20170101 FORM 10Q Q1FY17

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 January 1, 2017



OR



TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to           





\

 

 

 

 



 

Picture 1

 

 

Commission File No.

 

Name of Registrant, State of Incorporation,

Address of Principal Offices, and Telephone No.

 

IRS Employer Identification No.

001-34757

 

Spectrum Brands Holdings, Inc.

(a Delaware corporation)

3001 Deming Way

Middleton, WI 53562

(608) 275-3340

www.spectrumbrands.com

 

 

27-2166630

333-192634-03

 

SB/RH Holdings, LLC

(a Delaware limited liability company)

3001 Deming Way

Middleton, WI 53562

(608) 275-3340

 

27-2812840



Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.



 

 

 

 

 

 



Spectrum Brands Holdings, Inc.

Yes

No

 



SB/RH Holdings, LLC

Yes

No

 



Indicate by check mark whether the registrants have submitted electronically and posted on their corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 



 

 

 

 

 

 



Spectrum Brands Holdings, Inc.

Yes

No

 



SB/RH Holdings, LLC

Yes

No

 



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



 

 

 

 

 

 

 

 

Registrant

 

Large Accelerated Filer

 

Accelerated filer

 

Non-accelerated filer

 

Smaller reporting company

Spectrum Brands Holdings, Inc.

 

X

 

 

 

 

 

 

SB/RH Holdings, LLC

 

 

 

 

 

X

 

 



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

 

 

 

 

 

 



Spectrum Brands Holdings, Inc.

Yes

No

 



SB/RH Holdings, LLC

Yes

No

 



As of January 30,  2017, there were outstanding 58,822,651 shares of Spectrum Brands Holdings, Inc.’s common stock, par value $0.01 per share.



SB/RH Holdings, LLC meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this report with a reduced disclosure format as permitted by general instruction H(2).

 

 


 

Table of Contents

 

Forward-Looking Statements



We have made or implied certain forward-looking statements in this report. All statements, other than statements of historical facts included in this report, including the statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding our business strategy, future operations, financial condition, estimated revenues, projected costs, projected synergies, prospects, plans and objectives of management, as well as information concerning expected actions of third parties, are forward-looking statements. When used in this report, the words  anticipate,  intend,  plan,  estimate,  believe,  expect,  project,  could,  will,  should,  may and similar expressions are also intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words.



Since these forward-looking statements are based upon our current expectations of future events and projections and are subject to a number of risks and uncertainties, many of which are beyond our control and some of which may change rapidly, actual results or outcomes may differ materially from those expressed or implied herein, and you should not place undue reliance on these statements. Important factors that could cause our actual results to differ materially from those expressed or implied herein include, without limitation:



·

the impact of our indebtedness on our business, financial condition and results of operations;

·

the impact of restrictions in our debt instruments on our ability to operate our business, finance our capital needs or pursue or expand business strategies;

·

any failure to comply with financial covenants and other provisions and restrictions of our debt instruments;

·

the impact of expenses resulting from the implementation of new business strategies, divestitures or current and proposed restructuring activities;

·

our inability to successfully integrate and operate new acquisitions at the level of financial performance anticipated;

·

the unanticipated loss of key members of senior management;

·

the impact of fluctuations in commodity prices, costs or availability of raw materials or terms and conditions available from suppliers, including suppliers’ willingness to advance credit;

·

interest rate and exchange rate fluctuations;

·

the loss of, or a significant reduction in, sales to any significant retail customer(s);

·

competitive promotional activity or spending by competitors, or price reductions by competitors;

·

the introduction of new product features or technological developments by competitors and/or the development of new competitors or competitive brands;

·

the effects of general economic conditions, including inflation, recession or fears of a recession, depression or fears of a depression, labor costs and stock market volatility or changes in trade, monetary or fiscal policies in the countries where we do business;

·

changes in consumer spending preferences and demand for our products;

·

our ability to develop and successfully introduce new products, protect our intellectual property and avoid infringing the intellectual property of third parties;

·

our ability to successfully implement, achieve and sustain manufacturing and distribution cost efficiencies and improvements, and fully realize anticipated cost savings;

·

the cost and effect of unanticipated legal, tax or regulatory proceedings or new laws or regulations (including environmental, public health and consumer protection regulations);

·

public perception regarding the safety of our products, including the potential for environmental liabilities, product liability claims, litigation and other claims;

·

the impact of pending or threatened litigation;

·

changes in accounting policies applicable to our business;

·

government regulations;

·

the seasonal nature of sales of certain of our products;

·

the effects of climate change and unusual weather activity; and

·

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



Some of the above-mentioned factors are described in further detail in the sections entitled “Risk Factors” in our annual and quarterly reports (including this report), as applicable. You should assume the information appearing in this report is accurate only as of the end of the period covered by this report, or as otherwise specified, as our business, financial condition, results of operations and prospects may have changed since that date. Except as required by applicable law, including the securities laws of the United States (“U.S.”) and the rules and regulations of the United States Securities and Exchange Commission (“SEC”), we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, to reflect actual results or changes in factors or assumptions affecting such forward-looking statements.



 

 

 


 

Table of Contents

 



SPECTRUM BRANDS HOLDINGS, INC.

SB/RH HOLDINGS, LLC

TABLE OF CONTENTS



This report is a combined report of Spectrum Brands Holdings, Inc. and SB/RH Holdings, LLC. The combined notes to the condensed consolidated financial statements include notes representing Spectrum Brands Holdings, Inc. and SB/RH Holdings, LLC and certain notes related specifically to SB/RH Holdings, LLC.





 

 

PART I

FINANCIAL INFORMATION

Page

Item 1.

Financial Statements

Spectrum Brands Holdings, Inc. Condensed Consolidated Financial Statements (Unaudited)



Condensed Consolidated Statements of Financial Position as of January 1, 2017 and September 30, 2016



Condensed Consolidated Statements of Income for the three month periods ended January 1, 2017 and January 3, 2016



Condensed Consolidated Statements of Comprehensive Income for the three month periods ended January 1, 2017 and January 3, 2016



Condensed Consolidated Statements of Cash Flows for the three month periods ended January 1, 2017 and January 3, 2016

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



Condensed Consolidated Statements of Financial Position as of January 1, 2017 and September 30, 2016



Condensed Consolidated Statements of Income for the three month periods ended January 1, 2017 and January 3, 2016



Condensed Consolidated Statements of Comprehensive Income for the three month periods ended January 1, 2017 and January 3, 2016



Condensed Consolidated Statements of Cash Flows for the three month periods ended January 1, 2017 and January 3, 2016

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



Combined Notes to Condensed Consolidated Financial Statements

Item 2.

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

24 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

34 

Item 4.

Controls and Procedures

35 

PART II

OTHER INFORMATION

 

Item 1.

Legal Proceedings

36 

Item 1A.

Risk Factors

36 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

36 

Item 6.

Exhibits

37 

Signatures

 

38 



1

 


 

Table of Contents

 

PART I. FINANCIAL INFORMATION



Item 1. Financial Statements

SPECTRUM BRANDS HOLDINGS, INC.

Condensed Consolidated Statements of Financial Position

January 1, 2017 and September 30, 2016 

(in millions, unaudited)







 

 

 

 

 

 



 

 

 

 

 

 



 

January 1, 2017

 

September 30, 2016

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

143.3 

 

$

275.3 

Trade receivables, net

 

 

489.2 

 

 

482.6 

Other receivables

 

 

57.0 

 

 

55.6 

Inventories

 

 

779.7 

 

 

740.6 

Prepaid expenses and other current assets

 

 

80.5 

 

 

78.8 

Total current assets

 

 

1,549.7 

 

 

1,632.9 

Property, plant and equipment, net

 

 

568.2 

 

 

542.1 

Deferred charges and other

 

 

44.2 

 

 

43.2 

Goodwill

 

 

2,464.5 

 

 

2,478.4 

Intangible assets, net

 

 

2,327.9 

 

 

2,372.5 

Total assets

 

$

6,954.5 

 

$

7,069.1 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of long-term debt

 

$

42.5 

 

$

164.0 

Accounts payable

 

 

532.4 

 

 

580.1 

Accrued wages and salaries

 

 

65.1 

 

 

122.9 

Accrued interest

 

 

41.2 

 

 

39.3 

Other current liabilities

 

 

186.7 

 

 

189.3 

Total current liabilities

 

 

867.9 

 

 

1,095.6 

Long-term debt, net of current portion

 

 

3,613.7 

 

 

3,456.2 

Deferred income taxes

 

 

563.1 

 

 

532.7 

Other long-term liabilities

 

 

124.4 

 

 

140.6 

Total liabilities

 

 

5,169.1 

 

 

5,225.1 

Commitments and contingencies

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

Common Stock

 

 

0.6 

 

 

0.6 

Additional paid-in capital

 

 

2,088.7 

 

 

2,073.6 

Accumulated earnings

 

 

106.1 

 

 

63.6 

Accumulated other comprehensive loss, net of tax

 

 

(247.7)

 

 

(229.4)

Treasury stock, at cost

 

 

(205.9)

 

 

(108.3)

Total shareholders' equity

 

 

1,741.8 

 

 

1,800.1 

Noncontrolling interest

 

 

43.6 

 

 

43.9 

Total equity

 

 

1,785.4 

 

 

1,844.0 

Total liabilities and equity

 

$

6,954.5 

 

$

7,069.1 

See accompanying notes to the condensed consolidated financial statements

2

 


 

Table of Contents

 

SPECTRUM BRANDS HOLDINGS, INC.

Condensed Consolidated Statements of Income

For the three month periods ended January 1, 2017 and January 3, 2016

(in millions, except per share figures, unaudited)



 

 

 

 

 

 



 

January 1, 2017

 

January 3, 2016

Net sales

 

$

1,211.8 

 

$

1,218.8 

Cost of goods sold

 

 

760.7 

 

 

778.0 

Restructuring and related charges

 

 

1.1 

 

 

0.1 

Gross profit

 

 

450.0 

 

 

440.7 

Selling

 

 

189.8 

 

 

187.1 

General and administrative

 

 

88.6 

 

 

86.3 

Research and development

 

 

14.4 

 

 

13.8 

Acquisition and integration related charges

 

 

4.1 

 

 

9.9 

Restructuring and related charges

 

 

2.1 

 

 

1.1 

Total operating expenses

 

 

299.0 

 

 

298.2 

Operating income

 

 

151.0 

 

 

142.5 

Interest expense

 

 

55.8 

 

 

58.4 

Other non-operating (income) expense, net

 

 

(1.1)

 

 

3.5 

Income from operations before income taxes

 

 

96.3 

 

 

80.6 

Income tax expense

 

 

31.1 

 

 

6.9 

Net income

 

 

65.2 

 

 

73.7 

Net income attributable to non-controlling interest

 

 

 

 

0.1 

Net income attributable to controlling interest

 

$

65.2 

 

$

73.6 

Earnings Per Share

 

 

 

 

 

 

Basic earnings per share

 

$

1.10 

 

$

1.24 

Diluted earnings per share

 

 

1.10 

 

 

1.24 

Dividends per share

 

 

0.38 

 

 

0.33 

Weighted Average Shares Outstanding

 

 

 

 

 

 

Basic

 

 

59.3 

 

 

59.2 

Diluted

 

 

59.5 

 

 

59.2 



See accompanying notes to the condensed consolidated financial statements



SPECTRUM BRANDS HOLDINGS, INC.

Condensed Consolidated Statements of Comprehensive Income

For the three month periods ended January 1, 2017 and January 3, 2016

(in millions, unaudited)



 

 

 

 

 

 



 

 

 

 

 

 



 

January 1, 2017

 

January 3, 2016

Net income

 

$

65.2 

 

$

73.7 

Other comprehensive (loss) income, net of tax:

 

 

 

 

 

 

Foreign currency translation loss, net tax of $3.9 and $0.0, respectively

 

 

(46.1)

 

 

(20.5)

Unrealized gain on hedging activity, net tax of $(14.2) and $(0.7), respectively

 

 

24.2 

 

 

3.7 

Defined benefit pension gain, net tax of $(1.2) and $(0.3), respectively

 

 

3.3 

 

 

1.1 

Other comprehensive loss, net of tax

 

 

(18.6)

 

 

(15.7)

Comprehensive income

 

 

46.6 

 

 

58.0 

Comprehensive loss attributable to non-controlling interest

 

 

(0.3)

 

 

(0.1)

Comprehensive income attributable to controlling interest

 

$

46.9 

 

$

58.1 



See accompanying notes to the condensed consolidated financial statements

3

 


 

Table of Contents

 

SPECTRUM BRANDS HOLDINGS, INC.

Condensed Consolidated Statements of Cash Flows

For the three month periods ended January 1, 2017 and January 3, 2016

(in millions, unaudited)





 

 

 

 

 

 



 

 

 

 

 

 



 

January 1, 2017

 

January 3, 2016

Cash flows from operating activities

 

 

 

 

 

 

Net income

 

$

65.2 

 

$

73.7 

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

 

 

 

 

 

 

Amortization of intangible assets

 

 

23.6 

 

 

23.6 

Depreciation

 

 

22.4 

 

 

23.0 

Share based compensation

 

 

8.8 

 

 

10.1 

Amortization of debt issuance costs

 

 

1.8 

 

 

2.1 

Write-off of debt issuance costs

 

 

1.9 

 

 

Non-cash debt accretion

 

 

0.2 

 

 

0.3 

Deferred tax expense (benefit)

 

 

19.6 

 

 

(9.7)

Net changes in operating assets and liabilities

 

 

(137.7)

 

 

(346.6)

Net cash provided (used) by operating activities

 

 

5.8 

 

 

(223.5)

Cash flows from investing activities

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(28.0)

 

 

(17.4)

Proceeds from sales of property, plant and equipment

 

 

0.1 

 

 

0.1 

Other investing activities

 

 

(0.8)

 

 

Net cash used by investing activities

 

 

(28.7)

 

 

(17.3)

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from issuance of debt

 

 

177.1 

 

 

230.0 

Payment of debt

 

 

(135.9)

 

 

(5.9)

Payment of debt issuance costs

 

 

(0.5)

 

 

(1.1)

Payment of cash dividends

 

 

(22.6)

 

 

(19.5)

Treasury stock purchases

 

 

(97.6)

 

 

(40.2)

Share based tax withholding payments, net of proceeds upon vesting

 

 

(23.2)

 

 

(5.3)

Net cash (used) provided by financing activities

 

 

(102.7)

 

 

158.0 

Effect of exchange rate changes on cash and cash equivalents

 

 

(6.4)

 

 

(3.1)

Net decrease in cash and cash equivalents

 

 

(132.0)

 

 

(85.9)

Cash and cash equivalents, beginning of period

 

 

275.3 

 

 

247.9 

Cash and cash equivalents, end of period

 

$

143.3 

 

$

162.0 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

Cash paid for interest

 

$

44.5 

 

$

61.6 

Cash paid for taxes

 

$

10.4 

 

$

10.0 

Non cash investing activities

 

 

 

 

 

 

Acquisition of property, plant and equipment through capital leases

 

$

31.1 

 

$

8.4 

Non cash financing activities

 

 

 

 

 

 

Issuance of shares through stock compensation plan

 

$

52.2 

 

$

36.0 



See accompanying notes to the condensed consolidated financial statements

4

 


 

Table of Contents

 

SB/RH HOLDINGS, LLC

Condensed Consolidated Statements of Financial Position

January 1, 2017 and September 30, 2016

(in millions, unaudited)



 

 

 

 

 

 



 

 

 

 

 

 



 

January 1, 2017

 

September 30, 2016

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

143.2 

 

$

270.8 

Trade receivables, net

 

 

489.2 

 

 

482.6 

Other receivables

 

 

60.6 

 

 

55.6 

Inventories

 

 

779.7 

 

 

740.6 

Prepaid expenses and other current assets

 

 

80.5 

 

 

78.8 

Total current assets

 

 

1,553.2 

 

 

1,628.4 

Property, plant and equipment, net

 

 

568.2 

 

 

542.1 

Deferred charges and other

 

 

31.9 

 

 

32.1 

Goodwill

 

 

2,464.5 

 

 

2,478.4 

Intangible assets, net

 

 

2,327.9 

 

 

2,372.5 

Total assets

 

$

6,945.7 

 

$

7,053.5 

Liabilities and Shareholder's Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of long-term debt

 

$

74.3 

 

$

164.0 

Accounts payable

 

 

532.4 

 

 

580.1 

Accrued wages and salaries

 

 

65.1 

 

 

122.9 

Accrued interest

 

 

41.2 

 

 

39.3 

Other current liabilities

 

 

186.1 

 

 

188.3 

Total current liabilities

 

 

899.1 

 

 

1,094.6 

Long-term debt, net of current portion

 

 

3,613.7 

 

 

3,456.2 

Deferred income taxes

 

 

563.1 

 

 

532.7 

Other long-term liabilities

 

 

124.4 

 

 

140.6 

Total liabilities

 

 

5,200.3 

 

 

5,224.1 

Commitments and contingencies

 

 

 

 

 

 

Shareholder's equity:

 

 

 

 

 

 

Other capital

 

 

2,018.2 

 

 

2,000.9 

Accumulated (deficit) earnings

 

 

(74.6)

 

 

8.1 

Accumulated other comprehensive loss, net of tax

 

 

(247.7)

 

 

(229.4)

Total shareholder's equity

 

 

1,695.9 

 

 

1,779.6 

Noncontrolling interest

 

 

49.5 

 

 

49.8 

Total equity

 

 

1,745.4 

 

 

1,829.4 

Total liabilities and equity

 

$

6,945.7 

 

$

7,053.5 



See accompanying notes to the condensed consolidated financial statements

5

 


 

Table of Contents

 

SB/RH HOLDINGS, LLC

Condensed Consolidated Statements of Income

For the three month periods ended January 1, 2017 and January 3, 2016

(in millions, unaudited)



 

 

 

 

 

 



 

 

 

 

 

 



 

January 1, 2017

 

January 3, 2016

Net sales

 

$

1,211.8 

 

$

1,218.8 

Cost of goods sold

 

 

760.7 

 

 

778.0 

Restructuring and related charges

 

 

1.1 

 

 

0.1 

Gross profit

 

 

450.0 

 

 

440.7 

Selling

 

 

189.8 

 

 

187.1 

General and administrative

 

 

87.4 

 

 

84.5 

Research and development

 

 

14.4 

 

 

13.8 

Acquisition and integration related charges

 

 

4.1 

 

 

9.9 

Restructuring and related charges

 

 

2.1 

 

 

1.1 

Total operating expenses

 

 

297.8 

 

 

296.4 

Operating income

 

 

152.2 

 

 

144.3 

Interest expense

 

 

56.1 

 

 

58.4 

Other non-operating (income) expense, net

 

 

(1.1)

 

 

3.5 

Income from operations before income taxes

 

 

97.2 

 

 

82.4 

Income tax expense

 

 

32.3 

 

 

6.9 

Net income

 

 

64.9 

 

 

75.5 

Net (loss) income attributable to non-controlling interest

 

 

(0.1)

 

 

0.1 

Net income attributable to controlling interest

 

$

65.0 

 

$

75.4 



See accompanying notes to the condensed consolidated financial statements





SB/RH HOLDINGS, LLC

Condensed Consolidated Statements of Comprehensive Income

For the three month periods ended January 1, 2017 and January 3, 2016

(in millions, unaudited)



 

 

 

 

 

 



 

 

 

 

 

 



 

January 1, 2017

 

January 3, 2016

Net income

 

$

64.9 

 

$

75.5 

Other comprehensive (loss) income, net of tax:

 

 

 

 

 

 

Foreign currency translation loss, net tax of $3.9 and $0.0, respectively

 

 

(46.1)

 

 

(20.5)

Unrealized gain on hedging activity, net tax of $(14.2) and $(0.7), respectively

 

 

24.2 

 

 

3.7 

Defined benefit pension gain, net tax of $(1.2) and $(0.3), respectively

 

 

3.3 

 

 

1.1 

Other comprehensive loss, net of tax

 

 

(18.6)

 

 

(15.7)

Comprehensive income

 

 

46.3 

 

 

59.8 

Comprehensive loss attributable to non-controlling interest

 

 

(0.3)

 

 

(0.1)

Comprehensive income attributable to controlling interest

 

$

46.6 

 

$

59.9 



See accompanying notes to the condensed consolidated financial statements

6

 


 

Table of Contents

 

SB/RH HOLDINGS, LLC

Condensed Consolidated Statements of Cash Flows

For the three month periods ended January 1, 2017 and January 3, 2016

(in millions, unaudited)



 

 

 

 

 

 



 

 

 

 

 

 



 

January 1, 2017

 

January 3, 2016

Cash flows from operating activities

 

 

 

 

 

 

Net income

 

$

64.9 

 

$

75.5 

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

 

 

 

 

 

 

Amortization of intangible assets

 

 

23.6 

 

 

23.6 

Depreciation

 

 

22.4 

 

 

23.0 

Share based compensation

 

 

7.8 

 

 

8.5 

Amortization of debt issuance costs

 

 

1.8 

 

 

2.1 

Write-off of debt issuance costs

 

 

1.9 

 

 

Non-cash debt accretion

 

 

0.2 

 

 

0.3 

Deferred tax expense (benefit)

 

 

20.8 

 

 

(9.7)

Net changes in operating assets and liabilities

 

 

(160.8)

 

 

(361.5)

Net cash used by operating activities

 

 

(17.4)

 

 

(238.2)

Cash flows from investing activities

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(28.0)

 

 

(17.4)

Proceeds from sales of property, plant and equipment

 

 

0.1 

 

 

0.1 

Other investing activities

 

 

(0.8)

 

 

Net cash used by investing activities

 

 

(28.7)

 

 

(17.3)

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from issuance of debt

 

 

208.9 

 

 

230.0 

Payment of debt

 

 

(135.9)

 

 

(40.7)

Payment of debt issuance costs

 

 

(0.5)

 

 

(1.1)

Payment of cash dividends to parent

 

 

(147.6)

 

 

(29.5)

Net cash (used) provided by financing activities

 

 

(75.1)

 

 

158.7 

Effect of exchange rate changes on cash and cash equivalents

 

 

(6.4)

 

 

(3.1)

Net decrease in cash and cash equivalents

 

 

(127.6)

 

 

(99.9)

Cash and cash equivalents, beginning of period

 

 

270.8 

 

 

247.9 

Cash and cash equivalents, end of period

 

$

143.2 

 

$

148.0 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

Cash paid for interest

 

$

44.5 

 

$

61.6 

Cash paid for taxes

 

$

10.4 

 

$

10.0 

Non cash investing activities

 

 

 

 

 

 

Acquisition of property, plant and equipment through capital leases

 

$

31.1 

 

$

8.4 



See accompanying notes to the condensed consolidated financial statements



 

7

 


 

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SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, unaudited)

This report is a combined report of Spectrum Brands Holdings, Inc. (“SBH”) and SB/RH Holdings, LLC (“SB/RH”) (collectively, the “Company”). The notes to the condensed consolidated financial statements that follow include both consolidated SBH and SB/RH notes, unless otherwise indicated below.



NOTE 1 - BASIS OF PRESENTATION



The accompanying unaudited condensed consolidated financial statements have been prepared by the Company and its majority owned subsidiaries in accordance with accounting principles for interim financial information generally accepted in the United States and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and notes necessary for a comprehensive presentation of financial position and results of operations. It is management’s opinion, however, that all material adjustments have been made which are necessary for a fair financial statement presentation. For further information, refer to the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2016.



NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES



In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. This ASU requires revenue recognition to depict the transfer of goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new revenue recognition model requires identifying the contract and performance obligations, determining the transaction price, allocating the transaction price to performance obligations and recognizing the revenue upon satisfaction of performance obligations. This ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. This ASU can be applied either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the updates recognized at the date of the initial application along with additional disclosures. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606) Deferral of the Effective Date, which amends the previously issued ASU to provide for a one year deferral from the original effective date. As a result, the ASU will become effective for us beginning in the first quarter of our fiscal year ending September 30, 2019, with early application available to us beginning in the first quarter of our fiscal year ending September 30, 2018. We are assessing the impact this pronouncement will have on the consolidated financial statements of the Company and have not determined the materiality or method of adoption.



In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes the lease requirements in ASC 840, Leases. This ASU requires lessees to recognize lease assets and liabilities on the balance sheet, as well as disclosing key information about leasing arrangements. Although the new ASU requires both operating and finance leases to be disclosed on the balance sheet, a distinction between the two types still exists as the economics of leases can vary. The ASU can be applied using a modified retrospective approach, with a number of optional practical expedients relating to the identification and classification of leases that commenced before the effective date, along with the ability to use hindsight in the evaluation of lease decisions, that entities may elect to apply. As a result, the ASU will become effective for us beginning in the first quarter of our fiscal year ending September 30, 2020, with early adoption applicable. We are assessing the impact this pronouncement will have on the consolidated financial statements of the Company and have not determined the materiality or method of adoption.



NOTE 3 – ACQUISITION AND INTEGRATION COSTS



The following summarizes acquisition and integration related charges for the three month periods ended January 1, 2017 and January 3, 2016:









 

 

 

 

 

 

(in millions)

 

January 1, 2017

 

January 3, 2016

Armored AutoGroup

 

$

1.7 

 

$

4.5 

HHI Business

 

 

1.9 

 

 

2.8 

Other

 

 

0.5 

 

 

2.6 

Total acquisition and integration related charges

 

$

4.1 

 

$

9.9 















8

 


 

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NOTE 4 - RESTRUCTURING AND RELATED CHARGES



GAC Business Rationalization Initiatives – During the third quarter of the year ended September 30, 2016, the Company implemented a series of initiatives in the GAC segment to consolidate certain operations and reduce operating costs. These initiatives included headcount reductions and the exit of certain facilities. Total costs associated with these initiatives are expected to be approximately $20 million, of which $6.8 million has been incurred to date. The balance is anticipated to be incurred through September 30, 2017.



Other Restructuring Activities – The Company is entering or may enter into small, less significant initiatives and restructuring activities to reduce costs and improve margins throughout the organization. Individually these activities are not substantial, and occur over a shorter time period (less than 12 months).



The following summarizes restructuring and related charges for the three month periods ended January 1, 2017 and January 3, 2016:



 

 

 

 

 

 

(in millions)

 

January 1, 2017

 

January 3, 2016

GAC business rationalization initiatives

 

$

1.5 

 

$

Global expense rationalization initiatives

 

 

 

 

1.1 

HHI business rationalization initiatives

 

 

 

 

(0.7)

Other restructuring activities

 

 

1.7 

 

 

0.8 

Total restructuring and related charges

 

$

3.2 

 

$

1.2 

Reported as:

 

 

 

 

 

 

Cost of goods sold

 

$

1.1 

 

$

0.1 

Operating expense

 

 

2.1 

 

 

1.1 



The following is a summary of restructuring and related charges for the three month periods ended January 1, 2017 and January 3, 2016 and cumulative costs for current restructuring initiatives as of January 1, 2017, by cost type:





 

 

 

 

 

 

 

 

 



 

Termination

 

Other

 

 

(in millions)

 

Benefits

 

Costs

 

Total

For the three months ended January 1, 2017

 

 

1.8 

 

 

1.4 

 

 

3.2 

For the three months ended January 3, 2016

 

 

1.0 

 

 

0.2 

 

 

1.2 

Cumulative costs through January 1, 2017

 

 

2.1 

 

 

6.4 

 

 

8.5 



The following is a rollforward of the accrual related to all restructuring and related activities, included within Other Current Liabilities, by cost type for the three month period ended January 1, 2017:





 

 

 

 

 

 

 

 

 



 

Termination

 

Other

 

 

(in millions)

 

Benefits

 

Costs

 

Total

Accrual balance at September 30, 2016

 

 

1.6 

 

 

1.0 

 

 

2.6 

Provisions

 

 

1.8 

 

 

1.4 

 

 

3.2 

Cash expenditures

 

 

(1.6)

 

 

(1.4)

 

 

(3.0)

Non-cash items

 

 

(0.1)

 

 

 

 

(0.1)

Accrual balance at January 1, 2017

 

$

1.7 

 

$

1.0 

 

$

2.7 



The following summarizes restructuring and related charges by segment for the three month periods ended January 1, 2017 and January 3, 2016, cumulative costs incurred through January 1, 2017, and future expected costs to be incurred by segment:













 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in millions)

 

GBA

 

PET

 

HHI

 

GAC

 

Total

For the three months ended January 1, 2017

 

$

0.4 

 

$

0.2 

 

$

1.1 

 

$

1.5 

 

$

3.2 

For the three months ended January 3, 2016

 

 

0.3 

 

 

0.8 

 

 

0.1 

 

 

 

 

1.2 

Cumulative costs through January 1, 2017

 

 

0.4 

 

 

0.2 

 

 

1.1 

 

 

6.8 

 

 

8.5 

Future costs to be incurred

 

 

0.9 

 

 

0.1 

 

 

 

 

13.2 

 

 

14.2 



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NOTE 5 - RECEIVABLES AND CONCENTRATION OF CREDIT RISK



The allowance for uncollectible receivables as of January 1, 2017 and September 30, 2016 was $48.0 million and $46.8 million, respectively. 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 represents approximately 13% and 15% of the Company’s Trade Receivables at January 1, 2017 and September 30, 2016, respectively.



NOTE 6 - INVENTORIES



Inventories consist of the following:









 

 

 

 

 

 



 

 

 

 

 

 

(in millions)

 

January 1, 2017

 

September 30, 2016

Raw materials

 

$

146.6 

 

$

127.5 

Work-in-process

 

 

45.6 

 

 

43.6 

Finished goods

 

 

587.5 

 

 

569.5 



 

$

779.7 

 

$

740.6 









NOTE 7 – PROPERTY, PLANT AND EQUIPMENT



Property, plant and equipment consist of the following:

















 

 

 

 

 

 

(in millions)

 

January 1, 2017

 

September 30, 2016

Land, buildings and improvements

 

$

194.2 

 

$

195.8 

Machinery, equipment and other

 

 

551.9 

 

 

550.6 

Capitalized leases

 

 

158.2 

 

 

130.0 

Construction in progress

 

 

68.9 

 

 

57.7 

Property, plant and equipment

 

$

973.2 

 

$

934.1 

Accumulated depreciation

 

 

(405.0)

 

 

(392.0)

Property, plant and equipment, net

 

$

568.2 

 

$

542.1 











NOTE 8 - GOODWILL AND INTANGIBLE ASSETS



Goodwill, by segment, consists of the following:









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in millions)

 

GBA

 

HHI

 

PET

 

H&G

 

GAC

 

Total

As of September 30, 2016

 

 

345.1 

 

 

702.8 

 

 

299.8 

 

 

196.5 

 

 

934.2 

 

 

2,478.4 

Foreign currency impact

 

 

(5.0)

 

 

(3.6)

 

 

(4.6)

 

 

 

 

(0.7)

 

 

(13.9)

As of January 1, 2017

 

$

340.1 

 

$

699.2 

 

$

295.2 

 

$

196.5 

 

$

933.5 

 

$

2,464.5 



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







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

January 1, 2017

 

September 30, 2016

(in millions)

 

Gross Carrying Amount

 

Accumulated Amortization

 

Net

 

Gross Carrying Amount

 

Accumulated Amortization

 

Net

Customer relationships

 

$

973.3 

 

$

(313.2)

 

$

660.1 

 

$

984.8 

 

$

(302.9)

 

$

681.9 

Technology assets

 

 

237.8 

 

 

(102.3)

 

 

135.5 

 

 

237.2 

 

 

(96.7)

 

 

140.5 

Tradenames

 

 

165.7 

 

 

(93.0)

 

 

72.7 

 

 

165.7 

 

 

(89.1)

 

 

76.6 

Total

 

$

1,376.8 

 

$

(508.5)

 

$

868.3 

 

$

1,387.7 

 

$

(488.7)

 

$

899.0 



The range and weighted average useful lives for definite-lived intangible assets are as follows:





 

 

 

 

Asset Type

 

Range

 

Weighted Average

Customer relationships

 

2 - 20 years

 

18.5 years

Technology assets

 

5 - 18 years

 

11.2 years

Tradenames

 

5 - 13 years

 

11.4 years



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Table of Contents

 

Certain tradename intangible assets have an indefinite life and are not amortized. The balance of tradenames not subject to amortization was $1,459.6 million and $1,473.5 million as of January 1, 2017 and September 30, 2016, respectively. There was no impairment loss on indefinite-lived trade names for the three month periods ended January 1, 2017 and January 3, 2016.



Amortization expense from intangible assets for the three month periods ended January 1, 2017 and January 3, 2016 was $23.6 million. Excluding the impact of any future acquisitions or changes in foreign currency, the Company estimates annual amortization expense of intangible assets for the next five fiscal years will be as follows:





 

 

 

(in millions)

 

Amortization

2017

 

$

91.9 

2018

 

 

85.7 

2019

 

 

85.4 

2020

 

 

85.2 

2021

 

 

81.9 





NOTE 9 - DEBT



Debt consists of the following:



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

SBH

 

SB/RH



 

January 1, 2017

 

September 30, 2016

 

January 1, 2017

 

September 30, 2016

(in millions)

 

Amount

 

Rate

 

Amount

 

Rate

 

Amount

 

Rate

 

Amount

 

Rate

Term Loan, variable rate, due June 23, 2022

 

$

1,003.0 

 

3.4 

%

 

$

1,005.5 

 

3.6 

%

 

$

1,003.0 

 

3.4 

%

 

$

1,005.5 

 

3.6 

%

CAD Term Loan, variable rate, due June 23, 2022

 

 

53.3 

 

4.5 

%

 

 

54.9 

 

4.6 

%

 

 

53.3 

 

4.5 

%

 

 

54.9 

 

4.6 

%

Euro Term Loan, variable rate, due June 23, 2022

 

 

58.8 

 

3.5 

%

 

 

63.0 

 

3.5 

%

 

 

58.8 

 

3.5 

%

 

 

63.0 

 

3.5 

%

4.00% Notes, due October 1, 2026

 

 

445.8 

 

4.0 

%

 

 

477.0 

 

4.0 

%

 

 

445.8 

 

4.0 

%

 

 

477.0 

 

4.0 

%

5.75% Notes, due July 15, 2025

 

 

1,000.0 

 

5.8 

%

 

 

1,000.0 

 

5.8 

%

 

 

1,000.0 

 

5.8 

%

 

 

1,000.0 

 

5.8 

%

6.125% Notes, due December 15, 2024

 

 

250.0 

 

6.1 

%

 

 

250.0 

 

6.1 

%

 

 

250.0 

 

6.1 

%

 

 

250.0 

 

6.1 

%

6.375% Notes, due November 15, 2020

 

 

 

%

 

 

129.7 

 

6.4 

%

 

 

 

%

 

 

129.7 

 

6.4 

%

6.625% Notes, due November 15, 2022

 

 

570.0 

 

6.6 

%

 

 

570.0 

 

6.6 

%

 

 

570.0 

 

6.6 

%

 

 

570.0 

 

6.6 

%

Revolver Facility, variable rate, expiring June 23, 2020

 

 

165.5 

 

5.6 

%

 

 

 

%

 

 

165.5 

 

5.6 

%

 

 

 

%

Intercompany Loan with Parent Company

 

 

 

%

 

 

 

%

 

 

31.8 

 

3.4 

%

 

 

 

%

Other notes and obligations

 

 

26.9 

 

7.7 

%

 

 

16.8 

 

9.8 

%

 

 

26.9 

 

7.7 

%

 

 

16.8 

 

9.8 

%

Obligations under capital leases