SPECTRUM BRANDS HOLDINGS, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

introduction

The following is management's discussion of the financial results, liquidity and
other key items related to our performance and should be read in conjunction
with the Condensed Consolidated Financial Statements and related notes included
in Item 1 of this Quarterly Report on Form 10-Q. Unless the context indicates
otherwise, the term the "Company," "we," "our," or "us" are used to refer to
Spectrum Brands Holdings, Inc. and its subsidiaries ("SBH") and SB/RH Holdings,
LLC and its subsidiaries ("SB/RH"), collectively.
Business Overview
The Company is a diversified global branded consumer products company.  We
manage the businesses in three vertically integrated, product-focused segments:
(i) Home and Personal Care ("HPC"), (ii) Global Pet Care ("GPC"), and (iii) Home
and Garden ("H&G"). The Company manufactures, markets and/or distributes its
products globally in the North America ("NA"), Europe, Middle East & Africa
("EMEA"), Latin America ("LATAM") and Asia-Pacific ("APAC") regions through a
variety of trade channels, including retailers, wholesalers and distributors. We
enjoy strong name recognition in our regions under our various brands and
patented technologies across multiple product categories. Global and geographic
strategic initiatives and financial objectives are determined at the corporate
level. Each segment is responsible for implementing defined strategic
initiatives and achieving certain financial objectives and has a president
responsible for sales and marketing initiatives and the financial results for
all product lines within that segment. The segments are supported through
center-led shared service operations consisting of finance and accounting,
information technology, legal, human resources, supply chain and commercial
operations. See Note 20 - Segment Information for more information pertaining to
segments of continuing operations. The following is an overview of the
consolidated business, by segment, summarizing product types and brands:
  Segment                               Products                                             Brands

HPC                Home Appliances: Small kitchen appliances including      

Appliances: Black & Decker®,

                   toaster ovens, coffeemakers, slow cookers,               

Russell Hobbs®, George Foreman®,

                   blenders, hand mixers, grills, food processors,          

Toastmaster®, Juiceman®, Farberware®,

                   juicers, toasters, irons, kettles, and bread             

and Breadman®

                   makers.                                                  

Personal Care: Remington®, and

                   Personal Care: Hair dryers, flat irons and                LumaBella®
                   straighteners, rotary and foil electric shavers,
                   personal groomers, mustache and beard trimmers,
                   body groomers, nose and ear trimmers, women's
                   shavers, and haircut kits.
GPC                Companion Animal: Rawhide chews, dog and cat            

Pet: 8IN1® (8-in-1),

                   clean-up, training, health and grooming products,        

Dingo®, Nature’s Miracle®, wild

                   small animal food and care products, rawhide-free        

Harvest™, Littermaid®, Jungle®, Excel®,

                   dog treats, and wet and dry pet food for dogs and        

FURminator®, IAMS® (Europe alone),

                   cats.                                                    

Eukanuba® (Europe only), Healthy-Hide®,

                   Aquatics: Consumer and commercial aquarium kits,         

DreamBone®, SmartBones®, ProSense®,

                   stand-alone tanks; aquatics equipment such as            

Perfect Coat®, eCOTRITION®, Birdola®,

                   filtration systems, heaters and pumps; and aquatics      

Good Boy®, Meowee!®, Wildbird® and

                   consumables such as fish food, water management and      

Wafcol®

                   care.                                                    

Aquatic: Tetra®, Marineland®,

Whisper®, Instant Ocean®, GloFish®,

                                                                             OmegaOne® and OmegaSea®
H&G                Household: Household pest control solutions such as      

Household: Hot Shot®, Black Flag®,

                   spider and scorpion killers; ant and roach killers;      

Real-Kill®, Ultra-Kill®, The Ant Trap®

                   flying insect killers; insect foggers; wasp and          

(TAT) and Rid-A-Bug®.

                   hornet killers; and bedbug, flea and tick control        

Controls: Spectracide®, Garden Safe®,

                   products.                                                

Liquid Fence® and EcoLogic®.

                   Controls: Outdoor insect and weed control                

Repellents: Cutter® and Repel®.

                   solutions, and animal repellents such as aerosols,       

Cleaning: Rejuvenate®

                   granules, and ready-to-use sprays or hose-end
                   ready-to-sprays.
                   Repellents: Personal use pesticides and insect
                   repellent products, including aerosols, lotions,
                   pump sprays and wipes, yard sprays and citronella
                   candles.
                   Cleaning: Household surface cleaning, maintenance,
                   and restoration products, including bottled
                   liquids, mops, wipes and markers.


The Company has a trademark license agreement (the "License Agreement") with
Stanley Black & Decker ("SBD") pursuant to which we license the Black & Decker®
(B&D) brand in North America, Latin America (excluding Brazil) and the Caribbean
for four core categories of household appliances within the Company's HPC
segment: beverage products, food preparation products, garment care products and
cooking products; which was set to expire December 31, 2021. The Company renewed
the License Agreement through June 30, 2025, including a sell-off period from
April 1, 2025 to June 30, 2025 whereby the Company can continue to sell and
distribute but no longer produce products subject to the License Agreement.
Under the terms of the License Agreement, we agree to pay SBD royalties based on
a percentage of sales, with minimum annual royalty payments of $15.0 million,
with the exception of the minimum annual royalty will no longer be applied
effective January 1, 2024 through the expiration of the agreement on June 30,
2025. The License Agreement also requires us to comply with maximum annual
return rates for products. Subsequent to the completion of the License
Agreement, there are no non-competition provisions or restrictions provided
following its expiration. See Note 5 - Revenue Recognition for further detail on
revenue concentration from B&D branded products.
On September 8, 2021, the Company entered into a definitive Asset and Stock
Purchase Agreement with ASSA ABLOY AB ("ASSA") to sell its Hardware and Home
Improvement ("HHI") segment for cash proceeds of $4.3 billion, subject to
customary purchase price adjustments. HHI consists of residential locksets and
door hardware, including knobs, levers, deadbolts, handle sets, and electronic
and connected locks under the Kwikset®, Weiser®, Baldwin®, Tell Manufacturing®,
and EZSET® brands; kitchen and bath faucets and accessories under the Pfister®
brand; and builders' hardware consisting of hinges, metal shapes, security
hardware, rack and sliding door hardware, and gate hardware under the National
Hardware® and FANAL® brands. The Company's assets and liabilities associated
with the HHI disposal group have been classified as held for sale and the HHI
operations have been classified as discontinued operations for all periods
presented and notes to the consolidated financial statements have been updated
for all periods presented to exclude information pertaining to discontinued
operations and reflect only the continuing operations of the Company. Refer to
Note 2 - Divestitures for more information on the HHI divestiture including the
assets and liabilities classified as held for sale and income from discontinued
operations. The Company is engaged with antitrust regulators in the ongoing
regulatory review of the transaction and the Company is currently working to
respond to such regulators' requests for additional information. Although the
timing and outcome of the regulatory process cannot be predicted, the Company
currently expects the merger review process to last for several months. As such,
though there can be no assurance when the transaction will close, if at all, the
Company does not expect the transaction to close before June 2022.
SB/RH is a wholly owned subsidiary of SBH. Spectrum Brands, Inc. ("SBI"), a
wholly-owned subsidiary of SB/RH incurred certain debt guaranteed by SB/RH and
domestic subsidiaries of SBI. See Note 10 - Debt for more information pertaining
to debt. The reportable segments of SB/RH are consistent with the segments of
SBH.

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Acquisitions
The Company periodically evaluates strategic transactions that may result in the
acquisition of a business or assets that qualify as recognition of a business
combination. Acquisitions may impact the comparability of the consolidated or
segment financial information with the inclusion of operating results for the
acquired business in periods subsequent to acquisition date, the inclusion of
acquired assets, both tangible and intangible (including goodwill), and the
related amortization and depreciation of acquired assets. Moreover, the
comparability of consolidated or segment financial information may be impacted
by incremental costs to facilitate the transaction and supporting integration
activities of the acquired operations with the consolidated group. The following
acquisition activity may have a significant impact on the comparability of the
financial results on the condensed consolidated financial statements.
•On May 28, 2021, the Company acquired all ownership interests in For Life
Products, LLC ("FLP") for a purchase price of $301.5 million. FLP is a leading
manufacturer of household cleaning, maintenance, and restoration products sold
under the Rejuvenate® brand. The net assets and operating results of FLP are
included in the Company's Condensed Consolidated Statements of Income and
reported within the H&G reporting segment for the three month period ended
January 2, 2022.
•On October 26, 2020, the Company completed the acquisition of Armitage Pet Care
Ltd ("Armitage") for $187.7 million. Armitage is a premium pet treats and toys
business in Nottingham, United Kingdom including a portfolio of brands that
include Armitage's dog treats brand, Good Boy®, cat treats brand, Meowee!®, and
Wildbird® bird feed products, among others, that are predominantly sold within
the United Kingdom. The net assets and results of operations of Armitage are
included in the Company's Condensed Consolidated Statements of Income and
reported within the GPC reporting segment for the three month period ended
January 2, 2022 and the three month period ended January 3, 2021, effective as
of the acquisition date of October 26, 2020.
See Note 3 - Acquisitions in the Notes to the Condensed Consolidated Financial
Statements, included elsewhere in this Quarterly Report, for more information.
Restructuring Activity
We continually seek to improve our operational efficiency, match our
manufacturing capacity, and product costs to market demand and better utilize
our manufacturing resources. We have undertaken various initiatives to reduce
manufacturing and operating costs, which may have a significant impact on the
comparability of financial results on the condensed consolidated financial
statements. See Note 4 - Restructuring and Related Charges in the Notes to the
Condensed Consolidated Financial Statements, included elsewhere in this
Quarterly Report for more information.
Refinancing Activity
Financing activity during and between comparable periods may have a significant
impact on the comparability of financial results on the condensed consolidated
financial statements. During the year ended September 30, 2021, the Company
completed its offering of $500.0 million aggregate principal amount of its
3.875% Notes and entered into a new Term Loan Facility in the aggregate
principal amount of $400.0 million on March 3, 2021. The Company also redeemed
$250.0 million of the 6.125% Notes and $550.0 million of the 5.75% Notes, with a
call premium of $23.4 million and non-cash write-off of unamortized debt
issuance costs of $7.9 million recognized as interest expense.
COVID-19
The COVID-19 pandemic and the resulting regulations continue to cause economic
and social disruptions that contribute to ongoing uncertainties and may have an
impact on the operations, cash flow and net assets of the Company. Such impacts
may include, but are not limited to, volatility of demand for our products;
disruptions and cost implications in manufacturing and supply arrangements;
inability of third parties to meet obligations under existing arrangements; and
significant changes to the political and economic environments in which we
manufacture, sell, and distribute our products. The Company expects a continuing
inflationary environment, marked with higher manufacturing and logistics costs
as well as continued constraints with transportation and supply chain
disruptions.
Despite the supply implications, the Company has experienced increased demand
for our products compared to pre-pandemic levels. There have also been changes
in consumer needs and spending during the COVID-19 pandemic, and while demand
for our products remain strong, our teams continue to monitor demand shifts and
there can be no assurance as to the level of demand that will prevail throughout
the fiscal year. We believe the severity and duration of the COVID-19 pandemic
to be uncertain and may contribute to retail volatility and consumer purchase
behavior changes.
The COVID-19 pandemic has not had a materially negative impact on the Company's
liquidity position and we have not observed any material impairments. We
continue to actively monitor our global cash and liquidity, and if necessary,
could reinitiate mitigating efforts to manage non-critical spending and assess
operating spend to preserve cash and liquidity. We continue to generate
operating cash flows to meet our short-term liquidity needs, and we expect to
maintain access to the capital markets, although there can be no assurance of
our ability to do so.
We expect the ultimate significance of the impact on our financial condition,
results of operations, and cash flows will be dictated by the length of time
that such circumstances continue, which will ultimately depend on the
unforeseeable duration and severity of the COVID-19 pandemic, the emergence of
variants and the effectiveness of vaccines against these variants, and any
governmental and public actions taken in response.
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Non-GAAP Measurements
Our consolidated and segment results contain non-GAAP metrics such as organic
net sales, and adjusted EBITDA ("Earnings Before Interest, Taxes, Depreciation,
Amortization") and adjusted EBITDA margin. While we believe organic net sales
and adjusted EBITDA are useful supplemental information, such adjusted results
are not intended to replace our financial results in accordance with Accounting
Principles Generally Accepted in the United States ("GAAP") and should be read
in conjunction with those GAAP results.
Organic Net Sales. We define organic net sales as net sales excluding the effect
of changes in foreign currency exchange rates and impact from acquisitions (when
applicable). We believe this non-GAAP measure provides useful information to
investors because it reflects regional and operating segment performance from
our activities without the effect of changes in currency exchange rates and
acquisitions. We use organic net sales as one measure to monitor and evaluate
our regional and segment performance. Organic growth is calculated by comparing
organic net sales to net sales in the prior year. The effect of changes in
currency exchange rates is determined by translating the period's net sales
using the currency exchange rates that were in effect during the prior
comparative period. Net sales are attributed to the geographic regions based on
the country of destination. We exclude net sales from acquired businesses in the
current year for which there are no comparable sales in the prior year.
The following is a reconciliation of reported net sales to organic net sales for
the three month period ended January 2, 2022 compared to net sales for the three
month period ended January 3, 2021:
                                                                           January 2, 2022

                                                                             Net Sales
Three Month Periods                                  Effect of            Excluding Effect
Ended                                                Changes in            of Changes in              Effect of               Organic               Net Sales
(in millions, except %)         Net Sales             Currency                Currency               Acquisitions            Net Sales           January 3, 2021                  Variance
HPC                           $    379.7          $         5.1          $         384.8          $             -          $    384.8          $          378.5          $    6.3             1.7  %
GPC                                302.2                    2.2                    304.4                     (8.8)              295.6                     275.4              20.2             7.3  %
H&G                                 75.3                      -                     75.3                     (7.7)               67.6                      82.3             (14.7)          (17.9) %
Total                         $    757.2          $         7.3          $         764.5          $         (16.5)         $    748.0          $          736.2              11.8             1.6  %




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Adjusted EBITDA and Adjusted EBITDA Margin. Adjusted EBITDA and Adjusted EBITDA
Margin are non-GAAP measures used by management, which we believe provide useful
information to investors because they reflect ongoing operating performance and
trends of our segments, excluding certain non-cash based expenses and/or
non-recurring items during each of the comparable periods. They also facilitate
comparisons between peer companies since interest, taxes, depreciation, and
amortization can differ greatly between organizations as a result of differing
capital structures and tax strategies. Adjusted EBITDA is also used for
determining compliance with the Company's debt covenants. EBITDA is calculated
by excluding the Company's income tax expense, interest expense, depreciation
expense and amortization expense (from intangible assets) from net income.
Adjusted EBITDA further excludes:
•Stock based compensation costs consist of costs associated with long-term
incentive compensation arrangements that generally consist of non-cash,
stock-based compensation. During the three month period ended January 3, 2021,
compensation costs included incentive bridge awards previously issued due to
changes in the Company's LTIP that allowed for cash based payment upon employee
election but do not qualify for shared-based compensation, which were fully
vested in November 2020. See Note 16 - Share Based Compensation in the Notes to
the Condensed Consolidated Financial Statements, included elsewhere in this
Quarterly Report, for further details;
•Restructuring and related charges consist of project costs associated with the
restructuring initiatives across the Company's segments. See Note 4 -
Restructuring and Related Charges in the Notes to the Condensed Consolidated
Financial Statements, included elsewhere in this Quarterly Report, for further
details;
•Transaction related charges are attributable to costs from qualifying strategic
transaction or business opportunities, including an acquisition or divestiture,
whether or not consummated, subsequent integration related project costs,
divestiture support and incremental separation costs. See Note 1 - Basis of
Presentation & Significant Accounting Policies in the Notes to the Condensed
Consolidated Financial Statements, included elsewhere in this Quarterly Report,
for further details;
•Unallocated shared costs associated with discontinued operations from certain
shared and center-led administrative functions the Company's business units
excluded from income from discontinued operations as they are not a direct cost
of the discontinued business but a result of indirect allocations, including but
not limited to, information technology, human resources, finance and accounting,
supply chain, and commercial operations. Amounts attributable to unallocated
shared costs would be mitigated through subsequent strategic or restructuring
initiatives, TSAs, elimination of extraneous costs, or re-allocations or
absorption of existing continuing operations following the completed sale of the
discontinued operations. See Note 2 - Divestitures in Notes to the Condensed
Consolidated Financial Statements, included elsewhere in this Quarterly Report
for further details;
•Non-cash purchase accounting inventory adjustments recognized in earnings from
continuing operations subsequent to an acquisition;
•Non-cash asset impairments or write-offs realized and recognized in earnings
from continuing operations;
•Gains attributable to the Company investment in Energizer common stock during
the three month period ended January 3, 2021. which the Company subsequently
sold its remaining shares in January 2021. See Note 13 - Fair Value of Financial
Instruments in the Notes to the Condensed Consolidated Financial Statements,
included elsewhere in this Quarterly Report, for further details;
•Incremental reserves for non-recurring litigation or environmental remediation
activity including the proposed settlement on outstanding litigation matters at
our H&G division attributable to significant and unusual nonrecurring claims
with no previous history or precedent recognized during the three month period
ended January 3, 2021 and the subsequent remeasurement during the three month
period ended January 2, 2022;
•Incremental costs realized under a three-year tolling agreement entered into
with the buyer in consideration with the divestiture of the Coevorden Operations
on March 29, 2020, for the continued production of dog and cat food products
purchased to support the GPC commercial operations and distribution in Europe;
and
•Other adjustments are primarily attributable to (1) incremental fines and
penalties realized for delayed shipments following the transition of third-party
logistics service provider in GPC during the three month period ended January 2,
2022; and (2) costs associated with Salus as they are not considered a component
of the continuing commercial products company.
Adjusted EBITDA margin is calculated as Adjusted EBITDA as a percentage of
reported net sales for the respective period and segment.

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The following is a reconciliation of net income to Adjusted EBITDA for the three
month periods ended January 2, 2022 and January 3, 2021 for SBH.
SPECTRUM BRANDS HOLDINGS, INC.                 HPC               GPC               H&G             Corporate          Consolidated
(in millions)
Three Month Period Ended January 2,
2022
Net income (loss) from continuing          $   19.0          $   11.7          $  (15.8)         $    (45.1)         $     (30.2)
operations
Income tax benefit                                -                 -                 -               (16.0)               (16.0)
Interest expense                                  -                 -                 -                21.8                 21.8
Depreciation and amortization                   7.8               9.2               4.7                 3.7                 25.4
EBITDA                                         26.8              20.9             (11.1)              (35.6)                 1.0
Share and incentive based                         -                 -                 -                 5.6                  5.6

compensation

Restructuring and related charges               0.6              11.4                 -                 5.4                 17.4
Transaction related charges                       -               2.4               4.3                 8.2                 14.9
Unallocated shared costs                          -                 -                 -                 6.8                  6.8
Legal and environmental remediation               -                 -              (0.5)                  -                 (0.5)

reservations

Coevorden tolling related charges                 -               1.5                 -                   -                  1.5
Other                                             -               2.5                 -                 0.1                  2.6
Adjusted EBITDA                            $   27.4          $   38.7          $   (7.3)         $     (9.5)         $      49.3
Net Sales                                  $  379.7          $  302.2          $   75.3          $        -          $     757.2
Adjusted EBITDA Margin                          7.2  %           12.8  %           (9.7) %                -                  6.5  %
Three Month Period Ended January 3,
2021
Net income (loss) from continuing          $   38.2          $   34.0          $   (0.5)         $    (56.0)         $      15.7
operations
Income tax benefit                                -                 -                 -                (4.1)                (4.1)
Interest expense                                  -                 -                 -                23.1                 23.1
Depreciation and amortization                   8.8               9.7               4.9                 3.7                 27.1
EBITDA                                         47.0              43.7               4.4               (33.3)                61.8
Share and incentive based                         -                 -                 -                 6.9                  6.9

compensation

Restructuring and related charges               2.6               1.5                 -                 4.9                  9.0
Transaction related charges                     1.3               6.0                 -                11.7                 19.0
Unallocated shared costs                          -                 -                 -                 6.7                  6.7
Inventory acquisition step-up                     -               0.8                 -                   -                  0.8
Gain on Energizer investment                      -                 -                 -                (6.0)                (6.0)
Legal and environmental remediation               -                 -               6.0                   -                  6.0

reservations

Coevorden tolling related charges                 -               1.6                 -                   -                  1.6
Other                                             -                 -                 -                 0.1                  0.1
Adjusted EBITDA                            $   50.9          $   53.6          $   10.4          $     (9.0)         $     105.9
Net Sales                                  $  378.5          $  275.4          $   82.3          $        -          $     736.2
Adjusted EBITDA Margin                         13.4  %           19.5  %           12.6  %                -                 14.4  %









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The following is a reconciliation of net income to Adjusted EBITDA for the three
month periods ended January 2, 2022 and January 3, 2021 for SB/RH.
SB/RH HOLDINGS, LLC                            HPC               GPC               H&G             Corporate          Consolidated
(in millions)
Three Month Period Ended January 2,
2022
Net income (loss) from continuing          $   19.0          $   11.7          $  (15.8)         $    (45.0)         $     (30.1)
operations
Income tax benefit                                -                 -                 -               (15.8)               (15.8)
Interest expense                                  -                 -                 -                21.8                 21.8
Depreciation and amortization                   7.8               9.2               4.7                 3.7                 25.4
EBITDA                                         26.8              20.9             (11.1)              (35.3)                 1.3
Share and incentive based                         -                 -                 -                 5.6                  5.6

compensation

Restructuring and related charges               0.6              11.4                 -                 5.4                 17.4
Transaction related charges                       -               2.4               4.3                 8.2                 14.9
Unallocated shared costs                          -                 -                 -                 6.8                  6.8
Legal and environmental remediation               -                 -              (0.5)                  -                 (0.5)

reservations

Coevorden tolling related charges                 -               1.5                 -                   -                  1.5
Other                                             -               2.5                 -                   -                  2.5
Adjusted EBITDA                            $   27.4          $   38.7          $   (7.3)         $     (9.3)         $      49.5
Net Sales                                  $  379.7          $  302.2          $   75.3          $        -          $     757.2
Adjusted EBITDA Margin                          7.2  %           12.8  %           (9.7) %                -                  6.5  %
Three Month Period Ended January 3,
2021
Net income (loss) from continuing          $   38.2          $   34.0          $   (0.5)         $    (55.6)         $      16.1
operations
Income tax benefit                                -                 -                 -                (4.0)                (4.0)
Interest expense                                  -                 -                 -                23.2                 23.2
Depreciation and amortization                   8.8               9.7               4.9                 3.7                 27.1
EBITDA                                         47.0              43.7               4.4               (32.7)                62.4
Share and incentive based                         -                 -                 -                 6.9                  6.9

compensation

Restructuring and related charges               2.6               1.5                 -                 4.9                  9.0
Transaction related charges                     1.3               6.0                 -                11.7                 19.0
Unallocated shared costs                          -                 -                 -                 6.7                  6.7
Inventory acquisition step-up                     -               0.8                 -                   -                  0.8
Gain on Energizer investment                      -                 -                 -                (6.0)                (6.0)
Legal and environmental remediation               -                 -               6.0                   -                  6.0

reservations

Coevorden tolling related charges                 -               1.6                 -                   -                  1.6

Adjusted EBITDA                            $   50.9          $   53.6          $   10.4          $     (8.5)         $     106.4
Net Sales                                  $  378.5          $  275.4          $   82.3          $        -          $     736.2
Adjusted EBITDA Margin                         13.4  %           19.5  %           12.6  %                -                 14.5  %










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