Spectrum Brands, Inc.

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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 July 4, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to______

Commission File No.

Name of Registrant, State of Incorporation,

Address of Principal Offices, and Telephone No.

IRS Employer Identification No.

1-4219

Spectrum Brands Holdings, Inc.

74-1339132

(a Delaware corporation)

3001 Deming Way

Middleton, WI 53562

(608) 275-3340

www.spectrumbrands.com

333-192634-03

SB/RH Holdings, LLC

27-2812840

(a Delaware limited liability company)

3001 Deming Way

Middleton, WI 53562

(608) 275-3340

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

☒

☐

SB/RH Holdings, LLC

Yes

☒

☐

Indicate by check mark whether the registrants have submitted electronically 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

☒

☐

SB/RH Holdings, LLC

Yes

☒

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth 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.

SB/RH Holdings, LLC

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

☐

☒

SB/RH Holdings, LLC

Yes

☐

☒

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§232.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter

Spectrum Brands Holdings, Inc.

Yes

☐

☒

SB/RH Holdings, LLC

Yes

☐

☒

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Spectrum Brands Holdings, Inc.

☐

SB/RH Holdings, LLC

☐

Securities registered pursuant to Section 12(b) of the Exchange Act:

Registrant

Title of Each Class

Trading Symbol

Name of Exchange On Which Registered

Spectrum Brands Holdings, Inc.

Common Stock, $0.01 par value

SPB

New York Stock Exchange

As of August 3, 2021, there were 42,526,120 shares outstanding 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).

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Forward-Looking Statements

We have made or implied certain forward-looking statements in this report including without limitation, statements regarding the Company's recently adopted share repurchase program, for which the manner of purchase, the number of shares to be purchased and the timing of purchases will be based on a number of factors including the price of the Company's common stock, general business and market conditions and applicable legal requirements, and is subject to the discretion of the Company's management and may be commenced, suspended or discontinued at any time. 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, or expectations regarding our Global Productivity Improvement Program, our business strategy, future operations, financial condition, estimated revenues, projected costs, projected synergies, prospects, plans and objectives of management, information concerning expected actions of third parties, retention and future compensation of key personnel, our ability to meet environmental, social, and governance goals, the expected impact of the COVID-19 pandemic, economic, social, and political conditions or civil unrest in the U.S. and other countries, and other statements regarding the Company's ability to meet its expectations for its fiscal 2021 are forward-looking statements. When used in this report, the words future, anticipate, pro forma, seeks, intend, plan, envision, estimate, believe, belief, expect, project, forecast, outlook, goal, target, could, would, will, can, 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 the COVID-19 pandemic on our customers, employees, manufacturing facilities, suppliers, the capital markets, and our financial condition, and results of operations, all of which tend to aggravate the other risks and uncertainties we face;

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

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

•interest rate and exchange rate fluctuations;

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

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

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

•the impact of actions taken by significant stockholders;

•changes in consumer spending preferences and demand for our products, particularly in light of the COVID-19 pandemic and economic stress;

•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 identify, implement, achieve and sustain productivity improvements (including our Global Productivity Improvement Program), cost efficiencies (including at our manufacturing and distribution operations), and cost savings;

•the seasonal nature of sales of certain of our products;

•the effects of climate change and unusual weather activity as well as further natural disasters and pandemics;

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

•our discretion to conduct, suspend or discontinue our share repurchase program (including our discretion to conduct purchases, if any, in a variety of manners including open-market purchases or privately negotiated transactions);

•public perception regarding the safety of products that we manufacture and sell, including the potential for environmental liabilities, product liability claims, litigation and other claims related to products manufactured by us and third parties;

•the impact of existing, pending or threatened litigation, government regulations or other requirements or operating standards applicable to our business;

•the impact of cybersecurity breaches or our actual or perceived failure to protect company and personal data, including our failure to comply with new or increasingly complex global data privacy regulations;

•changes in accounting policies applicable to our business;

•our ability to utilize net operating loss carry-forwards to offset tax liabilities from future taxable income;

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

•our ability to successfully implement further acquisitions or dispositions and the impact of any such transactions on our financial performance;

•the unanticipated loss of key members of senior management and the transition of new members of our management teams to their new roles;

•the impact of economic, social and political conditions or civil unrest in the U.S. and other countries;

•the effects of political or economic conditions, terrorist attacks, acts of war, natural disasters, public health concerns or other unrest in international markets;

•our ability to achieve our goals regarding environmental, social, and governance practices; and

•our increased reliance on third-party partners, suppliers, and distributors to achieve our business objectives.

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.

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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	2
Spectrum Brands Holdings, Inc. Condensed Consolidated Financial Statements (Unaudited)
	Condensed Consolidated Statements of Financial Position as of July 4, 2021 and September 30, 2020	2
	Condensed Consolidated Statements of Income for the three and nine month periods ended July 4, 2021 and June 28, 2020	3
	Condensed Consolidated Statements of Comprehensive Income for the three and nine month periods ended July 4, 2021 and June 28, 2020	4
	Condensed Consolidated Statement of Shareholders’ Equity for the nine month periods ended July 4, 2021 and June 28, 2020	5
	Condensed Consolidated Statements of Cash Flows for the nine month periods ended July 4, 2021 and June 28, 2020	6
SB/RH Holdings, LLC Condensed Consolidated Financial Statements (Unaudited)
	Condensed Consolidated Statements of Financial Position as of July 4, 2021 and September 30, 2020	7
	Condensed Consolidated Statements of Income for the three and nine month periods ended July 4, 2021 and June 28, 2020	8
	Condensed Consolidated Statements of Comprehensive Income for the three and nine month periods ended July 4, 2021 and June 28, 2020	9
	Condensed Consolidated Statement of Shareholder’s Equity for the nine month periods ended July 4, 2021 and June 28, 2020	10
	Condensed Consolidated Statements of Cash Flows for the nine month periods ended July 4, 2021 and June 28, 2020	11
Spectrum Brands Holdings, Inc. and SB/RH Holdings, LLC Combined (Unaudited)
	Notes to the Condensed Consolidated Financial Statements	12
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44
Item 4.	Controls and Procedures	45
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	46
Item 1A.	Risk Factors	46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 5.	Other Information	46
Item 6.	Exhibits	46
Signatures		47

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SPECTRUM BRANDS HOLDINGS, INC.

Condensed Consolidated Statements of Financial Position

As of July 4, 2021, and September 30, 2020

(unaudited)


(in millions)	July 4, 2021		September 30, 2020
Assets
Cash and cash equivalents	$	130.2	$	531.6
Trade receivables, net	479.5		501.1
Other receivables	75.0		74.2
Inventories	908.3		557.7
Prepaid expenses and other current assets	81.9		63.5
Total current assets	1,674.9		1,728.1
Property, plant and equipment, net	390.6		396.5
Operating lease assets	118.3		103.8
Deferred charges and other	51.0		115.2
Goodwill	1,583.9		1,332.0
Intangible assets, net	1,605.9		1,431.7
Total assets	$	5,424.6	$	5,107.3
Liabilities and Shareholders' Equity
Current portion of long-term debt	$	17.7	$	15.3
Accounts payable	522.5		557.5
Accrued wages and salaries	89.8		95.0
Accrued interest	36.0		38.5
Other current liabilities	266.9		238.6
Total current liabilities	932.9		944.9
Long-term debt, net of current portion	2,651.1		2,461.0
Long-term operating lease liabilities	99.7		88.8
Deferred income taxes	105.1		65.4
Other long-term liabilities	127.6		131.4
Total liabilities	3,916.4		3,691.5
Commitments and contingencies (Note 19)
Shareholders' equity
Common stock	0.5		0.5
Additional paid-in capital	2,058.0		2,054.3
Accumulated earnings	328.1		243.9
Accumulated other comprehensive loss, net of tax	(239.6)		(284.7)
Treasury stock	(646.1)		(606.5)
Total shareholders' equity	1,500.9		1,407.5
Non-controlling interest	7.3		8.3
Total equity	1,508.2		1,415.8
Total liabilities and equity	$	5,424.6	$	5,107.3

See accompanying notes to the condensed consolidated financial statements

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SPECTRUM BRANDS HOLDINGS, INC.

Condensed Consolidated Statements of Income

For the three and nine month periods ended July 4, 2021 and June 28, 2020

(unaudited)


	Three Month Periods Ended				Nine Month Periods Ended
(in millions, except per share)	July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020
Net Sales	$	1,162.8	$	984.3	$	3,457.5	$	2,793.6
Cost of goods sold	755.1		635.7		2,222.1		1,834.2
Restructuring and related charges	0.3		(0.3)		1.7		12.5
Gross profit	407.4		348.9		1,233.7		946.9
Selling	189.8		141.3		529.8		437.4
General and administrative	85.6		83.6		266.4		245.7
Research and development	13.1		9.7		36.1		29.7
Restructuring and related charges	9.8		12.5		21.7		49.1
Transaction related charges	11.1		6.1		41.4		17.4
Loss on assets held for sale	—		1.1		—		26.8
Write-off from impairment of intangible assets	—		—		—		24.2
Total operating expenses	309.4		254.3		895.4		830.3
Operating income	98.0		94.6		338.3		116.6
Interest expense	31.4		36.1		133.7		106.5
Gain from extinguishment of Salus CLO debt	—		(76.2)		—		(76.2)
Other non-operating expense (income), net	3.0		(56.5)		(4.6)		10.2
Income from continuing operations before income taxes	63.6		191.2		209.2		76.1
Income tax expense	27.7		53.6		63.3		35.3
Net income from continuing operations	35.9		137.6		145.9		40.8
(Loss) income from discontinued operations, net of tax	(5.2)		8.0		(6.6)		12.2
Net income	30.7		145.6		139.3		53.0
Net income (loss) attributable to non-controlling interest	—		0.5		(0.1)		0.6
Net income attributable to controlling interest	$	30.7	$	145.1	$	139.4	$	52.4
Amounts attributable to controlling interest
Net income from continuing operations attributable to controlling interest	$	35.9	$	137.1	$	146.0	$	40.2
Net (loss) income from discontinued operations attributable to controlling interest	(5.2)		8.0		(6.6)		12.2
Net income attributable to controlling interest	$	30.7	$	145.1	$	139.4	$	52.4
Earnings Per Share
Basic earnings per share from continuing operations	$	0.84	$	3.19	$	3.42	$	0.89
Basic earnings per share from discontinued operations	(0.12)		0.18		(0.15)		0.27
Basic earnings per share	$	0.72	$	3.37	$	3.27	$	1.16
Diluted earnings per share from continuing operations	$	0.84	$	3.18	$	3.40	$	0.89
Diluted earnings per share from discontinued operations	(0.12)		0.18		(0.15)		0.27
Diluted earnings per share	$	0.72	$	3.36	$	3.25	$	1.16
Dividend per share	$	0.42	$	0.42	$	1.26	$	1.26
Weighted Average Shares Outstanding
Basic	42.6		43.1		42.7		45.3
Diluted	42.9		43.2		42.9		45.4

See accompanying notes to the condensed consolidated financial statements

Table of Contents

SPECTRUM BRANDS HOLDINGS, INC

Condensed Consolidated Statements of Comprehensive Income

For the three and nine month periods ended July 4, 2021 and June 28, 2020

(unaudited)


	Three Month Periods Ended				Nine Month Periods Ended
(in millions)	July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020
Net income	$	30.7	$	145.6	$	139.3	$	53.0
Other comprehensive income
Foreign currency translation gain (loss)	0.9		7.5		42.6		(13.3)
Deferred tax effect	0.9		(0.1)		1.2		—
Net unrealized gain (loss) on foreign currency translation	1.8		7.4		43.8		(13.3)
Unrealized gain (loss) on derivative instruments
Unrealized loss on hedging activity before reclassification	(1.0)		(2.1)		(7.6)		(0.5)
Net reclassification for loss (gain) to income from continuing operations	2.8		(2.0)		8.4		(6.3)
Unrealized gain (loss) on hedging instruments after reclassification	1.8		(4.1)		0.8		(6.8)
Deferred tax effect	(0.4)		1.7		(0.3)		2.8
Net unrealized gain (loss) on hedging derivative instruments	1.4		(2.4)		0.5		(4.0)
Defined benefit pension gain
Defined benefit pension (loss) gain before reclassification	(0.2)		(0.8)		(1.5)		3.0
Net reclassification for loss to income from continuing operations	1.1		1.0		3.3		3.1
Defined benefit pension gain after reclassification	0.9		0.2		1.8		6.1
Deferred tax effect	(0.2)		—		(0.6)		(0.4)
Net defined benefit pension gain	0.7		0.2		1.2		5.7
Deconsolidation of discontinued operations and assets held for sale	—		—		—		8.1
Net change to derive comprehensive income (loss) for the periods	3.9		5.2		45.5		(3.5)
Comprehensive income	34.6		150.8		184.8		49.5
Comprehensive income attributable to non-controlling interest	0.1		—		0.4		—
Comprehensive income attributable to controlling interest	$	34.5	$	150.8	$	184.4	$	49.5

See accompanying notes to the condensed consolidated financial statements

Table of Contents

SPECTRUM BRANDS HOLDINGS, INC

Condensed Consolidated Statements of Shareholder’s Equity

For the nine month period ended July 4, 2021

(unaudited)


Nine Month Period Ended July 4, 2021	Common Stock			Additional Paid-in Capital		Accumulated Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total Shareholders' Equity		Non- controlling Interest		Total Equity
(in millions)	Shares	Amount
Balances at September 30, 2020	43.1	$	0.5	$	2,054.3	$	243.9	$	(284.7)	$	(606.5)	$	1,407.5	$	8.3	$	1,415.8
Net income from continuing operations	—	—		—		72.4		—		—		72.4		0.8		73.2
Loss from discontinued operations, net of tax	—	—		—		(0.3)		—		—		(0.3)		—		(0.3)
Other comprehensive income, net of tax	—	—		—		—		16.2		—		16.2		0.4		16.6
Treasury stock repurchases	(0.6)	—		—		—		—		(42.3)		(42.3)		—		(42.3)
Restricted stock issued and related tax withholdings	0.2	—		(18.6)		—		—		11.7		(6.9)		—		(6.9)
Share based compensation	—	—		7.5		—		—		—		7.5		—		7.5
Dividends declared	—	—		—		(18.4)		—		—		(18.4)		—		(18.4)
Dividend paid by subsidiary to NCI	—	—		—		—		—		—		—		(1.0)		(1.0)
Balances as of January 3, 2021	42.7	0.5		2,043.2		297.6		(268.5)		(637.1)		1,435.7		8.5		1,444.2
Net income (loss) from continuing operations	—	—		—		37.7		—		—		37.7		(0.9)		36.8
Loss from discontinued operations, net of tax	—	—		—		(1.1)		—		—		(1.1)		—		(1.1)
Sale and deconsolidation of assets held for sale	—	—		—		—		—		—		—		—		—
Other comprehensive income (loss), net of tax	—	—		—		—		25.1		—		25.1		(0.1)		25.0


Restricted stock issued and related tax withholdings	—	—		(0.1)		—		—		0.1		—		—		—
Share based compensation	—	—		8.5		—		—		—		8.5		—		8.5
Dividends declared	—	—		—		(18.5)		—		—		(18.5)		—		(18.5)
Dividend paid by subsidiary to NCI	—	—		—		—		—		—		—		(0.3)		(0.3)
Balances as of April 4, 2021	42.7	0.5		2,051.6		315.7		(243.4)		(637.0)		1,487.4		7.2		1,494.6
Net income from continuing operations	—	—		—		35.9		—		—		35.9		—		35.9
Loss from discontinued operations, net of tax	—	—		—		(5.2)		—		—		(5.2)		—		(5.2)
Other comprehensive income, net of tax	—	—		—		—		3.8		—		3.8		0.1		3.9
Restricted stock issued and related tax withholdings	—	—		(1.1)		—		—		1.1		—		—		—
Treasury stock repurchases	(0.1)	—		—		—		—		(10.2)		(10.2)		—		(10.2)
Share based compensation	—	—		7.5		—		—		—		7.5		—		7.5
Dividends declared	—	—		—		(18.3)		—		—		(18.3)		—		(18.3)
Balances at July 4, 2021	42.6	$	0.5	$	2,058.0	$	328.1	$	(239.6)	$	(646.1)	$	1,500.9	$