370.6 |
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| 374.2 |
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| (3.6) |
| (1.0%) |
GAC |
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| 362.4 |
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| (2.6) |
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| 359.8 |
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| — |
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| 359.8 |
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| 344.2 |
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| 15.6 |
| 4.5% |
Total |
| $ | 2,358.1 |
| $ | (24.8) |
| $ | 2,333.3 |
| $ | (64.5) |
| $ | 2,268.8 |
| $ | 2,221.6 |
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| 47.2 |
| 2.1% |
Adjusted EBITDA. Adjusted EBITDA is a metricand Adjusted EBITDA Margin. Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP measures used by management, andwhich we believe this non-GAAP measure providesprovide useful information to investors because it reflectsthey 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. ItThey also facilitatesfacilitate 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 covenant. See Note 10 - Debt to the Condensed Consolidated Financial Statements, included elsewhere within this Quarterly Report, for additional detail.
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:
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Stock based and other incentive compensation costs that consist of costs associated with long-term compensation arrangements and other equity based compensation based upon achievement of long-term performance metrics; and generally consist of non-cash, stock-based compensation. During the year ending September 30, 2019, the Company issued certain incentive bridge awards due to changes in the Company’s long-term compensation plans that allow for cash based payment upon employee election which have been included in the adjustment and do not qualify as shared-based compensation but have been included as an adjustment from other incentive compensation costs. See Note 15 - Share Based Compensation in Notes to the Condensed Consolidated Financial Statements, included elsewhere within this Quarterly report for further discussion;
Transaction related charges consist of (1) transaction costs from qualifying acquisition transactions during the period, or subsequent integration related project costs directly associated with an acquired business; (2) post-divestiture separation costs consisting of incremental costs incurred by the continuing operations of the Company after completion of the GBL and GAC divestitures to facilitate separation of shared operations, platforms and personnel transferred as part of the divestitures and exiting of TSAs and reverse TSAs with Energizer; (3) divestiture related transaction costs that are recognized in continuing operations due to the change in plan to cease marketing and selling of the HPC business. See Note 2 – Basis of Presentation & Significant Accounting Policies for additional details;
Restructuring and related charges, which consist of project costs associated with restructuring initiatives across the segments. See Note 5 - Restructuring and Related Charges in Notes to the Condensed Consolidated Financial Statements, included elsewhere within this Quarterly Report for further details;
Unrealized gains and losses attributable to the Company’s investment in Energizer common stock, acquired as part of consideration received from the Company’s sale and divestiture of GAC to Energizer. See Note 3 – Divestitures and Note 13 – Fair Value of Financial Instruments in Notes to the Condensed Consolidated Financial Statements, included elsewhere within this Quarterly Report for further discussion;
Foreign currency gains and losses attributable to multicurrency loans that were entered into with foreign subsidiaries in exchange for the receipt of divestiture proceeds by the parent company and the distribution of the respective foreign subsidiaries’ net assets as part of the GBL and GAC divestitures. The Company has entered into various hedging arrangements to mitigate the volatility of foreign exchange risk associated with such loans;
Incremental costs associated with a safety recall in PET;
Non-cash purchase accounting inventory adjustments recognized in earnings from continuing operations after an acquisition (when applicable);
Non-cash asset impairments or write-offs realized and recognized in earnings from continuing operations (when applicable);
Incremental costs directly associated with the Spectrum Merger during the three and nine month periods ended June 30, 2018;
Non-recurring HRG net operating costs during the three and nine month periods ended June 30, 2018, considered to be redundant or duplicative as a result of the Spectrum Merger and not considered a component of the continuing commercial products company post-merger, including compensation and benefits, directors fees, professional fees, insurance, public company costs, amongst others, and including interest and other non-recurring income that will ultimately be eliminated following the transaction; and
Other adjustments consistprimarily consisting of costs attributable to (1) operating margin on H&G sales to GAC discontinued operations for the three and nine month periods ended June 30, 2019 and 2018 respectively; (2) expenses and cost recovery for flood damage at Company facilities in Middleton, Wisconsin during the three and nine month periods ended June 30, 2019; (3) certain fines and penalties for delayed shipments following the completion of a PET distribution center consolidation in EMEA during the nine month period ended June 30, 2019; (4) legal and litigation costs associated with Salus during the three and nine month periods ended June 30, 2019 as they are not considered a component of the continuing commercial products company, but continue to be consolidated by the Company after completion of the Spectrum Merger until the Salus operations can be wholly dissolved and/or deconsolidated; and (5) incremental costs for separation of a key executive. executive during the three and nine month periods ended June 30, 2018.
Adjusted EBITDA margin is calculated as Adjusted EBITDA as a percentage of reported net sales for the respective period and segment.
The following is a reconciliation of net income to adjustedAdjusted EBITDA for the three month periods ended June 30, 20182019 and 20172018 for SBH.
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SPECTRUM BRANDS HOLDINGS, INC. (in millions) |
| HHI |
| PET |
| H&G |
| GAC |
| Corporate |
| Consolidated | HHI | HPC | PET | H&G | Corporate | Consolidated | ||||||||||||||||||
Three Month Period Ended June 30, 2019 | ||||||||||||||||||||||||||||||||||||
Net income from continuing operations | $ | 58.2 | $ | 5.7 | $ | 25.9 | $ | 48.0 | $ | (162.5) | $ | (24.7) | ||||||||||||||||||||||||
Income tax benefit | — | — | — | — | 44.2 | 44.2 | ||||||||||||||||||||||||||||||
Interest expense | — | — | — | — | 33.9 | 33.9 | ||||||||||||||||||||||||||||||
Depreciation and amortization | 8.4 | 8.5 | 10.8 | 4.8 | 3.4 | 35.9 | ||||||||||||||||||||||||||||||
EBITDA | 66.6 | 14.2 | 36.7 | 52.8 | (81.0) | 89.3 | ||||||||||||||||||||||||||||||
Share and incentive based compensation | — | — | — | — | 15.6 | 15.6 | ||||||||||||||||||||||||||||||
Transaction related charges | — | 0.7 | 0.7 | — | 3.4 | 4.8 | ||||||||||||||||||||||||||||||
Restructuring and related charges | 1.1 | 3.2 | 1.4 | 0.4 | 14.6 | 20.7 | ||||||||||||||||||||||||||||||
Unrealized loss on Energizer investment | — | — | — | — | 33.2 | 33.2 | ||||||||||||||||||||||||||||||
Foreign currency loss on multicurrency divestiture loans | — | — | — | — | 7.7 | 7.7 | ||||||||||||||||||||||||||||||
Other | — | 0.1 | 0.2 | 0.1 | 1.2 | 1.6 | ||||||||||||||||||||||||||||||
Adjusted EBITDA | $ | 67.7 | $ | 18.2 | $ | 39.0 | $ | 53.3 | $ | (5.3) | $ | 172.9 | ||||||||||||||||||||||||
Net Sales | $ | 354.6 | $ | 243.4 | $ | 221.7 | $ | 202.5 | $ | — | $ | 1,022.2 | ||||||||||||||||||||||||
Adjusted EBITDA Margin | 19.1% | 7.5% | 17.6% | 26.3% | — | 16.9% | ||||||||||||||||||||||||||||||
Three Month Period Ended June 30, 2018 |
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Net income from continuing operations |
| $ | 52.1 |
| $ | 14.4 |
| $ | 52.2 |
| $ | 38.2 |
| $ | 246.0 |
| $ | 402.9 | $ | 52.1 | $ | 18.8 | $ | 14.4 | $ | 52.1 | $ | 261.5 | $ | 398.9 | ||||||
Income tax benefit |
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| — |
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| — |
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| — |
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| — |
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| (337.8) |
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| (337.8) | — | — | — | — | (354.2) | (354.2) | ||||||||||||
Interest expense |
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| — |
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| — |
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| — |
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| — |
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| 63.5 |
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| 63.5 | — | — | — | — | 63.3 | 63.3 | ||||||||||||
Depreciation and amortization |
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| 8.9 |
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| 10.6 |
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| 4.7 |
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| 4.3 |
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| 3.7 |
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| 32.2 | 8.9 | — | 10.6 | 4.7 | 3.7 | 27.9 | ||||||||||||
EBITDA |
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| 61.0 |
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| 25.0 |
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| 56.9 |
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| 42.5 |
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| (24.6) |
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| 160.8 | 61.0 | 18.8 | 25.0 | 56.8 | (25.7) | 135.9 | ||||||||||||
Share based compensation |
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| — |
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| — |
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| — |
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| — |
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| 5.3 |
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| 5.3 | — | — | — | — | 5.7 | 5.7 | ||||||||||||
Acquisition and integration related charges |
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| 0.9 |
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| 1.1 |
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| — |
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| — |
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| 0.3 |
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| 2.3 | ||||||||||||||||||
Transaction related charges | 0.9 | 2.4 | 1.1 | — | 1.1 | 5.5 | ||||||||||||||||||||||||||||||
Restructuring and related charges |
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| 12.0 |
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| 3.7 |
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| 0.1 |
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| 7.6 |
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| 2.0 |
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| 25.4 | 12.0 | 0.2 | 3.7 | 0.1 | 1.9 | 17.9 | ||||||||||||
Pet safety recall |
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| — |
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| 5.1 |
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| — |
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| — |
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| — |
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| 5.1 | — | — | 5.1 | — | — | 5.1 | ||||||||||||
Spectrum merger related transaction charges |
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| — |
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| — |
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| — |
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| — |
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| 3.1 |
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| 3.1 | — | — | — | — | 3.1 | 3.1 | ||||||||||||
Non-recurring HRG operating costs and interest income |
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| — |
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| — |
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| — |
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| — |
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| 1.2 |
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| 1.2 | — | — | — | — | 1.1 | 1.1 | ||||||||||||
Salus |
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| — |
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| — |
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| — |
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| — |
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| (0.1) |
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| (0.1) | ||||||||||||||||||
Other |
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| — |
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| — |
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| — |
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| — |
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| 3.3 |
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| 3.3 | — | — | — | 0.1 | 3.3 | 3.4 | ||||||||||||
Adjusted EBITDA |
| $ | 73.9 |
| $ | 34.9 |
| $ | 57.0 |
| $ | 50.1 |
| $ | (9.5) |
| $ | 206.4 | $ | 73.9 | $ | 21.4 | $ | 34.9 | $ | 57.0 | $ | (9.5) | $ | 177.7 | ||||||
Three Month Period Ended June 30, 2017 |
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Net income (loss) from continuing operations |
| $ | 44.4 |
| $ | (5.4) |
| $ | 55.3 |
| $ | 32.5 |
| $ | (123.0) |
| $ | 3.8 | ||||||||||||||||||
Income tax expense |
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| — |
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| — |
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| — |
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| — |
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| 19.5 |
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| 19.5 | ||||||||||||||||||
Interest expense |
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| — |
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| — |
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| — |
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| — |
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| 76.1 |
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| 76.1 | ||||||||||||||||||
Depreciation and amortization |
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| 9.8 |
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| 10.8 |
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| 4.2 |
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| 5.1 |
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| 3.0 |
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| 32.9 | ||||||||||||||||||
EBITDA |
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| 54.2 |
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| 5.4 |
|
| 59.5 |
|
| 37.6 |
|
| (24.4) |
|
| 132.3 | ||||||||||||||||||
Share based compensation |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 5.0 |
|
| 5.0 | ||||||||||||||||||
Acquisition and integration related charges |
|
| 1.8 |
|
| 3.0 |
|
| — |
|
| 0.3 |
|
| 0.1 |
|
| 5.2 | ||||||||||||||||||
Restructuring and related charges |
|
| 6.2 |
|
| 2.0 |
|
| — |
|
| 12.8 |
|
| 0.2 |
|
| 21.2 | ||||||||||||||||||
Inventory acquisition step-up |
|
| — |
|
| 0.8 |
|
| — |
|
| — |
|
| — |
|
| 0.8 | ||||||||||||||||||
Pet safety recall |
|
| — |
|
| 24.9 |
|
| — |
|
| — |
|
| — |
|
| 24.9 | ||||||||||||||||||
Spectrum merger related transaction charges |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 1.4 |
|
| 1.4 | ||||||||||||||||||
Non-recurring HRG operating costs and interest income |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 7.8 |
|
| 7.8 | ||||||||||||||||||
Salus |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 0.7 |
|
| 0.7 | ||||||||||||||||||
Adjusted EBITDA |
| $ | 62.2 |
| $ | 36.1 |
| $ | 59.5 |
| $ | 50.7 |
| $ | (9.2) |
| $ | 199.3 | ||||||||||||||||||
Net Sales | $ | 372.4 | $ | 254.4 | $ | 194.7 | $ | 207.9 | $ | — | $ | 1,029.4 | ||||||||||||||||||||||||
Adjusted EBITDA Margin | 19.8% | 8.4% | 17.9% | 27.4% | — | 17.3% |
The following is a reconciliation of net income to adjustedAdjusted EBITDA for the nine monthmonths periods ended June 30, 20182019 and 20172018 for SBH.
|
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| |||||||||||||||||||
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|
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|
|
| |||||||||||||||||||
SPECTRUM BRANDS HOLDINGS, INC. (in millions) |
| HHI |
| PET |
| H&G |
| GAC |
| Corporate |
| Consolidated | HHI | HPC | PET | H&G | Corporate | Consolidated | ||||||||||||||||||
Nine Month Period Ended June 30, 2019 | ||||||||||||||||||||||||||||||||||||
Net income (loss) from continuing operations | $ | 145.4 | (9.0) | 57.3 | 70.8 | (372.1) | $ | (107.6) | ||||||||||||||||||||||||||||
Income tax benefit | — | — | — | — | 18.2 | 18.2 | ||||||||||||||||||||||||||||||
Interest expense | — | — | — | — | 185.1 | 185.1 | ||||||||||||||||||||||||||||||
Depreciation and amortization | 25.3 | 55.7 | 32.0 | 14.4 | 11.0 | 138.4 | ||||||||||||||||||||||||||||||
EBITDA | 170.7 | 46.7 | 89.3 | 85.2 | (157.8) | 234.1 | ||||||||||||||||||||||||||||||
Share and incentive based compensation | — | — | — | — | 38.7 | 38.7 | ||||||||||||||||||||||||||||||
Transaction related charges | 0.9 | 6.3 | 1.6 | — | 7.6 | 16.4 | ||||||||||||||||||||||||||||||
Restructuring and related charges | 4.3 | 4.7 | 6.4 | 1.4 | 25.4 | 42.2 | ||||||||||||||||||||||||||||||
Pet safety recall | — | — | 0.7 | — | — | 0.7 | ||||||||||||||||||||||||||||||
Unrealized loss on Energizer investment | — | — | — | — | 38.2 | 38.2 | ||||||||||||||||||||||||||||||
Foreign currency loss on multicurrency divestiture loans | — | — | — | — | 29.5 | 29.5 | ||||||||||||||||||||||||||||||
Other | — | — | 2.9 | (0.7) | 1.7 | 3.9 | ||||||||||||||||||||||||||||||
Adjusted EBITDA | $ | 175.9 | $ | 57.7 | $ | 100.9 | $ | 85.9 | $ | (16.7) | $ | 403.7 | ||||||||||||||||||||||||
Net Sales | $ | 990.7 | $ | 782.3 | $ | 641.3 | $ | 394.9 | $ | — | $ | 2,809.2 | ||||||||||||||||||||||||
Adjusted EBITDA Margin | 17.8% | 7.4% | 15.7% | 21.8% | — | 14.4% | ||||||||||||||||||||||||||||||
Nine Month Period Ended June 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Net income from continuing operations |
| $ | 101.8 |
| $ | 42.5 |
| $ | 73.4 |
| $ | 57.3 |
| $ | 168.7 |
| $ | 443.7 | $ | 101.8 | $ | 65.9 | $ | 42.5 | $ | 73.5 | $ | 177.9 | $ | 461.6 | ||||||
Income tax benefit |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (464.9) |
|
| (464.9) | — | — | — | — | (476.4) | (476.4) | ||||||||||||
Interest expense |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 206.6 |
|
| 206.6 | — | — | — | — | 206.4 | 206.4 | ||||||||||||
Depreciation and amortization |
|
| 31.4 |
|
| 31.7 |
|
| 14.0 |
|
| 12.1 |
|
| 10.2 |
|
| 99.4 | 31.4 | 8.8 | 31.7 | 14.0 | 10.7 | 96.6 | ||||||||||||
EBITDA |
|
| 133.2 |
|
| 74.2 |
|
| 87.4 |
|
| 69.4 |
|
| (79.4) |
|
| 284.8 | 133.2 | 74.7 | 74.2 | 87.5 | (81.4) | 288.2 | ||||||||||||
Share based compensation |
|
| — |
| — |
|
| — |
|
| — |
|
| 6.4 |
|
| 6.4 | — | — | — | — | 7.0 | 7.0 | |||||||||||||
Acquisition and integration related charges |
|
| 5.5 |
|
| 5.2 |
|
| — |
|
| 0.6 |
|
| 0.7 |
|
| 12.0 | ||||||||||||||||||
Transaction related charges | 5.5 | 8.1 | 5.2 | — | 1.6 | 20.4 | ||||||||||||||||||||||||||||||
Restructuring and related charges |
|
| 40.8 |
|
| 8.1 |
|
| 0.3 |
|
| 14.7 |
|
| 5.1 |
|
| 69.0 | 40.8 | 0.5 | 8.1 | 0.3 | 5.7 | 55.4 | ||||||||||||
Inventory acquisition step-up |
|
| — |
|
| 0.8 |
|
| — |
|
| — |
|
| — |
|
| 0.8 | — | — | 0.8 | — | — | 0.8 | ||||||||||||
Pet safety recall |
|
| — |
|
| 16.3 |
|
| — |
|
| — |
|
| — |
|
| 16.3 | — | — | 16.3 | — | — | 16.3 | ||||||||||||
Spectrum merger related transaction charges |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 22.0 |
|
| 22.0 | — | — | — | — | 22.0 | 22.0 | ||||||||||||
Non-recurring HRG operating costs and interest income |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 11.9 |
|
| 11.9 | — | — | — | — | 13.0 | 13.0 | ||||||||||||
Salus |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 1.2 |
|
| 1.2 | ||||||||||||||||||
Other |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 3.3 |
|
| 3.3 | — | — | — | (0.1) | 3.3 | 3.2 | ||||||||||||
Adjusted EBITDA |
| $ | 179.5 |
| $ | 104.6 |
| $ | 87.7 |
| $ | 84.7 |
| $ | (28.8) |
| $ | 427.7 | $ | 179.5�� | $ | 83.3 | $ | 104.6 | $ | 87.7 | $ | (28.8) | $ | 426.3 | ||||||
Nine Month Period Ended June 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Net income from continuing operations |
| $ | 136.7 |
| $ | 34.1 |
| $ | 88.4 |
| $ | 80.1 |
| $ | (385.3) |
| $ | (46.0) | ||||||||||||||||||
Income tax expense |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 49.1 |
|
| 49.1 | ||||||||||||||||||
Interest expense |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 232.4 |
|
| 232.4 | ||||||||||||||||||
Depreciation and amortization |
|
| 28.0 |
|
| 31.6 |
|
| 12.4 |
|
| 13.9 |
|
| 8.4 |
|
| 94.3 | ||||||||||||||||||
EBITDA |
|
| 164.7 |
|
| 65.7 |
|
| 100.8 |
|
| 94.0 |
|
| (95.4) |
|
| 329.8 | ||||||||||||||||||
Share based compensation |
|
| — |
| — |
|
| — |
|
| — |
|
| 28.5 |
|
| 28.5 | |||||||||||||||||||
Acquisition and integration related charges |
|
| 5.6 |
|
| 3.6 |
|
| — |
|
| 2.1 |
|
| 0.3 |
|
| 11.6 | ||||||||||||||||||
Restructuring and related charges |
|
| 7.7 |
|
| 3.7 |
|
| — |
|
| 19.8 |
|
| 0.1 |
|
| 31.3 | ||||||||||||||||||
Inventory acquisition step-up |
|
| — |
|
| 0.8 |
|
| — |
|
| — |
|
| — |
|
| 0.8 | ||||||||||||||||||
Pet safety recall |
|
| — |
|
| 24.9 |
|
| — |
|
| — |
|
| — |
|
| 24.9 | ||||||||||||||||||
Spectrum merger related transaction charges |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 4.2 |
|
| 4.2 | ||||||||||||||||||
Non-recurring HRG operating costs and interest income |
|
| — |
| — |
|
| — |
|
| — |
|
| 28.6 |
|
| 28.6 | |||||||||||||||||||
Salus |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 5.0 |
|
| 5.0 | ||||||||||||||||||
Adjusted EBITDA |
| $ | 178.0 |
| $ | 98.7 |
| $ | 100.8 |
| $ | 115.9 |
| $ | (28.7) |
| $ | 464.7 | ||||||||||||||||||
Net Sales | $ | 1,016.8 | $ | 827.5 | $ | 608.3 | $ | 381.7 | $ | — | $ | 2,834.3 | ||||||||||||||||||||||||
Adjusted EBITDA Margin | 17.7% | 10.1% | 17.2% | 23.0% | — | 15.0% |
The following is a reconciliation of net income to adjustedAdjusted EBITDA for the three month periods ended July l, 2018June 30, 2019 and July 2, 20171, 2018 for SBRH.SB/RH.
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| ||||||||||||||||||
SB/RH HOLDINGS, LLC (in millions) |
| HHI |
| PET |
| H&G |
| GAC |
| Corporate |
| Consolidated | HHI | HPC | PET | H&G | Corporate | Consolidated | ||||||||||||||||||
Three Month Period Ended June 30, 2019 | ||||||||||||||||||||||||||||||||||||
Net income (loss) from continuing operations | $ | 58.2 | $ | 5.7 | $ | 25.9 | $ | 48.0 | $ | (166.7) | $ | (28.9) | ||||||||||||||||||||||||
Income tax benefit | — | — | — | — | 49.9 | 49.9 | ||||||||||||||||||||||||||||||
Interest expense | — | — | — | — | 33.7 | 33.7 | ||||||||||||||||||||||||||||||
Depreciation and amortization | 8.4 | 8.5 | 10.8 | 4.8 | 3.4 | 35.9 | ||||||||||||||||||||||||||||||
EBITDA | 66.6 | 14.2 | 36.7 | 52.8 | (79.7) | 90.6 | ||||||||||||||||||||||||||||||
Share and incentive based compensation | — | — | — | — | 15.2 | 15.2 | ||||||||||||||||||||||||||||||
Transaction related charges | — | 0.7 | 0.7 | — | 3.4 | 4.8 | ||||||||||||||||||||||||||||||
Restructuring and related charges | 1.1 | 3.2 | 1.4 | 0.4 | 14.6 | 20.7 | ||||||||||||||||||||||||||||||
Unrealized loss on Energizer investment | — | — | — | — | 33.2 | 33.2 | ||||||||||||||||||||||||||||||
Foreign currency loss on multicurrency divestiture loans | — | — | — | — | 7.7 | 7.7 | ||||||||||||||||||||||||||||||
Other | — | 0.1 | 0.2 | 0.1 | — | 0.4 | ||||||||||||||||||||||||||||||
Adjusted EBITDA | $ | 67.7 | $ | 18.2 | $ | 39.0 | $ | 53.3 | $ | (5.6) | $ | 172.6 | ||||||||||||||||||||||||
Net Sales | $ | 354.6 | $ | 243.4 | $ | 221.7 | $ | 202.5 | $ | — | $ | 1,022.2 | ||||||||||||||||||||||||
Adjusted EBITDA Margin | 19.1% | 7.5% | 17.6% | 26.3% | — | 16.9% | ||||||||||||||||||||||||||||||
Three Month Period Ended July 1, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Net income from continuing operations |
| $ | 52.1 |
| $ | 14.4 |
| $ | 52.2 |
| $ | 38.2 |
| $ | (87.3) |
| $ | 69.6 | $ | 52.1 | $ | 18.8 | $ | 14.4 | $ | 52.1 | $ | (91.3) | $ | 46.1 | ||||||
Income tax benefit |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 20.5 |
|
| 20.5 | — | — | — | — | 23.6 | 23.6 | ||||||||||||
Interest expense |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 43.6 |
|
| 43.6 | — | — | — | — | 43.4 | 43.4 | ||||||||||||
Depreciation and amortization |
|
| 8.9 |
|
| 10.6 |
|
| 4.7 |
|
| 4.3 |
|
| 3.7 |
|
| 32.2 | 8.9 | — | 10.6 | 4.7 | 3.7 | 27.9 | ||||||||||||
EBITDA |
|
| 61.0 |
|
| 25.0 |
|
| 56.9 |
|
| 42.5 |
|
| (19.5) |
|
| 165.9 | 61.0 | 18.8 | 25.0 | 56.8 | (20.6) | 141.0 | ||||||||||||
Share based compensation |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 4.5 |
|
| 4.5 | — | — | — | — | 4.9 | 4.9 | ||||||||||||
Acquisition and integration related charges |
|
| 0.9 |
|
| 1.1 |
|
| — |
|
| — |
|
| 0.3 |
|
| 2.3 | ||||||||||||||||||
Transaction related charges | 0.9 | 2.4 | 1.1 | — | 1.1 | 5.5 | ||||||||||||||||||||||||||||||
Restructuring and related charges |
|
| 12.0 |
|
| 3.7 |
|
| 0.1 |
|
| 7.6 |
|
| 2.0 |
|
| 25.4 | 12.0 | 0.2 | 3.7 | 0.1 | 1.9 | 17.9 | ||||||||||||
Pet safety recall |
|
| — |
|
| 5.1 |
|
| — |
|
| — |
|
| — |
|
| 5.1 | — | — | 5.1 | — | — | 5.1 | ||||||||||||
Other |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 3.3 |
|
| 3.3 | — | — | — | 0.1 | 3.3 | 3.4 | ||||||||||||
Adjusted EBITDA |
| $ | 73.9 |
| $ | 34.9 |
| $ | 57.0 |
| $ | 50.1 |
| $ | (9.4) |
| $ | 206.5 | $ | 73.9 | $ | 21.4 | $ | 34.9 | $ | 57.0 | $ | (9.4) | $ | 177.8 | ||||||
Three Month Period Ended July 2, 2017 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Net income (loss) from continuing operations |
| $ | 44.4 |
| $ | (5.4) |
| $ | 55.3 |
| $ | 32.5 |
| $ | (75.7) |
| $ | 51.1 | ||||||||||||||||||
Income tax expense |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 19.8 |
|
| 19.8 | ||||||||||||||||||
Interest expense |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 39.8 |
|
| 39.8 | ||||||||||||||||||
Depreciation and amortization |
|
| 9.8 |
|
| 10.8 |
|
| 4.2 |
|
| 5.1 |
|
| 2.9 |
|
| 32.8 | ||||||||||||||||||
EBITDA |
|
| 54.2 |
|
| 5.4 |
|
| 59.5 |
|
| 37.6 |
|
| (13.2) |
|
| 143.5 | ||||||||||||||||||
Share based compensation |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 3.9 |
|
| 3.9 | ||||||||||||||||||
Acquisition and integration related charges |
|
| 1.8 |
|
| 3.0 |
|
| — |
|
| 0.3 |
|
| 0.1 |
|
| 5.2 | ||||||||||||||||||
Restructuring and related charges |
|
| 6.2 |
|
| 2.0 |
|
| — |
|
| 12.8 |
|
| 0.2 |
|
| 21.2 | ||||||||||||||||||
Inventory acquisition step-up |
|
| — |
|
| 0.8 |
|
| — |
|
| — |
|
| — |
|
| 0.8 | ||||||||||||||||||
Pet safety recall |
|
| — |
|
| 24.9 |
|
| — |
|
| — |
|
| — |
|
| 24.9 | ||||||||||||||||||
Adjusted EBITDA |
| $ | 62.2 |
| $ | 36.1 |
| $ | 59.5 |
| $ | 50.7 |
| $ | (9.0) |
| $ | 199.5 | ||||||||||||||||||
Net Sales | $ | 372.4 | $ | 254.4 | $ | 194.7 | $ | 207.9 | $ | — | $ | 1,029.4 | ||||||||||||||||||||||||
Adjusted EBITDA Margin | 19.8% | 8.4% | 17.9% | 27.4% | — | 17.3% |
The following is a reconciliation of net income to adjustedAdjusted EBITDA for the nine monthmonths periods ended June 30, 2019 and July 1, 2018 and July 2, 2017 for SBRH.SB/RH.
SB/RH HOLDINGS, LLC (in millions) | HHI | HPC | PET | H&G | Corporate | Consolidated | ||||||||||||
Nine Month Period Ended June 30, 2019 | ||||||||||||||||||
Net income (loss) from continuing operations | $ | 145.4 | $ | (9.0) | $ | 57.3 | $ | 70.8 | $ | (324.6) | $ | (60.1) | ||||||
Income tax benefit | — | — | — | — | 34.1 | 34.1 | ||||||||||||
Interest expense | — | — | — | — | 125.2 | 125.2 | ||||||||||||
Depreciation and amortization | 25.3 | 55.7 | 32.0 | 14.4 | 11.0 | 138.4 | ||||||||||||
EBITDA | 170.7 | 46.7 | 89.3 | 85.2 | (154.3) | 237.6 | ||||||||||||
Share and incentive based compensation | — | — | — | — | 37.6 | 37.6 | ||||||||||||
Transaction related charges | 0.9 | 6.3 | 1.6 | — | 7.6 | 16.4 | ||||||||||||
Restructuring and related charges | 4.3 | 4.7 | 6.4 | 1.4 | 25.4 | 42.2 | ||||||||||||
Pet safety recall | — | — | 0.7 | — | — | 0.7 | ||||||||||||
Unrealized gain on investments | — | — | — | — | 38.2 | 38.2 | ||||||||||||
Foreign currency loss on intercompany divestiture loans | — | — | — | — | 29.5 | 29.5 | ||||||||||||
Other | — | — | 2.9 | (0.7) | 0.6 | 2.8 | ||||||||||||
Adjusted EBITDA | $ | 175.9 | $ | 57.7 | $ | 100.9 | $ | 85.9 | $ | (15.4) | $ | 405.0 | ||||||
Net Sales | $ | 990.7 | $ | 782.3 | $ | 641.3 | $ | 394.9 | $ | — | $ | 2,809.2 | ||||||
Adjusted EBITDA Margin | 17.8% | 7.4% | 15.7% | 21.8% | — | 14.4% | ||||||||||||
Nine Month Period Ended July 1, 2018 | ||||||||||||||||||
Net income from continuing operations | $ | 101.8 | $ | 65.9 | $ | 42.5 | $ | 73.5 | $ | (75.0) | $ | 208.7 | ||||||
Income tax benefit | — | — | — | — | (102.9) | (102.9) | ||||||||||||
Interest expense | — | — | — | — | 124.0 | 124.0 | ||||||||||||
Depreciation and amortization | 31.4 | 8.8 | 31.7 | 14.0 | 10.6 | 96.5 | ||||||||||||
EBITDA | 133.2 | 74.7 | 74.2 | 87.5 | (43.3) | 326.3 | ||||||||||||
Share based compensation | — | — | — | — | 4.6 | 4.6 | ||||||||||||
Transaction related charges | 5.5 | 8.1 | 5.2 | — | 1.6 | 20.4 | ||||||||||||
Restructuring and related charges | 40.8 | 0.5 | 8.1 | 0.3 | 5.7 | 55.4 | ||||||||||||
Inventory acquisition step-up | — | — | 0.8 | — | — | 0.8 | ||||||||||||
Pet safety recall | — | — | 16.3 | — | — | 16.3 | ||||||||||||
Other | — | — | — | (0.1) | 3.3 | 3.2 | ||||||||||||
Adjusted EBITDA | $ | 179.5 | $ | 83.3 | $ | 104.6 | $ | 87.7 | $ | (28.1) | $ | 427.0 | ||||||
Net Sales | $ | 1,016.8 | $ | 827.5 | $ | 608.3 | $ | 381.7 | $ | — | $ | 2,834.3 | ||||||
Adjusted EBITDA Margin | 17.7% | 10.1% | 17.2% | 23.0% | — | 15.1% |
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SB/RH HOLDINGS, LLC (in millions) |
| HHI |
| PET |
| H&G |
| GAC |
| Corporate |
| Consolidated | ||||||
Nine Month Period Ended July 1, 2018 |
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Net income from continuing operations |
| $ | 101.8 |
| $ | 42.5 |
| $ | 73.4 |
| $ | 57.3 |
| $ | (64.6) |
| $ | 210.4 |
Income tax benefit |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (111.0) |
|
| (111.0) |
Interest expense |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 124.2 |
|
| 124.2 |
Depreciation and amortization |
|
| 31.4 |
|
| 31.7 |
|
| 14.0 |
|
| 12.1 |
|
| 10.1 |
|
| 99.3 |
EBITDA |
|
| 133.2 |
|
| 74.2 |
|
| 87.4 |
|
| 69.4 |
|
| (41.3) |
|
| 322.9 |
Share based compensation |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 4.0 |
|
| 4.0 |
Acquisition and integration related charges |
|
| 5.5 |
|
| 5.2 |
|
| — |
|
| 0.6 |
|
| 0.7 |
|
| 12.0 |
Restructuring and related charges |
|
| 40.8 |
|
| 8.1 |
|
| 0.3 |
|
| 14.7 |
|
| 5.1 |
|
| 69.0 |
Inventory acquisition step-up |
|
| — |
|
| 0.8 |
|
| — |
|
| — |
|
| — |
|
| 0.8 |
Pet safety recall |
|
| — |
|
| 16.3 |
|
| — |
|
| — |
|
| — |
|
| 16.3 |
Other |
|
| — |
|
| — |
|
| — |
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| — |
|
| 3.3 |
|
| 3.3 |
Adjusted EBITDA |
| $ | 179.5 |
| $ | 104.6 |
| $ | 87.7 |
| $ | 84.7 |
| $ | (28.2) |
| $ | 428.3 |
Nine Month Period Ended July 2, 2017 |
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Net income from continuing operations |
| $ | 136.7 |
| $ | 34.1 |
| $ | 88.4 |
| $ | 80.1 |
| $ | (233.9) |
| $ | 105.4 |
Income tax expense |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 53.3 |
|
| 53.3 |
Interest expense |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 122.0 |
|
| 122.0 |
Depreciation and amortization |
|
| 28.0 |
|
| 31.6 |
|
| 12.4 |
|
| 13.9 |
|
| 8.2 |
|
| 94.1 |
EBITDA |
|
| 164.7 |
|
| 65.7 |
|
| 100.8 |
|
| 94.0 |
|
| (50.4) |
|
| 374.8 |
Share based compensation |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 21.6 |
|
| 21.6 |
Acquisition and integration related charges |
|
| 5.6 |
|
| 3.6 |
|
| — |
|
| 2.1 |
|
| 0.3 |
|
| 11.6 |
Restructuring and related charges |
|
| 7.7 |
|
| 3.7 |
|
| — |
|
| 19.8 |
|
| 0.1 |
|
| 31.3 |
Inventory acquisition step-up |
|
| — |
|
| 0.8 |
|
| — |
|
| — |
|
| — |
|
| 0.8 |
Pet safety recall |
|
| — |
|
| 24.9 |
|
| — |
|
| — |
|
| — |
|
| 24.9 |
Other |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Adjusted EBITDA |
| $ | 178.0 |
| $ | 98.7 |
| $ | 100.8 |
| $ | 115.9 |
| $ | (28.4) |
| $ | 465.0 |
Consolidated Results of Operations
The following is summarized consolidated results of operations for SBH for the three and nine month periods ended June 30, 2019 and 2018, and 2017 respectively:respectively.
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| Three Month Periods Ended |
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| Nine Month Periods Ended |
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| Three Month Periods Ended | Nine Month Periods Ended | ||||||||||||||||||||||||||||
(in millions, except %) |
| June 30, 2018 |
| June 30, 2017 |
| Variance |
| June 30, 2018 |
| June 30, 2017 |
| Variance | June 30, 2019 | June 30, 2018 | Variance | June 30, 2019 | June 30, 2018 | Variance | ||||||||||||||||||||||||||
Net sales |
| $ | 945.5 |
| $ | 862.9 |
| $ | 82.6 |
| 9.6% |
| $ | 2,358.1 |
| $ | 2,221.6 |
| $ | 136.5 |
| 6.1% | $ | 1,022.2 | $ | 1,029.4 | $ | (7.2) | (0.7%) | $ | 2,809.2 | $ | 2,834.3 | $ | (25.1) | (0.9%) | ||||||||
Gross profit |
|
| 354.6 |
|
| 320.3 |
|
| 34.3 |
| 10.7% |
|
| 863.7 |
|
| 867.1 |
|
| (3.4) |
| (0.4%) | 361.0 | 362.7 | (1.7) | (0.5%) | 972.4 | 987.4 | (15.0) | (1.5%) | ||||||||||||||
Operating expenses |
|
| 228.3 |
|
| 219.6 |
|
| 8.7 |
| 4.0% |
|
| 682.9 |
|
| 629.9 |
|
| 53.0 |
| 8.4% | 268.2 | 255.9 | 12.3 | 4.8% | 812.5 | 797.8 | 14.7 | 1.8% | ||||||||||||||
Interest expense |
|
| 63.5 |
|
| 76.1 |
|
| (12.6) |
| (16.6%) |
|
| 206.6 |
|
| 232.4 |
|
| (25.8) |
| (11.1%) | 33.9 | 63.3 | (29.4) | (46.4%) | 185.1 | 206.4 | (21.3) | (10.3%) | ||||||||||||||
Income tax (benefit) expense |
|
| (337.8) |
|
| 19.5 |
|
| (357.3) |
| (1,832.3%) |
|
| (464.9) |
|
| 49.1 |
|
| (514.0) |
| (1,046.8%) | ||||||||||||||||||||||
Other non-operating expense (income), net | 39.4 | (1.2) | 40.6 | (3,383.3%) | 64.2 | (2.0) | 66.2 | (3,310.0%) | ||||||||||||||||||||||||||||||||||||
Income tax benefit | 44.2 | (354.2) | 398.4 | (112.5%) | 18.2 | (476.4) | 494.6 | (103.8%) | ||||||||||||||||||||||||||||||||||||
Net income (loss) from continuing operations |
|
| 402.9 |
|
| 3.8 |
|
| 399.1 |
| 10,502.6% |
|
| 443.7 |
|
| (46.0) |
|
| 489.7 |
| (1,064.6%) | (24.7) | 398.9 | (423.6) | (106.2%) | (107.6) | 461.6 | (569.2) | (123.3%) | ||||||||||||||
(Loss) income from discontinued operations, net of tax |
|
| (3.6) |
|
| 36.0 |
|
| (39.6) |
| (110.0%) |
|
| 497.9 |
|
| 295.2 |
|
| 202.7 |
| 68.7% | ||||||||||||||||||||||
Net income |
|
| 399.3 |
|
| 39.8 |
|
| 359.5 |
| 903.3% |
|
| 941.6 |
|
| 249.2 |
|
| 692.4 |
| 277.8% | ||||||||||||||||||||||
Income from discontinued operations, net of tax | (1.2) | 33.8 | (35.0) | (103.6%) | 699.1 | 526.5 | 172.6 | 32.8% | ||||||||||||||||||||||||||||||||||||
Net income (loss) | (25.9) | 432.7 | (458.6) | (106.0%) | 591.5 | 988.1 | (396.6) | (40.1%) |
Net Sales. Net sales for the three month period ended June 30, 2018 increased $82.62019 decreased $7.2 million, or 9.6%0.7%, with a decreasean increase in organic sales of $63.2$8.4 million, or 7.3%0.8%. Net sales for the nine month period ended June 30, 2018 increased $136.52019 decreased $25.1 million, or 6.1%0.9%, with a decreasean increase in organic sales of $47.2$23.5 million, or 2.1%0.8%. The following sets forth net sales by segment for the three month and nine month periods ended June 30, 20182019 and 2017:2018.
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| Three Month Periods Ended |
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| Nine Month Periods Ended |
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| Three Month Periods Ended | Nine Month Periods Ended | ||||||||||||||||||||||||||||
(in millions, except %) |
| June 30, 2018 |
| June 30, 2017 |
| Variance |
| June 30, 2018 |
| June 30, 2017 |
| Variance | June 30, 2019 | June 30, 2018 | Variance | June 30, 2019 | June 30, 2018 | Variance | ||||||||||||||||||||||||||
HHI |
| $ | 372.4 |
| $ | 324.7 |
|
| 47.7 |
| 14.7% |
| $ | 1,016.8 |
| $ | 927.2 |
|
| 89.6 |
| 9.7% | $ | 354.6 | $ | 372.4 | $ | (17.8) | (4.8%) | $ | 990.7 | $ | 1,016.8 | (26.1) | (2.6%) | |||||||||
HPC | 243.4 | 254.4 | (11.0) | (4.3%) | 782.3 | 827.5 | (45.2) | (5.5%) | ||||||||||||||||||||||||||||||||||||
PET |
|
| 194.7 |
|
| 190.0 |
|
| 4.7 |
| 2.5% |
|
| 608.3 |
|
| 576.0 |
|
| 32.3 |
| 5.6% | 221.7 | 194.7 | 27.0 | 13.9% | 641.3 | 608.3 | 33.0 | 5.4% | ||||||||||||||
H&G |
|
| 203.2 |
|
| 192.4 |
|
| 10.8 |
| 5.6% |
|
| 370.6 |
|
| 374.2 |
|
| (3.6) |
| (1.0%) | 202.5 | 207.9 | (5.4) | (2.6%) | 394.9 | 381.7 | 13.2 | 3.5% | ||||||||||||||
GAC |
|
| 175.2 |
|
| 155.8 |
|
| 19.4 |
| 12.5% |
|
| 362.4 |
|
| 344.2 |
|
| 18.2 |
| 5.3% | ||||||||||||||||||||||
Net Sales |
| $ | 945.5 |
| $ | 862.9 |
|
| 82.6 |
| 9.6% |
| $ | 2,358.1 |
| $ | 2,221.6 |
|
| 136.5 |
| 6.1% | $ | 1,022.2 | $ | 1,029.4 | (7.2) | (0.7%) | $ | 2,809.2 | $ | 2,834.3 | (25.1) | (0.9%) |
The following sets forth the principleprincipal components of change in net sales fromfor the three and nine month periods ended June 30, 2017 2018 to the three and nine month periods ended June 30, 2018:2019.
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(in millions) |
| Three Month Period Ended |
| Nine Month Period Ended | ||
Net Sales for the period ended June 30, 2017 |
| $ | 862.9 |
| $ | 2,221.6 |
Increase due to acquisitions |
|
| 14.5 |
|
| 64.5 |
Increase in HHI |
|
| 46.4 |
|
| 83.7 |
Increase in GAC |
|
| 18.7 |
|
| 15.6 |
Increase (Decrease) in H&G |
|
| 10.8 |
|
| (3.6) |
Decrease in PET |
|
| (12.7) |
|
| (48.5) |
Foreign currency impact, net |
|
| 4.9 |
|
| 24.8 |
Net Sales for the periods ended June 30, 2018 |
| $ | 945.5 |
| $ | 2,358.1 |
(in millions) | Three Month Periods Ended | Nine Month Periods Ended | ||||
Net Sales for the periods ended June 30, 2018 | $ | 1,029.4 | $ | 2,834.3 | ||
Increase (decrease) in H&G | (5.4) | (12.9) | ||||
Increase (decrease) in HHI | (16.0) | (20.4) | ||||
Increase in PET | 30.5 | 43.6 | ||||
Increase in HPC | (0.7) | 13.2 | ||||
Foreign currency impact, net | (15.6) | (48.6) | ||||
Net Sales for the year ended June 30, 2019 | $ | 1,022.2 | $ | 2,809.2 |
Gross Profit. For the three month period ended June 30, 2018,2019, gross profit increased $34.3decreased $1.7 million, with a decreasemarginal increase in gross profit margin from 37.5%35.2% to 37.1%,35.3% primarily due to increased sales volumes offset by operating inefficiencies from restructuring initiatives in GACincremental material and HHI, inflation in raw materialinput costs primarily at HHI and GAC and increased production costs associatedincluding tariffs, with start-up on operating facilities impacted by theunfavorable product safety recall in PETmix partially offset by increased sales volumes and contributing margin from PET acquisitions.pricing adjustments. For the nine month period ended June 30, 2018,2019, gross profit decreased $3.4$15.0 million, with a marginal decrease in gross profit margin from 39.0%34.8% to 36.6%,34.6% primarily due to operating inefficiencies from restructuring initiatives in GACincremental material and HHI, inflation in raw materialinput costs primarily at HHI and GAC and increased production costs associatedincluding tariffs, with start-up on operating facilities impacted by the product safety recall in our PET segmentunfavorable mix partially offset by contributing margin from PET acquisitions previously discussed.pricing adjustments.
Operating Expenses. Operating expenses for the three month period ended June 30, 20182019 increased $8.7$12.3 million, or 4.0%4.8%, primarily attributable to an increase in selling and general and administrative expenses of $1.4$9.5 million drivendue to the deferral of depreciation and amortization associated with HPC that was previously held for sale in the prior year, an increase in share based compensation, higher distribution costs, partially offset by the close of the Spectrum Merger and nonrecurring HRG corporate operating costs and transaction costs and severance costs associated with a senior executive;in the prior year; an increase in restructuring and related charges of $10.5 million; offset by$3.8 million and decrease in acquisition & integrationtransaction related charges of $2.9 million due to the PET acquisitions in the prior year.$0.7 million. Operating expenses for the nine month period ended June 30, 20182019 increased $53.0$14.7 million, or 8.4%1.8%, primarily attributable to an increase in selling and general and administrative expenses of $8.2$31.0 million driven by the recognition of incremental costs in PET from acquired businessdepreciation and amortization expense of $29.0 million for long-lived assets of HPC that were previously held for sale coupled with the deferral of depreciation and amortization in the prior year andassociated with HPC being previously held for sale, an increase in share based compensation, higher distribution costs, partially offset by the pet safety recall, new product development,close of the Spectrum Merger and nonrecurring HRG corporate operating costs and related transaction costs plus severance costs associated with a senior executive; and increasein the prior year; decrease in restructuring and related charges of $44.2$11.2 million primarilyand a decrease in transaction related to the HHI distribution center consolidation.costs of $4.0 million. See Note 42 – Acquisitions to the Condensed Consolidated Financial Statements,Basis of Presentation & Significant Accounting Policies and Note 5 – Restructuring and Related Charges in Notes to the Condensed Consolidated Financial Statements included elsewhere within this Quarterly Report for additional detail on transaction related costs and restructuring costs, respectively.
Interest Expense. Interest expense for the three and nine month periods ended June 30, 2019 decreased $29.4 million, or 46.4%, and $21.3 million, or 10.3%, respectively due to the early extinguishment of the Company’s Term Loans, HRG 7.75% Notes and partial paydown of the 6.625% Notes in the second quarter of fiscal year 2019. See Note 11 – Debt in Notes to the Condensed Consolidated Financial Statements included elsewhere within this Quarterly Report for additional detail.
Interest Expense. InterestOther non-operating expense (income), net. Other non-operating expenses for the three and nine month periodperiods ended June 30, 2018 decreased $12.62019 increased $40.6 million or 16.6%,and $66.2 million, respectively, primarily due to refinancing activity previously discussed. Interest expensethe recognition of unrealized losses on our investment in Energizer common stock of $33.2 million and $38.2 million, respectively; and foreign currency losses attributable to multicurrency loans that were entered into with foreign subsidiaries in exchange for the nine month period ended June 30, 2018 decreased $25.8receipt of divestiture proceeds by the parent company and the distribution of the respective foreign subsidiaries’ net assets as part of the GBL and GAC divestitures of $7.7 million or 11.1% due to refinancing activity previously discussed.and $29.5 million, respectively, partially mitigated through the use of foreign currency exchange hedge contracts.
Income Taxes.Our estimated annual effective tax rate was significantly impacted for the three and nine month periods ended June 30, 20182019 by the Tax Cuts and Jobs Act (“Tax Reform Act”) and the release of valuation allowances over capital and net operating loss carryforwards due to completion of the Spectrum Merger. The Tax Reform Act permanently reducesincome earned outside the U.S. corporatethat is subject to the U.S. tax on global intangible low taxed income, tax rate from a maximumlocal taxes in excess of 35% to a flat 21% rate, effective January 1, 2018. The Company’s applicable U.S. statutory tax rate for Fiscal 2018 will be approximately 24.5%.As a result of the Spectrum Merger, the Company and Spectrum will join in the filing of a U.S. consolidated tax return starting July 13, 2018. The form of the Spectrum Merger allows for the Company’s capital and net operating loss carryforwards to be able to be used to offset Spectrum’s future income and the US tax gain onrate, the saleimpacts of the GBL business to Energizer.
DuringRegulations issued in June 2019, and the three month period ended June 30, 2018,recalculation of our mandatory repatriation liability, and losses earned outside the Company released $335.0 million of valuation allowance on its U.S. federal net deferred tax assets sincethat it is now more likely than not that the assets will be realized.not result in a tax benefit. During the nine month period ended June 30, 2018,2019, we recorded a provisional $198.7$95.1 million of tax expense from the use of additional net operating losses under the Regulations and recorded $48.0 million of tax benefit for restatementfrom reducing the mandatory repatriation liability after application of U.S. deferred tax assetsthe Regulations and liabilities and a provisional $71.0 millionfiling of income tax expense for the one-time deemed mandatory repatriation. The Company reduced the provisional tax benefit for restatement of deferred tax assets and liabilities during the three month period ended June 30, 2018, by $8.0 million to reflect additional information regarding the Fiscal 2018 reversing temporary differences and reduced the provision forfederal income tax expense for mandatory repatriation by $6.9 million to reflect additional information regarding earnings subject to repatriation tax.returns.
39
In response to the enactment of the Tax Reform Act, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. SAB 118 allows registrants to record provisional amounts during a one year measurement period in a manner similar to accounting for business combinations. The measurement period ended December 30, 2018 and the Company did not recognize changes in the current fiscal year to the provisional tax impacts in our consolidated financial statements forprior to the nine month period ended June 30, 2018 may differ from these provisional amounts due to, among other things, additional analysis, changes in interpretations and assumptions we have made, additional regulatory guidance that may be issued, and actions we may take as a resultclosing of the Tax Reform Act. See Note 15 – Income Taxes to the Condensed Consolidated Financial Statements, included elsewhere within this Quarterly Report for additional detail.measurement period.
Income From Discontinued Operations. Discontinued operations includes GBAinclude our GBL and GAC divisions that is held for sale, which was previously reported as a separate segment by Spectrum within their consolidated continuing operations,were sold on January 2, 2019 and January 28, 2019, respectively, and the HRG insurance operations that was sold during the three month period ended December 31,on November 30, 2017. Results of operations, financial position and cash flows for these businesses are separately reported as discontinued operations for all periods presented.
Income from discontinued operations, net of tax, for the three month period ended June 30, 2018 decreased $39.6 million, or 110.0%, due2019 is attributable to adjustments on the gain on sale from the GBL divestiture and the write-down of net assets from the GAC divestiture for changes to the decrease in income from GBA discontinued operationsestimated settlement of $37.8 millioncustomary purchase price adjustments, tax and decrease in income from FGL discontinued operations of $1.8 million. The decrease in income from GBA discontinued operations is primarily attributable to incremental transaction related costs of $24.3 million forlegal indemnifications, and other agreed-upon funding under the planned divestitures of GBA. The decrease in income from FGL discontinued operations attributable to the completion of the sale of the insurance operations on November 30, 2017 with the recognition of $5.9 million tax benefit allocated to FGL discontinued operations associated with the reversal of valuation allowance realized with the completion of the Spectrum Merger. respective purchase agreements.
Income from discontinued operations, net of tax, for the nine month period ended June 30, 2018 decreased $202.72019 increased $172.6 million or 68.7%, due to recognition of a $972.1 million pre-tax gain on the decrease in income from GBAsale of GBL operations, net of reclassified accumulated other comprehensive loss realized of $18.5 million; offset by a loss on sale of GAC discontinued operations primarily attributable to a write-down of $67.8net assets to fair value of $113.3 million, net reclassified accumulated other comprehensive gain realized of $3.3 million; net tax expense of $161.9 million associated with the GBL and decrease in income fromGAC divestitures; plus $476.4 million of gain on FGL discontinued operations of $270.5 million. The decrease in income from income from GBA discontinued operations is primarily attributable to the incremental transaction related costsrecognition of $45.4 million that was recognized for the planned divestitures of GBA, plus increased operating expenses from selling and marketing activities. The decrease in income from FGL discontinued operations was driven by the completion of the sale of the insurance operations on November 30, 2017 with a $445.9 million of accumulated other comprehensive income related to FGL. HRG recorded $14.2 million of write-downs on FGL and Front Street during the nine month period ended June 30, 2018. Following the completion of the FGL Merger, HRG recorded a $445.9 million adjustment to reclassify the accumulated other comprehensive income related to FGL, that was previously included in shareholders’ equity, which resulted in an increase inequity; offset by the recognition of a write-down on net income from discontinued operations. Additionally, subsequent to the closeassets of the FGL Merger, the Company recognized a $5.9$14.2 million tax benefit allocated to HRG Insurance Operations discontinued operations during the three month period ended June 30, 2018, associated with the reversal of valuation allowance realized with theupon completion of the Spectrum Merger.
sale. See Note 3 – Divestitures to the Condensed Consolidated Financial Statements, included elsewhere in this Quarterly Report, for more information on the assets and liabilities classified as held for sale and income from discontinued operations within the results of operations.
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 subsidiary’s net income or loss for the period and the percentage interest not owned by SBH. Effective the close of the Spectrum Merger in July 2018, the net income from Spectrum will bewas fully recognized by SBH for all periods subsequent to July 13, 2018 as Spectrum will bebecame wholly-owned as a result of the transaction.
Segment Financial DataSB/RH
Prior to the Spectrum Merger, the reportable segments of HRG consisted of (i) Consumer Products, which represented HRG’s 62.0% controlling interest in Spectrum, and (ii) Corporate and Other, which presented the holding company at HRG and other subsidiaries of HRG. Effective the date of the merger, the manner in which management views its business activities changes to reflect the reporting segments of Spectrum, consisting of (i) Global Pet Supplies (“PET”), (ii) Home and Garden (“H&G”), (iii) Hardware & Home Improvement (“HHI”) and (iv) Global Auto Care (“GAC”). See Note 1 – Basis of Presentation and Description of Business and Note 18 – Segment Information for further discussion. The following is a summary of results by HRG reportable segment:
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| Three Month Periods Ended |
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| Nine Month Periods Ended |
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| ||||||||
(in millions, except %) |
| June 30, 2018 |
| June 30, 2017 |
| Variance |
| June 30, 2018 |
| June 30, 2017 |
| Variance | ||||||||||
Revenues |
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Consumer products |
| $ | 945.5 |
| $ | 862.9 |
| $ | 82.6 |
| 9.6% |
| $ | 2,358.1 |
| $ | 2,221.6 |
| $ | 136.5 |
| 6.1% |
Corporate and other |
|
| — |
|
| 0.1 |
|
| (0.1) |
| (100.0%) |
|
| — |
|
| 1.1 |
|
| (1.1) |
| (100.0%) |
Total revenues |
| $ | 945.5 |
| $ | 863.0 |
|
| 82.5 |
| 9.6% |
| $ | 2,358.1 |
| $ | 2,222.7 |
|
| 135.4 |
| 6.1% |
Operating income |
|
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|
|
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Consumer products |
| $ | 133.3 |
| $ | 110.9 |
|
| 22.4 |
| 20.2% |
| $ | 210.4 |
| $ | 277.1 |
|
| (66.7) |
| (24.1%) |
Corporate and other |
|
| (7.0) |
|
| (10.2) |
|
| 3.2 |
| (31.4%) |
|
| (29.6) |
|
| (39.9) |
|
| 10.3 |
| (25.8%) |
Thesummarized consolidated results of the Consumer Products segmentoperations for the three and nine months periods ended June 30, 2018 and 2017 are further detailed within the Spectrum segment financial data and discussion of results for Spectrum reportable segments below. Corporate and other consists primarily of the operating costs of HRG’s holding company and other subsidiaries of HRG. The decrease in operating loss of $3.2 million and $10.3 millionSB/RH for the three and nine month periods ended June 30, 2019 and July 1, 2018, respectively:
Three Month Periods Ended | Nine Month Periods Ended | |||||||||||||||||||||
(in millions, except %) | June 30, 2019 | July 1, 2018 | Variance | June 30, 2019 | July 1, 2018 | Variance | ||||||||||||||||
Net sales | $ | 1,022.2 | $ | 1,029.4 | $ | (7.2) | (0.7%) | $ | 2,809.2 | $ | 2,834.3 | $ | (25.1) | (0.9%) | ||||||||
Gross profit | 361.0 | 362.7 | (1.7) | (0.5%) | 972.4 | 987.4 | (15.0) | (1.5%) | ||||||||||||||
Operating expenses | 266.9 | 246.7 | 20.2 | 8.2% | 808.7 | 751.5 | 57.2 | 7.6% | ||||||||||||||
Interest expense | 33.7 | 43.4 | (9.7) | (22.4%) | 125.2 | 124.0 | 1.2 | 1.0% | ||||||||||||||
Other non-operating expense, net | 39.4 | 2.9 | 36.5 | 1,258.6% | 64.5 | 6.1 | 58.4 | 957.4% | ||||||||||||||
Income tax benefit | 49.9 | 23.6 | 26.3 | 111.4% | 34.1 | (102.9) | 137.0 | (133.1%) | ||||||||||||||
Net income from continuing operations | (28.9) | 46.1 | (75.0) | (162.7%) | (60.1) | 208.7 | (268.8) | (128.8%) | ||||||||||||||
Income from discontinued operations, net of tax | (1.2) | 27.8 | (29.0) | (104.3%) | 699.1 | 60.6 | 638.5 | 1,053.6% | ||||||||||||||
Net income | (30.1) | 73.9 | (104.0) | (140.7%) | 639.0 | 269.3 | 369.7 | 137.3% |
For the three month period ended June 30, 2019, the decrease in net sales of $7.2 million, or 0.7%, and decrease in gross profit of $1.7 million, or 0.5%, are attributable to the change in SBH previously discussed. The increase in operating expenses of $20.2 million, or 8.2%, is primarily attributable to lower compensationthe change in SBH previously discussed except for the impact of HRG operating costs from headcount partially offset byin the prior year and transaction costs associated withfrom the Spectrum Merger. The increase in other non-operating expense of $36.5 million is primarily attributable to the change in SBH previously discussed.
For the nine month period ended June 30, 2019, the decrease in net sales of $25.1 million, or 0.9%, and decrease in gross profit of $15.0 million, or 1.5%, are attributable to the change in SBH previously discussed. The increase in operating expenses of $57.2, or 7.6%, is primarily attributable to the change in SBH previously discussed, except for the impact in HRG operating costs in the prior year and transaction costs from the Spectrum Merger. The increase in other non-operating expense of $58.4 million is primarily attributable to the change in SBH previously discussed.
Spectrum Segment Financial Data
Hardware & Home Improvement
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| Three Month Periods Ended |
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| Nine Month Periods Ended |
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| Three Month Periods Ended | Nine Month Periods Ended | ||||||||||||||||||||||||||||
(in millions, except %) |
| June 30, 2018 |
| June 30, 2017 |
| Variance |
| June 30, 2018 |
| June 30, 2017 |
| Variance | June 30, 2019 | June 30, 2018 | Variance | June 30, 2019 | June 30, 2018 | Variance | ||||||||||||||||||||||||||
Net sales |
| $ | 372.4 |
| $ | 324.7 |
| $ | 47.7 |
| 14.7% |
| $ | 1,016.8 |
| $ | 927.2 |
| $ | 89.6 |
| 9.7% | $ | 354.6 | $ | 372.4 | $ | (17.8) | (4.8%) | $ | 990.7 | $ | 1,016.8 | $ | (26.1) | (2.6%) | ||||||||
Operating income |
|
| 51.1 |
|
| 45.1 |
|
| 6.0 |
| 13.3% |
|
| 102.4 |
|
| 137.4 |
|
| (35.0) |
| (25.5%) | 57.6 | 51.1 | 6.5 | 12.7% | 145.3 | 102.4 | 42.9 | 41.9% | ||||||||||||||
Operating income margin |
|
| 13.7% |
|
| 13.9% |
|
| (20) | bps |
|
|
| 10.1% |
|
| 14.8% |
|
| (470) | bps |
| 16.2% | 13.7% | 250 | bps | 14.7% | 10.1% | 460 | bps | ||||||||||||||
Adjusted EBITDA |
| $ | 73.9 |
| $ | 62.2 |
| $ | 11.7 |
| 18.8% |
| $ | 179.5 |
| $ | 178.0 |
| $ | 1.5 |
| 0.8% | $ | 67.7 | $ | 73.9 | $ | (6.2) | (8.4%) | $ | 175.9 | $ | 179.5 | $ | (3.6) | (2.0%) | ||||||||
Adjusted EBITDA margin |
|
| 19.8% |
|
| 19.2% |
|
| 60 | bps |
|
|
| 17.7% |
|
| 19.2% |
|
| (150) | bps |
| 19.1% | 19.8% | (70) | bps | 17.8% | 17.7% | 10 | bps |
Net sales for the three month period ended June 30, 2018 increased $47.72019 decreased $17.8 million, or 14.7%4.8%, with an increasea decrease in organic net sales of $46.4$16.0 million, or 14.3%4.3%.
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Security and lockset decreased $9.7 million due to additional volume in the prior year attributable to recovery from distribution center consolidation project; partially offset by pricing adjustments and growth in the electronics channel.
Plumbing accessories increased $1.2 million due to new product introduction, added distribution, and pricing adjustments.
Hardware decreased $7.5 million due to additional volume in the prior year attributable to recovery from the distribution center consolidation project; partially offset by pricing adjustments.
Operating income in the three month period ended June 30, 20182019 increased $6.0$6.5 million with an operating income margin decreaseincrease of 20250 bps primarily due to increased sales volumes previously discussed, offset by incrementaloperating efficiencies with reduced restructuring costs and operating inefficiencies driven bydepreciation following the HHI Distribution Center Consolidation restructuring initiative, plus increased material costs impacting operating income margin.distribution center consolidation in the prior year. Adjusted EBITDA in the three month period ended June 30, 2018 increased $11.72019 deceased $6.2 million with an adjustedAdjusted EBITDA margin increasedecrease of 6070 bps primarily due to increasedreduced sales volumes previously discussed. and higher material and input costs.
Net sales for the nine month period ended June 30, 2018 increased $89.62019 decreased $26.1 million, or 9.7%2.6%, with an increasea decrease in organic net sales of $83.7$20.4 million, or 9.0%2.0%.
|
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|
|
Security and lockset decreased $11.2 million due to additional volume in the prior year attributable to hurricane recovery orders and recovery from distribution center consolidation project; partially offset by pricing adjustments and growth in the electronics channel.
Plumbing accessories decreased $1.4 million due to additional volume in the prior year attributable to hurricane recovery orders and POS softness in specialty home retailers; partially offset by new product introduction, added distribution and pricing adjustments.
Hardware decreased $7.7 million due to additional volume in the prior year attributable to hurricane recovery orders and recovery from the distribution center consolidation project; partially offset by pricing adjustments.
Operating income in the nine month period ended June 30, 2018 decreased $35.02019 increased $42.9 million with an operating income margin decreaseincrease of 470460 bps primarily due to incrementalfavorable product mix and operating expenses and inefficiencies driven by the HHI Distribution Center Consolidationefficiencies with reduced restructuring initiative, incremental material costs and unfavorable product mix, partially offset by increased sales volumes previously discussed.depreciation following the distribution center consolidation in the prior year. Adjusted EBITDA in the nine month period ended June 30, 2018 increased $1.52019 decreased $3.6 million with an adjustedAdjusted EBITDA margin decreaseincrease of 15010 bps primarily due increasedto reduced sales volumes previously discussed withand higher material and input costs, partially offset by positive pricing adjustments and operating inefficiencies, incremental material costs,efficiencies.
Home and unfavorable product mix reducing margin.Personal Care
Three Month Periods Ended | Nine Month Periods Ended | |||||||||||||||||||||
(in millions, except %) | June 30, 2019 | June 30, 2018 | Variance | June 30, 2019 | June 30, 2018 | Variance | ||||||||||||||||
Net sales | $ | 243.4 | $ | 254.4 | $ | (11.0) | (4.3%) | $ | 782.3 | $ | 827.5 | $ | (45.2) | (5.5%) | ||||||||
Operating (loss) income | 5.7 | 21.3 | (15.6) | (73.2%) | (9.0) | 68.2 | (77.2) | (113.2%) | ||||||||||||||
Operating income margin | 2.3% | 8.4% | (610) | bps | (1.2%) | 8.2% | (940) | bps | ||||||||||||||
Adjusted EBITDA | $ | 18.2 | $ | 21.4 | $ | (3.2) | (15.0%) | $ | 57.7 | $ | 83.3 | $ | (25.6) | (30.7%) | ||||||||
Adjusted EBITDA margin | 7.5% | 8.4% | (90) | bps | 7.4% | 10.1% | (270) | bps |
Global Pet Supplies
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| Three Month Periods Ended |
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| Nine Month Periods Ended |
|
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|
| ||||||||
(in millions, except %) |
| June 30, 2018 |
| June 30, 2017 |
| Variance |
| June 30, 2018 |
| June 30, 2017 |
| Variance | ||||||||||
Net sales |
| $ | 194.7 |
| $ | 190.0 |
| $ | 4.7 |
| 2.5% |
| $ | 608.3 |
| $ | 576.0 |
| $ | 32.3 |
| 5.6% |
Operating income |
|
| 15.0 |
|
| (5.2) |
|
| 20.2 |
| (388.5%) |
|
| 42.8 |
|
| 34.4 |
|
| 8.4 |
| 24.4% |
Operating income margin |
|
| 7.7% |
|
| (2.7%) |
|
| 1,040 | bps |
|
|
| 7.0% |
|
| 6.0% |
|
| 100 | bps |
|
Adjusted EBITDA |
| $ | 34.9 |
| $ | 36.1 |
| $ | (1.2) |
| (3.3%) |
| $ | 104.6 |
| $ | 98.7 |
| $ | 5.9 |
| 6.0% |
Adjusted EBITDA margin |
|
| 17.9% |
|
| 19.0% |
|
| (110) | bps |
|
|
| 17.2% |
|
| 17.1% |
|
| 10 | bps |
|
Net sales for the three month period ended June 30, 2018 increased $4.72019 decreased $11.0 million, or 2.5%4.3%, with a decrease in organic net sales of $12.7$0.7 million, or 6.7%0.3%.
|
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|
|
Personal care appliances increased $2.0 million due to increase in EMEA of $5.2 million driven by e-commerce distribution, expanded product placement and promotional volume growth, increase in LATAM of $2.1 million from added customer distribution and promotional volume growth; offset by lower NA of $4.4 million due to lost distribution with traditional retailers and softer volumes through e-commerce channels, and reduction in APAC of $0.9 million.
Home and kitchen appliances decreased $2.7 million due to a $7.2 million decrease in NA due to lost distribution with traditional retailers and promotional pricing adjustments; offset by increases in EMEA of $2.1 million driven by e-commerce distribution and promotional volume growth, increase in LATAM of $1.6 million, driven by expanded product placement and promotional volume growth, and increase in APAC of $0.8 million.
Operating income for the three month period ended June 30, 20182019 decreased $15.6 million with operating income margin decrease of 610 bps due the deferral of depreciation and amortization in the prior year while considered held for sale, incremental operating costs primarily due to higher input costs, transaction foreign exchange and lower sales volumes with unfavorable product mix. Adjusted EBITDA for the three month period ended June 30, 2019 decreased $3.2 million with an Adjusted EBITDA margin decrease of 90 bps due to incremental operating costs primarily due to higher input costs and lower sales volumes with unfavorable product mix.
Net sales for the nine month period ended June 30, 2019 decreased $45.2 million, or 5.5%, with a decrease in organic net sales of $12.9 million, or 1.6%.
Personal care appliances decreased $16.5 million due to decrease in NA of $21.7 million due to lost distribution with traditional retailers, expanded product placement and softer volumes through e-commerce channels, reduction in APAC of $3.1 million due to overall category softness; offset by increase in LATAM sales of $5.7 million from expanded product placement, new customer distribution and promotional volume growth, increase in EMEA sales of $2.6 million driven by e-commerce distribution and promotional volume growth.
Home and kitchen appliances increased $20.2$3.5 million due to an increase in EMEA of $3.2 million driven by e-commerce distribution and promotional volume growth, an increase in LATAM of $1.3 million from expanded product placement and promotional volume growth, increase in APAC of $1.4 million from added distribution; partially offset by $2.6 million decrease in NA due to lost distribution with retailers and promotional pricing adjustments offset by new product placements and online distribution.
Operating income for the nine month period ended June 30, 2019 decreased $77.2 million with an operating income margin decrease of 940 bps due to incremental depreciation and amortization of $29.0 million recognized for the change in plan to sell coupled with the deferral of depreciation and amortization during the three month period ended June 30, 2019 while considered held for sale, expenses of $8.1 million related to the plan to sell in the prior year, incremental operating costs primarily due to higher input costs, transaction foreign exchange and lower sales volumes with unfavorable product mix. Adjusted EBITDA for the nine month period ended June 30, 2019 decreased $25.6 million with an Adjusted EBITDA margin decrease of 270 bps due to incremental operating costs primarily due to higher input costs, transaction foreign exchange and lower sales volumes with unfavorable product mix.
Global Pet Care
Three Month Periods Ended | Nine Month Periods Ended | |||||||||||||||||||||
(in millions, except %) | June 30, 2019 | June 30, 2018 | Variance | June 30, 2019 | June 30, 2018 | Variance | ||||||||||||||||
Net sales | $ | 221.7 | $ | 194.7 | $ | 27.0 | 13.9% | $ | 641.3 | $ | 608.3 | $ | 33.0 | 5.4% | ||||||||
Operating income | 26.5 | 15.0 | 11.5 | 76.7% | 58.7 | 42.8 | 15.9 | 37.1% | ||||||||||||||
Operating income margin | 12.0% | 7.7% | 430 | bps | 9.2% | 7.0% | 220 | bps | ||||||||||||||
Adjusted EBITDA | $ | 39.0 | $ | 34.9 | $ | 4.1 | 11.7% | $ | 100.9 | $ | 104.6 | $ | (3.7) | (3.5%) | ||||||||
Adjusted EBITDA margin | 17.6% | 17.9% | (30) | bps | 15.7% | 17.2% | (150) | bps |
Net sales for the three month period ended June 30, 2019 increased $27.0 million, or 13.9%, with an increase in organic net sales of $30.5 million, or 15.7%.
Companion animal increased $23.5 million primarily due to increase in NA of $16.0 million due to increased pricing for higher input costs, increased volumes and expanded product distribution through e-commerce, recovery from the pet safety rawhide recall in the prior year and continued growth of the acquired PetMatrix brands, increase in EMEA of $6.5 million for recovery from distribution center consolidation in the prior year.
Aquatics increased $7.0 million primarily due to increase in EMEA of $6.0 million for recovery from distribution center consolidation in the prior year and increase in NA of $1.0 million from gains in e-commerce and pricing adjustments.
Operating income for the three month period ended June 30, 2019 increased $11.5 million with an increase in operating income margin of 1,040430 bps primarily driven by increased sales volumes and pricing adjustments with incremental expenses in the recognition ofprior period due to the pet safety recall, in the prior period.partially offset by increased manufacturing and distribution costs. Adjusted EBITDA in the three month period ended June 30, 2018 decreased $1.22019 increased $4.1 million with an adjustedAdjusted EBITDA margin decreasedecline of 11030 bps primarily due to unfavorable product mix.increased sales volume and pricing adjustments, offset by increased manufacturing and distribution costs.
Net sales for the nine month period ended June 30, 20182019 increased $32.3$33.0 million, or 5.6%5.4%, with a decreasean increase in organic net sales of $48.5$43.6 million, or 8.4%7.2%.
|
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|
|
Companion animal increased $40.3 million due to increase in NA of $35.7 due to increased pricing for higher input costs, increased volumes and expanded product distribution through e-commerce, recovery from pet safety rawhide recall in the prior year and continued growth of the acquired PetMatrix brands, increase in EMEA of $1.7 million for recovery from distribution center consolidation in the prior year and increase in LATAM of $2.1 million from new product distribution and increased volumes.
Aquatics increased $3.3 million primarily due to increase in EMEA of $6.9 million for recovery from distribution center consolidation in the prior year with a decrease in NA of $3.9 million from category softness within the regions offset by gains in e-commerce and pricing adjustments.
Operating income for the nine month period ended June 30, 20182019 increased $8.4$15.9 million with an increase in operating income margin of 100220 bps primarily driven by increased sales volumes and pricing adjustments with incremental expenses in the recognition ofprior period due to the pet safety recall, in the prior periodpartially offset by incremental production costsincreased manufacturing and inefficiencies for the start-up of facilities following the product safety recall.distribution costs. Adjusted EBITDA in the nine month period ended June 30, 2018 increased $5.92019 decreased $3.7 million with an adjustedAdjusted EBITDA margin increasedecline of 10150 bps primarily due to improved margin from acquired businessesincreased manufacturing and distribution costs, partially offset by inefficienciesincreased sales volumes and unfavorable product mix.pricing adjustments.
Home and Garden
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| ||||||||||||||||||||||
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| Three Month Periods Ended |
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| Nine Month Periods Ended |
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| Three Month Periods Ended | Nine Month Periods Ended | ||||||||||||||||||||||||||||
(in millions, except %) |
| June 30, 2018 |
| June 30, 2017 |
| Variance |
| June 30, 2018 |
| June 30, 2017 |
| Variance | June 30, 2019 | June 30, 2018 | Variance | June 30, 2019 | June 30, 2018 | Variance | ||||||||||||||||||||||||||
Net sales |
| $ | 203.2 |
| $ | 192.4 |
| $ | 10.8 |
| 5.6% |
| $ | 370.6 |
| $ | 374.2 |
| $ | (3.6) |
| (1.0%) | $ | 202.5 | $ | 207.9 | $ | (5.4) | (2.6%) | $ | 394.9 | $ | 381.7 | $ | 13.2 | 3.5% | ||||||||
Operating income |
|
| 52.2 |
|
| 55.3 |
|
| (3.1) |
| (5.6%) |
|
| 73.3 |
|
| 88.4 |
|
| (15.1) |
| (17.1%) | 48.0 | 52.2 | (4.2) | (8.0%) | 70.3 | 73.3 | (3.0) | (4.1%) | ||||||||||||||
Operating income margin |
|
| 25.7% |
|
| 28.7% |
|
| (300) | bps |
|
|
| 19.8% |
|
| 23.6% |
|
| (380) | bps |
| 23.7% | 25.1% | (140) | bps | 17.8% | 19.2% | (140) | bps | ||||||||||||||
Adjusted EBITDA |
| $ | 57.0 |
| $ | 59.5 |
| $ | (2.5) |
| (4.2%) |
| $ | 87.7 |
| $ | 100.8 |
| $ | (13.1) |
| (13.0%) | $ | 53.3 | $ | 57.0 | $ | (3.7) | (6.5%) | $ | 85.9 | $ | 87.7 | $ | (1.8) | (2.1%) | ||||||||
Adjusted EBITDA margin |
|
| 28.1% |
|
| 30.9% |
|
| (280) | bps |
|
|
| 23.7% |
|
| 26.9% |
|
| (320) | bps |
| 26.3% | 27.4% | (110) | bps | 21.8% | 23.0% | (120) | bps |
Net sales and organic net sales for the three month period ended June 30, 2018 increased $10.82019 decreased $5.4 million, or 5.6%2.6%.
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|
|
Lawn & garden control products decreased $2.3 million due to unfavorable weather conditions and lower replenishment orders from retail inventory management.
Repellent products increased $3.5 million due to earlier distribution and strong POS in the period from specialty home retailers
Household insect control products decreased $6.5 million due to new product distribution in the prior year and slower retail POS.
Other net sales to GAC discontinued operations were $4.6 million and $4.7 million for the three month periods ended June 30, 2019 and 2018, respectively.
Operating income for the three month period ended June 30, 20182019 decreased $3.1$4.2 million with a decline in operating income margin decrease of 300140 bps due to lower sales volumes, higher material input costs, higher marketing and advertising investments, and unfavorable product mix offset by productivity and higher input costs.pricing adjustments. Adjusted EBITDA in the three month period ended June 30, 20182019 decreased $2.5$3.7 million with a decline in adjusted EBITDA margin decrease of 280110 bps due to timing of seasonal production,lower sales volumes, material input costs, higher marketing and advertising investments, and unfavorable product mix offset by productivity and higher input costs. pricing adjustments.
Net sales and organic net sales for the nine month period ended June 30, 20182019 decreased $3.6$13.2 million, or 1.0%3.5%.
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|
|
Lawn & garden control products increased $16.3 million due to expanded product placement and distribution at home centers, partially offset by lower replenishment orders from retail inventory management.
Repellent products increased $6.6 million due to increased distribution and strong POS with specialty home retailers and incremental volumes through e-commerce channels.
Household insect control products decreased $8.7 million due to new product distribution in the prior year and slower retail POS.
Other net sales to GAC discontinued operations were $10.1 million and $11.1 million for the nine month periods ended June 30, 2019 and 2018, respectively.
Operating income for the nine month period ended June 30, 20182019 decreased $15.1$3.0 million with a decline in operating income margin of 380140 bps primarily due to reduction in sales volumes previously discussed,material input costs, higher marketing and advertising investments, and unfavorable product mix offset by productivity and higher input costs.pricing adjustments. Adjusted EBITDA in the nine month period ended June 30, 20182019 decreased $13.1$1.8 million with a decline in adjustedAdjusted EBITDA margin of 320120 bps due to reduction in sales volumes previously discussed,material input costs, higher marketing and advertising investments, and unfavorable product mix offset by productivity and higher input costs. pricing adjustments.
Global Auto Care
|
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|
| Three Month Periods Ended |
|
|
|
|
|
| Nine Month Periods Ended |
|
|
|
|
| ||||||||
(in millions, except %) |
| June 30, 2018 |
| June 30, 2017 |
| Variance |
| June 30, 2018 |
| June 30, 2017 |
| Variance | ||||||||||
Net sales |
| $ | 175.2 |
| $ | 155.8 |
| $ | 19.4 |
| 12.5% |
| $ | 362.4 |
| $ | 344.2 |
| $ | 18.2 |
| 5.3% |
Operating income |
|
| 38.6 |
|
| 32.5 |
|
| 6.1 |
| 18.8% |
|
| 57.3 |
|
| 80.1 |
|
| (22.8) |
| (28.5%) |
Operating income margin |
|
| 22.0% |
|
| 20.9% |
|
| 110 | bps |
|
|
| 15.8% |
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| 23.3% |
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| (750) | bps |
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Adjusted EBITDA |
| $ | 50.1 |
| $ | 50.7 |
| $ | (0.6) |
| (1.2%) |
| $ | 84.7 |
| $ | 115.9 |
| $ | (31.2) |
| (26.9%) |
Adjusted EBITDA margin |
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| 28.6% |
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| 32.5% |
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| (390) | bps |
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| 23.4% |
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| 33.7% |
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| (1,030) | bps |
|
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Net sales for the three month period ended June 30, 2018 increased $19.4 million, or 12.5%, with an organic sales increase of $18.7 million, or 12.0%.
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Operating income for the three month period ended June 30, 2018 increased $6.1 million, with an operating income margin increase of 110 bps due to increased sales volumes previously discussed. Adjusted EBITDA for the three month period ended June 30, 2018 decreased by $0.6 million with adjusted EBITDA margin decrease of 390 bps due to unfavorable product mix, new product development and marketing costs, and higher input costs.
Net sales for the nine month period ended June 30, 2018 increased $18.2 million, or 5.3%, with an organic sales increase of $15.6 million, or 4.5%.
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Operating income for the nine month period ended June 30, 2018 decreased $22.8 million, with an operating income margin decrease of 750 bps due to unfavorable product mix, operating inefficiencies driven by GAC restructuring initiatives, new product development and marketing costs, and higher input costs. Adjusted EBITDA for the nine month period ended June 30, 2018 decreased by $31.2 million with adjusted EBITDA margin decrease of 1,030 bps due to unfavorable product mix, incremental product costs, new product development and market costs, and higher input costs.
42
Liquidity and Capital Resources
The following is a summary of the SBH and SB/RH cash flows from continuing operations for the three and nine month periods ended June 30, 2019 and 2018, and 2017 and SBRH cash flows for the three and nine month periods ended July 1, 2018 and July 2, 2017, respectivelyrespectively.
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| SBH |
| SB/RH | ||||||||
(in millions) |
| June 30, 2018 |
| June 30, 2017 |
| July 1, 2018 |
| July 2, 2017 | ||||
Net cash flow from operating activities from continuing operations |
| $ | (148.7) |
| $ | (69.0) |
| $ | (92.5) |
| $ | 27.2 |
Net cash flow from investing activities from continuing operations |
| $ | 1,500.0 |
| $ | (323.6) |
| $ | (46.8) |
| $ | (353.4) |
Net cash flow from financing activities from continuing operations |
| $ | (772.7) |
| $ | 102.0 |
| $ | 152.1 |
| $ | 73.3 |
SBH | SB/RH | |||||||||||
Nine Month Periods Ended (in millions) | June 30, 2019 | June 30, 2018 | June 30, 2019 | July 1, 2018 | ||||||||
Operating activities | $ | (186.1) | $ | (175.2) | $ | (171.4) | $ | (119.1) | ||||
Investing activities | $ | 2,814.0 | $ | 1,492.5 | $ | 2,814.0 | $ | (54.3) | ||||
Financing activities | $ | (2,767.0) | $ | (774.2) | $ | (2,739.8) | $ | 150.5 |
Cash Flows from Operating Activities
Cash flows from operating activities from SBH continuing operations decreased $79.7$10.9 million during the nine month period ended June 30, 20182019 due to:
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Decrease in cash provided by continuing operations of $97.4 million, with cash used for working capital of approximately $62.7 million primarily due to the increase inventory and receivables;
Increase in cash paid for taxes of $11.2 million;
Increase in cash paid for transaction related charges of $13.1 million;
Decrease in cash paid for restructuring related charges of $36.1 million;
Decrease in cash paid for interest of $62.6 million from decrease in outstanding debt; and
Decrease in net corporate expenditures of $12.1 million primarily attributable to the recognition of interest income on excess cash from divestiture proceeds and dividend income from Energizer common stock investment.
Cash flows from operating activities from continuing operations of SB/RH decreased $119.7$52.3 million during the nine month period ended June 30, 20182019 primarily due to the items discussed above excluding incremental cash outflows attributable to HRG corporate operations and divestitures, and cash paid towardsfor interest on HRG designated debt.
Depreciation and Amortization
Depreciation and amortization for the Company was $99.4$138.4 million and $94.3$96.6 million for the nine month periods ended June 30, 20182019 and 2017,2018, respectively. The increase in depreciation and amortization during the nine month period ended June 30, 2019 is primarily attributable to the recognition of property, plantcumulative adjustment to depreciation and equipment and definite lived intangible assetsamortization from acquisitions of PetMatrix and GloFishthe change in plan to sell the HPC division during the yearthree month period ended SeptemberDecember 30, 2017.2018, coupled with the deferred depreciation and amortization during the three month period ended June 30, 2018 when HPC was recognized as held for sale. See Note 3 – Divestitures for further discussion.
Cash Flows from Investing Activities
Cash flows from investing activities fromfor SBH continuing operations increased $1,823.6$1,321.5 million during the nine month period ended June 30, 2018 was2019 primarily attributable to the cash proceeds of $1,919.0 million, net cash transferred, for the GBL divestiture on January 2, 2019 and cash proceeds of $935.4 million, net cash transferred, for the GAC divestiture on January 28, 2019, compared to the cash proceeds from the sale of HRG insurance operations on November 30, 2017 of $1,546.8 million; partially offset by a reduction in capital expenditures.
Cash flows from investing activities for SB/RH continuing operations increased $2,868.3 million during the nine month period ended June 30, 2019 primarily attributable to the net cash proceeds received from the sale of the HRG insurance operations of $1,546.8 million in December 2017GBL and net cash used in business acquisitions by Spectrum of $304.7 million,GAC divestitures; partially offset by $29.8 milliona reduction in asset based loan repayments in the prior year. Proceeds from the sale of the HRG insurance operations were used to pay down HGI Energy Notes and HRG 7.875% Senior Secured Notes discussed below.capital expenditures.
Cash flows from investing activities from SBRH continuing operations increased $306.6 million primarily attributable to the Spectrum business acquisitions previously discussed.
Capital Expenditures
Capital expenditures for the Company was $49.2were $40.3 million and $51.1$56.6 million for the nine month periods ended June 30, 20182019 and 2017,2018, respectively. We expect to make investments in capital projects similar to historical levels.
Cash Flows from Financing Activities
Cash flows from financing activities fromfor continuing operations decreased $874.7$1,992.8 million for the nine month period ended June 30 2018, 2019 primarily due to incrementalthe repayment of debt on debt upon closethe Company’s Term Loans, HRG 7.75% Notes and partial paydown of salethe 6.625% Notes following the receipt of HRG insurance operations in December 2017proceeds from the GBL and increase in repurchases of subsidiary stock by Spectrum.GAC divestitures.
Debt
During the nine month period ended June 30, 2018,2019, SBH recognized net proceeds from the Revolver Facility of $545.5$54.0 million primarily to support working capital needs, fund stock repurchases, and transaction costs; and $9.8 million of other debt financing.needs. SBH made $1,007.6$2,475.1 million of payment on debt during the nine month period ended June 30, 2018debts, including the redemption of $92.0 million aggregate principal amount of the HGI Energy Notes in December 2017, the redemption of $864.4 million of the HRG 7.875% Senior Secured Notes in January 2018. During the nine month period ended June 30, 2017, SBH recognized net proceeds from $250.0 million of the Spectrum USD Term Loans of $1,231.7 million, 7.75% Notes of $890.0 million with a premium on extinguishment of $17.2 million, CAD Term Loan primarily to support funding acquisitions, net proceeds from the Revolver of $293.0$32.6 million, to support working capital, acquisition activitypartial paydown of 6.625% Notes of $285.0 million with payment of early extinguishment of $6.3 million, and treasury stock repurchases, net proceeds of $50.0 million from a HGI Funding loan and $13.9 million of other debt financing. The Company made $253.9 millionpayments of payments on debt during the nine month period ended June 30, 2018.
During the nine month period ended June 30, 2018, Spectrum increased the capacity of its Revolver facility by $100.0 million to $800.0$12.3 million. As a result of borrowings and payments under the Revolver Facility, as of June 30, 2018,2019, the Company had borrowing availability of $234.5$724.4 million, net of outstanding letters of credit and amounts allocated to a foreign subsidiary.
At June 30, 2018,2019, we were in compliance with all covenants under the Senior Credit Agreement and the indentures governing the 7.75% Notes, 6.625% Notes, the 6.125% Notes, the 5.75% Notes, and the 4.00% Notes.
The Company’s access to capital markets and financing costs may depend on the credit ratings of the Company when it is accessing the capital markets. Effective July 24, 2018, the Company’s S&P corporate credit rating was upgraded to ‘B+’ from ‘B’ S&P’s issue-level rating of the HRG senior unsecured notes was lowered to ‘B-‘ from B’ to reflect the completion of the Spectrum Merger. Previously, S&P downgraded the ratings on Spectrum’s corporate credit and senior unsecured debt from ‘BB-’ to ‘B+’ and senior secured debt ratings from ‘BB+’ to ‘BB’; with a continued stable outlook. 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.
43
Refer to Note 1011 - Debt in Notes to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report for additional information.
Equity
During the nine month periods ended June 30, 2018 and 2017, Equity
SBH did not issue additional shares of common stock outsideother than the Company’s share-based compensation plans. Dueplans during the nine month periods ended June 30, 2019 and 2018.
SBH made cash dividend payments of $65.1 million, or $0.42 per share, during the nine month period ended June 30, 2019. There were no cash dividend payments made by SBH during the nine month period ended June 30, 2018. Prior to the completion of the Spectrum Merger, the Company issued an incremental 20.6 million shares to the minority interest holders of Spectrum in exchange for the remaining non-controlling ownership of Spectrum.
Spectrum made cash dividend payments of $71.7 million and $72.1 million during the nine month periodsperiod ended June 30, 2018, and 2017, respectively, of which $43.3 million and $41.8 million were paid to HRG, respectively. Subsequent to the Spectrum Merger, the Company declared a dividend of $0.42 per share of the Company’s common stock, payable on September 11, 2018 to the combined shareholder group. SBH.
From time to time, SpectrumSBH will repurchase outstanding shares common stock in the open market or otherwise. During the nine month period ended June 30, 2018, Spectrum2019, the Company repurchased 3.04.9 million shares of Spectrum common stock for $288.0$268.5 million compared to 1.3at an average price of $54.34 per share, including $250 million of treasury stock purchases as part of its $1 billion common stock repurchase program. SBH did not repurchase any shares for $165.9 million during the nine month period ended June 30, 2017. HRG has not previously repurchased common stock. Subsequent to the Spectrum Merger, the Company authorized a new three-year $1 billion common stock repurchase program. 2018.
During the nine month period ended June 30, 2017, Spectrum purchased the remaining 44% non-controlling interest of Shaser, Inc. with a cash payment of $12.6 million.
Liquidity and capital resources of SB/RH are highly dependent upon the financing cash flow activities of SBH.
Liquidity Outlook
The Company’s ability to make principal and interest payment on borrowings under its U.S. and foreign credit facilitiesdebt agreements and its ability to fund planned capital expenditures will depend on its ability to generate cash in the future, which, to a certain extent, is subject to general economic, financial, competitive, regulatory and other conditions. Based on its current level of operations, the Company believes that its existing cash balances and expected cash flows from operations will be sufficient to meet its operating requirements for at least the next 12 months. Due to the proposed sale of GBA as previously discussed, the Company may be required to use proceeds to make payments on outstanding debt, including payment on its Term Loans and potential payment on outstanding Notes. However, the Company may request borrowings under its credit facilities and seek alternative forms of financing or additional investments to achieve its longer-term strategic plans.
Off-Balance Sheet Arrangements
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.
Contractual Obligations & Other Commercial Commitments
DuringThe Company repaid certain of its long-term indebtedness during the nine month periodmonths ended June 30, 2018,2019, as described under Note 11 - Debt. There have otherwise been no material changes to our contractual obligations & other commercial commitments as discussed in our Annual Report on Form 10-K for the Company recognized a provisional $71.0 million associated with the deemed mandatory repatriation of post-1986 undistributed foreign subsidiary earnings & profits due to the Tax Reform Act enacted on December 22, 2017. The mandatory repatriation tax is payable over 8 years, with the first payment due January 2019. It may not be possible to reasonably predict or estimate the exact amounts and timing of these payments; however we have recognized $5.7 million of the repatriation tax liability as Other Current Liabilities and $65.3 million as Other Long-Term Liabilities on the Condensed Consolidated Statement of Financial Position as of Juneyear ended September 30, 2018. See Note 15 – Income Taxes of the Notes to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report.
Critical Accounting Policies and Estimates
Our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q have been prepared in accordance with generally accepted accounting principles in the United States of America and fairly present our financial position and results of operations. There have been no material changes to our critical accounting policies orother than the adoption of ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” which provides for a single comprehensive model for entities to use to account for revenue arising from contracts from customers. Refer to Note 2 – Basis of Presentation and Significant Accounting Policies of Notes to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report for information about the adoption of Topic 606. There have been no material changes to our critical accounting estimates as discussed in our Annual Report on Form 10-K for the year ended September 30, 2017.2018.
New Accounting Pronouncements
In May 2014, the FinancialSee Note 2 – Basis of Presentation and Significant Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. This ASU requires revenue recognition to depict the transferPolicies of goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new revenue recognition model requires identifying the contract and performance obligations, determining the transaction price, allocating the transaction price to performance obligations and recognizing the revenue upon satisfaction of performance obligations. This ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. This ASU can be applied either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the updates recognized at the date of the initial application along with additional disclosures. The ASU will become effective for us beginning in the first quarter of our fiscal year ending September 30, 2019. We have performed a preliminary assessment over the impact of the pronouncementNotes to the Company and are currently performing detailed assessments over the contracts with our customers and the impact to our processes and control environment. We have not measured the impact of adoption atCondensed Consolidated Financial Statements elsewhere included in this point in our assessment and have not concluded on the overall materiality of the impact of adoption to the Company’s consolidated financial statements and disclosures, or the method of adoption, but have not identified any mattersQuarterly Report for information about accounting pronouncements that are considered significant for further disclosure.newly adopted and recent accounting pronouncements not yet adopted.
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In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), which supersedes the lease requirements in ASC 840, Leases. This ASU requires lessees to recognize lease assets and liabilities on the balance sheet, as well as disclosing key information about leasing arrangements. Although the new ASU requires both operating and finance leases to be disclosed on the balance sheet, a distinction between the two types still exists as the economics of leases can vary. The ASU can be applied using a modified retrospective approach, with a number of optional practical expedients relating to the identification and classification of leases that commenced before the effective date, along with the ability to use hindsight in the evaluation of lease decisions, that entities may elect to apply. As a result, the ASU will become effective for us beginning in the first quarter of our fiscal year ending September 30, 2020, with early adoption applicable. We have not measured the impact of adoption at this point in our assessment and have not concluded on the overall materiality of the impact of adoption to the Company’s consolidated financial statements, or determined the method and timing of adoption.
44
In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments, which addresses diversity in practice with the classification and presentation of certain cash receipts and cash payments in the statement of cash flows. The amendments in this update addresses the classification within the statement of cash flow for debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments, contingent payments made after a business combination, proceeds from the settlement of insurance claims and corporate-owned life insurance policies, distributions received from equity method investees, and beneficial interests in securitization transactions, among other separately identifiable cash flows when applying the predominance principle. The ASU is applied on a retrospective basis, and will become effective for us beginning in the first quarter of our fiscal year ending September 30, 2019; with early adoption available. We are currently assessing the impact this pronouncement will have on the consolidated financial statements of the Company and have not yet concluded on the materiality or timing of adoption.
In November 2016, the FASB issued ASU No. 2016-18, Restricted Cash, which addresses diversity in practice with the classification and presentation of restricted cash in the statement of cash flow, classifying transfers between cash and restricted cash as operating, investing, or financing activities, or as a combination of those activities, in the statement of cash flows. The amendment requires the statement of cash flows to explain the change during the period in total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents; and include with cash and cash equivalents when reconciling the beginning-of-period and end-of-period amounts shown on the statement of cash flows. The ASU is applied on a retrospective basis, and will become effective for us beginning in the first quarter of our fiscal year ending September 30, 2019; with early adoption available. We are currently assessing the impact this pronouncement will have on the consolidated financial statements of the Company and have not yet concluded on the materiality or timing of adoption.
In March 2017, the FASB issued ASU No. 2017-07, Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which requires an employer to disaggregate the service cost component from the other components of net periodic pension costs within the statement of income. The amendment provides guidance requiring the service cost component to be recognized consistent with other compensation costs arising from service rendered by employees during the period, and all other components to be recognized separately outside of the subtotal of income from operations. The ASU is applied on a retrospective basis, and will become effective for us in the first quarter of the year ending September 30, 2019; with early adoption available. We are currently assessing the impact this pronouncement will have on the consolidated financial statements of the Company and have not yet concluded on the materiality of the adoption.
In August 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities (Topic 815), which changes the designation and measurement guidance for qualifying hedging relationships and presentation of hedge results. The amendments in this update make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP, better aligning the entity’s risk management activities and financial reporting for hedging relationships. The ASU can only be applied prospectively, and will become effective for us beginning in the first quarter of our fiscal year ending September 30, 2020; with early adoption available. We are currently assessing the impact this pronouncement will have on the consolidated financial statements of the Company and have not yet concluded on the materiality or timing of the adoption.
45
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market Risk Factors
ThereThe Company has been no materialmarket risk exposure from changes in interest rates, foreign currency exchange rates and commodity prices. When appropriate, we use derivative financial instruments to mitigate the Company’s market risk during the nine month period ended June 30, 2018.from such exposures. For additional information, refer to Note 10 - Debt and Note 11 - Debt and Note 12 - Derivatives to the Condensed Consolidated Financial Statements included elsewhere in the Quarterly ReportReport.
Interest Rate Risk
A portion of our debt bears interest at variable rates. If market interest rates increase, the interest rate on variable rate debt will increase and will create higher debt service requirements, which would adversely affect our cash flow and could adversely impact our results of operations. We also have bank lines of credit at variable interest rates. As of June 30, 2019, we had $58.7 million subject to Part II, Item 7Avariable interest rates, or 2.5% of total debt. Assuming an increase to market rates of 1% as of June 30, 2019, we would incur an increase to interest expense of $0.1 million.
Foreign Exchange Risk
We are subject to risk from sales and loans to and from our subsidiaries as well as sales to, purchases from and bank lines of credit with third-party customers, suppliers and creditors denominated in foreign currencies. Foreign currency sales and purchases are made primarily in Euro, Pounds Sterling, Mexican Pesos, Canadian Dollars, and Australian Dollars. We manage our foreign currency exchange exposure from such sales, accounts receivable, intercompany loans, firm purchase commitments, accounts payable and credit obligations through the use of naturally occurring offsetting positions (borrowing in local currency), forward foreign exchange contracts, foreign exchange rate swaps and foreign exchange options. The related amounts payable to, or receivable from, the contract counter-parties are included in accounts payable or accounts receivable.
At June 30, 2019, we had $500.5 million equivalent of debt denominated in foreign currencies, which consist primarily of the Euro-denominated 4.00% Notes to the equivalent of $483.2 million, which are recorded in a U.S. Dollar functional entity, and the remaining debt is recorded in countries with the same functional currency as the debt. The 4.00% Notes are held as a net investment hedge of the translation of the Company’s Annual Report on Form 10-K for the year ended Septembernet investments in Euro-denominated subsidiaries.
At June 30, 2017, which was retroactively adjusted due the recognition2019, a potential change in fair value of discontinued operations for the GBA divestituresoutstanding foreign exchange derivative instruments, assuming a 10% unfavorable change in the Form 8-K issuedunderlying exchange rates, would be a loss of $12.4 million. The net impact on Marchreported earnings, after also including the effect of the change in the underlying foreign currency-denominated exposures, would be a net gain of $26.4 million.
Commodity Price Risk
We are exposed to fluctuations to market prices for purchases of brass used in our manufacturing processes. We use commodity swaps and calls to manage such risk. The maturity of, and the quantities covered by, the contracts are closely correlated to our anticipated purchases of the commodity. The cost of calls is amortized over the life of the contracts and recorded in cost of goods sold, along with the effects of the swap and call contracts. The related amounts payable to, or receivable from, the counter-parties are included in accounts payable or accounts receivable.
At June 30, 2018.2019, the potential change in fair value of outstanding foreign exchange derivative instruments, assuming a 10% decline in the underlying commodity prices, would be a loss of $0.4 million. The net impact on reported earnings, after also including the reduction in cost of one-years purchases of the related commodities due to the same change in commodity prices, would be a gain of $0.3 million.
Item 4. Controls and Procedures
Spectrum Brands Holdings, Inc. (formerly HRG Group, Inc.)
Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) pursuant to Rule 13a-15(b) under the Exchange Act as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, SBH’s management, including our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, due to the material weakness in internal control over financial reporting that was disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018, our disclosure controls and procedures arewere not effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable SEC rules and forms, and is accumulated and communicated to SBH’s management, including SBH’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting. There was no change in During the nine month period ended June 30, 2019, the Company made changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) to address deficiencies in the design and implementation of a comprehensive risk assessment over changes in GAAP, financial reporting processes and related controls over significant unusual transactions and that are responsive to changes in business operations, including the initial and subsequent accounting and financial reporting through completion of the respective transactions including the identification, assessment and reporting of assets and liabilities held for sale and the recognition of the results of operations and gain on sale associated with discontinued operations from the GBL and GAC divestitures. The Company has designed, implemented and performed a risk assessment process to identify and assess the necessary changes in GAAP, financial reporting processes and the related controls over significant unusual transactions that are responsive to changes in the business operations, including the completion of the GBL and GAC divestitures, among others; including the subsequent accounting, financial reporting and related controls associated with the continuing operations and involvement with Energizer as further discussed in Note 3 – Divestitures and Note 17 – Related Parties. Other than those described above, there were no additional changes to our internal control over financial reporting that occurred during the nine month period ended June 30, 20182019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, except for internal controls over the identification, assessment, and reporting of assets and liabilities held for sale and discontinued operations in relation to the planned divestiture of the GBA segment.reporting.
Limitations on the Effectiveness of Controls. SBH’s management, including our Chief Executive Officer and Chief Financial Officer, does not expect that SBH’s disclosure controls and procedures or SBH’s internal controls over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within SBH have been detected.
SB/RH Holdings, LLC
Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) pursuant to Rule 15d-15(b)13a-15(b) under the Exchange Act as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, SB/RH’sSBH’s management, including our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, due to the material weakness in internal control over financial reporting that was disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018, our disclosure controls and procedures arewere not effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable SEC rules and forms, and is accumulated and communicated to SB/RH’sSBH’s management, including SB/RH’sSBH’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting. There was no change in During the nine month period ended June 30, 2019, the Company made changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) to address deficiencies in the design and implementation of a comprehensive risk assessment over changes in GAAP, financial reporting processes and related controls over significant unusual transactions and that are responsive to changes in business operations, including the initial and subsequent accounting and financial reporting through completion of the respective transactions including the identification, assessment and reporting of assets and liabilities held for sale and the recognition of the results of operations and gain on sale associated with discontinued operations from the GBL and GAC divestitures. The Company has designed, implemented and performed a risk assessment process to identify and assess the necessary changes in GAAP, financial reporting processes and the related controls over significant unusual transactions that are responsive to changes in the business operations, including the completion of the GBL and GAC divestitures, among others; including the subsequent accounting, financial reporting and related controls associated with the continuing operations and involvement with Energizer as further discussed in Note 3 – Divestitures and Note 17 – Related Parties. Other than those described above, there were no additional changes to our internal control over financial reporting that occurred during the nine month period ended July 1, 2018June 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, except for internal controls over the identification, assessment, and reporting of assets and liabilities held for sale and discontinued operations in relation to the planned divestiture of the GBA segment.reporting.
Limitations on the Effectiveness of Controls. SB/RH’s management, including our Chief Executive Officer and Chief Financial Officer, does not expect that SB/RH’s disclosure controls and procedures or SB/RH’s internal controls over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within SB/RH’s have been detected.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Litigation
We are a defendant in various matters of litigation generally arising out of the ordinary course of business. WeSee risk factors below and Note 18 – Commitments and Contingencies included elsewhere in this Quarterly Report. Based on information currently available, we do not believe that any matters or proceedings presently pending will have a material adverse effect on our results of operations, financial condition, liquidity or cash flows.
Item 1A. Risk Factors
WithInformation about our risk factors is contained in Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 30, 2018. We believe that at June 30, 2019, with the exception of changeschange in risk factors discussed below, we believe that at June 30, 2018, there have beenare no material changes in our risk factors from those disclosed in Exhibit 99.2Item 1A of the Currentour Annual Report on Form 8-K filed with10-K for the SEC by Spectrum Brands Legacy, Inc. (File NO-001-34757) on Marchyear ended September 30, 2018 and those disclosed in Exhibit 99.2 of the Current Report on Form 8-K filed with the SEC by Spectrum Brands Holdings, Inc. (formerly HRG Group, Inc.)SBH and SB/RH on April 2, 2018, which is incorporated by reference herein.5, 2019.
We are exploring strategic alternatives for a planned sale of GBA, but there can be no assurance that we will be successful in identifying or completing any strategic alternative or that any such strategic alternative will yield additional value for stockholders.
We have commenced the processsubject to dispose GBA through a planned sale. There can be no assurance that the exploration of strategic alternatives will result in the identification or consummation of any transaction. The strategic review process may be suspended or terminated at any time without notice. In addition, we may incur substantial expenses associated with identifying and evaluating potential strategic alternatives and transactions. Furthermore, any attractive strategic alternative may be limited or prohibited by applicable regulatory regimes. Any potential transaction would be dependent upon a number of factorsclaims and litigation and may be subject to future claims and litigation, any of which may adversely affect our business.
From time to time in the past we have been subject to a variety of claims and litigation and we may in the future be subject to additional claims and litigation (including additional class action lawsuits). For instance, following periods of volatility in the market price of our stock, we have become subject to the class action shareholder litigation described below. We are also subject to various other litigation and claims – see “Note 18 – Commitments and Contingencies” in part 1 of this report.
On March 7, 2019, Earl Wagner filed a complaint in the United States District Court for the Western District of Wisconsin against Spectrum Brands Legacy, Inc. (“Spectrum”), Andreas Rouvé (Spectrum Brands Legacy, Inc.’s former Chief Executive Officer) and Douglas Martin (Spectrum Brands Legacy, Inc.’s former Chief Financial Officer and the Company’s current Chief Financial Officer). Wagner is seeking to represent all investors who purchased or otherwise acquired Spectrum Brands Legacy, Inc.’s securities between June 14, 2016 and April 25, 2018. The complaint alleges that the defendants violated the Securities Exchange Act of 1934 by making misrepresentations and omissions concerning operations at the Company’s facilities in Dayton, Ohio and Edgerton, Kansas and that, as a result, Spectrum’s financial statements were materially inaccurate. On April 30, 2019, the West Palm Beach Firefighters’ Pension Fund filed a second lawsuit in the same district, naming the same defendants and asserting similar allegations. The Pension Fund is seeking to represent all investors who purchased or otherwise acquired Spectrum’s securities between June 14, 2016 and November 16, 2018. Both complaints seek an unspecified amount of compensatory damages, interest, attorneys’ and expert fees, and costs. It is anticipated that the actions will be consolidated, and one operative amended complaint will be filed, and one operative pleading designated by the court. The Company believes the suits are without merit and intends to defend them vigorously.
Separately, on April 9, 2019, Plymouth County Retirement Association filed a complaint in the Circuit Court of Dane County, Wisconsin against the Company and certain of the Company’s current and former directors and officers. The plaintiff is seeking to represent all persons and entities that purchased or otherwise acquired the Company’s common stock pursuant to the registration statement that was issued in connection with the Spectrum Merger completed on July 13, 2018. The complaint alleges that certain financial statements incorporated into the registration statement contained misstatements in violation of the Securities Act of 1933. The complaint seeks an unspecified amount of compensatory damages, interest, rescission or a rescissory measure of damages, attorneys’ and expert fees, and costs. The Company believes the suit is without merit and intends to defend it vigorously.
Based on the information currently available, we believe that our ultimate liability for any of the matters or proceedings presently pending against the Company (including the matters described above) will not have a material adverse effect on the Company’s business or financial condition. But, regardless of their merits, lawsuits (including class action lawsuits) may result in significant cost to the Company that may not be beyondcovered by insurance and may divert attention of management or may otherwise have an adverse effect on our control. If we are unable to effectively manage the process, the business, financial condition, and results of operationsoperation.
The agreements that we signed, and the related actions we have taken, in connection with the sale of the CompanyGBL and its subsidiaries could be adversely affected. We also cannot assure that any potential transactionGAC businesses continue to impose significant obligations on us and our business.
On January 2, 2019, and January 28, 2019, we completed the sales of our GBL and GAC businesses, respectively, to Energizer (collectively, the “Energizer Dispositions”). As partial consideration for the GAC disposition we received 5.3 million shares of Energizer’s common stock. For purposes of our financial reporting our investment in Energizer is recognized at fair value based upon the market price of Energizer’s common stock as of the applicable reporting date. Any change in the fair value of our holdings in Energizer’s common stock is recognized as non-cash unrealized gain or strategic alternative, if identified, evaluated and consummated, will be successful in enhancing our businessloss within the Company’s Consolidated Statement of Income as non-operating income or financial conditions, or provide greater valueexpense which contributes to our stockholders thanincome from continuing operations before income taxes. Accordingly, any such gain or loss on the value of Energizer’s common stock may have a material effect on our financial results, including our quarterly or annual results. Moreover, the European Commission’s approval of the GBL disposition was conditioned upon Energizer divesting Spectrum’s Varta business in Europe, the Middle East and Africa regions. Pursuant to the terms of the GBL acquisition agreement Spectrum agreed to contribute up to $200 million toward any loss of value below the targeted sale price of the Varta business. On May 29, 2019, Energizer entered into an agreement to sell the Varta business, and in connection therewith we have reserved $200 million on our financial statements to satisfy our obligation.
In connection with the closing of the sale of the GAC business we entered into the Energizer Shareholder Agreement which contains a 12-month lock-up period during which time the Company is subject to limitations on the sale or transfer of its Energizer common stock. In addition, the Energizer Shareholder Agreement contains a 24-month standstill provision that reflectedimposes restrictions on the Company from engaging in the current stock price.
We could consume resources in pursuing strategic alternativescertain transactions to control or influence Energizer’s management, board of directors or policies. Furthermore, for the potential sale in GBA, which could materially adversely affect our business.
We anticipateperiod of 18 months following the investigationclosing of strategic alternatives for the potential sale of GBA,the GAC business, we have agreed to vote in favor of Energizer’s board of director nominees and in accordance with Energizer’s board’s recommendations on all other matters at any meeting of Energizer’s shareholders. Consequently, we have limited ability to impact the negotiation, draftingpolicies and executionpractices of relevantEnergizer. For instance, while Energizer has historically paid a quarterly dividend, which is recognized as a cash component of non-operating income on our Consolidated Statement of Income, we do not have the ability to cause Energizer to pay or increase or decrease the dividend or make any other payments or advances to its stockholders, including us.
Finally, pursuant to the terms of the Energizer Dispositions, we entered into customary transition service agreements disclosure documents,with Energizer (collectively, the “TSAs”) pursuant to which we provide services to Energizer and other instruments,receive services from Energizer and separately we will receive services from the Varta business following the sale of Varta by Energizer. Compliance with respect to such transactions, will require substantial management timethe terms of the TSAs can be costly and attention and substantial costs for financial advisors, accountants, attorneys and other advisors. The process of exploring strategic alternatives may be time consuming and disruptivecould divert our management’s attention away from the Company’s business and operations. Any failure to comply with the terms of the TSAs could result in us incurring substantial costs or liabilities. Additionally, pursuant to the business operations and the management teamsterms of the CompanyTSAs we are reliant on Energizer and its subsidiaries.Varta for certain services. If a decision is made notEnergizer or Varta fails to consummate a specific transaction,comply with the costs incurred up to that point for the proposed transaction likely would not be recoverable. Furthermore, even if an agreement is reached relating to a specific transaction, we may fail to consummate the transaction for any number of reasons, including those beyond our control. Any such event could consume significant management time and result in a loss to usterms of the related costs incurred, whichTSAs, our ability to conduct our business and operations could adversely affect our financial position and our business.
The proposed sale of our Global Batteries & Lights division to Energizer Holdings, Inc. is subject to regulatory approval.
The consummationbe materially negatively impacted. Any of the acquisition of the Global Batteries & Lights (“GBL”) division by Energizer Holdings, Inc. is subject to certain customary conditions, including, among other things, (i) the absence offoregoing could have a material adverse effect on GBL, (ii)our business, financial condition and results of operations.
Possible New Tariffs That Might Be Imposed by The United States Government Could Have A Material Adverse Effect on Our Results Of Operations.
Recently, the receiptUnited States government announced tariffs on certain products imported into the United States, which has resulted in reciprocal tariffs from the European Union on goods imported from the United States. In addition, for a number of certain other approvalscountries, including European countries and China, the United States Government has placed a series of tariffs on imported. In response a number of countries, including several in certain specified foreign jurisdictions, (iii)Europe as well as China, have imposed tariffs on a wide range of American products. Additional tariffs could be imposed by the accuracy ofUnited States or on the representationsUnited States’ response to actions taken by the United States government. These governmental actions could have, and warranties of the parties (generally subject toany similar future action may have, a customary material adverse effect standard (as describedon our business, financial condition and result of operations. for instance, a large percentage of our products that we sell in the Agreement)United States are manufactured or other customary materiality qualifications), (iv)sourced in China. While it is too early to predict the absence of governmental restrictions on the consummationfull extent of the acquisition in certain jurisdictions, and (v) material compliance by the parties with their respective covenants and agreements under the Agreement. The Company may not receive the required approval and other clearances for the transaction, or they may not be received in a timely manner. If such approvals are received, they may impose terms, conditions or restrictions that may cause a failureimpact of the closing conditions set forth in the Agreement or that could have a detrimental impactthese actions on the Company following completion of the transaction. A substantial delay in obtaining the required authorizations, approvals or consents orour business, the imposition of unfavorable terms, conditionstariffs on products imported by us from China have in some cases required us to increase prices to our customers or restrictions could prevent the completion of the sale. Even if the waiting periods under the antitrust conditions expire, government authorities could seekand/or result in lowering our gross margin on products sold.
We are subject to block or challenge the transaction as they deem necessary or desirable in the public interest.
Our business may be materially affected by changes to fiscaldata security and tax policiesprivacy risks that could adverselynegatively affect our results, operations or reputation.
In addition to our own sensitive and proprietary business information, we handle transactional and personal information about our customers, suppliers and vendors. Hackers and data thieves are increasingly sophisticated and operate social engineering, such as phishing, and large-scale, complex automated attacks that can evade detection for long periods of operationstime. Any breach of our or our service providers' network, or other vendor systems, may result in the loss of confidential business and cash flows
We operate globally and changes in tax laws could adversely affectfinancial data, misappropriation of our results. On December 22, 2017, the Tax Cuts and Jobs Act (the "Tax Reform Act") was signed into law. The legislation significantly changes U.S. tax law by, among other things, lowering corporate income tax rates, implementingconsumers', users' or employees' personal information or a dividends received deduction for dividends from foreign subsidiaries, imposing a repatriation tax on deemed repatriated earningsdisruption of foreign subsidiaries, a minimum tax on foreign earnings, limitations on deductionour business. Any of business interest expense and limits on deducting compensation to certain executive officers. At this point, it is unclear which of the Tax Reform Act provisions will be adopted by U.S. states and state conformitythese outcomes could have a material impactadverse effect on our business, including unwanted media attention, impairment of our consumer and customer relationships, damage to our reputation; resulting in lost sales and consumers, fines, lawsuits, or significant legal and remediation expenses. We also may need to expend significant resources to protect against, respond to and/or redress problems caused by any breach.
In addition, we must comply with increasingly complex and rigorous regulatory standards enacted to protect business and personal data in the valuation allowance recordedU.S., Europe and elsewhere. For example, the European Union adopted the General Data Protection Regulation (the “GDPR”), which became effective on U.S. state net operating losses. CertainMay 25, 2018, and California passed the California Consumer Privacy Act (the "CCPA"), which goes into effect January 1, 2020. These laws impose additional obligations on companies such as ours regarding the handling of personal data and provides certain individual privacy rights to persons whose data is stored. Compliance with existing, proposed and recently enacted laws (including implementation of the privacy and process enhancements called for under GDPR and CCPA) and regulations can be costly; any failure to comply with these changesregulatory standards could subject us to legal and reputational risks. Misuse of or failure to secure personal information could also result in violation of data privacy laws and regulations, proceedings against the Company by governmental entities or others, damage to our reputation and credibility and could have a negative or adverse impact on the operating resultsrevenues and cash flows of the Company.profits.
The impact of the Tax Reform Act is still being evaluated by the Company. During fiscal year 2018, the Company has recognized provisional tax impacts related to deemed repatriated earnings and the revaluation of deferred tax assets and liabilities. The ultimate impact from the Tax Reform Act may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that will be issued, and actions the Company may take as a result of the Tax Reform Act. Such changes in interpretations, guidance or assumptions could result in significant one-time charges and adversely change the Company’s effective tax rate. See Note 15 – Income Taxes in the Notes to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report for further discussion on the impact from the Tax Reform Act.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
We may not be able to fully utilize our U.S. tax attributes.
On July 24, 2018, the Board of Directors approved a $1 billion common stock repurchase program. The Company has accumulated a substantial amount of U.S. federal and state net operating loss (“NOLs”) carryforwards, capital loss carryforwards, and federal and state tax credits that will expire if unused. We have concluded that itauthorization is more likely than not thateffective for 36 months. The following summarizes the majority of the federal and state deferred tax assets will create tax benefits in the future. As a consequence of earlier business combinations and issuancesactivity of common stock repurchases under the program for the nine month period ended June 30, 2019:
Total Number | Average | Total Number | Approximate Dollar Value | |||||||
of Shares | Price Paid | of Shares Purchased | of Shares that may | |||||||
Purchased | Per Share | as Part of Plan | Yet Be Purchased | |||||||
As of September 30, 2018 | — | $ | — | — | $ | 1,000,000,000 | ||||
October 1, 2018 to October 28, 2018 | — | — | — | 1,000,000,000 | ||||||
October 29, 2018 to November 25, 2018 | — | — | — | 1,000,000,000 | ||||||
November 26, 2018 to December 30, 2018 | — | — | — | 1,000,000,000 | ||||||
As of December 30, 2018 | — | $ | — | — | $ | 1,000,000,000 | ||||
December 31, 2018 to January 27, 2019 | — | — | — | 1,000,000,000 | ||||||
January 28, 2019 to February 24, 2019 | 1,344,600 | 52.11 | 1,344,600 | 929,931,554 | ||||||
February 25, 2019 to March 31, 2019 | 3,266,100 | 55.09 | 3,266,100 | 750,001,219 | ||||||
As of March 31, 2019 | 4,610,700 | $ | 54.22 | 4,610,700 | $ | 750,001,219 | ||||
April 1, 2019 to April 28, 2019 | — | — | — | 750,001,219 | ||||||
April 29, 2019 to May 26, 2019 | — | — | — | 750,001,219 | ||||||
May 27, 2019 to June 30, 2019 | — | — | — | 750,001,219 | ||||||
As of June 30, 2019 | 4,610,700 | $ | 54.22 | 4,610,700 | $ | 750,001,219 |
During the nine month periods ended June 30, 2019, the Company and its subsidiaries have had various changesalso repurchased $18.5 million of ownership that continue to subject a significant amountcommon stock in private purchases with employees at the fair value, consisting of the Company’s U.S. NOLs and other tax attributes to certain limitations; and therefore a valuation allowance is still recognized on certain federal and state tax asset carryforwards that0.3 million of common stock repurchases at an average share price of $56.02 per share, which are expected to expire due to the ownership change limitations or because we do not believe we will earn enough taxable income to utilize. Further, as a result of the Tax Reform Act being signed into law, it is unclear which provisions of the Tax Reform Act will be adopted by U.S. states. State conformity to the provisions of the Tax Reform Act could have a material impact on the valuation allowance recorded on U.S. state net operating losses. If we are unable to fully utilize our NOLs to offset taxable income generated in the future, our future cash taxes could be materially and negatively impacted. For further detail over the Company’s federal and state NOLs, credits, and applicable valuation allowance as of September 30, 2017, see Note 14 – Income Taxes in the Notes to the Consolidated Financial Statements included in the Spectrum Annual Report filed within the Form 10-K. See Note 15 – Income Taxes in the Notes to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report for further discussion on the impact from the Tax Reform Act on valuation allowance against its U.S. state net operating losses.
Jefferies Financial Group Inc. and CF Turul LLC (an affiliate of Fortress Investment Group, LLC) are significant stockholders of SBH and if a large percentage of their holdings were sold or otherwise disposed of, the stock price of the shares of SBH common stock could decline.repurchase program summarized above.
At the closing of the Merger, Jefferies Financial Group Inc. and CF Turul LLC (an affiliate of Fortress Investment Group, LLC) beneficially owned approximately 14.1% and 9.9% of the outstanding shares of SBH common stock, respectively. Pursuant to the SBH amended and restated certificate of incorporation, Leucadia and Fortress are subject to certain transfer restrictions, and pursuant to our stockholder agreement, Leucadia is subject to certain transfer restrictions. If in compliance with such restrictions or after their expiration, Leucadia or Fortress were to sell or otherwise transfer all or a large percentage of its holdings, the price of our common stock could decline.
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Item 6. Exhibits
Please refer to the Exhibit Index.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: August 7, | |||
SPECTRUM BRANDS HOLDINGS, INC. | |||
By: | /s/ Douglas L. Martin | ||
Douglas L. Martin | |||
Executive Vice President and Chief Financial Officer | |||
(Principal Financial Officer) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: August 7, | |||
SB/RH HOLDINGS, LLC | |||
By: | /s/ Douglas L. Martin | ||
Douglas L. Martin | |||
Executive Vice President and Chief Financial Officer | |||
(Principal Financial Officer) |
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Exhibit 31.2 | |
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Exhibit 31.4 |
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Exhibit 32.1 | |
Exhibit 32.2 | |
Exhibit 32.3 | |
Exhibit 32.4 | |
101.INS | XBRL Instance Document** |
101.SCH | XBRL Taxonomy Extension Schema Document** |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document** |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document** |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document** |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document** |
* Filed herewith | |
** In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall be deemed to be "furnished" and not "filed." |
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