42c0e87de226433

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 June 29, 2014

 

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      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      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

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  

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      No  

 

 

 


 

Table of Contents

 

SB/RH HOLDINGS, LLC

QUARTERLY REPORT ON FORM 10-Q

FOR QUARTER ENDED June 29, 2014 

INDEX

 

 

 

 

 

Part I—Financial Information

Page

 

 

 

Item 1. 

Financial Statements

3

 

Condensed Consolidated Statements of Financial Position as of June 29, 2014 (Unaudited) and September 30, 2013

3

 

Condensed Consolidated Statements of Operations (Unaudited) for the three and nine month periods ended June 29, 2014 and June 30, 2013

4

 

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the three and nine month periods ended June 29, 2014 and June 30, 2013

5

 

Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine month periods ended June 29, 2014 and June 30, 2013

6

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

7

Item 2. 

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

42

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

55

Item 4. 

Controls and Procedures

56

 

Part II—Other Information

 

Item 1. 

Legal Proceedings

56

Item 1A. 

Risk Factors

57

Item 6. 

Exhibits

57

 

 

 

Signatures 

 

58

 

 

 

 

 

 

2

 


 

 

PART I. FINANCIAL INFORMATION

Item 1.   Financial Statements

SB/RH HOLDINGS, LLC

Condensed Consolidated Statements of Financial Position

June 29, 2014 and September 30, 2013 

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 29, 2014

 

September 30, 2013

Assets

 

 

(Unaudited)

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

83,399 

 

$

198,219 

Receivables:

 

 

 

 

 

 

Trade accounts receivable, net of allowances $35,626 and $37,376, respectively

 

 

523,628 

 

 

481,313 

Other

 

 

84,195 

 

 

67,081 

Inventories

 

 

734,823 

 

 

632,923 

Deferred income taxes

 

 

39,133 

 

 

32,959 

Prepaid expenses and other

 

 

87,557 

 

 

62,781 

Total current assets

 

 

1,552,735 

 

 

1,475,276 

Property, plant and equipment, net of accumulated depreciation of $253,343 and $203,897, respectively

 

 

440,398 

 

 

412,551 

Deferred charges and other

 

 

28,764 

 

 

26,050 

Goodwill

 

 

1,484,436 

 

 

1,476,672 

Intangible assets, net

 

 

2,136,166 

 

 

2,163,166 

Debt issuance costs

 

 

56,085 

 

 

65,329 

Total assets

 

$

5,698,584 

 

$

5,619,044 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current maturities of long-term debt

 

$

121,509 

 

$

102,921 

Accounts payable

 

 

419,551 

 

 

525,519 

Accrued liabilities:

 

 

 

 

 

 

Wages and benefits

 

 

74,322 

 

 

82,056 

Income taxes payable

 

 

16,702 

 

 

32,613 

Accrued interest

 

 

21,553 

 

 

36,731 

Other

 

 

147,831 

 

 

171,074 

Total current liabilities

 

 

801,468 

 

 

950,914 

Long-term debt, net of current maturities

 

 

3,215,100 

 

 

3,115,942 

Employee benefit obligations, net of current portion

 

 

84,859 

 

 

96,612 

Deferred income taxes

 

 

506,694 

 

 

492,774 

Other

 

 

28,505 

 

 

28,879 

Total liabilities

 

 

4,636,626 

 

 

4,685,121 

Commitments and contingencies

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

Other capital

 

 

1,390,186 

 

 

1,393,124 

Accumulated deficit

 

 

(343,555)

 

 

(469,886)

Accumulated other comprehensive loss

 

 

(33,997)

 

 

(38,521)

Total shareholders' equity

 

 

1,012,634 

 

 

884,717 

Noncontrolling interest

 

 

49,324 

 

 

49,206 

Total equity

 

 

1,061,958 

 

 

933,923 

Total liabilities and equity

 

$

5,698,584 

 

$

5,619,044 

 

See accompanying notes which are an integral part of these condensed consolidated financial statements

(Unaudited).

3


 

SB/RH HOLDINGS, LLC

Condensed Consolidated Statements of Operations

For the three and nine month periods ended June 29, 2014 and June 30, 2013 

(Unaudited)

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

THREE MONTHS ENDED

 

NINE MONTHS ENDED

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2014

 

2013

 

2014

 

2013

Net sales

 

$

1,128,509 

 

$

1,089,825 

 

$

3,250,797 

 

$

2,947,849 

Cost of goods sold

 

 

710,918 

 

 

706,053 

 

 

2,089,601 

 

 

1,949,332 

Restructuring and related charges

 

 

554 

 

 

1,013 

 

 

3,328 

 

 

4,698 

Gross profit

 

 

417,037 

 

 

382,759 

 

 

1,157,868 

 

 

993,819 

Selling

 

 

171,841 

 

 

165,178 

 

 

501,759 

 

 

464,961 

General and administrative

 

 

77,952 

 

 

70,057 

 

 

225,346 

 

 

196,077 

Research and development

 

 

12,163 

 

 

11,486 

 

 

35,258 

 

 

31,517 

Acquisition and integration related charges

 

 

2,671 

 

 

7,747 

 

 

14,455 

 

 

40,558 

Restructuring and related charges

 

 

3,138 

 

 

12,232 

 

 

12,665 

 

 

23,038 

Total operating expenses

 

 

267,765 

 

 

266,700 

 

 

789,483 

 

 

756,151 

Operating income

 

 

149,272 

 

 

116,059 

 

 

368,385 

 

 

237,668 

Interest expense

 

 

47,344 

 

 

61,516 

 

 

151,724 

 

 

185,652 

Other expense, net

 

 

2,760 

 

 

2,613 

 

 

4,390 

 

 

7,941 

Income from continuing operations before income taxes

 

 

99,168 

 

 

51,930 

 

 

212,271 

 

 

44,075 

Income tax expense

 

 

20,554 

 

 

15,169 

 

 

43,841 

 

 

54,928 

Net income (loss)

 

 

78,614 

 

 

36,761 

 

 

168,430 

 

 

(10,853)

Less: Net income attributable to non-controlling interest

 

 

19 

 

 

263 

 

 

179 

 

 

Net income (loss) attributable to controlling interest

 

$

78,595 

 

$

36,498 

 

$

168,251 

 

$

(10,861)

 

See accompanying notes which are an integral part of these condensed consolidated financial statements

(Unaudited).

4


 

SB/RH HOLDINGS, LLC

Condensed Consolidated Statements of Comprehensive Income (Loss)

For the three and nine month periods ended June 29, 2014 and June 30, 2013 

(Unaudited)

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

THREE MONTHS ENDED

 

NINE MONTHS ENDED

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2014

 

2013

 

2014

 

2013

Net income (loss)

 

$

78,614 

 

$

36,761 

 

$

168,430 

 

$

(10,853)

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation gain (loss)

 

 

8,444 

 

 

(7,830)

 

 

5,594 

 

 

(25,385)

Unrealized gain (loss) on derivative hedging instruments

 

 

(1,485)

 

 

1,780 

 

 

(1,595)

 

 

2,858 

Defined benefit pension gain (loss)

 

 

416 

 

 

(52)

 

 

525 

 

 

(348)

Other comprehensive income (loss), net of tax

 

 

7,375 

 

 

(6,102)

 

 

4,524 

 

 

(22,875)

Comprehensive income (loss)

 

 

85,989 

 

 

30,659 

 

 

172,954 

 

 

(33,728)

Less: Comprehensive income attributable to non-controlling interest

 

 

27 

 

 

263 

 

 

415 

 

 

Comprehensive income (loss) attributable to controlling interest

 

$

85,962 

 

$

30,396 

 

$

172,539 

 

$

(33,736)

 

See accompanying notes which are an integral part of these condensed consolidated financial statements

(Unaudited).

5


 

SB/RH HOLDINGS, LLC

Condensed Consolidated Statements of Cash Flows

For the nine month periods ended June 29, 2014 and June 30, 2013 

(Unaudited)

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NINE MONTHS ENDED

 

 

 

 

 

 

 

 

 

2014

 

2013

Cash flows from operating activities:

 

 

 

 

 

 

Net income (loss)

 

$

168,430 

 

$

(10,853)

Adjustments to reconcile net income (loss) to net cash used by operating activities, net of effects of acquisitions:

 

 

 

 

 

 

Depreciation

 

 

56,375 

 

 

42,618 

Amortization of intangibles

 

 

61,233 

 

 

57,502 

Amortization of unearned restricted stock compensation

 

 

26,013 

 

 

31,830 

Amortization of debt issuance costs

 

 

8,184 

 

 

7,210 

Non-cash increase to cost of goods sold due to HHI acquisition inventory step up

 

 

 

 

31,000 

Write off unamortized discount on retired debt

 

 

2,821 

 

 

885 

Write off of debt issuance costs

 

 

6,395 

 

 

4,600 

Other non-cash adjustments

 

 

3,952 

 

 

19,518 

Net changes in assets and liabilities

 

 

(382,582)

 

 

(260,148)

Net cash used by operating activities

 

 

(49,179)

 

 

(75,838)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(50,938)

 

 

(45,236)

Acquisition of Liquid Fence, net of cash acquired

 

 

(25,254)

 

 

Acquisition of Shaser, net of cash acquired

 

 

 

 

(42,510)

Acquisition of the HHI Business, net of cash acquired

 

 

 

 

(1,351,008)

Proceeds from sales of property, plant and equipment

 

 

9,091 

 

 

160 

Other investing activities

 

 

(239)

 

 

(1,301)

Net cash used by investing activities

 

 

(67,340)

 

 

(1,439,895)

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

 

 

(567,459)

 

 

(406,904)

Debt issuance costs

 

 

(5,419)

 

 

(44,469)

Other debt financing, net

 

 

13,897 

 

 

17,080 

Reduction of other debt

 

 

(4,415)

 

 

(1,970)

ABL revolving credit facility, net

 

 

110,000 

 

 

69,500 

Capital contribution from parent

 

 

 

 

28,562 

Cash dividends paid to parent

 

 

(42,021)

 

 

(61,842)

Share based payment tax withholding payments

 

 

(26,548)

 

 

(20,141)

Net cash provided by financing activities

 

 

1,693 

 

 

1,461,816 

Effect of exchange rate changes on cash and cash equivalents due to Venezuela devaluation

 

 

 

 

(1,870)

Effect of exchange rate changes on cash and cash equivalents

 

 

 

 

(3,181)

Net decrease in cash and cash equivalents

 

 

(114,820)

 

 

(58,968)

Cash and cash equivalents, beginning of period

 

 

198,219 

 

 

157,872 

Cash and cash equivalents, end of period

 

$

83,399 

 

$

98,904 

 

See accompanying notes which are an integral part of these condensed consolidated financial statements

(Unaudited).

 

 

6


 

Table of Contents

SB/RH HOLDINGS, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Amounts in thousands)

 

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 (“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 12, “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 June 29, 2014, the results of operations for the three and nine month periods ended June 29, 2014 and June 30, 2013, the comprehensive income (loss) for the three and nine month periods ended June 29, 2014 and June 30, 2013 and the cash flows for the nine month periods ended June 29, 2014 and June 30, 2013. Certain information and note 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.

 

 

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Table of Contents

SB/RH HOLDINGS, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

(Amounts in thousands)

 

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 $66,195 and $194,530 for the three and nine month periods ended June 29, 2014, respectively, and $67,023 and $183,050 for the three and nine month periods ended June 30, 2013, 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, two of which account for a significant percentage of its sales volume. The first customer represented approximately 15%  and 16% of the Company’s Net sales during the three and nine month periods ended June 29, 2014, and 17% and 18% of the Company’s Net sales during the three and nine month periods ended June 30, 2013, respectively. The second customer represented approximately 10% and 9% of the Company’s Net sales during the three and nine month periods ended June 29, 2014, and 10% and 7% of the Company’s Net sales during the three and nine month periods ended June 30, 2013, respectively. The first customer represented approximately 11% of the Company’s Trade accounts receivable, net at both June 29, 2014 and September 30, 2013, respectively.  The second customer represented 15% and 14% of the Company’s Trade accounts receivable, net at June 29, 2014 and September 30, 2013, respectively.

Approximately 37% and 41% of the Company’s Net sales during the three and nine month periods ended June 29, 2014, respectively, and 37% and 41% of the Company’s Net sales during the three and nine month periods ended June 30, 2013, 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 collectability 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.

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Table of Contents

SB/RH HOLDINGS, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

(Amounts in thousands)

Total stock compensation expense associated with restricted stock units recognized by the Company during the three and nine month periods ended June 29, 2014 was $9,236 and $26,013, respectively. Total stock compensation expense associated with restricted stock units recognized by the Company during the three and nine month periods ended June 30, 2013 was $17,673 and $31,830, respectively.

The Company granted approximately 6 and 415 restricted stock units during the three and nine month periods ended June 29, 2014, respectively. The 415 restricted stock units granted during the nine months ended June 29, 2014 include 81 restricted stock units that vested immediately and 41 time-based restricted stock units that vest over a one year period. The remaining 293 restricted stock units are performance and time-based that vest over a two year period. The total market value of the restricted stock units on the dates of the grants was approximately $28,744.

The Company granted approximately 30 and 644 restricted stock units during the three and nine month periods ended June 30, 2013, respectively. The 644 restricted stock units granted during the nine months ended June 30, 2013 include 90 time-based restricted stock units that vest over a one year period and 554 restricted stock units are performance and time-based that vest over a two year period. The total market value of the restricted stock units on the dates of the grants was approximately $ 29,319.

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 nine months ended June 29, 2014 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Average

 

Fair Value

 

 

 

 

Grant Date

 

at Grant

Restricted Stock Units

 

Shares

 

Fair Value

 

Date

Non-vested restricted stock units at September 30, 2013

 

1,104 

 

$

39.01 

 

$

43,067 

Granted

 

415 

 

 

69.26 

 

 

28,744 

Vested

 

(928)

 

 

39.29 

 

 

(36,458)

Non-vested restricted stock units at June 29, 2014

 

591 

 

$

59.82 

 

$

35,353 

 

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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Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

(Amounts in thousands)

The following table summarizes acquisition and integration related charges incurred by the Company during the three and nine month periods ended June 29, 2014 and June 30, 2013:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2014

 

2013

 

2014

 

2013

Russell Hobbs

 

 

 

 

 

 

 

 

 

 

 

 

Integration costs

 

$

 

$

695 

 

$

 

$

2,630 

Employee termination charges

 

 

 

 

(35)

 

 

 

 

224 

Legal and professional fees

 

 

 

 

(78)

 

 

 

 

12 

Russell Hobbs Acquisition and integration related charges

 

$

 

$

582 

 

$

 

$

2,866 

HHI Business

 

 

 

 

 

 

 

 

 

 

 

 

Legal and professional fees

 

 

222 

 

 

4,663 

 

 

1,912 

 

 

25,650 

Integration costs

 

 

3,105 

 

 

1,615 

 

 

9,283 

 

 

5,292 

Employee termination charges (credits)

 

 

 

 

13 

 

 

(19)

 

 

103 

HHI Business Acquisition and integration related charges

 

$

3,327 

 

$

6,291 

 

$

11,176 

 

$

31,045 

Liquid Fence

 

 

692 

 

 

 

 

2,397 

 

 

Shaser

 

 

224 

 

 

161 

 

 

801 

 

 

4,534 

FURminator

 

 

 

 

372 

 

 

53 

 

 

1,605 

Black Flag

 

 

 

 

52 

 

 

 

 

90 

(Credits) Other

 

 

(1,573)

 

 

289 

 

 

28 

 

 

418 

Total Acquisition and integration related charges

 

$

2,671 

 

$

7,747 

 

$

14,455 

 

$

40,558 

 

 

 

 

 

 

 

 

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 and nine month periods ended June 29, 2014 and June 30, 2013 were principally 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 and nine month periods ended June 29, 2014 and June 30, 2013 are as follows:

 

 

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Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2014

 

2013

 

2014

 

2013

Foreign Currency Translation Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

Net change after reclassification adjustment

 

$

8,444 

 

$

(7,830)

 

$

5,594 

 

$

(25,385)

Deferred tax effect

 

 

 

 

 

 

 

 

Deferred tax valuation allowance

 

 

 

 

 

 

 

 

Other Comprehensive Income (Loss)

 

 

8,444 

 

 

(7,830)

 

 

5,594 

 

 

(25,385)

Noncontrolling interest

 

 

 

 

 

 

236 

 

 

Comprehensive income (loss) attributable to controlling interest

 

$

8,436 

 

$

(7,830)

 

$

5,358 

 

$

(25,385)

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Hedging Instruments:

 

 

 

 

 

 

 

 

 

 

 

 

Gross change before reclassification adjustment

 

$

(3,002)

 

$

3,193 

 

$

(3,919)

 

$

4,595 

Net reclassification adjustment for (gains) losses included in earnings

 

 

1,273 

 

 

(507)

 

 

2,156 

 

 

(80)

Gross change after reclassification adjustment

 

 

(1,729)

 

 

2,686 

 

 

(1,763)

 

 

4,515 

Deferred tax effect

 

 

332 

 

 

(450)

 

 

220 

 

 

(1,566)

Deferred tax valuation allowance

 

 

(88)

 

 

(456)

 

 

(52)

 

 

(91)

Other Comprehensive Income (Loss)

 

$

(1,485)

 

$

1,780 

 

$

(1,595)

 

$

2,858 

 

 

 

 

 

 

 

 

 

 

 

 

 

Defined Benefit Pension Plans:

 

 

 

 

 

 

 

 

 

 

 

 

Gross change before reclassification adjustment

 

$

175 

 

$

(575)

 

$

(416)

 

$

(2,164)

Net reclassification adjustment for losses included in Cost of goods sold

 

 

153 

 

 

326 

 

 

460 

 

 

979 

Net reclassification adjustment for losses included in Selling expenses

 

 

78 

 

 

41 

 

 

234 

 

 

122 

Net reclassification adjustment for losses included in General and administrative expenses

 

 

156 

 

 

152 

 

 

467 

 

 

456 

Gross change after reclassification adjustment

 

 

562 

 

 

(56)

 

 

745 

 

 

(607)

Deferred tax effect

 

 

(146)

 

 

(38)

 

 

(220)

 

 

205 

Deferred tax valuation allowance

 

 

 

 

42 

 

 

 

 

54 

Other Comprehensive Income (Loss)

 

$

416 

 

$

(52)

 

$

525 

 

$

(348)

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Other Comprehensive Income (Loss), net of tax

 

$

7,367 

 

$

(6,102)

 

$

4,288 

 

$

(22,875)

 

 

4    INVENTORIES

Inventories for the Company, which are stated at the lower of cost or market, consist of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 29, 2014

 

September 30, 2013

Raw materials

 

$

123,790 

 

$

97,290 

Work-in-process

 

 

45,613 

 

 

40,626 

Finished goods

 

 

565,420 

 

 

495,007 

 

 

$

734,823 

 

$

632,923 

 

 

 

 

 

 

 

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SB/RH HOLDINGS, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

(Amounts in thousands)

5    GOODWILL AND INTANGIBLE ASSETS

Goodwill and intangible assets of the Company consist of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global 

 

Hardware &

 

 

 

 

 

 

 

 

 

 

 

Batteries &

 

Home

 

Global Pet

 

Home and

 

 

 

 

 

Appliances

 

Improvement

 

Supplies

 

Garden

 

Total

Goodwill:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2013

 

$

333,500 

 

$

714,724 

 

$

239,077 

 

$

189,371 

 

$

1,476,672 

Additions

 

 

 

 

3,460 

 

 

 

 

7,088 

 

 

10,548 

Effect of translation

 

 

1,520 

 

 

(4,488)

 

 

184 

 

 

 

 

(2,784)

Balance at June 29, 2014

 

$

335,020 

 

$

713,696 

 

$

239,261 

 

$

196,459 

 

$

1,484,436 

Intangible Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade Names Not Subject to Amortization

Balance at September 30, 2013

 

$

547,353 

 

$

330,771 

 

$

216,426 

 

$

83,500 

 

$

1,178,050 

Additions

 

 

 

 

 

 

 

 

5,100 

 

 

5,100 

Effect of translation

 

 

5,259 

 

 

74 

 

 

626 

 

 

 

 

5,959 

Balance at June 29, 2014

 

$

552,612 

 

$

330,845 

 

$

217,052 

 

$

88,600 

 

$

1,189,109 

Intangible Assets Subject to Amortization

Balance at September 30, 2013, net

 

$

440,776 

 

 

146,461 

 

$

245,227 

 

$

152,652 

 

$

985,116 

Additions

 

 

 

 

 

 

238 

 

 

21,800 

 

 

22,038 

Amortization during period

 

 

(26,262)

 

 

(11,069)

 

 

(16,183)

 

 

(7,719)

 

 

(61,233)

Effect of translation

 

 

1,440 

 

 

(505)

 

 

201 

 

 

 

 

1,136 

Balance at June 29, 2014, net

 

$

415,954 

 

$

134,887 

 

$

229,483 

 

$

166,733 

 

$

947,057 

Total Intangible Assets, net at June 29, 2014

 

$

968,566 

 

$

465,732 

 

$

446,535 

 

$

255,333 

 

$

2,136,166 

 

During the nine month period ended June 29, 2014, the Company recorded an adjustment of $3,460 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.

During the nine month period ended June 29, 2014, the Company recorded additions to goodwill and intangible assets related to the acquisition of Liquid Fence. See Note 14 "Acquisitions," for further information.

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; 17 years for technology assets related to the Home and Garden segment; 15 to 20 years for customer relationships of the Global Batteries & Appliances and Home and Garden segments; 20 years for customer relationships of the Hardware & Home Improvement 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:

 

 

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Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 29, 2014

 

September 30, 2013

 

 

 

 

 

Technology Assets Subject to Amortization:

 

 

 

 

 

 

Gross balance

 

$

192,180 

 

$

172,105 

Accumulated amortization

 

 

(52,866)

 

 

(39,028)

Carrying value, net

 

$

139,314 

 

$

133,077 

Trade Names Subject to Amortization:

 

 

 

 

 

 

Gross balance

 

$

171,404 

 

$

171,572 

Accumulated amortization

 

 

(56,966)

 

 

(44,660)

Carrying value, net

 

$

114,438 

 

$

126,912 

Customer Relationships Subject to Amortization:

 

 

 

 

 

 

Gross balance

 

$

889,624 

 

$

885,895 

Accumulated amortization

 

 

(196,319)

 

 

(160,768)

Carrying value, net

 

$

693,305 

 

$

725,127 

Total Intangible Assets, net  Subject to Amortization

 

$

947,057 

 

$

985,116 

 

Amortization expense for the three and nine month periods ended June 29, 2014 and June 30, 2013 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2014

 

2013

 

2014

 

2013

Proprietary technology amortization

 

$

4,707 

 

$

4,470 

 

$

13,850 

 

$

12,009 

Trade names amortization

 

 

4,112 

 

 

4,264 

 

 

12,336 

 

 

12,162 

Customer relationships amortization

 

 

11,713 

 

 

11,611 

 

 

35,047 

 

 

33,331 

 

 

$

20,532 

 

$

20,345 

 

$

61,233 

 

$

57,502 

 

The Company estimates annual amortization expense of intangible assets for the next five fiscal years will approximate $77,500 per year.

6    DEBT

Debt consists of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 29, 2014

 

September 30, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount

 

Rate

 

Amount

 

Rate

Term Loan, due September 4, 2017 (Tranche A)

 

$

818,125 

 

3.0 

%

 

$

850,000 

 

3.0 

%

Term Loan, due September 4, 2019 (Tranche C)

 

 

512,425 

 

3.6 

%

 

 

300,000 

 

3.6 

%

CAD Term Loan, due December 17, 2019

 

 

59,361 

 

5.1 

%

 

 

81,397 

 

5.1 

%

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

 

 

 

%

 

 

513,312 

 

4.6 

%

Euro Term Loan, due September 4, 2019

 

 

305,482 

 

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 

 

2.0 

%

 

 

 

5.7 

%

Other notes and obligations

 

 

52,112 

 

8.3 

%

 

 

28,468 

 

8.5 

%

Capitalized lease obligations

 

 

96,579 

 

6.1 

%

 

 

67,402 

 

6.2 

%

 

 

$

3,344,084 

 

 

 

 

$

3,230,579 

 

 

 

Original issuance discounts on debt

 

 

(7,475)

 

 

 

 

 

(11,716)

 

 

 

Less: current maturities

 

 

(121,509)

 

 

 

 

 

(102,921)

 

 

 

Long-term debt

 

$

3,215,100 

 

 

 

 

$

3,115,942 

 

 

 

 

The Company has the following debt instruments outstanding at June 29, 2014: (i) a senior secured term loan pursuant to a senior credit agreement (the “Senior Credit Agreement”) which consists of $818,125 principal due September 4, 2017 (“Tranche A”), $512,425 principal due September 4, 2019 (“Tranche C”), $59,361 Canadian dollar denominated principal due December 17, 2019 ("CAD Term Loan") and $305,482 Euro denominated principal due September 4, 2019 ("Euro Term Loan") (together, the “Term Loan”); (ii) $300,000 6.75% unsecured notes (the “6.75% Notes”); (iii) $520,000 6.375% 

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Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

(Amounts in thousands)

unsecured notes (the “6.375% Notes”); (iv) $570,000 6.625% unsecured notes (the “6.625% Notes”); and (v) a $400,000 asset based lending revolving credit facility (the “ABL Facility”).

Term Loan

On December 18, 2013, the Company 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 nine month period ended June 29, 2014.

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 nine month period ended June 29, 2014. In connection with the refinancing of a portion of the Term Loan, the Company recorded $162 and $7,236 of fees during the three and nine month periods ended June 29, 2014, respectively, of which $5,150 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 $2,086 reflected as an increase to interest expense during the nine month period ended June 29, 2014.

6.375% Notes and 6.625% Notes

In connection with the registration of the 6.375% Notes and the 6.625% Notes, that were assumed on December 17, 2012 to finance the acquisition of the HHI Business, the  Company recorded $9 and $261 of fees during the three and nine month periods ended June 29, 2014, respectively. The $261 was 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 6.375% Notes and the 6.625% Notes.

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 June 29, 2014, the Company had aggregate borrowing availability of approximately $193,759, net of lender reserves of $6,398 and outstanding letters of credit of $54,132.

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 recognized in earnings in the period incurred. 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 recognized in earnings in the period incurred.

 

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SB/RH HOLDINGS, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

(Amounts in thousands)

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: