Good ' n ' Fun®、DreamBone®、GOOD BOY®、SmartBones®、IIMS ®（僅限歐洲）、EUKANUBA®（僅限歐洲）、Nature ' s Miracle®、Furminator®、Dingo®、8 IN 1 ®（8合1）、Meowee！®和Wild Harvest™。
H & G的大部分產品在密蘇里州Vinita Park的一家工廠生產，主要由液體和氣霧劑組成，其餘部分產品由多家第三方製造商生產，包括顆粒、蠟燭、誘餌和陷阱、濕巾和Rejuvenate®清潔產品。採購的主要原材料為塑料瓶、鋼製氣霧罐、滑石粉、活性成分、散裝化學品。這些原材料的價格容易受到供需趨勢、能源成本、運輸成本、通貨膨脹、政府法規和關稅等因素的波動。我們持續監控和評估供應商網絡的質量、成本和製造能力。
Emeril Legasse®品牌受與許可持有人Martha Stewart Living Omnimedia，Inc.簽署的商標許可協定(“Emeril許可協定”)的約束，根據該協定，HPC部門可以在美國、其領地和財產、加拿大、墨西哥、澳大利亞和英國就某些指定產品類別的家用電器授權Emeril Legasse®品牌，包括小型廚房食品準備產品、室內外燒烤、燒烤配件和烹飪書籍。該協定將於2024年12月31日到期，並有權續簽至2025年12月31日，前提是滿足某些銷售指標。根據Emeril許可協定的條款，我們有義務向許可持有人支付淨銷售額的一定比例，每年最低支付特許權使用費170萬美元，在2025年續約期內增加到180萬美元。Farberware®品牌還受與許可證持有人Farberware許可公司有限責任公司的商標許可協定(“Farberware許可協定”)的約束，根據該協定，HPC部門在全球範圍內向Farberware®品牌授權某些指定的家用電器產品類別，包括咖啡機、榨汁機、烤麵包機和烤麵包機。Farberware許可協定將於2210年12月31日到期。本公司及高性能個人電腦分部的品牌產品集中程度並不超過Emeril Legasse®或Farberware®品牌合併或分部收入的10%。
We may also acquire partial or full ownership in businesses or may acquire rights to market and distribute particular products or lines of products. The acquisition of a business or the rights to market specific products or use specific product names may involve a financial commitment by us, either in the form of cash or equity consideration. In the case of a new license, such commitments are usually in the form of prepaid royalties and future minimum royalty payments. There is no guarantee that we will acquire businesses or product distribution rights that will contribute positively to our earnings. Anticipated synergies may not materialize, cost savings may be less than expected, sales of products may not meet expectations and acquired businesses may carry unexpected liabilities.
In addition, in connection with business acquisitions, we have assumed, and may assume in connection with future acquisitions, certain potential liabilities. To the extent such liabilities are not identified by us or to the extent the indemnifications obtained from third parties are insufficient to cover such liabilities, these liabilities could have a material adverse effect on our business.
We may not be able to retain key personnel or recruit additional qualified personnel, which could materially affect our business and require us to incur substantial additional costs to recruit replacement personnel.
We are highly dependent on the continuing efforts of our senior management team and other key personnel. Our business, financial condition and results of operations could be materially adversely affected if we lose any of these persons and are unable to attract and retain qualified replacements. Additionally, the agreements that we sign as a result of business acquisitions could affect our current and prospective employees due to uncertainty about their future roles. This uncertainty may adversely affect our ability to attract and retain key management, sales, marketing and technical personnel. Any failure to attract and retain key personnel could have a material adverse effect on our business. If any of our key personnel or those of our acquired businesses were to join a competitor or form a competing company, existing and potential customers or suppliers could choose to form business relationships with that competitor instead of us. There can be no assurance that confidentiality, non-solicitation, non-competition or similar agreements signed by former directors, officers, employees or stockholders of us, our acquired businesses or our transactional counterparties will be effective in preventing a loss of business. In addition, we currently do not maintain “key person” insurance covering any member of our management team.
Increased focus by governmental and non-governmental organizations, customers, consumers and investors on sustainability issues, including those related to climate change, may have an adverse effect on our business, financial condition and results of operations and damage our reputation.
As climate change, land use, water use, deforestation, plastic waste, recyclability or recoverability of packaging, including single-use and other plastic packaging, and other sustainability concerns become more prevalent, governmental and non-governmental organizations, customers, consumers and investors are increasingly focusing on these issues. In particular, changing consumer preferences have resulted in and may result in future customer and consumer concerns and demands regarding plastics and packaging materials, including single-use and non-recyclable plastic packaging, and their environmental impact on sustainability, a growing focus on the components, raw materials and production processes used to create our products and ingredients, or increased consumer concerns or perceptions (whether accurate or inaccurate) regarding the effects of ingredients or substances present in certain consumer products. This increased focus on environmental issues and sustainability has resulted in and may result in further adoption of a number of customer, consumer, investor and industry demands, that could cause us to incur additional costs or to make changes to our operations to comply with any such regulations and address demands. If we are unable to respond or are perceived to be inadequately responding to sustainability concerns, customers and consumers may choose to purchase products from a competitor and investors may not provide financing on attractive terms, or at all, to our Company. Concern over climate change may result in new or increased legal and regulatory requirements to reduce or mitigate the effects of climate change on the environment. Increased costs of energy or compliance with emissions standards due to increased legal or regulatory requirements may cause disruptions in or increased costs associated with manufacturing our products. Any failure to achieve our goals with respect to reducing our impact on the environment or a perception (whether or not valid) of our failure to act responsibly with respect to the environment or to effectively respond to new, or changes in, legal or regulatory requirements concerning climate change or other sustainability concerns could adversely affect our business and reputation.
Our business could be negatively impacted by corporate citizenship and sustainability matters and/or our reporting of such matters.
•require us to dedicate a large portion of our cash flow to pay principal and interest on our indebtedness, which will reduce the availability of our cash flow to fund working capital, capital expenditures, research and development expenditures and other business activities;
•increase our vulnerability to general adverse economic and industry conditions;
•limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
•restrict our ability to make strategic acquisitions, dispositions or to exploit business opportunities;
•place us at a competitive disadvantage compared to our competitors that have less debt; and
•limit our ability to borrow additional funds (even when necessary to maintain adequate liquidity) or dispose of assets.
Under our senior credit agreement governing our secured facilities and the indentures governing our senior notes (together, our “debt agreements”), we may incur additional indebtedness. If new debt is added to our existing debt levels, the related risks that we now face would increase.
Furthermore, our credit agreement and borrowings under the Revolver Facility are subject to variable interest rates. Increases in market interest rates may raise the interest rate on our variable rate debt and create higher debt service requirements, which would adversely affect our cash flow and could adversely impact our results of operations. While we may enter into agreements limiting our exposure to higher debt service requirements, any such agreements may not offer complete protection from this risk. Moreover, upon completion of a divestiture, we may be required to pay down debt using proceeds from the sale pursuant to the terms of the Company’s outstanding indebtedness.
Restrictive covenants in our debt agreements may restrict our ability to pursue our business strategies.
Our debt agreements each restrict, among other things, asset dispositions, mergers and acquisitions, dividends, stock repurchases and redemptions, other restricted payments, indebtedness and preferred stock, loans and investments, liens and affiliate transactions. Our debt agreements also contain customary events of default and covenants imposing operating and financial restrictions on our business. These covenants could, among other things, restrict our ability to incur additional indebtedness, liens or engage in sale and leaseback transactions, pay dividends or make distribution in respect of capital stock, make certain restricted payments, sell assets, engage in transactions with affiliates, except on an arms-length basis, or consolidate or merge with or sell substantially all of our assets. Further, these covenants could, among other things, limit our ability to fund future working capital and capital expenditures, engage in future acquisitions or development activities, or otherwise realize the value of our assets and opportunities fully. In addition, our debt agreements may require us to dedicate a portion of cash flow from operations to payments on debt and also contain borrowing restrictions based on, among other things, our fixed charge coverage ratio. Furthermore, the credit agreement governing our senior secured facilities contains a financial covenant relating to maximum net leverage. Such requirements and covenants could limit the flexibility of our restricted entities in planning for, or reacting to, changes in the industries in which they operate. Our ability to comply with these covenants is subject to certain events outside our control. If we are unable to comply with these covenants, the lenders under our senior secured facilities could terminate their commitments and the lenders under our senior secured facilities or the holders of our senior notes could accelerate repayment of our outstanding borrowings and, in either case, we may be unable to obtain adequate refinancing of outstanding borrowings on favorable terms or at all. If we are unable to repay outstanding borrowings when due, the lenders under the senior secured facilities will also have the right to proceed against the collateral granted to them to secure the indebtedness owed to them. If our obligations under the senior secured facilities are accelerated, we cannot assure you that our assets would be sufficient to repay in full such indebtedness.
Future financing activities may adversely affect our leverage and financial condition.
Subject to the limitations set forth in our debt agreements, we may incur additional indebtedness and issue dividend-bearing redeemable equity interests. We may incur substantial additional financial obligations to enable us to execute our business objectives. These obligations could result in:
•default and foreclosure on our assets if our operating revenues after an investment or acquisition are insufficient to repay our financial obligations;
•acceleration of our obligations to repay the financial obligations even if we make all required payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant;
•our immediate payments of all amounts owed, if any, if such financial obligations are payable on demand;
•our inability to obtain additional financing if such financial obligations contain covenants restricting our ability to obtain such financing while the financial obligations remain outstanding;
•our inability to pay dividends on our capital stock;
•using a substantial portion of our cash flow to pay principal and interest or dividends on our financial obligations, which will reduce the funds available for dividends on our Common Stock if declared, expenses, capital expenditures, acquisitions and other general corporate purposes;
•limitations on our flexibility in planning for and reacting to changes in our business and in the industries in which we operate;
•an event of default that triggers a cross default with respect to other financial obligations, including our indebtedness;
•increased vulnerability to adverse changes in general economic, industry, financial, competitive, legislative, regulatory and other conditions and adverse changes in government regulation; and
•limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, execution of our strategy and other purposes and other disadvantages compared to our competitors.
We are subject to significant international business risks that could hurt our business and cause our results of operations to fluctuate.
A significant portion of our net sales are to customers outside of the U.S. See Note 5 - Revenue Recognition and Note 21 – Segment Information in the Notes to the Consolidated Financial Statements for sales by geographic region. Our pursuit of international growth opportunities may require significant investments for an extended period before returns on these investments, if any, are realized. Our international operations are subject to risks including, among others:
•currency fluctuations, including, without limitation, fluctuations in the foreign exchange rate of the Euro, British Pound, Canadian Dollar, Australian Dollar, Japanese Yen, Chinese Renminbi, and the Mexican Peso, among others;
•changes in the economic conditions or consumer preferences or demand for our products in these markets;
•the risk that because our brand names may not be locally recognized, we must spend significant amounts of time and money to build brand recognition without certainty that we will be successful;
•labor unrest;
•political and economic instability, as a result of war, terrorist attacks, pandemics, natural disasters or otherwise;
•lack of developed infrastructure;
•longer payment cycles and greater difficulty in collecting accounts;
•restrictions on transfers of funds;
•import and export duties and quotas, as well as general transportation costs;
•changes in domestic and international customs and tariffs;
•compliance with laws and regulations concerning ethical business practices, such as U.S. Foreign Corrupt Practices Act;
•compliance with U.S. economic sanctions and laws and regulations (including those administered by the U.S. Department of the Treasury's Office of Foreign Assets Control (“OFAC”) and export controls;
•changes in foreign labor laws and regulations affecting our ability to hire and retain employees;
•inadequate protection of intellectual property in foreign countries;
•unexpected changes in regulatory environments;
•actions taken by governmental authorities to contain the spread of COVID-19 and mitigate its public health effects;
•difficulty in complying with foreign law; and
•adverse tax consequences.
The foregoing factors may have a material adverse effect on our ability to increase or maintain our supply of products, financial condition or results of operations.
As a result of our international operations, we face a number of risks related to exchange rates and foreign currencies.
Our international sales and certain of our expenses are transacted in foreign currencies. See Note 5 - Revenue Recognition and Note 21 – Segment Information , in the Notes to the Consolidated Financial Statements for sales by geographic region. We expect that the amount of our revenues and expenses transacted in foreign currencies will increase as our Latin American, European and Asian operations grow and as a result of acquisitions in these markets and, as a result, our exposure to risks associated with foreign currencies could increase accordingly. Significant changes in the value of the U.S. dollar in relation to foreign currencies will affect our sales through our pricing for certain segments or products sold in international jurisdictions, our purchasing activity and cost of goods sold, and our overall operating margins, which could result in exchange losses or otherwise have a material effect on our business, financial condition and results of operations. Changes in currency exchange rates may also affect our sales to, purchases from, and loans to, our subsidiaries, as well as sales to, purchases from, and bank lines of credit with, our customers, suppliers and creditors that are denominated in foreign currencies.
If we are unable to protect the confidentiality of our proprietary information and know-how, the value of our technology, products and services could be harmed significantly.
We rely on trade secrets, know-how and other proprietary information in operating our business. If this information is not adequately protected, then it may be disclosed or used in an unauthorized manner. To the extent that consultants, key employees or other third parties apply technological information independently developed by them or by others to our proposed products, disputes may arise as to the proprietary rights to such information, which may not be resolved in our favor. The risk that other parties may breach confidentiality agreements or that our trade secrets become known or independently discovered by competitors, could harm us by enabling our competitors, who may have greater experience and financial resources, to copy or use our trade secrets and other proprietary information in the advancement of their products, methods or technologies. The disclosure of our trade secrets would impair our competitive position, thereby weakening demand for our products or services and harming our ability to maintain or increase our customer base.
Claims by third parties that we are infringing their intellectual property and other litigation could adversely affect our business.
From time to time in the past we have been subject to claims that we are infringing the intellectual property of others. We currently are the subject of such claims and it is possible that third parties will assert infringement claims against us in the future. An adverse finding against us in these or similar trademark or other intellectual property litigation may have a material adverse effect on our business, financial condition and results of operations. Any such claims, with or without merit, could be time consuming and expensive, and may require us to incur substantial costs, including the diversion of the resources of management and technical personnel, cause product delays or require us to enter into licensing or other agreements in order to secure continued access to necessary or desirable intellectual property. If we are deemed to be infringing a third-party’s intellectual property and are unable to continue using that intellectual property as we had been, our business and results of operations could be harmed if we are unable to successfully develop non-infringing alternative intellectual property on a timely basis or license non-infringing alternatives or substitutes, if any exist, on commercially reasonable terms. In addition, an unfavorable ruling in intellectual property litigation could subject us to significant liability, as well as require us to cease developing, manufacturing or selling the affected products or using the affected processes or trademarks. Any significant restriction on our proprietary or licensed intellectual property that impedes our ability to develop and commercialize our products could have a material adverse effect on our business, financial condition and results of operations.
A cybersecurity breach or failure of one or more key information technology systems could have a material adverse impact on our business or reputation.
We rely extensively on information technology (IT) systems, networks and services, including internet sites, data hosting and processing facilities and tools and other hardware, software and technical applications and platforms, some of which are managed, hosted, provided and/or used by third-parties or their vendors, to assist in conducting our business.
In addition, our use of social media presents other possible vulnerabilities. For instance, our accounts and IT systems may be subject to boycotts, spam, spyware, ransomware, phishing and social engineering, viruses, worms, malware, distributed denial-of-service attacks, password attacks, man-in-the-middle attacks, cybersquatting, impersonation of employees or officers, abuse of comments and message boards, fake reviews, doxing and swatting. Our IT systems have been, and will likely continue to be, subject to computer viruses or other malicious codes, unauthorized access attempts, phishing and other cyber-attacks. Through our third party service providers, we continue to assess potential threats and seek to address and prevent these threats, including monitoring of networks and systems and upgrading skills, employee training and security policies for the Company and its third-party providers. However, because the techniques used in these attacks change frequently and may be difficult to detect for periods of time, we and our service providers may face difficulties in anticipating and implementing adequate preventative measures. To date, we have seen no material impact on our business or operations from these attacks; however, we cannot guarantee that our security efforts will prevent breaches or breakdowns to our or our third-party providers’ databases or systems. If the IT systems, networks or service providers we rely upon fail to function properly, or if we or one of our third-party providers suffer a loss, significant unavailability of or disclosure of our business or stakeholder information, and our business continuity plans do not effectively address these failures on a timely basis, we may be exposed to reputational, competitive and business harm as well as litigation and regulatory action. The costs and operational consequences of responding to breaches and implementing remediation measures could be significant.
Disruption or failures of our information technology systems could have a material adverse effect on our business.
The IT systems used by the Company are susceptible to security breaches, operational data loss, general disruptions in functionality, and may not be compatible with new technology. We depend on our IT systems for the effectiveness of our operations and to interface with our customers, as well as to maintain financial records and accuracy. Disruption or failures of our IT systems could impair our ability to effectively and timely provide our services and products and maintain our financial records, which could damage our reputation and have a material adverse effect on our business.
Our actual or perceived failure to adequately protect personal data could adversely affect our business, financial condition and results of operations.
A continually evolving variety of state, national, foreign, and international laws and regulations apply to the collection, use, retention, protection, disclosure, transfer, and other processing of personal data. These privacy and data protection-related laws and regulations are evolving, with new or modified laws and regulations proposed and implemented frequently and existing laws and regulations subject to new or different interpretations. Compliance with these laws and regulations can be costly and can delay or impede the development of new products.
Our actual or alleged failure to comply with applicable laws and regulations, or a government’s interpretation of its laws and regulations, or an actual or alleged failure to protect personal data, could result in enforcement actions and significant penalties against us, which could result in negative publicity, increase our operating costs, subject us to claims or other remedies and have a material adverse effect on our business, financial condition, and results of operations.
We are subject to data security and privacy risks that could negatively affect our results, operations or reputation.
In addition to our own sensitive and proprietary business information, we handle transactional and personal information about our customers, suppliers and vendors. Hackers and data thieves are increasingly sophisticated and operate social engineering, such as phishing, and large-scale, complex automated attacks that can evade detection for long periods of time. Any breach of our or our service providers’ network, or other vendor systems, may result in the loss of confidential business and financial data, misappropriation of our consumers,’ users’ or employees’ personal information or a disruption of our business. Any of these outcomes could have a material adverse effect on our business, including unwanted media attention, impairment of our consumer and customer relationships, damage to our reputation, resulting in lost sales and consumers, fines, lawsuits, or significant legal and remediation expenses. We also may need to expend significant resources to protect against, respond to and/or redress problems caused by any breach.
In addition, we must comply with increasingly complex and rigorous regulatory standards enacted to protect business and personal data in the U.S., Europe and elsewhere. For example, the EU adopted the General Data Protection Regulation (the “GDPR”), which became effective on May 25, 2018, and California passed the California Consumer Privacy Act (the “CCPA”), which became effective on January 1, 2020, and is being amended by the California Privacy Rights Act (“CPRA”), which became effective on January 1, 2023. These laws impose additional obligations on companies such as ours regarding the handling of personal data and provides certain individual privacy rights to persons whose data is stored. Compliance with existing, proposed and recently enacted laws (including implementation of the privacy and process enhancements called for under GDPR, CCPA, CPRA and regulations can be costly; any failure to comply with these regulatory standards could subject us to legal and reputational risks. Misuse of or failure to secure personal information could also result in violation of data privacy laws and regulations, proceedings against the Company by governmental entities or others, damage to our reputation and credibility and could have a negative impact on revenues and profits.
Risks Related to Litigation and Regulatory Compliance
Class action and derivative action lawsuits and other investigations, regardless of their merits, could have an adverse effect on our business, financial condition and results of operations.
We and certain of our officers and directors have been named in the past, and may be named in the future, as defendants of class action and derivative action lawsuits. In the past, we have also received requests for information from government authorities. Regardless of their subject matter or merits, class action lawsuits and other government investigations may result in significant cost to us, which may not be covered by insurance, may divert the attention of management or may otherwise have an adverse effect on our business, financial condition and results of operations.
We are subject to a number of claims and litigation and may be subject to future claims and litigation, any of which may adversely affect our business.
From time to time in the past we have been subject to a variety of claims and litigation and we may in the future be subject to additional claims and litigation (including class action lawsuits). For instance, following periods of volatility in the market price of our stock, we have become subject to the class action shareholder litigation. We are also subject to various other litigation and claims on a variety of matters. Based on the information currently available, we believe that our ultimate liability for the matters or proceedings presently pending against the Company will not have a material adverse effect on the Company’s business or financial condition. But, regardless of their merits, lawsuits (including class action lawsuits) may result in significant cost to the Company that may not be covered by insurance and may divert attention of management or may otherwise have an adverse effect on our business, financial condition, and results of operation. See Note 20 - Commitments and Contingencies in the Notes to the Consolidated Financial Statements for further discussion over material claims and litigation.
The Company has been, and may in the future be, subject to product liability claims and product recalls, which could negatively impact its profitability.
In the ordinary course of our business, the Company may be named as a defendant in lawsuits involving product liability claims. In any such product liability proceedings, plaintiffs may seek to recover large and sometimes unspecified amounts of damages, and the matters may remain unresolved for several years. Any such matters could have a material adverse effect on our business, results of operations and cash flows if we are unable to successfully defend against or settle these matters or if our insurance coverage is insufficient to satisfy any judgments against us or settlement related to these matters. The Company sells perishable treats for animal consumption, which involves risks such as product contamination or spoilage, product tampering, and other adulteration of food products. The Company may be subject to liability if the consumption of any of its products causes injury, illness, or death. In addition, the Company will voluntarily recall products in the event of contamination or damage. The Company has previously voluntarily recalled products, including a Black+Decker Garment Steamer, PowerXL Self-Cleaning Juicer, PowerXL Stuffed Wafflizer Waffle Maker, and PowerXL Dual Basket Air Fryer, which resulted in costs to the Company to provide for consumer refunds, replacement parts and product rework, and resulted in losses from retail customer returns and costs and inventory disposition due to the issuance of a stop sale and the return and disposition of the recalled products. Any future product recalls could have a material adverse effect on our business, results of operations and cash flows.
A significant product liability judgment or a widespread product recall involving our business may negatively impact the Company’s sales and profitability for a period of time depending on product availability, competitive reaction, and consumer attitudes. Even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding any assertion that Company products caused illness, injury or property damage could adversely affect the Company’s reputation with existing and potential customers and its corporate and brand image and trigger certain rights of owners of the brands the Company licenses. Although we have product liability insurance coverage and an excess umbrella policy, our insurance policies may not provide coverage for certain, or any, claims against us or may not be sufficient to cover all possible liabilities. We may not be able to maintain such insurance on acceptable terms, if at all, in the future. See Note 20 - Commitments and Contingencies in the Notes to the Consolidated Financial Statements for further discussion on product liability.
Agreements, transactions and litigation involving or resulting from the activities of our predecessor and its former subsidiaries may subject us to future claims or litigation that could materially adversely impact our capital resources.
The Company was formerly known as HRG, which is the successor to Zapata Corporation, which was a holding company engaged, through its subsidiaries, in a number of business activities and over the course of HRG’s existence, acquired and disposed of a number of businesses. The activities of such entities may subject us to future claims or litigation regardless of the merit of such claims or litigation and the defenses available to us. The time and expense that we may be required to dedicate to such matters may be material to us and our subsidiaries and may adversely impact our capital resources. In certain instances, we may have continuing obligations pursuant to certain of these transactions, including obligations to indemnify other parties to agreements, and may be subject to risks resulting from these transactions.
We may incur material capital and other costs due to changing environmental laws and regulations and other environmental liabilities.
We are subject to a broad range of federal, state, local, foreign and multi-national laws and regulations relating to the environment. These include laws and regulations that govern:
•discharges to the air, water and land; and
•the handling and disposal of solid and hazardous substances and wastes; and
•the remediation of contamination associated with release of hazardous substances at our facilities and at off-site disposal locations.
A significant portion of our long-term assets have historically consisted of goodwill, other indefinite-lived intangible assets and finite-lived intangible assets recorded as a result of past acquisitions as well as through fresh start reporting. We do not amortize goodwill and indefinite-lived intangible assets, but rather review them for impairment on a periodic basis or whenever events or changes in circumstances indicate that their carrying value may not be recoverable. We consider whether circumstances or conditions exist which suggest that the carrying value of our goodwill and other long-lived intangible assets might be impaired. If such circumstances or conditions exist, further steps are required in order to determine whether the carrying value of each of the individual assets exceeds its fair value. If analysis indicates that an individual asset’s carrying value does exceed its fair value, the next step is to record a loss equal to the excess of the individual asset’s carrying value over its fair value.
The analysis required by GAAP entails significant amounts of judgment and subjectivity. Events and changes in circumstances that may indicate that there may be an impairment include, but are not limited to: strategic decisions to exit a business or dispose of an asset made in response to changes in economic, political and competitive conditions; the impact of the economic environment on the customer base and on broad market conditions that drive valuation considerations by market participants; our internal expectations with regard to future revenue growth and the assumptions we make when performing impairment reviews; a significant decrease in the market price of our assets; a significant adverse change in the extent or manner in which our assets are used; a significant adverse change in legal factors or the business climate that could affect our assets; an accumulation of costs significantly in excess of the amount originally expected for the acquisition of an asset; and significant changes in the cash flows associated with an asset. As a result of such circumstances, we may be required to record a significant charge to earnings in our financial statements during the period in which any impairment of our goodwill, indefinite-lived intangible assets or other long-term assets is determined. Any such impairment charges could have a material adverse effect on our business, financial condition and operating results. See Note 10 – Goodwill and Intangible Assets in the Notes to the Consolidated Financial Statements for further detail.
The successful execution of our operational efficiency and multi-year restructuring initiatives are important to the long-term growth of our business.
We continue to engage in targeted restructuring initiatives to align our business operations in response to current and anticipated future market conditions and investment strategy. We will evaluate opportunities for additional initiatives to restructure or reorganize the business across our operating segments and functions with a focus on areas of strategic growth and optimizing operational efficiency. Significant risks associated with these actions may impair our ability to achieve the anticipated cost reduction or may disrupt our business including delays in shipping, implementation of workforce, redundant costs, and failure to meet operational targets. In addition, our ability to achieve the anticipated cost savings and other benefits from these actions within the expected timeframe is subject to many estimates and assumptions. These estimates and assumptions are subject to significant economic, competitive and other uncertainties, some of which are beyond our control. If these estimates and assumptions are incorrect, experience delays, or if other unforeseen events occur, our business and results of operation could be adversely affected. Refer to Note 4 - Exit and Disposal Activities in the Notes to the Consolidated Financial Statements for additional detail over restructuring related activity.
Our Restated Bylaws provide that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our restated bylaws provide that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation or our restated bylaws, any action to interpret, apply, enforce, or determine the validity of our amended and restated certificate of incorporation or bylaws, or any action asserting a claim against us that is governed by the internal affairs doctrine. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in our restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.
Certain provisions of our charter, bylaws, and of the Delaware General Corporation Law (the “DGCL”) have anti-takeover effects and could delay, discourage, defer or prevent a tender offer or takeover attempt that a stockholder might consider to be in the stockholder’s best interests.
Certain provisions of our charter and bylaws and the DGCL may have the effect of delaying or preventing changes in control if our board of directors determines that such changes in control are not in the best interests of the Company and its stockholders. Such provisions include, among other things, those that:
•authorize the board of directors to issue preferred shares and to determine the terms, including the number of shares, voting powers, redemption provisions, dividend rates, liquidation preferences and conversion rights, of those shares, without stockholder approval;
•permit the removal of directors by the stockholders only for cause and then only by the affirmative vote of a majority of the outstanding shares of our common stock;
•opt in to Section 203 of the DGCL, which generally prohibits a Delaware corporation from engaging in a “business combination” with any interested stockholder (generally speaking a stockholder who holds 15% or more of our voting stock) for three years from the date such stockholder becomes an interested stockholder unless certain conditions are met; and
•subject to certain exceptions, prohibit any person from acquiring shares of our common stock if such person is, or would become as a result of the acquisition, a “Substantial Holder” (as defined in our charter).
These provisions may frustrate or prevent attempts by stockholders to cause a change in control of the Company or to replace members of its board of directors.
The market price of the Company’s common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control.
Our stock price has been highly volatile. From October 1, 2023 through September 30, 2024, the closing sale price of our common stock has been as low as $64.35 per share and as high as $95.14 per share. Many factors, including some we may be unable to control, may influence the price of the common stock including, without limitation, the following:
•loss of any of our key customers or suppliers, including our B+D licensing agreement with SBD;
•additions or departures of key personnel;
•sales of common stock;
•our ability to execute our business plan;
•announcements and consummations of business acquisitions and divestitures;
•operating results that fall below expectations;
•amount and terms of borrowings with debtors and net leverage provisions;
•additional issuances of common stock;
•low volume of sales due to concentrated ownership of common stock;
•intellectual property disputes;
•industry developments;
•economic and other external factors; and
•period-to-period fluctuations in our financial results.
In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of the Company’s common stock. You should also be aware that price volatility might be worse if the trading volume of shares of the common stock is low.
We have developed and implemented an enterprise-wide cybersecurity program designed to provide a structured and thorough cybersecurity risk management system and governance structure to assess, identify, and manage material risks from cybersecurity threats. The Company considers the following factors, among others, to assess whether adequate protections are in place to address risks from known and anticipated cybersecurity threats: likelihood and severity of risk, impact on the Company and others, including retail customers, suppliers, consumers, and/or employees, if a risk materializes; feasibility and cost of controls; and impact of controls on our operations.
Our cybersecurity program is aligned with various frameworks for managing cybersecurity risks, such as the National Institute of Standards and Technology Cyber Security Framework for IT systems and International Electrotechnical Commission 62443 which governs cybersecurity for Industrial Control Systems. Our cybersecurity program prioritizes, among other things, prevention of unauthorized access; protection of sensitive information; detection, assessment, and response to cyber threats; and continuous improvements to our cybersecurity measures. We seek to achieve our cybersecurity program priorities through a multi-pronged and -tiered approach to address cyber threats and incidents that includes implementation of various industry best practices, proactive monitoring of our IT systems, ongoing employee training, and regular risk assessments. We also maintain cyber insurance coverage to help mitigate a portion of the potential costs in the event of covered events.
We believe that our existing facilities are suitable and adequate for our present purposes and that the productive capacity in such facilities is substantially being utilized or we have plans to utilize it.
ITEM 3. LEGAL PROCEEDINGS
We have disclosed all matters of legal proceedings believed to have an adverse effect on our results of operations, financial condition, liquidity or cash flows in the notes to our consolidated financial statements. See Note 20 - Commitments and Contingencies in the Notes to the Consolidated Financial Statements for additional detail.
ITEM 5. MARKET FOR THE REGISTRANTS’ COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
SBH’s common stock trades on the New York Stock Exchange (the “NYSE”) under the symbol “SPB.”
As of November 8, 2024 there were approximately 1,059 holders of record based upon data provided by the transfer agent for the SBH’s common stock. This number does not include the stockholders for whom shares are held in a “nominee” or “street” name.
Equity Plans
Equity based incentive and performance compensation awards provided to employees, directors, officers and consultants were issued pursuant to the following awards plans:
•Spectrum Brands Holdings, Inc. 2011 Omnibus Equity Awards Plan as approved and amended by the stockholders.
•Spectrum Brands Holdings, Inc. 2020 Omnibus Equity Plan, as approved and amended by stockholders.
The following is a summary of the authorized and available shares per the respective plans:
All brands and tradenames noted above are owned by the Company, with the exception of Black+Decker® (“B+D”), Emeril Legasse® and Farberware®, which are subject to trademark license agreements.
We have a trademark license agreement (the “B+D License Agreement”) with the license holder, Stanley Black+Decker (“SBD”), which terminated the previous agreement and having an effective date of January 1, 2024, pursuant to which the HPC segment license the B+D brand in North America, South America (excluding Brazil), Central America, and the Caribbean (excluding Cuba) for primarily four core categories of household appliances: beverage products, food preparation products, garment care products and cooking products. The B+D License Agreement has an initial four-year term ending December 31, 2027, with two subsequent four-year renewal rights each based upon meeting certain sales metrics, potentially extending the total contract term to December 31, 2035. The License Agreement may not renew if these targets are not satisfied. Under the terms of the License Agreement, the Company agreed to pay SBD royalties based on a percentage of sales, with a minimum annual royalty payment of $11.7 million for the first year in the initial term, with decreases in subsequent years of the initial term down to $10.2 million in the fourth year, and is subject to adjustment with each renewal period. The B+D License Agreement also requires us to comply with maximum annual returns rates for products and promotional spending commitments. See Note 5 – Revenue Recognition for further detail on revenue concentration from B+D branded products.
The Emeril Legasse® brand is subject to a trademark license agreement (the “Emeril License Agreement”) with the license holder, Martha Stewart Living Omnimedia, Inc., pursuant to which the HPC segment can license the Emeril Legasse® brand within the U.S., and its territories and possessions, Canada, Mexico, Australia, and the United Kingdom ("UK") for certain designated products categories of household appliances, including small kitchen food preparation products, indoor and outdoor grills, grill accessories and cookbooks. The agreement is set to expire effective December 31, 2024, with an option to renew through December 31, 2025, subject to meeting certain sales metrics. Under the terms of the agreement, we are obligated to pay the license holder a percentage of net sales, with minimum annual royalty payments of $1.7 million, increasing to $1.8 million in the 2025 renewal period. The Farberware® tradename brand is subject to a trademark license agreement (the “Farberware License Agreement”) with the license holder, Farberware License Company, LLC, pursuant to which the HPC segment licenses the Farberware® brand on a worldwide basis for certain designated product categories of household appliances, including coffeemakers, juicers, toasters and toaster ovens, among others. The Farberware License Agreement is set to expire December 31, 2210. The Company and its HPC segment do not have a material concentration of branded products exceeding 10% of consolidated or segment revenue from either the Emeril Legasse® or Farberware® brands.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
Principles of Consolidation and Fiscal Year End
The consolidated financial statements include the financial statements of the Company and its majority owned subsidiaries and have been prepared in accordance with Accounting Principles Generally Accepted in the United States (“GAAP”). All intercompany transactions have been eliminated.
The Company’s fiscal year ends September 30 and reports its results using fiscal quarters whereby each three-month quarterly reporting period is approximately thirteen weeks in length and ends on a Sunday. The exceptions are the first quarter, which begins on October 1, and the fourth quarter, which ends on September 30. For the year ended September 30, 2024, the fiscal quarters were comprised of the three months ended December 31, 2023, March 31, 2024, June 30,2024, and September 30, 2024.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid temporary instruments purchased with original maturities of three months or less from date of purchase to be cash equivalents.
Short-Term Investments
The Company determines the balance sheet classification of its investments at the time of purchase and evaluates the classification at each balance sheet date. Money market funds, certificates of deposit, and time deposits with original maturities of greater than three months but no more than twelve months from the date of purchase are carried at cost, which approximates fair value, and are recognized in the consolidated balance sheets as short-term investments.
Debt issuance costs are deferred and amortized to interest expense using the effective interest method over the lives of the related debt agreements. Debt issuance costs are included as a reduction to Long Term Debt, Net of Current Portion. Amortization of debt issuance costs is recognized as a component of Interest Expense in the Consolidated Statements of Income. See Note 11 - Debt for further detail.
Derivative Financial Instruments
Derivative financial instruments are used by the Company principally in the management of its foreign currency exposures. The Company does not hold or issue derivative financial instruments for trading or speculative purposes. Derivative assets and liabilities are reported at fair value in the Consolidated Statements of Financial Position. When hedge accounting is elected at inception, the Company formally designates the financial instrument as a hedge of a specific underlying exposure and documents both the risk management objectives and strategies for undertaking the hedge. Depending on the nature of derivatives designated as hedging instruments, changes in fair value are either offset against the change in fair value of the hedged assets or liability through earnings, or recognized in equity through other comprehensive income until the hedged item is recognized. Derivative instruments that hedge the exposure to variability in expected future cash flows and are designated as cash flow hedges, and the entire change in the fair value of the hedging instrument is recorded as a component of Accumulated Other Comprehensive (Loss) Income (“AOCI”) in Shareholders’ Equity. Those amounts are subsequently reclassified to earnings in the same line item in the Consolidated Statements of Income as impacted by the hedge item when the hedged item affects earnings. To receive hedge accounting treatment, cash flow hedges must be highly effective in offsetting changes to expected future cash flows on hedged transactions. For derivatives that do not qualify for hedge accounting treatment, the change in the fair value is recognized in earnings. Cash flows attributable to derivative financial instruments are reflected as operating activity. See Note 13 - Derivatives for further detail.
Treasury Stock
Treasury stock purchases are stated at average cost and presented as a separate reduction of equity. See Note 17 - Shareholders’ Equity for further detail.
Noncontrolling Interest
Noncontrolling interest recognized in the consolidated equity of the Company is the minority interest ownership in equity of a consolidated subsidiary that is not attributable, directly or indirectly, to the parent company; and recognized separate from Shareholders’ Equity in the Consolidated Statements of Financial Position. Income from a consolidated subsidiary with a minority interest ownership is allocated to the minority interest and considered attributable to the noncontrolling interest in the Consolidated Statements of Income.
Our customers mostly consist of retailers, wholesalers and distributors with the intention to sell and distribute to an end consumer. A portion of our business is also sold direct-to-consumer through direct response television, brand websites, and other online marketplaces. The Company recognizes revenue from the sale of products upon transfer of control to the customer. For the majority of our product sales, the transfer of control is recognized when we ship the product from our facilities to the customer unless we retain title and risk of loss upon shipment and we arrange and paid for freight such that we retain physical possession and control during delivery. The Company does not assess whether promised goods or services are performance obligations if they are not material in the context of the contract with the customer.
Licensing Revenue
The Company may also license its brands to third-party sellers and manufacturers for the development, production, sales & distribution of products that are not directly managed or offered by the Company. The Company maintains all right of ownership of the intellectual property and contracts with its customer for the use of the intellectual property in their operations. Revenue derived from the right-to-access licenses is recognized using the over time revenue recognition method, applying the ‘as-invoiced’ practical expedient method at the amount we are able to bill using a time-elapsed measure of progress, taking into consideration any minimum guarantee provisions under the contract, as it appropriately depicts its performance of providing access to the Company’s brands, trade names, logos, etc.
Other Revenue
Other revenue consists primarily of installation or maintenance services that are provided to certain customers in the GPC segment and extended warranty coverage for certain HPC products sold directly to consumers. The GPC services are often associated with the sale of product but are also provided separately and are considered a distinct performance obligation separate from product sales. The HPC extended warranty coverage is sold as a separate contract and is recognized as a separate performance obligation that is distinct from the product. The extended warranty is initially recognized as deferred revenue and amortized to Net Sales over the anticipated term of the performance of obligation. The HPC extended warranties terms are anywhere between 1 and 7 years, with the majority of the warranties realized within the first year of the term.
Variable Consideration and Cash Paid to Customers
The Company measures revenue as the amount of consideration for which it expects to be entitled in exchange for transferring goods or providing services. Certain retailers or end customers may receive cash or non-cash incentives such as rebates, volume or trade discounts, cooperative advertising, price protection, coupons, and other customer-related programs, including service level penalties, which are accounted for as variable consideration. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of revenue recognized will not occur when the uncertainty is resolved. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of the anticipated performance and all information (historical, current and forecasted) that is reasonably available. The estimated liability for sales discounts and other programs and allowances is calculated using the expected value method or most likely amount and recorded at the time of sale as a reduction of net sales and trade receivables. The Company does not adjust the promised amount of consideration for the effects of a significant financing component, as the period between the transfer of a promised good or service to a customer and the customer’s payment for the good or service is one year or less.
The Company generally expenses sales commissions and other contract and fulfillment costs when the amortization period is less than one year. The Company records these costs within Selling General & Administrative Expenses. The Company may enter into various arrangements, primarily with retail customers, which require the Company to make upfront cash payments or provide permanent fixtures and displays to support and secure distribution through such customers. The Company defers the cost provided they are supported by a volume-based arrangement with a period of 12 months or longer and amortizes the associated payment on a straight line basis based upon historical assumptions and terms of the customer arrangement. Deferred costs are recognized as a contract asset and reported as Prepaid Expenses and Other Current Assets or Deferred Charges and Other in the Consolidated Statements of Financial Position. The costs are incorporated into the pricing of product sold and the related amortization is treated as a reduction in Net Sales.
The Company excludes all sales taxes that are assessed by a governmental authority from the transaction price.
Product Returns
In the normal course of business, the Company may allow customers to return product per the provisions in a sale agreement. Estimated product returns are recorded as a reduction in reported revenues at the time of sale based upon historical product return experience, adjusted for known trends, to arrive at the amount of consideration expected to be received. For the anticipated value of the returns, the Company will recognize a return liability in Other Current Liabilities and a separate return asset included in the Prepaid Expenses and Other Current Assets, when applicable. See Note 5 - Revenue Recognition for further discussion on product returns. Product returns do not include provisions for standard warranties provided to end-consumers of the Company’s products, which are recognized as a component of the Cost of Goods Sold. Costs and reserves associated with standard warranties are not material to the consolidated financial statements.
The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed. The estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period is not material. See Note 5 – Revenue Recognition for further detail.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (continued)
Shipping and Handling Costs
Shipping and handling costs include costs incurred with third-party carriers to transport products to customers and salaries and overhead costs related to activities to prepare the Company’s products for shipment at the Company’s distribution facilities. The Company accounts for shipping and handling activities, which occur after control of the related goods transfers, as fulfillment activities instead of assessing such activities as performance obligations. Shipping and handling costs were $266.9 million, $272.6 million and $274.2 million during the years ended September 30, 2024, 2023 and 2022, respectively, and are included in Selling, General & Administrative Expenses.
Advertising Costs
Advertising costs include agency fees and other costs to create advertisements, as well as costs paid to third parties to print or broadcast the Company’s advertisements and are expensed as incurred. The Company incurred advertising costs of $91.7 million, $59.1 million and $64.1 million during the years ended September 30, 2024, 2023 and 2022, respectively, and are included in Selling, General & Administrative Expenses.
Research and Development Costs
Research and development costs include internal personnel and third-party costs incurred towards the development of new products and product innovation and are expensed as incurred. The Company incurred research and development costs of $28.1 million, $22.5 million, $26.7 million during the years ended September 30, 2024, 2023 and 2022, respectively, and are included in Selling, General & Administrative Expenses.
Environmental Expenditures
Environmental expenditures that relate to current operations or to conditions caused by past operations are expensed or capitalized as appropriate. The Company determines its liability for environmental matters on a site-by-site basis and records a liability at the time when it is probable that a liability has been incurred and such liability can be reasonably estimated. The estimated liability is not reduced for possible recoveries from insurance carriers. Environmental costs include initial site surveys, costs for remediation and restoration and ongoing monitoring costs, as well as fines, damages and other costs, when applicable and estimable. Adjustments to initial estimates are recorded, from time to time, to reflect changing circumstances and estimates based upon additional information developed in subsequent periods. See Note 20 - Commitments and Contingencies for further discussion.
Exit and Disposal Costs
The Company regularly enters into various initiatives that may include the recognition of exit or disposal costs. Exit or disposal costs include, but are not limited to, the costs of termination benefits, such as a one-time involuntary severance or retention bonuses, one-time contract termination costs (excluding leases), and other costs associated with non-termination type costs related to restructuring initiatives such as incremental costs for the sale or termination of a line of business, closure or consolidation of facilities, country or region, relocation of business activities and employees from one location to another, change in management structure, among others. Exit and disposal costs associated with manufacturing are recorded as Cost of Goods Sold and exit and disposal costs associated with sales, marketing, distribution or other administrative functions are recorded as Selling, General & Administrative Expenses.
Liabilities from exit and disposal costs are recorded for estimated costs of facility closures, significant organizational adjustments and measures undertaken by management to exit certain activities. Costs for such activities are estimated by management after evaluating detailed analyses of the costs to be incurred. Such liabilities could include amounts for items such as severance costs and related benefits, and other items directly related to the exit activities. Impairment of property and equipment and other assets as a result of a such initiatives is recognized as a reduction of the appropriate asset. See Note 4 - Exit and Disposal Activities for further detail.
Leases
The Company determines if an arrangement is a lease at inception, considering whether the contract conveys a right to control the use of the identified asset for a period of time in exchange for consideration. Leases are classified as operating or finance leases at the commencement date of the lease. Operating leases are included in Operating Lease Assets, Other Current Liabilities and Long-Term Operating Lease Liabilities on the Consolidated Statements of Financial Position. Finance leases are included in Property, Plant and Equipment, Current Portion of Long-Term Debt, and Long-Term Debt, Net of Current Portion on the Consolidated Statements of Financial Position.
Right of use (“ROU”) lease assets and liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. ROU lease liabilities are classified between current and long-term liabilities based on their payment terms. The ROU lease asset includes prepaid rent and reflects the unamortized balance of lease incentives. Our leases may include renewal options, and we include the renewal option in the lease term if we conclude that it is reasonably certain that we will exercise that option. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. The Company records its operating lease and amortization of finance lease ROU assets within Cost of Goods Sold or Selling, General & Administrative Expense in the Consolidated Statements of Income depending on the nature and use of the underlying asset. Lease expense for operating leases is generally recognized on a straight-line basis over the lease term. Finance lease ROU assets are depreciated over the term of the lease and recognized as depreciation from Property Plant and Equipment, with finance interest cost recognized as Interest Expense in the Consolidated Statements of Income. Variable lease payments that do not depend on an index or a rate, such as the Company’s proportionate share of actual costs for utilities, common area maintenance, insurance, and property taxes, are excluded from the measurement of the lease liability, unless subject to fixed minimum requirements, and are recognized as variable lease cost when the obligation for that payment is incurred.
As most of the Company’s leases do not provide the lease implicit rates, the Company uses its incremental borrowing rates as the discount rate, adjusted as applicable, based on the information available at the lease commencement dates to determine the present value of lease payments. The incremental borrowing rate represents an estimate of the interest rate the Company would incur to borrow, on a collateralized basis and in a similar economic environment, over the term of a lease. The Company may use the lease implicit rate, if readily determinable, as the discount rate to determine the present value of lease payments.
The Company has subleased certain portions of excess space at certain of its distribution centers and administrative offices. Sublease income is associated with both finance and operating leases, recognized on a straight-line basis over the sublease term, and included in other non-operating income.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (continued)
We review the impairment of our ROU lease assets consistent with the approach applied for our other long-lived assets. ROU lease assets are reviewed 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, early termination or exit of a lease agreement, a history of operating or cash flow losses including changes in anticipated sublease income, when applicable, 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 an undiscounted cash flow analysis to determine if impairment exists, including consideration for actual or potential sublease income. The asset value would be deemed impaired if the undiscounted cash flows generated did not exceed the carrying value of the respective asset group. If impairment is determined to exist, any related impairment loss is calculated based on fair value. See Note 12 – Leases for additional information.
Supplier Financing Programs
As part of ongoing efforts to maximize working capital, the Company works with its suppliers to optimize the terms and conditions, which may include the extension of payment terms. There is an agreement with a third-party administrator to provide an accounts payable tracking system and facilitate a supplier financing program, which allows participating suppliers the ability to monitor and voluntarily elect to sell the Company’s payment obligations to a designated third-party financial institution. Participating suppliers can sell one or more of the payment obligations at their sole discretion, and the Company’s rights and obligations to its suppliers are not impacted. The Company has no economic interest in a supplier’s decision to enter into these agreements. The Company’s rights and obligations to its suppliers, including amounts due and scheduled payment terms, are not impacted by suppliers’ decisions to sell amounts under these arrangements. See Note 14 - Supplier FinancingPrograms for further details.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit 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 effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in income tax expense in the period in which the change in judgment occurs. Accrued interest expense and penalties related to uncertain tax positions are recorded in Income Tax Expense. See Note 16 - Income Taxes for further detail.
Foreign Currency Translation
Local currencies are considered the functional currencies for most of the Company’s operations outside the United States. Assets and liabilities of the Company’s foreign subsidiaries are translated at the rate of exchange existing at year-end, with revenues, expenses and cash flows translated at the average of the monthly exchange rates. Adjustments resulting from translation of the financial statements are recorded as a component of equity in AOCI, including the effects of exchange rate changes on intercompany balances of a long-term investment nature.
Foreign currency transaction gains and losses for transactions denominated in a currency other than the functional currency are reported in Other Non-Operating Expense, Net in the Consolidated Statements of Income in the period they occur. Exchange losses on foreign currency transactions were $7.5 million, $5.1 million, and $14.5 million for the years ended September 30, 2024, 2023 and 2022, respectively.
Newly Adopted Accounting Standards
In September 2022, the FASB issued ASU 2022-04, Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations to enhance transparency about the use of supplier finance programs. Under the ASU, the buyer in a supplier finance program is required to disclose information about the key terms of the program, outstanding confirmed amounts as of the end of the period, a roll-forward of such amounts during each annual period, and a description of where in the financial statements outstanding amounts are presented. The amendments in ASU 2022-04 are effective for all entities for fiscal years beginning after December 15, 2022, including interim periods within those financial years, except for the disclosure of roll-forward information, which is effective for fiscal years beginning after December 15, 2023. We adopted the ASU during the year ended September 30, 2023, except for the disclosure of roll-forward information, which was adopted during the first quarter of fiscal 2024. See Note 14 - Supplier Financing Programs for further detail.
Recently Issued Accounting Standards
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which provides updates to qualitative and quantitative reportable segment disclosure requirements, including enhanced disclosures about significant segment expenses and increased interim disclosure requirements, among others. The amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted, and the amendments should be applied retrospectively. This ASU will be effective for our fiscal year ending September 30, 2025 for the first quarter of our fiscal year ending September 30, 2026. We are currently evaluating the impact this ASU may have on our consolidated financial statement disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which provides qualitative and quantitative updates to the rate reconciliation and income taxes paid disclosures, among others, in order to enhance the transparency of income tax disclosures, including consistent categories and greater disaggregation of information in the rate reconciliation and disaggregation by jurisdiction of income taxes paid. The amendments in ASU 2023-09 are effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments should be applied prospectively; however, retrospective application is also permitted. This ASU will be effective for our fiscal year ending September 30, 2026. We are currently evaluating the impact this ASU may have on our consolidated financial statement disclosures.
In December of 2021, the Organization for Economic Cooperation and Development (“OEC”) established a framework, referred to as Pillar 2, designed to ensure large multinational enterprises pay a minimum 15% level of tax on the income arising in jurisdictions in which they operate. The earliest effective date is for taxable years beginning after December 31, 2023, which for the Company would be the year ending September 30, 2025. Numerous non-U.S. countries have enacted the OECD model rules, and several other countries have drafted legislation to incorporate the framework into domestic laws. While the model rules for applying minimum tax may have been adopted, countries may enact Pillar 2 slightly differently than the model rules, and on different timelines, adopting certain components while delaying others, and may adjust domestic tax incentives in response to Pillar 2. Accordingly, we still are evaluating the
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (continued)
potential consequences of Pillar 2 on our consolidated financial statements and long-term financial position.
In March 2024, the U.S. Securities and Exchange Commission (“SEC”) adopted final rules under SEC Release Nos. 33-11275 and 34-99678, The Enhancement and Standardization of Climate-Related Disclosures for Investors, which requires registrants to disclose certain climate-related information in registration statements and annual reports. The final rules include requirements to disclose material climate-related risks, activities to mitigate or adapt to such risks, information about the board of directors' oversight of climate-related risks and management's role in managing material climate-related risks, and information on any climate-related targets or goals that are material to the registrant's business, results of operations, or financial condition. In addition, the rules would require certain climate-related disclosure as it relates to severe weather events and other natural conditions and carbon offsets and renewable energy credits. Certain large registrants are also required to disclose Scope 1 and Scope 2 greenhouse gas (“GHG”) emissions when material. While the SEC voluntarily stayed the rules due to pending judicial review, the rules in their current form would be effective for the Company beginning in our fiscal year ending September 30, 2026. The Company is currently assessing the impact that these rules may have on the consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses, which provides updates to qualitative and quantitative disclosure requirements over the disaggregation of relevant expense captions within the income statement to provide more transparency and useful information on expenses within the income statement including tabular presentation of prescribed expense categories such as the purchases of inventory, employee compensation, depreciation, intangible asset amortization, and inclusion of other specific expense, gains and losses required by existing GAAP with reconciliation of disaggregation to the face of the income statement. The amendments in ASU 2024-03 are effective for fiscal years beginning after December 15, 2026, with early adoption permitted. The amendment should be applied prospectively, however, retrospective application is also permitted. This ASU will be effective for our fiscal year ending September 30, 2028. We are currently evaluating the impact this ASU may have on our consolidated financial statement disclosures.
NOTE 3 – DIVESTITURES
The following table summarizes the components of Income from Discontinued Operations, Net of Tax in the accompanying Consolidated Statements of Income for the years ended September 30, 2024, 2023, and 2022:
(in millions)
2024
2023
2022
Income from discontinued operations before income taxes - HHI
$
14.9
$
136.9
$
253.3
Gain on sale of discontinued operations before income taxes – HHI
—
2,824.2
—
Gain (loss) from discontinued operations before income taxes - other
10.2
(2.4)
(3.8)
Interest on corporate debt allocated to discontinued operations
—
49.4
46.4
Income from discontinued operations before income taxes
25.1
2,909.3
203.1
Income tax (benefit) expense from discontinued operations
(0.4)
873.7
53.4
Income from discontinued operations, net of tax
25.5
2,035.6
149.7
Income from discontinued operations, net of tax attributable to noncontrolling interest
—
0.3
0.9
Income from discontinued operations, net of tax attributable to controlling interest
$
25.5
$
2,035.3
$
148.8
Interest on corporate debt allocated to discontinued operations includes interest on Term Loans that were required to be paid down using proceeds received on the disposal on sale of a business, plus allocated interest expense from corporate debt not directly attributable to or related to other operations based on the ratio of net assets of the disposal group held for sale to the consolidated net assets plus consolidated debt, excluding debt assumed in transaction, required to be repaid, or directly attributable to other operations of the Company. Corporate debt, including Term Loans, was not classified as held for sale as it is not directly attributable to the identified disposal groups.
Hardware and Home Improvement (“HHI”)
On September 8, 2021, the Company entered into a definitive Asset and Stock Purchase Agreement (the “ASPA”) with ASSA ABLOY AB (“ASSA”) to sell its HHI segment for cash proceeds of $4.3 billion, subject to customary purchase price adjustments. On June 20, 2023, the Company completed the divestiture resulting in the recognition of a gain on sale of $2.8 billion included as a component of income from discontinued operations before income taxes for the year ended September 30, 2023. In accordance with the ASPA, ASSA purchased the equity of certain subsidiaries of the Company and acquired certain assets and assumed certain liabilities of other subsidiaries used or held for the purpose of the HHI business. The Company and ASSA have made customary representations and warranties and have agreed to customary covenants relating to the acquisition. The Company and ASSA have agreed to indemnify each other for losses arising from certain breaches of the ASPA and for certain other matters. In particular, the Company has agreed to indemnify ASSA for certain liabilities relating to the assets retained by the Company, and ASSA has agreed to indemnify the Company for certain liabilities assumed by ASSA, in each case as described in the ASPA. As of September 30, 2024, the Company does not have significant or material outstanding indemnification payables related to the ASPA. As of September 30, 2023, the Company recognized $27.3 million, included within Accounts Payable, and $2.6 million, included within Other Long-Term Liabilities, on the Consolidated Statements of Financial Position primarily attributable to outstanding settlements with tax authorities, uncertain tax benefit obligations and the estimated purchase price settlement. During the year ended September 30, 2024, the Company paid $26.9 million to complete the purchase price settlement in accordance with the ASPA and closed significant indemnification settlements in relation to the ASPA.
During the year ended September 30, 2024, the Company recognized $14.9 million in income from discontinued operations before income taxes primarily related to a gain realized by a subsequently agreed reduction on accrued fees associated with the transaction that was previously recognized as a component of the gain on sale when the transaction closed in the prior year.
The following table summarizes the components of income from discontinued operations before income taxes associated with HHI operations for the year ended September 30, 2023, through the close date of the divestiture, and the year ended September 30, 2022.
(in millions)
2023
2022
Net sales
$
1,042.5
$
1,652.3
Cost of goods sold
701.6
1,096.3
Gross profit
340.9
556.0
Operating expenses
199.4
298.0
Operating income
141.5
258.0
Interest expense
2.4
3.4
Other non-operating expense, net
2.2
1.3
Income from discontinued operations before income taxes
$
136.9
$
253.3
Beginning in September 2021, the Company ceased the recognition of depreciation and amortization of long-lived assets associated with the HHI disposal group classified as held for sale. Interest expense consists of interest from debt directly attributable to HHI operations that primarily consist of interest from finance leases. No impairment loss was recognized on the asset held for sale as the purchase price of the business less estimated cost to sell is more than its carrying value. Income from discontinued operations associated with HHI operations includes only direct costs associated with the HHI disposal group and does not include indirect costs associated with allocations from enabling functions and shared operations such as information technology, human resources, finance and accounting, supply chain, and commercial finance, which supported the HHI operations during the fiscal periods of ownership through the date of the close of the divestiture, included as part of previous segment reporting, and are included within income from continuing operations when the HHI disposal group was recognized as discontinued operations for all reported fiscal periods. Such indirect costs for the year ended September 30, 2023, through the close date of the divestiture, and the year ended September 30, 2022, were $18.0 million and $27.6 million, respectively. For fiscal periods subsequent to the close of the divestiture, the indirect costs within income from continuing operations supporting the HHI disposal group are mitigated by income realized from TSAs, further discussed below.
The following table presents significant non-cash items and capital expenditures of discontinued operations from the HHI divestiture for the years ended September 30, 2023, through the close date of the divestiture, and the year ended September 30, 2022:
(in millions)
2023
2022
Share based compensation
$
1.5
$
5.3
Purchases of property, plant and equipment
$
11.9
$
23.9
The Company and ASSA entered into customary transition services agreements (“TSAs”) that became effective upon the consummation of the transaction that supports various shared back office administrative functions, including finance, sales and marketing, information technology, human resources, real estate and supply chain, customer service and procurement; supporting both the transferred HHI operations and the continuing operations of the Company. Charges associated with TSAs are recognized as bundled service costs under a fixed fee structure by the respective service or function and also include one-time pass-through charges including warehousing, freight, among others. TSA charges are settled periodically between the Company and ASSA on a net basis. Charges to ASSA are recognized as a reduction of the respective operating expense incurred and charges from ASSA are recognized as an operating expense depending upon the function supported by ASSA. The TSAs have overall expected time periods of 12 months following the close of the transaction with variability in expiration dependent upon the completed transition of the respective service or function, some of which have been extended an additional 12 months for a total duration of up to 24 months or earlier. During the year ended September 30, 2024 and 2023, the Company recognized net income associated with TSA charges of $31.8 million and $9.2 million, respectively, included within Selling, General & Administrative Expense on the Consolidated Statements of Income.
Additionally, the Company and ASSA will receive cash and make payments on behalf of the respective counterparty's operations as part of the shared administrative functions, resulting in cash flow being commingled with the operating cash flow of the Company. The Company recognizes a net payable or receivable with ASSA for any outstanding TSA charges, pass through costs and net working capital attributable to the commingled cash flow. As of September 30, 2024 and 2023, the Company has a net receivable of $10.7 million and $4.0 million, respectively, included in Other Receivables on the Consolidated Statements of Financial Position.
Other
Loss from discontinued operations before income taxes – other includes incremental pre-tax loss for changes to tax and legal indemnifications and other agreed-upon funding under the acquisition agreements for the sale and divestiture of the Global Batteries & Lighting (“GBL”) and Global Auto Care (“GAC”) divisions to Energizer Holdings, Inc. (“Energizer”) during the year ended September 30, 2019. The Company and Energizer agreed to indemnify each other for losses arising from certain breaches of the acquisition agreement and for certain other matters. The Company has agreed to indemnify for certain liabilities relating to the assets retained, and Energizer agreed to indemnify the Company for certain liabilities assumed, in each case as described in the acquisition agreements. Subsequently, effective January 2, 2020, Energizer closed its divestitures of the European based Varta® consumer battery business in the EMEA region to Varta AG and transferred all respective rights and indemnifications attributable to the Varta® consumer battery business provided by the GBL sale to Varta AG. As of September 30, 2024, the Company does not have significant or material outstanding indemnification payables. As of September 30, 2023, the Company recognized $25.3 million primarily attributable to income tax indemnifications associated with previously recognized uncertain tax benefits in accordance with the acquisition agreement, including $8.6 million within Other Current Liabilities and $16.7 million within Other Long-Term Liabilities on the Consolidated Statements of Financial Position. During the year ended September 30, 2024, the Company recognized $10.2 million in income from discontinued operations before income taxes primarily related to the settlement on outstanding tax audits that were previously recognized as uncertain tax benefit obligations at the time of sale and indemnified in accordance with the acquisition agreement.
During the years ended September 30, 2023 and 2022, the Company entered into initiatives in response to economic pressures within the consumer products and retail markets and changing operating strategies, resulting in the realization of headcount reductions. Additionally, during the year ended September 30, 2022, the Company initiated other restructuring initiatives within its international operations, including the exit of its in-country commercial operations in Russia, resulting in the recognition of severance and other termination costs. Total cumulative costs associated with the initiatives were $20.7 million. with substantially all costs associated having been recognized, with no further significant costs expected to be incurred.
The following summarizes exit and disposal charges for the years ended September 30, 2024, 2023 and 2022:
(in millions)
2024
2023
2022
Exit and disposal costs
$
1.0
$
9.3
$
10.4
Reported as:
Cost of goods sold
$
—
$
0.6
$
0.1
Selling, general & administrative expense
1.0
8.7
10.3
The following summarizes exit and disposal charges by segment for the years ended September 30, 2024, 2023 and 2022:
(in millions)
2024
2023
2022
GPC
$
0.1
$
3.5
$
3.6
H&G
—
0.2
0.7
HPC
0.6
5.2
5.4
Corporate and shared operations
0.3
0.4
0.7
Total exit and disposal costs
$
1.0
$
9.3
$
10.4
The following is a summary of exit and disposal charges by cost type for the years ended September 30, 2024, 2023, and 2022:
(in millions)
Termination
Benefits
Other Costs
Total
For the year ended September 30, 2024
$
0.6
$
0.4
$
1.0
For the year ended September 30, 2023
8.2
1.1
9.3
For the year ended September 30, 2022
10.2
0.2
10.4
The following is a rollforward of the accrual for exit and disposal charges by cost type for the years ended September 30, 2024, and 2023, included in Other Current Liabilities on the Consolidated Statements of Financial Position:
(in millions)
Termination
Benefits
Other Costs
Total
Accrual balance at September 30, 2022
$
3.7
$
0.3
$
4.0
Provisions
7.6
0.6
8.2
Cash expenditures
(8.1)
(0.3)
(8.4)
Non-cash items
0.2
(0.1)
0.1
Accrual balance at September 30, 2023
$
3.4
$
0.5
$
3.9
Provisions
0.6
—
0.6
Cash expenditures
(2.8)
(0.4)
(3.2)
Accrual balance at September 30, 2024
$
1.2
$
0.1
$
1.3
NOTE 5 - REVENUE RECOGNITION
The Company generates all of its revenue from contracts with customers. The following tables disaggregate our revenue for the years ended September 30, 2024, 2023, and 2022, by the Company’s key revenue streams, segments and geographic regions (based upon destination):
A significant portion of our product sales are subject to the continued use and access of the B&D brand through a license agreement with our HPC segment and primarily concentrated in the NA and LATAM regions. Net sales from B&D product sales consist of $353.2 million, $350.4 million, and $417.3 million for the years ended September 30, 2024, 2023 and 2022, respectively. All other brands and tradenames used in the Company’s commercial operations are either directly owned and not subject to further restrictions, or do not aggregate to a significant portion of net sales for the Company.
The Company has a broad range of customers including many large retail customers. During the year ended September 30, 2024, 2023 and 2022, there were two large retail customers, each exceeding 10% of consolidated Net Sales and representing 35.9%, 33.9%, and 32.9% of consolidated Net Sales, respectively. All segments sell products to the two large retail customers exceeding 10% of consolidated Net Sales.
In the normal course of business, the Company may allow customers to return product or take credit for product returns per the provisions in a sale agreement. Estimated product returns are recorded as a reduction in reported revenue at the time of sale based upon historical product return experience, adjusted for known trends, to arrive at the amount of consideration expected to receive. The following is a rollforward of the liability for product returns for the years ended September 30, 2024, 2023 and 2022:
(in millions)
Beginning Balance
Charged to Profit & Loss
Deductions
Other Adjustments
Ending Balance
September 30, 2024
$
12.8
$
28.6
$
(27.3)
$
0.3
$
14.4
September 30, 2023
15.5
8.7
(11.2)
(0.2)
12.8
September 30, 2022
11.8
12.4
(19.8)
11.1
15.5
The recent increase in product returns are attributable to additional returns for product recalls with the U.S. Consumer Product Safety Commission (“CPSC”), further discussed in Note 20 - Commitments and Contingencies. Other adjustments include foreign currency translation and the liability for product returns assumed as part of the acquisition of the Tristar Business during the year ended September 30, 2022.
NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value measurements of financial assets and liabilities are defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. Fair value measurements are classified using a fair value hierarchy that is based on the observability of inputs used in measuring fair value. Observable inputs (highest level) reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally developed assumptions about hypothetical transactions in the absence of market data. The Company utilizes valuation techniques that attempt to maximize the use of observable inputs and minimize the use of unobservable inputs. Fair value measurements are classified under the following hierarchy:
•Level 1 - Unadjusted quoted prices for identical instruments in active markets.
•Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
•Level 3 - Significant inputs to the valuation model are unobservable.
NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
The carrying values and estimated fair values for financial instruments as of September 30, 2024 and 2023 are as follows:
2024
2023
(in millions)
Level 1
Level 2
Level 3
Fair Value
Carrying
Amount
Level 1
Level 2
Level 3
Fair Value
Carrying
Amount
Derivative assets
$
—
$
1.8
$
—
$
1.8
$
1.8
$
—
$
3.3
$
—
$
3.3
$
3.3
Derivative liabilities
—
15.3
—
15.3
15.3
—
9.0
—
9.0
9.0
Debt
—
576.3
—
576.3
560.8
—
1,418.6
—
1,418.6
1,555.5
The Company’s derivative instruments are valued on a recurring basis using internal models, which are based on market observable inputs, including both forward and spot prices for currencies and commodities, which are generally based on quoted or observed market prices (Level 2). The fair value of certain derivative financial instruments is estimated using pricing models based on contracts with similar terms and risks. Modeling techniques assume market correlation and volatility, such as using prices of one delivery point to calculate the price of the contract’s different delivery point. In addition, by applying a credit reserve which is calculated based on credit default swaps or published default probabilities for the actual and potential asset value, the fair value of the Company’s derivative financial instrument assets reflects the risk that the counterparties to these contracts may default on the obligations. Likewise, by assessing the requirements of a reserve for non-performance, which is calculated based on the probability of default by the Company, the Company adjusts its derivative contract liabilities to reflect the price at which a potential market participant would be willing to assume the Company’s liabilities. The Company has not changed the valuation techniques used in measuring the fair value of any financial assets and liabilities during the year. See Note 13 – Derivatives for further detail.
The fair value measurements of the Company’s debt represent non-active market exchange-traded securities which are valued at quoted input prices that are directly observable or indirectly observable through corroboration with observable market data (Level 2). See Note 11 – Debt for further detail.
The carrying values of goodwill, intangible assets and other long-lived assets such as property, plant and equipment and operating lease assets, are tested annually or more frequently if a triggering event occurs that indicates an impairment loss may have been incurred, using fair value measurements with unobservable inputs (Level 3). See Note 10 - Goodwill and Intangible Assets, Note 9 - Property Plant and Equipment, and Note 12 - Leases for further detail.
The carrying values of cash and cash equivalents, short term investments, receivables, accounts payable and other short-term debt and accruals approximate fair value based on the short-term nature of these assets and liabilities.
NOTE 7 - RECEIVABLES
The allowance for doubtful accounts as of September 30, 2024 and 2023 was $8.1 million and $7.7 million, respectively. The following is a rollforward of the allowance for doubtful accounts for the years ended September 30, 2024, 2023 and 2022:
(in millions)
Beginning
Balance
Charged to
Profit & Loss
Deductions
Other
Adjustments
Ending
Balance
September 30, 2024
$
7.7
$
2.6
$
(2.2)
$
—
$
8.1
September 30, 2023
7.3
5.0
(1.4)
(3.2)
7.7
September 30, 2022
6.7
4.2
(4.9)
1.3
7.3
Other adjustments include foreign currency translation and the allowance for doubtful accounts assumed as part of the acquisition of the Tristar Business during the year ended September 30, 2022.
The Company has a broad range of customers including many large retail customers, some of which exceed 10% of consolidated Net Trade Receivables. As of September 30, 2024 and 2023 there were two customers that exceeded 10% of consolidated Trade Receivables, Net, representing 42.6% and 39.8%, respectively.
We had entered into various factoring agreements and early pay programs with our customers to sell trade receivables under non-recourse agreements in exchange for cash proceeds and as part of our financing for working capital. These transactions were treated as a sale and accounted for as a reduction in trade receivables because the agreements transferred control and risk related to the receivables to the buyers. A loss was recognized for any discount and fees associated with the transfer and recognized as Selling, General and Administrative Expense on the Consolidated Statements of Income, with cash proceeds recognized as cash flow from operating activities. In some instances, we continued to service the transferred receivable after the factoring has occurred, but in most cases, we do not service any factored accounts. Any servicing of the trade receivable did not constitute significant continuing involvement or preclude the recognition of a sale and we do not carry any material servicing assets or liabilities on the Consolidated Statements of Financial Position. The cost of factoring such trade receivables was $1.9 million, $15.1 million, and $10.2 million for the years ended September 30, 2024, 2023, and 2022, respectively. During the year ended September 30, 2024, the Company had suspended its receivable factoring activity and participation in early pay programs.
69
SPECTRUM BRANDS HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INVENTORY
Inventories as of September 30, 2024 and 2023 consist of the following:
(in millions)
2024
2023
Raw materials
$
46.8
$
55.8
Work-in-process
5.6
6.2
Finished goods
409.7
400.8
Inventories
$
462.1
$
462.8
During the year ended September 30, 2023, the Company recognized an incremental inventory loss of $20.6 million in its HPC segment for the disposal of select product SKUs and models associated with the acquired brands from the Tristar Business acquisition after assessing, among other things, performance and quality standards and the business risks associated with the continued support and distribution of such products. HPC management has suspended any further sale of the selected products as part of a shift in its strategy of distribution and development of products within its brand portfolio and avoid deterioration and further reduction in the value of acquired brands and supported products.
NOTE 9 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of September 30, 2024 and 2023 consist of the following:
(in millions)
2024
2023
Land, buildings and improvements
$
88.2
$
83.4
Machinery, tooling and equipment
337.4
330.1
Computer software
142.6
136.2
Finance leases
141.4
136.9
Construction in progress
25.1
18.1
Property, plant and equipment
$
734.7
$
704.7
Accumulated depreciation
(468.1)
(429.6)
Property, plant and equipment, net
$
266.6
$
275.1
Depreciation expense from property, plant and equipment for the years ended September 30, 2024, 2023 and 2022 was $57.3 million, $48.9 million, and $49.0 million, respectively.
During the year ended September 30, 2023, the Company completed the sale of two facilities in its EMEA region, primarily consisting of office space supporting the GPC segment, with total proceeds of $5.2 million and resulting in a gain on sale of $2.7 million, included as Selling, General and Administrative Expense on the Consolidated Statements of Income.
During the year ended September 30, 2023, the Company recognized a $3.9 million impairment charge on idle equipment associated with the early exit of a GPC warehouse lease, included as Selling, General and Administrative Expense on the Consolidated Statements of Income.
Additionally, the Company has deferred implementation costs for hosted cloud computing arrangements as of September 30, 2024 and 2023 as follows:
(in millions)
2024
2023
Deferred cloud computing costs, net
$
8.3
$
7.0
Reported as:
Prepaid expenses and other current assets
4.3
7.0
Deferred charges and other
4.0
—
Amortization of deferred hosted cloud computing costs arrangements implementation costs for the years ended September 30, 2024, 2023 and 2022 was $2.6 million, $1.1 million and $0.6 million, respectively.
NOTE 10 - GOODWILL AND INTANGIBLE ASSETS
Goodwill, by segment, consists of the following:
(in millions)
GPC
H&G
HPC
Total
As of September 30, 2022
$
502.4
$
342.6
$
108.1
$
953.1
Impairment
—
—
(111.1)
(111.1)
Tristar Business acquisition
—
—
3.0
3.0
Foreign currency impact
9.7
—
—
9.7
As of September 30, 2023
$
512.1
$
342.6
$
—
$
854.7
Foreign currency impact
10.2
—
—
10.2
As of September 30, 2024
$
522.3
$
342.6
$
—
$
864.9
During the year ended September 30, 2023, the Company recognized an impairment of goodwill of $111.1 million with its HPC reporting unit and segment identified by a triggering event attributable to a declining trend in operating performance results, challenging retail environment with increased competition, lower distribution, and excess retail inventory levels impacting pricing and promotional spending, resulting in a reduction in actual and projected sales and margin realization within its current and forecasted cash flows and a full impairment of the identified goodwill for the HPC reporting unit and segment.
NOTE 10 - GOODWILL AND INTANGIBLE ASSETS (continued)
The carrying value of indefinite lived intangible and definite lived intangible assets subject to amortization and accumulated amortization are as follows:
2024
2023
(in millions)
Gross Carrying Amount
Accumulated Amortization
Net
Gross Carrying Amount
Accumulated Amortization
Net
Amortizable intangible assets
Customer relationships
$
641.8
$
(452.3)
$
189.5
$
635.0
$
(412.9)
$
222.1
Technology assets
75.3
(41.0)
34.3
75.3
(35.9)
39.4
Tradenames
27.9
(10.9)
17.0
27.6
(7.4)
20.2
Total amortizable intangible assets
745.0
(504.2)
240.8
737.9
(456.2)
281.7
Indefinite-lived intangible assets - tradenames
749.6
—
749.6
778.4
—
778.4
Total intangible assets
$
1,494.6
$
(504.2)
$
990.4
$
1,516.3
$
(456.2)
$
1,060.1
During the year ended September 30, 2024, the Company recognized an impairment of indefinite lived intangible assets of $45.2 million, consisting of an impairment with our H&G segment of $39.0 million with the Rejuvenate® tradename identified by a triggering event due to the loss of a key distribution expansion opportunity resulting in a significant shift in the forecasted revenue, an impairment with our HPC segment of $4.0 million with a non-core tradename identified by a triggering event due to a change in brand strategy, and an impairment with our GPC segment of $2.2 million with the OmegaSea® tradename identified as part of our annual impairment assessment.
During the year ended September 30, 2023, the Company recognized an impairment on indefinite lived intangible assets of $120.7 million, including an impairment with our H&G segment of $56.0 million with the Rejuvenate® tradename identified by a triggering event due to a shift in consumer purchasing activity and retail inventory management efforts with certain retail customers that make up a significant concentration of revenue for the brand and further reducing near-term forecasted sales, with a strategic shift in the projected timing and realization of long-term projected revenues. Additionally, the Company recognized impairment charges with our HPC segment including the impairment of the PowerXL® tradename of $45.0 million identified by a triggering event due to the decrease in distribution with retail customers, significant pricing adjustments and promotional spending activity resulting in a substantial shift in actual and projected revenues for the brand; and the impairment of the George Foreman® tradename of $19.7 million identified by a triggering event due to shifts in market demand for related product categories and shift in the Company’s brand portfolio strategy and projected utilization of the tradename going forward. As a result of the change in the Company’s strategy and utilization of the George Foreman® tradename, the Company converted the George Foreman® tradename from an indefinite-lived tradename to a definite-lived tradename during the year ended September 30, 2023.
Amortization expense from intangible assets for the years ended September 30, 2024, 2023 and 2022 was $44.5 million, $42.3 million and $50.3 million, respectively. Excluding the impact of any future acquisitions or changes in foreign currency, the Company anticipates the annual amortization expense of intangible assets for the next five fiscal years will be as follows:
(in millions)
Amortization
2025
$
42.2
2026
40.0
2027
40.0
2028
39.9
2029
36.9
NOTE 11 - DEBT
Debt as of September 30, 2024 and 2023 consist of the following:
In addition, the 2029 Indenture proves for customary events of default, including failure to make required payments, failure to comply with certain agreements or covenants, failure to make payments when due or on acceleration of certain other indebtedness, and certain events of bankruptcy and insolvency. Events of default under the 2029 Indenture arising from certain events of bankruptcy or insolvency will automatically cause the acceleration of the amounts due under the 2029 Notes. If any other event of default under the 2029 Indenture occurs and is continuing, the trustee for the 2029 Indenture or the registered holders of at least 25% in the then aggregate outstanding principal amount of the 2029 Notes, may declare the acceleration of the amounts due under those notes. As of September 30, 2024, we were in compliance with all covenants under the indentures governing the 2029 Notes.
The Company recorded $4.1 million of fees in connection with the offering of the 2029 Notes, which have been capitalized as debt issuance costs and are being amortized over the remaining life of the 2029 Notes. During the year ended September 30, 2024, concurrent with the issuance of the Exchangeable Notes, the Company initiated a cash tender offer and partially redeemed the outstanding principal amount of the 2029 Notes, resulting in a partial write-off of unamortized debt issuance costs and loss on early extinguishment, as further discussed below, further discussed below. As of September 30, 2024, there was unamortized debt issuance costs of $0.1 million associated with the 2029 Notes.
5.50% Notes due July 15, 2030 (“2030 Notes”)
On June 30, 2020, SBI issued $300 million aggregate principal amount of 5.50% Senior Notes due July 13, 2030. The 2030 Notes are guaranteed by SBI's existing and future domestic subsidiaries.
On or after July 15, 2025, SBI may redeem some or all of the 2030 Notes at certain fixed redemption prices. In addition, prior to July 15, 2025, SBI may redeem the applicable outstanding notes at a redemption price equal to 100% of the principal amount plus a “make-whole” premium, plus accrued and unpaid interest. SBI may redeem up to 35% of the aggregate principal amount of the notes before July 15, 2023 with cash equal to the net proceeds that SBI raises in equity offerings at specified redemption price. Further, the indenture governing the 2030 Notes (the “2030 Indenture”) requires SBI to make an offer, in cash, to repurchase all or a portion of applicable outstanding notes for a specified redemption price, including a redemption premium, upon the occurrence of a change of control of SBI, as defined in the 2030 Indenture.
The 2030 Indenture contains covenants limiting, among other things, the incurrence of additional indebtedness, payments of dividends on or redemption or repurchase of equity interests, the making of certain investments, expansion into unrelated businesses, creation of liens on assets, merger or consolidation with another company, transfer or sale of all or substantially all assets, and transactions with affiliates.
In addition, the 2030 Indenture provides for customary events of default, including failure to make required payments, failure to comply with certain agreements or covenants, failure to make payments when due or an acceleration of certain other indebtedness, and certain events of bankruptcy and insolvency. Events of default under the 2030 Indenture arising from certain events of bankruptcy or insolvency will automatically cause the acceleration of the amounts due under the 2030 Notes. If any other event of default under the 2030 Indenture occurs and is continuing, the trustee for the 2030 Indenture or the registered holders of at least 25% in the then aggregate outstanding principal amount of the 2030 Notes, may declare the acceleration of the amounts due under those notes. As of September 30, 2024, we were in compliance with all covenants under the indentures governing the 2030 Notes.
The Company recorded $6.2 million of fees in connection with the offering of the 2030 Notes, which have been capitalized as debt issuance costs and amortized over the remaining life of the 2030 Notes. During the year ended September 30, 2024, concurrent with the issuance of the Exchangeable Notes, the Company initiated a cash tender offer and partially redeemed the outstanding principal amount of the 2030 Notes, resulting in a partial write-off of unamortized debt issuance costs and loss on early extinguishment, as further discussed below. As of September 30, 2024, there was unamortized debt issuance costs of $0.2 million associated with the 2030 Notes.
3.875% Notes due March 15, 2031 (“2031 Notes”)
On March 3, 2021, SBI issued $500 million aggregate principal amount of 3.875% Senior Notes due March 15, 2031. The 2031 Notes are guaranteed by SBI's existing and future domestic subsidiaries.
On or after March 15, 2026, SBI may redeem some or all of the 2031 Notes at certain fixed redemption prices. In addition, prior to March 15, 2026, SBI may redeem the applicable outstanding notes at a redemption price equal to 100% of the principal amount plus a “make-whole” premium, plus accrued and unpaid interest. SBI may redeem up to 35% of the aggregate principal amount of the notes before March 15, 2024 with cash equal to the net proceeds that SBI raises in equity offerings at specified redemption price. Further, the indenture governing the 2031 Notes (the “2031 Indenture”) requires SBI to make an offer, in cash, to repurchase all or a portion of applicable outstanding notes for a specified redemption price, including a redemption premium, upon the occurrence of a change of control of SBI, as defined in the 2031 Indenture.
The 2031 Indenture contains covenants limiting, among other things, the incurrence of additional indebtedness, pay dividends on or redemption or repurchase of equity interests, the making of certain investments, expansion into unrelated businesses, creation of liens on assets, merger or consolidation with another company, transfer or sale of all or substantially all assets, and transactions with affiliates.
The following table summarizes the gain or loss associated with derivative contracts not designated as hedges in the Consolidated Statements of Income for the years ended September 30, 2024, 2023 and 2022.
The fair value of the Company’s outstanding derivative instruments in the Consolidated Statements of Financial Position are as follows:
(in millions)
Line Item
2024
2023
Derivative Assets
Foreign exchange contracts - designated as hedge
Other receivables
$
1.4
$
1.4
Foreign exchange contracts - designated as hedge
Deferred charges and other
0.1
0.1
Foreign exchange contracts - not designated as hedge
Other receivables
0.3
1.8
Total Derivative Assets
$
1.8
$
3.3
Derivative Liabilities
Foreign exchange contracts - designated as hedge
Accounts payable
$
11.5
$
8.1
Foreign exchange contracts - designated as hedge
Other long-term liabilities
1.4
—
Foreign exchange contracts - not designated as hedge
Accounts payable
2.4
0.9
Total Derivative Liabilities
$
15.3
$
9.0
The Company is exposed to the risk of default by the counterparties with which it transacts and generally does not require collateral or other security to support financial instruments subject to credit risk. The Company monitors counterparty credit risk on an individual basis by periodically assessing each counterparty’s credit rating exposure. The maximum loss due to credit risk equals the fair value of the gross asset derivatives that are concentrated with certain domestic and foreign financial institution counterparties. The Company considers these exposures when measuring its credit reserve on its derivative assets, which were not significant for the years ended September 30, 2024 and 2023.
The Company’s standard contracts do not contain credit risk related contingent features whereby the Company would be required to post additional cash collateral because a credit event. However, the Company is typically required to post collateral in the normal course of business to offset its liability positions. As of September 30, 2024, and 2023, there was no cash collateral outstanding and had no posted standby letters of credit related to such liability positions.
Net Investment Hedge
SBI had €425.0 million aggregate principal amount of the 2026 Notes designated as a non-derivative economic hedge, or net investment hedge, of the translation of the Company’s net investments in Euro denominated subsidiaries at the time of issuance. The hedge effectiveness is measured on the beginning balance of the net investment and re-designated every three months. Any gains and losses attributable to the translation of the Euro denominated debt designated as net investment hedge are recognized as a component of foreign currency translation within AOCI, and gains and losses attributable to the translation of the undesignated portion are recognized as foreign currency translation gains or losses within Other Non-Operating Expense, Net.
Net unrealized gains or losses from the net investment hedge are reclassified from AOCI into earnings upon liquidation event or deconsolidation of Euro denominated subsidiaries. Effective June 20, 2024, the net investment hedge is no longer outstanding due to the full redemption of the 2026 Notes. See Note 11 - Debt for additional detail. The cumulative unrealized gain of $11.9 million related to the net investment hedge will remain in AOCI until a liquidation event or deconsolidation of the underlying Euro denominated subsidiaries. The following summarizes the pre-tax (loss) gain from the net investment hedge recognized in Other Comprehensive Income for the year ended September 30, 2024, through redemption of the 2026 Notes, and the years ended September 30, 2023 and 2022:
The components of income tax expense (benefit) for the years ended September 30, 2024, 2023 and 2022 are as follows:
(in millions)
2024
2023
2022
Current tax expense:
U.S. Federal
$
27.4
$
81.8
$
7.7
Foreign
31.9
44.9
24.7
State and local
1.3
(0.4)
(1.1)
Total current tax expense
60.6
126.3
31.3
Deferred tax expense (benefit):
U.S. Federal
6.2
(197.7)
(26.5)
Foreign
1.2
5.0
(1.2)
State and local
(3.7)
9.9
(16.9)
Total deferred tax expense (benefit)
3.7
(182.8)
(44.6)
Income tax expense (benefit)
$
64.3
$
(56.5)
$
(13.3)
The following reconciles the total income tax expense (benefit), based on the U.S. Federal statutory income tax rate of 21% with the Company’s recognized income tax expense (benefit):
(in millions)
2024
2023
2022
U.S. Statutory federal income tax expense (benefit)
The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities as of September 30, 2024 and 2023 are as follows:
(in millions)
2024
2023
Deferred tax assets
Employee benefits
$
27.4
$
22.9
Inventories and receivables
28.0
31.9
Marketing and promotional accruals
5.1
5.3
Property, plant and equipment
2.3
2.8
Unrealized losses
22.2
30.5
Intangibles
9.6
9.3
Operating lease liabilities
27.7
27.6
Net operating loss and other carry forwards
322.2
331.6
Other
21.1
17.0
Total deferred tax assets
465.6
478.9
Deferred tax liabilities
Property, plant and equipment
4.4
7.9
Unrealized gains
6.8
11.1
Intangibles
171.8
167.2
Operating lease assets
23.4
24.6
Investment in partnership
78.3
80.3
Taxes on unremitted foreign earnings
1.7
1.2
Other
13.7
13.0
Total deferred tax liabilities
300.1
305.3
Net deferred tax liabilities
165.5
173.6
Valuation allowance
(321.4)
(333.4)
Net deferred tax liabilities, net valuation allowance
$
(155.9)
$
(159.8)
Reported as:
Deferred charges and other
$
14.9
$
15.0
Deferred income taxes (noncurrent liability)
170.8
174.8
During Fiscal 2022, the Company became aware of ongoing legal challenges to the validity of the IRC Section 245A temporary regulations (“June 2019 Regulations”) adopted by the Treasury Department in June of 2019. During the year ended September 30, 2022, the Company filed a protective amended U.S. income tax return consistent with the June 2019 Regulations being invalid. The Company has determined that this position is not more likely than not to be upheld and therefore did not record a tax benefit for this amended return for the year ended September 30, 2022. Should the June 2019 Regulations ultimately be found invalid, the Company estimates that, as of September 30, 2024, it would recognize a tax benefit of approximately $59.0 million.
On November 20, 2020, the U.S. Treasury and the Internal Revenue Service issued Final Regulations (“November 2020 Regulations”) under Internal Revenue Code Sections 245A and 951A related to the treatment of previously disqualified basis under the GILTI regime. The November 2020 Regulations are effective for Fiscal 2022, but the Company can elect to apply them to Fiscal 2018 through Fiscal 2021. The Company has satisfied the requirements necessary to apply the Regulations retroactively. The Company completed and filed the amended return implementing these November 2020 Regulations during Fiscal 2022 and recorded an additional $3.2 million tax benefit in the year ended September 30, 2022 for years prior to Fiscal 2020.
The Tax Reform Act of December 22, 2017, included a tax on deemed repatriated accumulated earnings of foreign subsidiaries. The Company’s mandatory repatriation tax is payable over 8 years. The first payment was due January 2019. As of September 30, 2024, $11.1 million of the mandatory repatriation liability is still outstanding and $5.2 million is due and payable in the next 12 months.
To the extent necessary, the Company intends to utilize free cash flow from foreign subsidiaries in order to support management's plans to voluntarily accelerate pay down of U.S. debt, fund distributions to shareholders, fund U.S. acquisitions and satisfy ongoing U.S. operational cash flow requirements. The Company annually estimates the available earnings, permanent reinvestment classification and the availability of and management’s intent to use alternative mechanisms for repatriation for each jurisdiction in which the Company does business. Accordingly, the Company is providing residual U.S. and foreign deferred taxes on these earnings to the extent they cannot be repatriated in a tax-free manner.
As of September 30, 2024 and 2023, the Company provided $1.7 million and $1.2 million, respectively, of residual foreign taxes on undistributed foreign earnings.
As a result of the June 2019 Regulations and the deemed mandatory repatriation, the Company does not have significant prior year untaxed, undistributed earnings from its foreign operations at September 30, 2024. There were $500.6 million of the Company’s undistributed earnings taxed in the U.S. as a result of the mandatory deemed repatriation that was part of the Tax Reform Act, and the remaining earnings were taxed as a result of the June 2019 Regulations. The Company recorded GILTI inclusions for the tax year ended September 30, 2024 of $23.9 million. The Company estimates it generated untaxed, undistributed foreign earnings due to high-tax exceptions to GILTI inclusions under the Tax Reform Act for the year ended September 30, 2024 of $53.5 million and has cumulative untaxed, undistributed foreign earnings due to high-tax exceptions as of September 30, 2024 of $183.1 million.
As of September 30, 2024, the Company has U.S. federal net operating carryforwards (“NOLs”) of $569.2 million with a federal tax benefit of $119.5 million and tax benefits related to state NOLs of $42.8 million. Certain of the U.S. federal and state NOLs have indefinite carryforward periods while certain state NOLs expire through years ending in 2044. As of September 30, 2024, the Company has foreign NOLs of $458.7 million and tax benefits of $114.6 million, which will expire beginning in the Company's fiscal year ending September 30, 2025. Certain of the foreign NOLs have indefinite carryforward periods.
A valuation allowance is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets depends on the ability of the Company to generate sufficient taxable income of the appropriate character in the future and in the appropriate taxing jurisdictions.
The Company has had multiple changes of ownership, as defined under Section 382 of the Internal Revenue Code of 1986, as amended, that subject the Company’s U.S. federal and state NOLs and other tax attributes to certain limitations. The annual limitation is based on a number of factors including the value of the Company’s stock (as defined for tax purposes) on the date of the ownership change, its net unrealized gain position on that date, the occurrence of realized gains in years subsequent to the ownership change and the effects of subsequent ownership changes (as defined for tax purposes), if any. Due to these limitations, the Company estimates, as of September 30, 2024, that $561.2 million of the total U.S. federal NOLs with a federal tax benefit of $117.8 million and $13.8 million of the tax benefit related to state NOLs will expire unused even if the Company generates sufficient income to otherwise use all of its NOLs. The Company also projects, as of September 30, 2024, that $112.4 million of tax benefits related to foreign NOLs will not be used. The Company has provided a full valuation allowance against these deferred tax assets.
As of September 30, 2024, the valuation allowance is $321.4 million, of which $203.6 million is related to U.S. net deferred tax assets and $117.8 million is related to foreign net deferred tax assets. As of September 30, 2023, the valuation allowance was $333.4 million, of which $244.7 million was related to U.S. net deferred tax assets and $88.7 million is related to foreign net deferred tax assets. As of September 30, 2022, the valuation allowance was $337.4 million, of which $257.5 million is related to U.S. net deferred tax assets and $79.9 million is related to foreign net deferred tax assets. During the year ended September 30, 2024, the Company decreased its valuation allowance for deferred tax assets by $12.0 million of which $41.1 million is related to a decrease in valuation allowance against U.S. net deferred tax assets and $29.1 million related to an increase in the valuation allowance against foreign net deferred tax assets. During the year ended September 30, 2023, the Company decreased its valuation allowance for deferred tax assets by $4.0 million, of which $12.8 million was related to a decrease in valuation allowance against U.S. net deferred tax assets and $8.8 million related to an increase in the valuation allowance against foreign net deferred tax assets.
As of September 30, 2024, the Company has recorded $42.3 million of valuation allowance against its U.S. state net operating losses.
The total amount of unrecognized tax benefits at September 30, 2024 and 2023 are $190.2 million and $121.1 million, respectively. If recognized in the future, $102.1 million of the unrecognized tax benefits as of September 30, 2024 will impact the effective tax rate. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of September 30, 2024, and 2023 the Company had $9.8 million and $1.7 million of accrued interest and penalties related to uncertain tax positions. The impact on income tax expense related to interest and penalties for the year ended September 30, 2024 and 2023 was a net increase of $8.1 million, $0.3 million, respectively, and a net decrease of $0.1 million for the year ended September 30, 2022. The following table summarizes the changes to the amount of unrecognized tax benefits for the years ended September 30, 2024, 2023 and 2022:
(in millions)
2024
2023
2022
Unrecognized tax benefits, beginning of year
$
121.1
$
100.9
$
18.0
Gross increase – tax positions in prior period
77.5
21.5
84.4
Gross decrease – tax positions in prior period
(9.2)
(34.4)
(2.9)
Gross increase – tax positions in current period
1.7
33.4
1.7
Settlements
(0.6)
—
—
Lapse of statutes of limitations
(0.3)
(0.3)
(0.3)
Unrecognized tax benefits, end of year
$
190.2
$
121.1
$
100.9
The $84.4 million increase for unrecognized tax positions relating to prior periods during the year ended September 30, 2022 includes $67.3 million related to the protective amended U.S. tax return filed consistent with the June 2019 Regulations being invalid. For the year ended September 30, 2023, the Company recorded a decrease to the June 2019 Regulations position of $33.0 million, which is included in the $34.4 million decrease for unrecognized tax positions relating to prior periods during the year ended September 30, 2023, and represents the impact of Fiscal 2023 activity on the position. For the year ended September 30, 2024, the Company recorded a decrease to the June 2019 Regulations position of $2.3 million for the impact of Fiscal 2024 on the position. In addition, during the year ended September 30, 2024, the Company recorded an increase to the June 2019 regulations position of $17.9 million for the adjustments related to the Fiscal 2023 U.S. federal tax return filed during Fiscal 2024. The Company also recorded $27.3 million during the year ended September 30, 2023 for uncertain tax positions related to the state tax on the sale of HHI, which was increased by an additional $50.1 million during the year ended September 30, 2024 for the Fiscal 2023 state tax returns filed during Fiscal 2024.
The Company files income tax returns in the U.S. federal jurisdiction and various state, local and foreign jurisdictions and is subject to ongoing examination by the various taxing authorities. The Company’s major taxing jurisdictions are the U.S., United Kingdom and Germany. In the U.S., federal tax filings for years prior to and including the Company’s fiscal year ended September 30, 2017 are closed. However, the federal NOLs from the Company’s fiscal years ended September 30, 2012 through December 31, 2015 are subject to Internal Revenue Service examination until the year that such net operating loss carryforwards are utilized, and those years are closed for audit. In addition, certain losses from 2002 to 2010 of entities acquired by the Company were able to be used in Fiscal 2019 and are subject to Internal Revenue Service examination until Fiscal 2019 is closed to audit. The Fiscal 2019 tax year is currently under examination and remains open. Filings in various U.S. state and local jurisdictions are also subject to audit and to date no significant audit matters have arisen. As of September 30, 2024, certain of the Company’s legal entities are undergoing income tax audits. The Company cannot predict the ultimate outcome of the examinations; however, it is reasonably possible that during the next twelve months some portion of previously unrecognized tax benefits could be recognized.
The Company has a share repurchase program that is executed through purchases made from time to time either in the open market or otherwise. On May 20, 2024, the Company announced a new $500 million common stock repurchase program authorized by its Board of Directors, replacing the Company’s previously approved share repurchase program of $1.0 billion. As part of the previously approved share repurchase program, the Company purchased treasury shares in open market purchases at market fair value in private purchases from employees or significant shareholders at fair value and through an accelerated share repurchase (“ASR”) agreement with a third-party financial institution, further discussed below. As part of the recently approved stock repurchase program, the Company purchased $50.0 million of common stock concurrent with the pricing of the offering of the Exchangeable Notes in privately negotiated transactions effected through one of the initial purchasers and/or its affiliates, at market price. Purchases under the program may be made in the open market or in privately negotiated transactions from time to time at management’s discretion. The repurchase program may be suspended or discontinued at any time.
On June 20, 2023, the Company entered into an accelerated share repurchase agreement (the “ASR Agreement”) with a third-party financial institution to repurchase an aggregate of $500 million of the Company’s common stock, par value $0.01 per share. The Company funded the share repurchases under the ASR Agreement with cash on-hand following the closing of the sale of the Company’s HHI segment. Pursuant to the agreement, the Company paid $500.0 million to the financial institution at inception of the agreement and took delivery of 5.3 million shares, which represented 80% of the total shares the company expected to receive based on the market price at the time of the initial delivery. The transaction was accounted for as an equity transaction. The fair value of the initial shares received of $400.0 million were recorded as a treasury stock transaction, with the remainder of $100.0 million recorded as a reduction of Additional Paid-In Capital ("APIC") during the year ended September 30, 2023. Upon initial receipt of the shares, there was an immediate reduction in the weighted average common shares calculation for basic and diluted earnings per share. Upon settlement of the ASR Agreement effective November 16, 2023, the financial institution delivered additional shares of 1.3 million, based on the volume weighted average price per share of our common stock over the term of the agreement, less a negotiated discount, and recognized a non-cash treasury share repurchase from APIC of $83.2 million during the year ended September 30, 2024, based upon the market value of the Company’s stock at the time of settlement.
The following summarizes the activity of common stock repurchases under the program for the years ended September 30, 2024, 2023 and 2022, excluding the recognition of a 1% excise tax on annual net share repurchases, recognized as a component of Treasury Stock on the Consolidated Statements of Financial Position (effective the year ended September 30, 2023):
2024
2023
2022
(in millions, except per share data)
Number of
Shares
Repurchased
Average
Price
Per Share
Amount
Number of
Shares
Repurchased
Average
Price
Per Share
Amount
Number of
Shares
Repurchased
Average
Price
Per Share
Amount
Open market purchases
5.6
$
77.48
$
432.7
0.4
$
81.60
$
34.7
1.4
$
97.34
$
134.0
Private purchases
0.5
93.74
50.0
—
—
—
—
—
—
ASR
1.3
65.84
83.2
5.3
74.86
400.0
—
—
—
Total purchases
7.4
76.66
$
565.9
5.7
75.36
$
434.7
1.4
97.34
$
134.0
NOTE 18 - SHARE BASED COMPENSATION
Equity based incentive and performance compensation awards provided to employees, directors, officers and consultants, including the restricted stock units and stock options further discussed below, were issued pursuant to the Spectrum Brands Holdings, Inc. 2011 Omnibus Equity Awards Plan as approved and amended by the stockholders, and the Spectrum Brands Holdings, Inc. 2020 Omnibus Equity Plan, as approved by the stockholders. The following is a summary of the authorized and available shares per the respective plans:
(number of shares, in millions)
Authorized
Available
Spectrum Brands Holdings, Inc. 2011 Omnibus Equity Awards Plan
7.1
0.4
Spectrum Brands Holdings, Inc. 2020 Omnibus Equity Plan
2.6
1.8
Compensation costs for share-based payment arrangements are recognized as Selling, General and Administrative Expense on the Consolidated Statements of Income. The following is a summary of the share based compensation expense for the years ended September 30, 2024, 2023 and 2022:
(in millions)
2024
2023
2022
Share based compensation expense
$
17.5
$
17.2
$
10.2
Restricted Stock Units (“RSUs”)
The Company recognizes share based compensation expense from the issuance of RSUs, primarily under its Long-Term Incentive Plan (“LTIP”). RSUs granted under the LTIP include a combination of time-based grants and performance-based grants. Compensation cost is based on the fair value of the awards, as determined by the market price of the Company’s shares of common stock on the designated grant date and recognized on a straight-line basis over the requisite service period of the awards. Time-based RSUs provide for either a three year cliff vesting or graded vesting depending upon the vesting conditions and forfeitures provided by the grant. Performance-based RSUs are dependent upon achieving specified cumulative financial metrics (adjusted EBITDA, return on adjusted equity, and/or adjusted free cash flow) by the end of the three year vesting period. The actual number of shares that will ultimately vest for the performance-based RSUs is dependent on the level of achievement of the specified performance conditions upon completion of the designated performance period. The Company assessed the probability of achievement of the performance conditions and recognized expense for the awards based on the probable achievement of such metrics. Additionally, the Company regularly issues individual RSU awards under its equity plan to its Board members and individual employees for recognition, incentive, or retention purposes, when needed, which are primarily conditional upon time-based service conditions, valued based on the fair value of the awards as determined by the market price of the Company’s share of common stock on the designated grant price date and recognized as a component of share-based compensation on a straight-line basis over the requisite service period of the award. RSUs are subject to forfeiture if employment terminates prior to vesting with forfeitures recognized as they occur. RSUs have dividend equivalents credited to the recipient and are paid only to the extent the RSU vests and the related stock is issued. RSUs are exercised upon completion of the vesting conditions. Shares issued upon exercise of RSUs are sourced from treasury shares when available.
The Company regularly issues annual RSU grants under its LTIP during the first quarter of the fiscal year. The following is a summary of the RSUs granted during the fiscal year ended September 30, 2024:
(in millions, except per share data)
Units
Weighted Average Grant Date Fair Value
Fair Value at Grant Date
Time-based grants
Vesting in less than 12 months
0.06
$
69.10
$
4.1
Vesting in more than 12 months
0.16
68.08
10.6
Total time-based grants
0.22
68.36
14.7
Performance-based grants
0.26
67.36
17.83
Total grants
0.48
$
67.81
$
32.5
The following is a summary of RSU activity for the years ended September 30, 2024, 2023 and 2022:
(in millions, except per share data)
Units
Weighted Average Grant Date Fair Value
Fair Value at Grant Date
Outstanding and nonvested as of September 30, 2021
1.46
$
64.00
$
93.2
Granted
0.33
95.30
32.3
Forfeited
(0.18)
78.90
(13.8)
Vested and exercised
(0.60)
55.09
(33.4)
Outstanding and nonvested as of September 30, 2022
1.01
77.22
78.3
Granted
0.55
52.22
28.6
Forfeited
(0.21)
71.99
(15.0)
Vested and exercised
(0.46)
70.98
(32.7)
Outstanding and nonvested as of September 30, 2023
0.89
66.29
59.2
Granted
0.48
67.81
32.5
Forfeited
(0.18)
70.71
(12.6)
Vested and exercised
(0.21)
67.73
(14.0)
Outstanding and nonvested as of September 30, 2024
0.98
$
65.93
$
65.1
As of September 30, 2024, the remaining unrecognized pre-tax compensation cost associated with outstanding RSUs is $41.3 million that would expect to be recognized over a weighted average period of 1.3 years, contingent upon realization of performance goals for performance based grants. If performance goals are not met, compensation cost may be not recognized, and previously recognized compensation cost would be reversed.
Stock Options
All stock options awards are fully vested and exercisable. The Company does not regularly grant new stock option awards and there were no awards granted during the years ended September 30, 2024, 2023 and 2022. Shares issued upon exercise of stock option awards are sourced from treasury shares when available. The following is a summary of outstanding stock option awards during the years ended September 30, 2024, 2023, and 2022:
(in millions, except per share data)
Options
Weighted Average Exercise Price
Weighted
Average Grant Date Fair Value
Vested and exercisable at September 30, 2021
$
0.16
$
82.36
$
5.32
Vested and exercisable at September 30, 2022
0.16
82.36
5.32
Vested and exercisable at September 30, 2023
0.16
82.36
5.32
Forfeited
(0.07)
72.92
4.91
Exercised
(0.03)
82.85
5.25
Vested and exercisable at September 30, 2024
$
0.06
$
93.96
$
5.86
The intrinsic value of share options exercised during the year ended September 30, 2024, was $0.4 million, which were settled through a net-share settlement where the shares delivered having an aggregate fair value equal to the intrinsic value of the share option at exercise, and no cash was received upon exercise. No options were exercised during the years ended September 30, 2023 and 2022. As of the year ended September 30, 2024, the aggregate intrinsic value of outstanding and exercisable options was $0.1 million, with the remaining contractual term of 1.9 years.
The changes in the components of accumulated other comprehensive income (loss), net of taxes, was as follows:
(in millions)
Foreign Currency Translation
Derivative Instruments
Defined Benefit Pension
Total
Balance as of September 30, 2021
$
(194.8)
$
6.4
$
(46.9)
$
(235.3)
Other comprehensive (loss) income before reclassification
(72.0)
30.7
18.3
(23.0)
Net reclassification for (gain) loss to income from continuing operations
—
(20.2)
3.6
(16.6)
Net reclassification for gain to income from discontinued operations
—
(2.4)
(0.1)
(2.5)
Other comprehensive (loss) income before tax
(72.0)
8.1
21.8
(42.1)
Deferred tax effect
(20.0)
2.3
(8.9)
(26.6)
Other comprehensive (loss) income, net of tax
(92.0)
10.4
12.9
(68.7)
Less: other comprehensive loss from continuing operations attributable to non-controlling interest
(0.4)
—
—
(0.4)
Less: other comprehensive loss from discontinued operations attributable to non-controlling interest
(0.5)
—
—
(0.5)
Other comprehensive (loss) income attributable to controlling interest
(91.1)
10.4
12.9
(67.8)
Balance as of September 30, 2022
(285.9)
16.8
(34.0)
(303.1)
Other comprehensive income (loss) before reclassification
37.3
(35.3)
(0.8)
1.2
Net reclassification for loss to income from continuing operations
—
12.2
0.8
13.0
Net reclassification for loss (gain) to income from discontinued operations
—
2.3
(0.1)
2.2
Other comprehensive income (loss) before tax
37.3
(20.8)
(0.1)
16.4
Deferred tax effect
7.0
5.4
(0.1)
12.3
Other comprehensive income (loss), net of tax
44.3
(15.4)
(0.2)
28.7
Deconsolidation of discontinued operations
26.6
—
(0.5)
26.1
Net change to determine comprehensive income for the period
$
70.9
$
(15.4)
$
(0.7)
$
54.8
Less: other comprehensive income from continuing operations attributable to non-controlling interest
0.3
—
—
0.3
Less: Deconsolidation of discontinued operations
0.8
—
—
0.8
Other comprehensive income (loss) attributable to controlling interest
69.8
(15.4)
(0.7)
53.7
Balance as of September 30, 2023
(216.1)
1.4
(34.7)
(249.4)
Other comprehensive income (loss) before reclassification
49.6
(20.0)
(5.3)
24.3
Net reclassification for loss to income from continuing operations
2.4
15.2
1.0
18.6
Other comprehensive income (loss) before tax
52.0
(4.8)
(4.3)
42.9
Deferred tax effect
0.1
1.2
1.3
2.6
Other comprehensive income (loss), net of tax
52.1
(3.6)
(3.0)
45.5
Less: other comprehensive income from continuing operations attributable to non-controlling interest
0.1
—
—
0.1
Other comprehensive income (loss) attributable to controlling interest
52.0
(3.6)
(3.0)
45.4
Balance as of September 30, 2024
$
(164.1)
$
(2.2)
$
(37.7)
$
(204.0)
The following table presents reclassifications of the gain (loss) on the Consolidated Statements of Income from AOCI for the periods indicated:
(in millions)
2024
2023
2022
Foreign Currency Translation
Defined Benefit Pension
Derivative Instruments
Defined Benefit Pension
Derivative Instruments
Defined Benefit Pension
Derivative Instruments
Net sales
$
—
$
—
$
0.3
$
—
$
0.2
$
—
$
0.1
Cost of goods sold
—
—
(15.5)
—
(12.4)
—
20.1
Other non-operating expense, net
(2.4)
(1.0)
—
(0.8)
—
(3.6)
—
Income from discontinued operations, net of tax
—
—
—
0.1
(2.3)
0.1
2.4
See Note 13 - Derivatives for further detail on the Company’s hedging activity. See Note 15 - Employee Benefit Plans for further detail over the Company’s defined benefit plans.
The Company is a defendant in various litigation matters generally arising out of the ordinary course of business. Based on information currently available, the Company does not believe that any additional matters or proceedings presently pending will have a material adverse effect on its results of operations, financial condition, liquidity or cash flows.
Environmental Liabilities. The Company has realized commitments attributable to environmental remediation activities primarily associated with former manufacturing sites of the HPC business. In coordination with local and federal regulatory agencies, we have conducted testing on certain sites which have resulted in the identification of contamination that has been attributed to historic activities at the properties, resulting in the realization of incremental costs to be assumed by the Company towards the remediation of these properties and the recognition of an environmental remediation liability. We have not conducted invasive testing at all sites and locations and have identified an environmental remediation liability to the extent such remediation requirements have been identified and are considered estimable. The following is a summary of the environment remediation liability as of September 30, 2024 and 2023:
(in millions)
2024
2023
Environmental remediation liability
$
4.5
$
5.4
Reported as:
Other current liabilities
0.8
1.5
Other long-term liabilities
3.7
3.9
The Company’s environmental remediation liabilities are measured at the expected value of future cash outflows discounted to their present value using a discount rate of 5%. Based on current estimates, the expected payments for environmental remediation for the next five years and thereafter at September 30, 2024, are as follows:
(in millions)
Amount
2025
$
0.8
2026
2.4
2027
0.3
2028
0.2
2029
0.2
Thereafter
1.6
Total payments
5.5
Amount representing interest
(1.0)
Total environmental obligation
$
4.5
The Company believes that any additional liability in excess of the amounts provided that may result from resolution of these matters, will not have a material adverse effect on the consolidated financial condition, results of operations or cash flows of the Company.
Product Liability. The Company may be named as a defendant in lawsuits involving product liability claims. The Company has recorded and maintains an estimated liability in the amount of management’s estimate for aggregate exposure for such liabilities based upon probable loss from loss reports, individual cases, and losses incurred but not reported. As of September 30, 2024, and 2023, the Company recognized $2.2 million and $3.0 million in product liability, respectively, included in Other Current Liabilities on the Consolidated Statements of Financial Position. The Company believes that any additional liability in excess of the amounts provided that may result from resolution of these matters will not have a material adverse effect on the consolidated financial condition, results of operations or cash flows of the Company.
HPC Product Safety Recalls. During the years ended September 30, 2023 and 2022, the Company had issued four distinct product recalls associated with its HPC business for a Black+Decker® Garment Steamer, PowerXL® Self-Cleaning Juicer, PowerXL® Stuffed Wafflizer Waffle Maker, and Power XL® Dual Basket Air Fryer in collaboration with the U.S. Consumer Product Safety Commission (“CPSC”), suspending sales of the affected products and issuing a stop sale with its customers, and resulting in the recognition of incremental costs to facilitate the recalls with the initial costs being recognized as of the year ended September 30, 2022, when the possibility of loss was considered probable. The Company has evaluated the probability of redemption and assessed the incremental costs attributable to the recall, including the anticipated returns of retail inventory, write-off of affected inventory on hand, consumer refunds and other costs to facilitate the recall such as notification, shipping and handling, rework and destruction of affected products, as needed. Certain products were remediated through the issuance of replacement parts and did not require a full recall of the affected product, with costs included to facilitate the remediation, rework and related shipping and handling. During the year ended September 30, 2024, the Company was further required by the CPSC to reissue a recall for the Black+Decker® Garment Steamer that was previously remediated through the issuance of a replacement part in accordance with previously agreed-up remediation plans, expanding the requirements to issue a complete recall of the affected product and refund consumers. As a result, the reissued recall resulted in the recognition of incremental costs and reserves to address inventory returns from customers, further write-off of the affected inventory, consumer refunds and other costs to facilitate the reissued recall. As of September 30, 2024 and 2023, the Company has recognized $6.1 million and $6.0 million in Other Current Liabilities on the Consolidated Statements of Financial Position associated with the estimated costs for the recalls, including the incremental estimated product returns from customers associated with the recall. Additionally, for certain of the products affected by the recalls, the Company has indemnification provisions that are contractually provided by third parties for the affected products and as of September 30, 2024 and 2023, the Company has recognized $8.1 million and $7.1 million in Other Receivables, respectively, on the Consolidated Statements of Financial Position related to such indemnifications.
Representation and Warranty Insurance Proceeds. On February 18, 2022, the Company acquired all of the membership interests in HPC Brands, LLC, which consist of the home appliances and cookware business of Tristar Products, Inc. (the “Tristar Business”) pursuant to a Membership Interest Purchase agreement dated February 3, 2022 (the “Acquisition Agreement”). During the year ended September 30, 2023, the Company submitted a claim under its representation and warranty insurance policies, seeking coverage for certain losses resulting from breaches of representations and warranties in the Acquisition Agreement. During the year ended September 30, 2024, the Company recognized a gain of $65.0 million attributable to insurance proceeds received from its representation and warranty insurance policies.
NOTE 20 - COMMITMENTS AND CONTINGENCIES (continued)
Tristar Business Acquisition Litigation. Following the purchase of the Tristar Business in February 2022, the Company and its HPC segment have been detrimentally impacted by aspects of the acquired business’ operations and products, which have negatively impacted subsequent operating performance and partner relationships of the acquired brands and segment. Since the acquisition, the acquired business realized, among other things, significant distribution challenges, increased levels of retail inventory, reduced sales, increased promotional spending and deductions, higher level of product returns, and overall increased amount of costs. Additionally, the segment has realized losses attributable to recalls for products associated with the acquired brands, increased risks over the realizability of receivables and inventory, and recognized an impairment on assets including the acquired goodwill and the PowerXL® tradename intangible assets, further discussed in Note 10 - Goodwill and Intangible Assets. Further, the Company disposed of certain inventory and products associated with the acquired brands, further discussed in Note 8 - Inventory.
The Company has been actively engaged in various litigation matters associated with the Tristar Business acquisition and continues to incur costs to facilitate such litigation matters. As part of these various litigation matters, the Company is seeking recovery for losses incurred in connection with the product recalls, as well as other damages incurred by the Company, its HPC segment and the acquired business. While the Company continues to pursue such actions, there can be no guarantees and assurances that recoveries associated with the litigation matters can be realized and recovered. As of September 30, 2024, the Company believes it has assessed appropriate risks and recognized applicable losses and reserves reflecting the net assets of the Company and its HPC segment.
NOTE 21 - SEGMENT INFORMATION
The Company identifies its segments based upon the internal organization that is used by management for making operating decisions, allocating capital and resources amongst the operations, and assessing performance as the source of its reportable segments. The Company manages its continuing operations in three vertically integrated, product-focused reporting segments: (i) GPC, which consists of the Company’s global pet care business; (ii) H&G, which consists of the Company’s home and garden, insect control and cleaning products business and (iii) HPC, which consists of the Company’s global small kitchen and personal care appliances businesses. Global strategic initiatives and financial objectives for each reportable segment are determined at the corporate level. Each segment is responsible for implementing defined strategic initiatives and achieving certain financial objectives and has a president responsible for the sales and marketing initiatives and financial results for product lines within the segment. See Note 1 - Description of Business for further details.
Net sales consists of revenue generated by contracts with external customers. The segments do not have significant or material intrasegment revenues. Net sales relating to the segments for the years ended September 30, 2024, 2023 and 2022 are as follows. See Note 5 - Revenue Recognition for revenue from product sales, licensing and service and other revenue streams, by segment.
(in millions)
2024
2023
2022
GPC
$
1,151.5
$
1,139.0
$
1,175.3
H&G
578.6
536.5
587.1
HPC
1,233.8
1,243.3
1,370.1
Net sales
$
2,963.9
$
2,918.8
$
3,132.5
The Chief Operating Decision Maker of the Company uses Adjusted EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization) as the primary operating metric in evaluating the business and making operating decisions. 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 also excludes certain non-cash adjustments including share based compensation (see Note 18 - Share Based Compensation for further detail); impairment charges on property, plant and equipment, operating and finance lease assets, and goodwill and other intangible assets (See Note 9 - Property, Plant and Equipment, Note 12 - Leases, and Note 10 - Goodwill and Intangible Assets and for further detail, respectively); gain or loss from the early extinguishment of debt through the repurchase or early redemption of outstanding debt (See Note 11 - Debt for further detail); and purchase accounting adjustments recognized in income subsequent to an acquisition attributable to the step in value on assets acquired, including, but not limited to, inventory or operating lease assets. Additionally, the Company will further recognize adjustments from Adjusted EBITDA for other costs, gains and losses that are considered significant, non-recurring, or otherwise not supporting the continuing operations and revenue generating activity of the segment or Company, including but not limited to, exit and disposal activities (See Note 4 - Exit and Disposal Activities for further detail), or incremental costs associated with strategic transactions, restructuring and optimization initiatives such as the acquisition or divestiture of a business, related integration or separation costs, or the development and implementation of strategies to optimize or restructure the Company and its operations.
The segments are supported through center-led corporate shared service operations which are enabling functions to the segments consisting of finance and accounting, information technology, legal and human resource, supply chain and commercial operations. Costs attributable to such shared service operations are allocated to the segments based upon various metrics which are considered representative to the use and support provided by such enabling functions to each of the segments.
The Company has not included the results from discontinued operations within the following segment reporting when the discontinued operations were previously reported as a segment in any prior period. Indirect costs from shared enabling functions supporting discontinued operations during the fiscal periods of the Company’s ownership of the divested segment, prior to the completion of the divestiture, are excluded from the reporting of income (loss) from discontinued operations and included within the income (loss) for continuing operations as they are not direct costs of the disposal group. The indirect costs are considered unallocated shared service costs and not allocated across the remaining segments of the Company during the respective periods. See Note 3 - Divestitures for further discussion.
The Company also incurs costs attributable to corporate functions such as tax, treasury, internal audit, corporate finance, legal and corporate executive and board related governance costs which are considered corporate costs of the Company and not allocated to the segments. Interest costs attributable to external borrowings, including finance leases, are not recognized or allocated to segments. Interest income is generally not recognized or allocated to segments.
The following is a summary of segment Adjusted EBITDA reconciled to the Company’s pre-tax operating income from continuing operation for the years ended September 30, 2024, 2023and 2022.
(in millions)
2024
2023
2022
GPC
$
216.1
$
190.6
$
168.6
H&G
90.8
72.5
86.2
HPC
75.3
43.1
69.6
Total segment adjusted EBITDA
382.2
306.2
324.4
Interest expense
58.5
116.1
99.4
Depreciation
57.3
48.9
49.0
Amortization
44.5
42.3
50.3
Corporate costs
66.1
41.1
41.3
Unallocated shared service costs
—
18.0
27.6
Interest income1
(55.7)
(37.9)
—
Share based compensation
17.5
17.2
10.2
Non-cash impairment charges
50.3
242.6
—
Non-cash purchase accounting adjustments
1.2
1.9
8.3
(Gain) loss from early extinguishment of debt
(2.6)
3.0
—
Exit and disposal costs
1.0
9.3
10.4
HHI separation costs2
3.9
8.4
6.3
HPC separation initiatives2
13.4
4.2
19.1
Global ERP transformation2
15.0
11.4
13.1
Tristar Business acquisition and integration2
—
11.5
24.3
Rejuvenate integration2
—
—
6.8
Armitage integration2
—
—
1.4
Omega production integration2
—
—
4.6
Coevorden operations divestiture2
—
2.7
8.8
GPC distribution center transition2
—
—
35.8
HPC brand portfolio transition2
—
2.5
1.3
HPC product recall3
6.9
7.7
5.5
Gain from remeasurement of contingent consideration liability4
—
(1.5)
(28.5)
Representation and warranty insurance proceeds5
(65.0)
—
—
Litigation charges6
2.9
3.0
1.5
HPC product disposal7
—
20.6
—
Other8
3.4
23.4
18.2
Income (loss) from continuing operations before income taxes
$
163.6
$
(290.2)
$
(90.3)
________________________________________
1 Interest income is primarily associated with the corporate investment of cash proceeds from the HHI divestiture in June 2023.
2 Incremental costs associated with strategic transactions, restructuring and optimization initiatives, including, but not limited to, the acquisition or divestiture of a business, related integration or separation costs, or the development and implementation of strategies to optimize or restructure operations.
3 Incremental net costs from product recalls in the HPC segment. See Note 20 - Commitment and Contingencies for further detail.
4 Non-cash gain from the remeasurement of a contingent consideration liability associated with the Tristar Business acquisition during the years ended September 30, 2023 and 2022.
5 Gain from the receipt of insurance proceeds on representation and warranty policies associated with the Tristar Business acquisition. See Note 20 Commitment and Contingencies for further detail.
6 Litigation costs primarily associated with the Tristar Business acquisition. See Note 20 - Commitment and Contingencies for further detail.
7 Non-cash write-off from disposal of HPC inventory. See Note 8 - Inventory for further details.
8 Other is attributable to (1) other costs associated with strategic transaction, restructuring and optimization initiatives; (2) other foreign currency loss from the liquidation and deconsolidation of the Company's Russia operating entity during the year ended September 30, 2024; (3) key executive severance and other one-time compensatory costs, (4) non-recurring insurable losses, net insurance proceeds; and (5) impact from the early settlement of foreign currency cash flow hedges during September 30, 2023 and 2022, as previously reported.
Depreciation and amortization relating to the segments are as follows for the years ended September 30, 2024, 2023 and 2022:
(in millions)
2024
2023
2022
GPC
$
36.7
$
37.4
$
37.4
H&G
19.4
18.8
18.6
HPC
21.4
20.4
28.7
Total segments
77.5
76.6
84.7
Corporate and shared operations
24.3
14.6
14.6
Total depreciation and amortization
$
101.8
$
91.2
$
99.3
Segment assets consist of Inventories, net. The following is a summary of segment assets and a reconciliation of segment assets to total assets of the Company were as follows as of September 30, 2024 and 2023:
Segment total assets (in millions)
2024
2023
GPC
$
159.4
$
171.8
H&G
85.6
90.7
HPC
217.1
200.3
Total segment assets
462.1
462.8
Other current assets
1,116.5
2,463.1
Non-current assets
2,263.7
2,332.5
Total assets
$
3,842.3
$
5,258.4
Geographic Financial Information
Net sales geographic regions (based upon destination) for the years ended September 30, 2024, 2023 and 2022 are as follows:
Net sales to external parties - Geographic Disclosure (in millions)
2024
2023
2022
United States
$
1,715.8
$
1,722.4
$
1,901.6
Europe/MEA
885.2
830.7
820.0
Latin America
211.8
206.8
243.3
Asia-Pacific
99.4
106.6
108.5
North America - Other
51.7
52.3
59.1
Net sales
$
2,963.9
$
2,918.8
$
3,132.5
Long-lived asset information, consisting of Property Plant and Equipment, Net, and Operating Lease Assets, as of September 30, 2024 and 2023 by geographic area are as follows:
Long-lived assets - Geographic Disclosure (in millions)
Basic earnings per share is computed by dividing net income attributable to controlling interest by the weighted average number of common shares outstanding for the period. Diluted earnings per share is calculated using its weighted-average outstanding common shares including the dilutive effect of share-based awards, based upon the treasury stock method, and the Exchangeable Notes, as determined under the net share settlement method. Performance based restricted stock units are excluded if the performance targets upon which the issuance of the shares is contingent have not been achieved and the respective performance period has not been completed as of the end of the current period. From the time of the issuance of the Exchangeable Notes, the average market price of the Company’s common shares has been less than the initial conversion price, and consequently no shares have been included in diluted earnings per share for the conversion value of the Exchangeable Notes. The reconciliation of the numerator and denominator of the basic and diluted earnings per share calculation and the anti-dilutive shares for the years ended September 30, 2024, 2023 and 2022, are as follows:
(in millions, except per share amounts)
2024
2023
2022
Numerator
Net income (loss) from continuing operations attributable to controlling interest
$
99.3
$
(233.8)
$
(77.2)
Income from discontinued operations attributable to controlling interest
25.5
2,035.3
148.8
Net income attributable to controlling interest
$
124.8
$
1,801.5
$
71.6
Denominator
Weighted average shares outstanding - basic
30.3
39.5
40.9
Dilutive shares
0.2
—
—
Weighted average shares outstanding - diluted
30.5
39.5
40.9
Earnings per share
Basic earnings per share from continuing operations
$
3.28
$
(5.92)
$
(1.89)
Basic earnings per share from discontinued operations
0.84
51.57
3.64
Basic earnings per share
$
4.12
$
45.65
$
1.75
Diluted earnings per share from continuing operations
$
3.26
$
(5.92)
$
(1.89)
Diluted earnings per share from discontinued operations
0.84
51.57
3.64
Diluted earnings per share
$
4.10
$
45.65
$
1.75
Weighted average number of anti-dilutive shares excluded from denominator
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SPECTRUM BRANDS HOLDINGS, INC.
By:
/s/ David M. Maura
David M. Maura
Chief Executive Officer and Chairman of the Board
DATE: November 15, 2024
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated and on the above-stated date.
Signature
Title
/s/ David M. Maura
David M. Maura
Chief Executive Officer and Chairman of the Board
(Principal Executive Officer)
/s/ Jeremy W. Smeltser
Jeremy W. Smeltser
Executive Vice President, Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
_____________________________
* Filed herewith
** In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Annual Report on Form 10-K shall be deemed to be furnished and not filed.
+ Denotes a management contract or compensatory plan or arrangement.
