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 April 2, 2023

☐ 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 May 8, 2023, there were 41,004,457 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 document. All statements, other than statements of historical facts included or incorporated by reference in this document, including the statements under Management’s Discussion and Analysis of Financial Condition and Results of Operations, without limitation, statements or expectations regarding our business strategy, future operations, financial condition, estimated revenues, projected costs, earnings power, projected synergies, prospects, plans and objectives of management, outcome of any litigation and information concerning expected actions of third parties are forward-looking statements. When used in this report, the words future, anticipate, pro forma, seek, intend, plan, envision, estimate, believe, belief, expect, project, forecast, outlook, earnings framework, goal, target, could, would, will, can, should, may and similar expressions are 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 COVID-19 pandemic, economic, social and political conditions or civil unrest, terrorist attacks, acts of war, natural disasters, other public health concerns or unrest in the United States ("U.S.") or the international markets impacting our business, customers, employees (including our ability to retain and attract key personnel), manufacturing facilities, suppliers, capital markets, financial condition and results of operations, all of which tend to aggravate the other risks and uncertainties we face;

•the impact of a number of local, regional and global uncertainties could negatively impact our business;

•the negative effect of the armed conflict between Russia and Ukraine and its impact on those regions and surrounding regions, including on our operations and on those of our customers, suppliers and other stakeholders;

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

•the impact of expenses resulting from the implementation of new business strategies, divestitures or current and proposed restructuring and optimization activities, including distribution center changes which are complicated and involve coordination among a number of stakeholders, including our suppliers and transportation and logistics handlers;

•the impact of our indebtedness and financial leverage position 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, fuel costs, commodity prices, costs or availability of raw materials or terms and conditions available from suppliers, including suppliers’ willingness to advance credit;

•interest rate fluctuations;

•changes in foreign currency exchange rates that may impact our purchasing power, pricing and margin realization within international jurisdictions;

•the loss of, significant reduction in or dependence upon, sales to any significant retail customer(s), including their changes in retail inventory levels and management thereof;

•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;

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

•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, cost efficiencies (including at our manufacturing and distribution operations) and cost savings;

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

•the impact weather conditions may have on the sales of certain of our products;

•the effects of climate change and unusual weather activity as well as our ability to respond to future natural disasters and pandemics and to meet our environmental, social and governance goals;

•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 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 regulation 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 and increasingly complex global data privacy regulations;

•changes in accounting policies applicable to our business;

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

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

•our ability to consummate the announced Hardware and Home Improvement ("HHI") divestiture on the expected terms and within the anticipated time period, or at all, which is dependent on the parties' ability to satisfy certain closing conditions and our ability to realize the benefits of the transaction, including reducing the financial leverage of the Company, investing in the organic growth of the Company, funding any future acquisitions, returning capital to shareholders, and/or maintaining our quarterly dividends;

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•the risk that ASSA ABLOY and Fortune Brands fail to satisfy the conditions to closing of their divestiture transaction and/or otherwise fail to consummate their divestiture transaction in connection with the settlement with the U.S. Department of Justice;

•the risk that regulatory approvals that are required to complete the proposed HHI divestiture may not be realized, may take longer than expected or may impose adverse conditions;

•our ability to successfully integrate the February 18, 2022, acquisition of the home appliances and cookware products business from Tristar Products, Inc. (the "Tristar Business") into the Company's Home and Personal Care ("HPC") business and realize the benefits of this acquisition;

•our ability to separate the Company's HPC business and create an independent Global Appliances business on expected terms, and within the anticipated time period, or at all, and to realize the potential benefits of such business;

•our ability to create a pure play consumer products company composed of our Global Pet Care ("GPC") and Home & Garden ("H&G") business and to realize the expected benefits of such creation, and within the anticipated time period, or at all;

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

•the impact of actions taken by significant shareholders; and

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

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 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

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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.


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 April 2, 2023 and September 30, 2022	2
	Condensed Consolidated Statements of Income for the three and six month periods ended April 2, 2023 and April 3, 2022	3
	Condensed Consolidated Statements of Comprehensive Income for the three and six month periods ended April 2, 2023 and April 3, 2022	4
	Condensed Consolidated Statements of Shareholders’ Equity for the six month periods ended April 2, 2023 and April 3, 2022	5
	Condensed Consolidated Statements of Cash Flows for the six month periods ended April 2, 2023 and April 3, 2022	7
SB/RH Holdings, LLC Condensed Consolidated Financial Statements (Unaudited)
	Condensed Consolidated Statements of Financial Position as of April 2, 2023 and September 30, 2022	8
	Condensed Consolidated Statements of Income for the three and six month periods ended April 2, 2023 and April 3, 2022	9
	Condensed Consolidated Statements of Comprehensive Income for the three and six month periods ended April 2, 2023 and April 3, 2022	10
	Condensed Consolidated Statements of Shareholder's Equity for the six month periods ended April 2, 2023 and April 3, 2022	11
	Condensed Consolidated Statements of Cash Flows for the six month periods ended April 2, 2023 and April 3, 2022	13
Spectrum Brands Holdings, Inc. and SB/RH Holdings, LLC Combined (Unaudited)
	Notes to the Condensed Consolidated Financial Statements	14
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

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SPECTRUM BRANDS HOLDINGS, INC.

Condensed Consolidated Statements of Financial Position

As of April 2, 2023 and September 30, 2022

(unaudited)


(in millions)	April 2, 2023		September 30, 2022
Assets
Cash and cash equivalents	$	327.8	$	243.7
Trade receivables, net	305.5		247.4
Other receivables	101.3		95.7
Inventories	585.6		780.6
Prepaid expenses and other current assets	51.5		51.2
Current assets of business held for sale	1,799.6		1,816.7
Total current assets	3,171.3		3,235.3
Property, plant and equipment, net	268.7		263.8
Operating lease assets	129.7		82.5
Deferred charges and other	106.1		38.7
Goodwill	968.5		953.1
Intangible assets, net	1,140.7		1,202.2

Total assets	$	5,785.0	$	5,775.6
Liabilities and Shareholders' Equity
Current portion of long-term debt	$	13.1	$	12.3
Accounts payable	495.9		453.1
Accrued wages and salaries	28.1		28.4
Accrued interest	37.0		27.6
Other current liabilities	200.7		203.0
Current liabilities of business held for sale	401.8		463.7
Total current liabilities	1,176.6		1,188.1
Long-term debt, net of current portion	3,175.6		3,144.5
Long-term operating lease liabilities	104.9		56.0
Deferred income taxes	75.0		60.1
Other long-term liabilities	63.8		57.8

Total liabilities	4,595.9		4,506.5
Commitments and contingencies (Note 16)
Shareholders' equity
Common stock	0.5		0.5
Additional paid-in capital	2,016.2		2,032.5
Accumulated earnings	252.6		362.1
Accumulated other comprehensive loss, net of tax	(272.9)		(303.1)
Treasury stock	(814.2)		(828.8)
Total shareholders' equity	1,182.2		1,263.2
Non-controlling interest	6.9		5.9
Total equity	1,189.1		1,269.1
Total liabilities and equity	$	5,785.0	$	5,775.6

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 six month periods ended April 2, 2023 and April 3, 2022

(unaudited)


	Three Month Periods Ended				Six Month Periods Ended
(in millions, except per share)	April 2, 2023		April 3, 2022		April 2, 2023		April 3, 2022
Net sales	$	729.2	$	807.8	$	1,442.5	$	1,565.0
Cost of goods sold	514.7		552.2		1,026.1		1,090.1

Gross profit	214.5		255.6		416.4		474.9
Selling	133.1		149.8		264.4		296.1
General and administrative	86.2		105.7		170.8		195.0
Research and development	5.2		8.2		11.4		15.8


Impairment of intangible assets	67.0		—		67.0		—

Total operating expenses	291.5		263.7		513.6		506.9
Operating loss	(77.0)		(8.1)		(97.2)		(32.0)
Interest expense	31.6		24.7		65.0		46.4

Other non-operating expense (income), net	1.2		(0.9)		(0.3)		(0.3)
Loss from continuing operations before income taxes	(109.8)		(31.9)		(161.9)		(78.1)
Income tax benefit	(34.8)		(6.8)		(46.9)		(22.8)
Net loss from continuing operations	(75.0)		(25.1)		(115.0)		(55.3)
Income from discontinued operations, net of tax	21.4		41.1		40.9		79.9
Net (loss) income	(53.6)		16.0		(74.1)		24.6
Net income from continuing operations attributable to non-controlling interest	0.1		—		0.3		—
Net income from discontinued operations attributable to non-controlling interest	—		0.1		0.2		0.5
Net (loss) income attributable to controlling interest	$	(53.7)	$	15.9	$	(74.6)	$	24.1
Amounts attributable to controlling interest
Net loss from continuing operations attributable to controlling interest	$	(75.1)	$	(25.1)	$	(115.3)	$	(55.3)
Net income from discontinued operations attributable to controlling interest	21.4		41.0		40.7		79.4
Net (loss) income attributable to controlling interest	$	(53.7)	$	15.9	$	(74.6)	$	24.1
Earnings Per Share
Basic earnings per share from continuing operations	$	(1.83)	$	(0.61)	$	(2.82)	$	(1.35)
Basic earnings per share from discontinued operations	0.52		1.00		1.00		1.94
Basic earnings per share	$	(1.31)	$	0.39	$	(1.82)	$	0.59
Diluted earnings per share from continuing operations	$	(1.83)	$	(0.61)	$	(2.82)	$	(1.35)
Diluted earnings per share from discontinued operations	0.52		1.00		1.00		1.94
Diluted earnings per share	$	(1.31)	$	0.39	$	(1.82)	$	0.59
Dividend per share	$	0.42	$	0.42	$	0.84	$	0.84
Weighted Average Shares Outstanding
Basic	41.0		40.8		40.9		41.1
Diluted	41.0		40.8		40.9		41.1

See accompanying notes to the condensed consolidated financial statements

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SPECTRUM BRANDS HOLDINGS, INC

Condensed Consolidated Statements of Comprehensive Income

For the three and six month periods ended April 2, 2023 and April 3, 2022

(unaudited)


	Three Month Periods Ended				Six Month Periods Ended
(in millions)	April 2, 2023		April 3, 2022		April 2, 2023		April 3, 2022
Net (loss) income	$	(53.6)	$	16.0	$	(74.1)	$	24.6
Other comprehensive (loss) income
Foreign currency translation adjustment
Foreign currency translation gain (loss)	27.1		(13.5)		87.6		(17.4)
Unrealized (loss) gain from net investment hedge	(12.5)		11.9		(46.4)		22.5
Foreign currency translation adjustment before tax	14.6		(1.6)		41.2		5.1
Deferred tax effect	3.7		(3.1)		12.5		(7.6)
Foreign currency translation adjustment, net	18.3		(4.7)		53.7		(2.5)
Unrealized (loss) gain on derivative instruments
Unrealized (loss) gain on hedging activity before reclassification	(7.1)		6.4		(32.5)		7.6
Net reclassification for loss (gain) to income from continuing operations	4.9		(1.5)		2.4		(3.6)
Net reclassification for gain to income from discontinued operations	(0.1)		(0.7)		(0.1)		(1.2)
Unrealized (loss) gain on hedging instruments after reclassification	(2.3)		4.2		(30.2)		2.8
Deferred tax effect	0.7		(1.0)		7.8		3.5
Net unrealized (loss) gain on hedging derivative instruments	(1.6)		3.2		(22.4)		6.3
Defined benefit pension (loss) gain
Defined benefit pension gain (loss) before reclassification	0.1		1.0		(2.1)		1.7
Net reclassification for (gain) loss to income from continuing operations	(0.7)		1.0		0.2		2.0

Defined benefit pension (loss) gain after reclassification	(0.6)		2.0		(1.9)		3.7
Deferred tax effect	0.1		(0.6)		1.3		(3.5)
Net defined benefit pension (loss) gain	(0.5)		1.4		(0.6)		0.2

Net change to derive comprehensive income for the period	16.2		(0.1)		30.7		4.0
Comprehensive (loss) income	(37.4)		15.9		(43.4)		28.6
Comprehensive income (loss) from continuing operations attributable to non-controlling interest	0.1		(0.1)		0.3		(0.1)
Comprehensive income from discontinuing operations attributable to non-controlling interest	0.1		—		0.2		0.1
Comprehensive (loss) income attributable to controlling interest	$	(37.6)	$	16.0	$	(43.9)	$	28.6

See accompanying notes to the condensed consolidated financial statements

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SPECTRUM BRANDS HOLDINGS, INC

Condensed Consolidated Statements of Shareholders' Equity

For the six month period ended April 2, 2023

(unaudited)


	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, 2022	40.8	$	0.5	$	2,032.5	$	362.1	$	(303.1)	$	(828.8)	$	1,263.2	$	5.9	$	1,269.1
Net (loss) income from continuing operations	—	—		—		(40.3)		—		—		(40.3)		0.3		(40.0)
Income from discontinued operations, net of tax	—	—		—		19.4		—		—		19.4		0.1		19.5
Other comprehensive income, net of tax	—	—		—		—		14.2		—		14.2		0.3		14.5

Restricted stock issued and related tax withholdings	0.2	—		(25.1)		—		—		14.6		(10.5)		—		(10.5)
Share based compensation	—	—		4.1		—		—		—		4.1		—		4.1
Dividends declared	—	—		—		(17.3)		—		—		(17.3)		—		(17.3)

Balances as of January 1, 2023	41.0	0.5		2,011.5		323.9		(288.9)		(814.2)		1,232.8		6.6		1,239.4
Net (loss) income from continuing operations	—	—		—		(75.1)		—		—		(75.1)		0.1		(75.0)
Income from discontinued operations, net of tax	—	—		—		21.4		—		—		21.4		—		21.4

Other comprehensive income, net of tax	—	—		—		—		16.0		—		16.0		0.2		16.2


Share based compensation	—	—		4.7		—		—		—		4.7		—		4.7
Dividends declared	—	—		—		(17.6)		—		—		(17.6)		—		(17.6)










Balances at April 2, 2023	41.0	$	0.5	$	2,016.2	$	252.6	$	(272.9)	$	(814.2)	$	1,182.2	$	6.9	$	1,189.1

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SPECTRUM BRANDS HOLDINGS, INC

Condensed Consolidated Statements of Shareholders' Equity

For the six month period ended April 3, 2022

(unaudited)


	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, 2021	41.8	$	0.5	$	2,063.8	$	359.9	$	(235.3)	$	(717.0)	$	1,471.9	$	7.1	$	1,479.0
Net loss from continuing operations	—	—		—		(30.2)		—		—		(30.2)		—		(30.2)
Income from discontinued operations, net of tax	—	—		—		38.4		—		—		38.4		0.4		38.8
Other comprehensive income, net of tax	—	—		—		—		4.0		—		4.0		0.1		4.1
Treasury stock repurchases	(1.1)	—		—		—		—		(110.0)		(110.0)		—		(110.0)

Restricted stock issued and related tax withholdings	0.3	—		(46.6)		—		—		22.2		(24.4)		—		(24.4)
Share based compensation	—	—		8.3		—		—		—		8.3		—		8.3
Dividends declared	—	—		—		(17.7)		—		—		(17.7)		—		(17.7)

Balances as of January 2, 2022	41.0	0.5		2,025.5		350.4		(231.3)		(804.8)		1,340.3		7.6		1,347.9
Net loss from continuing operations	—