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 3, 2016
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 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 May 2, 2016, there were outstanding 59,402,165 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).
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.
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 both Spectrum Brands Holdings, Inc. and SB/RH Holdings, LLC and certain notes related specifically to SB/RH Holdings, LLC.
PART I |
FINANCIAL INFORMATION |
Page |
1 | ||
Spectrum Brands Holdings, Inc. Condensed Consolidated Financial Statements (Unaudited) |
||
|
Condensed Consolidated Statements of Financial Position as of April 3, 2016 and September 30, 2015 |
1 |
|
2 | |
|
2 | |
|
4 | |
SB/RH Holdings, LLC Condensed Consolidated Financial Statements (Unaudited) |
||
|
Condensed Consolidated Statements of Financial Position as of April 3, 2016 and September 30, 2015 |
5 |
|
6 | |
|
6 | |
|
7 | |
Spectrum Brands Holdings, Inc. and SB/RH Holdings, LLC Combined (Unaudited) |
||
|
Combined Notes to Condensed Consolidated Financial Statements |
8 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
29 | |
45 | ||
45 | ||
PART II |
OTHER INFORMATION |
|
46 | ||
46 | ||
47 | ||
47 | ||
48 |
SPECTRUM BRANDS HOLDINGS, INC.
Condensed Consolidated Statements of Financial Position
April 3, 2016 and September 30, 2015
(in millions, unaudited)
|
||||||
|
April 3, 2016 |
September 30, 2015 |
||||
Assets |
||||||
Current assets: |
||||||
Cash and cash equivalents |
$ |
133.3 |
$ |
247.9 | ||
Trade receivables, net |
557.2 | 498.8 | ||||
Other receivables |
78.7 | 87.9 | ||||
Inventories |
924.4 | 780.8 | ||||
Prepaid expenses and other current assets |
85.7 | 72.1 | ||||
Total current assets |
1,779.3 | 1,687.5 | ||||
Property, plant and equipment, net |
528.9 | 507.1 | ||||
Deferred charges and other |
39.0 | 42.2 | ||||
Goodwill |
2,483.4 | 2,476.7 | ||||
Intangible assets, net |
2,432.4 | 2,480.3 | ||||
Total assets |
$ |
7,263.0 |
$ |
7,193.8 | ||
Liabilities and Shareholders' Equity |
||||||
Current liabilities: |
||||||
Current portion of long-term debt |
$ |
34.7 |
$ |
33.8 | ||
Accounts payable |
472.2 | 620.6 | ||||
Accrued wages and salaries |
79.0 | 96.5 | ||||
Accrued interest |
54.1 | 63.3 | ||||
Other current liabilities |
180.8 | 212.7 | ||||
Total current liabilities |
820.8 | 1,026.9 | ||||
Long-term debt, net of current portion |
4,069.1 | 3,872.1 | ||||
Deferred income taxes |
563.8 | 572.5 | ||||
Other long-term liabilities |
105.8 | 115.5 | ||||
Total liabilities |
5,559.5 | 5,587.0 | ||||
Commitments and contingencies |
||||||
Shareholders' equity: |
||||||
Common stock |
0.6 | 0.6 | ||||
Additional paid-in capital |
2,054.9 | 2,033.6 | ||||
Accumulated deficit |
(99.1) | (205.5) | ||||
Accumulated other comprehensive loss, net of tax |
(191.0) | (200.1) | ||||
Treasury stock, at cost |
(105.8) | (65.5) | ||||
Total shareholders' equity |
1,659.6 | 1,563.1 | ||||
Noncontrolling interest |
43.9 | 43.7 | ||||
Total equity |
1,703.5 | 1,606.8 | ||||
Total liabilities and equity |
$ |
7,263.0 |
$ |
7,193.8 |
See accompanying notes to the condensed consolidated financial statements
1
SPECTRUM BRANDS HOLDINGS, INC.
Condensed Consolidated Statements of Operations
For the three and six month periods ended April 3, 2016 and March 29, 2015
(in millions, except per share figures, unaudited)
|
Three Months Ended |
Six Months Ended |
|||||||||
|
|||||||||||
|
April 3, 2016 |
March 29, 2015 |
April 3, 2016 |
March 29, 2015 |
|||||||
Net sales |
$ |
1,209.6 |
$ |
1,067.0 |
$ |
2,428.4 |
$ |
2,134.8 | |||
Cost of goods sold |
746.6 | 692.1 | 1,524.6 | 1,389.5 | |||||||
Restructuring and related charges |
0.2 | 0.2 | 0.3 | 0.4 | |||||||
Gross profit |
462.8 | 374.7 | 903.5 | 744.9 | |||||||
Selling |
189.5 | 173.1 | 376.6 | 332.9 | |||||||
General and administrative |
95.6 | 84.3 | 181.9 | 152.6 | |||||||
Research and development |
14.5 | 12.8 | 28.3 | 24.0 | |||||||
Acquisition and integration related charges |
13.3 | 11.9 | 23.2 | 20.0 | |||||||
Restructuring and related charges |
1.4 | 4.2 | 2.5 | 11.4 | |||||||
Total operating expenses |
314.3 | 286.3 | 612.5 | 540.9 | |||||||
Operating income |
148.5 | 88.4 | 291.0 | 204.0 | |||||||
Interest expense |
57.5 | 49.2 | 115.9 | 93.6 | |||||||
Other non-operating expense, net |
0.8 | 3.2 | 4.3 | 3.9 | |||||||
Income from operations before income taxes |
90.2 | 36.0 | 170.8 | 106.5 | |||||||
Income tax expense |
14.9 | 8.1 | 21.8 | 28.6 | |||||||
Net income |
75.3 | 27.9 | 149.0 | 77.9 | |||||||
Net income attributable to non-controlling interest |
0.1 | 0.1 | 0.2 | 0.3 | |||||||
Net income attributable to controlling interest |
$ |
75.2 |
$ |
27.8 |
$ |
148.8 |
$ |
77.6 | |||
Earnings Per Share |
|||||||||||
Basic earnings per share |
$ |
1.27 |
$ |
0.52 |
$ |
2.51 |
$ |
1.46 | |||
Diluted earnings per share |
1.26 | 0.52 | 2.50 | 1.46 | |||||||
Dividends per share |
0.38 | 0.33 | 0.71 | 0.63 | |||||||
Weighted Average Shares Outstanding |
|||||||||||
Basic |
59.4 | 53.3 | 59.3 | 53.0 | |||||||
Diluted |
59.5 | 53.3 | 59.4 | 53.1 |
See accompanying notes to the condensed consolidated financial statements
SPECTRUM BRANDS HOLDINGS, INC.
Condensed Consolidated Statements of Comprehensive Income
For the three and six month periods ended April 3, 2016 and March 29, 2015
(in millions, unaudited)
|
||||||||||||
|
Three Months Ended |
Six Months Ended |
||||||||||
|
||||||||||||
|
April 3, 2016 |
March 29, 2015 |
April 3, 2016 |
March 29, 2015 |
||||||||
Net income |
$ |
75.3 |
$ |
27.9 |
$ |
149.0 |
$ |
77.9 | ||||
Other comprehensive income (loss), net of tax: |
||||||||||||
Foreign currency translation gain (loss) |
28.2 | (43.6) | 7.7 | (78.1) | ||||||||
Unrealized (loss) gain on hedging derivatives, net tax of $3.2, $(0.9), $2.5 and $(1.9), respectively |
(2.9) | 1.4 | 0.8 | 3.4 | ||||||||
Defined benefit pension (loss) gain, net tax of $0.1, $(0.8), $(0.2) and $(1.1), respectively |
(0.6) | 2.4 | 0.5 | 3.4 | ||||||||
Other comprehensive income (loss), net of tax |
24.7 | (39.8) | 9.0 | (71.3) | ||||||||
Comprehensive income (loss) |
100.0 | (11.9) | 158.0 | 6.6 | ||||||||
Comprehensive income (loss) attributable to non-controlling interest |
— |
0.1 | (0.1) | 0.3 | ||||||||
Comprehensive income (loss) attributable to controlling interest |
$ |
100.0 |
$ |
(12.0) |
$ |
158.1 |
$ |
6.3 |
See accompanying notes to the condensed consolidated financial statements
2
SPECTRUM BRANDS HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
For the six month periods ended April 3, 2016 and March 29, 2015
(in millions, unaudited)
|
||||||
|
April 3, 2016 |
March 29, 2015 |
||||
Cash flows from operating activities |
||||||
Net income |
$ |
149.0 |
$ |
77.9 | ||
Adjustments to reconcile net income to net cash used by operating activities: |
||||||
Amortization of intangible assets |
47.0 | 41.7 | ||||
Depreciation |
44.4 | 37.1 | ||||
Share based compensation |
31.6 | 19.4 | ||||
Non-cash inventory adjustment from acquisitions |
— |
3.0 | ||||
Non-cash restructuring and related charges |
— |
7.2 | ||||
Amortization of debt issuance costs |
4.1 | 5.1 | ||||
Non-cash debt accretion |
0.5 |
— |
||||
Deferred tax (benefit) expense |
(1.9) | 1.4 | ||||
Net changes in operating assets and liabilities, net of effects of acquisitions |
(419.2) | (373.1) | ||||
Net cash used by operating activities |
(144.5) | (180.3) | ||||
Cash flows from investing activities |
||||||
Purchases of property, plant and equipment |
(38.7) | (29.9) | ||||
Business acquisitions, net of cash acquired |
— |
(292.7) | ||||
Proceeds from sales of property, plant and equipment |
0.8 | 1.2 | ||||
Other investing activities |
— |
(0.9) | ||||
Net cash used by investing activities |
(37.9) | (322.3) | ||||
Cash flows from financing activities |
||||||
Proceeds from issuance of debt |
175.0 | 477.4 | ||||
Payment of debt |
(13.3) | (18.9) | ||||
Payment of debt issuance costs |
(1.6) | (6.9) | ||||
Payment of cash dividends |
(42.0) | (33.5) | ||||
Treasury stock purchases |
(40.2) | (8.5) | ||||
Share based tax withholding payments, net of proceeds upon vesting |
(9.8) | (1.9) | ||||
Net cash provided by financing activities |
68.1 | 407.7 | ||||
Effect of exchange rate changes on cash and cash equivalents |
(0.3) | (11.9) | ||||
Net decrease in cash and cash equivalents |
(114.6) | (106.8) | ||||
Cash and cash equivalents, beginning of period |
247.9 | 194.6 | ||||
Cash and cash equivalents, end of period |
$ |
133.3 |
$ |
87.8 | ||
Supplemental disclosure of cash flow information |
||||||
Cash paid for interest |
$ |
120.5 |
$ |
83.2 | ||
Cash paid for taxes |
23.9 | 21.7 | ||||
Non cash investing activities |
||||||
Acquisition of property, plant and equipment through capital leases |
$ |
28.3 |
$ |
1.4 | ||
Non cash financing activities |
||||||
Issuance of shares through stock compensation plan |
$ |
45.8 |
$ |
9.9 |
See accompanying notes to the condensed consolidated financial statements
3
Condensed Consolidated Statements of Financial Position
April 3, 2016 and September 30, 2015
(in millions, unaudited)
|
||||||
|
April 3, 2016 |
September 30, 2015 |
||||
Assets |
||||||
Current assets: |
||||||
Cash and cash equivalents |
$ |
133.2 |
$ |
247.9 | ||
Trade receivables, net |
557.2 | 498.8 | ||||
Other receivables |
79.7 | 87.9 | ||||
Inventories |
924.4 | 780.8 | ||||
Prepaid expenses and other current assets |
85.7 | 72.1 | ||||
Total current assets |
1,780.2 | 1,687.5 | ||||
Property, plant and equipment, net |
528.9 | 507.1 | ||||
Deferred charges and other |
29.2 | 42.1 | ||||
Goodwill |
2,483.4 | 2,476.7 | ||||
Intangible assets, net |
2,432.4 | 2,480.3 | ||||
Total assets |
$ |
7,254.1 |
$ |
7,193.7 | ||
Liabilities and Shareholder's Equity |
||||||
Current liabilities: |
||||||
Current portion of long-term debt |
$ |
48.6 |
$ |
68.5 | ||
Accounts payable |
472.2 | 620.6 | ||||
Accrued wages and salaries |
79.0 | 96.5 | ||||
Accrued interest |
54.1 | 63.3 | ||||
Other current liabilities |
180.3 | 211.9 | ||||
Total current liabilities |
834.2 | 1,060.8 | ||||
Long-term debt, net of current portion |
4,069.1 | 3,872.1 | ||||
Deferred income taxes |
558.5 | 572.5 | ||||
Other long-term liabilities |
105.8 | 115.5 | ||||
Total liabilities |
5,567.6 | 5,620.9 | ||||
Commitments and contingencies |
||||||
Shareholder's equity: |
||||||
Other capital |
1,978.9 | 1,969.9 | ||||
Accumulated deficit |
(151.2) | (246.7) | ||||
Accumulated other comprehensive loss, net of tax |
(191.0) | (200.1) | ||||
Total shareholder's equity |
1,636.7 | 1,523.1 | ||||
Noncontrolling interest |
49.8 | 49.7 | ||||
Total equity |
1,686.5 | 1,572.8 | ||||
Total liabilities and equity |
$ |
7,254.1 |
$ |
7,193.7 |
See accompanying notes to the condensed consolidated financial statements
4
SB/RH HOLDINGS, LLC
Condensed Consolidated Statements of Operations
For the three and six month periods ended April 3, 2016 and March 29, 2015
(in millions, unaudited)
|
||||||||||||
|
||||||||||||
|
Three Months Ended |
Six Months Ended |
||||||||||
|
||||||||||||
|
April 3, 2016 |
March 29, 2015 |
April 3, 2016 |
March 29, 2015 |
||||||||
Net sales |
$ |
1,209.6 |
$ |
1,067.0 |
$ |
2,428.4 |
$ |
2,134.8 | ||||
Cost of goods sold |
746.6 | 692.1 | 1,524.6 | 1,389.5 | ||||||||
Restructuring and related charges |
0.2 | 0.2 | 0.3 | 0.4 | ||||||||
Gross profit |
462.8 | 374.7 | 903.5 | 744.9 | ||||||||
Selling |
189.5 | 173.1 | 376.6 | 332.9 | ||||||||
General and administrative |
94.2 | 82.6 | 178.7 | 149.9 | ||||||||
Research and development |
14.5 | 12.8 | 28.3 | 24.0 | ||||||||
Acquisition and integration related charges |
13.3 | 11.9 | 23.2 | 20.0 | ||||||||
Restructuring and related charges |
1.4 | 4.2 | 2.5 | 11.4 | ||||||||
Total operating expenses |
312.9 | 284.6 | 609.3 | 538.2 | ||||||||
Operating income |
149.9 | 90.1 | 294.2 | 206.7 | ||||||||
Interest expense |
57.5 | 49.2 | 115.9 | 93.6 | ||||||||
Other non-operating expense, net |
0.8 | 3.2 | 4.3 | 3.9 | ||||||||
Income from operations before income taxes |
91.6 | 37.7 | 174.0 | 109.2 | ||||||||
Income tax expense |
19.4 | 8.1 | 26.3 | 28.6 | ||||||||
Net income |
72.2 | 29.6 | 147.7 | 80.6 | ||||||||
Net income attributable to non-controlling interest |
0.1 |
— |
0.2 | 0.2 | ||||||||
Net income attributable to controlling interest |
$ |
72.1 |
$ |
29.6 |
$ |
147.5 |
$ |
80.4 | ||||
|
See accompanying notes to the condensed consolidated financial statements
Condensed Consolidated Statements of Comprehensive Income
For the three and six month periods ended April 3, 2016 and March 29, 2015
(in millions, unaudited)
|
||||||||||||
|
Three Months Ended |
Six Months Ended |
||||||||||
|
||||||||||||
|
April 3, 2016 |
March 29, 2015 |
April 3, 2016 |
March 29, 2015 |
||||||||
Net income |
$ |
72.2 |
$ |
29.6 |
$ |
147.7 |
$ |
80.6 | ||||
Other comprehensive income (loss), net of tax: |
||||||||||||
Foreign currency translation gain (loss) |
28.2 | (43.6) | 7.7 | (78.1) | ||||||||
Unrealized (loss) gain on hedging derivatives, net tax of $3.2, $(0.9), $2.5 and $(1.9), respectively |
(2.9) | 1.4 | 0.8 | 3.4 | ||||||||
Defined benefit pension (loss) gain, net tax of $0.1, $(0.8), $(0.2) and $(1.1), respectively |
(0.6) | 2.4 | 0.5 | 3.4 | ||||||||
Other comprehensive income (loss), net of tax |
24.7 | (39.8) | 9.0 | (71.3) | ||||||||
Comprehensive income (loss) |
96.9 | (10.2) | 156.7 | 9.3 | ||||||||
Comprehensive (loss) income attributable to non-controlling interest |
— |
— |
(0.1) | 0.2 | ||||||||
Comprehensive income (loss) attributable to controlling interest |
$ |
96.9 |
$ |
(10.2) |
$ |
156.8 |
$ |
9.1 |
See accompanying notes to the condensed consolidated financial statements
5
SB/RH HOLDINGS, LLC
Condensed Consolidated Statements of Cash Flows
For the six month periods ended April 3, 2016 and March 29, 2015
(in millions, unaudited)
|
||||||
|
April 3, 2016 |
March 29, 2015 |
||||
Cash flows from operating activities |
||||||
Net income |
$ |
147.7 |
$ |
80.6 | ||
Adjustments to reconcile net income to net cash used by operating activities: |
||||||
Amortization of intangible assets |
47.0 | 41.7 | ||||
Depreciation |
44.4 | 37.1 | ||||
Share based compensation |
28.8 | 17.0 | ||||
Non-cash inventory adjustment from acquisitions |
— |
3.0 | ||||
Non-cash restructuring and related charges |
— |
7.5 | ||||
Amortization of debt issuance costs |
4.1 | 5.1 | ||||
Non-cash debt accretion |
0.5 |
— |
||||
Deferred tax (benefit) expense |
2.6 | 1.4 | ||||
Net changes in operating assets and liabilities, net of effects of acquisitions |
(438.8) | (373.7) | ||||
Net cash used by operating activities |
(163.7) | (180.3) | ||||
Cash flows from investing activities |
||||||
Purchases of property, plant and equipment |
(38.7) | (29.9) | ||||
Business acquisitions, net of cash acquired |
— |
(292.7) | ||||
Proceeds from sales of property, plant and equipment |
0.8 | 1.2 | ||||
Other investing activities |
— |
(0.9) | ||||
Net cash used by investing activities |
(37.9) | (322.3) | ||||
Cash flows from financing activities |
||||||
Proceeds from issuance of debt |
188.9 | 481.2 | ||||
Payment of debt |
(48.1) | (25.5) | ||||
Payment of debt issuance costs |
(1.6) | (6.9) | ||||
Payment of cash dividends to parent |
(52.0) | (33.5) | ||||
Share based tax withholding payments, net of proceeds upon vesting |
— |
(5.9) | ||||
Net cash provided by financing activities |
87.2 | 409.4 | ||||
Effect of exchange rate changes on cash and cash equivalents |
(0.3) | (11.9) | ||||
Net decrease in cash and cash equivalents |
(114.7) | (105.1) | ||||
Cash and cash equivalents, beginning of period |
247.9 | 192.9 | ||||
Cash and cash equivalents, end of period |
$ |
133.2 |
$ |
87.8 | ||
Supplemental disclosure of cash flow information |
||||||
Cash paid for interest |
$ |
120.5 |
$ |
83.2 | ||
Cash paid for taxes |
23.9 | 21.7 | ||||
Non cash investing activities |
||||||
Acquisition of property, plant and equipment through capital leases |
$ |
28.3 |
$ |
1.4 |
See accompanying notes to the condensed consolidated financial statements
6
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, 2015.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. This ASU requires debt issuance costs related to a recognized debt liability to be presented on a balance sheet as a direct deduction from the debt liability, similar to the presentation of debt discounts. Current guidance generally requires entities to capitalize costs paid to third parties that are directly related to issuing debt and that otherwise wouldn’t be incurred, and present those amounts separately as deferred charges. During the three month period ended January 3, 2016, the Company retrospectively applied the adoption of this ASU, resulting in a reclassification of $65.1 million of debt issuance costs as of September 30, 2015.
In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740) – Balance Sheet Classification of Deferred Taxes. The ASU simplifies the presentation of deferred tax assets and liabilities to be classified as noncurrent on a balance sheet. Current guidance requires an entity to separate deferred income tax assets and liabilities into current and noncurrent amounts. The new guidance requires all deferred tax assets and liabilities to be presented as noncurrent as the separate current classification results in little to no benefit to users of the financial statements because the classification does not generally align with the time period in which the recognized deferred tax amounts are expected to be recovered or settled. During the three month period ended January 3, 2016, the Company retrospectively applied the adoption of this ASU, resulting in a reclassification of $44.7 million of current deferred tax assets and $4.6 million of current deferred tax liabilities as of September 30, 2015.
The following is a summary of the reclassifications from the retrospective adoption of the ASUs discussed above, as of September 30, 2015 for SBH and SB/RH, respectively:
|
Spectrum Brands Holdings, Inc. |
SB/RH Holdings, LLC |
||||||||||||||||
Statement of Financial Position (in millions) |
As Reported |
Reclassification |
As Reclassified |
As Reported |
Reclassification |
As Reclassified |
||||||||||||
Prepaid expenses and other current assets |
$ |
116.8 |
$ |
(44.7) |
$ |
72.1 |
$ |
116.8 |
$ |
(44.7) |
$ |
72.1 | ||||||
Deferred charges and other |
101.7 | (59.5) | 42.2 | 101.6 | (59.5) | 42.1 | ||||||||||||
Other current liabilities |
(217.3) | 4.6 | (212.7) | (216.5) | 4.6 | (211.9) | ||||||||||||
Long-term debt, net of current portion |
(3,937.2) | 65.1 | (3,872.1) | (3,937.2) | 65.1 | (3,872.1) | ||||||||||||
Deferred taxes (noncurrent liability) |
(607.0) | 34.5 | (572.5) | (607.0) | 34.5 | (572.5) |
In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. The ASU simplifies the presentation of provisional amounts recognized in a business combination during the measurement period (one year from the date of acquisition). Current guidance requires retrospective adjustment of prior periods; the new guidance eliminates this requirement. The Company applied the adoption of this ASU effective the first day of the year ending September 30, 2016 and all subsequent measurement period adjustments are recorded in the period identified, resulting in the recognition of adjustments to goodwill from the Armored AutoGroup (“AAG”) acquisition. See Note 8 for adjustments to goodwill.
7
NOTE 3 - ACQUISITIONS
Armored AutoGroup - On May 21, 2015, the Company completed the acquisition of Armored AutoGroup Parent, Inc. (“AAG”), a consumer products company consisting primarily of Armor All and STP products, two of the most recognizable brands in the automotive aftermarket appearance products and performance chemicals categories, respectively, and the A/C PRO brand of do-it-yourself automotive air conditioner recharge products. The results of AAG’s operations are included in the Company’s Condensed Consolidated Statements of Operations and are reported as a separate segment under Global Auto Care for the three and six month periods ended April 3, 2016. Primary areas of acquisition accounting that are not yet finalized relate to amounts for residual goodwill and income taxes.
Salix - On January 16, 2015, the Company completed the acquisition of Salix, a vertically integrated producer and distributer of premium natural rawhide dog chews, treats and snacks. The results of Salix’s operations are included in the Company’s Condensed Consolidated Statements of Operations and as part of the Global Pet Supplies segment for the three and six month periods ended April 3, 2016 and March 29, 2015.
European IAMS and Eukanuba - On December 31, 2014, the Company completed the acquisition of Procter & Gamble’s European IAMS and Eukanuba pet food business (“European IAMS and Eukanuba”), premium brands for dogs and cats. The results of European IAMS and Eukanuba’s operations are included in the Company’s Condensed Consolidated Statements of Operations and as part of the Global Pet Supplies segment for the three and six month periods ended April 3, 2016 and March 29, 2015.
Tell Manufacturing - On October 1, 2014, the Company completed the acquisition of Tell, a manufacturer and distributor of commercial doors, locks and hardware. The results of Tell’s operations are included in the Company’s Condensed Consolidated Statements of Operations and as part of the Hardware and Home Improvement segment for the three and six month periods ended April 3, 2016 and March 29, 2015.
Acquisition and Integration Costs
The following table summarizes acquisition and integration related charges incurred by the Company for the three and six month periods ended April 3, 2016 and March 29, 2015:
|
Three Months Ended |
Six Months Ended |
||||||||||
(in millions) |
April 3, 2016 |
March 29, 2015 |
April 3, 2016 |
March 29, 2015 |
||||||||
Armored AutoGroup |
$ |
6.1 |
$ |
— |
$ |
10.6 |
$ |
— |
||||
HHI Business |
4.8 | 3.0 | 7.6 | 6.2 | ||||||||
European IAMS and Eukanuba |
1.0 | 4.1 | 2.0 | 5.0 | ||||||||
Salix |
0.6 | 5.1 | 1.5 | 5.1 | ||||||||
Tell |
0.1 | 0.6 | 0.2 | 1.1 | ||||||||
Other |
0.7 | (0.9) | 1.3 | 2.6 | ||||||||
Total acquisition and integration related charges |
$ |
13.3 |
$ |
11.9 |
$ |
23.2 |
$ |
20.0 |
NOTE 4 - RESTRUCTURING AND RELATED CHARGES
HHI Business Rationalization Initiatives – During the fourth quarter of the year ended September 30, 2014, the Company implemented a series of initiatives throughout the Hardware & Home Improvement segment to reduce operating costs and exit low margin business outside the U.S. These initiatives included headcount reductions, the exit of certain facilities and the sale of a portion of the global Hardware & Home Improvement operations. Total costs associated with these initiatives are expected to be approximately $15 million, of which $14.4 million has been incurred to date, the balance is anticipated to be incurred through September 30, 2016.
Global Expense Rationalization Initiatives – During the third quarter of the year ended September 30, 2013, the Company implemented a series of initiatives throughout the Company to reduce operating costs. These initiatives consisted of headcount reductions in the Global Batteries & Appliances and Global Pet Supplies segments, and within Corporate. Total costs associated with these initiatives are expected to be approximately $47 million, of which $44.0 million has been incurred to date, the balance is anticipated to be incurred through September 30, 2018.
Other Restructuring Activities – The Company is entering or may enter into small, less significant initiatives and restructuring activities to reduce costs and improve margins. Individually these activities are not substantial, and occur over a shorter time period (less than 12 months). Total costs associated with these initiatives are expected to be approximately $1 million, of which $0.9 million has been incurred to date.
8
The following table summarizes restructuring and related charges for the three and six month periods ended April 3, 2016 and March 29, 2015:
|
Three Months Ended |
Six Months Ended |
||||||||||
|
||||||||||||
(in millions) |
April 3, 2016 |
March 29, 2015 |
April 3, 2016 |
March 29, 2015 |
||||||||
HHI business rationalization initiatives |
$ |
0.3 |
$ |
1.3 |
$ |
(0.4) |
$ |
1.4 | ||||
Global expense rationalization initiatives |
1.2 | 2.8 | 2.3 | 10.0 | ||||||||
Other restructuring activities |
0.1 | 0.3 | 0.9 | 0.4 | ||||||||
Total restructuring and related charges |
$ |
1.6 |
$ |
4.4 |
$ |
2.8 |
$ |
11.8 | ||||
Reported as: |
||||||||||||
Cost of goods sold |
$ |
0.2 |
$ |
0.2 |
$ |
0.3 |
$ |
0.4 | ||||
Operating expense |
1.4 | 4.2 | 2.5 | 11.4 |
The following is a summary of restructuring and related charges for the three and six month periods ended April 3, 2016 and March 29, 2015 by cost type:
|
Termination |
Other |
|||||||
(in millions) |
Benefits |
Costs |
Total |
||||||
For the three month period ended April 3, 2016 |
0.7 | 0.9 | 1.6 | ||||||
For the three month period ended March 29, 2015 |
3.0 | 1.4 | 4.4 | ||||||
For the six month period ended April 3, 2016 |
1.7 | 1.1 | 2.8 | ||||||
For the six month period ended March 29, 2015 |
7.9 | 3.9 | 11.8 | ||||||
Cumulative costs through April 3, 2016 |
29.8 | 29.6 | 59.4 |
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 six month period ended April 3, 2016:
|
Termination |
Other |
|||||||
(in millions) |
Benefits |
Costs |
Total |
||||||
Accrual balance at September 30, 2015 |
4.3 | 3.9 | 8.2 | ||||||
Provisions |
1.7 | 1.1 | 2.8 | ||||||
Cash expenditures |
(4.1) | (4.5) | (8.6) | ||||||
Non-cash items |
0.1 | (0.2) | (0.1) | ||||||
Accrual balance at April 3, 2016 |
$ |
2.0 |
$ |
0.3 |
$ |
2.3 |
The following summarizes restructuring and related charges by segment for the three and six month periods ended April 3, 2016 and March 29, 2015, cumulative costs incurred through April 3, 2016 and future expected costs to be incurred by segment:
|
Global |
Hardware |
||||||||||||||
|
Batteries & |
Global Pet |
& Home |
|||||||||||||
(in millions) |
Appliances |
Supplies |
Improvement |
Corporate |
Total |
|||||||||||
For the three month period ended April 3, 2016 |
$ |
0.1 |
$ |
1.1 |