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 March 29, 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 001-34757
_________________________________________
Spectrum Brands Holdings, Inc.
(Exact name of registrant as specified in its charter)
_________________________________________
Delaware |
27-2166630 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
|
|
3001 Deming Way Middleton, Wisconsin |
53562 |
(Address of principal executive offices) |
(Zip Code) |
(608) 275-3340 |
(Registrant’s telephone number, including area code) |
|
N/A |
(Former name, former address and former fiscal year, if changed since last report.) |
_________________________________________
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer |
☑ |
Accelerated filer |
☐ |
Non-accelerated filer |
☐ |
Smaller reporting company |
☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
The number of shares outstanding of the Registrant’s common stock, $.01 par value, as of April 28, 2015, was 53,297,793.
SPECTRUM BRANDS HOLDINGS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED March 29, 2015
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Notes to Condensed Consolidated Financial Statements (Unaudited) |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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2
SPECTRUM BRANDS HOLDINGS, INC.
Condensed Consolidated Statements of Financial Position
March 29, 2015 and September 30, 2014
(Amounts in millions, except per share figures)
March 29, 2015 |
September 30, 2014 |
|||||
Assets |
(Unaudited) |
|||||
Current assets: |
||||||
Cash and cash equivalents |
$ |
87.8 |
$ |
194.6 | ||
Receivables: |
||||||
Trade accounts receivable, net of allowances $41.2 and $48.6, respectively |
494.8 | 439.0 | ||||
Other |
91.3 | 76.3 | ||||
Inventories |
814.0 | 624.5 | ||||
Deferred income taxes |
30.1 | 36.7 | ||||
Prepaid expenses and other |
68.9 | 63.5 | ||||
Total current assets |
1,586.9 | 1,434.6 | ||||
Property, plant and equipment, net of accumulated depreciation of $285.8 and $264.5, respectively |
461.7 | 428.9 | ||||
Deferred charges and other |
36.3 | 37.3 | ||||
Goodwill |
1,516.1 | 1,469.6 | ||||
Intangible assets, net |
2,108.6 | 2,091.5 | ||||
Debt issuance costs |
52.4 | 51.1 | ||||
Total assets |
$ |
5,762.0 |
$ |
5,513.0 | ||
Liabilities and Shareholders' Equity |
||||||
Current liabilities: |
||||||
Current maturities of long-term debt |
$ |
96.3 |
$ |
96.7 | ||
Accounts payable |
444.3 | 519.7 | ||||
Accrued liabilities: |
||||||
Wages and benefits |
62.3 | 88.1 | ||||
Income taxes payable |
20.1 | 18.5 | ||||
Accrued interest |
39.8 | 35.4 | ||||
Other |
147.8 | 157.3 | ||||
Total current liabilities |
810.6 | 915.7 | ||||
Long-term debt, net of current maturities |
3,279.8 | 2,894.1 | ||||
Employee benefit obligations, net of current portion |
71.8 | 82.0 | ||||
Deferred income taxes |
505.1 | 513.2 | ||||
Other |
21.1 | 21.2 | ||||
Total liabilities |
4,688.4 | 4,426.2 | ||||
Commitments and contingencies |
||||||
Shareholders' equity: |
||||||
Common stock, $.01 par value, authorized 200.0 shares; issued 54.8 and 54.1 shares, respectively; outstanding 53.3 and 52.7 shares, respectively |
0.5 | 0.5 | ||||
Additional paid-in capital |
1,455.7 | 1,433.4 | ||||
Accumulated deficit |
(239.2) | (283.1) | ||||
Accumulated other comprehensive loss |
(134.4) | (63.1) | ||||
1,082.6 | 1,087.7 | |||||
Less treasury stock, at cost, 1.5 and 1.4 shares, respectively |
(52.7) | (44.3) | ||||
Total shareholders' equity |
1,029.9 | 1,043.4 | ||||
Noncontrolling interest |
43.7 | 43.4 | ||||
Total equity |
1,073.6 | 1,086.8 | ||||
Total liabilities and equity |
$ |
5,762.0 |
$ |
5,513.0 |
See accompanying notes which are an integral part of these condensed consolidated financial statements
(Unaudited).
3
SPECTRUM BRANDS HOLDINGS, INC.
Condensed Consolidated Statements of Operations
For the three and six month periods ended March 29, 2015 and March 30, 2014
(Unaudited)
(Amounts in millions, except per share figures)
THREE MONTHS ENDED |
SIX MONTHS ENDED |
|||||||||||
2015 |
2014 |
2015 |
2014 |
|||||||||
Net sales |
$ |
1,067.0 |
$ |
1,021.7 |
$ |
2,134.8 |
$ |
2,122.3 | ||||
Cost of goods sold |
692.1 | 661.0 | 1,389.5 | 1,378.7 | ||||||||
Restructuring and related charges |
0.2 | 1.1 | 0.4 | 2.8 | ||||||||
Gross profit |
374.7 | 359.6 | 744.9 | 740.8 | ||||||||
Selling |
173.1 | 165.7 | 332.9 | 329.9 | ||||||||
General and administrative |
84.3 | 75.9 | 152.6 | 148.9 | ||||||||
Research and development |
12.8 | 12.3 | 24.0 | 23.1 | ||||||||
Acquisition and integration related charges |
11.9 | 6.3 | 20.0 | 11.8 | ||||||||
Restructuring and related charges |
4.2 | 6.8 | 11.4 | 9.5 | ||||||||
Total operating expenses |
286.3 | 267.0 | 540.9 | 523.2 | ||||||||
Operating income |
88.4 | 92.6 | 204.0 | 217.6 | ||||||||
Interest expense |
49.2 | 47.4 | 93.6 | 104.4 | ||||||||
Other expense, net |
3.2 | 0.8 | 3.9 | 1.6 | ||||||||
Income from continuing operations before income taxes |
36.0 | 44.4 | 106.5 | 111.6 | ||||||||
Income tax expense |
8.1 | 10.5 | 28.6 | 23.3 | ||||||||
Net income |
27.9 | 33.9 | 77.9 | 88.3 | ||||||||
Less: Net income attributable to non-controlling interest |
0.1 | 0.1 | 0.3 | 0.2 | ||||||||
Net income attributable to controlling interest |
$ |
27.8 |
$ |
33.8 |
$ |
77.6 |
$ |
88.1 | ||||
Basic earnings per share: |
||||||||||||
Weighted average shares of common stock outstanding |
53.3 | 52.7 | 53.0 | 52.6 | ||||||||
Net income per share attributable to controlling interest |
$ |
0.52 |
$ |
0.64 |
$ |
1.46 |
$ |
1.68 | ||||
Diluted earnings per share: |
||||||||||||
Weighted average shares and equivalents outstanding |
53.3 | 53.0 | 53.1 | 52.8 | ||||||||
Net income per share attributable to controlling interest |
$ |
0.52 |
$ |
0.64 |
$ |
1.46 |
$ |
1.67 | ||||
Cash dividends declared per common share |
$ |
0.33 |
$ |
0.30 |
$ |
0.63 |
$ |
0.55 |
See accompanying notes which are an integral part of these condensed consolidated financial statements
(Unaudited).
4
SPECTRUM BRANDS HOLDINGS, INC.
Condensed Consolidated Statements of Comprehensive Income (Loss)
For the three and six month periods ended March 29, 2015 and March 30, 2014
(Unaudited)
(Amounts in millions)
THREE MONTHS ENDED |
SIX MONTHS ENDED |
|||||||||||
2015 |
2014 |
2015 |
2014 |
|||||||||
Net income |
$ |
27.9 |
$ |
33.9 |
$ |
77.9 |
$ |
88.3 | ||||
Other comprehensive income (loss), net of tax: |
||||||||||||
Foreign currency translation loss |
(43.6) | (2.6) | (78.1) | (2.9) | ||||||||
Unrealized gain (loss) on derivative hedging instruments |
1.4 | (1.6) | 3.4 | (0.1) | ||||||||
Defined benefit pension gain |
2.4 | 0.1 | 3.4 | 0.1 | ||||||||
Other comprehensive loss, net of tax |
(39.8) | (4.1) | (71.3) | (2.9) | ||||||||
Comprehensive income (loss) |
(11.9) | 29.8 | 6.6 | 85.4 | ||||||||
Less: Comprehensive income attributable to non-controlling interest |
0.1 | 0.2 | 0.3 | 0.4 | ||||||||
Comprehensive income (loss) attributable to controlling interest |
$ |
(12.0) |
$ |
29.6 |
$ |
6.3 |
$ |
85.0 |
See accompanying notes which are an integral part of these condensed consolidated financial statements
(Unaudited).
5
SPECTRUM BRANDS HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
For the six month periods ended March 29, 2015 and March 30, 2014
(Unaudited)
(Amounts in millions)
SIX MONTHS ENDED |
||||||
2015 |
2014 |
|||||
Cash flows from operating activities: |
||||||
Net income |
$ |
77.9 |
$ |
88.3 | ||
Adjustments to reconcile net income to net cash used by operating activities, net of effects of acquisitions: |
||||||
Depreciation |
37.1 | 36.5 | ||||
Amortization of intangibles |
41.7 | 40.7 | ||||
Amortization of unearned restricted stock compensation |
19.4 | 17.9 | ||||
Amortization of debt issuance costs |
5.1 | 5.2 | ||||
Non-cash increase to cost of goods sold due to acquisitions inventory step up |
3.0 |
— |
||||
Write off unamortized discount on retired debt |
— |
2.8 | ||||
Write off of debt issuance costs |
— |
6.4 | ||||
Other non-cash adjustments |
7.2 | 3.4 | ||||
Net changes in operating assets and liabilities |
(371.7) | (356.8) | ||||
Net cash used by operating activities |
(180.3) | (155.6) | ||||
Cash flows from investing activities: |
||||||
Purchases of property, plant and equipment |
(29.9) | (36.8) | ||||
Acquisition of Tell Manufacturing, net of cash acquired |
(29.2) |
— |
||||
Acquisition of European IAMS and Eukanuba, net of cash acquired |
(116.0) |
— |
||||
Acquisition of Salix Animal Health, net of cash acquired |
(147.5) |
— |
||||
Acquisition of Liquid Fence, net of cash acquired |
— |
(25.3) | ||||
Proceeds from sales of property, plant and equipment |
1.2 |
— |
||||
Other investing activities |
(0.9) | (0.1) | ||||
Net cash used by investing activities |
(322.3) | (62.2) | ||||
Cash flows from financing activities: |
||||||
Proceeds from issuance of Term Loan, net of discount |
— |
523.7 | ||||
Proceeds from issuance of 6.125% Notes |
250.0 |
— |
||||
Proceeds from Euro Term Loan Tranche B |
185.4 |
— |
||||
Payment of senior credit facilities, excluding ABL revolving credit facility |
(15.2) | (530.8) | ||||
Debt issuance costs |
(6.9) | (5.4) | ||||
Other debt financing, net |
(0.1) | 11.6 | ||||
Reduction of other debt |
(3.6) | (1.6) | ||||
ABL revolving credit facility, net |
42.0 | 167.5 | ||||
Cash dividends paid |
(33.5) | (29.0) | ||||
Treasury stock purchases |
(8.5) | (4.5) | ||||
Share based tax withholding payments, net of proceeds upon vesting |
(1.9) | (26.5) | ||||
Net cash provided by financing activities |
407.7 | 105.0 | ||||
Effect of exchange rate changes on cash and cash equivalents |
(11.9) | (1.1) | ||||
Net decrease in cash and cash equivalents |
(106.8) | (113.9) | ||||
Cash and cash equivalents, beginning of period |
194.6 | 207.3 | ||||
Cash and cash equivalents, end of period |
$ |
87.8 |
$ |
93.4 |
See accompanying notes which are an integral part of these condensed consolidated financial statements
(Unaudited).
6
SPECTRUM BRANDS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in millions of dollars, except per share figures or as otherwise specified)
Spectrum Brands Holdings, Inc., a Delaware corporation (“SB Holdings” or the “Company”), is a diversified global branded consumer products company. SB Holdings' common stock trades on the New York Stock Exchange (the “NYSE”) under the symbol “SPB.”
The Company’s operations include the worldwide manufacturing and marketing of alkaline, zinc carbon and hearing aid batteries, as well as aquariums and aquatic health supplies and the designing and marketing of rechargeable batteries, battery-powered lighting products, electric shavers and accessories, grooming products and hair care appliances. The Company’s operations also include the manufacturing and marketing of specialty pet supplies. The Company also manufactures and markets herbicides, insecticides and insect repellents in North America. The Company also designs, markets and distributes a broad range of branded small appliances and personal care products. The Company also designs, markets, distributes and sells certain hardware, home improvement and plumbing products. The Company’s operations utilize manufacturing and product development facilities located in the United States (“U.S.”), Europe, Latin America and Asia.
The Company sells its products in approximately 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, FANAL and Pfister brands.
The Company’s global branded consumer products have positions in six major product categories: consumer batteries, small appliances, personal care, hardware and home improvement, pet supplies and home and garden controls.
The Company manages the businesses in four vertically integrated, product-focused reporting segments: (i) Global Batteries & Appliances, which consists of the Company’s worldwide battery, 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”); and (iv) Home and Garden, which consists of the Company’s home and garden and insect control business (“Home and Garden”). Management reviews the performance of the Company based on these segments, which also reflect the manner in which the Company’s management monitors performance and allocates resources. For information pertaining to our business segments, see Note 12, “Segment Results.”
2 SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The condensed consolidated financial statements include the accounts of SB Holdings and its subsidiaries and are prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). All intercompany transactions have been eliminated.
These condensed consolidated financial statements have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of the Company, include all adjustments (which are normal and recurring in nature) necessary to present fairly the financial position of the Company at March 29, 2015, the results of operations for the three and six month periods ended March 29, 2015 and March 30, 2014, the comprehensive income (loss) for the three and six month periods ended March 29, 2015 and March 30, 2014 and the cash flows for the six month periods ended March 29, 2015 and March 30, 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.
7
SPECTRUM BRANDS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) – (Continued)
(Amounts in millions of dollars, except per share figures or as otherwise specified)
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 $66.1 and $130.8 for the three and six month periods ended March 29, 2015, respectively, and $63.7 and $128.3 for the three and six months periods ended March 30, 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 13% and 14% of the Company’s Net sales during the three and six month periods ended March 29, 2015, respectively, and 16% of the Company’s Net sales for both the three and six month periods ended March 30, 2014. This customer also represented approximately 11% and 14% of the Company’s Trade accounts receivable, net at March 29, 2015 and September 30, 2014, respectively.
Approximately 39% and 42% of the Company’s Net sales during the three and six month periods ended March 29, 2015, respectively, and 39% and 43% of the Company’s Net sales during the three and six month periods ended March 30, 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: 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 six month periods ended March 29, 2015 was $13.8 and $19.4, respectively. Total stock compensation expense associated with restricted stock units recognized by the Company during the three and six month periods ended March 30, 2014 was $11.3 and $17.9, respectively. The remaining unrecognized pre-tax compensation cost related to restricted stock units at March 29, 2015 was $48.6.
8
SPECTRUM BRANDS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) – (Continued)
(Amounts in millions of dollars, except per share figures or as otherwise specified)
The Company granted approximately 0.30 million and 0.53 million restricted stock units during the three and six month periods ended March 29, 2015, respectively. The 0.53 million restricted stock units granted during the six months ended March 29, 2015 include 0.13 million restricted stock units that vested immediately and 0.13 million time-based restricted stock units that vest over a period ranging from one to three years. The remaining 0.27 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 $47.8.
The Company granted approximately 0.02 million and 0.44 million restricted stock units during the three and six month periods ended March 30, 2014, respectively. The 0.44 million restricted units granted during the six months ended March 30, 2014, include 0.09 million restricted stock units that vested immediately and 0.05 million time-based restricted stock units that vest over a one year period. The remaining 0.30 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 $30.1.
The fair value of restricted stock units is determined based on the market price of the Company’s shares of common stock on the grant date. A summary of the activity in the Company’s non-vested restricted stock units during the six months ended March 29, 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 |
0.83 |
$ |
67.66 |
$ |
56.0 | |||
Granted |
0.53 | 90.43 | 47.8 | |||||
Forfeited |
(0.02) | 84.13 | (1.3) | |||||
Vested |
(0.70) | 68.28 | (48.1) | |||||
Non-vested restricted stock units at March 29, 2015 |
0.64 |
$ |
85.50 |
$ |
54.4 |
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.
The following table summarizes acquisition and integration related charges incurred by the Company during the three and six month periods ended March 29, 2015 and March 30, 2014:
Three Months Ended |
Six Months Ended |
|||||||||||
2015 |
2014 |
2015 |
2014 |
|||||||||
Salix Animal Health |
$ |
5.1 |
$ |
— |
$ |
5.1 |
$ |
— |
||||
European IAMS and Eukanuba |
4.1 |
— |
5.0 |
— |
||||||||
HHI Business |
3.0 | 3.7 | 6.2 | 7.9 | ||||||||
Tell |
0.6 |
— |
1.1 |
— |
||||||||
Liquid Fence |
0.4 | 1.2 | 1.3 | 1.7 | ||||||||
Other |
(1.3) | 1.4 | 1.3 | 2.2 | ||||||||
Total Acquisition and integration related charges |
$ |
11.9 |
$ |
6.3 |
$ |
20.0 |
$ |
11.8 |
9
SPECTRUM BRANDS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) – (Continued)
(Amounts in millions of dollars, except per share figures 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 six month periods ended March 29, 2015 and March 30, 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 8, “Derivative Financial Instruments.”
The components of Other comprehensive income (loss), net of tax, for the three and six month periods ended March 29, 2015 and March 30, 2014 are as follows:
Three Months Ended |
Six Months Ended |
|||||||||||
2015 |
2014 |
2015 |
2014 |
|||||||||
Foreign Currency Translation Adjustments: |
||||||||||||
Net change after reclassification adjustment |
$ |
(43.6) |
$ |
(2.6) |
$ |
(78.1) |
$ |
(2.9) | ||||
Deferred tax effect |
— |
— |
— |
— |
||||||||
Deferred tax valuation allowance |
— |
— |
— |
— |
||||||||
Other Comprehensive Loss |
$ |
(43.6) |
$ |
(2.6) |
$ |
(78.1) |
$ |
(2.9) | ||||
Noncontrolling interest |
— |
0.2 |
— |
0.1 | ||||||||
Comprehensive loss attributable to controlling interest |
$ |
(43.6) |
$ |
(2.8) |
$ |
(78.1) |
$ |
(3.0) | ||||
Derivative Hedging Instruments: |
||||||||||||
Gross change before reclassification adjustment |
$ |
9.3 |
$ |
(1.8) |
$ |
17.1 |
$ |
(0.9) | ||||
Net reclassification adjustment for (gains) losses included in earnings |
(7.0) | (0.1) | (11.8) | 0.9 | ||||||||
Gross change after reclassification adjustment |
$ |
2.3 |
$ |
(1.9) |
$ |
5.3 |
$ |
— |
||||
Deferred tax effect |
(0.9) | 0.4 | (0.9) | (0.1) | ||||||||
Deferred tax valuation allowance |
— |
(0.1) | (1.0) |
— |
||||||||
Other Comprehensive Income (Loss) |
$ |
1.4 |
$ |
(1.6) |
$ |
3.4 |
$ |
(0.1) | ||||
Defined Benefit Pension Plans: |
||||||||||||
Gross change before reclassification adjustment |
$ |
2.8 |
$ |
(0.2) |
$ |
3.7 |
$ |
(0.6) | ||||
Net reclassification adjustment for losses included in Cost of goods sold |
0.1 | 0.1 | 0.3 | 0.3 | ||||||||
Net reclassification adjustment for losses included in Selling expenses |
0.1 | 0.1 | 0.2 | 0.2 | ||||||||
Net reclassification adjustment for losses included in General and administrative expenses |
0.2 | 0.2 | 0.3 | 0.3 | ||||||||
Gross change after reclassification adjustment |
$ |
3.2 |
$ |
0.2 |
$ |
4.5 |
$ |
0.2 | ||||
Deferred tax effect |
(0.8) | (0.1) | (1.1) | (0.1) | ||||||||
Deferred tax valuation allowance |
— |
— |
— |
— |
||||||||
Other Comprehensive Income |
$ |
2.4 |
$ |
0.1 |
$ |
3.4 |
$ |
0.1 | ||||
Total Other Comprehensive Loss, net of tax |
$ |
(39.8) |
$ |
(4.3) |
$ |
(71.3) |
$ |
(3.0) | ||||
10
SPECTRUM BRANDS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) – (Continued)
(Amounts in millions of dollars, except per share figures or as otherwise specified)
4 NET INCOME PER COMMON SHARE
Net income per common share of the Company for the three and six month periods ended March 29, 2015 and March 30, 2014 is calculated based upon the following number of shares:
Three Months Ended |
Six Months Ended |
|||||||
2015 |
2014 |
2015 |
2014 |
|||||
Basic |
53.3 | 52.7 | 53.0 | 52.6 | ||||
Effect of common stock equivalents |
— |
0.3 | 0.1 | 0.2 | ||||
Diluted |
53.3 | 53.0 | 53.1 | 52.8 |
5 INVENTORIES
Inventories consist of the following:
March 29, 2015 |
September 30, 2014 |
|||||
Raw materials |
$ |
138.7 |
$ |
104.1 | ||
Work-in-process |
55.6 | 35.3 | ||||
Finished goods |
619.7 | 485.1 | ||||
$ |
814.0 |
$ |
624.5 |
6 GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets of the Company consist of the following:
Global |
Hardware & |
||||||||||||||
Batteries & |
Home |
Global Pet |
Home and |
||||||||||||
Appliances |
Improvement |
Supplies |
Garden |
Total |
|||||||||||
Goodwill: |
|||||||||||||||
Balance at September 30, 2014 |
$ |
327.4 |
$ |
709.8 |
$ |
235.9 |
$ |
196.5 |
$ |
1,469.6 | |||||
Additions |
— |
7.1 | 70.5 |
— |
77.6 | ||||||||||
Effect of translation |
(14.8) | (8.2) | (8.1) |
— |
(31.1) | ||||||||||
Balance at March 29, 2015 |
$ |
312.6 |
$ |
708.7 |
$ |
298.3 |
$ |
196.5 |
$ |
1,516.1 | |||||
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 |
— |
50.7 | ||||||||||
Effect of translation |
(15.0) | (0.8) | (15.5) |
— |
(31.3) | ||||||||||
Balance at March 29, 2015 |
$ |
529.6 |
$ |
333.8 |
$ |
241.7 |
$ |
88.6 |
$ |
1,193.7 | |||||
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 |
— |
61.7 | ||||||||||
Amortization during period |
(17.1) | (7.6) | (11.6) | (5.4) | (41.7) | ||||||||||
Effect of translation |
(13.5) | (1.4) | (7.4) |
— |
(22.3) | ||||||||||
Balance at March 29, 2015, net |
$ |
370.6 |
$ |
130.0 |
$ |
255.6 |
$ |
158.7 |
$ |
914.9 | |||||
Total Intangible Assets, net at March 29, 2015 |
$ |
900.2 |
$ |
463.8 |
$ |
497.3 |
$ |
247.3 |
$ |
2,108.6 |
11
SPECTRUM BRANDS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) – (Continued)
(Amounts in millions of dollars, except per share figures or as otherwise specified)
During the three month period ended March 29, 2015, the Company recorded additions to goodwill and intangible assets related to the acquisitions of Proctor & Gamble’s European pet food business consisting of the IAMS and Eukanuba brands (“European IAMS and Eukanuba”) and Salix Animal Health LLC (“Salix”), which is included in the Global Pet Supplies segment. See Note 14 “Acquisitions,” for further information.
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 and the Global Pet Supplies segment are from 9 to 17 years, 8 to 9 years and 4 to 9 years, respectively. The useful lives of customer relationships are from 15 to 20 years within the Global Batteries & Appliances segment, 20 years in each of the Hardware & Home Improvement and Home and Garden segments and from 2 to 20 years within the Global Pet Supplies segment. The useful lives for trade names are from 1 to 12 years within the Global Batteries & Appliances segment, 5 to 8 years within the Hardware & Home Improvement segment and 3 years within the Global Pet Supplies segment.
The carrying value and accumulated amortization for intangible assets subject to amortization are as follows:
March 29, 2015 |
September 30, 2014 |
|||||
Technology Assets Subject to Amortization: |
||||||
Gross balance |
$ |
195.5 |
$ |
192.2 | ||
Accumulated amortization |
(67.0) | (57.6) | ||||
Carrying value, net |
$ |
128.5 |
$ |
134.6 | ||
Trade Names Subject to Amortization: |
||||||
Gross balance |
$ |
173.7 |
$ |
171.0 | ||
Accumulated amortization |
(69.1) | (61.0) | ||||
Carrying value, net |
$ |
104.6 |
$ |
110.0 | ||
Customer Relationships Subject to Amortization: |
||||||
Gross balance |
$ |
903.0 |
$ |
877.2 | ||
Accumulated amortization |
(221.2) | (204.6) | ||||
Carrying value, net |
$ |
681.8 |
$ |
672.6 | ||
Total Intangible Assets, net Subject to Amortization |
$ |
914.9 |
$ |
917.2 |
Amortization expense for the three and six month periods ended March 29, 2015 and March 30, 2014 is as follows:
Three Months Ended |
Six Months Ended |
|||||||||||
2015 |
2014 |
2015 |
2014 |
|||||||||
Proprietary technology amortization |
$ |
4.7 |
$ |
4.7 |
$ |
9.4 |
$ |
9.2 | ||||
Trade names amortization |
4.1 | 4.1 | 8.2 | 8.2 | ||||||||
Customer relationships amortization |
12.4 | 11.7 | 24.1 | 23.3 | ||||||||
$ |
21.2 |
$ |
20.5 |
$ |
41.7 |
$ |
40.7 |
The Company estimates annual amortization expense of intangible assets for the next five fiscal years will approximate $81.0 per year.
12
SPECTRUM BRANDS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) – (Continued)
(Amounts in millions of dollars, except per share figures or as otherwise specified)
7 DEBT
Debt consists of the following:
March 29, 2015 |
September 30, 2014 |
||||||||||||||
Amount |
Rate |
Amount |
Rate |
Interest Terms |
|||||||||||
Term Loan, due September 4, 2017 (Tranche A) |
$ |
635.2 | 3.1 |
% |
$ |
648.4 | 3.0 |
% |
Variable rate, see below |
||||||
Term Loan, due September 4, 2019 (Tranche C) |
508.6 | 3.6 |
% |
509.9 | 3.6 |
% |
Variable rate, see below |
||||||||
CAD Term Loan, due December 17, 2019 |
30.5 | 5.1 |
% |
34.2 | 5.1 |
% |
Variable rate, see below |
||||||||
Euro Term Loan, due September 4, 2019 |
242.5 | 3.8 |
% |
283.3 | 3.8 |
% |
Variable rate, see below |
||||||||
Euro Term Loan, due December 19, 2021 |
163.3 | 3.8 |
% |
— |
— |
% |
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 |
% |
300.0 | 6.8 |
% |
Fixed rate |
||||||||
6.125% Notes, due December 15, 2024 |
250.0 | 6.1 |
% |
— |
— |
% |
Fixed rate |
||||||||
ABL Facility, expiring May 24, 2017 |
42.0 | 4.0 |
% |
— |
2.5 |
% |
Variable rate, see below |
||||||||
Other notes and obligations |
31.0 | 12.6 |
% |
36.6 | 8.8 |
% |
Various |
||||||||
Capitalized lease obligations |
88.6 | 6.1 |
% |
94.7 | 6.1 |
% |
Various |
||||||||
$ |
3,381.7 |
$ |
2,997.1 | ||||||||||||
Original issuance discounts on debt |
(5.6) | (6.3) | |||||||||||||
Less: current maturities |
(96.3) | (96.7) | |||||||||||||
Long-term debt |
$ |
3,279.8 |
$ |
2,894.1 |
The Company has the following debt instruments outstanding at March 29, 2015: (i) a senior secured term loan (the “Term Loan”) pursuant to a senior credit agreement (the “Senior Credit Agreement”) which consists of $635.2 (“Tranche A”), $508.6 principal (“Tranche C”), $30.5 Canadian dollar denominated principal (“CAD Term Loan”), $242.5 Euro denominated principal (“Euro Term Loan Tranche A”) and $163.3 Euro denominated principal (“Euro Term Loan Tranche B”) (together, the “Term Loan”); (ii) $300.0 6.75% unsecured notes (the “6.75% Notes”); (iii) $520.0 6.375% unsecured notes (the “6.375% Notes”); (iv) $570.0 6.625% unsecured notes (the “ 6.625% Notes”); (v) $250.0 6.125% unsecured notes (the “6.125% Notes”) and (vi) a $400.0 asset based lending revolving credit facility (the “ABL 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 March 29, 2015, the Company’s variable interest rate terms are as follows: Tranche A is equal to LIBOR (International Exchange London Interbank Offered Rate), subject to a 0.75% floor, plus 2.25%, with a Base option rate of 4.5%; Tranche C is equal to LIBOR, subject to a 0.75% floor, plus 2.75%, with a Base option rate of 5.0%; the CAD Term Loan is equal to CDOR (Canadian Dollar Offered Rate), subject to a 1.25% floor (1.29% at March 29, 2015) plus 3.75%, with a Base option rate of 5.6%; Euro Term Loan Tranche A and Euro Term Loan Tranche B are equal to EURIBOR, subject to a 0.75% floor, plus 3.0%, with no Base option available; the ABL Facility is equal to LIBOR plus 1.75%, with a Base option rate of 4.0%.
Term Loan
On December 19, 2014 the Company amended the Term Loan, issuing a tranche maturing December 19, 2021, which provides for borrowings in an aggregate principal amount of €150.0 (the “Euro Term Loan Tranche B”). The Euro Term Loan Tranche B is guaranteed by the Company’s wholly owned subsidiary, SB/RH Holdings, LLC, as well as by the borrower’s, Spectrum Brands, Inc. (the “Borrower” or the “Issuer”), existing and future domestic subsidiaries. The net proceeds from the amendment, together with the net proceeds of the 6.125% Notes, were used to fund acquisitions, repay certain amounts drawn under the revolving credit facility and for general corporate purposes, which may include, among other things, working capital needs, the refinancing of existing indebtedness and business expansion.
13
SPECTRUM BRANDS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements