10-Q 1 c730-20170702x10q.htm 10-Q 20170702 FORM 10Q Q3FY17

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 July 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 July 28, 2017, there were outstanding 58,043,152 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;

·

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

·

the special committee’s exploration of strategic alternatives and the terms of any strategic transaction, if any.



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 July 2, 2017 and September 30, 2016



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



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



Condensed Consolidated Statements of Shareholders Equity for the nine month period ended July 2, 2017



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

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



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



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



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



Condensed Consolidated Statements of Shareholder’s Equity for the nine month period ended July 2, 2017



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

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



Combined Notes to Condensed Consolidated Financial Statements

10 

Item 2.

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

34 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

49 

Item 4.

Controls and Procedures

50 

PART II

OTHER INFORMATION

 

Item 1.

Legal Proceedings

51 

Item 1A.

Risk Factors

51 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

53 

Item 6.

Exhibits

53 

Signatures

 

54 



1

 


 

PART I. FINANCIAL INFORMATION



Item 1. Financial Statements

SPECTRUM BRANDS HOLDINGS, INC.

Condensed Consolidated Statements of Financial Position

July 2, 2017 and September 30, 2016 

(in millions, unaudited)







 

 

 

 

 

 



 

 

 

 

 

 



 

July 2, 2017

 

September 30, 2016

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

109.9 

 

$

275.3 

Trade receivables, net

 

 

616.1 

 

 

482.6 

Other receivables

 

 

42.2 

 

 

55.6 

Inventories

 

 

843.7 

 

 

740.6 

Prepaid expenses and other current assets

 

 

94.1 

 

 

78.8 

Total current assets

 

 

1,706.0 

 

 

1,632.9 

Property, plant and equipment, net

 

 

675.1 

 

 

542.1 

Deferred charges and other

 

 

65.3 

 

 

43.2 

Goodwill

 

 

2,621.3 

 

 

2,478.4 

Intangible assets, net

 

 

2,453.4 

 

 

2,372.5 

Total assets

 

$

7,521.1 

 

$

7,069.1 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of long-term debt

 

$

33.9 

 

$

164.0 

Accounts payable

 

 

557.6 

 

 

580.1 

Accrued wages and salaries

 

 

68.9 

 

 

122.9 

Accrued interest

 

 

45.5 

 

 

39.3 

Other current liabilities

 

 

199.2 

 

 

189.3 

Total current liabilities

 

 

905.1 

 

 

1,095.6 

Long-term debt, net of current portion

 

 

4,066.7 

 

 

3,456.2 

Deferred income taxes

 

 

583.9 

 

 

532.7 

Other long-term liabilities

 

 

150.2 

 

 

140.6 

Total liabilities

 

 

5,705.9 

 

 

5,225.1 

Commitments and contingencies (Note 16)

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

Common Stock

 

 

0.6 

 

 

0.6 

Additional paid-in capital

 

 

2,126.2 

 

 

2,073.6 

Accumulated earnings

 

 

191.9 

 

 

63.6 

Accumulated other comprehensive loss, net of tax

 

 

(238.1)

 

 

(229.4)

Treasury stock, at cost

 

 

(274.2)

 

 

(108.3)

Total shareholders' equity

 

 

1,806.4 

 

 

1,800.1 

Noncontrolling interest

 

 

8.8 

 

 

43.9 

Total equity

 

 

1,815.2 

 

 

1,844.0 

Total liabilities and equity

 

$

7,521.1 

 

$

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 nine month periods ended July 2, 2017 and July 3, 2016

(in millions, except per share figures, unaudited)



 

 

 

 

 

 

 

 

 

 

 



Three Months Ended

 

Nine Months Ended



 

 

 

 

 

 

 

 

 

 

 



July 2, 2017

 

July 3, 2016

 

July 2, 2017

 

July 3, 2016

Net sales

$

1,303.9 

 

$

1,361.5 

 

$

3,685.6 

 

$

3,790.0 

Cost of goods sold

 

819.3 

 

 

830.8 

 

 

2,290.6 

 

 

2,355.5 

Restructuring and related charges

 

11.2 

 

 

0.1 

 

 

16.5 

 

 

0.4 

Gross profit

 

473.4 

 

 

530.6 

 

 

1,378.5 

 

 

1,434.1 

Selling

 

199.5 

 

 

201.7 

 

 

576.6 

 

 

578.3 

General and administrative

 

85.8 

 

 

94.2 

 

 

273.7 

 

 

276.2 

Research and development

 

14.5 

 

 

14.6 

 

 

44.0 

 

 

42.9 

Acquisition and integration related charges

 

5.8 

 

 

8.0 

 

 

15.0 

 

 

31.2 

Restructuring and related charges

 

10.0 

 

 

5.4 

 

 

16.2 

 

 

7.8 

Total operating expenses

 

315.6 

 

 

323.9 

 

 

925.5 

 

 

936.4 

Operating income

 

157.8 

 

 

206.7 

 

 

453.0 

 

 

497.7 

Interest expense

 

52.4 

 

 

59.9 

 

 

158.8 

 

 

175.8 

Other non-operating expense, net

 

2.1 

 

 

2.2 

 

 

2.9 

 

 

6.5 

Income from operations before income taxes

 

103.3 

 

 

144.6 

 

 

291.3 

 

 

315.4 

Income tax expense

 

24.7 

 

 

42.5 

 

 

88.8 

 

 

46.8 

Net income

 

78.6 

 

 

102.1 

 

 

202.5 

 

 

268.6 

Net income attributable to non-controlling interest

 

1.7 

 

 

0.2 

 

 

1.5 

 

 

0.4 

Net income attributable to controlling interest

$

76.9 

 

$

101.9 

 

$

201.0 

 

$

268.2 

Earnings Per Share

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

$

1.31 

 

$

1.72 

 

$

3.41 

 

$

4.52 

Diluted earnings per share

 

1.31 

 

 

1.71 

 

 

3.40 

 

 

4.51 

Dividends per share

 

0.42 

 

 

0.38 

 

 

1.22 

 

 

1.09 

Weighted Average Shares Outstanding

 

 

 

 

 

 

 

 

 

 

 

Basic

 

58.7 

 

 

59.4 

 

 

58.9 

 

 

59.3 

Diluted

 

58.9 

 

 

59.6 

 

 

59.1 

 

 

59.5 



See accompanying notes to the condensed consolidated financial statements



SPECTRUM BRANDS HOLDINGS, INC.

Condensed Consolidated Statements of Comprehensive Income

For the three and nine month periods ended July 2, 2017 and July 3, 2016

(in millions, unaudited)



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

Nine Months Ended



 

 

 

 

 

 

 

 

 

 

 

 



 

July 2, 2017

 

July 3, 2016

 

July 2, 2017

 

July 3, 2016

Net income

 

$

78.6 

 

$

102.1 

 

$

202.5 

 

$

268.6 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation gain (loss), net tax of $(1.6), $0, $1.9 and $0, respectively

 

 

30.3 

 

 

(13.7)

 

 

5.9 

 

 

(6.0)

Unrealized (loss) gain on hedging activity, net tax of $16.3, $(2.9), $6.6 and $(0.4), respectively

 

 

(30.2)

 

 

7.8 

 

 

(15.7)

 

 

8.6 

Defined benefit pension (loss) gain, net tax of $0.8, $(0.3), $(0.3) and $(0.5), respectively

 

 

(2.3)

 

 

1.2 

 

 

0.7 

 

 

1.7 

Other comprehensive (loss) income, net of tax

 

 

(2.2)

 

 

(4.7)

 

 

(9.1)

 

 

4.3 

Comprehensive income

 

 

76.4 

 

 

97.4 

 

 

193.4 

 

 

272.9 

Comprehensive (loss) attributable to non-controlling interest

 

 

(0.2)

 

 

(0.2)

 

 

(0.4)

 

 

(0.3)

Comprehensive income attributable to controlling interest

 

$

76.6 

 

$

97.6 

 

$

193.8 

 

$

273.2 



See accompanying notes to the condensed consolidated financial statements

3

 


 



SPECTRUM BRANDS HOLDINGS, INC.

Condensed Consolidated Statement of Shareholders’ Equity

For the nine month period ended July 2, 2017

(in millions, unaudited)





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

Additional

 

Accumulated

 

Other

 

 

 

Total

 

Non-

 

 



 

Common Stock

 

Paid-in

 

Earnings

 

Comprehensive

 

Treasury

 

Shareholders'

 

controlling

 

Total



 

Shares

 

Amount

 

Capital

 

(Deficit)

 

Loss

 

Stock

 

Equity

 

Interest

 

Equity

Balances as of September 30, 2016

 

59.4 

 

$

0.6 

 

$

2,073.6 

 

$

63.6 

 

$

(229.4)

 

$

(108.3)

 

$

1,800.1 

 

$

43.9 

 

$

1,844.0 

Net income

 

 

 

 

 

 

 

201.0 

 

 

 

 

 

 

201.0 

 

 

1.5 

 

 

202.5 

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

(8.7)

 

 

 

 

(8.7)

 

 

(0.4)

 

 

(9.1)

Purchase of non-controlling interest

 

 

 

 

 

23.8 

 

 

 

 

 

 

 

 

23.8 

 

 

(36.2)

 

 

(12.4)

Restricted stock issued and related tax withholdings

 

0.3 

 

 

 

 

9.0 

 

 

 

 

 

 

 

 

9.0 

 

 

 

 

9.0 

Share based compensation

 

 

 

 

 

19.8 

 

 

 

 

 

 

 

 

19.8 

 

 

 

 

19.8 

Treasury stock purchases

 

(1.4)

 

 

 

 

 

 

 

 

 

 

(165.9)

 

 

(165.9)

 

 

 

 

(165.9)

Dividends declared

 

 

 

 

 

 

 

(72.7)

 

 

 

 

 

 

(72.7)

 

 

 

 

(72.7)

Balances as of July 2, 2017

 

58.3 

 

$

0.6 

 

$

2,126.2 

 

$

191.9 

 

$

(238.1)

 

$

(274.2)

 

$

1,806.4 

 

$

8.8 

 

$

1,815.2 





See accompanying notes to the condensed consolidated financial statements

4

 


 

SPECTRUM BRANDS HOLDINGS, INC.

Condensed Consolidated Statements of Cash Flows

For the nine month periods ended July 2, 2017 and July 3, 2016

(in millions, unaudited)





 

 

 

 

 

 



 

 

 

 

 

 



 

July 2, 2017

 

July 3, 2016

Cash flows from operating activities

 

 

 

 

 

 

Net income

 

$

202.5 

 

$

268.6 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Amortization of intangible assets

 

 

70.9 

 

 

70.5 

Depreciation

 

 

72.2 

 

 

66.2 

Share based compensation

 

 

28.4 

 

 

47.4 

Amortization of debt issuance costs

 

 

5.4 

 

 

8.4 

Inventory acquisition step-up

 

 

0.8 

 

 

Pet safety recall inventory write-off

 

 

13.0 

 

 

Write-off of debt issuance costs

 

 

2.5 

 

 

Non-cash debt accretion

 

 

0.6 

 

 

1.6 

Deferred tax expense (benefit)

 

 

52.2 

 

 

(3.1)

Net changes in operating assets and liabilities

 

 

(286.1)

 

 

(341.7)

Net cash provided by operating activities

 

 

162.4 

 

 

117.9 

Cash flows from investing activities

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(78.1)

 

 

(59.6)

Business acquisitions, net of cash acquired

 

 

(304.7)

 

 

Proceeds from sales of property, plant and equipment

 

 

4.3 

 

 

0.8 

Other investing activities

 

 

(1.2)

 

 

(1.9)

Net cash used by investing activities

 

 

(379.7)

 

 

(60.7)

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from issuance of debt

 

 

557.5 

 

 

203.9 

Payment of debt

 

 

(223.3)

 

 

(270.2)

Payment of debt issuance costs

 

 

(5.9)

 

 

(1.6)

Payment of cash dividends

 

 

(72.1)

 

 

(64.6)

Treasury stock purchases

 

 

(165.9)

 

 

(40.2)

Purchase of non-controlling interest

 

 

(12.6)

 

 

Payment of contingent consideration

 

 

 

 

(3.2)

Share based tax withholding payments, net of proceeds upon vesting

 

 

(24.3)

 

 

(10.5)

Net cash provided (used) by financing activities

 

 

53.4 

 

 

(186.4)

Effect of exchange rate changes on cash and cash equivalents

 

 

(1.5)

 

 

(1.7)

Net decrease in cash and cash equivalents

 

 

(165.4)

 

 

(130.9)

Cash and cash equivalents, beginning of period

 

 

275.3 

 

 

247.9 

Cash and cash equivalents, end of period

 

$

109.9 

 

$

117.0 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

Cash paid for interest

 

$

138.1 

 

$

186.8 

Cash paid for taxes

 

$

28.7 

 

$

30.7 

Non cash investing activities

 

 

 

 

 

 

Acquisition of property, plant and equipment through capital leases

 

$

133.7 

 

$

28.2 

Non cash financing activities

 

 

 

 

 

 

Issuance of shares through stock compensation plan

 

$

54.4 

 

$

47.2 



See accompanying notes to the condensed consolidated financial statements

5

 


 

SB/RH HOLDINGS, LLC

Condensed Consolidated Statements of Financial Position

July 2, 2017 and September 30, 2016

(in millions, unaudited)



 

 

 

 

 

 



 

 

 

 

 

 



 

July 2, 2017

 

September 30, 2016

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

109.8 

 

$

270.8 

Trade receivables, net

 

 

616.1 

 

 

482.6 

Other receivables

 

 

41.0 

 

 

55.6 

Inventories

 

 

843.7 

 

 

740.6 

Prepaid expenses and other current assets

 

 

94.1 

 

 

78.8 

Total current assets

 

 

1,704.7 

 

 

1,628.4 

Property, plant and equipment, net

 

 

675.1 

 

 

542.1 

Deferred charges and other

 

 

51.3 

 

 

32.1 

Goodwill

 

 

2,621.3 

 

 

2,478.4 

Intangible assets, net

 

 

2,453.4 

 

 

2,372.5 

Total assets

 

$

7,505.8 

 

$

7,053.5 

Liabilities and Shareholder's Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of long-term debt

 

$

33.9 

 

$

164.0 

Accounts payable

 

 

557.6 

 

 

580.1 

Accrued wages and salaries

 

 

68.9 

 

 

122.9 

Accrued interest

 

 

45.5 

 

 

39.3 

Other current liabilities

 

 

196.6 

 

 

188.3 

Total current liabilities

 

 

902.5 

 

 

1,094.6 

Long-term debt, net of current portion

 

 

4,066.7 

 

 

3,456.2 

Deferred income taxes

 

 

583.7 

 

 

532.7 

Other long-term liabilities

 

 

150.2 

 

 

140.6 

Total liabilities

 

 

5,703.1 

 

 

5,224.1 

Commitments and contingencies (Note 16)

 

 

 

 

 

 

Shareholder's equity:

 

 

 

 

 

 

Other capital

 

 

2,060.3 

 

 

2,000.9 

Accumulated (deficit) earnings

 

 

(28.3)

 

 

8.1 

Accumulated other comprehensive loss, net of tax

 

 

(238.1)

 

 

(229.4)

Total shareholder's equity

 

 

1,793.9 

 

 

1,779.6 

Noncontrolling interest

 

 

8.8 

 

 

49.8 

Total equity

 

 

1,802.7 

 

 

1,829.4 

Total liabilities and equity

 

$

7,505.8 

 

$

7,053.5 



See accompanying notes to the condensed consolidated financial statements

6

 


 

SB/RH HOLDINGS, LLC

Condensed Consolidated Statements of Income

For the three and nine month periods ended July 2, 2017 and July 3, 2016

(in millions, unaudited)



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Three Months Ended

 

Nine Months Ended



 

 

 

 

 

 

 

 

 

 

 



July 2, 2017

 

July 3, 2016

 

July 2, 2017

 

July 3, 2016

Net sales

$

1,303.9 

 

$

1,361.5 

 

$

3,685.6 

 

$

3,790.0 

Cost of goods sold

 

819.3 

 

 

830.8 

 

 

2,290.6 

 

 

2,355.5 

Restructuring and related charges

 

11.2 

 

 

0.1 

 

 

16.5 

 

 

0.4 

Gross profit

 

473.4 

 

 

530.6 

 

 

1,378.5 

 

 

1,434.1 

Selling

 

199.5 

 

 

201.7 

 

 

576.6 

 

 

578.3 

General and administrative

 

84.6 

 

 

92.8 

 

 

267.8 

 

 

271.7 

Research and development

 

14.5 

 

 

14.6 

 

 

44.0 

 

 

42.9 

Acquisition and integration related charges

 

5.8 

 

 

8.0 

 

 

15.0 

 

 

31.2 

Restructuring and related charges

 

10.0 

 

 

5.4 

 

 

16.2 

 

 

7.8 

Total operating expenses

 

314.4 

 

 

322.5 

 

 

919.6 

 

 

931.9 

Operating income

 

159.0 

 

 

208.1 

 

 

458.9 

 

 

502.2 

Interest expense

 

52.5 

 

 

59.9 

 

 

159.2 

 

 

175.8 

Other non-operating expense, net

 

2.1 

 

 

2.2 

 

 

2.9 

 

 

6.5 

Income from operations before income taxes

 

104.4 

 

 

146.0 

 

 

296.8 

 

 

319.9 

Income tax expense

 

25.0 

 

 

40.8 

 

 

91.6 

 

 

56.6 

Net income

 

79.4 

 

 

105.2 

 

 

205.2 

 

 

263.3 

Net income attributable to non-controlling interest

 

1.7 

 

 

0.1 

 

 

1.5 

 

 

0.3 

Net income attributable to controlling interest

$

77.7 

 

$

105.1 

 

$

203.7 

 

$

263.0 



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 July 2, 2017 and July 3, 2016

(in millions, unaudited)



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

Nine Months Ended



 

 

 

 

 

 

 

 

 

 

 

 



 

July 2, 2017

 

July 3, 2016

 

July 2, 2017

 

July 3, 2016

Net income

 

$

79.4 

 

$

105.2 

 

$

205.2 

 

$

263.3 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation gain (loss), net tax of $(1.6), $0, $1.9 and $0, respectively

 

 

30.3 

 

 

(13.7)

 

 

5.9 

 

 

(6.0)

Unrealized (loss) gain on hedging activity, net tax of $16.3, $(2.9), $6.6 and $(0.4), respectively

 

 

(30.2)

 

 

7.8 

 

 

(15.7)

 

 

8.6 

Defined benefit pension (loss) gain, net tax of $0.8, $(0.3), $(0.3) and $(0.5), respectively

 

 

(2.3)

 

 

1.2 

 

 

0.7 

 

 

1.7 

Other comprehensive (loss) income, net of tax

 

 

(2.2)

 

 

(4.7)

 

 

(9.1)

 

 

4.3 

Comprehensive income

 

 

77.2 

 

 

100.5 

 

 

196.1 

 

 

267.6 

Comprehensive (loss) attributable to non-controlling interest

 

 

(0.2)

 

 

(0.2)

 

 

(0.4)

 

 

(0.3)

Comprehensive income attributable to controlling interest

 

$

77.4 

 

$

100.7 

 

$

196.5 

 

$

267.9 



See accompanying notes to the condensed consolidated financial statements

7

 


 



SB/RH HOLDINGS, LLC

Condensed Consolidated Statements of Shareholder’s Equity

For the nine month period ended July 2, 2017

(in millions, unaudited)





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 



 

 

 

Accumulated

 

Other

 

Total

 

Non-

 

 

 



 

Other

 

Earnings

 

Comprehensive

 

Shareholder's

 

controlling

 

 



 

Capital

 

(Deficit)

 

(Loss)

 

Equity

 

Interest

 

Total Equity

Balances as of September 30, 2016

 

 

2,000.9 

 

 

8.1 

 

 

(229.4)

 

 

1,779.6 

 

 

49.8 

 

 

1,829.4 

Net income

 

 

 

 

203.7 

 

 

 

 

203.7 

 

 

1.5 

 

 

205.2 

Other comprehensive loss, net of tax

 

 

 

 

 

 

(8.7)

 

 

(8.7)

 

 

(0.4)

 

 

(9.1)

Purchase of non-controlling interest

 

 

29.6 

 

 

 

 

 

 

29.6 

 

 

(42.1)

 

 

(12.5)

Restricted stock issued and related tax withholdings

 

 

12.2 

 

 

 

 

 

 

12.2 

 

 

 

 

12.2 

Share based compensation

 

 

17.6 

 

 

 

 

 

 

17.6 

 

 

 

 

17.6 

Dividends paid to parent

 

 

 

 

(240.1)

 

 

 

 

(240.1)

 

 

 

 

(240.1)

Balances as of July 2, 2017

 

$

2,060.3 

 

$

(28.3)

 

$

(238.1)

 

$

1,793.9 

 

$

8.8 

 

$

1,802.7 





See accompanying notes to the condensed consolidated financial statements

8

 


 

SB/RH HOLDINGS, LLC

Condensed Consolidated Statements of Cash Flows

For the nine month periods ended July 2, 2017 and July 3, 2016

(in millions, unaudited)



 

 

 

 

 

 



 

 

 

 

 

 



 

July 2, 2017

 

July 3, 2016

Cash flows from operating activities

 

 

 

 

 

 

Net income

 

$

205.2 

 

$

263.3 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Amortization of intangible assets

 

 

70.9 

 

 

70.5 

Depreciation

 

 

72.2 

 

 

66.2 

Share based compensation

 

 

26.1 

 

 

43.4 

Amortization of debt issuance costs

 

 

5.4 

 

 

8.4 

Inventory acquisition step-up

 

 

0.8 

 

 

Pet safety recall inventory write-off

 

 

13.0 

 

 

Write-off of debt issuance costs

 

 

2.5 

 

 

Non-cash debt accretion

 

 

0.6 

 

 

1.6 

Deferred tax expense

 

 

55.0 

 

 

6.6 

Net changes in operating assets and liabilities

 

 

(307.1)

 

 

(355.3)

Net cash provided by operating activities

 

 

144.6 

 

 

104.7 

Cash flows from investing activities

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(78.1)

 

 

(59.6)

Business acquisitions, net of cash acquired

 

 

(304.7)

 

 

Proceeds from sales of property, plant and equipment

 

 

4.3 

 

 

0.8 

Other investing activities

 

 

(1.2)

 

 

(1.9)

Net cash used by investing activities

 

 

(379.7)

 

 

(60.7)

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from issuance of debt

 

 

557.5 

 

 

217.8 

Payment of debt

 

 

(223.3)

 

 

(311.7)

Payment of debt issuance costs

 

 

(5.9)

 

 

(1.6)

Payment of cash dividends to parent

 

 

(240.1)

 

 

(74.6)

Purchase of non-controlling interest

 

 

(12.6)

 

 

Payment of contingent consideration

 

 

 

 

(3.2)

Net cash provided (used) by financing activities

 

 

75.6 

 

 

(173.3)

Effect of exchange rate changes on cash and cash equivalents

 

 

(1.5)

 

 

(1.7)

Net decrease in cash and cash equivalents

 

 

(161.0)

 

 

(131.0)

Cash and cash equivalents, beginning of period

 

 

270.8 

 

 

247.9 

Cash and cash equivalents, end of period

 

$

109.8 

 

$

116.9 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

Cash paid for interest

 

$

138.1 

 

$

186.8 

Cash paid for taxes

 

$

28.7 

 

$

30.7 

Non cash investing activities

 

 

 

 

 

 

Acquisition of property, plant and equipment through capital leases

 

$

133.7 

 

$

28.2 



See accompanying notes to the condensed consolidated financial statements



 

9

 


 

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. 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 have not elected to early adopt. We have performed our preliminary risk assessment and scoping of the adoption impact and are currently performing detailed assessment of various implementation matters that may have an impact on the consolidated financial statements of the Company, but we have not concluded on 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 $2.8 million and other components were $1.7 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 $3.7 million.

10

 


 

In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill