20181231 FORM 10Q Q1FY18

Table of Contents

 

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 December 31, 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 1993 (§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 February 6, 2018, there were outstanding 57,880,340 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).

 

 


 

Table of Contents

 

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



 

 


 

Table of Contents

 

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.



 

 

 


 

Table of Contents

 



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 December 31, 2017 and September 30, 2017



Condensed Consolidated Statements of Income for the three month periods ended December 31, 2017 and January 1, 2017



Condensed Consolidated Statements of Comprehensive Income for the three month periods ended December 31, 2017 and January 1, 2017



Condensed Consolidated Statements of Cash Flows for the three month periods ended December 31, 2017 and January 1, 2017

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



Condensed Consolidated Statements of Financial Position as of December 31, 2017 and September 30, 2017



Condensed Consolidated Statements of Income for the three month periods ended December 31, 2017 and January 1, 2017



Condensed Consolidated Statements of Comprehensive Income for the three month periods ended December 31, 2017 and January 1, 2017



Condensed Consolidated Statements of Cash Flows for the three month periods ended December 31, 2017 and January 1, 2017

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

33 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

43 

Item 4.

Controls and Procedures

44 

PART II

OTHER INFORMATION

 

Item 1.

Legal Proceedings

45 

Item 1A.

Risk Factors

45 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

47 

Item 5.

Other Information

47 

Item 6.

Exhibits

47 

Signatures

 

48 



1

 


 

Table of Contents

 

PART I. FINANCIAL INFORMATION



Item 1. Financial Statements

SPECTRUM BRANDS HOLDINGS, INC.

Condensed Consolidated Statements of Financial Position

December 31, 2017 and September 30, 2017 

(in millions, unaudited)







 

 

 

 

 

 



 

 

 

 

 

 



 

December 31, 2017

 

September 30, 2017

Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

137.9 

 

$

168.2 

Trade receivables, net

 

 

278.4 

 

 

266.0 

Other receivables

 

 

18.8 

 

 

19.4 

Inventories

 

 

580.7 

 

 

496.3 

Prepaid expenses and other current assets

 

 

56.2 

 

 

54.2 

Current assets of business held for sale

 

 

1,990.6 

 

 

603.0 

Total current assets

 

 

3,062.6 

 

 

1,607.1 

Property, plant and equipment, net

 

 

506.0 

 

 

503.6 

Deferred charges and other

 

 

61.2 

 

 

43.5 

Goodwill

 

 

2,276.4 

 

 

2,277.1 

Intangible assets, net

 

 

1,598.6 

 

 

1,612.0 

Noncurrent assets of business held for sale

 

 

 

 

1,376.4 

Total assets

 

$

7,504.8 

 

$

7,419.7 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

Current portion of long-term debt

 

$

20.1 

 

$

19.4 

Accounts payable

 

 

320.7 

 

 

371.6 

Accrued wages and salaries

 

 

27.9 

 

 

50.6 

Accrued interest

 

 

40.7 

 

 

48.5 

Other current liabilities

 

 

118.1 

 

 

123.4 

Current liabilities of business held for sale

 

 

608.2 

 

 

499.9 

Total current liabilities

 

 

1,135.7 

 

 

1,113.4 

Long-term debt, net of current portion

 

 

3,959.2 

 

 

3,752.6 

Deferred income taxes

 

 

298.2 

 

 

493.2 

Other long-term liabilities

 

 

137.2 

 

 

58.0 

Noncurrent liabilities of business held for sale

 

 

 

 

155.8 

Total liabilities

 

 

5,530.3 

 

 

5,573.0 

Commitments and contingencies (Note 17)

 

 

 

 

 

 

Shareholders' equity

 

 

 

 

 

 

Common Stock

 

 

0.6 

 

 

0.6 

Additional paid-in capital

 

 

2,122.0 

 

 

2,145.3 

Accumulated earnings

 

 

397.9 

 

 

262.3 

Accumulated other comprehensive loss, net of tax

 

 

(209.9)

 

 

(209.6)

Treasury stock, at cost

 

 

(345.9)

 

 

(360.7)

Total shareholders' equity

 

 

1,964.7 

 

 

1,837.9 

Noncontrolling interest

 

 

9.8 

 

 

8.8 

Total equity

 

 

1,974.5 

 

 

1,846.7 

Total liabilities and equity

 

$

7,504.8 

 

$

7,419.7 

See accompanying notes to the condensed consolidated financial statements

2

 


 

Table of Contents

 

SPECTRUM BRANDS HOLDINGS, INC.

Condensed Consolidated Statements of Income

For the three month periods ended December 31, 2017 and January 1, 2017

(in millions, except per share figures, unaudited)



 

 

 

 

 

 



 

December 31, 2017

 

January 1, 2017

Net sales

 

$

646.5 

 

$

602.3 

Cost of goods sold

 

 

403.8 

 

 

362.1 

Restructuring and related charges

 

 

1.8 

 

 

1.1 

Gross profit

 

 

240.9 

 

 

239.1 

Selling

 

 

113.3 

 

 

106.6 

General and administrative

 

 

62.8 

 

 

60.0 

Research and development

 

 

7.0 

 

 

6.6 

Acquisition and integration related charges

 

 

5.2 

 

 

3.3 

Restructuring and related charges

 

 

18.6 

 

 

1.1 

Total operating expenses

 

 

206.9 

 

 

177.6 

Operating income

 

 

34.0 

 

 

61.5 

Interest expense

 

 

38.6 

 

 

43.0 

Other non-operating expense (income), net

 

 

1.3 

 

 

(1.0)

(Loss) income from operations before income taxes

 

 

(5.9)

 

 

19.5 

Income tax (benefit) expense

 

 

(126.0)

 

 

6.7 

Net income from continuing operations

 

 

120.1 

 

 

12.8 

Income from discontinued operations, net of tax

 

 

40.9 

 

 

52.4 

Net income

 

 

161.0 

 

 

65.2 

Net income attributable to non-controlling interest

 

 

0.9 

 

 

Net income attributable to controlling interest

 

$

160.1 

 

$

65.2 

Amounts attributable to controlling interest

 

 

 

 

 

 

Net income from continuing operations attributable to controlling interest

 

$

119.3 

 

$

12.7 

Net Income from discontinued operations attributable to controlling interest

 

 

40.8 

 

 

52.5 

Net Income attributable to controlling interest

 

$

160.1 

 

$

65.2 

Earnings Per Share

 

 

 

 

 

 

Basic earnings per share from continuing operations

 

$

2.07 

 

$

0.21 

Basic earnings per share from discontinued operations

 

 

0.70 

 

 

0.89 

Basic earnings per share

 

$

2.77 

 

$

1.10 

Diluted earnings per share from continuing operations

 

$

2.07 

 

$

0.21 

Diluted earnings per share from discontinued operations

 

 

0.70 

 

 

0.89 

Diluted earnings per share

 

$

2.77 

 

$

1.10 

Dividends per share

 

$

0.42 

 

$

0.38 

Weighted Average Shares Outstanding

 

 

 

 

 

 

Basic

 

 

57.7 

 

 

59.3 

Diluted

 

 

57.7 

 

 

59.5 



See accompanying notes to the condensed consolidated financial statements

3

 


 

Table of Contents

 

SPECTRUM BRANDS HOLDINGS, INC.

Condensed Consolidated Statements of Comprehensive Income

For the three month periods ended December 31, 2017 and January 1, 2017

(in millions, unaudited)





 

 

 

 

 

 



 

December 31, 2017

 

January 1, 2017

Net income

 

$

161.0 

 

$

65.2 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

Foreign currency translation loss, net tax of $7.3 and $3.9, respectively

 

 

(2.0)

 

 

(46.1)

Unrealized gain on hedging activity, net tax of $0.0 and $(14.2), respectively

 

 

1.8 

 

 

24.2 

Defined benefit pension gain , net tax of $0.0 and $(1.2), respectively

 

 

0.1 

 

 

3.3 

Other comprehensive loss, net of tax

 

 

(0.1)

 

 

(18.6)

Comprehensive income

 

 

160.9 

 

 

46.6 

Comprehensive income (loss) attributable to non-controlling interest

 

 

0.2 

 

 

(0.3)

Comprehensive income attributable to controlling interest

 

$

160.7 

 

$

46.9 



See accompanying notes to the condensed consolidated financial statements

4

 


 

Table of Contents

 

SPECTRUM BRANDS HOLDINGS, INC.

Condensed Consolidated Statements of Cash Flows

For the three month periods ended December 31, 2017 and January 1, 2017

(in millions, unaudited)





 

 

 

 

 

 



 

 

 

 

 

 



 

December 31, 2017

 

January 1, 2017

Cash flows from operating activities

 

 

 

 

 

 

Net income

 

$

161.0 

 

$

65.2 

Income from discontinued operations, net of tax

 

 

40.9 

 

 

52.4 

Net income from continuing operations

 

 

120.1 

 

 

12.8 

Adjustments to reconcile net income to net cash from operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

33.0 

 

 

30.0 

Share based compensation

 

 

3.8 

 

 

7.2 

Amortization of debt issuance costs

 

 

2.1 

 

 

1.8 

Purchase accounting inventory adjustment

 

 

0.8 

 

 

Non-cash restructuring

 

 

(1.5)

 

 

0.7 

Pet safety recall inventory write-off

 

 

1.6 

 

 

Write-off of debt issuance costs

 

 

 

 

1.9 

Non-cash debt accretion

 

 

0.4 

 

 

0.2 

Deferred tax benefit

 

 

(127.1)

 

 

19.6 

Net changes in operating assets and liabilities

 

 

(170.9)

 

 

(134.1)

Net cash used by operating activities from continuing operations

 

 

(137.7)

 

 

(59.9)

Net cash (used) provided by operating activities from discontinued operations

 

 

(15.3)

 

 

65.7 

Net cash (used) provided by operating activities

 

 

(153.0)

 

 

5.8 

Cash flows from investing activities

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(17.9)

 

 

(21.1)

Proceeds from sales of property, plant and equipment

 

 

0.6 

 

 

Other investing activities

 

 

 

 

(0.8)

Net cash used by investing activities from continuing operations

 

 

(17.3)

 

 

(21.9)

Net cash used by investing activities from discontinued operations

 

 

(6.9)

 

 

(6.8)

Net cash used by investing activities

 

 

(24.2)

 

 

(28.7)

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from issuance of debt

 

 

226.1 

 

 

168.5 

Payment of debt

 

 

(29.8)

 

 

(133.9)

Payment of debt issuance costs

 

 

(0.1)

 

 

(0.5)

Payment of cash dividends

 

 

(24.2)

 

 

(22.6)

Treasury stock purchases

 

 

(7.9)

 

 

(97.6)

Share based tax withholding payments, net of proceeds upon vesting

 

 

(22.2)

 

 

(23.2)

Net cash provided (used) by financing activities from continuing operations

 

 

141.9 

 

 

(109.3)

Net cash provided by financing activities from discontinued operations

 

 

5.2 

 

 

6.6 

Net cash provided (used) by financing activities

 

 

147.1 

 

 

(102.7)

Effect of exchange rate changes on cash and cash equivalents

 

 

(0.2)

 

 

(6.4)

Net change in cash and cash equivalents

 

 

(30.3)

 

 

(132.0)

Cash and cash equivalents, beginning of period

 

 

168.2 

 

 

275.3 

Cash and cash equivalents, end of period

 

$

137.9 

 

$

143.3 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

Cash paid for interest

 

$

57.5 

 

$

44.5 

Cash paid for taxes

 

$

10.0 

 

$

10.4 

Non cash investing activities

 

 

 

 

 

 

Acquisition of property, plant and equipment through capital leases

 

$

2.1 

 

$

30.7 

Non cash financing activities

 

 

 

 

 

 

Issuance of shares through stock compensation plan

 

$

37.8 

 

$

52.2 



See accompanying notes to the condensed consolidated financial statements

5

 


 

Table of Contents

 

SB/RH HOLDINGS, LLC

Condensed Consolidated Statements of Financial Position

December 31, 2017 and September 30, 2017

(in millions, unaudited)



 

 

 

 

 

 



 

 

 

 

 

 



 

December 31, 2017

 

September 30, 2017

Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

137.9 

 

$

168.2 

Trade receivables, net

 

 

278.4 

 

 

266.0 

Other receivables

 

 

33.7 

 

 

18.7 

Inventories

 

 

580.7 

 

 

496.3 

Prepaid expenses and other current assets

 

 

56.2 

 

 

54.2 

Current assets of business held for sale

 

 

1,990.6 

 

 

603.0 

Total current assets

 

 

3,077.5 

 

 

1,606.4 

Property, plant and equipment, net

 

 

506.0 

 

 

503.6 

Deferred charges and other

 

 

51.0 

 

 

28.4 

Goodwill

 

 

2,276.4 

 

 

2,277.1 

Intangible assets, net

 

 

1,598.6 

 

 

1,612.0 

Noncurrent assets of business held for sale

 

 

 

 

1,376.4 

Total assets

 

$

7,509.5 

 

$

7,403.9 

Liabilities and Shareholder's Equity

 

 

 

 

 

 

Current portion of long-term debt

 

$

20.1 

 

$

19.4 

Accounts payable

 

 

320.7 

 

 

371.6 

Accrued wages and salaries

 

 

27.9 

 

 

50.6 

Accrued interest

 

 

40.7 

 

 

48.5 

Other current liabilities

 

 

116.6 

 

 

118.9 

Current liabilities of business held for sale

 

 

608.2 

 

 

499.9 

Total current liabilities

 

 

1,134.2 

 

 

1,108.9 

Long-term debt, net of current portion

 

 

3,959.2 

 

 

3,752.6 

Deferred income taxes

 

 

297.9 

 

 

493.2 

Other long-term liabilities

 

 

137.2 

 

 

58.0 

Noncurrent liabilities of business held for sale

 

 

 

 

155.8 

Total liabilities

 

 

5,528.5 

 

 

5,568.5 

Commitments and contingencies (Note 17)

 

 

 

 

 

 

Shareholder's equity

 

 

 

 

 

 

Other capital

 

 

2,079.6 

 

 

2,079.0 

Accumulated earnings (deficit)

 

 

101.5 

 

 

(42.8)

Accumulated other comprehensive loss, net of tax

 

 

(209.9)

 

 

(209.6)

Total shareholder's equity

 

 

1,971.2 

 

 

1,826.6 

Noncontrolling interest

 

 

9.8 

 

 

8.8 

Total equity

 

 

1,981.0 

 

 

1,835.4 

Total liabilities and equity

 

$

7,509.5 

 

$

7,403.9 



See accompanying notes to the condensed consolidated financial statements

6

 


 

Table of Contents

 

SB/RH HOLDINGS, LLC

Condensed Consolidated Statements of Income

For the three month periods ended December 31, 2017 and January 1, 2017

(in millions, unaudited)



 

 

 

 

 



 

 

 

 

 



December 31, 2017

 

January 1, 2017

Net sales

$

646.5 

 

$

602.3 

Cost of goods sold

 

403.8 

 

 

362.1 

Restructuring and related charges

 

1.8 

 

 

1.1 

Gross profit

 

240.9 

 

 

239.1 

Selling

 

113.3 

 

 

106.6 

General and administrative

 

59.6 

 

 

58.8 

Research and development

 

7.0 

 

 

6.6 

Acquisition and integration related charges

 

5.2 

 

 

3.3 

Restructuring and related charges

 

18.6 

 

 

1.1 

Total operating expenses

 

203.7 

 

 

176.4 

Operating income

 

37.2 

 

 

62.7 

Interest expense

 

38.6 

 

 

43.3 

Other non-operating expense (income), net

 

1.3 

 

 

(1.0)

(Loss) income from operations before income taxes

 

(2.7)

 

 

20.4 

Income tax (benefit) expense

 

(131.2)

 

 

7.9 

Net income from continuing operations

 

128.5 

 

 

12.5 

Income from discontinued operations, net of tax

 

40.9 

 

 

52.4 

Net income

 

169.4 

 

 

64.9 

Net income attributable to non-controlling interest

 

0.9 

 

 

(0.1)

Net income attributable to controlling interest

$

168.5 

 

$

65.0 

Amounts attributable to controlling interest

 

 

 

 

 

Net income from continuing operations attributable to controlling interest

$

127.7 

 

$

12.5 

Net Income from discontinued operations attributable to controlling interest

 

40.8 

 

 

52.5 

Net Income attributable to controlling interest

$

168.5 

 

$

65.0 



See accompanying notes to the condensed consolidated financial statements





SB/RH HOLDINGS, LLC

Condensed Consolidated Statements of Comprehensive Income

For the three month periods ended December 31, 2017 and January 1, 2017

(in millions, unaudited)



 

 

 

 

 

 



 

December 31, 2017

 

January 1, 2017

Net income

 

$

169.4 

 

$

64.9 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

Foreign currency translation loss, net tax of $7.3 and $3.9, respectively

 

 

(2.0)

 

 

(46.1)

Unrealized gain on hedging activity, net tax of $0.0 and $(14.2), respectively

 

 

1.8 

 

 

24.2 

Defined benefit pension gain , net tax of $0.0 and $(1.2), respectively

 

 

0.1 

 

 

3.3 

Other comprehensive loss, net of tax

 

 

(0.1)

 

 

(18.6)

Comprehensive income

 

 

169.3 

 

 

46.3 

Comprehensive income (loss) attributable to non-controlling interest

 

 

0.2 

 

 

(0.3)

Comprehensive income attributable to controlling interest

 

$

169.1 

 

$

46.6 



See accompanying notes to the condensed consolidated financial statements

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SB/RH HOLDINGS, LLC

Condensed Consolidated Statements of Cash Flows

For the three month periods ended December 31, 2017 and January 1, 2017

(in millions, unaudited)



 

 

 

 

 

 



 

 

 

 

 

 



 

December 31, 2017

 

January 1, 2017

Cash flows from operating activities

 

 

 

 

 

 

Net income

 

$

169.4 

 

$

64.9 

Income from discontinued operations, net of tax

 

 

40.9 

 

 

52.4 

Income from continuing operations

 

 

128.5 

 

 

12.5 

Adjustments to reconcile net income to net cash from operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

33.0 

 

 

30.0 

Share based compensation

 

 

3.3 

 

 

6.2 

Amortization of debt issuance costs

 

 

2.1 

 

 

1.8 

Purchase accounting inventory adjustment

 

 

0.8 

 

 

Noncash restructuring

 

 

(1.5)

 

 

0.7 

Pet safety recall inventory write-off

 

 

1.6 

 

 

Write-off of debt issuance costs

 

 

 

 

1.9 

Non-cash debt accretion

 

 

0.4 

 

 

0.2 

Deferred tax benefit

 

 

(132.2)

 

 

20.8 

Net changes in operating assets and liabilities

 

 

(203.8)

 

 

(157.2)

Net cash used by operating activities from continuing operations

 

 

(167.8)

 

 

(83.1)

Net cash (used) provided by operating activities from discontinued operations

 

 

(15.3)

 

 

65.7 

Net cash used by operating activities

 

 

(183.1)

 

 

(17.4)

Cash flows from investing activities

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(17.9)

 

 

(21.1)

Proceeds from sales of property, plant and equipment

 

 

0.6 

 

 

Other investing activities

 

 

 

 

(0.8)

Net cash used by investing activities from continuing operations

 

 

(17.3)

 

 

(21.9)

Net cash used by investing activities from discontinued operations

 

 

(6.9)

 

 

(6.8)

Net cash used by investing activities

 

 

(24.2)

 

 

(28.7)

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from issuance of debt

 

 

226.1 

 

 

200.3 

Payment of debt

 

 

(29.8)

 

 

(133.9)

Payment of debt issuance costs

 

 

(0.1)

 

 

(0.5)

Payment of cash dividends to parent

 

 

(24.2)

 

 

(147.6)

Net cash provided (used) by financing activities from continuing operations

 

 

172.0 

 

 

(81.7)

Net cash provided by financing activities from discontinued operations

 

 

5.2 

 

 

6.6 

Net cash provided (used) by financing activities

 

 

177.2 

 

 

(75.1)

Effect of exchange rate changes on cash and cash equivalents

 

 

(0.2)

 

 

(6.4)

Net change in cash and cash equivalents

 

 

(30.3)

 

 

(127.6)

Cash and cash equivalents, beginning of period

 

 

168.2 

 

 

270.8 

Cash and cash equivalents, end of period

 

$

137.9 

 

$

143.2 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

Cash paid for interest

 

$

57.5 

 

$

44.5 

Cash paid for taxes

 

$

10.0 

 

$

10.4 

Non cash investing activities

 

 

 

 

 

 

Acquisition of property, plant and equipment through capital leases

 

$

2.1 

 

$

30.7 



See accompanying notes to the condensed consolidated financial statements



 

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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 AND DESCRIPTION OF BUSINESS



We are a diversified global branded consumer products company. The Company manufactures, markets and/or distributes its products in approximately 160 countries in the North America (“NA”), Europe, Middle East & Africa (“EMEA”), Latin America (“LATAM”) and Asia-Pacific (“APAC”) regions through a variety of trade channels, including retailers, wholesalers and distributors, original equipment manufacturers (“OEMs”), construction companies and hearing aid professionals. We enjoy strong name recognition in our regions under our various brands and patented technologies. Our diversified global branded consumer products have positions in several product categories and types. We manage the businesses in five 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 responsible for sales and marketing initiatives and the financial results for all product lines within that segment.



Effective December 29, 2017, the Company’s Board of Directors approved a plan to explore strategic alternatives, including a planned sale of the Company’s GBA segment.  The Company expects a sale to be realized by December 31, 2018.  As a result, the Company’s assets and liabilities associated with the GBA segment have been classified as held for sale in the accompanying Condensed Consolidated Balance Sheets and the respective operations of the GBA segment 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 18 - Segment Information for more information pertaining to 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

 

Regions

HHI

 

Hardware: Hinges, security hardware, screen and storm door products, garage door hardware, window hardware and floor protection.
Security: Residential locksets and door hardware including knobs, levers, deadbolts, handlesets and electronics. Commercial doors, locks, and hardware.
Plumbing: Kitchen, bath and shower faucets and plumbing products.

 

Hardware: National Hardware®, Stanley® and FANAL®.
Security: Kwikset®, Weiser®, Baldwin®, EZSET® and Tell®.
Plumbing: Pfister®.

 

NA
EMEA
LATAM
APAC

PET

 

Companion Animal: Dog, cat and small animal food and treats; clean-up and training aid products and accessories; pet health and grooming products.
Aquatics: Aquariums and aquatic health supplies.

 

Companion Animal: 8-in-1®, Dingo®, Nature's Miracle®, Wild Harvest®, Littermaid®, Jungle®, Excel®, FURminator®, IAMS®, Eukanuba®, Healthy-Hide®, DreamBone®, SmartBones®, GloFish®, ProSense®, Perfect Coat®, eCOTRITION®, Birdola® and Digest-eeze®.
Aquatics: Tetra®, Marineland®, Whisper® and Instant Ocean®.

 

NA
EMEA
LATAM
APAC

H&G

 

Controls: Outdoor insect and weed control solutions, animal repellents.
Household: Household insecticides and pest controls.
Repellents: Personal use pesticides and insect repellent products.

 

Controls: Spectracide®, Garden Safe®, Liquid Fence®, and EcoLogic®.
Household: Hot Shot®, Black Flag®, Real Kill®, Ultra Kill®, The Ant Trap® (TAT), and Rid-a-Bug®.
Repellents: Cutter® and Repel®.

 

NA
LATAM

GAC

 

Appearance: Protectants, wipes, tire and wheel care products, glass cleaners, leather care products, air fresheners and washes.
Performance: Automotive fuel and oil additives, and functional fluids.
A/C Recharge: Do-it-yourself air conditioner recharge products, refrigerant and oil recharge kits, sealants and accessories.

 

Appearance: Armor All®.
Performance: STP®.
A/C Recharge: A/C PRO®.

 

NA
EMEA
LATAM
APAC



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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, 2017. 



NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES



Assets Held for Sale and Discontinued Operations



The Company reports the results of operations of a business as discontinued operations if a disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when the business is sold and classified as held for sale, in accordance with the criteria of Accounting Standard Codification (“ASC”) Topic 205 Presentation of Financial Statements and ASC Topic 360 Property, Plant and Equipment (“ASC 360”).  The results of discontinued operations are reported in Income From Discontinued Operations, Net of Tax in the accompanying Condensed Consolidated Statements of Income for the current and prior periods commencing in the period in which the business meets the criteria of a discontinued operations, and include any gain or loss recognized on closing, or adjustment of the carrying amount to fair value less cost to sell.  Assets and liabilities of a business classified as held for sale are recorded at the lower of its carrying amount or estimated fair value less cost to sell.  If the carrying amount of the business exceeds its estimated fair value less cost to sell, a loss is recognized.  Assets and liabilities related to a business classified as held for sale are segregated in the current and prior balance sheets in the period in which the business is classified as held for sale.  Transactions between the businesses held for sale and businesses held for use that are expected to continue to exist after the disposal are not eliminated to appropriately reflect the continuing operations and balances held for sale.  If a business is classified as held for sale after the balance sheet date but before the financial statements are issued or are available to be issued, the business continues to be classified as held and used in those financial statements when issued or when available to be issued.



Recently Issued Accounting Standards



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. We have performed a preliminary assessment over the impact of the pronouncement 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 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 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 adoption to the Company’s consolidated financial statements, or determined the method and timing of adoption.







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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 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 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. 



During the three month period ended December 31, 2017, the Company adopted SEC Staff Accounting Bulletin No. 118 to address the application of U.S. GAAP 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 certain income tax effects of the Tax Cuts and Jobs Act.  See Note 16 – Income Taxes for additional discussion.



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NOTE 3 – DIVESTITURES



As previously discussed in Note 1 - Basis of Presentation and Nature of Operations, the GBA segment was classified as held for sale in the accompanying Condensed Consolidated Balance Sheets and as discontinued operations in the accompanying Condensed Consolidated Statements of Income.  The following table summarizes the assets and liabilities of the GBA segment classified as held for sale as of December 31, 2017 and September 30, 2017.





 

 

 

 

 

 

(in millions)

 

December 31, 2017

 

September 30, 2017

Assets

 

 

 

 

 

 

Trade receivables, net

 

$

282.5 

 

$

260.1 

Other receivables

 

 

29.1 

 

 

24.1 

Inventories

 

 

273.3 

 

 

279.1 

Prepaid expenses and other current assets

 

 

40.7 

 

 

39.7 

Property, plant and equipment, net

 

 

194.8 

 

 

196.4 

Deferred charges and other

 

 

17.3 

 

 

19.2 

Goodwill

 

 

348.6 

 

 

348.9 

Intangible assets, net

 

 

804.3 

 

 

811.9 

Total assets of business held for sale

 

$

1,990.6 

 

$

1,979.4 

Liabilities

 

 

 

 

 

 

Current portion of long-term debt

 

 

23.5 

 

 

17.3 

Accounts payable

 

 

302.3 

 

 

355.9 

Accrued wages and salaries

 

 

29.8 

 

 

36.9 

Other current liabilities

 

 

98.8 

 

 

89.8 

Long-term debt, net of current portion

 

 

51.1 

 

 

51.4 

Deferred income taxes

 

 

36.8 

 

 

38.2 

Other long-term liabilities

 

 

65.9 

 

 

66.2 

Total liabilities of business held for sale

 

$

608.2 

 

$

655.7 



The following table summarizes the components of Income From Discontinued Operations in the accompanying Condensed Consolidated Statements of Operations for the three month periods ended December 31, 2017 and January 1, 2017.





 

 

 

 

 

 

(in millions)

 

December 31, 2017

 

January 1, 2017

Net sales

 

$

603.3 

 

$

609.5 

Cost of goods sold

 

 

403.4 

 

 

398.6 

Gross profit

 

 

199.9 

 

 

210.9 

Operating expenses

 

 

131.7 

 

 

121.3 

Operating income

 

 

68.2 

 

 

89.6 

Interest expense

 

 

13.7 

 

 

12.8 

Other non-operating expense, net

 

 

0.3 

 

 

Income from discontinued operations before income taxes

 

 

54.2 

 

 

76.8 

Income tax expense

 

 

13.3 

 

 

24.4 

Net income from discontinued operations

 

 

40.9 

 

 

52.4 

Net income from discontinued operations attributable to non-controlling interest

 

 

0.1 

 

 

(0.1)

Net income from discontinued operations attributable to controlling interest

 

$

40.8 

 

$

52.5 



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 with the exception for funds used for capital expenditures and acquisitions.  There has been no impairment loss recognized as the fair value or expected proceeds from the disposal of the businesses is anticipated to be in excess of the asset carrying values.



Energizer Holdings, Inc.



On January 15, 2018, subsequent to the end of the three month period ended December 31, 2017, the Company entered into a definitive Acquisition Agreement (“Agreement”) with Energizer Holdings, Inc. (“Energizer”) where Energizer will acquire from the Company its Global Battery and Lighting (“GBL”) business for an aggregate purchase price of $2.0 billion in cash, subject to customary purchase price adjustments. 

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The Agreement provides that Energizer will purchase the equity of certain subsidiaries of the Company, and acquire certain assets and assume certain liabilities of other subsidiaries used or held for the purpose of the GBL business. 



In the Agreement, the Company 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, the Company will be subject to certain business conduct restrictions with respect to its operation of the GBL business.



The Company and Energizer have agreed to indemnify each other for losses arising from certain breaches of the Agreement and for certain other matters.  In particular, the Company has agreed to indemnify Energizer for certain liabilities relating to the assets retained by the Company, and Energizer has agreed to indemnify the Company for certain liabilities assumed by Energizer, in each case as described in the Agreement. 



The Company and Energizer have agreed to enter into related agreements ancillary to the acquisition that will become effective upon the consummation of the acquisition, including a customary transition services agreement and reverse transition services 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) 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.  The transaction is expected 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 the Company a termination fee of $100 million.



The GBL business is a component of the GBA segment, which also includes shared operations and assets of the remaining components of the segment consisting of the Home and Personal Care (“HPC”) business.  The Company is actively marketing the HPC business with interested parties for a separate transaction(s) expected to be entered into and consummated prior to December 31, 2018.











NOTE 4 – ACQUISITION AND INTEGRATION COSTS



The following summarizes acquisition and integration related charges for the three month periods ended December 31, 2017 and January 1, 2017:















 

 

 

 

 

 

(in millions)

 

December 31, 2017

 

January 1, 2017

HHI Business

 

$

2.7 

 

$

1.9 

PetMatrix

 

 

1.6 

 

 

Glofish

 

 

0.4 

 

 

Armored AutoGroup

 

 

0.2 

 

 

1.3 

Other

 

 

0.3 

 

 

0.1 

Total acquisition and integration related charges

 

$

5.2 

 

$

3.3 



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.









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NOTE 5 - RESTRUCTURING AND RELATED CHARGES



PET Rightsizing Initiative – During the second quarter of the year ended 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 are expected to be approximately $9 million, of which $8.8 million has been incurred to date. The balance is anticipated to be incurred through September 30, 2018.



HHI Distribution Center Consolidation – During the second quarter of the year ended 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 $55 million, of which $42.6 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 in the 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 $35 million, of which $33.6 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 month periods ended December 31, 2017 and January 1, 2017:



 

 

 

 

 

 

 

(in millions)

 

December 31, 2017

 

January 1, 2017

 

HHI distribution center consolidation

 

$

15.2 

 

$

 

GAC business rationalization initiative

 

 

4.0 

 

 

1.5 

 

PET rightsizing initiative

 

 

0.6 

 

 

 

Other restructuring activities

 

 

0.6 

 

 

0.7 

 

Total restructuring and related charges

 

$

20.4 

 

$

2.2 

 

Reported as:

 

 

 

 

 

 

 

Cost of goods sold

 

$

1.8 

 

$

1.1 

 

Operating expense

 

 

18.6 

 

 

1.1 

 



The following is a summary of restructuring and related charges for the three month periods ended December 31, 2017 and January 1, 2017 and cumulative costs for current restructuring initiatives as of December 31, 2017, by cost type:





 

 

 

 

 

 

 

 

 



 

Termination

 

Other

 

 

(in millions)

 

Benefits

 

Costs

 

Total

For the three month period ended December 31, 2017

 

$

1.1 

 

$

19.3 

 

$

20.4 

For the three month period ended January 1, 2017

 

 

0.8 

 

 

1.4 

 

 

2.2 

Cumulative costs through December 31, 2017

 

 

12.1 

 

 

73.9 

 

 

86.0 

Future costs to be incurred

 

 

0.2 

 

 

16.0 

 

 

16.2 



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 initiatives 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 during transition, among others. 



14

 


 

Table of Contents

 

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 month period ended December 31, 2017. 





 

 

 

 

 

 

 

 

 



 

Termination

 

Other

 

 

(in millions)

 

Benefits

 

Costs

 

Total

Accrual balance at September 30, 2017

 

$

7.2 

 

$

9.8 

 

$

17.0 

Provisions

 

 

0.4 

 

 

(1.9)

 

 

(1.5)

Cash expenditures

 

 

(1.6)

 

 

(0.8)

 

 

(2.4)

Non-cash items

 

 

0.1 

 

 

 

 

0.1 

Accrual balance at December 31, 2017

 

$

6.1 

 

$

7.1 

 

$

13.2 



The following summarizes restructuring and related charges by segment for the three month periods ended December 31, 2017 and January 1, 2017, cumulative costs incurred through December 31, 2017, and future expected costs to be incurred by segment:













 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in millions)

 

PET

 

HHI

 

GAC

 

Corporate

 

Total

For the three month period ended December 31, 2017

 

$

0.6 

 

$

15.2 

 

$

4.0 

 

$

0.6 

 

$

20.4 

For the three month period ended January 1, 2017

 

 

0.6 

 

 

0.1 

 

 

1.5 

 

 

 

 

2.2 

Cumulative costs through December 31, 2017

 

 

8.8 

 

 

42.6 

 

 

33.6 

 

 

1.0 

 

 

86.0 

Future costs to be incurred

 

 

0.2 

 

 

12.3 

 

 

1.2 

 

 

2.5 

 

 

16.2 



















NOTE 6 - RECEIVABLES AND CONCENTRATION OF CREDIT RISK



The allowance for uncollectible receivables as of December 31, 2017 and September 30, 2017 was $29.0 million and $23.5 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 35% and 36% of Net Sales for the three month periods ended December 31, 2017 and January 1, 2017, respectively; and 30% and 36% of Trade Receivables at December 31, 2017 and September 30, 2017, respectively.



NOTE 7 - INVENTORIES



Inventories consist of the following:









 

 

 

 

 

 



 

 

 

 

 

 

(in millions)

 

December 31, 2017

 

September 30, 2017

Raw materials

 

$

103.2 

 

$

95.7 

Work-in-process

 

 

51.1 

 

 

35.5 

Finished goods