Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
SPB > SEC Filings for SPB > Form 10-Q on 9-May-2013All Recent SEC Filings

Show all filings for SPECTRUM BRANDS HOLDINGS, INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for SPECTRUM BRANDS HOLDINGS, INC.


9-May-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction
Spectrum Brands Holdings, Inc., a Delaware corporation ("SB Holdings"), is a diversified global branded consumer products company. Spectrum Brands, Inc. ("Spectrum Brands"), is a wholly owned subsidiary of SB Holdings. SB Holdings' common stock trades on the New York Stock Exchange (the "NYSE") under the symbol "SPB."
Unless the context indicates otherwise, the terms the "Company," "Spectrum," "we," "our" or "us" are used to refer to SB Holdings and its subsidiaries. On December 17, 2012, we acquired the residential hardware and home improvement business (the "HHI Business") from Stanley Black & Decker, Inc. ("Stanley Black & Decker"), which includes (i) the equity interests of certain subsidiaries of Stanley Black & Decker engaged in the business and (ii) certain assets of Stanley Black & Decker used or held for use in connection with the business (the "Hardware Acquisition"). On April 8, 2013, we completed the acquisition of certain assets of Tong Lung Metal Industry Co. Ltd., a Taiwan Corporation ("TLM Taiwan"), which is involved in the production of residential locksets. For information pertaining to the Hardware Acquisition, see Note 15, "Acquisitions" of Notes to Condensed Consolidated Financial Statements (Unaudited), included in this Quarterly Report on Form 10-Q.
Business Overview
We manufacture and market alkaline, zinc carbon and hearing aid batteries, herbicides, insecticides and repellants and specialty pet supplies. We design and market rechargeable batteries, battery-powered lighting products, electric shavers and accessories, grooming products and hair care appliances. We also design, market and distribute a broad range of branded small household appliances and personal care products. Our manufacturing and product development facilities are located in the United States ("U.S."), Europe, Latin America and Asia. Substantially all of our rechargeable batteries, chargers and portable lighting products, shaving and grooming products, small household appliances and personal care products are manufactured by third-party suppliers, primarily located in Asia.
With the addition of the HHI Business, we design, market, distribute and sell certain hardware, home improvement and plumbing products, and are a leading U.S. provider of residential locksets and builders' hardware and a leading provider of faucets. The HHI Business has a broad portfolio of recognized brands names, including Kwikset, Weiser, Baldwin, National Hardware, Stanley, FANAL and Pfister, as well as patented technologies such as Smartkey, a rekeyable lockset technology, and Smart Code Home Connect. HHI Business customers include retailers, non-retailers and homebuilders. The HHI Business has sales offices, manufacturing facilities and distribution centers in the U.S., Canada, Mexico and Asia.
We sell our products in approximately 140 countries through a variety of trade channels, including retailers, wholesalers and distributors, hearing aid professionals, industrial distributors and original equipment manufacturers ("OEMs") and enjoy strong name recognition in our markets under the Rayovac, VARTA and Remington brands, each of which has been in existence for more than 80 years, and under the Tetra, 8-in-1, Dingo, Nature's Miracle, Spectracide, Cutter, Hot Shot, Black & Decker, George Foreman, Russell Hobbs, Farberware, Black Flag, FURminator, the previously mentioned HHI Business brands and various other brands.
Our diversified global branded consumer products have positions in seven major product categories: consumer batteries; small appliances; pet supplies; electric shaving and grooming; electric personal care; home and garden controls; and hardware and home improvement, which consists of the recently acquired HHI Business.
Our chief operating decision-maker manages the businesses in four vertically integrated, product-focused reporting segments: (i) Global Batteries & Appliances, which consists of our worldwide battery, electric shaving and grooming, electric personal care, and small appliances primarily in the kitchen and home product categories ("Global Batteries & Appliances"); (ii) Global Pet Supplies, which consists of our worldwide pet supplies business ("Global Pet Supplies"); (iii) Home and Garden Business, which consists of our home and garden and insect control business (the "Home and Garden Business"); and (iv) Hardware & Home Improvement, which consists of the recently acquired HHI Business ("Hardware & Home Improvement"). Management reviews our performance based on these segments. For information pertaining to our business segments, see Note 12, "Segment Results" of Notes to Condensed Consolidated Financial Statements (Unaudited), included in this Quarterly Report on Form 10-Q. Global and geographic strategic initiatives and financial objectives are determined at the corporate level. Each business segment is responsible for implementing defined strategic initiatives and achieving certain financial objectives and has a general manager responsible for sales and marketing initiatives and the financial results for all product lines within that business segment.


Table of Contents

Our operating performance is influenced by a number of factors including:
general economic conditions; foreign exchange fluctuations; trends in consumer markets; consumer confidence and preferences; our overall product line mix, including pricing and gross margin, which vary by product line and geographic market; pricing of certain raw materials and commodities; energy and fuel prices; and our general competitive position, especially as impacted by our competitors' advertising and promotional activities and pricing strategies.

Results of Operations
Fiscal Quarter and Fiscal Six Months Ended March 31, 2013 Compared to Fiscal Quarter and Fiscal Six Months Ended April 1, 2012 In this Quarterly Report on Form 10-Q we refer to the three month period ended March 31, 2013 as the "Fiscal 2013 Quarter," the six month period ended March 31, 2013 as the "Fiscal 2013 Six Months," the three month period ended April 1, 2012 as the "Fiscal 2012 Quarter," and the six month period ended April 1, 2012 as the "Fiscal 2012 Six Months."

Net Sales. Net sales for the Fiscal 2013 Quarter increased $242 million to $988 million from $746 million in the Fiscal 2012 Quarter, a 32% increase. The following table details the principal components of the change in net sales from the Fiscal 2012 Quarter to the Fiscal 2013 Quarter (in millions):

                                                    Net Sales
Fiscal 2012 Quarter Net Sales                      $     746
Addition of hardware and home improvement products       257
Increase in pet supplies                                   5
Increase in electric personal care products                1
Decrease in electric shaving and grooming products        (3 )
Decrease in consumer batteries                            (3 )
Decrease in small appliances                              (4 )
Decrease in home and garden control products              (8 )
Foreign currency impact, net                              (3 )
Fiscal 2013 Quarter Net Sales                      $     988

Net sales for the Fiscal 2013 Six Months increased $263 million to $1,858 million from $1,595 million in the Fiscal 2012 Six Months, a 16% increase. The following table details the principal components of the change in net sales from the Fiscal 2012 Six Months to the Fiscal 2013 Six Months (in millions):

                                                    Net Sales
Fiscal 2012 Six Months Net Sales                   $    1,595
Addition of hardware and home improvement products        290
Increase in pet supplies                                   11
Increase in consumer batteries                              4
Increase in electric personal care products                 2
Decrease in home and garden control products               (1 )
Decrease in electric shaving and grooming products         (5 )
Decrease in small appliances                              (28 )
Foreign currency impact, net                              (10 )
Fiscal 2013 Six Months Net Sales                   $    1,858

Consolidated net sales by product line for the Fiscal 2013 Quarter, the Fiscal 2012 Quarter, the Fiscal 2013 Six Months and the Fiscal 2012 Six Months are as follows (in millions):


Table of Contents

Fiscal Quarter Fiscal Six Months
2013 2012 2013 2012
Product line net sales
Consumer batteries $ 200 $ 205 $ 471 $ 473 Small appliances 155 159 375 403 Pet supplies 160 156 300 291 Home and garden control products 102 110 133 134 Electric personal care products 61 60 143 142 Electric shaving and grooming products 53 56 146 152 Hardware and home improvement products 257 - 290 - Total net sales to external customers $ 988 $ 746 $ 1,858 $ 1,595

Global consumer battery sales decreased $5 million, or 2%, during the Fiscal 2013 Quarter versus the Fiscal 2012 Quarter. Excluding the negative foreign exchange impacts of $2 million, global consumer battery sales decreased $3 million, or 1%. The decline in global consumer battery sales on a constant currency basis was driven by inventory management at key vendors, tempered by new customer listings and promotions, expanded placements at a key customer and successful new product launches. Global consumer battery sales decreased $2 million, or less than 1%, during the Fiscal 2013 Six Months compared to the Fiscal 2012 Six Months. Excluding the impact of negative foreign exchange of $6 million, global consumer battery sales increased $4 million, or 1%. The constant currency increase in global consumer battery sales was primarily attributable to new customer listings and promotions, geographic expansion in Eastern Europe and increased portable lighting sales due to successful new product offerings and severe weather in the U.S., tempered by the inventory management at key venders discussed above for the Fiscal 2013 Quarter.
Small appliance sales decreased $4 million, or 3%, during the Fiscal 2013 Quarter compared to the Fiscal 2012 Quarter, driven by decreased North American sales of $10 million, partially offset by increased European and Latin American sales of $6 million and $1 million, respectively. Foreign exchange negatively impacted small appliance sales by $1 million. Decreased North American sales were attributable to the exit of low margin products, which drove an overall increase in profitability as a percentage of net sales for the product line. The increase in European sales was driven by market share gains in the United Kingdom and regional expansion in both Eastern and Western Europe. Gains within Latin America were driven by increased food preparation and other home appliance sales, tempered by a reduction in sales to customers who export to Venezuela in response to increased challenges to obtain U.S. dollar payments for goods. Small appliances sales decreased $28 million, or 7%, during the Fiscal 2013 Six Months versus the Fiscal 2012 Six Months, primarily attributable to declines in North American and Latin American sales of $36 million and $2 million, respectively, partially offset by a $10 million increase in European small appliance sales. The North American and European sales fluctuations were driven by the same factors mentioned above for the Fiscal 2013 Quarter. The decline in Latin American small appliance sales was driven by the previously mentioned reduction in sales to customers who export to Venezuela.
Pet supply sales increased $4 million, or 2%, during the Fiscal 2013 Quarter, attributable to increased companion animal sales of $7 million, tempered by decreased aquatics sales of $2 million and $1 million in negative foreign currency exchange impacts. Gains in companion animal sales were driven by growth in the Dingo brand and increased litter pan sales in North America and Europe. The slight decline in aquatics sales resulted from record cold temperatures in Europe which drove down nutrition and water care product sales related to outdoor ponds, partially offset by increased aquarium starter kits and systems sales in North America. Pet supply sales increased $9 million, or 3%, during the Fiscal 2013 Six Months versus the Fiscal 2012 Six Months, primarily attributable to increased companion animal sales of $14 million, driven by the factors discussed above for the Fiscal 2013 Quarter, coupled with the inclusion of sales of FURminator for the full period, as the acquisition of FURminator was completed on December 22, 2011. Increased companion animal sales for the Fiscal 2013 Six Months were tempered by lower aquatics sales of $2 million, driven by the factors discussed above for the Fiscal 2013 Quarter. Foreign exchange negatively impacted pet supply sales in the Fiscal 2013 Six Months by $3 million.
Home and garden control product sales decreased $8 million, or 7%, during the Fiscal 2013 Quarter compared to the Fiscal 2012 Quarter, driven by lower lawn and garden sales of $7 million and a slight decline in household insect control sales. This was the result of unseasonably cold weather in the U.S. during the Fiscal 2013 Quarter compared to near record warm weather in the U.S. during the Fiscal 2012 Quarter. Home and garden product sales decreased $1 million, or 1%, in the Fiscal 2013 Six Months versus the Fiscal 2012 Six Months, also attributable to the cold U.S. weather experienced in the Fiscal 2013 Quarter, tempered by gains in the first quarter of the fiscal year ended September 30, 2013 ("Fiscal 2013") from new retail


Table of Contents

distribution, inclusion of Black Flag sales for the full period, as the acquisition was completed on October 31, 2011, and retail replenishment following strong retail sales in the fourth quarter of the fiscal year ended September 30, 2012 ("Fiscal 2012").
Electric personal care sales increased $1 million, or 2%, during the Fiscal 2013 Quarter compared to the Fiscal 2012 Quarter driven by increases in North America and Latin America resulting from distribution gains and successful new product launches. Electric personal care sales increased $1 million, or 1%, in the Fiscal 2013 Six Months versus the Fiscal 2012 Six Months, primarily attributable to sales increases of $1 million in both Europe and North America, tempered by $1 million negative foreign exchange impacts. The increases were driven by successful promotional activities related to new product launches and customer gains in Europe, as well as the factors described above for the Fiscal 2013 Quarter.
During the Fiscal 2013 Quarter, electric shaving and grooming product sales decreased $3 million, or 5%, driven by a $3 million decrease in North American sales, slight sales declines in Latin America and negative foreign exchange. The declines were partially offset by a $1 million increase in European sales. The declines in North American sales were due to decreased retail space available for the product category at a major retailer and the timing of shipments; whereas, European sales gains were driven by successful new product launches. Electric shaving and grooming product sales decreased $6 million, or 4%, during the Fiscal 2013 Six Months compared to the Fiscal 2012 Six Months, attributable to a $7 million decline in North American sales and $1 million of negative foreign currency impacts, partially offset by a $2 million increase in European sales. North American sales declines were driven by labor disruptions at U.S. ports of entry during the peak holiday period coupled with the factors discussed above for the Fiscal 2013 Quarter, while European sales gains were driven by successful new product launches, promotions and customer gains.
Hardware and home improvement sales were $257 million during the Fiscal 2013 Quarter and $290 million for the Fiscal 2013 Six Months, reflecting the results of the HHI Business subsequent to the acquisition on December 17, 2012. Gross Profit. Gross profit for the Fiscal 2013 Quarter was $323 million versus $260 million for the Fiscal 2012 Quarter. Our gross profit margin for the Fiscal 2013 Quarter decreased to 32.7% from 34.8% in the Fiscal 2012 Quarter. The HHI Business contributed $64 million in Gross profit. The decrease in gross profit margin was driven by a $26 million increase to cost of goods sold due to the sale of inventory which was revalued in connection with the acquisition of the HHI Business, which more than offset improvements to gross profit resulting from the exit of low margin products in our small appliances category.
Gross profit for the Fiscal 2013 Six Months was $611 million versus $544 million for the Fiscal 2012 Six Months. Our gross profit margin for the Fiscal 2013 Six Months decreased to 32.9% from 34.1% in the Fiscal 2012 Six Months. The HHI Business contributed $68 million in Gross profit. The decrease in gross profit margin was driven by a $31 million increase to cost of goods sold due to the sale of inventory which was revalued in connection with the acquisition of the HHI Business, which more than offset improvements to gross profit resulting from the exit of low margin products in our small appliances category.
Operating Expense. Operating expenses for the Fiscal 2013 Quarter totaled $271 million compared to $205 million for the Fiscal 2012 Quarter, representing an increase of $66 million. The increase in operating expenses during the Fiscal 2013 Quarter is primarily attributable to the acquisition of the HHI Business which accounted for $58 million in operating expenses and led to a $4 million increase in Acquisition and integration related charges. Furthermore, we incurred a $3 million increase in Restructuring and related charges and an increase in stock compensation expense of $4 million, tempered by positive foreign exchange impacts of $2 million.
Operating expenses for the Fiscal 2013 Six Months totaled $491 million compared to $405 million for the Fiscal 2012 Six Months. The $86 million increase in operating expenses during the Fiscal 2013 Six Months is primarily attributable to the acquisition of the HHI Business which accounted for $65 million in operating expenses and led to a $17 million increase in Acquisition and integration related charges. Furthermore, we incurred a $5 million increase in Restructuring and related charges and an increase in stock compensation expense of $3 million, tempered by positive foreign exchange impacts of $4 million. See "Acquisition and Integration Related Charges" below, as well as Note 2, "Significant Accounting Policies-Acquisition and Integration Related Charges," to our Condensed Consolidated Financial Statements (Unaudited) included in this Quarterly Report on Form 10-Q for additional information regarding our Acquisition and integration related charges.

Segment Results. As discussed above, we manage our business in four reportable segments: (i) Global Batteries & Appliances; (ii) Global Pet Supplies; (iii) our Home and Garden Business; and (iv) Hardware & Home Improvement.
The operating segment profits do not include restructuring and related charges, acquisition and integration related charges, interest expense, interest income and income tax expense. Corporate expenses primarily include general and


Table of Contents

administrative expenses and global long-term incentive compensation plans which are evaluated on a consolidated basis and not allocated to our operating segments. All depreciation and amortization included in income from operations is related to operating segments or corporate expense. Costs are allocated to operating segments or corporate expense according to the function of each cost center.
All capital expenditures are related to operating segments. Variable allocations of assets are not made for segment reporting.
Financial information pertaining to our reportable segments is contained in Note 12, "Segment Results," to our Condensed Consolidated Financial Statements (Unaudited) included in this Quarterly Report on Form 10-Q. Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") is a metric used by management and frequently used by the financial community which provides insight into an organization's operating trends and 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 can also be a useful measure of a company's ability to service debt and is one of the measures used for determining our debt covenant compliance. Adjusted EBITDA excludes certain items that are unusual in nature or not comparable from period to period. While we believe that Adjusted EBITDA is useful supplemental information, such adjusted results are not intended to replace our Generally Accepted Accounting Principles' ("GAAP") financial results and should be read in conjunction with those GAAP results.

Below are reconciliations of GAAP Net income (loss), as adjusted, to Adjusted Earnings Before Interest and Taxes ("EBIT") and to Adjusted EBITDA for each segment and for Consolidated SB Holdings for the Fiscal 2013 Quarter, the Fiscal 2013 Six Months, the Fiscal 2012 Quarter and the Fiscal 2012 Six Months:

  Add SPB to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for SPB - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.