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Nov. 18, 2020, 5:04 p.m. EST

10-K: SPECTRUM BRANDS HOLDINGS, INC.

(EDGAR Online via COMTEX) -- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion of the financial results, liquidity and other key items related to our performance and should be read in conjunction with our Consolidated Financial Statements and related notes included elsewhere in this Annual Report. The following is a combined report of SBH and SB/RH, and the following discussion includes SBH and certain matters related to SB/RH as signified below. Unless the context indicates otherwise, the terms the "Company," "we," "our" or "us" are used to refer to SBH and its subsidiaries and SB/RH and its subsidiaries, collectively Business Overview The following section provides a general description of our business as well as recent developments for the years ended September 30, 2020 and 2019, which we believe are important to understanding our results of operations, financial condition, and understanding anticipated future trends. Refer to Item 1 - Business and Note 1 - Description of Business in Notes to the Consolidated Financial Statements, included elsewhere in this Annual Report for an overview of our business. For a discussion of our fiscal 2018 results, please refer to Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" for the Company's Annual Report on Form 10-K for the year ended September 30, 2019 filed with the SEC on November 15, 2019. COVID-19 The COVID-19 pandemic and the resulting regulations and other disruptions to both demand and supply may have a substantial impact on the commercial operations of the Company or impairment of the Company's net assets. Such impacts may include, but are not limited to, volatility of demand for our products, disruptions and cost implications in manufacturing and supply arrangements, inability of third parties to meet obligations under existing arrangements, and significant changes to the political and economic environments in which we manufacture, sell, and distribute our products. During the year ended September 30, 2020 and as of the date of this report, we have been and continue to be classified as an essential business in the jurisdictions that have mandated closures of non-essential businesses, and therefore have been allowed to remain open. The Company did experience temporary shutdowns at certain operating facilities in response to government mandated restrictions or to address and implement preventative safety measures. During the second quarter ended March 29, 2020, there were certain HHI operating facilities, primarily within China and the Philippines, that experienced a temporary limit on production in response to the COVID-19 outbreak, but such facilities were operating at or near full capacity by the end of the second quarter. Subsequently, during the third quarter ended June 28, 2020, additional governmental operating restrictions were announced in Mexico temporarily suspending or limiting production for our HHI operating facilities, with facilities operating and ramping up productions by the end of the third quarter. Moreover, our H&G facility in St. Louis was temporarily closed in April 2020 to provide for additional cleaning and implementation of preventative measures in response to confirmed cases of COVID-19. These facilities continue to operate to the extent possible under existing regulations and may be subject to future closure depending upon unforeseeable duration and severity of the COVID-19 pandemic and any governmental and public action. Despite the supply implications, the Company continued to experience strong customer demand. While demand in general for our products remains strong, our teams continue to monitor demand disruption and there can be no assurance as to the level of demand that will prevail following the year ended September 30, 2020. A large portion of our customers continue to operate and sell our products, with some customers reducing operations during the year ended September 30, 2020 due to closures or reduced store hours. The Company has experienced both positive and negative consumer behavior which may or may not continue. There have also been changes in consumer needs and spending during the COVID-19 pandemic, which have resulted in a limited number of change orders and reduced spending. Currently, we have not identified, and will continue to monitor for, any substantive risk attributable to customer credit and have not experienced a significant impact from permanent store closures or retail bankruptcies. We believe the severity and duration of the COVID-19 pandemic to be uncertain and we expect it to continue to contribute to retail volatility and consumer purchase behavior changes. The magnitude of the financial impact on our results is highly dependent on the duration of the COVID-19 pandemic and how quickly the U.S. and global economies resume normal operations. The COVID-19 pandemic has not, as of the date of this report, had a materially negative impact on the Company's liquidity position. The sweeping nature of COVID-19 pandemic makes it extremely difficult to predict the long-term ramifications on our financial condition and results of operations. However, the likely overall economic impact of the COVID-19 pandemic is viewed as highly negative to the U.S. and global economies. During the year ended September 30, 2020, we have implemented mitigating efforts to manage non-critical capital spending, assess operating spend, preserve cash and liquidity. We continue to generate operating cash flows to meet our short-term liquidity needs, and we expect to maintain access to the capital markets, although there can be no assurance of our ability to do so. We have also not observed any material impairments of our assets due to the COVID-19 pandemic. We expect the ultimate significance of the impact on our financial condition, results of operations, and cash flows will be dictated by the length of time that such circumstances continue, which will ultimately depend on the unforeseeable duration and severity of the COVID-19 pandemic, any governmental and public actions taken in response and any related economic disruption. Acquisitions On March 10, 2020, the Company aquired Omega Sea, LLC ("Omega"), a manufacturer and marketer of premium fish foods and consumable goods for the home and commercial aquarium markets, primarily consisting of the Omega brand, for a purchase price of approximately $16.9 million. The results of Omega's operations since March 10, 2020 are included in the Company's Consolidated Statements of Income and reported within the GPC reporting segment for the year ended September 30, 2020. See Note 4 - Acquisitions in the Notes to the Consolidated Financial Statements, included elsewhere in this Annual Report, for more information. Divestitures Coevorden Operations - On March 29, 2020, the Company completed the sale of its DCF production facility and distribution center in Coevorden, Netherlands for cash proceeds of $29.0 million subject to working capital and other typical closing adjustments, resulting in a loss on assets held for sale of $26.8 million during the year ended September 30, 2020. The loss was recognized as a component of continuing operations and operating income within the Company's GPC segment. Global Batteries & Lighting ("GBL") - On January 2, 2019, the Company completed the sale of its GBL business pursuant to the GBL acquisition agreement with Energizer for cash proceeds of $1,956.2 million, resulting in the recognition of a pre-tax gain on sale of $989.8 million, including the estimated settlement of customary purchase price adjustments for working capital and assumed indebtedness, recognition of tax and legal indemnifications under the acquisition agreement and an estimated contingent purchase price adjustment for the settlement with the planned divestiture of the Varta(R) consumer batteries business by Energizer of $200.0 million in accordance with the GBL acquisition agreement. The results of operations and gain on sale for disposal of the GBL business are recognized as a component of discontinued operations.

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Global Auto Care ("GAC") - On January 28, 2019, the Company completed the sale of its GAC business pursuant to the GAC acquisition agreement with Energizer for $1.2 billion, consisting of $938.7 million in cash proceeds and $242.1 million in stock consideration of common stock of Energizer, resulting in the write-down of net assets held for sale of $111.0 million, including the estimated settlement of customary purchase price adjustments for working capital and assumed indebtedness, recognition of tax and legal indemnifications in accordance with the GAC acquisition agreement. Unrealized gains and losses realized for changes in the fair value of the Company's common stock investment in Energizer are recognized as Other Non-Operating Expense (Income), net on the Company's Consolidated Statement of Income. The results of operations and write-down of net assets held for sale for the disposal of the GAC business are recognized as a component of discontinued operations.

We continually seek to improve our operational efficiency, match our manufacturing capacity and product costs to market demand and better utilize our manufacturing resources. We have undertaken various initiatives to reduce manufacturing and operating costs, which may have a significant impact on the comparability of financial results on the consolidated financial statements. The most significant of these initiatives is the Global Productivity Improvement Program, which began during the year ended September 30, 2019. See Note 5 - Restructuring and Related Charges in the Notes to the Consolidated Financial Statements, included elsewhere in this Annual Report, for further discussion pertaining to restructuring and related activity. Refinancing Activity

See Note 12 - Debt in the Notes to the Consolidated Financial Statements, included elsewhere in this Annual Report, for additional detail regarding debt and refinancing activity.

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Non-GAAP Measurements







                                                                                  September 30, 2020
                                                                                      Net Sales
                                                               Effect of          Excluding Effect                                                      Net Sales
                                                              Changes in            of Changes in             Effect of             Organic           September 30,
        (in millions, except %)           Net Sales            Currency               Currency              Acquisitions           Net Sales              2019                    Variance
        HHI                              $ 1,342.1          $        0.4          $      1,342.5          $            -          $ 1,342.5          $    1,355.7          $ (13.2)       (1.0  %)
        HPC                                1,107.6                  18.9                 1,126.5                       -            1,126.5               1,068.1             58.4         5.5  %
        GPC                                  962.6                   1.1                   963.7                    (7.5)             956.2                 870.2             86.0         9.9  %
        H&G                                  551.9                   0.1                   552.0                       -              552.0                 508.1             43.9         8.6  %
        Total                            $ 3,964.2          $       20.5          $      3,984.7          $         (7.5)         $ 3,977.2          $    3,802.1            175.1         4.6  %
        


Adjusted EBITDA. Adjusted EBITDA is a non-GAAP metric used by management that we believe provides useful information to investors because it reflects the ongoing operating performance and trends of our segments, excluding certain non-cash based expenses and/or non-recurring items during each of the comparable periods. It also facilitates comparisons between peer companies since interest, taxes, depreciation and amortization can differ greatly between organizations as a result of differing capital structures and tax strategies. Adjusted EBITDA is also used for determining compliance with the Company's debt covenants. See Note







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The following is a reconciliation of net income to Adjusted EBITDA for the years ended September 30, 2020 and 2019 for SBH:







        SPECTRUM BRANDS HOLDINGS, INC. (in
        millions)                                       HHI                HPC               GPC              H&G            Corporate         Consolidated
        Year Ended September 30, 2020
        Net income from continuing operations       $   221.4          $    42.9          $  44.9          $  91.2          $ (315.9)         $       84.5
        Income tax expense                                  -                  -                -                -              70.9                  70.9
        Interest expense                                    -                  -                -                -             144.5                 144.5
        Depreciation and amortization                    33.9               35.2             44.4             20.4              14.6                 148.5
        EBITDA                                          255.3               78.1             89.3            111.6             (85.9)                448.4
        Share and incentive based
        compensation                                        -                  -                -                -              43.6                  43.6
        Restructuring and related charges                 1.0                4.6             20.8              0.5              45.7                  72.6
        Transaction related charges                         -                8.8             10.8                -               3.5                  23.1
        Loss on Energizer investment                        -                  -                -                -              16.8                  16.8
        Loss on assets held for sale                        -                  -             26.8                -                 -                  26.8
        Write-off from impairment of
        intangible assets                                   -                  -             24.2                -                 -                  24.2
        Foreign currency loss on
        multicurrency divestiture loans                     -                0.6                -                -               3.2                   3.8
        Salus                                               -                  -                -                -               0.6                   0.6
        Salus CLO debt extinguishment                       -                  -                -                -             (76.2)                (76.2)
        Other                                               -                0.1              0.1                -              (3.7)                 (3.5)
        Adjusted EBITDA                             $   256.3          $    92.2          $ 172.0          $ 112.1          $  (52.4)         $      580.2
        Net Sales                                   $ 1,342.1          $ 1,107.6          $ 962.6          $ 551.9          $      -          $    3,964.2
        Adjusted EBITDA Margin                           19.1  %             8.3  %          17.9  %          20.3  %              -  %               14.6  %
        Year Ended September 30, 2019
        Net income (loss) from continuing
        operations                                  $   214.6          $  (127.8)         $  63.4          $  84.9          $ (421.8)         $     (186.7)
        Income tax benefit                                  -                  -                -                -              (7.1)                 (7.1)
        Interest expense                                    -                  -                -                -             222.1                 222.1
        Depreciation and amortization                    33.5               64.6             48.8             19.3              14.6                 180.8
        EBITDA                                          248.1              (63.2)           112.2            104.2            (192.2)                209.1
        Share and incentive based
        compensation                                        -                  -                -                -              53.7                  53.7
        Restructuring and related charges                 4.7                8.1              7.6              1.8              43.5                  65.7
        Transaction related charges                       0.9                7.4              2.5                -              11.0                  21.8
        Loss on Energizer investment                        -                  -                -                -              12.1                  12.1
        Write-off from impairment of goodwill               -              116.0                -                -                 -                 116.0
        . . .
        


Nov 18, 2020

COMTEX_374652078/2041/2020-11-18T17:03:55

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