20150628 10Q Q3 SBRH

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 28, 2015

 

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  (Note: The registrant has not been subject to the filing requirements of Section 15(d) of the Securities Exchange Act of 1934, as amended, since September 30, 2014.  The registrant is a voluntary filer and accordingly has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, during the period it was required to file such reports and during the past 90 days, notwithstanding that the registrant is no longer required to file such reports.)

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  

The Registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this report with a reduced disclosure format as permitted by General Instruction H(2).

 

 

 


 

Table of Contents

 

SB/RH HOLDINGS, LLC

QUARTERLY REPORT ON FORM 10-Q

FOR QUARTER ENDED June 28, 2015 

INDEX

 

 

 

 

 

Part I—Financial Information

Page

 

 

 

Item 1. 

Financial Statements

3

 

Condensed Consolidated Statements of Financial Position as of June 28, 2015 (Unaudited) and September 30, 2014

3

 

Condensed Consolidated Statements of Operations (Unaudited) for the three and nine month periods ended June 28, 2015 and June 29, 2014

4

 

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the three and nine month periods ended June 28, 2015 and June 29, 2014

5

 

Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine month periods ended June 28, 2015 and June 29, 2014

6

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

7

Item 2. 

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

48

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

62

Item 4. 

Controls and Procedures

62

 

Part II—Other Information

 

Item 1. 

Legal Proceedings

63

Item 1A. 

Risk Factors

63

Item 6. 

Exhibits

63

 

 

 

Signatures 

 

66

 

 

 

 

 

 

2

 


 

Table of Contents

 

PART I. FINANCIAL INFORMATION

Item 1.   Financial Statements

SB/RH HOLDINGS, LLC

Condensed Consolidated Statements of Financial Position

June 28, 2015 and September 30, 2014 

(Amounts in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 28, 2015

 

September 30, 2014

Assets

 

 

(Unaudited)

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

107.2 

 

$

192.9 

Receivables:

 

 

 

 

 

 

Trade accounts receivable, net of allowances $45.7 and $48.6, respectively

 

 

619.8 

 

 

439.0 

Other

 

 

103.3 

 

 

76.4 

Inventories

 

 

903.7 

 

 

624.5 

Deferred income taxes

 

 

34.9 

 

 

36.7 

Prepaid expenses and other

 

 

80.7 

 

 

63.4 

Total current assets

 

 

1,849.6 

 

 

1,432.9 

Property, plant and equipment, net of accumulated depreciation

  of $310.6 and $264.5, respectively

 

 

500.1 

 

 

428.9 

Deferred charges and other

 

 

38.5 

 

 

37.3 

Goodwill

 

 

2,488.0 

 

 

1,469.6 

Intangible assets, net

 

 

2,528.1 

 

 

2,091.5 

Debt issuance costs

 

 

69.5 

 

 

51.1 

Total assets

 

$

7,473.8 

 

$

5,511.3 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current maturities of long-term debt

 

$

99.5 

 

$

112.6 

Accounts payable

 

 

453.6 

 

 

519.7 

Accrued liabilities:

 

 

 

 

 

 

Wages and benefits

 

 

80.7 

 

 

88.1 

Income taxes payable

 

 

15.5 

 

 

18.5 

Accrued interest

 

 

17.4 

 

 

35.4 

Other

 

 

186.3 

 

 

156.3 

Total current liabilities

 

 

853.0 

 

 

930.6 

Long-term debt, net of current maturities

 

 

4,294.3 

 

 

2,894.1 

Employee benefit obligations, net of current portion

 

 

74.5 

 

 

82.0 

Deferred income taxes

 

 

599.1 

 

 

513.2 

Other

 

 

27.4 

 

 

21.2 

Total liabilities

 

 

5,848.3 

 

 

4,441.1 

Commitments and contingencies

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

Other capital

 

 

1,967.3 

 

 

1,413.8 

Accumulated deficit

 

 

(254.0)

 

 

(330.0)

Accumulated other comprehensive loss

 

 

(137.5)

 

 

(63.1)

Total shareholders' equity

 

 

1,575.8 

 

 

1,020.7 

Noncontrolling interest

 

 

49.7 

 

 

49.5 

Total equity

 

 

1,625.5 

 

 

1,070.2 

Total liabilities and equity

 

$

7,473.8 

 

$

5,511.3 

 

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

(Unaudited).

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SB/RH HOLDINGS, LLC

Condensed Consolidated Statements of Operations

For the three and nine month periods ended June 28, 2015 and June 29, 2014

(Unaudited)

(Amounts in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

THREE MONTHS ENDED

 

NINE MONTHS ENDED

 

 

2015

 

2014

 

2015

 

2014

Net sales

 

$

1,247.5 

 

$

1,128.5 

 

$

3,382.3 

 

$

3,250.8 

Cost of goods sold

 

 

789.5 

 

 

710.9 

 

 

2,179.0 

 

 

2,089.6 

Restructuring and related charges

 

 

 

 

0.6 

 

 

0.4 

 

 

3.3 

Gross profit

 

 

458.0 

 

 

417.0 

 

 

1,202.9 

 

 

1,157.9 

Selling

 

 

184.8 

 

 

171.8 

 

 

517.7 

 

 

501.8 

General and administrative

 

 

88.2 

 

 

78.0 

 

 

238.1 

 

 

225.3 

Research and development

 

 

12.9 

 

 

12.2 

 

 

36.9 

 

 

35.2 

Acquisition and integration related charges

 

 

24.2 

 

 

2.7 

 

 

44.2 

 

 

14.5 

Restructuring and related charges

 

 

10.5 

 

 

3.1 

 

 

21.9 

 

 

12.7 

Total operating expenses

 

 

320.6 

 

 

267.8 

 

 

858.8 

 

 

789.5 

Operating income

 

 

137.4 

 

 

149.2 

 

 

344.1 

 

 

368.4 

Interest expense

 

 

112.9 

 

 

47.3 

 

 

206.5 

 

 

151.7 

Other expense, net

 

 

1.7 

 

 

2.8 

 

 

5.6 

 

 

4.4 

Income from operations before income taxes

 

 

22.8 

 

 

99.1 

 

 

132.0 

 

 

212.3 

Income tax expense (benefit)

 

 

(23.8)

 

 

20.5 

 

 

4.8 

 

 

43.8 

Net income

 

 

46.6 

 

 

78.6 

 

 

127.2 

 

 

168.5 

Less: Net income attributable to non-controlling interest

 

 

0.0 

 

 

 

 

0.2 

 

 

0.2 

Net income attributable to controlling interest

 

$

46.6 

 

$

78.6 

 

$

127.0 

 

$

168.3 

 

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

(Unaudited).

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SB/RH HOLDINGS, LLC

Condensed Consolidated Statements of Comprehensive Income (Loss)

For the three and nine month periods ended June 28, 2015 and June 29, 2014

(Unaudited)

(Amounts in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

THREE MONTHS ENDED

 

NINE MONTHS ENDED

 

 

2015

 

2014

 

2015

 

2014

Net income

 

$

46.6 

 

$

78.6 

 

$

127.2 

 

$

168.5 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation gain (loss)

 

 

9.5 

 

 

8.4 

 

 

(68.6)

 

 

5.6 

Unrealized (loss) on derivative hedging instruments

 

 

(12.0)

 

 

(1.4)

 

 

(8.6)

 

 

(1.6)

Defined benefit pension gain (loss)

 

 

(0.6)

 

 

0.4 

 

 

2.8 

 

 

0.5 

Other comprehensive income (loss), net of tax

 

 

(3.1)

 

 

7.4 

 

 

(74.4)

 

 

4.5 

Comprehensive income

 

 

43.5 

 

 

86.0 

 

 

52.8 

 

 

173.0 

Less: Comprehensive income attributable to non-controlling interest

 

 

 

 

 

 

0.2 

 

 

0.4 

Comprehensive income attributable to controlling interest

 

$

43.5 

 

$

86.0 

 

$

52.6 

 

$

172.6 

 

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

(Unaudited).

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SB/RH HOLDINGS, LLC

Condensed Consolidated Statements of Cash Flows

For the nine month periods ended June 28, 2015 and June 29, 2014

(Unaudited)

(Amounts in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NINE MONTHS ENDED

 

 

2015

 

2014

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

127.2 

 

$

168.5 

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

 

 

 

 

 

 

Depreciation

 

 

58.7 

 

 

56.4 

Amortization of intangibles

 

 

64.0 

 

 

61.2 

Amortization of unearned restricted stock compensation

 

 

32.2 

 

 

26.0 

Amortization of debt issuance costs

 

 

7.7 

 

 

8.2 

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

 

 

7.7 

 

 

Write off unamortized discount on retired debt

 

 

1.7 

 

 

2.8 

Write off of debt issuance costs

 

 

11.2 

 

 

6.4 

Other non-cash adjustments

 

 

16.4 

 

 

4.0 

Net changes in operating assets and liabilities

 

 

(490.4)

 

 

(382.7)

Net cash used by operating activities

 

 

(163.6)

 

 

(49.2)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(49.5)

 

 

(50.9)

Acquisition of Tell Manufacturing, net of cash acquired

 

 

(29.2)

 

 

Acquisition of European IAMS and Eukanuba, net of cash acquired

 

 

(115.7)

 

 

Acquisition of Salix Animal Health, net of cash acquired

 

 

(147.8)

 

 

Acquisition of Armored AutoGroup, net of cash acquired

 

 

(900.5)

 

 

Acquisition of Liquid Fence, net of cash acquired

 

 

 

 

(25.3)

Proceeds from sales of property, plant and equipment

 

 

1.3 

 

 

9.1 

Other investing activities

 

 

(0.9)

 

 

(0.2)

Net cash used by investing activities

 

 

(1,242.3)

 

 

(67.3)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from issuance of Term Loan, net of discount

 

 

1,444.9 

 

 

523.7 

Proceeds from issuance of 6.125% Notes

 

 

250.0 

 

 

Proceeds from issuance of 5.75% Notes

 

 

1,000.0 

 

 

Proceeds from Euro Term Loan

 

 

340.2 

 

 

Proceeds from CAD Term Loan

 

 

60.9 

 

 

Payment of debt instruments, excluding ABL revolving credit facility

 

 

(2,281.9)

 

 

(567.5)

Debt issuance costs

 

 

(37.3)

 

 

(5.5)

Other debt financing, net

 

 

33.5 

 

 

9.5 

Revolving credit facility, net

 

 

47.5 

 

 

110.0 

Cash dividends paid to parent

 

 

(51.0)

 

 

(42.0)

Share based tax withholding payments, net of proceeds upon vesting

 

 

(1.9)

 

 

(26.5)

Capital contribution from Parent

 

 

528.3 

 

 

Net cash provided by financing activities

 

 

1,333.2 

 

 

1.7 

Effect of exchange rate changes on cash and cash equivalents

 

 

(13.0)

 

 

Net decrease in cash and cash equivalents

 

 

(85.7)

 

 

(114.8)

Cash and cash equivalents, beginning of period

 

 

192.9 

 

 

198.2 

Cash and cash equivalents, end of period

 

$

107.2 

 

$

83.4 

 

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

(Unaudited).

 

 

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SB/RH HOLDINGS, LLC

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

(Amounts in millions of dollars or as otherwise specified)

 

 

1    DESCRIPTION OF BUSINESS

SB/RH Holdings, LLC., a Delaware limited liability company (“SB/RH”, or the “Company”), is a diversified global branded consumer products company. SB/RH Holdings, LLC, is a wholly owned subsidiary of Spectrum Brands Holdings, Inc. (“SB Holdings”, or the “Parent”). 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.

On May 21, 2015, the Company acquired Armored AutoGroup Parent, Inc. (“AAG”). AAG is a consumer products company consisting primarily of Armor All and STP products, two of the most recognizable brands in the automotive aftermarket appearance products and performance chemicals categories, respectively, and the AC/PRO brand of do-it-yourself automotive air conditioner recharge products. For information pertaining to the AAG acquisition, see Note 13, “Acquisitions.”

The Company sells its products in approximately 160 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, IAMS, Eukanuba, Healthy-Hide, Digest-eeze, Spectracide, Cutter, Hot Shot, Black & Decker, George Foreman, Russell Hobbs, Farberware, Black Flag, FURminator, Kwikset, Weiser, Baldwin, National Hardware, Stanley, Pfister and the previously mentioned AAG brands.

The Company’s global branded consumer products have positions in seven major product categories: consumer batteries, small appliances, personal care, hardware and home improvement, pet supplies, home and garden controls and auto care, which consists of the recently acquired AAG business.

The Company manages the businesses in five vertically integrated, product-focused reporting segments: (i) Global Batteries & Appliances, which consists of the Company’s worldwide battery, personal care and small appliances primarily in the kitchen and home product categories (“Global Batteries & Appliances”); (ii) Hardware & Home Improvement, which consists of the Company's worldwide hardware, home improvement and plumbing business (“Hardware & Home Improvement”); (iii) Global Pet Supplies, which consists of the Company’s worldwide pet supplies business (“Global Pet Supplies”); (iv) Home and Garden, which consists of the Company’s home and garden and insect control business (“Home and Garden”); and (v) Global Auto Care, which consists of the Company’s automotive aftermarket appearance products, performance chemicals/additives and do-it-yourself automotive air conditioner recharge (“Global Auto Care”). 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.”

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SB/RH HOLDINGS, LLC

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

(Amounts in millions of dollars or as otherwise specified)

 

2    SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation: The condensed consolidated financial statements include the accounts of SB/RH 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 28, 2015, the results of operations for the three and nine month periods ended June 28, 2015 and June 29, 2014, the comprehensive income (loss) for the three and nine month periods ended June 28, 2015 and June 29, 2014 and the cash flows for the nine month periods ended June 28, 2015 and June 29, 2014. 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, 2014.

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. GAAP 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 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 $68.3 and $199.1 for the three and nine month periods ended June 28, 2015, respectively, and $66.2 and $194.5 for the three and nine months periods ended June 29, 2014, 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 15% of the Company’s Net sales during both the three and nine month periods ended June 28, 2015, and 15% and 16% of the Company’s Net sales for the three and nine month periods ended June 29, 2014, respectively. This customer also represented approximately 13% and 14% of the Company’s Trade accounts receivable, net at June 28, 2015 and September 30, 2014, respectively.

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SB/RH HOLDINGS, LLC

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

(Amounts in millions of dollars or as otherwise specified)

Approximately 33% and 39% of the Company’s Net sales during the three and nine month periods ended June 28, 2015, respectively, and 37% and 41% of the Company’s Net sales during the three and nine month periods ended June 29, 2014, 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 ability to collect based on an assessment of the risks present.

Stock-Based Compensation: Our stock compensation programs are administered by SB Holdings.  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 and nine month periods ended June 28, 2015 was $15.2 and $32.2, respectively. 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 $9.2  and $26.0, respectively. The remaining unrecognized pre-tax compensation cost related to restricted stock units at June 28, 2015 was $32.0.

The Company granted approximately 0.02 million and 0.43 million restricted stock units during the three and nine month periods ended June 28, 2015, respectively. The 0.43 million restricted stock units granted during the nine months ended June 28, 2015 include 0.13 million restricted stock units that vested immediately and 0.02 million time-based restricted stock units that vest over a period ranging from one to two years. The remaining 0.28 million restricted stock units are performance and time-based and vest over a period ranging from one to two years. The total market value of the restricted stock units on the dates of the grants was approximately $39.3.

The Company granted approximately no and 0.41 million restricted stock units during the three and nine month periods ended June 29, 2014, respectively. The 0.41 million restricted stock units granted during the nine months ended June 29, 2014 include 0.08 million time-based restricted stock units that vested immediately and .04 million time-based restricted stock units that vest over a one year period.  The remaining 0.29 million 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 $28.7.

The fair value of restricted stock units is determined based on the market price of SB Holdings’ 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 28, 2015 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Average

 

Fair Value

 

 

Shares

 

Share Price at

 

at Grant

Restricted Stock Units

 

(in millions)

 

Grant Date

 

Date

Non-vested restricted stock units at September 30, 2014

 

0.80 

 

$

67.90 

 

$

54.6 

Granted

 

0.44 

 

 

90.53 

 

 

39.2 

Forfeited

 

(0.03)

 

 

85.39 

 

 

(2.5)

Vested

 

(0.69)

 

 

68.28 

 

 

(47.2)

Non-vested restricted stock units at June 28, 2015

 

0.52 

 

$

85.40 

 

$

44.1 

 

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.

9


 

Table of Contents

SB/RH HOLDINGS, LLC

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

(Amounts in millions of dollars or as otherwise specified)

The following table summarizes acquisition and integration related charges incurred by the Company during the three and nine month periods ended June 28, 2015 and June 29, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

2015

 

2014

 

2015

 

2014

Salix Animal Health

 

$

3.3 

 

$

 

$

8.4 

 

$

European IAMS and Eukanuba

 

 

1.0 

 

 

 

 

6.0 

 

 

HHI Business

 

 

2.1 

 

 

3.3 

 

 

8.3 

 

 

11.2 

Tell

 

 

0.5 

 

 

 

 

1.6 

 

 

Liquid Fence

 

 

(0.8)

 

 

0.7 

 

 

0.5 

 

 

2.4 

Armored AutoGroup

 

 

17.8 

 

 

 

 

17.8 

 

 

Other

 

 

0.3 

 

 

(1.3)

 

 

1.6 

 

 

0.9 

Total Acquisition and integration related charges

 

$

24.2 

 

$

2.7 

 

$

44.2 

 

$

14.5 

10


 

Table of Contents

SB/RH HOLDINGS, LLC

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

(Amounts in millions of dollars or as otherwise specified)

 

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 28, 2015 and June 29, 2014 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 7, “Derivative Financial Instruments.”

The components of Other comprehensive income (loss), net of tax, for the three and nine month periods ended June 28, 2015 and June 29, 2014 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

2015

 

2014

 

2015

 

2014

Foreign Currency Translation Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

Net change after reclassification adjustment

 

$

9.5 

 

$

8.4 

 

$

(68.6)

 

$

5.6 

Deferred tax effect

 

 

 

 

 

 

 

 

Other Comprehensive Income (Loss)

 

$

9.5 

 

$

8.4 

 

$

(68.6)

 

$

5.6 

Non-controlling interest

 

 

 

 

 

 

 

 

0.2 

Comprehensive Income (Loss) attributable to controlling interest

 

$

9.5 

 

$

8.4 

 

$

(68.6)

 

$

5.4 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Hedging Instruments:

 

 

 

 

 

 

 

 

 

 

 

 

Gross change before reclassification adjustment

 

$

(7.8)

 

$

(3.0)

 

$

9.3 

 

$

(3.9)

Net reclassification adjustment for (gains) losses included in earnings

 

 

(8.1)

 

 

1.3 

 

 

(19.9)

 

 

2.2 

Gross change after reclassification adjustment

 

$

(15.9)

 

$

(1.7)

 

$

(10.6)

 

$

(1.7)

Deferred tax effect

 

 

3.9 

 

 

0.3 

 

 

2.0 

 

 

0.1 

Other Comprehensive (Loss)

 

$

(12.0)

 

$

(1.4)

 

$

(8.6)

 

$

(1.6)

 

 

 

 

 

 

 

 

 

 

 

 

 

Defined Benefit Pension Plans:

 

 

 

 

 

 

 

 

 

 

 

 

Gross change before reclassification adjustment

 

$

(1.1)

 

$

0.2 

 

$

2.6 

 

$

(0.4)

Net reclassification adjustment for losses included in Cost of goods sold

 

 

0.2 

 

 

0.1 

 

 

0.5 

 

 

0.4 

Net reclassification adjustment for losses included in Selling expenses

 

 

 

 

0.1 

 

 

0.2 

 

 

0.2 

Net reclassification adjustment for losses included in General and administrative expenses

 

 

0.1 

 

 

0.2 

 

 

0.4 

 

 

0.5 

Gross change after reclassification adjustment

 

$

(0.8)

 

$

0.6 

 

$

3.7 

 

$

0.7 

Deferred tax effect

 

 

0.2 

 

 

(0.2)

 

 

(0.9)

 

 

(0.2)

Other Comprehensive Income (Loss)

 

$

(0.6)

 

$

0.4 

 

$

2.8 

 

$

0.5 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Other Comprehensive Income (Loss), net of tax

 

$

(3.1)

 

$

7.4 

 

$

(74.4)

 

$

4.3 

 

11


 

Table of Contents

SB/RH HOLDINGS, LLC

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

(Amounts in millions of dollars or as otherwise specified)

 

4    INVENTORIES

Inventories consist of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 28, 2015

 

September 30, 2014

Raw materials

 

$

149.7 

 

$

104.1 

Work-in-process

 

 

58.3 

 

 

35.3 

Finished goods

 

 

695.7 

 

 

485.1 

 

 

$

903.7 

 

$

624.5 

 

 

 

 

 

 

5    GOODWILL AND INTANGIBLE ASSETS

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global 

 

Hardware &

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Batteries &

 

Home

 

Global Pet

 

Global

 

Home and

 

 

 

 

 

Appliances

 

Improvement

 

Supplies

 

Auto Care

 

Garden

 

Total

Goodwill:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2014

 

$

327.4 

 

$

709.8 

 

$

235.9 

 

$

 

$

196.5 

 

$

1,469.6 

Additions

 

 

 

 

7.1 

 

 

73.6 

 

 

965.7 

 

 

 

 

1,046.4 

Effect of translation

 

 

(12.0)

 

 

(7.6)

 

 

(7.4)

 

 

(1.0)

 

 

 

 

(28.0)

Balance at June 28, 2015

 

$

315.4 

 

$

709.3 

 

$

302.1 

 

$

964.7 

 

$

196.5 

 

$

2,488.0 

Intangible Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade Names Not Subject to Amortization

Balance at September 30, 2014

 

$

544.6 

 

$

330.6 

 

$

210.5 

 

$

 

$

88.6 

 

$

1,174.3 

Additions

 

 

 

 

4.0 

 

 

46.7 

 

 

299.0 

 

 

 

 

349.7 

Effect of translation

 

 

(8.8)

 

 

(1.0)

 

 

(12.4)

 

 

 

 

 

 

(22.2)

Balance at June 28, 2015

 

$

535.8 

 

$

333.6 

 

$

244.8 

 

$

299.0 

 

$

88.6 

 

$

1,501.8 

Intangible Assets Subject to Amortization

Balance at September 30, 2014, net

 

$

400.3 

 

$

130.5 

 

$

222.3 

 

$

 

$

164.1 

 

$

917.2 

Additions

 

 

0.9 

 

 

8.5 

 

 

52.3 

 

 

130.0 

 

 

 

 

191.7 

Amortization during period

 

 

(25.6)

 

 

(11.5)

 

 

(18.0)

 

 

(0.9)

 

 

(8.0)

 

 

(64.0)

Effect of translation

 

 

(11.2)

 

 

(1.1)

 

 

(6.3)

 

 

 

 

 

 

(18.6)

Balance at June 28, 2015, net

 

$

364.4 

 

$

126.4 

 

$

250.3 

 

$

129.1 

 

$

156.1 

 

$

1,026.3 

Total Intangible Assets, net at June 28, 2015

 

$

900.2 

 

$

460.0 

 

$

495.1 

 

$

428.1 

 

$

244.7 

 

$

2,528.1 

 

During the nine month period ended June 28, 2015, the Company recorded additions to goodwill and intangible assets related to the acquisitions of Tell Manufacturing, Inc. (“Tell”), Proctor & Gamble’s European pet food business consisting of the IAMS and Eukanuba brands (“European IAMS and Eukanuba”), Salix Animal Health LLC (“Salix”) and AAG. AAG is reported as a stand alone reporting segment under “Global Auto Care”. See Note 11 “Segment Results,” and Note 13 “Acquisitions,” for further information.

12


 

Table of Contents

SB/RH HOLDINGS, LLC

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

(Amounts in millions of dollars or as otherwise specified)

Intangible assets subject to amortization include proprietary technology, customer relationships and certain trade names. The useful lives for proprietary technology assets associated with the Global Batteries & Appliances segment, the Hardware & Home Improvement segment, the Global Pet Supplies segment and the Global Auto Care segment range from 9 to 17 years, 8 to 9 years, 4 to 9 years and 8 to 10 years, respectively. The useful lives of customer relationships range from 15 to 20 years within the Global Batteries & Appliances segment, are 20 years within both the Hardware & Home Improvement and Home and Garden segments, range from 2 to 20 years within the Global Pet Supplies segment and range from 13 to 15 years within the Global Auto Care segment.  The useful lives for trade names are up to 12 years within the Global Batteries & Appliances segment, range from 5 to 8 years within the Hardware & Home Improvement segment, and range from 3 to 13 years within the Global Pet Supplies segment.

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 28, 2015

 

September 30, 2014

Technology Assets Subject to Amortization:

 

 

 

 

 

 

Gross balance

 

$

242.6 

 

$

192.2 

Accumulated amortization

 

 

(72.3)

 

 

(57.6)

Carrying value, net

 

$

170.3 

 

$

134.6 

Trade Names Subject to Amortization:

 

 

 

 

 

 

Gross balance

 

$

171.6 

 

$

171.0 

Accumulated amortization

 

 

(73.2)

 

 

(61.0)

Carrying value, net

 

$

98.4 

 

$

110.0 

Customer Relationships Subject to Amortization:

 

 

 

 

 

 

Gross balance

 

$

992.0 

 

$

877.2 

Accumulated amortization

 

 

(234.4)

 

 

(204.6)

Carrying value, net

 

$

757.6 

 

$

672.6 

Total Intangible Assets, net  Subject to Amortization

 

$

1,026.3 

 

$

917.2 

 

Amortization expense for the three and nine month periods ended June 28, 2015 and June 29, 2014 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

2015

 

2014

 

2015

 

2014

Proprietary technology amortization

 

$

5.3 

 

$

4.7 

 

$

14.7 

 

$

13.9 

Trade names amortization

 

 

4.1 

 

 

4.1 

 

 

12.3 

 

 

12.3 

Customer relationships amortization

 

 

12.9 

 

 

11.7 

 

 

37.0 

 

 

35.0 

 

 

$

22.3 

 

$

20.5 

 

$

64.0 

 

$

61.2 

 

The Company estimates annual amortization expense of intangible assets for the next five fiscal years will approximate $90.0 per year.

13


 

Table of Contents

SB/RH HOLDINGS, LLC

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

(Amounts in millions of dollars or as otherwise specified)

6    DEBT

Debt consists of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 28, 2015

 

September 30, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount

 

Rate

 

Amount

 

Rate

 

Interest Terms

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

 

$

 

%

 

$

648.4 

 

3.0 

%

 

Variable rate, see below

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

 

 

 

%

 

 

509.9 

 

3.6 

%

 

Variable rate, see below

Term Loan, due June 23, 2022

 

 

1,450.0 

 

3.8 

%

 

 

 

%

 

Variable rate, see below

CAD Term Loan, due December 17, 2019

 

 

 

%

 

 

34.2 

 

5.1 

%

 

Variable rate, see below

CAD Term Loan, due June 23, 2022

 

 

60.9 

 

4.5 

%

 

 

 

%

 

Variable rate, see below

Euro Term Loan, due September 4, 2019

 

 

 

%

 

 

283.3 

 

3.8 

%

 

Variable rate, see below

Euro Term Loan, due June 23, 2022

 

 

336.2 

 

3.5 

%

 

 

 

%

 

Variable rate, see below

6.375% Notes, due November 15, 2020

 

 

520.0 

 

6.4 

%

 

 

520.0 

 

6.4 

%

 

Fixed rate

6.625% Notes, due November 15, 2022

 

 

570.0 

 

6.6 

%

 

 

570.0 

 

6.6 

%

 

Fixed rate

6.75% Notes, due March 15, 2020

 

 

 

%

 

 

300.0 

 

6.8 

%

 

Fixed rate

6.125% Notes, due December 15, 2024

 

 

250.0 

 

6.1 

%

 

 

 

%

 

Fixed rate

5.75% Notes, due July 15, 2025

 

 

1,000.0 

 

5.8 

%

 

 

 

%

 

Fixed rate

Revolver Facility, expiring June 23, 2020

 

 

47.5 

 

5.3 

%

 

 

 

%

 

Variable rate, see below

Other notes and obligations

 

 

79.0 

 

8.5 

%

 

 

52.4 

 

6.7 

%

 

Various

Capitalized lease obligations

 

 

88.7 

 

5.9 

%

 

 

94.7 

 

6.1 

%

 

Various

 

 

$

4,402.3 

 

 

 

 

$

3,012.9 

 

 

 

 

 

Original issuance discounts on debt

 

 

(8.5)

 

 

 

 

 

(6.2)

 

 

 

 

 

Less: current maturities

 

 

(99.5)

 

 

 

 

 

(112.6)

 

 

 

 

 

Long-term debt

 

$

4,294.3 

 

 

 

 

$

2,894.1 

 

 

 

 

 


The Company has the following debt instruments outstanding at June 28, 2015:  (i) senior secured term loan facilities pursuant to a senior credit agreement (the “Senior Credit Agreement”) which consist of a $1,450.0 U.S. dollar denominated term loan facility (“USD Term Loan”), a $60.9 Canadian dollar (“CAD”) denominated term loan facility (“CAD Term Loan”), a $336.2 Euro denominated term loan facility (“Euro Term Loan”) (together, the “Term Loan”); (ii) $520.0 6.375% unsecured notes due 2020 (the “6.375% Notes”); (iii) $570.0 6.625% unsecured notes due 2022 (the “ 6.625% Notes”); (iv) $250.0 6.125% unsecured notes due 2024 (the “6.125% Notes”); (v) $1,000.0 5.75% unsecured notes due 2025 (the “5.75% Notes”); and (vi) a $500.0 cash flow revolving credit facility pursuant to the Senior Credit Agreement (the “Revolver Facility”).     

Interest Terms

Certain of the Company’s debt instruments are subject to variable interest rates. The variable rates disclosed in the table above are weighted averages based on outstanding debt balances and corresponding rates in effect as of the period end. At June 28, 2015, the Company’s variable interest rate terms are as follows:  in the case of the USD Term Loan, either adjusted LIBOR (International Exchange London Interbank Offered Rate), subject to a 0.75% floor, plus 3.0% per annum, or base rate plus 2.0% per annum; in the case of the CAD Term Loan either CDOR (Canadian Dollar Offered Rate), subject to a 0.75% floor (0.99% at June 28, 2015) plus 3.5% per annum, or base rate plus 2.5% per annum; in the case of the Euro Term Loan EURIBOR (Euro Interbank Offered Rate), subject to a 0.75% floor, plus 2.75% per annum, with no base rate option available; and in the case of the Revolver Facility, either adjusted LIBOR plus 3.0% per annum, or base rate plus 2.0% per annum.

Term Loan

On June 23, 2015, Spectrum Brands, Inc., a subsidiary of the Company (“SBI”), entered into term loan facilities pursuant to a Senior Credit Agreement consisting of a $1,450.0 USD Term Loan due June 23, 2022, a $75.0 CAD Term Loan due June 23, 2022 and a €300.0 Euro Term Loan due June 23, 2022, and entered into a $500.0 Revolver Facility due June 23, 2020.  The proceeds from the Term Loan facilities and draws on the Revolver Facility were used to repay SBI’s then-existing senior term credit facility, repay SBI’s outstanding 6.75% senior unsecured notes due 2020, repay and replace SBI’s then-existing asset based revolving loan facility, and to pay fees and expenses in connection with the refinancing and for general corporate purposes.

14


 

Table of Contents

SB/RH HOLDINGS, LLC

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

(Amounts in millions of dollars or as otherwise specified)

Subject to certain mandatory prepayment events, the Term Loan is subject to repayment according to scheduled amortizations, with the final payments of all amounts outstanding, plus accrued and unpaid interest, due at maturity.  The Senior Credit Agreement contains customary affirmative and negative covenants, including, but not limited to, restrictions on SBI and its restricted subsidiaries’ ability to incur indebtedness, create liens, make investments, pay dividends or make certain other distributions, and merge or consolidate or sell assets, in each case subject to certain exceptions set forth in the Senior Credit Agreement.  Pursuant to a guarantee agreement, SB/RH Holdings, LLC and the material wholly-owned domestic subsidiaries of SBI have guaranteed SBI’s obligations under the Senior Credit Agreement and related loan documents.  Pursuant to a security agreement, SBI and such subsidiary guarantors have pledged substantially all of their respective assets to secure such obligations and, in addition, the Company has pledged the capital stock of SBI to secure such obligations.  The Senior Credit Agreement also provides for customary events of default including payment defaults and cross-defaults to other material indebtedness.

In addition, the Senior Credit Agreement, solely with respect to the Revolver Facility, contains a financial covenant on the maximum net total leverage ratio that is tested on the last day of each fiscal quarter commencing with the fiscal quarter ending September 30, 2015.

The USD Term Loan was issued at a 0.25% discount and was recorded net of the $3.6 amount incurred.  The discount will be amortized as an adjustment to the carrying value of principal with a corresponding charge to interest expense over the remaining life of the USD Term Loan.  In connection with the issuance of the USD Term Loan, the Company recorded $12.4 of fees of which $4.5 are classified as Debt issuance costs within the accompanying Condensed Consolidated Statements of Financial Position (Unaudited) and are amortized as an adjustment to interest expense over the remaining life of the USD Term Loan with the remainder of $7.9 reflected as an increase to interest expense during both the three and nine month periods ended June 28, 2015.  The Company recorded accelerated amortization of portions of the unamortized discount and unamortized Debt issuance costs related to the refinancing of the USD Term Loan totaling $5.1 as an increase to interest expense during both the three and nine month periods ended June 28, 2015.

The CAD Term Loan was issued at a 1.0% discount and was recorded net of the $0.8 CAD amount incurred.  The discount will be amortized as an adjustment to the carrying value of principal with a corresponding charge to interest expense over the remaining life of the CAD Term Loan.  In connection with the issuance of the CAD Term Loan, the Company recorded $0.6 of fees of which $0.4 are classified as Debt issuance costs within the accompanying Condensed Consolidated Statements of Financial Position (Unaudited) and are amortized as an adjustment to interest expense over the remaining life of the CAD Term Loan with the remainder $0.2 reflected as an increase to interest expense during both the three and nine month periods ended June 28, 2015.  The Company recorded accelerated amortization of portions of the unamortized discount and unamortized Debt issuance costs related to the refinancing of the CAD Term Loan totaling $0.4 as an increase to interest expense during both the three and nine month periods ended June 28, 2015.  

The Euro Term Loan was issued at a 0.25% discount and was recorded net of the €0.8 amount incurred.  The discount will be amortized as an adjustment to the carrying value of principal with a corresponding charge to interest expense over the remaining life of the Euro Term Loan.  SBI previously issued 150.0 of term debt in the three month period ended December 28, 2014 and repaid the same term debt in the three month period ended June 28, 2015 in connection with the issuance of the Euro Term Loan.  During the three and nine month periods ended June 28, 2015, the Company recorded $2.6 and $4.9 USD of fees, respectively, related to these Euro denominated debt transactions, of which $2.6 are classified as Debt issuance costs within the accompanying Condensed Consolidated Statements of Financial Position (Unaudited) and are amortized as an adjustment to interest expense over the remaining life of the Euro Term Loan with the remainder of $2.3 reflected as an increase to interest expense during both the three and nine month periods ended June 28, 2015.  The Company recorded accelerated amortization of portions of the unamortized discount and unamortized Debt issuance costs related to the refinancing of the Euro Term Loan totaling $2.3 as an increase to interest expense during both the three and nine month periods ended June 28, 2015.

6.125% Notes

On December 4, 2014, SBI issued $250.0 aggregate principal amount of 6.125% Notes at par value, due December 15, 2024.  The 6.125% Notes are guaranteed by the Company’s and SBI’s existing and future domestic subsidiaries.

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SB/RH HOLDINGS, LLC

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

(Amounts in millions of dollars or as otherwise specified)

SBI may redeem all or a part of the 6.125% Notes, at any time on or after December 15, 2019, at specified redemption prices.  In addition, prior to December 15, 2019, SBI may redeem the notes at a redemption price equal to 100% of the principal amount plus a “make-whole” premium.  SBI is also entitled to redeem up to 35% of the aggregate principal amount of the notes before December 15, 2017 with an amount of cash equal to the net proceeds that SBI raises in equity offerings at specified redemption prices.  Further, the indenture governing the 6.125% Notes (the “2024 Indenture”) requires SBI to make an offer, in cash, to repurchase all or a portion of the applicable outstanding notes for a specified redemption price, including a redemption premium, upon the occurrence of a change of control of SBI, as defined in the 2024 Indenture.

The 2024 Indenture contains customary covenants that limit, among other things, the incurrence of additional indebtedness, payment of dividends on or redemption or repurchase of equity interests, the making of certain investments, expansion into unrelated businesses, creation of liens on assets, merger or consolidation with another company, transfer or sale of all or substantially all assets, and transactions with affiliates.

In addition, the 2024 Indenture provides for customary events of default, including failure to make required payments, failure to comply with certain agreements or covenants, failure to make payments when due or on acceleration of certain other indebtedness, and certain events of bankruptcy and insolvency.  Events of default under the 2024 Indenture arising from certain events of bankruptcy or insolvency will automatically cause the acceleration of the amounts due under the 6.125% Notes.  If any other event of default under the 2024 Indenture occurs and is continuing, the trustee for the 2024 Indenture or the registered holders of at least 25% in the then aggregate outstanding principal amount of the 6.125% Notes, may declare the acceleration of the amounts due under those notes.

The Company recorded $4.6 of fees in connection with the offering of the 6.125% Notes during the nine month periods ended June 28, 2015.  The fees are classified as Debt issuance costs within the accompanying Condensed Consolidated Statements of Financial Position (Unaudited) and are amortized as an adjustment to interest expense over the remaining life of the 6.125% Notes.

5.75% Notes

On May 20, 2015, in connection with the acquisition of the AAG Business, SBI issued $1,000.0 aggregate principal amount of 5.75% Notes at par value, due July 15, 2025.  The 5.75% Notes are guaranteed by the Company’s and SBI’s existing and future domestic subsidiaries.

SBI may redeem all or a part of the 5.75% Notes, at any time on or after July 15, 2020, at specified redemption prices.  In addition, prior to July 15, 2020, SBI may redeem the notes at a redemption price equal to 100% of the principal amount plus a “make-whole” premium.  SBI is also entitled to redeem up to 35% of the aggregate principal amount of the notes before July 15, 2018 with an amount of cash equal to the net proceeds that SBI raises in equity offerings at specified redemption prices. Further, the indenture governing the 5.75% Notes (the “2025 Indenture”) requires SBI to make an offer, in cash, to repurchase all or a portion of the applicable outstanding notes for a specified redemption price, including a redemption premium, upon the occurrence of a change of control of SBI, as defined in the 2025 Indenture.

The 2025 Indenture contains customary covenants that limit, among other things, the incurrence of additional indebtedness, payment of dividends on or redemption or repurchase of equity interests, the making of certain investments, expansion into unrelated businesses, creation of liens on assets, merger or consolidation with another company, transfer or sale of all or substantially all assets, and transactions with affiliates.

In addition, the 2025 Indenture provides for customary events of default, including failure to make required payments, failure to comply with certain agreements or covenants, failure to make payments when due or on acceleration of certain other indebtedness, and certain events of bankruptcy and insolvency.  Events of default under the 2025 Indenture arising from certain events of bankruptcy or insolvency will automatically cause the acceleration of the amounts due under the 5.75% Notes.  If any other event of default under the 2025 Indenture occurs and is continuing, the trustee for the 2025 Indenture or the registered holders of at least 25% in the then aggregate outstanding principal amount of the 5.75% Notes, may declare the acceleration of the amounts due under those notes.

The Company recorded $19.5 of fees in connection with the offering of the 5.75% Notes during both the three and nine month periods ended June 28, 2015.  The fees are classified as Debt issuance costs within the accompanying Condensed Consolidated Statements of Financial Position (Unaudited) and are amortized as an adjustment to interest expense over the remaining life of the 5.75% Notes.

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SB/RH HOLDINGS, LLC

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

(Amounts in millions of dollars or as otherwise specified)

6.75% Notes

On June 23, 2015 SBI called the $300.0 outstanding aggregate principal amount of 6.75% senior unsecured notes due 2020 (the “6.75% Notes”).  In connection with the call, SBI paid the trustee principal, interest and a call premium sufficient to redeem the $300.0 of 6.75% Notes outstanding.  The trustee under the indenture governing the 6.75% Notes accepted those funds in trust for the benefit of the holders of the 6.75% Notes and has acknowledged the satisfaction and discharge of the 6.75% Notes and the indenture governing the 6.75% Notes.  On July 23, 2015, the Trustee redeemed the 6.75% Notes.

In connection with the call, the Company recorded $15.2 of fees and expenses as a cash charge to interest expense in the Condensed Consolidated Statements of Operations (unaudited) during both the three and nine month periods ended June 28, 2015. In connection with the satisfaction and discharge process, the Company recorded cash charges of $1.7 to interest expense  in the Condensed Consolidated Statements of Operations (unaudited) during both the three and nine month periods ended June 28, 2015. In addition,$4.1 of debt issuance costs related to the 6.75% Notes were written off as a non-cash charge to interest expense in the Condensed Consolidated Statements of Operations (unaudited) in both the three and nine month periods ended June 28, 2015.

Revolver Facility

As noted above, on June 23, 2015, SBI entered into a new Revolver Facility under the Senior Credit Agreement for $500.0 of aggregate commitment maturing June 23, 2020.  In connection with the new Revolver Facility, the Company incurred $5.7 of fees all of which are classified as Debt issuance costs within the accompanying Condensed Consolidated Statements of Financial Position (Unaudited) and are amortized as an adjustment to interest expense over the remaining life of the Revolver Facility.  The Company recorded accelerated amortization of portions of the unamortized Debt Issuance costs related to the refinancing of the Prior Revolver Facility totaling $1.1 as an increase to interest expense during both the three and nine month periods ended June 28, 2015.

As a result of borrowings and payments under the Revolver Facility, at June 28, 2015, the Company had aggregate borrowing availability of approximately $419.3, net of outstanding letters of credit of $33.2.

 

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 of the hedging instrument 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.

Derivative Financial Instruments

Cash Flow Hedges

The Company uses interest rate sw