10-Q 1 c730-20170402x10q.htm 10-Q 20170402 FORM 10Q Q2FY17

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 2, 2017



OR



TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to           





\

 

 

 

 



 

Picture 1

 

 

Commission File No.

 

Name of Registrant, State of Incorporation,

Address of Principal Offices, and Telephone No.

 

IRS Employer Identification No.

001-34757

 

Spectrum Brands Holdings, Inc.

(a Delaware corporation)

3001 Deming Way

Middleton, WI 53562

(608) 275-3340

www.spectrumbrands.com

 

 

27-2166630

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

 



SB/RH Holdings, LLC

Yes

No

 



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

 



SB/RH Holdings, LLC

Yes

No

 



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



 

 

 

 

 

 

 

 

Registrant

 

Large Accelerated Filer

 

Accelerated filer

 

Non-accelerated filer

 

Smaller reporting company

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

 



SB/RH Holdings, LLC

Yes

No

 



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

 



SB/RH Holdings, LLC

Yes

No

 



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.

 

 

 

 



SB/RH Holdings, LLC

 

 

 

 



As of April 28, 2017, there were outstanding 58,828,866 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,  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:



·

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 shareholders;

·

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 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;

·

our ability to utilize our net operating loss carry-forwards to offset tax liabilities from future taxable income;

·

the loss of, or a significant reduction in, 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 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 our products, including the potential for environmental liabilities, product liability claims, litigation and other claims;

·

the impact of pending or threatened litigation;

·

the impact of cyber security breaches or our actual or perceived failure to protect company and personal data;

·

changes in accounting policies applicable to our business;

·

government regulations;

·

the seasonal nature of sales of certain of our products;

·

the effects of climate change and unusual weather activity; and

·

the effects of political or economic conditions, terrorist attacks, acts of war or other unrest in international markets.



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.

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

Item 1.

Financial Statements

Spectrum Brands Holdings, Inc. Condensed Consolidated Financial Statements (Unaudited)



Condensed Consolidated Statements of Financial Position as of April 2, 2017 and September 30, 2016



Condensed Consolidated Statements of Income for the three and six month periods ended April 2, 2017 and April 3, 2016



Condensed Consolidated Statements of Comprehensive Income for the three and six month periods ended April 2, 2017 and April 3, 2016



Condensed Consolidated Statements of Cash Flows for the six month periods ended April 2, 2017 and April 3, 2016

SB/RH Holdings, LLC Condensed Consolidated Financial Statements (Unaudited)



Condensed Consolidated Statements of Financial Position as of April 2, 2017 and September 30, 2016



Condensed Consolidated Statements of Income for the three and six month periods ended April 2, 2017 and April 3, 2016



Condensed Consolidated Statements of Comprehensive Income for the three and six month periods ended April 2, 2017 and April 3, 2016



Condensed Consolidated Statements of Cash Flows for the six month periods ended April 2, 2017 and April 3, 2016

Spectrum Brands Holdings, Inc. and SB/RH Holdings, LLC Combined (Unaudited)



Combined Notes to Condensed Consolidated Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

27 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

39 

Item 4.

Controls and Procedures

40 

PART II

OTHER INFORMATION

 

Item 1.

Legal Proceedings

41 

Item 1A.

Risk Factors

41 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

41 

Item 6.

Exhibits

43 

Signatures

 

44 



1

 


 

PART I. FINANCIAL INFORMATION



Item 1. Financial Statements

SPECTRUM BRANDS HOLDINGS, INC.

Condensed Consolidated Statements of Financial Position

April 2, 2017 and September 30, 2016 

(in millions, unaudited)







 

 

 

 

 

 



 

 

 

 

 

 



 

April 2, 2017

 

September 30, 2016

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

137.2 

 

$

275.3 

Trade receivables, net

 

 

528.5 

 

 

482.6 

Other receivables

 

 

44.3 

 

 

55.6 

Inventories

 

 

836.3 

 

 

740.6 

Prepaid expenses and other current assets

 

 

88.8 

 

 

78.8 

Total current assets

 

 

1,635.1 

 

 

1,632.9 

Property, plant and equipment, net

 

 

660.8 

 

 

542.1 

Deferred charges and other

 

 

47.2 

 

 

43.2 

Goodwill

 

 

2,473.8 

 

 

2,478.4 

Intangible assets, net

 

 

2,312.5 

 

 

2,372.5 

Total assets

 

$

7,129.4 

 

$

7,069.1 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of long-term debt

 

$

35.0 

 

$

164.0 

Accounts payable

 

 

525.0 

 

 

580.1 

Accrued wages and salaries

 

 

64.6 

 

 

122.9 

Accrued interest

 

 

37.2 

 

 

39.3 

Other current liabilities

 

 

176.3 

 

 

189.3 

Total current liabilities

 

 

838.1 

 

 

1,095.6 

Long-term debt, net of current portion

 

 

3,745.8 

 

 

3,456.2 

Deferred income taxes

 

 

577.7 

 

 

532.7 

Other long-term liabilities

 

 

131.2 

 

 

140.6 

Total liabilities

 

 

5,292.8 

 

 

5,225.1 

Commitments and contingencies

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

Common Stock

 

 

0.6 

 

 

0.6 

Additional paid-in capital

 

 

2,100.0 

 

 

2,073.6 

Accumulated earnings

 

 

139.9 

 

 

63.6 

Accumulated other comprehensive loss, net of tax

 

 

(236.1)

 

 

(229.4)

Treasury stock, at cost

 

 

(211.3)

 

 

(108.3)

Total shareholders' equity

 

 

1,793.1 

 

 

1,800.1 

Noncontrolling interest

 

 

43.5 

 

 

43.9 

Total equity

 

 

1,836.6 

 

 

1,844.0 

Total liabilities and equity

 

$

7,129.4 

 

$

7,069.1 

See accompanying notes to the condensed consolidated financial statements

2

 


 

SPECTRUM BRANDS HOLDINGS, INC.

Condensed Consolidated Statements of Income

For the three and six month periods ended April 2, 2017 and April 3, 2016

(in millions, except per share figures, unaudited)



 

 

 

 

 

 

 

 

 

 

 



Three Months Ended

 

Six Months Ended



 

 

 

 

 

 

 

 

 

 

 



April 2, 2017

 

April 3, 2016

 

April 2, 2017

 

April 3, 2016

Net sales

$

1,169.9 

 

$

1,209.6 

 

$

2,381.7 

 

$

2,428.4 

Cost of goods sold

 

710.6 

 

 

746.6 

 

 

1,471.2 

 

 

1,524.6 

Restructuring and related charges

 

4.1 

 

 

0.2 

 

 

5.3 

 

 

0.3 

Gross profit

 

455.2 

 

 

462.8 

 

 

905.2 

 

 

903.5 

Selling

 

187.4 

 

 

189.5 

 

 

377.2 

 

 

376.6 

General and administrative

 

99.4 

 

 

95.6 

 

 

187.9 

 

 

181.9 

Research and development

 

15.1 

 

 

14.5 

 

 

29.5 

 

 

28.3 

Acquisition and integration related charges

 

5.1 

 

 

13.3 

 

 

9.2 

 

 

23.2 

Restructuring and related charges

 

4.1 

 

 

1.4 

 

 

6.2 

 

 

2.5 

Total operating expenses

 

311.1 

 

 

314.3 

 

 

610.0 

 

 

612.5 

Operating income

 

144.1 

 

 

148.5 

 

 

295.2 

 

 

291.0 

Interest expense

 

50.6 

 

 

57.5 

 

 

106.4 

 

 

115.9 

Other non-operating expense, net

 

1.8 

 

 

0.8 

 

 

0.8 

 

 

4.3 

Income from operations before income taxes

 

91.7 

 

 

90.2 

 

 

188.0 

 

 

170.8 

Income tax expense (benefit)

 

33.1 

 

 

(2.5)

 

 

64.1 

 

 

4.4 

Net income

 

58.6 

 

 

92.7 

 

 

123.9 

 

 

166.4 

Net (loss) income attributable to non-controlling interest

 

(0.2)

 

 

0.1 

 

 

(0.2)

 

 

0.2 

Net income attributable to controlling interest

$

58.8 

 

$

92.6 

 

$

124.1 

 

$

166.2 

Earnings Per Share

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

$

1.00 

 

$

1.56 

 

$

2.10 

 

$

2.80 

Diluted earnings per share

 

1.00 

 

 

1.55 

 

 

2.09 

 

 

2.79 

Dividends per share

 

0.42 

 

 

0.38 

 

 

0.80 

 

 

0.71 

Weighted Average Shares Outstanding

 

 

 

 

 

 

 

 

 

 

 

Basic

 

58.8 

 

 

59.4 

 

 

59.1 

 

 

59.3 

Diluted

 

59.0 

 

 

59.5 

 

 

59.3 

 

 

59.4 



See accompanying notes to the condensed consolidated financial statements



SPECTRUM BRANDS HOLDINGS, INC.

Condensed Consolidated Statements of Comprehensive Income

For the three and six month periods ended April 2, 2017 and April 3, 2016

(in millions, unaudited)



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

Six Months Ended



 

 

 

 

 

 

 

 

 

 

 

 



 

April 2, 2017

 

April 3, 2016

 

April 2, 2017

 

April 3, 2016

Net income

 

$

58.6 

 

$

92.7 

 

$

123.9 

 

$

166.4 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation gain (loss), net tax of $(0.4),  $0,  $3.5 and $0, respectively

 

 

21.7 

 

 

28.2 

 

 

(24.4)

 

 

7.7 

Unrealized (loss) gain on hedging activity, net tax of $4.5,  $3.2,  $(9.7) and $2.5, respectively

 

 

(9.7)

 

 

(2.9)

 

 

14.5 

 

 

0.8 

Defined benefit pension (loss) gain, net tax of $0.1,  $0.1,  $(1.1) and $(0.2), respectively

 

 

(0.3)

 

 

(0.6)

 

 

3.0 

 

 

0.5 

Other comprehensive income (loss), net of tax

 

 

11.7 

 

 

24.7 

 

 

(6.9)

 

 

9.0 

Comprehensive income

 

 

70.3 

 

 

117.4 

 

 

117.0 

 

 

175.4 

Comprehensive income (loss) attributable to non-controlling interest

 

 

0.1 

 

 

 

 

(0.2)

 

 

(0.1)

Comprehensive income attributable to controlling interest

 

$

70.2 

 

$

117.4 

 

$

117.2 

 

$

175.5 



See accompanying notes to the condensed consolidated financial statements

3

 


 

SPECTRUM BRANDS HOLDINGS, INC.

Condensed Consolidated Statements of Cash Flows

For the six month periods ended April 2, 2017 and April 3, 2016

(in millions, unaudited)





 

 

 

 

 

 



 

 

 

 

 

 



 

April 2, 2017

 

April 3, 2016

Cash flows from operating activities

 

 

 

 

 

 

Net income

 

$

123.9 

 

$

166.4 

Adjustments to reconcile net income to net cash provided (used) by operating activities:

 

 

 

 

 

 

Amortization of intangible assets

 

 

47.1 

 

 

47.0 

Depreciation

 

 

46.6 

 

 

44.4 

Share based compensation

 

 

23.0 

 

 

31.6 

Amortization of debt issuance costs

 

 

3.6 

 

 

4.1 

Write-off of debt issuance costs

 

 

1.9 

 

 

Non-cash debt accretion

 

 

0.4 

 

 

0.5 

Deferred tax expense (benefit)

 

 

33.6 

 

 

(19.3)

Net changes in operating assets and liabilities

 

 

(250.0)

 

 

(419.2)

Net cash provided (used) by operating activities

 

 

30.1 

 

 

(144.5)

Cash flows from investing activities

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(51.3)

 

 

(38.7)

Proceeds from sales of property, plant and equipment

 

 

0.8 

 

 

0.8 

Other investing activities

 

 

(1.2)

 

 

Net cash used by investing activities

 

 

(51.7)

 

 

(37.9)

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from issuance of debt

 

 

216.1 

 

 

175.0 

Payment of debt

 

 

(151.6)

 

 

(13.3)

Payment of debt issuance costs

 

 

(2.7)

 

 

(1.6)

Payment of cash dividends

 

 

(47.3)

 

 

(42.0)

Treasury stock purchases

 

 

(103.1)

 

 

(40.2)

Share based tax withholding payments, net of proceeds upon vesting

 

 

(23.9)

 

 

(9.8)

Net cash (used) provided by financing activities

 

 

(112.5)

 

 

68.1 

Effect of exchange rate changes on cash and cash equivalents

 

 

(4.0)

 

 

(0.3)

Net decrease in cash and cash equivalents

 

 

(138.1)

 

 

(114.6)

Cash and cash equivalents, beginning of period

 

 

275.3 

 

 

247.9 

Cash and cash equivalents, end of period

 

$

137.2 

 

$

133.3 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

Cash paid for interest

 

$

97.1 

 

$

120.5 

Cash paid for taxes

 

$

19.0 

 

$

23.9 

Non cash investing activities

 

 

 

 

 

 

Acquisition of property, plant and equipment through capital leases

 

$

122.2 

 

$

28.3 

Non cash financing activities

 

 

 

 

 

 

Issuance of shares through stock compensation plan

 

$

53.5 

 

$

45.8 



See accompanying notes to the condensed consolidated financial statements

4

 


 

SB/RH HOLDINGS, LLC

Condensed Consolidated Statements of Financial Position

April 2, 2017 and September 30, 2016

(in millions, unaudited)



 

 

 

 

 

 



 

 

 

 

 

 



 

April 2, 2017

 

September 30, 2016

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

137.1 

 

$

270.8 

Trade receivables, net

 

 

528.5 

 

 

482.6 

Other receivables

 

 

42.8 

 

 

55.6 

Inventories

 

 

836.3 

 

 

740.6 

Prepaid expenses and other current assets

 

 

88.8 

 

 

78.8 

Total current assets

 

 

1,633.5 

 

 

1,628.4 

Property, plant and equipment, net

 

 

660.8 

 

 

542.1 

Deferred charges and other

 

 

33.5 

 

 

32.1 

Goodwill

 

 

2,473.8 

 

 

2,478.4 

Intangible assets, net

 

 

2,312.5 

 

 

2,372.5 

Total assets

 

$

7,114.1 

 

$

7,053.5 

Liabilities and Shareholder's Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of long-term debt

 

$

35.0 

 

$

164.0 

Accounts payable

 

 

525.0 

 

 

580.1 

Accrued wages and salaries

 

 

64.6 

 

 

122.9 

Accrued interest

 

 

37.2 

 

 

39.3 

Other current liabilities

 

 

174.1 

 

 

188.3 

Total current liabilities

 

 

835.9 

 

 

1,094.6 

Long-term debt, net of current portion

 

 

3,745.8 

 

 

3,456.2 

Deferred income taxes

 

 

577.5 

 

 

532.7 

Other long-term liabilities

 

 

131.2 

 

 

140.6 

Total liabilities

 

 

5,290.4 

 

 

5,224.1 

Commitments and contingencies

 

 

 

 

 

 

Shareholder's equity:

 

 

 

 

 

 

Other capital

 

 

2,028.8 

 

 

2,000.9 

Accumulated (deficit) earnings

 

 

(18.4)

 

 

8.1 

Accumulated other comprehensive loss, net of tax

 

 

(236.1)

 

 

(229.4)

Total shareholder's equity

 

 

1,774.3 

 

 

1,779.6 

Noncontrolling interest

 

 

49.4 

 

 

49.8 

Total equity

 

 

1,823.7 

 

 

1,829.4 

Total liabilities and equity

 

$

7,114.1 

 

$

7,053.5 



See accompanying notes to the condensed consolidated financial statements

5

 


 

SB/RH HOLDINGS, LLC

Condensed Consolidated Statements of Income

For the three and six month periods ended April 2, 2017 and April 3, 2016

(in millions, unaudited)



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Three Months Ended

 

Six Months Ended



 

 

 

 

 

 

 

 

 

 

 



April 2, 2017

 

April 3, 2016

 

April 2, 2017

 

April 3, 2016

Net sales

$

1,169.9 

 

$

1,209.6 

 

$

2,381.7 

 

$

2,428.4 

Cost of goods sold

 

710.6 

 

 

746.6 

 

 

1,471.2 

 

 

1,524.6 

Restructuring and related charges

 

4.1 

 

 

0.2 

 

 

5.3 

 

 

0.3 

Gross profit

 

455.2 

 

 

462.8 

 

 

905.2 

 

 

903.5 

Selling

 

187.4 

 

 

189.5 

 

 

377.2 

 

 

376.6 

General and administrative

 

95.9 

 

 

94.2 

 

 

183.3 

 

 

178.7 

Research and development

 

15.1 

 

 

14.5 

 

 

29.5 

 

 

28.3 

Acquisition and integration related charges

 

5.1 

 

 

13.3 

 

 

9.2 

 

 

23.2 

Restructuring and related charges

 

4.1 

 

 

1.4 

 

 

6.2 

 

 

2.5 

Total operating expenses

 

307.6 

 

 

312.9 

 

 

605.4 

 

 

609.3 

Operating income

 

147.6 

 

 

149.9 

 

 

299.8 

 

 

294.2 

Interest expense

 

50.7 

 

 

57.5 

 

 

106.7 

 

 

115.9 

Other non-operating expense, net

 

1.8 

 

 

0.8 

 

 

0.8 

 

 

4.3 

Income from operations before income taxes

 

95.1 

 

 

91.6 

 

 

192.3 

 

 

174.0 

Income tax expense

 

34.3 

 

 

9.0 

 

 

66.5 

 

 

15.9 

Net income

 

60.8 

 

 

82.6 

 

 

125.8 

 

 

158.1 

Net (loss) income attributable to non-controlling interest

 

(0.2)

 

 

0.1 

 

 

(0.2)

 

 

0.2 

Net income attributable to controlling interest

$

61.0 

 

$

82.5 

 

$

126.0 

 

$

157.9 



See accompanying notes to the condensed consolidated financial statements





SB/RH HOLDINGS, LLC

Condensed Consolidated Statements of Comprehensive Income

For the three and six month periods ended April 2, 2017 and April 3, 2016

(in millions, unaudited)



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

Six Months Ended



 

 

 

 

 

 

 

 

 

 

 

 



 

April 2, 2017

 

April 3, 2016

 

April 2, 2017

 

April 3, 2016

Net income

 

$

60.8 

 

$

82.6 

 

$

125.8 

 

$

158.1 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation gain (loss), net tax of $(0.4),  $0,  $3.5 and $0, respectively

 

 

21.7 

 

 

28.2 

 

 

(24.4)

 

 

7.7 

Unrealized (loss) gain on hedging activity, net tax of $4.5,  $3.2,  $(9.7) and $2.5, respectively

 

 

(9.7)

 

 

(2.9)

 

 

14.5 

 

 

0.8 

Defined benefit pension (loss) gain, net tax of $0.1,  $0.1,  $(1.1) and $(0.2), respectively

 

 

(0.3)

 

 

(0.6)

 

 

3.0 

 

 

0.5 

Other comprehensive income (loss), net of tax

 

 

11.7 

 

 

24.7 

 

 

(6.9)

 

 

9.0 

Comprehensive income

 

 

72.5 

 

 

107.3 

 

 

118.9 

 

 

167.1 

Comprehensive income (loss) attributable to non-controlling interest

 

 

0.1 

 

 

 

 

(0.2)

 

 

(0.1)

Comprehensive income attributable to controlling interest

 

$

72.4 

 

$

107.3 

 

$

119.1 

 

$

167.2 



See accompanying notes to the condensed consolidated financial statements

6

 


 

SB/RH HOLDINGS, LLC

Condensed Consolidated Statements of Cash Flows

For the six month periods ended April 2, 2017 and April 3, 2016

(in millions, unaudited)



 

 

 

 

 

 



 

 

 

 

 

 



 

April 2, 2017

 

April 3, 2016

Cash flows from operating activities

 

 

 

 

 

 

Net income

 

$

125.8 

 

$

158.1 

Adjustments to reconcile net income to net cash provided (used) by operating activities:

 

 

 

 

 

 

Amortization of intangible assets

 

 

47.1 

 

 

47.0 

Depreciation

 

 

46.6 

 

 

44.4 

Share based compensation

 

 

21.3 

 

 

28.8 

Amortization of debt issuance costs

 

 

3.6 

 

 

4.1 

Write-off of debt issuance costs

 

 

1.9 

 

 

Non-cash debt accretion

 

 

0.4 

 

 

0.5 

Deferred tax expense (benefit)

 

 

36.0 

 

 

(7.8)

Net changes in operating assets and liabilities

 

 

(270.0)

 

 

(438.8)

Net cash provided (used) by operating activities

 

 

12.7 

 

 

(163.7)

Cash flows from investing activities

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(51.3)

 

 

(38.7)

Proceeds from sales of property, plant and equipment

 

 

0.8 

 

 

0.8 

Other investing activities

 

 

(1.2)

 

 

Net cash used by investing activities

 

 

(51.7)

 

 

(37.9)

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from issuance of debt

 

 

216.1 

 

 

188.9 

Payment of debt

 

 

(151.6)

 

 

(48.1)

Payment of debt issuance costs

 

 

(2.7)

 

 

(1.6)

Payment of cash dividends to parent

 

 

(152.5)

 

 

(52.0)

Net cash (used) provided by financing activities

 

 

(90.7)

 

 

87.2 

Effect of exchange rate changes on cash and cash equivalents

 

 

(4.0)

 

 

(0.3)

Net decrease in cash and cash equivalents

 

 

(133.7)

 

 

(114.7)

Cash and cash equivalents, beginning of period

 

 

270.8 

 

 

247.9 

Cash and cash equivalents, end of period

 

$

137.1 

 

$

133.2 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

Cash paid for interest

 

$

97.1 

 

$

120.5 

Cash paid for taxes

 

$

19.0 

 

$

23.9 

Non cash investing activities

 

 

 

 

 

 

Acquisition of property, plant and equipment through capital leases

 

$

122.2 

 

$

28.3 



See accompanying notes to the condensed consolidated financial statements



 

7

 


 

SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, unaudited)

This report is a combined report of Spectrum Brands Holdings, Inc. (“SBH”) and SB/RH Holdings, LLC (“SB/RH”) (collectively, the “Company”). The notes to the condensed consolidated financial statements that follow include both consolidated SBH and SB/RH notes, unless otherwise indicated below.



NOTE 1 - BASIS OF PRESENTATION



The accompanying unaudited condensed consolidated financial statements have been prepared by the Company and its majority owned subsidiaries in accordance with accounting principles for interim financial information generally accepted in the United States and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and notes necessary for a comprehensive presentation of financial position and results of operations. It is management’s opinion, however, that all material adjustments have been made which are necessary for a fair financial statement presentation. For further information, refer to the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2016.



NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES



In May 2014, the Financial 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 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. 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. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606) Deferral of the Effective Date, which amends the previously issued ASU to provide for a one year deferral from the original effective date. As a result, the ASU will become effective for us beginning in the first quarter of our fiscal year ending September 30, 2019, with early adoption available to us beginning in the first quarter of our fiscal year ending September 30, 2018. We are assessing the impact this pronouncement will have on the consolidated financial statements of the Company and have not determined the materiality or method of adoption.



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 ASU requires both operating and finance leases to be disclosed on the balance sheet, a distinction between the two types still exists. The ASU can be applied using a modified retrospective approach, with optional practical expedients that entities may elect to apply, 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.  The ASU will become effective for us beginning in the first quarter of our fiscal year ending September 30, 2020, with early adoption available. We are assessing the impact this pronouncement will have on the consolidated financial statements of the Company and have not determined the materiality or method 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 to us in the first quarter of the year ending September 30, 2018. The net periodic benefit cost for the year ended September 30, 2016 was $4.5 million; of which the service cost component was $2.9 million and other components were $1.6 million. The net periodic benefit cost for the year ending September 30, 2017 will be $7.6 million, of which the service cost component is $3.9 million and other cost components are $3.8 million.



8

 


 

In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies the test for goodwill impairment by removing Step 2 from the goodwill impairment test. If goodwill impairment is realized, the amount recognized will be the amount by which the carrying amount exceeds the reporting unit’s fair value; however the loss recognized cannot exceed the total amount of goodwill allocated to that reporting unit. The ASU must be applied on a prospective basis and will become effective for us beginning in the first quarter of the year ended September 30, 2021, with early adoption available. We chose to adopt the standard immediately, with no impact to the condensed consolidated financial statements.



NOTE 3 – ACQUISITION AND INTEGRATION COSTS



The following summarizes acquisition and integration related charges for the three and six month periods ended April 2, 2017 and April 3, 2016:









 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

Six Months Ended

(in millions)

 

April 2, 2017

 

April 3, 2016

 

April 2, 2017

 

April 3, 2016

Armored AutoGroup

 

$

0.7 

 

$

6.1 

 

$

2.4 

 

$

10.6 

HHI Business

 

 

2.0 

 

 

4.8 

 

 

3.8 

 

 

7.6 

Other

 

 

2.4 

 

 

2.4 

 

 

3.0 

 

 

5.0 

Total acquisition and integration related charges

 

$

5.1 

 

$

13.3 

 

$

9.2 

 

$

23.2 























NOTE 4 - RESTRUCTURING AND RELATED CHARGES



Pet Rightsizing Initiative – During the second quarter of the year ending September 30, 2017, the Company implemented a rightsizing initiative within the PET segment to streamline certain operations and reduce operating costs. The initiative includes headcount reductions and the rightsizing of certain facilities. Total costs associated with this initiative is expected to be approximately $5 million, of which $0.6 million has been incurred to date. The balance is anticipated to be incurred through December 31, 2017.



HHI Distribution Center Consolidation – During the second quarter of the year ending September 30, 2017, the Company implemented an initiative within the 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 $11 million, of which $1.2 million has been incurred to date. The balance is anticipated to be incurred through September 30, 2019.



GAC Business Rationalization Initiative – During the third quarter of the year ended September 30, 2016, the Company implemented an initiative in the GAC 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 $28 million, of which $12.3 million has been incurred to date. The balance is anticipated to be incurred through September 30, 2017.



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 six month periods ended April 2, 2017 and April 3, 2016:



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

Six Months Ended



 

 

 

 

 

 

 

 

 

 

 

 

(in millions)

 

April 2, 2017

 

April 3, 2016

 

April 2, 2017

 

April 3, 2016

HHI distribution center consolidation

 

$

1.2 

 

$

 

$

1.2 

 

$

GAC business rationalization initiative

 

 

5.5 

 

 

 

 

7.0 

 

 

PET rightsizing initiative

 

 

0.6 

 

 

 

 

0.6 

 

 

HHI business rationalization initiative

 

 

 

 

0.3 

 

 

 

 

(0.4)

Other restructuring activities

 

 

0.9 

 

 

1.3 

 

 

2.7 

 

 

3.2 

Total restructuring and related charges

 

$

8.2 

 

$

1.6 

 

$

11.5 

 

$

2.8 

Reported as:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

$

4.1 

 

$

0.2 

 

$

5.3 

 

$

0.3 

Operating expense

 

 

4.1 

 

 

1.4 

 

 

6.2 

 

 

2.5 



9

 


 

The following is a summary of restructuring and related charges for the three and six month periods ended April 2, 2017 and April 3, 2016 and cumulative costs for current restructuring initiatives as of April 2, 2017, by cost type:





 

 

 

 

 

 

 

 

 



 

Termination

 

Other

 

 

(in millions)

 

Benefits

 

Costs

 

Total

For the three months ended April 2, 2017

 

 

1.4 

 

 

6.8 

 

 

8.2 

For the three months ended April 3, 2016

 

 

0.7 

 

 

0.9 

 

 

1.6 

For the six months ended April 2, 2017

 

 

3.3 

 

 

8.2 

 

 

11.5 

For the six months ended April 3, 2016

 

 

1.7 

 

 

1.1 

 

 

2.8 

Cumulative costs through April 2, 2017

 

 

3.6 

 

 

13.2 

 

 

16.8 

Future costs to be incurred

 

 

10.3 

 

 

18.8 

 

 

29.1 



The following is a roll-forward of the accrual related to all restructuring and related activities, included within Other Current Liabilities, by cost type for the six month period ended April 2, 2017:





 

 

 

 

 

 

 

 

 



 

Termination

 

Other

 

 

(in millions)

 

Benefits

 

Costs

 

Total

Accrual balance at September 30, 2016

 

 

1.6 

 

 

1.0 

 

 

2.6 

Provisions

 

 

3.3 

 

 

8.2 

 

 

11.5 

Cash expenditures

 

 

(2.5)

 

 

(7.0)

 

 

(9.5)

Non-cash items

 

 

1.2 

 

 

(1.4)

 

 

(0.2)

Accrual balance at April 2, 2017

 

$

3.6 

 

$

0.8 

 

$

4.4 



The following summarizes restructuring and related charges by segment for the three and six month periods ended April 2, 2017 and April 3, 2016, cumulative costs incurred through April 2, 2017, and future expected costs to be incurred by segment:















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in millions)

 

GBA

 

PET

 

HHI

 

GAC

 

Total

For the three months ended April 2, 2017

 

$

0.3 

 

$

1.0 

 

$

1.4 

 

$

5.5 

 

$

8.2 

For the three months ended April 3, 2016

 

 

0.1 

 

 

1.1 

 

 

0.4 

 

 

 

 

1.6 

For the six months ended April 2, 2017

 

 

1.3 

 

 

1.6 

 

 

1.6 

 

 

7.0 

 

 

11.5 

For the six months ended April 3, 2016

 

 

0.4 

 

 

1.9 

 

 

0.5 

 

 

 

 

2.8 

Cumulative costs through April 2, 2017

 

 

1.3 

 

 

1.6 

 

 

1.6 

 

 

12.3 

 

 

16.8 

Future costs to be incurred

 

 

0.5 

 

 

4.5 

 

 

8.7 

 

 

15.4 

 

 

29.1 

























NOTE 5 - RECEIVABLES AND CONCENTRATION OF CREDIT RISK



The allowance for uncollectible receivables as of April 2, 2017 and September 30, 2016 was $45.3 million and $46.8 million, respectively. The Company has a broad range of customers including many large retail outlet chains, one of which accounts for a significant percentage of its sales volume. This customer represents approximately 17% and 15% of the Company’s Trade Receivables at April 2, 2017 and September 30, 2016, respectively.



NOTE 6 - INVENTORIES



Inventories consist of the following:









 

 

 

 

 

 



 

 

 

 

 

 

(in millions)

 

April 2, 2017

 

September 30, 2016

Raw materials

 

$

147.1 

 

$

127.5 

Work-in-process

 

 

54.9 

 

 

43.6 

Finished goods

 

 

634.3 

 

 

569.5 



 

$

836.3 

 

$

740.6 



10

 


 









NOTE 7 – PROPERTY, PLANT AND EQUIPMENT



Property, plant and equipment consist of the following:

















 

 

 

 

 

 

(in millions)

 

April 2, 2017

 

September 30, 2016

Land, buildings and improvements

 

$

196.6 

 

$

195.8 

Machinery, equipment and other

 

 

565.6 

 

 

550.6 

Capitalized leases

 

 

249.7 

 

 

130.0 

Construction in progress

 

 

79.1 

 

 

57.7 

Property, plant and equipment

 

$

1,091.0 

 

$

934.1 

Accumulated depreciation

 

 

(430.2)

 

 

(392.0)

Property, plant and equipment, net

 

$

660.8 

 

$

542.1 















NOTE 8 - GOODWILL AND INTANGIBLE ASSETS



Goodwill, by segment, consists of the following: