SB/RH 12.29.2013 10-Q
Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 29, 2013
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                 to                
Commission File Number 333-192634-03
SB/RH Holdings, LLC
(Exact name of registrant as specified in its charter)
Delaware
 
27-2812840
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
 
 
3001 Deming Way
Middleton, Wisconsin
 
53562
(Address of principal executive offices)
 
(Zip Code)
(608) 275-3340
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report.) 
Indicate by check mark whether the registrant: (1) has 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.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its 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).    Yes  ý    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):
Large accelerated filer
 
¨
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
x  
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes  ý    No  ¨


Table of Contents

SB/RH HOLDINGS, LLC
QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED December 29, 2013
INDEX
 

 
 
Page
 
Part I—Financial Information
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 6.
 
 
 
 

2

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
SB/RH HOLDINGS, LLC
Condensed Consolidated Statements of Financial Position
December 29, 2013 and September 30, 2013
(Amounts in thousands)
 
December 29, 2013
 
September 30, 2013
Assets
(Unaudited)
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
127,372

 
$
198,219

Receivables:
 
 
 
Trade accounts receivable, net of allowances of $37,340 and $37,376, respectively
523,956

 
481,313

Other
66,162

 
67,081

Inventories
683,312

 
632,923

Deferred income taxes
33,816

 
32,959

Prepaid expenses and other
66,840

 
62,781

Total current assets
1,501,458

 
1,475,276

Property, plant and equipment, net of accumulated depreciation of $220,747 and $203,897, respectively
435,251

 
412,551

Deferred charges and other
27,616

 
26,050

Goodwill
1,476,192

 
1,476,672

Intangible assets, net
2,146,428

 
2,163,166

Debt issuance costs
61,330

 
65,329

Total assets
$
5,648,275

 
$
5,619,044

Liabilities and Shareholders’ Equity
 
 
 
Current liabilities:
 
 
 
Current maturities of long-term debt
$
107,908

 
$
102,921

Accounts payable
414,624

 
525,519

Accrued liabilities:
 
 
 
Wages and benefits
73,504

 
82,056

Income taxes payable
40,483

 
32,613

Accrued interest
18,673

 
36,731

Other
162,249

 
171,074

Total current liabilities
817,441

 
950,914

Long-term debt, net of current maturities
3,258,361

 
3,115,942

Employee benefit obligations, net of current portion
92,072

 
96,612

Deferred income taxes
491,893

 
492,774

Other
27,288

 
28,879

Total liabilities
4,687,055

 
4,685,121

Commitments and contingencies
 
 
 
Shareholders’ equity:
 
 
 
Other capital
1,377,334

 
1,393,124

Accumulated deficit
(428,127
)
 
(469,886
)
Accumulated other comprehensive loss
(37,390
)
 
(38,521
)
Total shareholders' equity
911,817

 
884,717

Non-controlling interest
49,403

 
49,206

Total equity
961,220

 
933,923

Total liabilities and equity
$
5,648,275

 
$
5,619,044

See accompanying notes which are an integral part of these condensed consolidated financial statements
(Unaudited).

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Table of Contents

SB/RH HOLDINGS, LLC
Condensed Consolidated Statements of Operations
For the three month periods ended December 29, 2013 and December 30, 2012
(Unaudited)
(Amounts in thousands)
 
 
THREE MONTHS ENDED
 
December 29, 2013
 
December 30, 2012
Net sales
$
1,100,600

 
$
870,268

Cost of goods sold
717,658

 
581,026

Restructuring and related charges
1,735

 
1,086

Gross profit
381,207

 
288,156

Selling
164,211

 
128,761

General and administrative
72,495

 
56,046

Research and development
10,757

 
8,171

Acquisition and integration related charges
5,503

 
20,812

Restructuring and related charges
2,757

 
5,502

Total operating expenses
255,723

 
219,292

Operating income
125,484

 
68,864

Interest expense
56,987

 
63,780

Other expense, net
845

 
1,562

Income from continuing operations before income taxes
67,652

 
3,522

Income tax expense
12,731

 
10,613

Net income (loss)
54,921

 
(7,091
)
Less: Net income (loss) attributable to non-controlling interest
119

 
(518
)
Net income (loss) attributable to controlling interest
$
54,802

 
$
(6,573
)
See accompanying notes which are an integral part of these condensed consolidated financial statements
(Unaudited).


4

Table of Contents

SB/RH HOLDINGS, LLC
Condensed Consolidated Statements of Comprehensive Income (Loss)
For the three month periods ended December 29, 2013 and December 30, 2012
(Unaudited)
(Amounts in thousands)

 
THREE MONTHS ENDED
 
December 29, 2013
 
December 30, 2012
Net income (loss)
$
54,921

 
$
(7,091
)
Other comprehensive income (loss), net of tax:
 
 
 
Foreign currency translation
(225
)
 
2,867

Unrealized gain on derivative instruments
1,466

 
246

Defined benefit pension loss
(33
)
 
(146
)
Other comprehensive loss, net of tax
1,208

 
2,967

Comprehensive income (loss)
56,129

 
(4,124
)
Less: Comprehensive income (loss) attributable to non-controlling interest
196

 
(518
)
Comprehensive income (loss) attributable to controlling interest
$
55,933

 
$
(3,606
)
See accompanying notes which are an integral part of these condensed consolidated financial statements
(Unaudited).


5

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SB/RH HOLDINGS, LLC
Condensed Consolidated Statements of Cash Flows
For the three month periods ended December 29, 2013 and December 30, 2012
(Unaudited)
(Amounts in thousands)
 
THREE MONTHS ENDED
 
December 29, 2013
 
December 30, 2012
Cash flows from operating activities:
 
 
 
Net income (loss)
$
54,921

 
$
(7,091
)
Adjustments to reconcile net income (loss) to net cash used by operating activities, net of effects of acquisitions:
 
 
 
Depreciation
17,854

 
10,625

Amortization of intangibles
20,182

 
17,124

Amortization of unearned restricted stock compensation
6,354

 
2,775

Amortization of debt issuance costs
2,598

 
1,816

Non-cash increase to cost of goods sold from sale of HHI Business acquisition inventory

 
5,247

Write off unamortized discount / (premium) on retired debt
2,821

 
885

Write off of debt issuance costs
6,395

 
4,600

Other non-cash adjustments
1,382

 
4,865

Net changes in assets and liabilities
(248,500
)
 
(209,705
)
Net cash used by operating activities
(135,993
)
 
(168,859
)
Cash flows from investing activities:
 
 
 
Purchases of property, plant and equipment
(15,938
)
 
(9,325
)
Acquisition of Shaser, net of cash acquired

 
(23,919
)
Acquisition of the HHI Business, net of cash acquired

 
(1,271,956
)
Escrow payment - TLM Business acquisition

 
(100,000
)
Other investing activities
10

 
16

Net cash used by investing activities
(15,928
)
 
(1,405,184
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of Term Loan, net of discount
523,658

 
792,000

Proceeds from issuance of 6.375% Notes

 
520,000

Proceeds from issuance of 6.625% Notes

 
570,000

Payment of senior credit facilities, excluding ABL revolving credit facility
(513,312
)
 
(370,175
)
Debt issuance costs
(4,740
)
 
(43,590
)
Other debt financing, net
4,246

 
7,431

Reduction of other debt
(459
)
 
(1,013
)
ABL revolving credit facility, net
110,000

 
32,000

Capital contribution from parent

 
28,562

Cash dividends paid to parent
(13,043
)
 
(29,584
)
Share based award tax withholding payments
(24,738
)
 
(17,936
)
Net cash provided by financing activities
81,612

 
1,487,695

Effect of exchange rate changes on cash and cash equivalents
(538
)
 
(692
)
Net decrease in cash and cash equivalents
(70,847
)
 
(87,040
)
Cash and cash equivalents, beginning of period
198,219

 
157,872

Cash and cash equivalents, end of period
$
127,372

 
$
70,832

See accompanying notes which are an integral part of these condensed consolidated financial statements
(Unaudited).

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Table of Contents

SB/RH HOLDINGS, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except per share figures)

1
DESCRIPTION OF BUSINESS
SB/RH Holdings, LLC, a Delaware corporation (“SB/RH” or the “Company”), is a global branded consumer products company. SB/RH Holdings, LLC, is a wholly owned subsidiary of Spectrum Brands Holdings, Inc. ("SB Holdings"). SB Holdings' common stock trades on the New York Stock Exchange (the “NYSE”) under the symbol “SPB.”
The Company’s operations include the worldwide manufacturing and marketing of alkaline, zinc carbon and hearing aid batteries, as well as aquariums and aquatic health supplies and the designing and marketing of rechargeable batteries, battery-powered lighting products, electric shavers and accessories, grooming products and hair care appliances. The Company’s operations also include the manufacturing and marketing of specialty pet supplies. The Company also manufactures and markets herbicides, insecticides and insect repellents in North America. The Company also designs, markets and distributes a broad range of branded small appliances and personal care products. The Company also designs, markets, distributes and sells certain hardware, home improvement and plumbing products. The Company’s operations utilize manufacturing and product development facilities located in the United States ("U.S."), Europe, Latin America and Asia.
The Company sells its products in approximately 140 countries through a variety of trade channels, including retailers, wholesalers and distributors, hearing aid professionals, industrial distributors and original equipment manufacturers and enjoys name recognition in its markets under the Rayovac, VARTA and Remington brands, each of which has been in existence for more than 80 years, and under the Tetra, 8-in-1, Dingo, Nature's Miracle, Spectracide, Cutter, Hot Shot, Black & Decker, George Foreman, Russell Hobbs, Farberware, Black Flag, FURminator, Kwikset, Weiser, Baldwin, National Hardware, Stanley, FANAL and Pfister brands.
The Company's global branded consumer products have positions in seven major product categories: consumer batteries, small appliances, pet supplies, electric shaving and grooming, electric personal care, home and garden controls, and hardware and home improvement.
The Company manages the businesses in four vertically integrated, product-focused reporting segments: (i) Global Batteries & Appliances, which consists of the Company's worldwide battery, electric shaving and grooming, electric personal care and small appliances primarily in the kitchen and home product categories (“Global Batteries & Appliances”); (ii) Global Pet Supplies, which consists of the Company's worldwide pet supplies business (“Global Pet Supplies”); (iii) Home and Garden, which consists of the Company's home and garden and insect control business (the “Home and Garden”); and (iv) Hardware & Home Improvement, which consists of the Company's worldwide hardware, home improvement and plumbing business (“Hardware & Home Improvement”). Management reviews the performance of the Company based on these segments, which also reflect the manner in which the Company's management monitors performance and allocates resources. For information pertaining to our business segments, see Note 11, “Segment Results.”


2
SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The condensed consolidated financial statements include the accounts of SB Holdings and its subsidiaries and are prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). All intercompany transactions have been eliminated.
These condensed consolidated financial statements have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and, in the opinion of the Company, include all adjustments (which are normal and recurring in nature) necessary to present fairly the financial position of the Company at December 29, 2013, the results of operations for the three month periods ended December 29, 2013 and December 30, 2012, the comprehensive income (loss) for the three month periods ended December 29, 2013 and December 30, 2012 and the cash flows for the three month periods ended December 29, 2013 and December 30, 2012. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such SEC rules and regulations. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2013.
Change in Accounting Principle: During the quarter ended June 30, 2013, the Company made a change in accounting principle to present tax withholdings for share-based payment awards paid to taxing authorities on behalf of an employee as a

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Table of Contents
SB/RH HOLDINGS, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) – (Continued)
(Amounts in thousands, except per share figures)


financing activity within the Condensed Consolidated Statements of Cash Flows (Unaudited). Such amounts were previously presented within operating activities in the Condensed Consolidated Statements of Cash Flows (Unaudited). The Company believes this change is preferable as the predominant characteristic of the transaction is a financing activity. The Company has reclassified the following amounts within its previously reported Condensed Consolidated Statements of Cash Flows (Unaudited) on a retrospective basis to reflect this change in accounting principle:
 
Three months ended
 
December 30, 2012
Cash flows from operating activities - Net changes in assets and liabilities:
 
As previously reported
$
(227,641
)
Reclassification of share based award tax withholding payments
17,936

As reclassified
$
(209,705
)
Cash flows from financing activities - Share based award tax withholding payments:
 
As previously reported
$

Reclassification of share based award tax withholding payments
(17,936
)
As reclassified
$
(17,936
)
Use of Estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
 
Intangible Assets: Intangible assets are recorded at cost or at fair value if acquired in a purchase business combination. Customer relationships and proprietary technology intangibles are amortized, using the straight-line method, over their estimated useful lives. Excess of cost over fair value of net assets acquired (goodwill) and indefinite lived trade name intangibles are not amortized. Accounting Standards Codification (“ASC”) Topic 350: “Intangibles-Goodwill and Other,” requires that goodwill and indefinite-lived intangible assets be tested for impairment annually, or more often if an event or circumstance indicates that an impairment loss may have been incurred. Goodwill is tested for impairment at the reporting unit level, with such groupings being consistent with the Company’s reportable segments. If an impairment is indicated, a write-down to fair value (normally measured by discounting estimated future cash flows) is recorded. Indefinite lived trade name intangibles are tested for impairment at least annually by comparing the fair value with the carrying value. Any excess of carrying value over fair value is recognized as an impairment loss in income from operations.
The Company’s annual impairment testing is completed at the August financial period end. Management uses its judgment in assessing whether assets may have become impaired between annual impairment tests. Indicators such as unexpected adverse business conditions, economic factors, unanticipated technological change or competitive activities, loss of key personnel, and acts by governments and courts may signal that an asset has become impaired.
Shipping and Handling Costs: The Company incurred shipping and handling costs of $64,631 and $49,996 for the three month periods ended December 29, 2013 and December 30, 2012, respectively. These costs are included in Selling expenses in the accompanying Condensed Consolidated Statements of Operations (Unaudited). Shipping and handling costs include costs incurred with third-party carriers to transport products to customers as well as salaries and overhead costs related to activities to prepare the Company’s products for shipment from its distribution facilities.
Concentrations of Credit Risk: Trade receivables subject the Company to credit risk. Trade accounts receivable are carried at net realizable value. The Company extends credit to its customers based upon an evaluation of the customer’s financial condition and credit history, and generally does not require collateral. The Company monitors its customers’ credit and financial condition based on changing economic conditions and makes adjustments to credit policies as required. Provisions for losses on uncollectible trade receivables are determined based on ongoing evaluations of the Company’s receivables, principally on the basis of historical collection experience and evaluations of the risks of nonpayment for a given customer.
The Company has a broad range of customers including many large retail outlet chains, one of which accounts for a significant percentage of its sales volume. This customer represented approximately 17% and 21% of the Company’s Net sales during the three month periods ended December 29, 2013 and December 30, 2012, respectively. This customer also represented

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Table of Contents
SB/RH HOLDINGS, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) – (Continued)
(Amounts in thousands, except per share figures)


approximately 8% and 11% of the Company’s Trade accounts receivable, net at December 29, 2013 and September 30, 2013, respectively.
Approximately 46% and 50% of the Company’s Net sales during the three month periods ended December 29, 2013 and December 30, 2012, respectively, occurred outside the U.S. These sales and related receivables are subject to varying degrees of credit, currency, political and economic risk. The Company monitors these risks and makes appropriate provisions for collectibility based on an assessment of the risks present.
Stock-Based Compensation: The Company measures the cost of its stock-based compensation plans based on the fair value of its employee stock awards and recognizes these costs over the requisite service period of the awards.
Total stock compensation expense associated with restricted stock units recognized by the Company during the three month periods ended December 29, 2013 and December 30, 2012was $6,354 and $2,775, respectively.
The Company granted approximately 404 restricted stock units during the three month period ended December 29, 2013. Of these grants, 81 restricted stock units vested immediately and 36 restricted stock units are time-based and vest over a one year period. The remaining 288 restricted stock units are performance and time-based and vest over a two year period. The total market value of the restricted stock units on the dates of the grants was approximately $28,331.
The Company granted approximately 552 restricted stock units during the three month period ended December 30, 2012. Of these grants, 90 are performance-based and vest over a one year period and 462 are performance and time-based and vest over a two year period. The total market value of the restricted stock units on the dates of the grants was approximately $24,748.
The fair value of restricted stock units is determined based on the market price of the Company’s shares of common stock on the grant date. A summary of the activity in the Company’s non-vested restricted stock units during the three months ended December 29, 2013 is as follows:
 
Restricted Stock Units
 
Shares
 
Weighted
Average
Grant Date
Fair Value
 
Fair Value
at Grant
Date
Non-vested restricted stock units at September 30, 2013
 
1,104

 
$
39.01

 
$
43,067

Granted
 
404

 
70.13

 
28,331

Vested
 
(892
)
 
39.40

 
(35,147
)
Non-vested restricted stock units at December 29, 2013
 
616

 
$
58.85

 
$
36,251

Acquisition and Integration Related Charges: Acquisition and integration related charges reflected in Operating expenses in the accompanying Condensed Consolidated Statements of Operations (Unaudited) include, but are not limited to, transaction costs such as banking, legal, accounting and other professional fees directly related to acquisitions, termination and related costs for transitional and certain other employees, integration related professional fees and other post business combination expenses associated with mergers and acquisitions.

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SB/RH HOLDINGS, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) – (Continued)
(Amounts in thousands, except per share figures)


The following table summarizes acquisition and integration related charges incurred by the Company during the three month periods ended December 29, 2013 and December 30, 2012:
 
Three Months Ended
 
December 29, 2013
 
December 30, 2012
Russell Hobbs
 
 
 
Integration costs
$

 
$
1,054

Employee termination charges

 
108

Legal and professional fees

 
79

Russell Hobbs Acquisition and integration related charges
$

 
$
1,241

HHI Business
 
 
 
Legal and professional fees
798

 
14,498

Integration costs
3,128

 
114

Employee termination charges
211

 

HHI Business Acquisition and integration related charges
$
4,137

 
$
14,612

 
 
 


Shaser
373

 
4,220

FURminator
38

 
670

Other
955

 
69

Total Acquisition and integration related charges
$
5,503

 
$
20,812



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Table of Contents
SB/RH HOLDINGS, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) – (Continued)
(Amounts in thousands, except per share figures)


3
COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) includes foreign currency translation gains and losses on assets and liabilities of foreign subsidiaries, effects of exchange rate changes on intercompany balances of a long-term nature and transactions designated as a hedge of a net investment in a foreign subsidiary, deferred gains and losses on derivative financial instruments designated as cash flow hedges and amortization of deferred gains and losses associated with the Company’s pension plans. The foreign currency translation gains and losses for the three month periods ended December 29, 2013 and December 30, 2012 were primarily attributable to the impact of translation of the net assets of the Company’s European and Latin American operations, which primarily have functional currencies in Euros, Pounds Sterling and Brazilian Real.
For information pertaining to the reclassification of unrealized gains and losses on derivative instruments, see Note 8, “Derivative Financial Instruments.”
The components of Other comprehensive income (loss), net of tax, for the three month periods ended December 29, 2013 and December 30, 2012 are as follows:
 
 
 
Three Months Ended
 
 
December 29, 2013
 
December 30, 2012
Foreign Currency Translation Adjustments:
 
 
 
 
Gross change before reclassification adjustment
 
$
(225
)
 
$
2,867

Net reclassification adjustment for (gains) losses included in earnings
 

 

Gross change after reclassification adjustment
 
(225
)
 
2,867

Deferred tax effect
 

 

Deferred tax valuation allowance
 

 

Other Comprehensive Loss
 
(225
)
 
2,867

Noncontrolling interest
 
77

 

Comprehensive loss attributable to controlling interest
 
$
(302
)
 
$
2,867

 
 
 
 
 
Unrealized Gains (Losses) on Derivative Instruments:
 
 
 
 
Gross change before reclassification adjustment
 
$
897

 
$
(83
)
Net reclassification adjustment for (gains) losses included in earnings
 
935

 
443

Gross change after reclassification adjustment
 
1,832

 
360

Deferred tax effect
 
(512
)
 
(50
)
Deferred tax valuation allowance
 
146

 
(64
)
Other Comprehensive Income
 
$
1,466

 
$
246

 
 
 
 
 
Defined Benefit Pension Plans:
 
 
 
 
Gross change before reclassification adjustment
 
$
(405
)
 
$
(689
)
Net reclassification adjustment for losses included in Cost of goods sold
 
153

 
327

Net reclassification adjustment for losses included in Selling expenses
 
78

 
41

Net reclassification adjustment for losses included in General and administrative expenses
 
156

 
151

Gross change after reclassification adjustment
 
(18
)
 
(170
)
Deferred tax effect
 
(15
)
 
24

Deferred tax valuation allowance
 

 

Other Comprehensive (Loss) Income
 
$
(33
)
 
$
(146
)
 
 
 
 
 
Total Other Comprehensive Loss, net of tax
 
$
1,131

 
$
2,967



4
INVENTORIES

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SB/RH HOLDINGS, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) – (Continued)
(Amounts in thousands, except per share figures)


Inventories for the Company, which are stated at the lower of cost or market, consist of the following:
 
 
December 29, 2013
 
September 30, 2013
Raw materials
$
107,209

 
$
97,290

Work-in-process
40,895

 
40,626

Finished goods
535,208

 
495,007

 
$
683,312

 
$
632,923


5
GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets of the Company consist of the following:
 
 
Global Batteries &
Appliances
 
Hardware & Home Improvement
 
Global Pet
Supplies
 
Home and
Garden
 
Total
Goodwill:
 
 
 
 
 
 
 
 
 
Balance at September 30, 2013
$
333,500

 
$
714,724

 
$
239,077

 
$
189,371

 
$
1,476,672

Additions

 
3,456

 

 

 
3,456

Effect of translation
(323
)
 
(3,970
)
 
357

 

 
(3,936
)
Balance at December 29, 2013
$
333,177

 
$
714,210

 
$
239,434

 
$
189,371

 
$
1,476,192

Intangible Assets:
 
 
 
 
 
 
 
 
 
Trade names Not Subject to Amortization
 
 
 
 
 
 
 
 
 
Balance at September 30, 2013
$
547,353

 
$
330,771

 
$
216,426

 
$
83,500

 
$
1,178,050

Effect of translation
2,180

 
36

 
1,189

 

 
3,405

Balance at December 29, 2013
$
549,533

 
$
330,807

 
$
217,615

 
$
83,500

 
$
1,181,455

Intangible Assets Subject to Amortization
 
 
 
 
 
 
 
 
 
Balance at September 30, 2013, net
$
440,776

 
146,461

 
$
245,227

 
$
152,652

 
$
985,116

Amortization during period
(8,751
)
 
(3,699
)
 
(5,363
)
 
(2,369
)
 
(20,182
)
Effect of translation
187

 
(514
)
 
366

 

 
39

Balance at December 29, 2013, net
$
432,212

 
$
142,248

 
$
240,230

 
$
150,283

 
$
964,973

Total Intangible Assets, net at December 29, 2013
$
981,745

 
$
473,055

 
$
457,845

 
$
233,783

 
$
2,146,428


During the three months ended December 29, 2013, the Company recorded an adjustment of $3,456 to goodwill to finalize the purchase accounting for the acquisition of the residential hardware and home improvement business (the "HHI Business") from Stanley Black & Decker, Inc. ("Stanley Black & Decker). The adjustment related to changes in the valuation of working capital accounts and deferred taxes based on the final determination of fair value. These adjustments were not retrospectively applied to the opening balance sheet as the amounts were deemed immaterial.
Intangible assets subject to amortization include proprietary technology, customer relationships and certain trade names, which were recognized in connection with acquisitions and from the application of fresh-start reporting during fiscal 2009. The useful lives of the Company’s intangible assets subject to amortization are 9 to 17 years for technology assets associated with the Global Batteries & Appliances segment; 8 to 9 years for technology assets related to the Hardware & Home Improvement segment; 4 to 9 years for technology assets related to the Global Pet Supplies segment; 15 to 20 years for customer relationships of the Global Batteries & Appliances segment, 20 years for customer relationships of the Hardware & Home Improvement segment, Home and Garden and Global Pet Supplies segments; 1 to 12 years for trade names within the Global Batteries & Appliances segment; 5 to 8 years for trade names within the Hardware & Home Improvement segment and 3 years for a trade name within the Global Pet Supplies segment.

The carrying value and accumulated amortization for intangible assets subject to amortization are as follows:
 

12

Table of Contents
SB/RH HOLDINGS, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) – (Continued)
(Amounts in thousands, except per share figures)


 
December 29, 2013
 
September 30, 2013
Technology Assets Subject to Amortization:
 
 
 
Gross balance
$
172,105

 
$
172,105

Accumulated amortization
(43,435
)
 
(39,028
)
Carrying value, net
$
128,670

 
$
133,077

Trade Names Subject to Amortization:
 
 
 
Gross balance
$
171,271

 
$
171,572

Accumulated amortization
(48,714
)
 
(44,660
)
Carrying value, net
$
122,557

 
$
126,912

Customer Relationships Subject to Amortization:
 
 
 
Gross balance
$
886,353

 
$
885,895

Accumulated amortization
(172,607
)
 
(160,768
)
Carrying value, net
$
713,746

 
$
725,127

Total Intangible Assets, net Subject to Amortization
$
964,973

 
$
985,116


Amortization expense for the three month periods ended December 29, 2013 and December 30, 2012 is as follows:
 
 
Three Months Ended
 
December 29, 2013
 
December 30, 2012
Proprietary technology amortization
$
4,407

 
$
3,105

Trade names amortization
4,114

 
3,595

Customer relationships amortization
11,661

 
10,424

 
$
20,182

 
$
17,124


The Company estimates annual amortization expense of intangible assets for the next five fiscal years will approximate $80,700 per year.


13

Table of Contents
SB/RH HOLDINGS, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) – (Continued)
(Amounts in thousands, except per share figures)


6
DEBT
Debt consists of the following:
 
 
December 29, 2013
 
September 30, 2013
 
Amount
 
Rate
 
Amount
 
Rate
Term Loan, due September 4, 2017 (Tranche A)
$
850,000

 
3.0
%
 
$
850,000

 
3.0
%
Term Loan, due September 4, 2019 (Tranche C)
515,000

 
3.6
%
 
300,000

 
3.6
%
CAD Term Loan, due December 17, 2019
78,775

 
5.0
%
 
81,397

 
5.1
%
Term Loan, due December 17, 2019 (Tranche B)

 
%
 
513,312

 
4.6
%
Euro Term Loan, due September 4, 2019
308,048

 
3.8
%
 

 
%
6.375% Notes, due November 15, 2020
520,000

 
6.4
%
 
520,000

 
6.4
%
6.625% Notes, due November 15, 2022
570,000

 
6.6
%
 
570,000

 
6.6
%
6.75% Notes, due March 15, 2020
300,000

 
6.8
%
 
300,000

 
6.8
%
ABL Facility, expiring May 24, 2017
110,000

 
1.8
%
 

 
5.7
%
Other notes and obligations
32,153

 
8.9
%
 
28,468

 
8.5
%
Capitalized lease obligations
91,073

 
6.3
%
 
67,402

 
6.2
%
 
$
3,375,049

 
 
 
$
3,230,579

 
 
Original issuance discounts on debt
(8,780
)
 
 
 
(11,716
)
 
 
Less: current maturities
107,908

 
 
 
102,921

 
 
Long-term debt
$
3,258,361

 
 
 
$
3,115,942

 
 
The Company has the following debt instruments outstanding at December 29, 2013: (i) a senior secured term loan pursuant to a senior credit agreement (the “Senior Credit Agreement”) which consists of $850,000 principle due September 4, 2017 (“Tranche A”), $515,000 principle due September 4, 2019 (“Tranche C”), $78,775 Canadian dollar denominated principle due December 17, 2019 ("CAD Term Loan") and $308,048 Euro denominated principle due September 4, 2019 ("Euro Term Loan") (together, the “Term Loan”); (ii) 6.75% unsecured notes (the “6.75% Notes”); (iii) 6.375% unsecured notes (the “6.375% Notes”); (iv) 6.625% unsecured notes (the “6.625% Notes”); and (v) a $400 million asset based lending revolving credit facility (the “ABL Facility”).
Term Loan
On December 18, 2013, SB/RH amended the Term Loan, issuing two tranches maturing September 4, 2019 which provide for borrowings in aggregate principal amounts of $215,000 and €225,000. The proceeds from the amendment were used to refinance a portion of the Term Loan (formerly Tranche B) which was scheduled to mature December 17, 2019, in an amount outstanding of $513,312 prior to refinancing. The $215,000 additional U.S. dollar denominated portion was combined with the existing Tranche C maturing September 4, 2019. The Company recorded accelerated amortization of portions of the unamortized discount and unamortized Debt issuance costs related to the refinancing of the Term Loan totaling $9,216 as an adjustment to interest expense during the three month period ended December 29, 2013.
The additional Tranche C and Euro Term Loan debt were issued at a .125% discount and recorded net of the discount incurred. Of this discount, $510 is reflected as an adjustment to the carrying value of principal, and is being amortized with a corresponding charge to interest expense over the remaining life of the debt, and the remainder of $146 is reflected as an increase to interest expense during the three month period ended December 29, 2013. In connection with the refinancing of a portion of the Term Loan the Company recorded $6,671 of fees during the three month period ended December 29, 2013, of which $4,740 is classified as Debt issuance costs within the accompanying Condensed Consolidated Statements of Financial Position (Unaudited) and is being amortized as an adjustment to interest expense over the remaining life of the Term Loan, with the remainder of $1,931 reflected as an increase to interest expense during the three month period ended December 29, 2013.

14

Table of Contents
SB/RH HOLDINGS, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) – (Continued)
(Amounts in thousands, except per share figures)


ABL Facility
In connection with the December 18, 2013 amendment of the Term Loan, the Company amended the ABL Facility to obtain certain consents to the amendment of the Senior Credit Agreement. In connection with the amendment, the Company incurred fees and expenses that are included in the amounts recorded above related to the amendment of the Term Loan.
As a result of borrowings and payments under the ABL Facility, at December 29, 2013, the Company had aggregate borrowing availability of approximately $167,321, net of lender reserves of $8,559 and outstanding letters of credit of $40,875.

7
DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are used by the Company principally in the management of its interest rate, foreign currency exchange rate and raw material price exposures. The Company does not hold or issue derivative financial instruments for trading purposes. Derivative instruments are reported at fair value in the Condensed Consolidated Statements of Financial Position (Unaudited). When hedge accounting is elected at inception, the Company formally designates the financial instrument as a hedge of a specific underlying exposure and documents both the risk management objectives and strategies for undertaking the hedge. The Company formally assesses both at the inception and at least quarterly thereafter, whether the financial instruments that are used in hedging transactions are effective at offsetting changes in the forecasted cash flows of the related underlying exposure. Because of the high degree of effectiveness between the hedging instrument and the underlying exposure being hedged, fluctuations in the value of the derivative instruments are generally offset by changes in the forecasted cash flows of the underlying exposures being hedged. Any ineffective portion of a financial instrument’s change in fair value is immediately recognized in earnings. For derivatives that are not designated as cash flow hedges, or do not qualify for hedge accounting treatment, the change in the fair value is also immediately recognized in earnings.
Fair Value of Derivative Instruments
The Company discloses its derivative instruments and hedging activities in accordance with ASC Topic 815: “Derivatives and Hedging” (“ASC 815”).
The fair value of the Company’s outstanding derivative contracts recorded as assets in the accompanying Condensed Consolidated Statements of Financial Position (Unaudited) are as follows:
 
Asset Derivatives
 
 
December 29,
2013
 
September 30,
2013
Derivatives designated as hedging instruments under ASC 815:
 
 
 
 
 
Commodity contracts
Receivables—Other
 
$
1,251

 
$
416

Commodity contracts
Deferred charges and other
 
274

 
3

Foreign exchange contracts
Receivables—Other
 
2,981

 
1,719

Foreign exchange contracts
Deferred charges and 
other
 
17

 

Total asset derivatives designated as hedging instruments under ASC 815
 
 
4,523

 
2,138

Derivatives not designated as hedging instruments under ASC 815:
 
 
 
 
 
Foreign exchange contracts
Receivables—Other
 
204

 
143

Total asset derivatives
 
 
$
4,727

 
$
2,281


The fair value of the Company’s outstanding derivative contracts recorded as liabilities in the accompanying Condensed Consolidated Statements of Financial Position (Unaudited) are as follows:
 

15

Table of Contents
SB/RH HOLDINGS, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) – (Continued)
(Amounts in thousands, except per share figures)


Liability Derivatives
 
 
December 29,
2013
 
September 30,
2013
Derivatives designated as hedging instruments under ASC 815:
 
 
 
 
 
Commodity contracts
Accounts payable
 
$
15

 
$
450

Foreign exchange contracts
Accounts payable
 
5,172

 
4,577

Foreign exchange contracts
Other long-term  liabilities
 
255

 
65

Total liability derivatives designated as hedging instruments under ASC 815
 
 
$
5,442

 
$
5,092

Derivatives not designated as hedging instruments under ASC 815:
 
 
 
 
 
Commodity contract
Accounts payable
 
98

 
55

Foreign exchange contracts
Accounts payable
 
3,609

 
5,323

Total liability derivatives
 
 
$
9,149

 
$
10,470

 
Changes in AOCI from Derivative Instruments
For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of Accumulated Other Comprehensive Income ("AOCI") and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on derivatives representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. See Note 3, "Comprehensive Income (Loss)" for further information.
The following table summarizes the impact of derivative instruments on the accompanying Condensed Consolidated Statement of Operations (Unaudited) for the three month period ended December 29, 2013, pretax:
 
Derivatives in ASC 815 Cash Flow
Hedging Relationships
Amount of
Gain (Loss)
Recognized in
AOCI on
Derivatives
(Effective  Portion)
 
Location of
Gain (Loss)
Reclassified from
AOCI into
Income
(Effective Portion)
 
Amount of
Gain (Loss)
Reclassified from
AOCI into Income
(Effective Portion)
 
Location of
Gain (Loss)
Recognized in
Income on
Derivatives
(Ineffective
Portion and
Amount
Excluded from
Effectiveness
Testing)
 
Amount of
Gain (Loss)
Recognized in
Income on
Derivatives
(Ineffective Portion
and Amount
Excluded from
Effectiveness Testing)
Commodity contracts
$
1,068

 
Cost of goods sold
 
$
(269
)
 
Cost of goods sold
 
$
203

Foreign exchange contracts
181

 
Net sales
 
65

 
Net sales
 

Foreign exchange contracts
(352
)
 
Cost of goods sold
 
(731
)
 
Cost of goods sold
 

Total
$
897

 
 
 
$
(935
)
 
 
 
$
203


 
The following table summarizes the impact of derivative instruments on the accompanying Condensed Consolidated Statement of Operations (Unaudited) for the three month period ended December 30, 2012, pretax:
 

16

Table of Contents
SB/RH HOLDINGS, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) – (Continued)
(Amounts in thousands, except per share figures)


Derivatives in ASC 815 Cash Flow
Hedging Relationships
Amount of
Gain (Loss)
Recognized in
AOCI on
Derivatives
(Effective  Portion)
 
Location of
Gain (Loss)
Reclassified from
AOCI into
Income
(Effective Portion)
 
Amount of
Gain (Loss)
Reclassified from
AOCI into Income
(Effective Portion)
 
Location of
Gain (Loss)
Recognized in
Income on
Derivatives
(Ineffective
Portion and
Amount
Excluded from
Effectiveness
Testing)
 
Amount of
Gain (Loss)
Recognized in
Income on
Derivatives
(Ineffective Portion
and Amount
Excluded from
Effectiveness Testing)
Commodity contracts
$
(232
)
 
Cost of goods sold
 
$
(97
)
 
Cost of goods sold
 
$
(46
)
Foreign exchange contracts
498

 
Net sales
 
121

 
Net sales
 

Foreign exchange contracts
(349
)
 
Cost of goods sold
 
(467
)
 
Cost of goods sold
 

Total
$
(83
)
 
 
 
$
(443
)
 
 
 
$
(46
)


Other Changes in Fair Value of Derivative Contracts
For derivative instruments that are used to economically hedge the fair value of the Company’s third party and intercompany foreign currency payments, commodity purchases and interest rate payments, the gain (loss) associated with the derivative contract is recognized in earnings in the period of change. During the three month periods ended December 29, 2013 and December 30, 2012, the Company recognized the following gains (losses) on these derivative contracts:
 
Derivatives Not Designated as
Hedging Instruments Under ASC 815
Amount of Gain (Loss)
Recognized in
Income on Derivatives
 
Location of Gain or (Loss)
Recognized in
Income on Derivatives
December 29, 2013
 
December 30, 2012
 
Commodity contracts
$
(64
)
 
$

 
Cost of goods sold
Foreign exchange contracts
796

 
(4,099
)
 
Other expense, net
Total
$
732

 
$
(4,099
)
 
 
Credit Risk
The Company is exposed to the risk of default by the counterparties with which it transacts and generally does not require collateral or other security to support financial instruments subject to credit risk. The Company monitors counterparty credit risk on an individual basis by periodically assessing each such counterparty’s credit rating exposure. The maximum loss due to credit risk equals the fair value of the gross asset derivatives that are concentrated with certain domestic and foreign financial institution counterparties. The Company considers these exposures when measuring its credit reserve on its derivative assets, which was $9 and $5 at December 29, 2013 and September 30, 2013, respectively.
The Company’s standard contracts do not contain credit risk related contingent features whereby the Company would be required to post additional cash collateral as a result of a credit event. However, the Company is typically required to post collateral in the normal course of business to offset its liability positions. At both December 29, 2013 and September 30, 2013, the Company had posted cash collateral of $450 related to such liability positions. In addition, at December 29, 2013 and September 30, 2013, the Company had no posted standby letters of credit related to such liability positions. The cash collateral is included in Current Assets—Receivables-Other within the accompanying Condensed Consolidated Statements of Financial Position (Unaudited).
Derivative Financial Instruments
Cash Flow Hedges
When appropriate, the Company uses interest rate swaps to manage its interest rate risk. The swaps are designated as cash flow hedges with the changes in fair value recorded in AOCI and as a derivative hedge asset or liability, as applicable. The swaps settle periodically in arrears with the related amounts for the current settlement period payable to, or receivable from, the counter-parties included in accrued liabilities or receivables, respectively, and recognized in earnings as an adjustment to interest expense from the underlying debt to which the swap is designated. At December 29, 2013 and September 30, 2013, the Company did not have any interest rate swaps outstanding.

17

Table of Contents
SB/RH HOLDINGS, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) – (Continued)
(Amounts in thousands, except per share figures)


The Company periodically enters into forward foreign exchange contracts to hedge the risk from forecasted foreign currency denominated third party and intercompany sales or payments. These obligations generally require the Company to exchange foreign currencies for U.S. Dollars, Euros, Pounds Sterling, Australian Dollars, Brazilian Reals, Mexican Pesos, Canadian Dollars or Japanese Yen. These foreign exchange contracts are cash flow hedges of fluctuating foreign exchange related to sales of product or raw material purchases. Until the sale or purchase is recognized, the fair value of the related hedge is recorded in AOCI and as a derivative hedge asset or liability, as applicable. At the time the sale or purchase is recognized, the fair value of the related hedge is reclassified as an adjustment to Net sales or purchase price variance in Cost of goods sold. At December 29, 2013, the Company had a series of foreign exchange derivative contracts outstanding through September 2015 with a contract value of $237,619. The derivative net loss on these contracts recorded in AOCI by the Company at December 29, 2013 was $1,963, net of tax benefit of $466. At December 29, 2013, the portion of derivative net loss estimated to be reclassified from AOCI into earnings by the Company over the next 12 months is $1,777, net of tax.

The Company is exposed to risk from fluctuating prices for raw materials, specifically zinc and brass used in its manufacturing processes. The Company hedges a portion of the risk associated with the purchase of these materials through the use of commodity swaps. The hedge contracts are designated as cash flow hedges with the fair value changes recorded in AOCI and as a hedge asset or liability, as applicable. The unrecognized changes in fair value of the hedge contracts are reclassified from AOCI into earnings when the hedged purchase of raw materials also affects earnings. The swaps effectively fix the floating price on a specified quantity of raw materials through a specified date. At December 29, 2013, the Company had a series of zinc swap contracts outstanding through December 2014 for 9 tons with a contract value of $17,340. At December 29, 2013, the Company had a series of brass swap contracts outstanding through September 2014 for 1 ton with a contract value of $6,078. The derivative net gain on these contracts recorded in AOCI by the Company at December 29, 2013 was $1,197, net of tax expense of $104. At December 29, 2013, the portion of derivative net gain estimated to be reclassified from AOCI into earnings by the Company over the next 12 months is $1,008, net of tax.
Derivative Contracts
The Company periodically enters into forward and swap foreign exchange contracts to economically hedge the risk from third party and intercompany payments resulting from existing obligations. These obligations generally require the Company to exchange foreign currencies for U.S. Dollars, Canadian Dollars, Euros or Australian Dollars. These foreign exchange contracts are fair value hedges of a related liability or asset recorded in the accompanying Condensed Consolidated Statements of Financial Position (Unaudited). The gain or loss on the derivative hedge contracts is recorded in earnings as an offset to the change in value of the related liability or asset at each period end. At December 29, 2013 and September 30, 2013, the Company had $106,676 and $108,480, respectively, of notional value for such foreign exchange derivative contracts outstanding.
The Company periodically enters into commodity swap contracts to economically hedge the risk from fluctuating prices for raw materials, specifically the pass-through of market prices for silver used in manufacturing purchased watch batteries. The Company hedges a portion of the risk associated with these materials through the use of commodity swaps. The swap contracts are designated as economic hedges with the unrealized gain or loss recorded in earnings and as an asset or liability at each period end. The unrealized changes in fair value of the hedge contracts are adjusted through earnings when the realized gains or losses affect earnings upon settlement of the hedges. The swaps effectively fix the floating price on a specified quantity of silver through a specified date. At December 29, 2013, the Company had a series of such swap contracts outstanding through May 2014 for 30 troy ounces with a contract value of $595. At September 30, 2013, the Company had a series of such swap contracts outstanding through April 2014 for 45 troy ounces with a contract value of $980.


8
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company’s net derivative portfolio as of December 29, 2013, contains Level 2 instruments and consists of commodity and foreign exchange contracts. The fair values of these instruments as of December 29, 2013 were as follows:
 

18

Table of Contents
SB/RH HOLDINGS, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) – (Continued)
(Amounts in thousands, except per share figures)


 
Level 1    
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Commodity contracts, net
$

 
$
1,412

 
$

 
$
1,412

Total Assets, net
$

 
$
1,412

 
$

 
$
1,412

Liabilities:
 
 
 
 
 
 
 
Foreign exchange contracts, net
$

 
$
(5,834
)
 
$

 
$
(5,834
)
Total Liabilities, net
$

 
$
(5,834
)
 
$

 
$
(5,834
)
 
The Company’s net derivative portfolio as of September 30, 2013, contains Level 2 instruments and consists of commodity and foreign exchange contracts. The fair values of these instruments as of September 30, 2013 were as follows:
 
 
Level 1    
 
Level 2
 
Level 3
 
Total
Total Assets, net
$

 
$

 
$

 
$

Liabilities:
 
 
 
 
 
 
 
Commodity contracts, net
$

 
$
(86
)
 
$

 
$
(86
)
Foreign exchange contracts, net

 
(8,103
)
 

 
(8,103
)
Total Liabilities, net
$

 
$
(8,189
)
 
$

 
$
(8,189
)
The carrying values of cash and cash equivalents, accounts and notes receivable, accounts payable and non-publicly traded debt approximate fair value. The fair values of long-term publicly traded debt are based on unadjusted quoted market prices (Level 1) and derivative financial instruments are generally based on quoted or observed market prices (Level 2).
The carrying values of goodwill, intangible assets and other long-lived assets are tested annually, or more frequently if an event occurs that indicates an impairment loss may have been incurred, using fair value measurements with unobservable inputs (Level 3).
The carrying amounts and fair values of the Company’s financial instruments are summarized as follows ((liability)/asset):
 
 
December 29, 2013
 
September 30, 2013
 
Carrying
Amount
 
Fair Value
 
Carrying
Amount
 
Fair Value
Total debt
$
(3,366,269
)
 
$
(3,482,786
)
 
$
(3,218,863
)
 
$
(3,297,411
)
Commodity swap and option agreements
1,412

 
1,412

 
(86
)
 
(86
)
Foreign exchange forward agreements
(5,834
)
 
(5,834
)
 
(8,103
)
 
(8,103
)

9
EMPLOYEE BENEFIT PLANS
Pension Benefits
The Company has various defined benefit pension plans covering some of its employees in the U.S. and certain employees in other countries, including the United Kingdom, the Netherlands, Germany, Guatemala, Brazil, Mexico and Taiwan. These pension plans generally provide benefits of stated amounts for each year of service.
The Company’s results of operations for the three month periods ended December 29, 2013 and December 30, 2012 reflect the following pension and deferred compensation benefit costs:
 

19

Table of Contents
SB/RH HOLDINGS, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) – (Continued)
(Amounts in thousands, except per share figures)


 
Three Months Ended
Components of net periodic pension benefit and deferred compensation benefit cost
December 29, 2013
 
December 30, 2012
Service cost
$
851

 
$
724

Interest cost
2,612

 
2,363

Expected return on assets
(2,456
)
 
(2,196
)
Amortization of prior year service cost
16

 

Recognized net actuarial loss
371

 
519

Employee contributions
(15
)
 
(46
)
Net periodic benefit cost
$
1,379

 
$
1,364


The Company funds its U.S. pension plans in accordance with the Internal Revenue Service defined guidelines and, where applicable, in amounts sufficient to satisfy the minimum funding requirements of applicable laws. Additionally, in compliance with the Company’s funding policy, annual contributions to non-U.S. defined benefit plans are equal to the actuarial recommendations or statutory requirements in the respective countries. The Company’s contributions to its pension and deferred compensation plans for the three month periods ended December 29, 2013 and December 30, 2012 were as follows:
 
 
Three Months Ended
Pension and deferred compensation contributions
December 29, 2013
 
December 30, 2012
Contributions made during period
$
3,333

 
$
607


The Company sponsors a defined contribution pension plan for its domestic salaried employees, which allows participants to make contributions by salary reduction pursuant to Section 401(k) of the Internal Revenue Code. The Company also sponsors defined contribution pension plans for employees of certain foreign subsidiaries. Company contributions charged to operations, including discretionary amounts, for the three month periods ended December 29, 2013 and December 30, 2012 were $4,131 and $1,151, respectively.

10
INCOME TAXES
The Company's effective tax rates for the three month periods ended December 29, 2013 and December 30, 2012 were 19% and 301%, respectively. The Company's effective tax rates differ from the United States federal statutory rate of 35% principally due to: (i) losses in the U.S. and certain foreign jurisdictions for which no tax benefit can be recognized due to full valuation allowances that have been provided on the Company's net operating loss carryforward tax benefits and other deferred tax assets; (ii) deferred income tax expense related to the change in book versus tax basis of indefinite lived intangibles, which are amortized for tax purposes but not for book purposes, and (iii) the reversal of U.S. valuation allowances of $45,932 as a result of the HHI Business acquisition during the three months ended December 30, 2012. Additionally, in the three months ended December 29, 2013 the pretax consolidated income was close to break even, resulting in a higher effective tax rate.
During the three months ended December 29, 2013, the Company estimated and recorded a one-time reduction of $178,716 to its US net operating loss carryforwards from actual and deemed repatriation of foreign earnings resulting from internal restructuring and external debt refinancing activities. Due to full valuation allowances on the Company’s US net operating loss carryforwards, there was no material effect on the Company’s quarterly or projected annual income tax expense.
The Company recognizes in its condensed consolidated financial statements the impact of a tax position if it concludes that the position is more likely than not sustainable upon audit, based on the technical merits of the position. At December 29, 2013 and September 30, 2013, the Company had $13,267 and $13,807, respectively, of unrecognized tax benefits related to uncertain tax positions. The Company also had approximately $3,630 and $3,671, respectively, of accrued interest and penalties related to the uncertain tax positions at those dates. Interest and penalties related to uncertain tax positions are reported in the condensed consolidated financial statements as part of income tax expense.

20

Table of Contents
SB/RH HOLDINGS, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) – (Continued)
(Amounts in thousands, except per share figures)


As of December 29, 2013, certain of the Company's legal entities in various jurisdictions are undergoing income tax audits. The Company cannot predict the ultimate outcome of the examinations; however, it is reasonably possible that during the next 12 months some portion of previously unrecognized tax benefits could be recognized.

11
SEGMENT RESULTS
The Company manages its business in four vertically integrated, product-focused reporting segments: (i) Global Batteries & Appliances; (ii) Global Pet Supplies; (iii) Home and Garden; and (iv) Hardware & Home Improvement.
The results of the HHI Business operations, excluding certain assets of Tong Lung Metal Industry Co. Ltd., a Taiwan Corporation (the "TLM Business"), which was acquired on April 8, 2013, are included in the Company's Condensed Consolidated Statements of Operations (Unaudited) since December 17, 2012. The results of the TLM Business operations are included in the Company's Condensed Consolidated Statements of Operations (Unaudited) since April 8, 2013. The financial results related to the HHI Business are reported as a separate business segment, Hardware & Home Improvement.
Global strategic initiatives and financial objectives for each reportable segment are determined at the corporate level. Each reportable segment is responsible for implementing defined strategic initiatives and achieving certain financial objectives and has a general manager responsible for the sales and marketing initiatives and financial results for product lines within that segment.
Net sales and Cost of goods sold from transactions with other business segments have been eliminated. The gross contribution of intersegment sales is included in the segment selling the product to the external customer. Segment net sales are based upon the segment from which the product is shipped.
 
The operating segment profits do not include restructuring and related charges, acquisition and integration related charges, interest expense, interest income and income tax expense. Corporate expenses primarily include general and administrative expenses and global long-term incentive compensation plan costs which are evaluated on a consolidated basis and not allocated to the Company’s operating segments. All depreciation and amortization included in income from operations is related to operating segments or corporate expense. Costs are identified to operating segments or corporate expense according to the function of each cost center.
All capital expenditures are related to operating segments. Variable allocations of assets are not made for segment reporting.
Segment information for the three month periods ended December 29, 2013 and December 30, 2012 is as follows:
 

21

Table of Contents
SB/RH HOLDINGS, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) – (Continued)
(Amounts in thousands, except per share figures)


 
Three Months Ended
 
December 29, 2013
 
December 30, 2012
Net sales to external customers
 
 
 
Consumer batteries
$
264,485

 
$
270,981

Small appliances
216,782

 
220,061

Electric shaving and grooming
90,551

 
92,927

Electric personal care
87,512

 
82,042

Global Batteries & Appliances
659,330

 
666,011

Hardware & Home Improvement
278,379

 
33,982

Global Pet Supplies
129,142

 
139,763

Home and Garden
33,749

 
30,512

Total segments
$
1,100,600

 
$
870,268

 
 
 
 
 
Three Months Ended
 
December 29, 2013
 
December 30, 2012
Segment profit
 
 
 
Global Batteries & Appliances
$
97,194

 
$
95,378

Hardware & Home Improvement
40,059

 
(3,210
)
Global Pet Supplies
12,966

 
15,941

Home and Garden
(1,210
)
 
(4,261
)
Total segments
149,009

 
103,848

Corporate expense
13,530

 
7,584

Acquisition and integration related charges
5,503

 
20,812

Restructuring and related charges
4,492

 
6,588

Interest expense
56,987

 
63,780

Other expense, net
845

 
1,562

Income from continuing operations before income taxes
$
67,652

 
$
3,522


 
December 29, 2013
 
September 30, 2013
Segment total assets
 
 
 
Global Batteries & Appliances
$
2,355,408

 
$
2,360,733

Hardware & Home Improvement
1,730,364

 
1,735,629

Global Pet Supplies
965,882

 
948,832

Home and Garden
526,066

 
500,559

Total segment assets
5,577,720

 
5,545,753

Corporate
70,555

 
73,291

Total assets at period end
$
5,648,275

 
$
5,619,044


12
RESTRUCTURING AND RELATED CHARGES
The Company reports restructuring and related charges associated with manufacturing and related initiatives in Cost of goods sold. Restructuring and related charges reflected in Cost of goods sold include, but are not limited to, termination, compensation and related costs associated with manufacturing employees, asset impairments relating to manufacturing initiatives, and other costs directly related to the restructuring or integration initiatives implemented.
The Company reports restructuring and related charges relating to administrative functions in Operating expenses, such as initiatives impacting sales, marketing, distribution, or other non-manufacturing functions. Restructuring and related charges

22

Table of Contents
SB/RH HOLDINGS, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) – (Continued)
(Amounts in thousands, except per share figures)


reflected in Operating expenses include, but are not limited to, termination and related costs, any asset impairments relating to the functional areas described above, and other costs directly related to the initiatives.
The following table summarizes restructuring and related charges incurred by segment for the three month periods ended December 29, 2013 and December 30, 2012:
 
 
Three Months Ended
 
December 29, 2013
 
December 30, 2012
Cost of goods sold:
 
 
 
Global Batteries & Appliances
$
540

 
$
366

Hardware & Home Improvement
1,195

 

Global Pet Supplies

 
720

Total restructuring and related charges in cost of goods sold
$
1,735

 
$
1,086

Operating expenses:
 
 
 
Global Batteries & Appliances
1,778

 
956

Hardware & Home Improvement
11

 

Global Pet Supplies
304

 
4,230

Home and Garden

 
183

Corporate
664

 
133

Total restructuring and related charges in operating expenses
$
2,757

 
$
5,502

Total restructuring and related charges
$
4,492

 
$
6,588

Global Expense Rationalization Initiatives Summary
During the third quarter of the fiscal year ended September 30, 2013, the Company implemented a series of initiatives throughout the Company to reduce operating costs (the “Global Expense Rationalization Initiatives”). These initiatives consist of headcount reductions primarily in the Global Batteries & Appliances segment and within Corporate. Costs associated with these initiatives, which are expected to be incurred through December 31, 2014, are currently projected to total approximately $17,500.
The Company recorded $2,924 of pretax restructuring and related charges during the three month period ended December 29, 2013, and no pretax restructuring and related charges during the three month period ended December 30, 2012, related to the Global Expense Rationalization Initiatives.
 
The following table summarizes the remaining accrual balance associated with the Global Expense Rationalization Initiatives and the activity during the three month period ended December 29, 2013:

 
Termination
Benefits
 
Other
Costs
 
Total
Accrual balance at September 30, 2013
$
7,320

 
$
(35
)
 
$
7,285

Provisions
435

 
(4
)
 
431

Cash expenditures
(3,134
)
 

 
(3,134
)
Non-cash items
185

 
2

 
187

Accrual balance at December 29, 2013
$
4,806

 
$
(37
)
 
$
4,769

Expensed as incurred (A) 
$
897

 
$
1,596

 
$
2,493

 ______________________________
(A)
Consists of amounts not impacting the accrual for restructuring and related charges.
The following table summarizes the expenses incurred during the three month period ended December 29, 2013, the cumulative amount incurred to date and the total future costs expected to be incurred associated with the Global Expense Rationalization Initiatives by operating segment:

23

Table of Contents
SB/RH HOLDINGS, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) – (Continued)
(Amounts in thousands, except per share figures)


  
 
Global
Batteries &
Appliances
 
Global
Pet Supplies
 
Corporate
 
Total
Restructuring and related charges during the three month period ended December 29, 2013
$
2,260

 
1

 
$
663

 
$
2,924

Restructuring and related charges since initiative inception
$
12,330

 
1

 
$
1,911

 
$
14,242

Total future restructuring and related charges expected
$
2,610

 
500

 
$
142

 
$
3,252

Global Cost Reduction Initiatives Summary
During the fiscal year ended September 30, 2009, the Company implemented a series of initiatives within the Global Batteries & Appliances segment, the Global Pet Supplies segment and the Home and Garden segment to reduce operating costs, and to evaluate opportunities to improve the Company’s capital structure (the “Global Cost Reduction Initiatives”). These initiatives included headcount reductions and the exit of certain facilities within each of these segments. These initiatives also included consultation, legal and accounting fees related to the evaluation of the Company’s capital structure. Costs associated with these initiatives, which are expected to be incurred through January 31, 2015, are projected to total approximately $101,500.
The Company recorded $377 and $6,471 of pretax restructuring and related charges during the three month periods ended December 29, 2013 and December 30, 2012, respectively, related to the Global Cost Reduction Initiatives.
 
The following table summarizes the remaining accrual balance associated with the Global Cost Reduction Initiatives and the activity during the three month period ended December 29, 2013:
 
 
Termination
Benefits
 
Other
Costs
 
Total
Accrual balance at September 30, 2013
$
4,927

 
$
424

 
$
5,351

Provisions
203

 

 
203

Cash expenditures
(1,741
)
 
(169
)
 
(1,910
)
Non-cash items
(12
)
 
(56
)
 
(68
)
Accrual balance at December 29, 2013
$
3,377

 
$
199

 
$
3,576

Expensed as incurred (A) 
$
14

 
$
160

 
$
174

 ______________________________
(A)
Consists of amounts not impacting the accrual for restructuring and related charges.
The following table summarizes the expenses incurred during the three month period ended December 29, 2013, the cumulative amount incurred to date and the total future costs expected to be incurred associated with the Global Cost Reduction Initiatives by operating segment:
  
 
Global
Batteries &
Appliances
 
Global Pet
Supplies
 
Home and
Garden
 
Corporate
 
Total
Restructuring and related charges during the three month period ended December 29, 2013
$
74

 
$
303

 
$

 
$

 
$
377

Restructuring and related charges since initiative inception
$
25,486

 
$
48,452

 
$
18,219

 
$
7,591

 
$
99,748

Total future restructuring and related charges expected
$
500

 
$
1,240

 
$

 
$

 
$
1,740



24

Table of Contents
SB/RH HOLDINGS, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) – (Continued)
(Amounts in thousands, except per share figures)


The Company recorded $1,207 and $0 of restructuring and related charges during the three month periods ended December 29, 2013 and December 30, 2012, respectively, related to initiatives implemented by the HHI Business prior to the Company's acquisition on December 17, 2012.
In connection with other restructuring efforts, the Company recorded $(16) and $117 of pretax restructuring and related charges during the three month periods ended December 29, 2013 and December 30, 2012, respectively.

13
COMMITMENTS AND CONTINGENCIES
The Company has provided for the estimated costs associated with environmental remediation activities at some of its current and former manufacturing sites. The Company believes that any additional liability which may result from resolution of these matters in excess of the amounts provided of approximately $4,805, will not have a material adverse effect on the financial condition, results of operations or cash flows of the Company.
The Company is a defendant in various other matters of litigation generally arising out of the ordinary course of business. The Company does not believe that the resolution of any other matters or proceedings presently pending will have a material adverse effect on its results of operations, financial condition, liquidity or cash flows.

14
ACQUISITIONS
In accordance with ASC Topic 805, “Business Combinations” (“ASC 805”), the Company accounts for acquisitions by applying the acquisition method of accounting. The acquisition method of accounting requires, among other things, that the assets acquired and liabilities assumed in a business combination be measured at their fair values as of the closing date of the acquisition.
HHI Business
On December 17, 2012, the Company completed the cash acquisition of the HHI Business from Stanley Black & Decker. A portion of the HHI Business, consisting of the purchase of the TLM Business, closed on April 8, 2013.
Supplemental Pro Forma Information (Unaudited)
The following reflects the Company's pro forma results had the results of the HHI Business been included for all periods presented.
 
 
Three Months Ended
 
December 29, 2013
 
December 30, 2012
Net sales:
 
 
 
Reported Net sales
$
1,100,600

 
$
870,268

HHI Business adjustment (1)

 
191,777

Pro forma Net sales
$
1,100,600

 
$
1,062,045

 
 
 
 

Net income (loss):
 
 
 

Reported Net income (loss) (2) (3)
$
54,921

 
$
(7,091
)
HHI Business adjustment (1)

 
4,942

Pro forma Net income (loss)
$
54,921

 
$
(2,149
)
 
(1)
The results related to the HHI Business adjustment do not reflect the TLM Business as stand alone financial data is not available for the periods presented. The TLM Business is not deemed material to the operating results of the Company.
(2)
Included in Reported Net loss for the three month period ended December 30, 2012, is an adjustment of $45,932 to record the income tax benefit resulting from the reversal of U.S. valuation allowances on deferred tax assets as a result of the HHI Business acquisition. For information pertaining to the income tax benefit, see Note 11, “Income Taxes.”
(3)
Included in Reported Net income (loss) for the three month periods ended December 29, 2013 and December 30, 2012, is $4,137 and $14,612, respectively, of Acquisition and integration related charges as a result of the HHI Business acquisition. For information pertaining to Acquisition and integration related charges, see Note 2, “Significant Accounting Policies - Acquisition and Integration Related Charges.”


25

Table of Contents
SB/RH HOLDINGS, LLC
Notes to Condensed Consolidated Financial Statements (Unaudited) – (Continued)
(Amounts in thousands, except per share figures)


15
NEW ACCOUNTING PRONOUNCEMENTS

Presentation of Comprehensive Income
In June 2011, the Financial Accounting Standards Board ("FASB") issued new accounting guidance which requires entities to present net income and other comprehensive income in either a single continuous statement or in two separate, but consecutive, statements of net income and other comprehensive income. The guidance requiring disclosure of the income statement location where gains and losses reclassified out of comprehensive income are included was deferred in December 2011. In November 2012, the FASB clarified its position on the reclassification disclosures, allowing disclosure of reclassification adjustments on the face of the comprehensive income statement or in the notes to the financial statements. The accounting guidance requiring a comprehensive income statement is now effective for the Company. The Company has implemented all required disclosures.
Presentation of Unrecognized Tax Benefit
In July 2013, the FASB issued new accounting guidance which requires entities to present unrecognized tax benefits as a reduction of a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except to the extent the net operating loss carryforwards or tax credit carryforwards are not available to be used at the reporting date to settle additional income taxes, and the entity does not intend to use them for this purpose. The new accounting guidance is consistent with how the Company has historically presented unrecognized tax benefits in its Condensed Consolidated Statements of Financial Position (Unaudited), and therefore, the Company does not expect the adoption of this guidance to have a significant impact on its consolidated financial statements.

16 SUBSEQUENT EVENTS
ASC 855, “Subsequent Events,” (“ASC 855”), establishes general standards of accounting and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. ASC 855 requires the Company to evaluate events that occur after the balance sheet date through the date the Company's financial statements are issued, and to determine whether adjustments to or additional disclosures in the financial statements are necessary. The Company has evaluated subsequent events through the date these financial statements were issued.
On January 2, 2014, the Company completed the $34,300 cash acquisition of Liquid Fence Company, Inc. ("Liquid Fence"), a producer of animal repellents. The Company will account for the acquisition of Liquid Fence in accordance with ASC 805. The Company is in the process of completing the preliminary purchase accounting.


26


17
CONSOLIDATING FINANCIAL STATEMENTS
SB/RH with its domestic subsidiaries as guarantors, has issued the 6.375% Notes and the 6.625% Notes under the 2020/22 Indenture and the 3.75% Notes. (See Note 6, “Debt,” for further information on the 6.375% Notes and the 6.625% Notes under the 2020/22 Indenture.)
The following consolidating financial statements illustrate the components of the consolidated financial statements of the Company. Investments in subsidiaries are accounted for using the equity method for purposes of illustrating the consolidating presentation. Earnings of subsidiaries are therefore reflected in the Company’s and Guarantor Subsidiaries’ investment accounts and earnings. The elimination entries presented herein eliminate investments in subsidiaries and intercompany balances and transactions.  


27


SB/RH HOLDINGS, LLC AND SUBSIDIARIES
Condensed Consolidating Statement of Financial Position
December 29, 2013
(Unaudited)
(Amounts in thousands) 
 
SB/RH (without consolidated entities)
 
Guarantor
Subsidiaries
 
Nonguarantor
Subsidiaries
 
Eliminations
 
Consolidated
Total
ASSETS
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
23,036

 
$
6,993

 
$
97,343

 
$

 
$
127,372

Receivables:
 
 
 
 
 
 
 
 
 
Trade accounts receivables, net of allowances
44,492

 
157,362

 
322,102

 

 
523,956

Intercompany receivables
256,511

 
640,200

 
616,751

 
(1,510,560
)
 
2,902

Other
2,701

 
14,278

 
46,281

 

 
63,260

Inventories
68,568

 
365,032

 
257,177

 
(7,465
)
 
683,312

Deferred income taxes
(12,851
)
 
32,854

 
12,012

 
1,801

 
33,816

Prepaid expenses and other
23,474

 
11,249

 
31,561

 
556

 
66,840

Total current assets
405,931

 
1,227,968

 
1,383,227

 
(1,515,668
)
 
1,501,458

Property, plant and equipment, net
135,497

 
117,615

 
182,139

 

 
435,251

Long-term intercompany receivables
22,548

 
290,152

 
67,472

 
(380,172
)
 

Deferred charges and other
6,587

 
2,813

 
18,216

 

 
27,616

Goodwill
67,722

 
980,533

 
427,937

 

 
1,476,192

Intangible assets, net
501,914

 
1,164,935

 
479,579

 

 
2,146,428

Debt issuance costs
55,157

 

 
6,173

 

 
61,330

Investments in subsidiaries
3,941,241

 
1,210,492

 
444

 
(5,152,177
)
 

Total assets
$
5,136,597

 
$
4,994,508

 
$
2,565,187

 
$
(7,048,017
)
 
$
5,648,275

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
 
 
 
 
 
 
 
 
 
Current maturities of long-term debt
$
70,275

 
$
1,987

 
$
35,646

 
$

 
$
107,908

Accounts payable
62,175

 
163,905

 
188,544

 

 
414,624

Intercompany accounts payable
1,128,528

 
730,834

 
242,093

 
(2,101,455
)
 

Accrued liabilities:
 
 
 
 
 
 
 
 
 
Wages and benefits
9,787

 
25,967

 
37,750

 

 
73,504

Income taxes payable
2,309

 
(421
)
 
38,595

 

 
40,483

Accrued interest
18,527

 

 
146

 

 
18,673

Other
22,901

 
52,107

 
87,241

 

 
162,249

Total current liabilities
1,314,502

 
974,379

 
630,015

 
(2,101,455
)
 
817,441

Long-term debt, net of current maturities
2,843,768

 
8,029

 
406,564

 

 
3,258,361

Intercompany long-term debt
17,824

 
(360,244
)
 
131,142

 
211,278

 

Employee benefit obligations, net of current portion
17,287

 

 
74,785

 

 
92,072

Deferred income taxes
(34,970
)
 
430,672

 
96,191

 

 
491,893

Other
10,859

 
431

 
15,998

 

 
27,288

Total liabilities
4,169,270

 
1,053,267

 
1,354,695

 
(1,890,177
)
 
4,687,055

Shareholders’ equity:
 
 
 
 
 
 
 
 
 
Other capital
1,383,440

 
3,187,900

 
1,175,780

 
(4,369,786
)
 
1,377,334

Accumulated (deficit) retained earnings
(428,127
)
 
728,246

 
4,795

 
(733,041
)
 
(428,127
)
Accumulated other comprehensive loss
(37,389
)
 
(29,197
)
 
(24,375
)
 
53,571

 
(37,390
)
Total shareholders’ equity
917,924

 
3,886,949

 
1,156,200

 
(5,049,256
)
 
911,817

Non-controlling interest
49,403

 
54,292

 
54,292

 
(108,584
)
 
49,403