Spectrum Brands(SPB) - 2024 Q3 - Quarterly Report

Front Matter and Forward-Looking Statements This section covers the Form 10-Q filing details and important forward-looking statements regarding the company's future prospects and potential risks Form 10-Q Filing Information This report is Spectrum Brands Holdings, Inc.'s quarterly report as of June 30, 2024, with all required filings submitted and meeting Accelerated Filer standards - Spectrum Brands Holdings, Inc. submitted its quarterly report (Form 10-Q) for the period ended June 30, 2024[1] - The company has filed all required reports within the past 12 months and meets the 90-day filing requirement[1] - The company is designated as an "Accelerated Filer"[1] - As of August 5, 2024, the company had 28,030,597 shares of common stock outstanding[1] Forward-Looking Statements This report contains forward-looking statements based on current expectations, covering business strategies, future operations, and financial conditions, but actual results may differ materially due to various risks and uncertainties - Forward-looking statements are based on current expectations, covering business strategies, future operations, financial condition, revenue, costs, profitability, synergies, plans, and management objectives[2] - Actual results may differ materially due to various risks and uncertainties, including economic, social, and political conditions, geopolitical conflicts (e.g., Russia-Ukraine war, Israel-Hamas war), supply chain disruptions, reliance on third-party partners, expenses for new business strategy implementation, debt levels and restrictions, macroeconomic factors (inflation, recession, interest rate fluctuations, exchange rate changes), loss of major retail customers, competition, changes in consumer preferences, product development, climate change, legal proceedings, cybersecurity breaches, changes in accounting policies, share repurchase programs, HPC business divestiture, GPC and H&G business integration, and key management changes[2] - The company undertakes no obligation to publicly update or revise any forward-looking statements, unless required by applicable law[2] PART I. FINANCIAL INFORMATION This part presents the company's unaudited condensed consolidated financial statements, including balance sheets, income statements, cash flow statements, and detailed notes, along with management's discussion and analysis of financial condition and results of operations Item 1. Financial Statements (Unaudited) This section contains the company's unaudited condensed consolidated financial statements, including statements of financial position, income, comprehensive income, shareholders' equity, and cash flows, along with detailed notes for the quarter and nine months ended June 30, 2024 Condensed Consolidated Statements of Financial Position This statement provides a snapshot of the company's assets, liabilities, and shareholders' equity as of June 30, 2024, and September 30, 2023 Condensed Consolidated Statements of Financial Position (as of June 30, 2024 and September 30, 2023) | Metric (million USD) | June 30, 2024 | September 30, 2023 | | :-------------- | :------------ | :------------ | | Assets | | | | Cash and cash equivalents | 157.7 | 753.9 | | Short-term investments | 149.1 | 1,103.3 | | Trade accounts receivable, net | 619.2 | 477.1 | | Inventories | 439.9 | 462.8 | | Total current assets | 1,493.0 | 2,925.9 | | Goodwill | 858.1 | 854.7 | | Intangible assets, net | 990.6 | 1,060.1 | | Total Assets | 3,755.3 | 5,258.4 | | Liabilities and Shareholders' Equity | | | | Long-term debt (less current portion) | 551.4 | 1,546.9 | | Total Liabilities | 1,670.2 | 2,740.1 | | Total Shareholders' Equity | 2,084.6 | 2,517.6 | | Total Liabilities and Equity | 3,755.3 | 5,258.4 | - As of June 30, 2024, total assets were 3,755.3 million USD, a 28.6% decrease from 5,258.4 million USD on September 30, 2023[5] - As of June 30, 2024, total liabilities were 1,670.2 million USD, a 39.1% decrease from 2,740.1 million USD on September 30, 2023[5] - As of June 30, 2024, total shareholders' equity was 2,084.6 million USD, a 17.2% decrease from 2,517.6 million USD on September 30, 2023[5] Condensed Consolidated Statements of Income This statement presents the company's revenues, expenses, and net income for the three and nine months ended June 30, 2024, and July 2, 2023 Condensed Consolidated Statements of Income (for the three and nine months ended June 30, 2024 and July 2, 2023) | Metric (million USD, except per share) | June 30, 2024 (Three Months) | July 2, 2023 (Three Months) | June 30, 2024 (Nine Months) | July 2, 2023 (Nine Months) | | :---------------------- | :-------------------- | :------------------- | :-------------------- | :------------------- | | Net sales | 779.4 | 735.5 | 2,190.2 | 2,178.1 | | Cost of goods sold | 476.6 | 472.0 | 1,369.0 | 1,498.2 | | Gross profit | 302.8 | 263.5 | 821.2 | 679.9 | | Selling, general and administrative expenses | 255.1 | 223.4 | 694.6 | 671.4 | | Operating (loss) income | 47.7 | (124.7) | 148.6 | (221.8) | | (Loss) income from continuing operations before income taxes | 41.5 | (158.3) | 146.7 | (320.2) | | Net (loss) income from continuing operations | 19.1 | (172.2) | 86.4 | (287.2) | | Net (loss) income from discontinued operations | (13.1) | 2,031.8 | 9.6 | 2,072.7 | | Net income | 6.0 | 1,859.6 | 96.0 | 1,785.5 | | Net income attributable to controlling interests | 6.1 | 1,859.2 | 96.2 | 1,784.7 | | Basic earnings per share (continuing operations) | 0.66 | (4.27) | 2.79 | (7.06) | | Basic earnings per share (discontinued operations) | (0.45) | 50.34 | 0.31 | 50.87 | | Basic earnings per share | 0.21 | 46.07 | 3.10 | 43.81 | | Diluted earnings per share | 0.21 | 46.07 | 3.09 | 43.81 | | Dividends per share | 0.42 | 0.42 | 1.26 | 1.26 | - For the three months ended June 30, 2024, net sales increased by 6.0% to 779.4 million USD, and gross profit increased by 14.9% to 302.8 million USD year-over-year[7] - For the nine months ended June 30, 2024, net income from continuing operations was 86.4 million USD, a significant improvement from a loss of 287.2 million USD in the prior year period[7] - Net income from discontinued operations recorded a 13.1 million USD loss for the three months ended June 30, 2024, compared to a 2,031.8 million USD income in the prior year period, primarily due to the completion of the HHI business divestiture in the prior year[7] Condensed Consolidated Statements of Comprehensive Income This statement details the company's net income and other comprehensive income components, such as foreign currency translation adjustments, for the three and nine months ended June 30, 2024, and July 2, 2023 Condensed Consolidated Statements of Comprehensive Income (for the three and nine months ended June 30, 2024 and July 2, 2023) | Metric (million USD) | June 30, 2024 (Three Months) | July 2, 2023 (Three Months) | June 30, 2024 (Nine Months) | July 2, 2023 (Nine Months) | | :-------------- | :-------------------- | :------------------- | :-------------------- | :------------------- | | Net income | 6.0 | 1,859.6 | 96.0 | 1,785.5 | | Other comprehensive (loss) income, net | (7.7) | 34.8 | 10.5 | 65.6 | | Comprehensive (loss) income | (1.7) | 1,894.4 | 106.5 | 1,851.1 | | Comprehensive (loss) income attributable to controlling interests | (1.7) | 1,893.9 | 106.5 | 1,850.2 | - For the three months ended June 30, 2024, comprehensive loss was 1.7 million USD, compared to comprehensive income of 1,894.4 million USD in the prior year period, mainly due to a significant decrease in net income from discontinued operations[10] - Foreign currency translation adjustments recorded a 7.7 million USD loss for the three months ended June 30, 2024, compared to a 9.8 million USD gain in the prior year period[10] Condensed Consolidated Statements of Shareholders' Equity This statement outlines the changes in the company's shareholders' equity, including net income, other comprehensive income, treasury stock repurchases, and dividends, for the nine months ended June 30, 2024, and July 2, 2023 Condensed Consolidated Statements of Shareholders' Equity (for the nine months ended June 30, 2024 and July 2, 2023) | Metric (million USD) | June 30, 2024 | July 2, 2023 | | :-------------- | :------------ | :------------ | | Balance as of September 30, 2023 | 2,518.3 | 1,269.1 | | Net income from continuing operations | 17.5 | (40.0) | | Net income from discontinued operations | 11.7 | 19.5 | | Other comprehensive income, net | 16.3 | 14.5 | | Treasury stock repurchases | (565.9) | (500.0) | | Dividends | (38.8) | (51.6) | | Balance as of June 30, 2024 | 2,085.1 | 2,559.9 | - As of June 30, 2024, total equity was 2,085.1 million USD, a decrease from 2,518.3 million USD on September 30, 2023, primarily due to treasury stock repurchase activities[11] - The company repurchased 565.9 million USD of treasury stock during the nine months ended June 30, 2024, compared to 500.0 million USD in the prior year period[11][12] - Dividends declared for the nine months ended June 30, 2024, were 38.8 million USD, down from 51.6 million USD in the prior year period, mainly due to a reduction in outstanding shares from repurchases[11][12] Condensed Consolidated Statements of Cash Flows This statement details the cash inflows and outflows from operating, investing, and financing activities for the nine months ended June 30, 2024, and July 2, 2023 Condensed Consolidated Statements of Cash Flows (for the nine months ended June 30, 2024 and July 2, 2023) | Metric (million USD) | June 30, 2024 | July 2, 2023 | | :-------------- | :------------ | :------------ | | Net cash from operating activities | 81.9 | 104.3 | | Net cash from investing activities | 885.0 | 4,281.5 | | Net cash from financing activities | (1,563.9) | (1,707.1) | | Cash and cash equivalents at end of period | 157.7 | 2,930.2 | - For the nine months ended June 30, 2024, net cash from operating activities was 81.9 million USD, a decrease from 104.3 million USD in the prior year period[13] - Net cash from investing activities was 885.0 million USD, a significant decrease from 4,281.5 million USD in the prior year period, primarily due to 4,334.7 million USD in cash proceeds from the HHI business divestiture in the prior year[13] - Net cash used in financing activities was an outflow of 1,563.9 million USD, compared to an outflow of 1,707.1 million USD in the prior year period, with the reduced outflow mainly due to the issuance of exchangeable senior notes, partially offset by debt repayments and share repurchases[13] Notes to the Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements, covering accounting policies, divestitures, revenue recognition, and other critical financial information NOTE 1 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES This note explains the basis of presentation for the condensed consolidated financial statements, adhering to U.S. GAAP and SEC regulations, and outlines newly adopted and recently issued accounting standards - The company's condensed consolidated financial statements are prepared in accordance with U.S. GAAP and Form 10-Q instructions, with the fiscal year ending September 30[14] - The company adopted ASU 2022-04, "Supplier Finance Programs," and the rolling disclosure requirements in the first quarter of fiscal 2024; as of June 30, 2024, outstanding payment obligations under supplier finance programs were 7.1 million USD[15][16] - The company is evaluating the potential impact of ASU 2023-07, "Segment Reporting," and ASU 2023-09, "Income Tax Disclosures," on future financial statement disclosures, which will be effective in fiscal years 2025 and 2026, respectively[17] - The SEC's final rules on climate-related disclosures (SEC Release Nos. 33-11275 and 34-99678) are expected to be effective for the company's fiscal 2026 Form 10-K, and the company is assessing their impact[18] NOTE 2 – DIVESTITURES This note details the divestiture of the company's HHI business, including the sale transaction, resulting gains and taxes, and disclosures related to transition service agreements and tax and legal indemnities from other divestitures Discontinued Operations (Loss) Income (for the three and nine months ended June 30, 2024 and July 2, 2023) | Metric (million USD) | June 30, 2024 (Three Months) | July 2, 2023 (Three Months) | June 30, 2024 (Nine Months) | July 2, 2023 (Nine Months) | | :-------------- | :-------------------- | :------------------- | :-------------------- | :------------------- | | HHI income before income taxes | — | 32.5 | 15.2 | 136.9 | | HHI gain on sale before income taxes | — | 2,824.9 | — | 2,824.9 | | Other (loss) income before income taxes | (0.1) | (0.2) | 10.2 | (2.2) | | (Loss) income from discontinued operations before income taxes | (0.1) | 2,841.8 | 25.4 | 2,910.2 | | Income tax expense from discontinued operations | 13.0 | 810.0 | 15.8 | 837.5 | | Net (loss) income from discontinued operations | (13.1) | 2,031.8 | 9.6 | 2,072.7 | - The company completed the divestiture of its HHI business on June 20, 2023, receiving 4.3 billion USD in cash proceeds; for the nine months ended June 30, 2024, the company recognized 15.2 million USD of HHI discontinued operations income before income taxes, resulting from reduced transaction fees[19] - The company recognized 7.9 million USD and 23.7 million USD in net income from transition service agreements (TSA) for the three and nine months ended June 30, 2024, respectively[22] - As of June 30, 2024, the company's net receivable from ASSA was 27.0 million USD; the company also paid 26.9 million USD to finalize the HHI business purchase price settlement[22] - For the nine months ended June 30, 2024, the company recognized gains related to pending tax audits and indemnity settlements associated with the GBL and GAC business divestitures[23] NOTE 3 – REVENUE RECOGNITION This note provides a breakdown of net sales by product category, geographic region, and business segment, discloses sales concentration with major retail customers, and details the new Black & Decker® brand trademark license agreement Net Sales by Segment and Geography (for the three and nine months ended June 30, 2024 and July 2, 2023) | Segment/Region (million USD) | June 30, 2024 (Three Months) | July 2, 2023 (Three Months) | June 30, 2024 (Nine Months) | July 2, 2023 (Nine Months) | | :----------------- | :-------------------- | :------------------- | :-------------------- | :------------------- | | GPC | 282.2 | 272.3 | 849.0 | 846.5 | | H&G | 211.0 | 186.6 | 443.7 | 411.3 | | HPC | 286.2 | 276.6 | 897.5 | 920.3 | | Total Revenue | 779.4 | 735.5 | 2,190.2 | 2,178.1 | - For the three months ended June 30, 2024, sales to two major retail customers accounted for 37.7% of consolidated net sales, compared to 33.4% in the prior year period[25] - The company entered into a new B+D brand trademark license agreement with SBD, effective January 1, 2024, for an initial term of four years with two four-year renewal options, subject to meeting specific sales targets[26] - B+D product sales for the three months ended June 30, 2024, were 86.4 million USD, representing 11.1% of consolidated net sales[26] - As of June 30, 2024, the product return reserve was 13.9 million USD, an increase from 12.8 million USD on September 30, 2023, primarily due to a re-issued product recall in the HPC segment[26] NOTE 4 – RECEIVABLES AND CONCENTRATION OF CREDIT RISK This note discloses the allowance for credit losses on trade receivables and highlights the concentration of credit risk with a few large retail customers - As of June 30, 2024, the allowance for credit losses on trade receivables was 8.1 million USD, a slight increase from 7.7 million USD on September 30, 2023[27] - As of June 30, 2024, trade receivables from three large retail customers accounted for 56.7% of consolidated net trade receivables, indicating a high concentration of credit risk[27] NOTE 5 – INVENTORIES This note provides a breakdown of the company's inventory composition, including raw materials, work-in-process, and finished goods, as of June 30, 2024, and September 30, 2023 Inventory Composition (million USD) | Inventory Category | June 30, 2024 | September 30, 2023 | | :------- | :------------ | :------------ | | Raw materials | 47.6 | 55.8 | | Work-in-process | 5.8 | 6.2 | | Finished goods | 386.5 | 400.8 | | Total Inventories | 439.9 | 462.8 | - As of June 30, 2024, total inventories were 439.9 million USD, a decrease from 462.8 million USD on September 30, 2023[28] NOTE 6 – PROPERTY, PLANT AND EQUIPMENT This note details the composition and net book value of the company's property, plant, and equipment, including land, buildings, machinery, and financed lease assets, along with depreciation and impairment charges Property, Plant and Equipment Composition (million USD) | Category | June 30, 2024 | September 30, 2023 | | :------------- | :------------ | :------------ | | Land, buildings and improvements | 85.9 | 83.4 | | Machinery, equipment and other | 340.3 | 330.1 | | Computer software | 139.2 | 136.2 | | Finance leases | 139.2 | 136.9 | | Construction in progress | 28.6 | 18.1 | | Total | 733.2 | 704.7 | | Accumulated depreciation | (466.7) | (429.6) | | Net Book Value | 266.5 | 275.1 | - As of June 30, 2024, the net book value of property, plant, and equipment was 266.5 million USD, a slight decrease from 275.1 million USD on September 30, 2023[29] - Depreciation expense for the three and nine months ended June 30, 2024, was 14.1 million USD and 42.9 million USD, respectively[29] - For the three and nine months ended June 30, 2024, the company recognized impairment charges of 5.1 million USD and 5.6 million USD, respectively, related to the exit and closure of a distribution facility in the HPC segment[29] NOTE 7 – GOODWILL AND INTANGIBLE ASSETS This note provides detailed information on goodwill and intangible assets, including their carrying values, accumulated amortization, and impairment charges, specifically noting impairments in the H&G and HPC segments Goodwill (million USD) | Segment | September 30, 2023 | Foreign Currency Impact | June 30, 2024 | | :--- | :------------ | :------- | :------------ | | GPC | 512.1 | 3.4 | 515.5 | | H&G | 342.6 | — | 342.6 | | Total | 854.7 | 3.4 | 858.1 | Intangible Assets, Net (million USD) | Category | June 30, 2024 Net Book Value | September 30, 2023 Net Book Value | | :------------- | :---------------- | :---------------- | | Amortizable intangible assets | 250.3 | 281.7 | | Indefinite-lived intangible assets | 740.3 | 778.4 | | Total | 990.6 | 1,060.1 | - For the nine months ended June 30, 2024, the company recognized a 39.0 million USD impairment of indefinite-lived intangible assets due to the H&G segment's Rejuvenate® trademark losing key distribution expansion opportunities; the HPC segment also recognized a 4.0 million USD impairment due to changes in brand strategy[30] - Intangible asset amortization expense for the three and nine months ended June 30, 2024, was 11.1 million USD and 33.4 million USD, respectively[30] NOTE 8 – DEBT This note details the company's external debt, including exchangeable senior notes, credit agreements, and recent repayments of existing notes through tender offers and redemptions, significantly reducing total debt External Debt Composition (million USD) | Debt Type | June 30, 2024 Amount | September 30, 2023 Amount | | :------------------- | :---------------- | :---------------- | | 3.375% Exchangeable Notes, due June 1, 2029 | 350.0 | — | | 4.00% Notes, due October 1, 2026 | — | 448.8 | | 5.00% Notes, due October 1, 2029 | 4.9 | 297.2 | | 5.50% Notes, due July 15, 2030 | 13.2 | 288.5 | | 3.875% Notes, due March 15, 2031 | 128.0 | 453.0 | | Finance lease obligations | 82.3 | 86.4 | | Total Debt | 578.4 | 1,573.9 | | Debt issuance costs | (17.9) | (18.4) | | Less: Current portion | (9.1) | (8.6) | | Net Long-Term Debt | 551.4 | 1,546.9 | - The company entered into the Second Amended and Restated Credit Agreement on October 19, 2023, extending the revolving credit facility to October 19, 2028, and reducing the revolving credit capacity to 500.0 million USD; as of June 30, 2024, 490.4 million USD was available under the revolving credit facility[33] - On May 23, 2024, the company issued 350.0 million USD aggregate principal amount of 3.375% exchangeable senior notes due 2029; proceeds were used to repurchase 50.0 million USD of common stock, pay 25.2 million USD for capped call option premiums, and for other general corporate purposes[34] - The company completed cash tender offers for multiple series of senior notes on June 18, 2024, and fully redeemed the remaining principal of the 2026 Notes on June 20, 2024, resulting in a 1,174.4 million USD reduction in debt principal balance and recognition of a 2.2 million USD loss on early extinguishment of debt[37][38] - For the nine months ended June 30, 2024, the company recognized a 4.7 million USD gain on early extinguishment of debt from open market repurchases of senior notes[40] NOTE 9 – DERIVATIVES This note explains how the company uses derivative financial instruments to manage foreign currency risk, including cash flow hedges and undesignated forward contracts, and discusses the status of net investment hedges - The company primarily uses foreign currency forward contracts to manage foreign currency exchange rate risk and does not hold or issue derivative financial instruments for trading purposes[41] - As of June 30, 2024, the company held foreign currency forward contracts designated as cash flow hedges with a notional value of 339.5 million USD, with an estimated 1.4 million USD (net of tax) net loss on derivatives expected to be reclassified from AOCI to earnings within the next 12 months[42] - As of June 30, 2024, the company held foreign currency forward contracts not designated as hedging instruments with a notional value of 289.6 million USD[44] - As of June 30, 2024, the company's total derivative assets were 1.9 million USD, and total derivative liabilities were 4.1 million USD[46] - The net investment hedge was terminated on June 20, 2024, due to the redemption of the 2026 Notes; the 11.9 million USD of accumulated unrealized gain related to this hedge will remain in AOCI until the Euro-denominated subsidiary is liquidated or deconsolidated[47] NOTE 10 – FAIR VALUE OF FINANCIAL INSTRUMENTS This note discloses the fair value of the company's financial instruments, categorized by fair value hierarchy levels, with derivatives and debt primarily valued using market observable inputs Fair Value of Financial Instruments (million USD) | Category | June 30, 2024 Fair Value | June 30, 2024 Carrying Value | September 30, 2023 Fair Value | September 30, 2023 Carrying Value | | :------------- | :-------------------- | :-------------------- | :-------------------- | :-------------------- | | Derivative assets | 1.9 | 1.9 | 3.3 | 3.3 | | Derivative liabilities | 4.1 | 4.1 | 9.0 | 9.0 | | Debt | 554.5 | 560.5 | 1,418.6 | 1,555.5 | - The fair value measurement of the company's derivative instruments and debt is primarily based on market observable inputs (Level 2)[49] - Goodwill, intangible assets, and other long-lived assets are tested for impairment annually or when impairment indicators arise, using fair value measurements with unobservable inputs (Level 3)[49] NOTE 11 – SHAREHOLDERS' EQUITY This note outlines the company's share repurchase activities during the reporting period, including open market purchases, private transactions, and accelerated share repurchase agreements, and the initiation of a new $500 million repurchase program Common Stock Repurchase Activity (for the three and nine months ended June 30, 2024 and July 2, 2023) | Repurchase Type (Three Months) | Shares Repurchased (millions) | Average Price Per Share (USD) | Amount (million USD) | | :--------------- | :----------------- | :------------------- | :--------------- | | Open market purchases | 1.1 | 86.22 | 92.2 | | Private purchases | 0.5 | 93.74 | 50.0 | | ASR | — | — | — | | Total Purchases | 1.6 | 88.72 | 142.2 | | Repurchase Type (Nine Months) | Shares Repurchased (millions) | Average Price Per Share (USD) | Amount (million USD) | | :--------------- | :----------------- | :------------------- | :--------------- | | Open market purchases | 5.6 | 77.48 | 432.7 | | Private purchases | 0.5 | 93.74 | 50.0 | | ASR | 1.3 | 65.84 | 83.2 | | Total Purchases | 7.4 | 76.66 | 565.9 | - The company announced a new 500 million USD common stock repurchase program on May 20, 2024, replacing the previously authorized 1 billion USD repurchase program[51] - For the nine months ended June 30, 2024, the company repurchased 7.4 million shares of common stock for a total of 565.9 million USD[51] - The Accelerated Share Repurchase (ASR) agreement settled on November 21, 2023, resulting in the delivery of an additional 1.3 million shares with a fair value of 83.2 million USD during the nine months ended June 30, 2024[52] NOTE 12 – SHARE BASED COMPENSATION This note discloses the company's share-based compensation expense for the reporting period, primarily from restricted stock unit (RSU) grants, which are recognized based on market price at grant date and amortized over the service period Share-Based Compensation Expense (million USD) | Metric | June 30, 2024 (Three Months) | July 2, 2023 (Three Months) | June 30, 2024 (Nine Months) | July 2, 2023 (Nine Months) | | :--- | :-------------------- | :------------------- | :-------------------- | :------------------- | | Share-based compensation expense | 4.5 | 4.8 | 12.9 | 12.5 | - For the nine months ended June 30, 2024, share-based compensation expense was 12.9 million USD, slightly higher than 12.5 million USD in the prior year period[54] - The company grants both time-based and performance-based RSUs, with expense determined by the market price on the grant date and recognized on a straight-line basis over the service period[54] Summary of RSU Grants for the Nine Months Ended June 30, 2024 (million shares, except per share amounts) | Grant Type | Shares (millions) | Weighted-Average Grant Date Fair Value (USD) | Grant Date Fair Value (million USD) | | :------------- | :------------- | :----------------------------- | :------------------------- | | Time-based grants | 0.21 | 67.80 | 14.2 | | Performance-based grants | 0.24 | 68.50 | 16.6 | | Total Grants | 0.45 | 68.18 | 30.8 | NOTE 13 – ACCUMULATED OTHER COMPREHENSIVE INCOME This note details the changes in components of accumulated other comprehensive income (AOCI), including foreign currency translation adjustments, derivatives, and defined benefit pension plans, and explains reclassifications to the income statement Changes in AOCI Components (for the nine months ended June 30, 2024) | Category (million USD) | Foreign Currency Translation Adjustments | Derivatives | Defined Benefit Pension | Total | | :-------------- | :----------- | :------- | :------------- | :--- | | Balance as of September 30, 2023 | (216.1) | 1.4 | (34.7) | (249.4) | | Other comprehensive income (loss), net | 21.0 | (4.0) | (0.7) | 16.3 | | Balance as of June 30, 2024 | (208.8) | 4.6 | (34.7) | (238.9) | - As of June 30, 2024, the net accumulated other comprehensive loss was 238.9 million USD, an improvement from 249.4 million USD on September 30, 2023[57] - For the nine months ended June 30, 2024, foreign currency translation adjustments resulted in 20.9 million USD of comprehensive income, while derivatives and defined benefit pensions resulted in 4.0 million USD and 0.7 million USD of comprehensive loss, respectively[57] Gains (Losses) Reclassified from AOCI to the Income Statement (for the nine months ended June 30, 2024) | Income Statement Item | Derivatives (million USD) | Defined Benefit Pension (million USD) | Total (million USD) | | :--------- | :------------------- | :------------------------- | :--------------- | | Net sales | 0.2 | — | 0.2 | | Cost of goods sold | (12.5) | — | (12.5) | | Other non-operating (income) expense, net | — | (0.6) | (0.6) | NOTE 14 – INCOME TAXES This note discloses the company's effective tax rates for the reporting period and explains the differences from the U.S. federal statutory rate, primarily due to U.S. taxation of foreign income, state income taxes, and non-deductible expenses Effective Tax Rates | Period | June 30, 2024 (Three Months) | July 2, 2023 (Three Months) | June 30, 2024 (Nine Months) | July 2, 2023 (Nine Months) | | :--- | :-------------------- | :------------------- | :-------------------- | :------------------- | | Effective Tax Rate | 54.0% | (8.8)% | 41.1% | 10.3% | - The effective tax rates for the three and nine months ended June 30, 2024, were 54.0% and 41.1%, respectively, differing from the U.S. federal statutory rate of 21%[62][63] - The tax rate differences are primarily due to U.S. taxation of foreign income (including GILTI), state income taxes, and certain non-deductible expenses[63] - For the three and nine months ended June 30, 2024, the company recorded 4.1 million USD in discrete tax expenses, mainly related to differences between U.S. tax filings and provisions[63] NOTE 15 – COMMITMENTS AND CONTINGENCIES This note discloses the company's commitments and contingencies related to environmental liabilities, product liability, warranties, and safety recalls, along with the recognition of representation and warranty insurance proceeds from an acquisition - As of June 30, 2024, environmental remediation liabilities were 4.6 million USD, with 0.9 million USD included in other current liabilities and 3.7 million USD in other long-term liabilities[64] - As of June 30, 2024, product liability reserves were 2.3 million USD, and product warranty reserves were 0.2 million USD[64] - The company recognized estimated recall costs of 5.6 million USD and a 6.7 million USD indemnity receivable as of June 30, 2024, due to a re-issued product safety recall in the HPC segment[64] - For the nine months ended June 30, 2024, the company recognized a 65.0 million USD gain from representation and warranty insurance proceeds related to the Tristar business acquisition[64] NOTE 16 – SEGMENT INFORMATION This note provides net sales and Adjusted EBITDA information for the Global Pet Care (GPC), Home & Garden (H&G), and Home & Personal Care (HPC) segments, detailing the primary performance metric used by management and reconciliation to net income Net Sales by Segment (million USD) | Segment | June 30, 2024 (Three Months) | July 2, 2023 (Three Months) | June 30, 2024 (Nine Months) | July 2, 2023 (Nine Months) | | :--- | :-------------------- | :------------------- | :-------------------- | :------------------- | | GPC | 282.2 | 272.3 | 849.0 | 846.5 | | H&G | 211.0 | 186.6 | 443.7 | 411.3 | | HPC | 286.2 | 276.6 | 897.5 | 920.3 | | Total Net Sales | 779.4 | 735.5 | 2,190.2 | 2,178.1 | Adjusted EBITDA by Segment (million USD) | Segment | June 30, 2024 (Three Months) | July 2, 2023 (Three Months) | June 30, 2024 (Nine Months) | July 2, 2023 (Nine Months) | | :--- | :-------------------- | :------------------- | :-------------------- | :------------------- | | GPC | 56.7 | 53.6 | 171.8 | 137.1 | | H&G | 43.3 | 38.6 | 71.8 | 51.4 | | HPC | 11.8 | 11.4 | 56.3 | 22.7 | | Total Segment Adjusted EBITDA | 111.8 | 103.6 | 299.9 | 211.2 | - Adjusted EBITDA is the primary metric used by the company's chief operating decision maker to assess business performance and make operational decisions, excluding non-GAAP items such as share-based compensation, strategic transaction costs, non-cash purchase accounting adjustments, non-cash asset impairments, insurance recoveries, non-recurring litigation and environmental remediation reserves, loss/gain on early extinguishment of debt, product recall costs, unallocated shared costs, and other items[65] NOTE 17 – EARNINGS PER SHARE This note provides detailed calculations for basic and diluted earnings per share, including contributions from continuing and discontinued operations, and lists the weighted-average shares outstanding Earnings Per Share (million shares, except per share amounts) | Metric | June 30, 2024 (Three Months) | July 2, 2023 (Three Months) | June 30, 2024 (Nine Months) | July 2, 2023 (Nine Months) | | :--- | :-------------------- | :------------------- | :-------------------- | :------------------- | | Basic EPS from continuing operations | 0.66 | (4.27) | 2.79 | (7.06) | | Basic EPS from discontinued operations | (0.45) | 50.34 | 0.31 | 50.87 | | Basic EPS | 0.21 | 46.07 | 3.10 | 43.81 | | Diluted EPS | 0.21 | 46.07 | 3.09 | 43.81 | | Weighted-average shares outstanding (basic) | 28.9 | 40.4 | 31.0 | 40.7 | | Weighted-average shares outstanding (diluted) | 29.1 | 40.4 | 31.2 | 40.7 | - For the three months ended June 30, 2024, basic and diluted EPS were 0.21 USD, a significant decrease from 46.07 USD in the prior year period, primarily due to changes in net income from discontinued operations[68] - For the nine months ended June 30, 2024, basic EPS was 3.10 USD and diluted EPS was 3.09 USD, compared to 43.81 USD in the prior year period[68] - Weighted-average shares outstanding (basic and diluted) significantly decreased for both the three and nine months ended June 30, 2024, primarily due to share repurchase activities[68] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's discussion and analysis of the company's financial performance, liquidity, and key operational items for the quarter and nine months ended June 30, 2024, including non-GAAP financial measures and strategic initiatives Introduction This introduction provides management's discussion of the company's financial performance, liquidity, and key items, to be read in conjunction with the condensed consolidated financial statements and annual report, and includes forward-looking statements - Management's discussion and analysis should be read in conjunction with the condensed consolidated financial statements and the fiscal 2023 Form 10-K annual report[72] - This discussion contains forward-looking statements, and actual results may differ materially due to factors described in the "Forward-Looking Statements" and "Risk Factors" sections[72] Non-GAAP Measurements This section defines and reconciles the company's non-GAAP financial measures, including organic net sales, Adjusted EBITDA, and Adjusted EBITDA margin, which provide supplemental information on ongoing performance and trends - Organic net sales are defined as net sales excluding the impact of foreign currency exchange rate fluctuations and acquisitions, used to measure regional and segment performance[73] Reported Net Sales to Organic Net Sales Reconciliation (for the three months ended June 30, 2024) | Segment (million USD, except percentage) | Net Sales | FX Impact | Organic Net Sales | July 2, 2023 Net Sales | Difference | Percentage Difference | | :------------------------ | :------- | :----------- | :----------- | :------------------- | :--- | :--------- | | GPC | 282.2 | 1.2 | 283.4 | 272.3 | 11.1 | 4.1% | | H&G | 211.0 | (0.1) | 210.9 | 186.6 | 24.3 | 13.0% | | HPC | 286.2 | 7.4 | 293.6 | 276.6 | 17.0 | 6.1% | | Total | 779.4| 8.5 | 787.9 | 735.5 | 52.4 | 7.1% | - Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP metrics used by management to reflect ongoing operating performance and trends, excluding certain non-cash and/or non-recurring items, and are used for debt covenant compliance assessment[74] - Adjustments to Adjusted EBITDA include share-based compensation, strategic transaction costs, non-cash purchase accounting adjustments, non-cash asset impairments, insurance recoveries, non-recurring litigation and environmental remediation reserves, loss/gain on early extinguishment of debt, product recall costs, unallocated shared costs, contingent consideration liability remeasurement gains, and the impact of early settlement of foreign currency cash flow hedges[74][75] Overview This section outlines the company's business structure across Global Pet Care, Home & Garden, and Home & Personal Care segments, detailing ongoing strategic transactions, restructuring, financing activities, and the impact of inflation and macroeconomic factors - The company is a diversified global branded consumer products company with three segments: Global Pet Care (GPC), Home & Garden (H&G), and Home & Personal Care (HPC)[85] - The company is undertaking several strategic initiatives, including the HHI business divestiture (completed June 2023), HPC business separation plan, global ERP transformation, fiscal 2023 and 2022 restructurings, Tristar business integration, and Russia business closure[87][89] Strategic Transactions, Restructuring, and Optimization Initiatives Costs (million USD) | Item | June 30, 2024 (Three Months) | July 2, 2023 (Three Months) | June 30, 2024 (Nine Months) | July 2, 2023 (Nine Months) | | :--- | :-------------------- | :------------------- | :-------------------- | :------------------- | | HHI Divestiture and Separation Costs | — | 4.0 | 3.0 | 6.9 | | HPC Separation Plan | — | 0.5 | 8.5 | 4.0 | | Tristar Integration | — | 1.0 | — | 10.7 | | Fiscal 2023 and 2022 Restructuring | — | 0.9 | 0.9 | 6.0 | | Global ERP Transformation | — | 3.7 | 11.2 | 8.5 | | Russia Closure Plan | — | 0.2 | — | 2.9 | | Other Project Costs | — | 1.9 | 0.5 | 13.7 | | Total | — | 12.2 | 24.1 | 52.7 | - For the nine months ended June 30, 2024, the company significantly adjusted its financing structure and debt levels through the issuance of exchangeable senior notes, tender offers and redemptions of existing notes, and open market bond repurchases[91] - The company faces macroeconomic challenges including a global inflationary environment, supply chain constraints, labor shortages, increased freight and distribution costs, rising commodity and energy prices, and foreign currency volatility, and has implemented pricing actions to mitigate these impacts[92] Strategic Transactions, Restructuring, and Optimization Initiatives The company continuously evaluates and implements strategic transactions, restructuring, and optimization initiatives to enhance efficiency, reduce costs, increase revenue, and improve margins, including the HHI divestiture and HPC business separation plan - The HHI business divestiture was completed on June 20, 2023, and the company expects to continue incurring project costs related to the divestiture for another 12-24 months[87] - The HPC business separation plan aims to achieve a strategic separation of the HPC business through a sale or spin-off, with associated costs primarily including legal and professional fees, and system and process separation[87] - The global ERP transformation project (SAP S/4 HANA) is a multi-year initiative to upgrade and implement an enterprise-wide operating system, expected to continue through September 30, 2025[89] - The Tristar business integration is substantially complete, with no additional costs expected after September 30, 2023[89] - The Russia business closure plan is substantially complete, with remaining costs primarily administrative fees for subsidiary dissolution[89] Financing Activity The company undertook significant financing activities during the period, including repaying outstanding term loans, entering new credit agreements, issuing exchangeable senior notes, and reducing principal balances of several senior notes through tender offers and redemptions - Following the HHI divestiture, the company repaid outstanding term loans and revolving credit facility borrowings, and terminated the incremental revolving credit facility[92] - The company entered into the Second Amended and Restated Credit Agreement on October 19, 2023, extending the revolving credit facility to October 19, 2028, and reducing the capacity to 500.0 million USD[91] - On May 23, 2024, the company issued 350.0 million USD aggregate principal amount of 3.375% exchangeable senior notes due 2029[91] - The company completed cash tender offers for multiple series of senior notes and fully redeemed the remaining principal of the 2026 Notes, resulting in a 1,174.4 million USD reduction in debt principal balance and recognition of a 2.2 million USD loss on early extinguishment of debt[91] - For the nine months ended June 30, 2024, the company recognized a 4.7 million USD gain on early extinguishment of debt from bond repurchases[91] Inflation, Supply Chain, and Macroeconomic Environment The company has experienced a global inflationary environment, facing challenges such as labor shortages, increased freight and distribution costs, rising commodity and energy prices, and foreign currency volatility, while geopolitical conflicts may also negatively impact its financial condition - The company has experienced a global inflationary environment, primarily driven by the COVID-19 pandemic, geopolitical instability, and supply chain constraints (e.g., labor shortages, freight costs, commodity prices, energy prices, and foreign currency volatility)[92] - The company has implemented pricing actions to address rising costs and foreign currency volatility, but there is no guarantee these actions will continue to effectively mitigate such impacts in the future[92] - Geopolitical conflicts (e.g., Russia-Ukraine war and Israel-Hamas war) may negatively impact the company's and its customers' financial condition and supply chains, despite the company having closed its Russia business to mitigate risk[92] Consolidated Results of Operations This section summarizes the company's consolidated operating results for the three and nine months ended June 30, 2024, showing growth in net sales, gross profit, and net income from continuing operations, while discontinued operations significantly decreased due to the HHI business divestiture Consolidated Results of Operations Summary (million USD, except percentage) | Metric | June 30, 2024 (Three Months) | July 2, 2023 (Three Months) | Difference | Percentage Difference | June 30, 2024 (Nine Months) | July 2, 2023 (Nine Months) | Difference | Percentage Difference | | :--- | :-------------------- | :------------------- | :--- | :--------- | :-------------------- | :------------------- | :--- | :--------- | | Net sales | 779.4 | 735.5 | 43.9 | 6.0% | 2,190.2 | 2,178.1 | 12.1 | 0.6% | | Gross profit | 302.8 | 263.5 | 39.3 | 14.9% | 821.2 | 679.9 | 141.3| 20.8% | | Selling, general and administrative expenses | 255.1 | 223.4 | 31.7 | 14.2% | 694.6 | 671.4 | 23.2 | 3.5% | | Goodwill impairment | — | 111.1 | (111.1)| n/m | — | 111.1 | (111.1)| n/m |\ | Intangible asset impairment | — | 53.7 | (53.7)| n/m | 43.0 | 120.7 | (77.7)| (64.4)% | | Net (loss) income from continuing operations | 19.1 | (172.2) | 191.3| n/m | 86.4 | (287.2) | 373.6| n/m | | Net (loss) income from discontinued operations | (13.1) | 2,031.8 | (2,044.9)| n/m | 9.6 | 2,072.7 | (2,063.1)| (99.5)% | | Net income | 6.0 | 1,859.6 | (1,853.6)| (99.7)% | 96.0 | 1,785.5 | (1,689.5)| (94.6)% | - For the three months ended June 30, 2024, net sales increased by 6.0% to 779.4 million USD, and gross profit increased by 14.9% to 302.8 million USD year-over-year[94] - For the nine months ended June 30, 2024, net income from continuing operations was 86.4 million USD, a significant improvement from a loss of 287.2 million USD in the prior year period[94] - Interest expense decreased by 48.2% and 45.6% for the three and nine months, respectively, primarily due to reduced debt following the HHI divestiture and recent debt issuance and redemption activities[94][100] - Net income from discontinued operations recorded a 13.1 million USD loss for the three months ended June 30, 2024, compared to a 2,031.8 million USD income in the prior year period, reflecting the impact of the HHI business divestiture completed in the prior year[94][100] Segment Financial Data This section analyzes the financial performance of the Global Pet Care (GPC), Home & Garden (H&G), and Home & Personal Care (HPC) segments, detailing sales growth, margin improvements, and cost optimization efforts across each business Global Pet Care (GPC) The GPC segment experienced net sales growth in the three-month period, driven by increased volume in e-commerce and food/drug channels, with improved margins and profitability in the nine-month period despite exiting non-strategic SKUs GPC Segment Performance (million USD, except percentage) | Metric | June 30, 2024 (Three Months) | July 2, 2023 (Three Months) | Difference | Percentage Difference | June 30, 2024 (Nine Months) | July 2, 2023 (Nine Months) | Difference | Percentage Difference | | :--- | :-------------------- | :------------------- | :--- | :--------- | :-------------------- | :------------------- | :--- | :--------- | | Net sales | 282.2 | 272.3 | 9.9 | 3.6% | 849.0 | 846.5 | 2.5 | 0.3% | | Segment net income | 48.0 | 38.0 | 10.0 | 26.3% | 144.6 | 91.3 | 53.3 | 58.4% | | Adjusted EBITDA | 56.7 | 53.6 | 3.1 | 5.8% | 171.8 | 137.1 | 34.7 | 25.3% | | Adjusted EBITDA margin | 20.1% | 19.7% | 40 bps | | 20.2% | 16.2% | 400 bps| | - The GPC segment's net sales grew by 3.6% for the three months ended June 30, 2024, driven by increased volume in e-commerce and food/drug channels[101] - The GPC segment's Adjusted EBITDA grew by 25.3% for the nine months ended June 30, 2024, primarily due to lower inventory costs, a favorable product and channel mix, and improved operating costs[101] Home & Garden (H&G) The H&G segment saw net sales growth in both periods, primarily due to increased volume in insecticide and indoor insect control products and favorable weather, leading to improved net income and Adjusted EBITDA from lower material costs and manufacturing efficiencies H&G Segment Performance (million USD, except percentage) | Metric | June 30, 2024 (Three Months) | July 2, 2023 (Three Months) | Difference | Percentage Difference | June 30, 2024 (Nine Months) | July 2, 2023 (Nine Months) | Difference | Percentage Difference | | :--- | :-------------------- | :------------------- | :--- | :--------- | :-------------------- | :------------------- | :--- | :--------- | | Net sales | 211.0 | 186.6 | 24.4 | 13.1% | 443.7 | 411.3 | 32.4 | 7.9% | | Segment net (loss) income | 38.4 | 26.2 | 12.2 | 46.6% | 18.3 | (20.8) | 39.1 | n/m | | Adjusted EBITDA | 43.3 | 38.6 | 4.7 | 12.2% | 71.8 | 51.4 | 20.4 | 39.7% | | Adjusted EBITDA margin | 20.5% | 20.7% | (20)bps| | 16.2% | 12.5% | 370 bps| | - The H&G segment's net sales grew by 13.1% for the three months ended June 30, 2024, driven by increased volume in insecticide and indoor insect control products and favorable weather trends[102] - The H&G segment's Adjusted EBITDA grew by 39.7% for the nine months ended June 30, 2024, primarily due to increased volume, lower material and input costs, and improved manufacturing efficiencies[102] - The H&G segment's net income for the nine months ended June 30, 2024, was impacted by a 39.0 million USD impairment charge for indefinite-lived intangible assets related to Rejuvenate®[102] Home and Personal Care (HPC) The HPC segment's net sales grew in the three-month period but declined over nine months, primarily due to kitchen appliance sales, yet net income, Adjusted EBITDA, and margins improved from lower inventory costs, cost optimization, and product portfolio adjustments HPC Segment Performance (million USD, except percentage) | Metric | June 30, 2024 (Three Months) | July 2, 2023 (Three Months) | Difference | Percentage Difference | June 30, 2024 (Nine Months) | July 2, 2023 (Nine Months) | Difference | Percentage Difference | | :--- | :-------------------- | :------------------- | :--- | :--------- | :-------------------- | :------------------- | :--- | :--------- | | Net sales | 286.2 | 276.6 | 9.6 | 3.5% | 897.5 | 920.3 | (22.8)| (2.5)% | | Segment net (loss) income | (0.5) | (156.5) | 156.0| n/m | 84.7 | (198.2) | 282.9| n/m | | Adjusted EBITDA | 11.8 | 11.4 | 0.4 | 3.5% | 56.3 | 22.7 | 33.6 | 148.0% | | Adjusted EBITDA margin | 4.1% | 4.1% | — bps| | 6.3% | 2.5% | 380 bps| | - The HPC segment's net sales grew by 3.5% for the three months ended June 30, 2024, driven by increased volume in personal care and home kitchen product categories[103] - The HPC segment's net sales decreased by 2.5% for the nine months ended June 30, 2024, primarily due to lower kitchen appliance sales in the first half of the year[103] - The HPC segment's Adjusted EBITDA grew by 148.0% for the nine months ended June 30, 2024, primarily due to lower inventory costs, cost optimization initiatives, and product portfolio optimization[103] - The HPC segment's net income for the nine months ended June 30, 2024, benefited from lower restructuring and integration costs, prior year impairment charges (goodwill of 111.1 million USD, intangible assets of 45.0 million USD and 64.7 million USD), and 65.0 million USD in representation and warranty insurance proceeds[104] Liquidity and Capital Resources This section discusses the company's cash flows for the nine months ended June 30, 2024, and its future liquidity, noting increased operating cash flow, significantly reduced investing cash flow due to the HHI divestiture, and decreased financing cash outflows Continuing Operations Cash Flow Summary (million USD) | Period | June 30, 2024 (Nine Months) | July 2, 2023 (Nine Months) | | :--- | :-------------------- | :------------------- | | Operating Activities | 178.4 | 72.5 | | Investing Activities | 885.0 | 4,293.3 | | Financing Activities | (1,563.9) | (1,706.3) | - Cash flows from continuing operating activities increased by 105.9 million USD, primarily due to improved working capital, realized sales and gross profit, lower inventory costs, reduced strategic transaction costs, and 65.0 million USD in representation and warranty insurance proceeds[106] - Cash flows from continuing investing activities decreased by 3,408.3 million USD, mainly due to 4,334.7 million USD in cash proceeds from the HHI divestiture in the prior year, partially offset by current period short-term investment activities[107] - Cash used in continuing financing activities decreased by 142.4 million USD, primarily due to the issuance of 350 million USD in exchangeable notes, partially offset by debt repayments and share repurchases[108] - As of June 30, 2024, the company had 490.4 million USD available under its credit facilities, which are expected to be sufficient to meet operational and capital expenditure needs for the next 12 months[110] Cash Flows from Operating Activities Cash flows from continuing operating activities increased by $105.9 million, primarily driven by improved working capital, realized sales and gross profit, lower inventory costs, reduced strategic transaction expenses, and a $65.0 million representation and warranty insurance recovery - Cash flows from continuing