SPECTRUM BRANDS HOLDINGS, INC. 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 our Consolidated Financial Statements and related notes included elsewhere in this Annual Report. The following is a combined report of SBH and SB/RH, and the following discussion includes SBH and certain matters related to SB/RH as signified below. Unless the context indicates otherwise, the terms the "Company," "we," "our" or "us" are used to refer to SBH and its subsidiaries and SB/RH and its subsidiaries, collectively. Business Overview The following section provides a general description of our business as well as recent developments for the years endedSeptember 30, 2021 , 2020, and 2019, which we believe are important to understanding our results of operations, financial condition, and understanding anticipated future trends. Refer to Item 1 - Business and Note 1 - Description of Business in Notes to the Consolidated Financial Statements, included elsewhere in this Annual Report for an overview of our business. COVID-19 The COVID-19 pandemic and the resulting regulations and other disruptions to both demand and supply may have a substantial impact on the commercial operations of the Company or impairment of the Company's net assets. 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. During the years endedSeptember 30, 2020 and 2021, and as of the date of this report, we have been and continue to be classified as an essential business in the jurisdictions that have mandated closures of non-essential businesses, and therefore have been allowed to remain open and continue to operate to the extent possible under existing regulations with any limitation in production output being short-term in nature. Despite the supply implications in the prior year, the Company has experienced continued customer demand. While demand for our products generally has not been negatively impacted, our teams continue to monitor demand disruption and there can be no assurance as to the level of demand that will prevail following the year endedSeptember 30, 2021 . A large portion of our customers continue to operate and sell our products, with some customers having experienced reduced operations due to closures or reduced store hours. There have also been changes in consumer needs and spending during the COVID-19 pandemic, which have resulted in a limited number of change orders and reduced spending. Currently, we have not identified, and will continue to monitor for, any substantive risk attributable to customer credit and have not experienced a significant impact from store closures or retail bankruptcies. 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 magnitude of the financial impact on our results is highly dependent on the duration of the COVID-19 pandemic and how quickly theU.S. and global economies resume normal operations. The COVID-19 pandemic has not, as of the date of this report, had a materially negative impact on the Company's liquidity position. The sweeping nature of COVID-19 pandemic makes it extremely difficult to predict the long-term ramifications on our financial condition and results of operations. However, the likely overall economic impact of the COVID-19 pandemic to theU.S. and global economies remains uncertain. 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 have also not observed any material impairments of our assets due to the COVID-19 pandemic. 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 and any governmental and public actions taken in response. 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 or 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. During the year endedSeptember 30, 2021 , the Company entered into the following acquisition activity: •OnMay 28, 2021 , the Company acquired all ownership interests in 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 Consolidated Statements of Income and reported within the H&G reporting segment for the year endedSeptember 30, 2021 , effective the acquisition date ofMay 28, 2021 . •OnOctober 26, 2020 , the Company completed the acquisition of Armitage for$187.7 million . Armitage is a premium pet treats and toys business inNottingham, 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 theUnited Kingdom . The net assets and results of operations of Armitage are included in the Company's Consolidated Statements of Income and reported within the GPC reporting segment for the year endedSeptember 30, 2021 , effective the acquisition date ofOctober 26, 2020 . During the year endedSeptember 30, 2020 , the Company entered into the following acquisition activity: •OnMarch 10, 2020 , the Company acquiredOmega Sea, LLC ("Omega"), a manufacturer and marketer of premium fish foods and consumable goods for the home and commercial aquarium markets, primarily consisting of the Omega brand, for a purchase price of approximately$16.9 million . The net assets and results of operations of Omega are included in the Company's Consolidated Statements of Income and reported within GPC reporting segment for the years endedSeptember 30, 2020 andSeptember 30, 2021 , effective the acquisition date ofMarch 10, 2020 . There was no acquisition activity during the year endedSeptember 30, 2019 . See Note 4 - Acquisitions in the Notes to the Consolidated Financial Statements, included elsewhere in this Annual Report, for further discussion pertaining to the referenced acquisition activity. 28
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Divestitures
The Company periodically evaluates strategic transactions that may result in the divestiture of a business or assets that may impact the comparability of consolidated or segment financial information. Certain divestitures may be classified separately from continuing operations if they are considered a strategic shift to the consolidated group, which results in the operating results and any realized gain or loss from the divestiture to be presented as a component of income from discontinued operations for all comparable periods in the Consolidated Financial Statements. Divestitures that do not qualify as discontinued operations result in he gain or loss from the divestiture being recognized as part of continuing operations. Further, the comparability of consolidated or segment financial information may be impacted by incremental costs to facilitate the transaction and related separation activities of the divested business, including any subsequent restructuring of the consolidated group. During the year endedSeptember 30, 2021 , the Company entered into the following divestiture activity: •OnSeptember 8, 2021 , the Company entered into the Purchase Agreement with ASSA to sell its HHI segment for cash proceeds of$4.3 billion , subject to customary purchase price adjustments. The consummation of the transaction is subject to customary conditions, including the absence of a material adverse effect of HHI and certain antitrust conditions or other governmental restrictions, amongst others, and is anticipated to be consummated during the year endedSeptember 30, 2022 . The Company's assets and liabilities associated with HHI have been classified as held for sale and the HHI operations have been classified as discontinued operations and are reported separately for all periods presented. During the year endedSeptember 30, 2020 , the Company entered into the following divestiture activity: •OnMarch 29, 2020 , the Company completed the sale of its DCF production facility and distribution center in Coevorden,Netherlands withUnited Petfood Producers NV ("UPP") for cash proceeds of$29.0 million , resulting in a loss on assets held for sale of$26.8 million during the year endedSeptember 30, 2020 . The loss was recognized as a component of continuing operations and operating income within the Company's GPC segment. The Company continues to operate its commercial DCF business following the divestiture and is supplied by UPP through a manufacturing agreement and distribution agreement. Additionally, the Company recognized an impairment on intangible assets of$7.6 million due to the incremental cash flow risk associated with the commercial DCF business following the divestiture. During the year endedSeptember 30, 2019 , the Company entered into the following divestiture activity: •OnJanuary 2, 2019 , the Company completed the sale of its GBL business pursuant to the GBL acquisition agreement with Energizer for cash proceeds of$1,956.2 million , resulting in the recognition of a pre-tax gain on sale of$989.8 million during the year endedSeptember 30, 2019 . The results of operations and gain on sale for disposal of the GBL business are recognized as a component of income from discontinued operations for all comparable periods. Prior to the completion of the GBL divestiture, the Company changed its plan to sell its GBA segment, consisting of both the GBL and HPC businesses, and recognized the net assets of HPC as held for use and included component of continuing operations as a separate reporting segment for all comparable periods. As a result, the Company recognized$29.0 million of incremental depreciation and amortization for cumulative depreciation and amortization on HPC long-lived assets not previously recognized while held for sale. •OnJanuary 28, 2019 , the Company completed the sale of its GAC business pursuant to the GAC acquisition agreement with Energizer for$1.2 billion , consisting of$938.7 million in cash proceeds and$242.1 million in stock consideration of common stock of Energizer, resulting in the loss on sale of business of$111.0 million . The results of operations and write-down of net assets held for sale for the disposal of the GAC business were recognized as a component of discontinued operations. Realized and unrealized gains and losses on the common stock investment in Energizer was recognized as Other Non-Operating Expense (Income), net on the Company's Consolidated Statement of Income. See Note 3 - Divestitures in Notes to the Consolidated Financial Statements, included elsewhere in this Annual Report, for further discussion pertaining to the referenced divestiture activity. 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 consolidated financial statements. The most significant of these initiatives is the Global Productivity Improvement Program, which began during the year endedSeptember 30, 2019 and is anticipated to continue through the fiscal year endingSeptember 30, 2022 . See Note 5 - Restructuring and Related Charges in the Notes to the Consolidated Financial Statements, included elsewhere in this Annual Report, for further discussion pertaining to restructuring and related activity. Refinancing Activity The following recent financing activity has a significant impact on the comparability of financial results on the consolidated financial statements. •During the year endedSeptember 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 onMarch 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. •During the year endedSeptember 30, 2020 , the Company (1) entered into the Amended and Restated Credit Agreement (the "Credit Agreement"), which refinanced the Company's previously existing credit facility, extending the maturity, reducing the revolving facility under the Credit Agreement from$890 million to$600 million , and changing interest rate margins; (2) issued$300 million of its 5.50% Senior Unsecured Notes; and (3) completed the tender and call of its 6.625% Notes with an outstanding principal of$117.4 million initiated in the previous year, with a premium of$1.5 million and non-cash write-off of unamortized debt issue costs of$1.1 million recognized as interest expense. •During the year endedSeptember 30, 2019 , the Company (1) repaid$452.6 million of its 6.625% Notes with an outstanding principal of$570.0 million , consisting of a repayment of$285.0 million onMarch 31, 2019 plus a repayment of$167.6 million onSeptember 24, 2019 using proceeds from the GAC divestitures, with a premium of$9.2 million and non-cash write-off of unamortized debt issue cost of$5.0 million recognized as interest expense; (2) issued$300.0 million of 5.00% Senior Unsecured Notes dueSeptember 2029 ; (3) repaid$890.0 million of its 7.75% Senior Unsecured Notes in full onJanuary 30, 2019 using proceeds received from the GBL and GAC divestitures with a premium of$17.2 million and non-cash write-off of unamortized debt issue costs and discounts of$24.0 million recognized as interest expense; (4) repaid its USD Term Loan in full onJanuary 4, 2019 using proceeds received from the divestiture of GBL with a non-cash write-off of unamortized debt issue costs of$6.6 million recognized as interest expense; and (5) repaid its CAD Term Loan in full onOctober 31, 2018 . 29
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See Note 12 - Debt in the Notes to the Consolidated Financial Statements, included elsewhere in this Annual Report, for additional detail regarding debt and refinancing activity. Salus CLO During the year endedSeptember 30, 2020 , the non-recourse debt under Salus CLO were effectively discharged resulting in the recognition of a non-cash gain on extinguishment of debt of$76.2 million . See Note 12 - Debt in Notes to the Consolidated Financial Statements, included elsewhere in this Annual Report, for more information. 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). 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 inthe United States ("GAAP") and should be read in conjunction with those GAAP results. OrganicNet Sales . We define organic net sales as net sales excluding the effect of changes in foreign currency exchange rates and/or impact from acquisitions (where 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 rate and/or 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 period. The following is a reconciliation of net sales to organic net sales of SBH and SB/RH for the year endedSeptember 30, 2021 compared to net sales for the year endedSeptember 30, 2020 : September 30, 2021 Net Sales Effect of Excluding Effect Net Sales Changes in of Changes in Effect of Organic September 30, (in millions, except %) Net Sales Currency Currency Acquisitions Net Sales 2020 Variance HPC$ 1,260.1 $ (31.1) $ 1,229.0 $ -$ 1,229.0 $ 1,107.6 $ 121.4 11.0 % GPC 1,129.9 (18.4) 1,111.5 (99.5) 1,012.0 962.6 49.4 5.1 % H&G 608.1 - 608.1 (23.2) 584.9 551.9 33.0 6.0 % Total$ 2,998.1 $ (49.5) $ 2,948.6 $ (122.7) $ 2,825.9 $ 2,622.1 $ 203.8 7.8 % The following is a reconciliation of net sales to organic net sales of SBH and SB/RH for the year endedSeptember 30, 2020 compared to net sales for the year endedSeptember 30, 2019 : September 30, 2020 Net Sales Effect of Excluding Effect Net Sales Changes in of Changes in Effect of Organic September 30, (in millions, except %) Net Sales Currency Currency Acquisitions Net Sales 2019 Variance HPC$ 1,107.6 $ 18.9 $ 1,126.5 $ -$ 1,126.5 $ 1,068.1 $ 58.4 5.5 % GPC 962.6 1.1 963.7 (7.5) 956.2 870.2 86.0 9.9 % H&G 551.9 0.1 552.0 - 552.0 508.1 43.9 8.6 % Total$ 2,622.1 $ 20.1 $ 2,642.2 $ (7.5)$ 2,634.7 $ 2,446.4 $ 188.3 7.7 % 30
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Adjusted EBITDA. Adjusted EBITDA is a non-GAAP metric used by management that we
believe provides useful information to investors because it reflects the 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.
It also facilitates 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. See Note
12 - Debt in the Notes to the Consolidated Financial Statements, included
elsewhere in this Annual Report, for additional detail.
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 and other incentive compensation costs that consist of costs
associated with long-term compensation arrangements and other equity based
compensation based upon achievement of long-term performance metrics under the
Company's Long-Term Incentive Plan ("LTIP"); and generally consist of non-cash,
stock-based compensation. During the years ended September 30, 2021 , 2020, and
2019, other incentive compensation also includes incentive bridge awards issued
due to changes in the Company's LTIP that allowed for cash based payment upon
employee election but does not qualify for share-based compensation. All bridge
awards fully vested in November 2020 . See Note 19 - Share Based Compensation in
Notes to the Consolidated Financial Statements, included elsewhere in this
Annual Report, for further details;
•Restructuring and related charges, which consist of project costs associated
with the restructuring initiatives across the Company's segments. See Note 5 -
Restructuring and Related Charges in Notes to the Consolidated Financial
Statements, included elsewhere in this Annual Report, for further details;
•Transaction related charges that consist of (1) transaction costs from
acquisitions or subsequent project costs directly associated with integration of
an acquired business with the consolidated group; and (2) transaction costs from
divestitures and subsequent project costs to facilitate separation of shared
operations, including development of transferred shared service operations,
platforms and personnel transferred, and exiting of transition service
arrangements (TSAs) and reverse TSAs. See Note 2 - Significant Accounting
Policies and Practices in Notes to the Consolidated Financial Statements,
included elsewhere in this Annual Report, for further details;
•Unallocated shared costs associated with discontinued operations from certain
shared and center-led administrative functions supporting 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-allocation or absorption by existing continuing operations following the
completed sale of the discontinued operations. See Note 3 - Divestitures in
Notes to the Consolidated Financial Statements, included elsewhere in this
Annual Report for further details;
•Gains and losses attributable to the Company's investment in Energizer common
stock. During the year ended September 30, 2021 , the Company sold its remaining
shares in Energizer common stock. See Note 7 - Fair Value of Financial
Instruments in Notes to the Consolidated Financial Statements, included
elsewhere in this Annual Report, for further details;
•Non-cash asset impairments or write-offs realized and recognized in earnings
from continuing operations;
•Non-cash purchase accounting inventory adjustments recognized in earnings from
continuing operations after an acquisition;
•Incremental reserves for non-recurring litigation or environmental remediation
activity including (1) 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 year ended September
30, 2021 , (2) environmental remediation reserves realized during the year ended
September 30, 2019 on legacy properties and former manufacturing sites assumed
by the organization which had previously been exited by the Company, and (3)
legal settlement costs associated with retained litigation from the Company's
divested GAC operations realized during the year ended September 30, 2019 . See
Note 21 - Commitments and Contingencies in Notes to the Consolidated Financial
Statements included elsewhere in this Annual Report for further detail;
•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 GPC commercial operations and distribution in Europe . See
Note 3 - Divestitures in Notes to the Consolidated Financial Statements,
included elsewhere in this Annual Report, for further detail;
•Gain on extinguishment of the Salus CLO debt due to the discharge of the
obligation during the year ended September 30, 2020 . See Note 12 - Debt in Notes
to the Consolidated Financial Statements, included elsewhere in this Annual
Report, for further details;
•Foreign currency gains and losses attributable to multicurrency loans for the
year ended September 30, 2020 and 2019, that were entered into with foreign
subsidiaries in exchange for the receipt of divestiture proceeds by the parent
company and the distribution of the respective foreign subsidiaries' net assets
as part of the GBL and GAC divestitures; and
•Other adjustments primarily consisting of costs attributable to (1) incremental
fines and penalties realized for delayed shipments following the transition of a
third-party logistics service provider in GPC during the year ended September
30, 2021 ; (2) costs associated with Salus operations during the years ended
September 30, 2021 , 2020 and 2019 as they are not considered a component of
continuing commercial products company; (3) expenses and cost recovery for flood
damage at the Company's facilities in Middleton, Wisconsin recognized during the
years ended September 30, 2020 and 2019; (4) incremental costs for separation of
a key executives during the years ended September 30, 2020 and 2019; (5) costs
associated with a safety recall in GPC during the year ended September 30, 2019 ;
(6) operating margin on H&G sales to GAC discontinued operations during the year
ended September 30, 2019 ; and (7) certain fines and penalties for delayed
shipments following the completion of a GPC distribution center consolidation in
EMEA during the year ended September 30, 2019 .
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The following is a reconciliation of net income to Adjusted EBITDA for the years endedSeptember 30, 2021 , 2020 and 2019 for SBH:SPECTRUM BRANDS HOLDINGS, INC. (in millions) HPC GPC H&G Corporate Consolidated Year EndedSeptember 30, 2021 Net income from continuing operations$ 46.1 $ 127.7 $ 83.7 $ (242.2) $ 15.3 Income tax benefit - - - (26.4) (26.4) Interest expense - - - 116.5 116.5 Depreciation and amortization 44.0 39.3 19.2 14.5 117.0 EBITDA 90.1 167.0 102.9 (137.6) 222.4 Share and incentive based compensation - - - 29.4 29.4 Restructuring and related charges 9.1 15.2 0.4 15.6 40.3 Transaction related charges 3.4 16.5 10.8 25.6 56.3 Unallocated shared costs - - - 26.9 26.9 Gain on Energizer investment - - - (6.9) (6.9) Inventory acquisition step-up - 3.4 3.9 - 7.3 Legal and environmental remediation reserves - - 6.0 - 6.0 Coevorden tolling related charges - 6.2 - - 6.2 Other - 3.8 - 0.1 3.9 Adjusted EBITDA$ 102.6 $ 212.1 $ 124.0 $ (46.9) $ 391.8 Net Sales$ 1,260.1 $ 1,129.9 $ 608.1 $ -$ 2,998.1 Adjusted EBITDA Margin 8.1 % 18.8 % 20.4 % - 13.1 % Year EndedSeptember 30, 2020 Net income (loss) from continuing operations$ 42.9 $ 44.9 $ 91.2 $ (231.4) $ (52.4) Income tax expense - - - 27.3 27.3 Interest expense - - - 93.7 93.7 Depreciation and amortization 35.2 44.4 20.4 14.7 114.7 EBITDA 78.1 89.3 111.6 (95.7) 183.3 Share and incentive based compensation - - - 36.1 36.1 Restructuring and related charges 4.6 20.8 0.5 45.7 71.6 Transaction related charges 8.8 10.8 - 3.5 23.1 Unallocated shared costs - - - 17.4 17.4 Loss on Energizer investment - - - 16.8 16.8 Loss on sale of Coevorden operations - 26.8 - - 26.8 Write-off from impairment of intangible assets - 24.2 - - 24.2 Foreign currency loss on multicurrency divestiture loans 0.6 - - 3.2 3.8 Salus CLO debt extinguishment - - - (76.2) (76.2) Other 0.1 0.1 - (3.2) (3.0) Adjusted EBITDA$ 92.2 $ 172.0 $ 112.1 $ (52.4) $ 323.9 Net Sales$ 1,107.6 $ 962.6 $ 551.9 $ -$ 2,622.1 Adjusted EBITDA Margin 8.3 % 17.9 % 20.3 % - 12.4 % Year EndedSeptember 30, 2019 Net (loss) income from continuing operations$ (127.8) $ 63.4 $ 84.9 $ (322.7) $ (302.2) Income tax benefit - - - (52.0) (52.0) Interest expense - - - 158.4 158.4 Depreciation and amortization 64.6 48.8 19.3 14.6 147.3 EBITDA (63.2) 112.2 104.2 (201.7) (48.5) Share and incentive based compensation - - - 47.6 47.6 Restructuring and related charges 8.1 7.6 1.8 43.5 61.0 Transaction related charges 7.4 2.5 - 11.0 20.9 Unallocated shared cost - - - 15.7 15.7 Loss on Energizer investment - - - 12.1 12.1 Write-off from impairment of goodwill 116.0 - - - 116.0 Write-off from impairment of intangible assets 18.8 16.6 - - 35.4 Legal and environmental remediation reserves - - - 10.0 10.0 Foreign currency loss on multicurrency divestiture loans - - - 36.2 36.2 Other 0.1 3.7 (0.5) 3.6 6.9 Adjusted EBITDA$ 87.2 $ 142.6 $ 105.5 $ (22.0) $ 313.3 Net Sales$ 1,068.1 $ 870.2 $ 508.1 $ -$ 2,446.4 Adjusted EBITDA Margin 8.2 % 16.4 % 20.8 % - 12.8 % 32
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The following is a reconciliation of net income to Adjusted EBITDA for the years
ended
HPC GPC H&G Corporate Consolidated
Year Ended September 30, 2021
Net income from continuing
operations $ 46.1 $ 127.7 $ 83.7 $ (240.2) $ 17.3
Income tax benefit - - - (25.0) (25.0)
Interest expense - - - 116.8 116.8
Depreciation and amortization 44.0 39.3 19.2 14.5 117.0
EBITDA 90.1 167.0 102.9 (133.9) 226.1
Share and incentive based
compensation - - - 27.7 27.7
Restructuring and related charges 9.1 15.2 0.4 15.6 40.3
Transaction related charges 3.4 16.5 10.8 25.6 56.3
Unallocated shared costs - - - 26.9 26.9
Gain on Energizer investment - - - (6.9) (6.9)
Inventory acquisition step-up - 3.4 3.9 - 7.3
Legal and environmental remediation
reserves - - 6.0 - 6.0
Coevorden tolling related charges - 6.2 - - 6.2
Other - 3.8 - 0.1 3.9
Adjusted EBITDA $ 102.6 $ 212.1 $ 124.0 $ (44.9) $ 393.8
Net Sales $ 1,260.1 $ 1,129.9
8.1 % 18.8 % 20.4 % - 13.1 %
Year Ended September 30, 2020
Net income (loss) from continuing
operations $ 42.9 $ 44.9 $ 91.2 $ (287.4) $ (108.4)
Income tax expense - - - 14.5 14.5
Interest expense - - - 93.2 93.2
Depreciation and amortization 35.2 44.4 20.4 14.7 114.7
EBITDA 78.1 89.3 111.6 (165.0) 114.0
Share and incentive based
compensation - - - 34.8 34.8
Restructuring and related charges 4.6 20.8 0.5 45.7 71.6
Transaction related charges 8.8 10.8 - 3.5 23.1
Unallocated shared costs - - - 17.4 17.4
Loss on Energizer investment - - - 16.8 16.8
Loss on sale of Coevorden operations - 26.8 - - 26.8
Write-off from impairment of
intangible assets - 24.2 - - 24.2
Foreign currency loss on
multicurrency divestiture loans 0.6 - - 3.2 3.8
Other 0.1 0.1 - (3.9) (3.7)
Adjusted EBITDA $ 92.2 $ 172.0 $ 112.1 $ (47.5) $ 328.8
Net Sales $ 1,107.6 $ 962.6
8.3 % 17.9 % 20.3 % - % 12.5 %
Year Ended September 30, 2019
Net (loss) income from continuing
operations $ (127.8) $ 63.4 $ 84.9 $ (281.8) $ (261.3)
Income tax benefit - - - (36.1) (36.1)
Interest expense - - - 106.1 106.1
Depreciation and amortization 64.6 48.8 19.3 14.6 147.3
EBITDA (63.2) 112.2 104.2 (197.2) (44.0)
Share and incentive based
compensation - - - 47.2 47.2
Restructuring and related charges 8.1 7.6 1.8 43.5 61.0
Transaction related charges 7.4 2.5 - 11.0 20.9
Unallocated shared cost - - - 15.7 15.7
Loss on Energizer investment - - - 12.1 12.1
Write-off from impairment of
goodwill 116.0 - - - 116.0
Write-off from impairment of
intangible assets 18.8 16.6 - - 35.4
Legal and environmental remediation
reserves - - - 10.0 10.0
Foreign currency loss on
multicurrency divestiture loans - - - 36.2 36.2
Other 0.1 3.7 (0.5) 0.8 4.1
Adjusted EBITDA $ 87.2 $ 142.6 $ 105.5 $ (20.7) $ 314.6
Net Sales $ 1,068.1 $ 870.2 $ 508.1 $ - $ 2,446.4
Adjusted EBITDA Margin 8.2 % 16.4 % 20.8 % - 12.9 %
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Consolidated Results of Operations The following section provides an analysis of our operations for the years endedSeptember 30, 2021 , 2020 and 2019. SBH The following is summarized consolidated results of operations for SBH for the years endedSeptember 30, 2021 , 2020 and 2019, respectively: (in millions, except %) 2021 2020 Variance 2020 2019 Variance Net sales$ 2,998.1 $ 2,622.1 $ 376.0 14.3 %$ 2,622.1 $ 2,446.4 $ 175.7 7.2 % Gross profit 1,034.6 878.1 156.5 17.8 % 878.1 819.6 58.5 7.1 % Gross profit margin 34.5 % 33.5 % 100 bps 33.5 % 33.5 % -
bps
Operating expenses 937.5 869.5 68.0 7.8 % 869.5 972.0 (102.5) (10.5) % Interest expense 116.5 93.7 22.8 24.3 % 93.7 158.4 (64.7) (40.8) % Other non-operating (income) expense, net (8.3) 16.2 (24.5) n/m 16.2 43.4 (27.2) (62.7) % Income tax (benefit) expense (26.4) 27.3 (53.7) n/m 27.3 (52.0) 79.3
n/m
Net income (loss) from continuing operations 15.3 (52.4) 67.7 n/m (52.4) (302.2) 249.8
n/m
Income from discontinued operations, net of tax 174.3 150.9 23.4 15.5 % 150.9 798.0 (647.1) (81.1) % Net income 189.6 98.5 91.1 92.5 % 98.5 495.8 (397.3) (80.1) % n/m = not meaningfulNet Sales . The following is a summary of net sales by segment for the years endedSeptember 30, 2021 , 2020 and 2019 and the principal components of changes in net sales for the respective periods. (in millions, except %) 2021 2020 Variance 2020 2019 Variance HPC$ 1,260.1 $ 1,107.6 $ 152.5 13.8 %$ 1,107.6 $ 1,068.1 $ 39.5 3.7 % GPC 1,129.9 962.6 167.3 17.4 % 962.6 870.2 92.4 10.6 % H&G 608.1 551.9 56.2 10.2 % 551.9 508.1 43.8 8.6 % Net Sales$ 2,998.1 $ 2,622.1 376.0 14.3 %$ 2,622.1 $ 2,446.4 175.7 7.2 % (in millions) 2021 2020Net Sales for the year endedSeptember 30, 2020 and 2019, respectively$ 2,622.1 $ 2,446.4 Increase due to acquisition 122.7 7.5 Increase in HPC 121.4 58.4 Increase in GPC 49.4 86.0 Increase in H&G 33.0 43.9 Foreign currency impact, net 49.5 (20.1)
$
2,998.1
Gross Profit. Gross profit for the year endedSeptember 30, 2021 increased primarily due to higher sales volume with increased productivity, favorable mix with incremental product and input costs partially offset by pricing adjustments. Gross profit for the year endedSeptember 30, 2020 increased with no change in margin, primarily due to increased sales volume with incremental product and input costs including tariffs, offset by productivity, favorable product mix and pricing adjustments. Operating Expenses. Operating expenses for the year endedSeptember 30, 2021 increased due to higher selling expenses of$78.3 million attributable to higher freight and distribution costs and higher marketing and advertising spend, increased general and administrative costs of$26.3 million and increased transaction related charges of$33.2 million due to strategic acquisition and divestiture activities; offset by a decrease in restructuring costs of$19.4 million with loss from sale of Coevorden facility of$26.8 million and impairment of related intangible assets of$24.2 million in the prior year. Operating expenses for the year endedSeptember 30, 2020 decreased due to the impairment of HPC goodwill of$116.0 million and impairment of intangible assets of$35.4 million in the previous year with offsets by the recognition of loss from sale of Coevorden facility of$26.8 million and impairment of related intangible assets$24.2 million . See Note 2 - Significant Accounting Policies and Practices and Note 5 - Restructuring and Related Charges in the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report for additional detail on transaction and restructuring related charges. Interest Expense. Interest expense for the year endedSeptember 30, 2021 increased due to one-time refinancing charges offset by lower average borrowing rates. Interest expense for the year endedSeptember 30, 2020 decreased due to lower borrowings and average interest rates during the period. See Note 12 - Debt in Notes to the Consolidated Financial Statements included elsewhere in this Annual Report. Other Non-Operating Expense, Net. Other non-operating expense, net for the year endedSeptember 30, 2021 decreased due to realized gains on the investment in Energizer common stock which was fully liquidated inJanuary 2021 . Other non-operating expense, net for the year endedSeptember 30, 2020 decreased primarily due to foreign currency losses in the previous year related to multicurrency loans with foreign subsidiaries associated with the GBL and GAC divestitures and realized and unrealized losses on the investment in Energizer common stock. See Note 7 - Fair Value of Financial Instruments in the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report for additional detail. 34
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Income Taxes. The effective tax rate was 237.8% for the year endedSeptember 30, 2021 compared to 108.8% for the year endedSeptember 30, 2020 and 14.7% for the year endedSeptember 30, 2019 . Pretax income from continuing operations in the year endedSeptember 30, 2021 was close to breakeven and therefore many items have a sizeable impact on the effective tax rate. Our annual effective tax rate is significantly impacted by income earned outside theU.S. that is subject toU.S. tax including theU.S. tax on global intangible low taxed income, certain nondeductible expenses, state income taxes, and foreign rates that differ from theU.S. federal statutory rate. The year endedSeptember 30, 2021 tax expense was significantly impacted by valuation allowance release, tax expense due to an increase to theUnited Kingdom's future tax rate, and tax benefits from retroactive law changes for global intangible low taxed income. See Note 16 - Income Taxes in Notes to the Consolidated Financial Statements, included elsewhere in this Annual Report for additional detail. Income From Discontinued Operations. Discontinued operations includes the results of operations, financial position and cash flows for the GBL and GAC divisions sold during the year endedSeptember 30, 2019 , effectiveJanuary 2, 2019 andJanuary 28, 2019 , respectively, plus the operations, financial position and cash flows for HHI for all comparable periods, with the HHI disposal group being held for sale as ofSeptember 30, 2021 . Income from discontinued operations, net of tax increased during the year endedSeptember 30, 2021 due to increased income from operations of HHI driven by strong consumer demand and new product innovation driving sales growth across retail, e-commerce and new build channels coupled with fulfillment of prior year retail inventory rebuild when the prior year was impacted by COVID-19 supply related disruptions; partially offset by higher freight and input cost inflation and higher marketing investments. Income from discontinued operations, net of tax, decreased during the year endedSeptember 30, 2020 due to the net gain realized from the disposition of the GBL and GAC divestitures during the year endedSeptember 30, 2019 , offset by the decrease in income from operations of HHI. Decrease in HHI operations was attributable to lower sales volumes driven by COVID-19 supply constraints coupled with higher input costs and tariffs, offset by improved productivity, pricing and mix, retrospective tariff exclusions and reduced restructuring spend; and lower allocation of interest costs from corporate debt allocated to discontinued operations attributable to the paydown of debt following the disposition of the GBL and GAC divestitures. See Note 3 - Divestitures in Notes to the Consolidated Financial Statements, included elsewhere in this Annual Report, for more information on the divestitures and the assets and liabilities classified as held for sale. Noncontrolling Interest. The net income attributable to noncontrolling interest reflects the share of the net income of our subsidiaries, which are not wholly-owned, attributable to the accounting interest. Such amount varies in relation to such subsidiary's net income or loss for the period and the percentage interest not owned by SBH. SB/RH The following is summarized consolidated results of operations for SB/RH for the years endedSeptember 30, 2021 , 2020 and 2019: (in millions, except %) 2021 2020 Variance 2020 2019 Variance Net sales$ 2,998.1 $ 2,622.1 $ 376.0 14.3 %$ 2,622.1 $ 2,446.4 $ 175.7 7.2 % Gross profit 1,034.6 878.1 156.5 17.8 % 878.1 819.6 58.5 7.1 % Gross profit margin 34.5 % 33.5 % 100 bps 33.5 % 33.5 % -
bps
Operating expenses 933.8 862.5 71.3 8.3 % 862.5 967.3 (104.8) (10.8 %) Interest expense 116.8 93.2 23.6 25.3 % 93.2 106.1 (12.9) (12.2 %) Other non-operating (income) expense, net (8.3) 16.3 (24.6) n/m 16.3 43.6 (27.3) (62.6 %) Income tax (benefit) expense (25.0) 14.5 (39.5) n/m 14.5 (36.1) 50.6
n/m
Net income (loss) from continuing operations 17.3 (108.4) 125.7 n/m (108.4) (261.3) 152.9 (58.5 %) Income from discontinued operations, net of tax 174.3 150.9 23.4 15.5 % 150.9 803.9 (653.0) (81.2 %) Net income 191.6 42.5 149.1 350.8 % 42.5 542.6 (500.1) (92.2 %) n/m = not meaningful For the years endedSeptember 30, 2021 and 2020, the change in net sales, gross profit, operating expenses and other non-operating expenses are primarily attributable to changes in SBH previously discussed. The change in interest expense is primarily attributable to the changes in SBH previously discussed except for the non-cash gain on extinguishment of Salus CLO debt. Income from discontinued operations is attributable to SBH previously discussed. The effective tax rate was 324.7% for the year endedSeptember 30, 2021 compared to (15.4%) for the year endedSeptember 30, 2020 and 12.1% for the year endedSeptember 30, 2019 . The change in tax rate is primarily attributable to the changes in SBH previously discussed. 35
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Segment Financial Data This section provides an analysis of our results of reportable segments for the years endedSeptember 30, 2021 and 2020. For a discussion of our fiscal 2019 results, please refer to Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" for the Company's Annual Report on Form 10-K for the year endedSeptember 30, 2020 filed with theSEC onNovember 15, 2019 . Home & Personal Care (HPC) (in millions, except %) 2021 2020 Variance 2020 2019 Variance Net sales$ 1,260.1 $ 1,107.6 $ 152.5 13.8 %$ 1,107.6 $ 1,068.1 $ 39.5 3.7 % Operating income (loss) 46.4 42.9 3.5 8.2 % 42.9 (127.5) 170.4 n/m Operating income margin 3.7 % 3.9 % (20) bps 3.9 % (11.9) % 1,580 bps Adjusted EBITDA$ 102.6 $ 92.2 $ 10.4 11.3 %$ 92.2 $ 87.2 $ 5.0 5.7 % Adjusted EBITDA margin 8.1 % 8.3 % (20) bps 8.3 % 8.2 % 10 bps n/m = not meaningful Net sales for the year endedSeptember 30, 2021 increased driven by strong growth in hair care products as part of the personal care appliance category and strong growth in cooking, food preparation and garment within the small home appliance category; coupled with a strong holiday season earlier in the year, new product introductions, continued e-commerce growth, expanded distribution in LATAM markets, re-opening of traditional retail channels and pricing adjustments in response to higher material input costs partially mitigated by supply chain constraints limiting distribution. Organic net sales increased$121.4 million , or 11.0%, excluding favorable foreign exchange impact. Operating income and Adjusted EBITDA for the year endedSeptember 30, 2021 increased with a decrease in margin due to increased sales from volume and pricing with favorable foreign currency offset by increased material and input cost inflation, freight costs and increased marketing investments; with higher depreciation and amortization expense impacting operating income and margin. Net sales for the year endedSeptember 30, 2020 increased driven by growth in both small appliances and personal care including strong net sales growth in theU.S. from e-commerce and mass channels with continued strength in convenience cooking including new product introductions fromGeorge Foreman grills, holiday season promotional volumes, coupled with demand increase partially offset by supply constraints and store closures in response to the COVID-19 pandemic. Organic net sales increased$58.4 million or 5.5% excluding unfavorable foreign exchange impact. Operating income and Adjusted EBITDA for the year endedSeptember 30, 2020 increased with an increase in margin due to higher sales volumes with favorable product mix and productivity with benefit from retrospective tariff exclusions, offset by incremental input costs driven by tariffs, increased marketing and advertising spend, plus incremental foreign currency transaction loss. Operating income and margin for the year endedSeptember 30, 2019 was further impacted by the recognition of goodwill impairment of$116.0 million , write-off of indefinite lived intangible assets of$18.8 million , and incremental depreciation and amortization of$29.0 million in the prior year associated with HPC business being de-recognized from held for sale. Global Pet Care (GPC) (in millions, except %) 2021 2020 Variance 2020 2019 Variance Net sales$ 1,129.9 $ 962.6 $ 167.3 17.4 %$ 962.6 $ 870.2 $ 92.4 10.6 % Operating income 129.9 47.1 82.8 175.8 % 47.1 65.6 (18.5) (28.2) % Operating income margin 11.5 % 4.9 % 660 bps 4.9 % 7.5 % (260) bps Adjusted EBITDA$ 212.1 $ 172.0 $ 40.1 23.3 %$ 172.0 $ 142.6 $ 29.4 20.6 % Adjusted EBITDA margin 18.8 % 17.9 % 90 bps 17.9 % 16.4 % 150 bps Net sales for the year endedSeptember 30, 2021 increased due to acquisition sales of$99.5 million coupled with continued growth in aquatics and companion animal categories highlighted by dog chews and treats, with strong development across distribution channels led by expanded e-commerce, partially mitigated by lower than anticipated fulfillment levels attributable to distribution center transitions during the year. Organic net sales increased$49.4 million , or 5.1% excluding favorable foreign exchange impact and acquisition sales. Operating income and Adjusted EBITDA for the year endedSeptember 30, 2021 increased with an increase in margins due to higher volume, favorable product mix, pricing and productivity, offset by higher material input costs, freight and distribution costs, and incremental costs and inefficiencies with distribution center transition, including higher than normal customer fines and penalties further impacting operating income and margin. Net sales for the year endedSeptember 30, 2020 increased due to continued growth in aquatics and companion animal products driven by broad based demand across all aquatic product types, including significant demand for hard goods through e-commerce and pet specialty channels, plus growth in companion animal categories driven by strong consumables demand in the dollar, mass and e-commerce channels and increased consumer demand experienced during the COVID-19 pandemic. Organic net sales increased$86.0 million or 9.9% due to unfavorable foreign exchange impact and acquisition sales. Operating income for the year endedSeptember 30, 2020 decreased with a decline in margin due to the recognition of a loss on assets held for sale of$26.8 million associated with the Coevorden Operations divestiture, and a$24.2 million write-off from impairment of intangible assets; incremental transaction costs associated with the Omega acquisition and Coevorden Operations divestiture, plus restructuring costs and accelerated depreciation as part of the Global Productivity Improvement Program, tariffs and additional investment in marketing and advertising, offset by increased sales volume, product cost improvements, and positive pricing. Adjusted EBITDA increased with an increase in margin due to increased sales volume, productivity, and positive pricing, offset by tariffs and additional investment in marketing and advertising. 36
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Table of Contents Home & Garden (H&G) (in millions, except %) 2021 2020 Variance 2020 2019 Variance Net sales$ 608.1 $ 551.9 $ 56.2 10.2 %$ 551.9 $ 508.1 $ 43.8 8.6 % Operating income 83.7 91.2 (7.5) (8.2 %) 91.2 85.0 6.2 7.3 % Operating income margin 13.8 % 16.5 % (270) bps 16.5 % 16.7 % (20) bps Adjusted EBITDA$ 124.0 $ 112.1 $ 11.9 10.6 %$ 112.1 $ 105.5 $ 6.6 6.3 % Adjusted EBITDA margin 20.4 % 20.3 % 10 bps 20.3 % 20.8 % (50) bps Net sales for the year endedSeptember 30, 2021 increased across product categories driven by strong early season orders across channels and strong early season POS coupled with strong late season consumer demand and acquisition sales. Organic net sales increased$33.0 million , or 6.0% excluding acquisition sales. Operating income for the year endedSeptember 30, 2021 decreased with a decline in margin due to increased material input costs, advertising and marketing investment, and higher distribution expenses, partially offset by higher sales volumes and positive pricing and productivity improvements; with increased acquisition related costs and legal reserves. Adjusted EBITDA increased with an increase in margin attributable to increased material input costs, advertising and marketing investment, and higher distribution expenses, partially offset by higher sales volumes and positive pricing and productivity improvements Net sales for the year endedSeptember 30, 2020 increased driven by growth across all three major product categories of controls, household insecticides and repellents; and benefited from strong point of sale and replenishment as retailers supported the extended selling season. Operating income and Adjusted EBITDA for the year endedSeptember 30, 2020 increased with a decline in margin due to increased sales volume offset by higher material and input costs including tariffs, plus higher marketing and advertising investment spending. Liquidity and Capital Resources This section provides a discussion of our financial condition and an analysis of our cash flows for the years endedSeptember 30, 2021 , 2020, and 2019. This section also provides a discussion of our contractual operations and other commercial commitments as well as our ability to fund future commitments and operating activities through sources of capital as ofSeptember 30, 2021 . The following is a summary of the Company's net cash flows from continuing operations for the years endedSeptember 30, 2021 , 2020, and 2019: SBH SB/RH (in millions) 2021 2020 2019 2021 2020 2019
Operating activities
81.7
Investing activities
Financing activities
Cash flows from operating activities Cash flows from operating activities by SBH continuing operations for the year endedSeptember 30, 2021 decreased$112.6 million . primarily attributable to the increased use in cash spend towards working capital, particularly from inventory build-up, and cash paid towards strategic transaction activity with increased cash generated by operations from continuing operations and lower spending on restructuring activities Cash flows from operating activities by SBH continuing operations for the year endedSeptember 30, 2020 increased$244.4 million due to cash provided by continuing operations with cash contributed by working capital primarily attributable to timing of accounts payable, reduction in cash paid for interest and taxes, lower spending towards strategic transaction, offset by increase in cash used towards restructuring activities during the year. Changes in cash flows from operating activities by SB/RH continuing operations are primarily due to the SBH items discussed above except for an incremental operating cash outflow to its parent company for payments to SBH for the use of federal net operating losses, as provided under the Company's tax sharing agreement. Cash flows from investing activities Cash flows used in investing activities by SBH continuing operations for the year endedSeptember 30, 2021 increased$525.9 million primarily due to increase in cash used for acquisitions of$413.0 million from the acquisitions of Rejuvenate and Armitage and higher cash proceeds in the prior year from divestiture activity of$32.6 million attributable to the Coevorden Facility, and the sale of Energizer common stock of$74.0 million , The Company sold its remaining investment in Energizer common stock inJanuary 2021 . Cash flow from investing activities for SB/RH continuing operations for the year endedSeptember 30, 2021 are primarily due to the SBH items previously discussed. Cash flows from investing activities by SBH continuing operations for the year endedSeptember 30, 2020 decreased$2,695.7 million primarily due to higher proceeds in the prior year from divestitures of$2,826.9 million attributable to the divestitures of GBL and GAC, offset by the cash proceeds from the Coevorden Operations divestiture, increase in cash used for acquisition of$16.9 million from the acquisition of Omega, offset by proceeds from the sale of Energizer common stock of$147.1 million . Capital expenditures increased$3.7 million primarily towards investment in higher return cost reduction projects and related restructuring initiatives. Cash flows from investing activities for SB/RH continuing operations for the year endedSeptember 30, 2020 are primarily due to the SBH items previously discussed. 37
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Cash flows from financing activities Cash flows used in financing activities by SBH continuing operations decreased$288.2 million for the year endedSeptember 30, 2021 primarily due to lower stock repurchase activity, payment of contingent consideration associated with the GBL divestiture of$197.0 million in the prior year; partially offset by reduced cash inflow from debt financing of$157.9 million primarily due to premiums and loss on extinguishment from refinancing activity. During the year endedSeptember 30, 2021 , the Company realized$899.0 million of proceeds from the new Term Loan Facility and issuance of the 3.875% Notes, net discount, with payment of$891.2 million of outstanding principal on the 6.125% Notes and the 5.75% Notes including make whole premiums of$23.4 million , plus paydown of assumed debt from the acquisition of Armitage. Refer to Note 12 - Debt in Notes to Consolidated Financial Statements included elsewhere in this Annual Report for additional information. There has been no issuance of common stock, other than through the Company's share-based compensation plan, with reduced spending on common stock repurchases of$239.0 million from the accelerated share repurchase arrangement and open market purchases in the prior year. See Note 18 - Shareholder's Equity in Notes to Consolidated Financial Statements included elsewhere in this Annual Report for additional information. Cash dividend payments decreased due to lower shares outstanding with a consistent dividend rate of$0.42 per shares. Cash flows from financing activities for SB/RH continuing operations for the year endedSeptember 30, 2021 are highly dependent upon the financing cash flow activity of SBH. Cash flows used in financing activities by SBH continuing operations decreased$2,226.5 million for the year endedSeptember 30, 2020 primarily due to the debt repayment activity in the prior year following the GBL and GAC divestitures, offset by the payment of the Varta contingent payment to Energizer subsequent to the GBL divestiture and incremental treasury share repurchase activity. During the year endedSeptember 30, 2020 , SBH recognized net proceeds of$300.0 million from the issuance of 5.50% Notes. The proceeds from the issuance of the 5.50% Notes were used for repayment of the Revolver Facility obligation. The Company made$134.3 million payment on debts for the outstanding balance of 6.625% Notes of$117.4 million with premium of early extinguishment of$1.3 million , and other debt payments of$15.6 million . There has been no issuance of common stock, other than through the Company's share-based compensation plan, with increased spending on common stock repurchase activity of$364.8 million from the accelerated share repurchase arrangement and open market purchases during the year. See Note 18 - Shareholder's Equity in Notes to Consolidated Financial Statements included elsewhere in this Annual Report for additional information. Cash dividend payments decreased due to lower shares outstanding with a consistent dividend rate of$0.42 per shares. Cash flows from financing activities for SB/RH continuing operations are highly dependent upon the financing cash flow activity of SBH. Liquidity Outlook Our ability to generate significant cash flow from operating activities coupled with our expected ability to access the credit markets, enables us to execute our growth strategies and return value to our shareholders. Our ability to make principal and interest payments on borrowings under our debt agreements and our ability to fund planned capital expenditures will depend on the ability to generate cash in the future, which, to a certain extent, is subject to general economic, financial, competitive, regulatory and other conditions. Based upon our current level of operations, existing cash balances, the anticipated proceeds from HHI divestitures and availability under our credit facility, we expect cash flows from operations to be sufficient to meet our operating and capital expenditure requirements for at least the next 12 months. Additionally, we believe the availability under our credit facility and access to capital markets are sufficient to achieve our longer-term strategic plans. As ofSeptember 30, 2021 , the Company had borrowing availability of$575.4 million , net of outstanding letters of credit of$24.6 million , under our credit facility. Liquidity and capital resources of SB/RH are highly dependent upon the cash flow activities of SBH. Short-term financing needs primarily consist of working capital requirements, restructuring initiatives, capital spending, and periodic principal and interest payments on our long-term debt. Long-term financing needs depend largely on potential growth opportunities, including acquisition activity, repayment or refinancing of our long-term obligations, and repurchases of our common stock. We may, from time-to-time, seek to repurchase shares of our common stock. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, and other factors. During the fourth quarter endedSeptember 30, 2021 , SBH entered into a$150 million rule 10b5-1 repurchase to facilitate daily market share repurchases throughSeptember 2022 or until the cap is reached or agreement is terminated, of which$16.0 million was executed as ofSeptember 30, 2021 . Our long-term liquidity may be influenced by our ability to borrow additional funds, renegotiate existing debt, and raise equity under terms that are favorable to us. We also have long-term obligations associated with defined benefit plans with expected minimum required contributions that are not considered significant to the consolidated group. We maintain a capital structure that we believe provides us with sufficient access to credit markets. When combined with strong levels of cash flow from operations, our capital structure has provided the flexibility necessary to pursue strategic growth opportunities and return value to our shareholders. The Company's access to capital markets and financing costs may depend on the Company's credit ratings. None of the Company's current borrowings are subject to default or acceleration as a result of a downgrading of credit ratings, although a downgrade of the Company's credit ratings could increase fees and interest charges on future borrowings. AtSeptember 30, 2021 , we were in compliance with all covenants under the Credit Agreement and the indentures governing the 3.875% Notes, 5.00% Notes, 5.50% Notes, 5.75% Notes, and 4.00% Notes. A portion of our cash balance is located outside theU.S. given our international operations. We manage our worldwide cash requirements centrally by reviewing available cash balances across our worldwide group and the cost effectiveness with which this cash can be accessed. We generally repatriate cash from non-U.S. subsidiaries, provided the cost of the repatriation is not considered material. The counterparties that hold our deposits consist of major financial institutions. AtSeptember 30, 2021 , we believe there is approximately$50-75 million of foreign cash available for repatriation. The majority of our business is not considered seasonal with a year round selling cycle that is overall consistent during the fiscal year with the exception of our H&G segment. H&G sales typically peak during the first six months of the calendar year (the Company's second and third fiscal quarters) due to customer seasonal purchasing patterns and the timing of promotional activity. This seasonality requires the Company to ship large quantities of product ahead of peak consumer buying season that can impact cash flow demands to meet manufacturing and inventory requirements earlier in the fiscal year, as well as extended credit terms and/or promotional discounts throughout the peak season. The Company enters into factoring agreements and customers' supply chain financing arrangements to provide for the sale of certain trade receivables to unrelated third-party financial institutions. The factored receivables are accounted for as a sale without recourse, and the balance of the receivables sold are removed from the Consolidated Balance Sheet at the time of the sales transaction, with the proceeds received recognized as an operating cash flow. Additionally, the Company facilitates a voluntary supply chain financing program to provide certain of its suppliers with the opportunity to sell receivables due from the Company (the Company's trade payables) to an unrelated third-party financial institution under the sole discretion of the supplier and the participating financial institution. There are no guarantees provided by the Company or its subsidiaries and we do not enter into any agreements with the suppliers regarding their participation. The Company's responsibility is limited to payments on the original terms negotiated with its suppliers, regardless of whether the suppliers sell their receivables to the financial institution, and continue to be recognized as accounts payable on the Company's Consolidated Balance Sheet with cash flow activity recognized as an operating cash flow. 38
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The COVID-19 pandemic has not, as of the date of this report, materially impacted our operations or demand for our products and has not had a materially negative impact on the Company's liquidity position. The Company has realized supply chain disruptions which has impacted our cash flow to facilitate increased investment in inventory to ensure timely supply to meet customer demands along with shortened payment dates for some suppliers to account for longer shipping cycles. There can be no assurance that it won't have a material negative impact on us in the future. Nonetheless, we continue to actively monitor our global cash balances and liquidity, and if necessary, could reinitiate mitigating efforts to manage non-critical capital spend and assess operating spend to preserve cash and liquidity, including the suspension of our share repurchase activity. 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. However, the continued spread of COVID-19 has led to disruption and volatility in the global capital markets, which, depending on future developments, could impact our capital resources and liquidity in the future. Debt obligations Our debt obligations, excluding finance leases, have varying maturity dates with no material outstanding principal payments due within the following 12 months. Our Term Loan Facility is subject to quarterly amortizing payments of$1.0 million . Refer to Note 12-Debt in notes to Consolidated Financial Statements included elsewhere in this Annual Report for expiration dates and maturity schedules on outstanding debt obligations for the following 5 years and thereafter. In addition to the outstanding principal on our debt, we anticipate annual interest payments of$117.4 million in the aggregate and includes interest under our: (i) Term Loan and Revolver Facility of$20.9 million , subject to variable interest rates; (ii) 5.75% Notes of$25.9 million ; (iii) 4.00% Notes of$19.7 million ; (iv) 5.00% Notes of$15.0 million ; (v) 5.50% Notes of$16.5 million ;(v) 3.875% Notes of$19.4 million . Interest on the notes is payable semi-annually in arrears and interest under the Term Loan and Revolver Facility is payable on various interest payment dates as provided in the Senior Credit Agreement. Lease obligations The Company enters into leases primarily pertaining to real estate for manufacturing facilities, distribution centers, office space, warehouses, and various equipment including automobiles, machinery, computers, and office equipment, amongst others. Lease obligations with a term in excess of 12 months are recognized on the Company's Consolidated Statement of Financial Position. See Note 13 - Leases of Notes to the Consolidated Financial Statement included elsewhere in the Annual Report for further detail, including maturity schedule on outstanding finance and operating lease obligations for the following 5 years and thereafter, including imputed interest not reflected on the Consolidated Statements of Financial Position. Employee benefit plan obligations The Company and its subsidiaries are sponsors to various defined benefit pension plans covering some of its employees that provide post-employment benefits of stated amounts for each year of service, including a number of other non-U.S. pension arrangements, including various retirement and termination benefit plans, some of which are covered by local law or coordinated with government-sponsored plans. The Company's recognizes an actuarial determined unfunded projected benefit obligation recognized as Other Long-Term Liabilities on the Company's Consolidated Statement of Financial Position, net fair value of dedicated plan assets. See Note 15 - Employee Benefit Plans of the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report for further detail included projected payments towards the future obligation for the following 5 years and thereafter. The Company anticipates that benefit obligations will be predominantly paid through dedicated plan assets. Future contributions to defined benefit plans are not expected to be material to the operations and cash flow for the Company. Other commitments and obligations Other commitments and obligations include an outstanding mandatory repatriation tax liability of$18.9 million that is payable over the next 5 years, with$2.0 million due and payable in the next 12 months but will be offset by previous payments and credits. The remaining balance due is net of refundable tax credits and overpayments that must be applied to the mandatory tax installments, and due to the credits and overpayments, the Company does not expect to make an additional payment for mandatory repatriation until Fiscal 2025. See Note 16 - Income Taxes of Notes to the Consolidated Financial Statements included elsewhere in this Annual Report. Our Consolidated Statements of Financial Position also includes reserves for uncertain tax positions; however, it is not possible to predict or estimate the amount and timing of payments for uncertain tax positions and those liabilities have been excluded from the obligations above. The Company cannot reasonably predict the ultimate outcome of income tax audits currently in progress for certain of our companies. It is reasonably possible that during the next 12 months, some portion of our unrecognized tax benefits could be recognized. See Note 16 - Income Taxes of the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report for additional discussion on uncertain tax positions. The Company has recognized other payables associated with indemnifications following divestitures, including tax indemnifications, that we cannot reasonably predict the ultimate outcome of our obligation; however it is reasonably possible that during the next 12 months, some portion of our indemnification payable could be recognized. As ofSeptember 30, 2021 , there are$17.3 million of indemnification liabilities recognized as Other Current Accruals and$19.2 million recognized as Other Long-Term Liabilities on the Consolidated Statement of Financial Position. See Note 3 - Divestitures of the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report. 39
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Guarantor Statements - SB/RH SBI has issued the 5.75% Notes under the 2025 Indenture, the 4.00% Notes under the 2026 Indenture, the 5.00% Notes under the 2029 Indenture, the 5.50% Notes under the 2030 Indenture, and the 3.875% Notes under the 2031 Indentures (collectively, the "Notes"). The Notes are unconditionally guaranteed, jointly and severally, on a senior unsecured basis by SB/RH and SBI's domestic subsidiaries. The Notes and the related guarantees rank equally in right of payment with all of SBI and the guarantors' existing and future senior indebtedness and rank senior in right of payment to all of SBI and the guarantors' future indebtedness that expressively provide for its subordination to the Notes and the related guarantees. Non-guarantor subsidiaries primarily consist of SBI's foreign subsidiaries. The following financial information consists of summarized financial information of the Obligor, presented on a combined basis. The "Obligor" consists of the financial statements of SBI as the debt issuer, SB/RH as a parent guarantor, and the domestic subsidiaries of SBI as subsidiary guarantors. Intercompany balances and transactions between SBI and the guarantors have been eliminated. Investments in non-guarantor subsidiaries and the earnings or losses from those non-guarantor subsidiaries have been excluded. (in millions) 2021 Statement of Operations Data Third-party net sales$ 1,774.2 Intercompany net sales to non-guarantor subsidiaries 18.8 Total net sales 1,793.0 Gross profit 555.5 Operating loss (79.5) Net loss from continuing operations (116.2) Net income 28.6 Net income attributable to controlling interest 28.6 Statement of Financial Position Data Current Assets$ 1,999.1 Noncurrent Assets 2,090.2 Current Liabilities 936.1 Noncurrent Liabilities 2,881.7
The Obligor's amounts due from, due to the non-guarantor subsidiaries as of
2021
Statement of Financial Position Data
Current receivables from non-guarantor subsidiaries
266.2
Long-term debt with non-guarantor subsidiaries 123.3
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Critical Accounting Policies and Estimates Our Consolidated Financial Statements have been prepared in accordance with GAAP and fairly present our financial position and results of operations. The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its accounting estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances and evaluates its estimates on an ongoing basis. The following section identifies and summarizes those accounting policies considered by management to be the most critical to understanding the judgments that are involved in the preparation of our consolidated financial statements and the uncertainties that could impact our results of operations, financial position and cash flows. The application of these accounting policies requires judgment and use of assumptions as to future events and outcomes that are uncertain and, as a result, actual results could differ from these estimates. Refer to Note 2 - Significant Accounting Policies and Practices of Notes to the Consolidated Financial Statements for all relevant accounting policies.Goodwill , Intangible Assets and Other Long-Lived AssetsThe Company's goodwill, intangible assets and tangible fixed assets are stated at historical cost, net of depreciation and amortization, less any provision for impairment. Intangible and tangible assets with determinable lives are amortized or depreciated on a straight line basis over estimated useful lives. Refer to Note 2 - Significant Accounting Policies and Practices of Notes to the Consolidated Financial Statements for more information about useful lives. On an annual basis, during the fourth quarter of the fiscal year, or more frequently if triggering events occur, the Company tests for impairment of goodwill by either performing a qualitative assessment or quantitative test for some or all reporting units. Our reporting units are consistent with our operating segments. See Note 22 - Segment Information of Notes to the Consolidated Financial Statements for further discussion of operating and reporting segments. The Company evaluates qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. In performing a qualitative assessment, the Company considers events and circumstances, including, but not limited to macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, changes in management or key personnel, changes in strategy, changes in customers, changes in market value, composition or carrying amount of a reporting unit's net asset, and considering change in the market price of the Company's common stock. If we determine that it is more likely than not the carrying value is greater than the fair value of a reporting unit after assessing the totality of facts and circumstances, a quantitative assessment is performed to determine the reporting unit fair value and measure the impairment. If the fair value of a reporting unit is less than its carrying value, an impairment loss is recorded for the difference between the fair value of the reporting unit goodwill and its carrying value. The estimated fair value represents the amount at which a reporting unit could be bought or sold in a current transaction between willing parties on an arms-length basis. In estimating the fair value of the reporting unit, we use a discounted cash flows methodology, which requires us to estimate future revenues, expenses, and capital expenditures and make assumptions about our weighted average cost of capital and perpetuity growth rate, among other variables. We test the aggregate estimated fair value of our reporting units by comparison to our total market capitalization, including both equity and debt capital. For the year endedSeptember 30, 2021 , we did not recognize an impairment of goodwill or deem any reporting units as 'at risk' of impairment. In addition to goodwill, the Company has indefinite-lived intangible assets that consist of acquired tradenames. On an annual basis, during the Company's fourth quarter, or more frequently if triggering events occur, the Company tests for impairment by either performing a qualitative assessment or quantitative test for some or all indefinite-lived intangible assets. The Company evaluates qualitative factors to determine whether it is more likely than not that the fair value of the indefinite lived intangible assets is less than its carrying amount. In performing a qualitative assessment, the Company considers events and circumstances including, but not limited to, macroeconomic conditions, industry and market conditions, cost factors, changes in strategy and overall financial performance. If we determine that it is more likely than not the carrying value is greater than the fair value of an indefinite lived intangible asset, a quantitative assessment is performed to determine the fair value and measure the impairment. If the fair value is less than its carrying value, an impairment loss is recorded for the excess. The fair value of indefinite-lived intangible assets is determined using an income approach, the relief-from-royalty methodology, which requires us to make estimates and assumptions about future revenues, royalty rates, and the discount rate, among others. There was no impairment on indefinite life intangible assets for the year endedSeptember 30, 2021 . As ofSeptember 30, 2021 , there were no material intangible assets that could be deemed at risk of future impairment due to the limited excess fair value. The Company also reviews other definite-lived intangible assets and tangible fixed assets for impairment when events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Circumstances such as the discontinuation of a product or product line, a sudden or consistent decline in the sales forecast for a product, changes in technology or in the way an asset is being used, a history of operating or cash flow losses or an adverse change in legal factors or in the business climate, among others, may trigger an impairment review. If such indicators are present, the Company performs undiscounted cash flow analyses to determine if impairment exists. The asset value would be deemed impaired if the undiscounted cash flows expected to be generated by the asset did not exceed the carrying value of the asset. If impairment is determined to exist, any related impairment loss is calculated based on fair value. During the year endedSeptember 30, 2021 , there was no impairment of definite-lived intangible assets or tangible fixed assets. A considerable amount of judgment and assumptions are required in performing the impairment tests, principally in determining the fair value of each reporting unit and assets subject to impairment testing. While the Company believes its judgments and assumptions are reasonable, different assumptions could change the estimated fair value and therefore, additional impairment charges could be required. The Company is subject to financial statement risk in the event that business or economic conditions unexpectedly decline and impairment is realized. Income Taxes The Company is subject to income taxes in theU.S. and numerous foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes and recording the related deferred tax assets and liabilities. The Company assesses its income tax positions and records tax liabilities for all years subject to examination based upon management's evaluation of the facts and circumstances and information available for reporting. For those income tax positions where it is more-likely-than-not that a tax benefit will be sustained upon conclusion of an examination, the Company has recorded a reserve based upon the largest amount of tax benefit having a cumulatively greater than 50% likelihood of being realized upon ultimate settlement with the applicable taxing authority assuming that it has full knowledge of all relevant information. For those income tax positions where it is more-likely-than-not that a tax benefit will not be sustained, the Company did not recognize a tax benefit. As ofSeptember 30, 2021 , the total amount of unrecognized tax benefits, including interest and penalties, that if not recognized would affect the effective tax rate in future periods was$19.5 million . Our effective tax rate includes the impact of income tax reserves and changes to those reserves when considered appropriate. A number of years may elapse before a particular matter for which we have established a reserve is finally resolved. Unfavorable settlement of any particular issue may require the use of cash or a reduction in our net operating loss carryforwards or tax credits. Favorable resolution would be recognized as a reduction to the effective rate in the year of resolution. 41
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The Company recognizes deferred tax assets and liabilities for future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases, net operating losses, tax credit, and other carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company does not adjust its measurement for proposed future tax rate changes that have not yet been enacted into law. The Company regularly reviews its deferred tax assets for recoverability and establishes a valuation allowance based on historical losses, projected future taxable income, expected timing of the reversals of existing temporary differences, and ongoing prudent and feasible tax planning strategies. We base these estimates on projections of future income, including tax planning strategies, in certain jurisdictions. Changes in industry conditions and other economic conditions may impact our ability to project future income. Should we determine that we would not be able to realize all or part of our net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period we make that determination. As ofSeptember 30, 2021 , we haveU.S. federal net operating loss carryforwards ("NOLs") of$1,389.3 million , with a federal tax benefit of$291.7 million and future tax benefits related to state NOLs of$69.6 million . Our total valuation allowance for the tax benefit of deferred tax assets that may not be realized is$349.4 million atSeptember 30, 2021 . Of this amount,$253.0 million relates toU.S. net deferred tax assets and$96.4 million relates to foreign net deferred tax assets. We estimate that$149.1 million of valuation allowance related to domestic deferred tax assets cannot be released regardless of the amount of domestic operating income generated due to prior period ownership changes that limit the amount of NOLs and credits we can use. As ofSeptember 30, 2021 , we have provided no significant residualU.S. taxes on earnings not yet taxed in theU.S. As ofSeptember 30, 2021 , we project$1.8 million of additional tax from non-U.S. withholding and other taxes expected to be incurred on repatriation of foreign earnings. See Note 16 - Income Taxes of Notes to the Consolidated Financial Statements elsewhere included in this Annual Report. New Accounting Pronouncements See Note 2 - Significant Accounting Policies and Practices of Notes to the Consolidated Financial Statements elsewhere included in this Annual Report for information about recent accounting pronouncements not yet adopted.
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