Spectrum Brands Holdings, Inc. (SPB)

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 in this Annual Report. Unless the context indicates otherwise, the terms the “Company,” “we,” “our” or “us” are used to refer to SBH and its subsidiaries, collectively.

Non-GAAP Measurements

Our consolidated results contain non-GAAP metrics such as organic net sales, Adjusted EBITDA and Adjusted EBITDA margin. While we believe organic net sales and Adjusted EBITDA are useful supplemental information, such adjusted results are not intended to replace our financial results in accordance with Accounting Principles Generally Accepted in the United States (“GAAP”) and should be read in conjunction with those GAAP results.

Organic Net Sales. We define organic net sales as net sales excluding the effect of changes in foreign currency exchange rates and impact from acquisitions (where applicable). We believe this non-GAAP measure provides useful information to investors because it reflects regional and operating segment performance from our activities without the effect of changes in currency exchange rates and acquisitions. We use organic net sales as one measure to monitor and evaluate our regional and segment performance. Organic growth is calculated by comparing organic net sales to net sales in the prior year. The effect of changes in currency exchange rates is determined by translating the current period net sales using the currency exchange rates that were in effect during the prior comparative period. Net sales are attributed to the geographic regions based on the country of destination. We exclude net sales from acquired businesses in the current year for which there are no comparable sales in the prior period.

The following is a reconciliation of net sales to organic net sales of for the year ended September 30, 2024, compared to net sales for the year ended September 30, 2023:

Adjusted EBITDA and adjusted EBITDA Margin. Adjusted EBITDA and adjusted EBITDA margin are non-GAAP metrics used by management, which we believe are useful to investors to measure the operational strength and performance of our business. These metrics provide investors additional information about our operating profitability for certain non-cash items, non-routine items we do not expect to continue at the same level in the future, as well as other items not core to our continuing operations. By providing these measures, together with a reconciliation of the most directly comparable GAAP measure, we believe we are enhancing investors' understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives, as securities analysts and other interested parties use such calculations as a measure of financial performance and debt service capabilities, and they are regularly used by management and our board of directors for internal purposes in evaluating our business performance, making budgeting decisions, and comparing our performance against other peer companies using similar measures. They facilitate 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 11 - Debt in the Notes to the Consolidated Financial Statements for additional detail.

EBITDA is calculated by excluding the Company’s income tax expense, interest expense, depreciation expense and amortization expense (from intangible assets) from net income. Adjusted EBITDA also excludes certain non-cash adjustments including share based compensation (see Note 18 - Share Based Compensation in the Notes to the Consolidated Financial Statements for further detail); impairment charges on property, plant and equipment, right of use 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 in the Notes to the Consolidated Financial Statements for further detail, respectively); gain or loss from the early extinguishment of debt through the repurchase or early redemption of debt (See Note 11 - Debt in the Notes to the Consolidated Financial Statements for further detail); and purchase accounting adjustments recognized in income subsequent an acquisition attributable to the step-up in value on assets acquired, including, but not limited to, inventory or 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 in the Notes to the Consolidated Financial Statements 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. Adjusted EBITDA margin is adjusted EBITDA as a percentage of reported net sales.

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The following is a reconciliation of net income (loss) from continuing operations to Adjusted EBITDA and Adjusted EBITDA margin for the years ended September 30, 2024 and 2023:

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1 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. Refer to Strategic Transactions, Restructuring and Optimization Initiatives discussion within the Business Overview section for further detail.

2 Incremental net costs from product recalls in the HPC segment. See Note 20 - Commitments and Contingencies in the Notes to the Consolidated Financial Statements for further detail.

3 Non-cash gain from the remeasurement of a contingent consideration liability associated with the Tristar Business acquisition.

4 Gain from the receipt of insurance proceeds on representation and warranty policies associated with the Tristar Business acquisition. See Note 20 Commitments and Contingencies in the Notes to the Consolidated Financial Statements for further detail.

5 Litigation costs primarily associated with the Tristar Business acquisition. See Note 20 - Commitments and Contingencies in the Notes to the Consolidated Financial Statements for further detail.

6 Non-cash write-off from disposal of HPC inventory. See Note 8 - Inventory in the Notes to the Consolidated Financial Statements, for further detail.

7 Other is attributable to (1) other 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 (5) impact from the early settlement of foreign currency cash flow hedges during September 30, 2023, as previously reported, and (6) tolling agreement costs during September 30, 2023 following the divestiture of the Coevorden operating facility, as previously reported.

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Business Overview

The following section provides a general description of our business as well as recent developments for the years ended September 30, 2024 and 2023, which we believe are important to understanding our results of operations, our financial condition, and anticipated future trends. Refer to Item 1 - Business and Note 1 - Description of Business in the Notes to the Consolidated Financial Statements for an overview of our business. For a discussion of our fiscal 2022 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, 2023, filed with the SEC on November 21, 2023.

Strategic transactions, restructuring and optimization initiatives

The Company periodically evaluates and enters into strategic transactions that may result in the acquisition or divestiture of a business which impacts the comparability of the financial results of the consolidated group and or segments. Additionally, we develop and enter into restructuring and optimization initiatives to improve efficiencies and utilization to reduce costs, increase revenues and improve margins, which may have a significant impact on the comparability of financial results on the consolidated financial statements. These changes and updates are inherently difficult and are made even more difficult by current global economic conditions. Our ability to achieve the anticipated cost savings and other benefits from such operating strategies may be affected by a number of other macro-economic factors, or inflation and increased interest rates, many of which are beyond our control. Moreover, the comparability of financial information may be impacted by incremental amounts attributable to such strategic transactions, restructuring and optimization initiatives. The following is a summary of costs attributable to strategic transactions and business development costs that are considered as having a significant impact on the comparability of the financial results on the consolidated financial statements and segment financial information, for the respective projects during the years ended September 30, 2024 and 2023:

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1 Costs attributable to the HHI divestiture effective June 2023 consisting of legal and professional fees to effect the close of the transaction and subsequent costs to facilitate separation and transition of systems and processes subject to transition services agreements (“TSAs”). Costs are expected to be incurred through the transition period of up to 24 months following the close of the transaction as the Company exits various TSAs. See Note 3 - Divestitures in the Notes to the Consolidated Financial Statements for further discussion.

2 Costs attributable to efforts to facilitate a strategic separation of the HPC segment either through a spin, merger or sale, consisting of legal and professional fees to facilitate transaction opportunities and diligence, consult on tax and compliance implications, legal entity restructurings, system and process segregation, carve-out financials and the confidential filing of a Form 10 registration statement in July 2024. Costs are expected to be incurred until a transaction is realized.

3 Costs attributable to a multi-year transformation project to upgrade and implement our enterprise-wide operating systems to SAP S/4 HANA on a global basis, including project management and professional services for planning, design, and business process review that do not qualify as software configuration and implementation costs recognized as capital expenditures or deferred costs under applicable accounting principles. Costs are anticipated to be incurred through various deployments through September 30, 2025.

4 Costs attributable to the integration of the Tristar Business with the HPC segment, acquired in February 2022, consisting of the integration of systems and processes, and the merger of commercial operations, supply chain and other shared enabling functions.

5 Other costs primarily consist of professional fees for business transformation initiatives, strategy development and distribution center transitions.

Exit and Disposal Activity

The Company periodically recognizes exit and disposal costs primarily consisting of severance and contract termination costs that may be attributable to a reorganization or restructuring of the Company, cost savings initiatives, or in consideration of a recent strategic transaction. Such actions results in the recognition of costs to the Company that are considered incremental and not reflective of the continuing operating costs of the business and may impact the comparability of the consolidated business and its segments. Refer to the Note 4 - Exit and Disposal Activities in the Notes to the Consolidated Financial Statements for further detail.

Refinancing Activity

The following recent financing activity has a significant impact on the comparability of financial results on the consolidated financial statements.

•On May 23, 2024, the Company completed its offering of $350.0 million principal amount of 3.375% Exchangeable Senior Notes due June 1, 2029 (the “Exchangeable Notes”), recognizing $11.8 million of fees and expenses which were capitalized as debt issuance costs and will be amortized over the term of the Exchangeable Notes.

•Concurrent with the issuance of the Exchangeable Notes during the year ended September 30, 2024, the Company completed a tender offer on the aggregate outstanding principal balance of the 4.00% Senior Notes due 2026 (the “2026 Notes”), the 5.00% Senior Notes due 2029, the 5.50% Senior Notes due 2030, and the 3.875% Senior Notes due 2031 (the “2031 Notes”) (collectively, the “Tendered Notes”) and redeemed the remaining outstanding principal balance of the 2026 Notes, resulting in the reduction of the principal debt balance of $1,174.4 million and recognition of a loss on early extinguishment of $2.2 million.

•During the years ended September 30, 2024 and 2023, the Company repurchased outstanding bonds in the open market at a discount resulting in the recognition of a gain on extinguishment of $4.7 million and $7.9 million, respectively.

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•During the year ended September 30, 2023, following the close of the HHI divestiture in June 2023, the Company repaid its outstanding term loan and all outstanding borrowings with the Revolver Facility under the Credit Agreement, and terminated the Incremental Revolving Credit Facility Tranche, along with the remaining $450.0 million aggregate principal amount of 5.750% Senior Notes due 2025 in full at the redemption price. The Company recognized $10.8 million as a loss from the early extinguishment of debt.

•Additionally, during the year ended September 30, 2023, and prior to the closing of the HHI divestiture, the Company entered into the fourth amendment to the Credit Agreement to temporarily increase the maximum consolidated total net leverage ratio permitted to be no greater than 7.0 to 1.0 before returning to 6.0 to 1.0 at the earliest of (i) September 29, 2023, or (ii) 10 business days after the closing of the HHI divestiture or receipt of the related termination fee. Following the close of the HHI divestiture, the maximum consolidated total net leverage ratio was reverted to 6.0 to 1.0. The Company incurred $2.3 million in connection with the fourth amendment, which has been recognized as interest expense.

See Note 11 - Debt in the Notes to the Consolidated Financial Statements for additional detail regarding debt and refinancing activity.

Tristar Business Acquisition

Following the purchase of the Tristar Business in February 2022, the Company and its HPC segment had been detrimentally impacted by aspects of the acquired business’ operations and products, which 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 returns, and overall increased amount of costs. Additionally, the segment has subsequently realized losses attributable to the recognition of product recalls for products associated with the brands, increased risks over the realizability of receivables and inventory, and recognized an impairment on assets including the acquired goodwill and tradename intangible assets. The Company disposed of certain inventory and products associated with the acquired brands, further discussed in Note 8 - Inventory in the Notes to the Consolidated Financial Statements. 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. The Company is pursuing avenues to remediate and recover such damages and losses realized since the acquisition. 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 associated with the Tristar Business acquisition, further discussed in Note 20 - Commitments and Contingencies in the Notes to the Consolidated Financial Statements.

Inflation, Supply Chain and Macroeconomic Environment.

The Company experienced an inflationary environment on a global basis in the wake of the COVID-19 pandemic, geopolitical instability and supply chain constraints such as labor shortages, increased freight and distribution costs from transportation and logistics, higher commodity costs, rising energy pricing, and foreign currency volatility. Together with labor shortages and higher demand for talent, the current economic environment has driven higher wages. Our ability to meet labor needs, control wage and labor-related costs and minimize labor disruptions will be key to our success of operating our business and executing our business strategies. In response to inflation, our segments had previously taken pricing actions to address rising costs and foreign currency fluctuations to mitigate impacts to our margins. We can provide no assurance that such mitigation would be available in the future.

While we have seen more stability in the recent economic environment and have not experienced significant disruption in our recent operating results, the risks of future negative impacts due to transportation, logistical or supply constraints remain present, and the Company could continue to experience corresponding incremental costs and margin pressures. We are unable to predict how long the current environment will continue and we expect the economic environment to remain uncertain as we navigate the current geopolitical environment, post-pandemic volatility, labor challenges, changes in supply chain and the overall current economic environment.

The Company does not maintain a significant level of operations within the territories directly affected by the Russia-Ukraine war and the Israel-Hamas war, including the Middle East, and we closed our commercial operations within Russia, but economic sanctions and hostilities attributable to such conflicts may negatively impact ours and our customers' financial viability and supply chains, which may negatively impact us, supply chain demands, or the demands or economic viability of our customers in other parts of the world.

Consolidated Results of Operations

The following section provides an analysis of our operations for the years ended September 30, 2024 and 2023. For a discussion of our fiscal 2022 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, 2022 filed with the SEC on November 22, 2022.

The following is summarized consolidated results of operations for the years ended September 30, 2024 and 2023, respectively:

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Net Sales. The following is a summary of net sales by segment for the years ended September 30, 2024 and 2023 and the principal components of changes in net sales for the respective periods:

Refer to the Segment Financial Data section below for further discussion on net sales.

Gross Profit. The following is a summary of the gross profit and gross profit margin for the years ended September 30, 2024 and 2023, respectively, and the principal factors contributing to the change between periods.

Gross profit and gross profit margin increased predominantly due to lower cost inventory compared to higher inventoried costs realized in the prior period and improved volume. Price and mix did not substantively impact gross profit, with some benefit realized from SKU rationalization initiatives in the prior year and reduction in excess inventory sales. Other includes impact from product recalls and restructuring and optimization initiative costs.

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Selling, General & Administrative. The following summarizes the selling, general & administrative costs for the years ended September 30, 2024 and 2023, respectively, including amounts as a percentage of net sales for each respective period.

Sales, marketing & advertising increased due to the Company’s investment towards marketing spend and brand advertising initiatives across all segments, plus increased incentive compensation costs from higher than anticipated operating performance results. Distribution costs decreased due to improved optimization and fulfillment with customers, with lower freight costs compared to the prior year and overall reduction relative to the increase in sales in the current year. General and administrative costs increased due to higher incentive compensation costs from higher than anticipated operating performance results, partially offset by lowered overhead costs from prior year savings initiatives and decrease in bank fees related to suspended factoring on trade receivables. Research and development increased with investment towards product development but remains consistent with overall sales. Strategic transaction, restructuring and optimization costs decreased due to reduced exit and disposal costs, close of the HHI divestiture and completion of Tristar Business integration in the prior year and other non-recurring transformation initiatives, partially offset by incremental investment towards execution of an HPC separation.

Impairment of Goodwill and Intangible Assets. The Company recognized impairment charges of $45.2 million associated with the Rejuvenate® and OmegaSea® tradenames and a non-core strategic tradename during the year ended September 30, 2024, compared to impairment charges on HPC goodwill of $111.1 million and intangible assets of $120.7 million associated with the Rejuvenate®, PowerXL®, and George Foreman® tradenames, in the prior year. See Note 10 - Goodwill and Intangible Assets in the Notes to the Consolidated Financial Statements.

Representation and Warranty Insurance Proceeds. During the year ended September 30, 2024, the Company recognized a gain of $65.0 million from its representation and warranty insurance policy associated with the Tristar Business acquisition. See Note 20 - Commitments and Contingencies in the Notes to the Consolidated Financial Statements.

Interest Expense. Interest expense decreased due to reduced borrowings following the close of the HHI divestiture in June 2023, plus the issuance of the Exchangeable Notes and tender offer and bond redemption during the year ended September 30, 2024, as discussed in the refinancing activity above, further reducing outstanding principal balance and average borrowing rates. See Note 11 – Debt in the Notes to the Consolidated Financial Statements.

Interest Income. Interest income increased due to interest on term deposits entered into using cash proceeds from the closing of the HHI divestiture in June 2023, with reduced term deposits following the previously discussed tender offer and bond redemption during the year ended September 30, 2024.

(Gain) Loss From Early Extinguishment of Debt. The Company recognized income from discounts realized on the repurchase of debt and losses attributable to the paydown of debt during the years ended September 30, 2024 and 2023 following the close of the HHI divestiture in June 2023, as discussed in the refinancing activity above. See Note 11 - Debt in the Notes to the Consolidated Financial Statements.

Other Non-Operating Expense, Net. Other non-operating expense, net increased primarily due to the changes in foreign currency transaction gains and losses, including the realization of translation loss from the liquidation and de-consolidation of the Company’s Russia operating entity during the year ended September 30, 2024.

Income Taxes. The effective tax rate was 39.3% for the year ended September 30, 2024, compared to 19.5% for the year ended September 30, 2023. Our annual effective tax rate is significantly impacted by income earned outside the U.S. that is subject to U.S. tax including the U.S. tax on global intangible low taxed income, certain nondeductible expenses, state income taxes, and foreign rates that differ from the U.S. federal statutory rate. See Note 16– Income Taxes in the Notes to the Consolidated Financial Statements.

Income From Discontinued Operations. Income from the prior year primarily reflects the income from the HHI segment prior to the completion of its divestiture in June 2023 and the realized gain on sale. Income attributable to discontinued operations in the current year primarily reflects changes to indemnifications associated with the divested businesses and related tax provision adjustments. See Note 3 - Divestitures in the Notes to the Consolidated Financial Statements.

Segment Financial Data

This section provides an analysis of our results of reportable segments for the years ended September 30, 2024 and 2023. For a discussion of our fiscal 2022 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, 2022 filed with the SEC on November 22, 2022.

Global Pet Care (GPC)

Net sales increased 1.1 % with an increase in organic net sales of 0.4% excluding favorable foreign exchange impact of $7.7 million. The increase is primarily attributable to higher volume through incremental distribution in e-commerce and food and drug channels, partially offset by softness in mass retail. Volume growth was predominantly focused on consumables in both product categories, such as chews and treats, dog and cat food, and aquatic nutrition; partially offset by decreases in hard goods primarily in our aquatics categories such as aquarium kits and equipment, and prior year volumes from the exit of non-strategic categories and lower margin SKUs, positively impacting mix and profitability. Adjusted EBITDA and adjusted EBITDA margin increased due to higher volume, improved gross profit margins from reduced material and input costs carrying into the fiscal year, plus reduced operating cost overhead from prior year cost savings initiatives, positive product and channel mix, partially offset by additional investments in marketing and advertising and product innovation.

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Home & Garden (H&G)

Net sales increased 7.8 % due to higher volume across all product categories with favorable weather trends, improved temperatures and precipitation levels driving increased retail traffic and distribution with larger home center and mass retail partners, with a high concentration in Spectracide® and our controls products. Repellent products benefited from an extended season and storms activity driving volume increase later in the season compared to the prior year. Adjusted EBITDA and adjusted EBITDA margin increased due to higher sales volumes, improved gross profit margins from reduced material and input costs and manufacturing efficiencies carrying into the fiscal year, plus reduced operating cost overhead from prior year cost savings initiatives, and favorable product mix partially offset by additional investments in marketing and advertising and product innovations. Adjusted EBITDA excludes an impairment charge of $39.0 million on the Rejuvenate® tradename intangible asset during the year ended September 30, 2024, and an impairment charge of $56.0 million on the Rejuvenate® tradename intangible asset during the year ended September 30, 2023, further discussed in Note 10 -Goodwill and Intangibles in the Notes to the Consolidated Financial Statements.

Home & Personal Care (HPC)

Net sales decreased 0.8 % with a decrease in organic net sales of 0.3% excluding unfavorable foreign currency of $6.1 million. Decrease is attributable to lower volumes from our kitchen appliances product category during the first half of the year from reduced mass retail listings in NA carrying over from the prior year, mitigated by new listings in second half of the year, volume growth in personal care and overall higher volume distribution through e-commerce channels. Adjusted EBITDA and adjusted EBITDA margin increased due to improved profitability with lower product cost, SKU rationalization and reduced excess inventory sales, plus reduced overhead due to operating cost reduction initiatives in the prior year, partially offset by additional investments in marketing and advertising and product innovation. Adjusted EBITDA excludes the recognition of proceeds from representation warranty insurance policies of $65.0 million during the year ended September 30, 2024, further discussed in Note 20 - Commitments and Contingencies in the Notes to the Consolidated Financial Statements, and impairment charges for reporting unit goodwill of $111.1 million and $64.7 million on indefinite lived intangible assets during the year ended September 30, 2023, further discussed in Note 10 - Goodwill and Intangible Assets in the Notes to the Consolidated Financial Statements.

Liquidity and Capital Resources

This section provides a discussion of our financial condition and an analysis of our cash flows for the years ended September 30, 2024 and 2023. For a discussion of our fiscal 2022 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, 2022 filed with the SEC on November 22, 2022. This section also provides a discussion of our contractual operations and other commercial commitments as well as our ability to fund future commitments and operating activities through sources of capital as of September 30, 2024.

The following is a summary of the Company’s net cash flows from continuing operations for the years ended September 30, 2024 and 2023:

Cash flows from operating activities

Cash flows provided by operating activities for continuing operations increased $261.8 million due to the reduction in cash used for working capital, primarily from improved sales and collections, reduced purchasing costs and overall inventory reduction compared to higher supply chain costs in the prior year, lower strategic transactions and restructuring initiative spending, and improved payment terms on payables, partially offset by the reduction in cash provided by receivables due to the suspension of receivables factoring.

Cash flows from investing activities

Cash flows provided by investing activities for continuing operations decreased $2,170.7 million primarily due to the net cash proceeds from the HHI divestiture in the prior year and the investment of net proceeds in short-term investments into the current year.

Cash flows from financing activities

Cash flows used by financing activities for continuing operations decreased $685.1 million due to the pay down of debt, debt repurchases and treasury share repurchases in the current and prior year following the HHI divestiture, and the net issuance of the Exchangeable Notes in the current year. During the year ended September 30, 2024, the Company paid down outstanding Senior Notes through a tender offer, plus engaged in open market repurchases of a portion of outstanding Senior Notes, resulting in total cash used towards the repayment of debt of $1,349.3 million. Concurrent with the tender offer, we issued $350.0 million of Exchangeable Notes and paid premium on associated capped calls of $25.2 million. Refer to Note 11 - Debt in the Notes to Consolidated Financial Statements for additional information. During the year ended September 30, 2024, the Company used $482.7 million for the repurchase of common stock. See Note 17 - Shareholders' Equity in the Notes to Consolidated Financial Statements for additional information. Cash dividend payments decreased due to lower shares outstanding with a consistent quarterly dividend rate of $0.42 per share. There was no issuance of common stock, other than through the Company’s share-based compensation plan, which is recognized as a non-cash financing activity.

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Liquidity Outlook

Our ability to generate cash flow from operating activities coupled with our expected ability to access the credit markets, enables us to execute our growth strategies and return value to our shareholders. Our ability to make principal and interest payments on borrowings under our debt agreements and our ability to fund planned capital expenditures will depend on the ability to generate cash in the future, which, to a certain extent, is subject to general economic, financial, competitive, regulatory and other conditions. Based upon our current and anticipated level of operations, existing cash balances, and availability under our credit facility, we expect cash flows from operations to be sufficient to meet our operating and capital expenditure requirements for at least the next 12 months. Additionally, we believe the availability under our credit facility and access to capital markets are sufficient to achieve our longer-term strategic plans. As of September 30, 2024, the Company has total cash and cash equivalents of $368.9 million and borrowing availability under the credit facility of $490.8 million, net of outstanding letters of credit of $9.2 million, under our credit facility with a total liquidity of $859.7 million.

Short-term financing needs primarily consist of working capital requirements, capital spending, periodic principal and interest payments on our long-term debt, and initiatives to support restructuring, integration or other related projects. Long-term financing needs depend largely on potential growth opportunities, including acquisition activity and repayment or refinancing of our long-term obligations. Our long-term liquidity may be influenced by our ability to borrow additional funds, renegotiate existing debt, and raise equity under terms that are favorable to us. We also have long-term obligations associated with defined benefit plans with expected minimum required contributions that are not considered significant to the consolidated group.

Following the close of the HHI divestiture in June 2023, the Company received a substantial amount of proceeds which the Company used to paydown debt and repurchase treasury shares as well as invest in term deposits, funds operations and support working capital needs During the year ended September 30, 2024, the Company substantially refinanced and reduced its debt obligations through the completion of a tender offer on existing bonds, issuance of the Exchangeable Notes and the repurchase of debt in the open market. See Note 11 - Debt in the Notes to the Consolidated Financial Statements for further detail. The Company may continue to make repayments on its debt obligations in the future, which may include repayments, redemptions, repurchases, refinancing or exchanges of its outstanding Senior Notes, any of which will be dependent on various factors, including market conditions. Any such repurchases may be effected through a variety of means, including privately negotiated transactions, market transactions, tender offers, redemptions or as otherwise required or permitted by the instruments covering the Company’s outstanding indebtedness. The Company also continued to repurchase shares of common stock during the year ended September 30, 2024. See Note 17 - Shareholders' Equity in the Notes to the Consolidated Financial Statements for further detail. We may, from time to time, seek to repurchase additional shares of our common stock and any further repurchase activity will be dependent on prevailing market conditions, liquidity requirements and other factors.

We maintain a capital structure that we believe provides us with sufficient access to credit and capital markets. When combined with strong levels of cash flow from operations, our capital structure has provided the flexibility necessary to pursue strategic growth opportunities and return value to our shareholders. The Company’s access to capital markets and financing costs may depend on the Company’s credit ratings. None of the Company’s current borrowings are subject to default or acceleration as a result of a downgrading of credit ratings, although a downgrade of the Company’s credit ratings could increase fees and interest charges on future borrowings. At September 30, 2024, we were in compliance with all covenants under the Credit Agreement and the indentures governing the 3.375% Exchangeable Notes due June 1, 2029, the 5.00% Notes due October 1, 2029, the 5.50% Notes due July 15, 2030, and the 3.875% Notes due March 15, 2031.

A portion of our cash balance is located outside the U.S. given our international operations. We manage our worldwide cash requirements centrally by reviewing available cash balances across our worldwide group and the cost effectiveness with which this cash can be accessed. We generally repatriate cash from non-U.S. subsidiaries, provided the cost of the repatriation is not considered material. The counterparties that hold our deposits consist of major financial institutions.

The majority of our business is not considered seasonal with a year-round selling cycle that is overall consistent during the fiscal year with the exception of our H&G segment. H&G sales typically peak during the first six months of the calendar year (the Company’s second and third fiscal quarters) due to customer seasonal purchasing patterns and the timing of promotional activity. This seasonality requires the Company to ship large quantities of products ahead of peak consumer buying season that can impact cash flow demands to meet manufacturing and inventory requirements earlier in the fiscal year, as well as extended credit terms and/or promotional discounts throughout the peak season.

From time to time the Company enters into factoring agreements and customers' supply chain financing arrangements to provide for the sale of certain trade receivables to unrelated third-party financial institutions. The factored receivables are accounted for as a sale without recourse, and the balance of the receivables sold are removed from the Consolidated Balance Sheet at the time of the sales transaction, with the proceeds received recognized as an operating cash flow. Amounts received from customers for factored receivables are recognized as a payable and remitted to the factor based upon terms of the factoring agreements. See Note 7 - Receivables in the Notes to the Consolidated Financial Statements for additional detail. The Company has temporarily suspended its receivable factoring activity. Additionally, the Company facilitates a voluntary supply chain financing program to provide certain of its suppliers with the opportunity to sell receivables due from the Company (the Company’s trade payables) to an unrelated third-party financial institution under the sole discretion of the supplier and the participating financial institution. See Note 14 - Supplier Financing Programs in the Notes to the Consolidated Financial Statements for additional detail. There are no guarantees provided by the Company or its subsidiaries and we do not enter into any agreements with the suppliers regarding their participation. The Company’s responsibility is limited to payments on the original terms negotiated with its suppliers, regardless of whether the suppliers sell their receivables to the financial institution and continue to be recognized as accounts payable on the Consolidated Balance Sheet with cash flow activity recognized as an operating cash flow.

Debt obligations

Our debt obligations, excluding finance leases, have varying maturity dates with no material outstanding principal payments due within the following 12 months. Refer to Note 11 - Debt in the Notes to the Consolidated Financial Statements for expiration dates and maturity schedules on outstanding debt obligations for the following 5 years and thereafter. In addition to the outstanding principal on our debt, we anticipate annual interest payments of approximately $22.1 million including unused fees associated with the Revolver Facility with interest of approximately $4.3 million attributable to finance leases. Interest on the notes is payable semi-annually in arrears and interest on borrowings under the Revolver Facility, if any, would be payable on various interest payment dates as provided in the Credit Agreement.

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Lease obligations

The Company enters into leases primarily pertaining to real estate for manufacturing facilities, distribution centers, office space, warehouses, and various equipment including automobiles, machinery, computers, and office equipment, amongst others. Lease obligations with a term in excess of 12 months are recognized on the Consolidated Statement of Financial Position. See Note 12 - Leases of the Notes to the Consolidated Financial Statement for further detail, including maturity schedule on outstanding finance and operating lease obligations for the following 5 years and thereafter, including imputed interest not reflected on the Consolidated Statements of Financial Position, as well as additional disclosure on lease commitments that have not yet commenced and therefore not yet reflected as an obligation on the Consolidated Statements of Financial Position.

Employee benefit plan obligations

The Company and its subsidiaries are sponsors to various defined benefit pension plans covering some of its employees that provide post-employment benefits of stated amounts for each year of service, including non-U.S. pension arrangements, including various retirement and termination benefit plans, some of which are covered by local law or coordinated with government-sponsored plans. The Company’s recognizes an actuarial determined unfunded projected benefit obligation, net fair value of dedicated plan assets. See Note 15 - Employee Benefit Plans in the Notes to the Consolidated Financial Statements for further detail including the projected payments on the outstanding obligation for the following 5 years and thereafter. The Company anticipates that benefit obligations will be predominantly paid through dedicated plan assets. Future contributions to defined benefit plans are not expected to be material to the operations and cash flow for the Company.

Other commitments and obligations

Other commitments and obligations include an outstanding mandatory repatriation tax liability of $11.1 million that is payable over the next 2 years, with $5.2 million due and payable in the next 12 months. Our Consolidated Statements of Financial Position also includes reserves for uncertain tax positions; however, it is not possible to predict or estimate the amount and timing of payments for uncertain tax positions and those liabilities have been excluded from the obligations above. The Company cannot reasonably predict the ultimate outcome of income tax audits currently in progress for certain of our companies. It is reasonably possible that during the next 12 months, some portion of our unrecognized tax benefits could be recognized. See Note 16 – Income Taxes in the Notes to the Consolidated Financial Statements for additional discussion.

The Company has recognized other payables associated with indemnifications following divestitures, including tax indemnifications, that we cannot reasonably predict the ultimate outcome of our obligation; however, it is reasonably possible that during the next 12 months, some portion of our indemnification payable could be recognized. See Note 3 – Divestitures in the Notes to the Consolidated Financial Statements for further discussion. The Company has other obligations associated with various contingent matters includes environmental remediation obligations, product liabilities and warranties, and product recalls. See Note 20 - Commitments and Contingencies in the Notes to the Consolidated Financial Statements for further discussion. 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.

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Guarantor Statements

SBI has issued the 3.375% Exchangeable Notes under the 2029 Indenture and the 3.875% Notes under the 2031 Indentures, (collectively, the “Notes”). The Notes are unconditionally guaranteed, jointly and severally, on a senior unsecured basis by Spectrum Brands Holdings, Inc., as parent guarantor, and SBI’s domestic subsidiaries. The Notes and the related guarantees rank equally in right of payment with all of SBI and the guarantors’ existing and future senior indebtedness and rank senior in right of payment to all of SBI and the guarantors’ future indebtedness that expressively provide for its subordination to the Notes and the related guarantees. Non-guarantor subsidiaries primarily consist of SBI’s foreign subsidiaries. See Note 11 - Debt for further detail.

The following financial information consists of summarized financial information of the Obligor, presented on a combined basis. The “Obligor” consists of the financial statements of SBI as the debt issuer, SBH as a parent guarantor, and the domestic subsidiaries of SBI as subsidiary guarantors. Intercompany balances and transactions between SBI and the guarantors have been eliminated. Investments in non-guarantor subsidiaries and the earnings or losses from those non-guarantor subsidiaries have been excluded.

The Obligor’s amounts due from, due to the non-guarantor subsidiaries as of September 30, 2024, are as follows:

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Critical Accounting Policies and Estimates

Our Consolidated Financial Statements have been prepared in accordance with GAAP and fairly present our financial position and results of operations. The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its accounting estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances and evaluates its estimates on an ongoing basis. The following section identifies and summarizes those accounting policies considered by management to be the most critical to understanding the judgments that are involved in the preparation of our consolidated financial statements and the uncertainties that could impact our results of operations, financial position and cash flows. The application of these accounting policies requires judgment and use of assumptions as to future events and outcomes that are uncertain and, as a result, actual results could differ from these estimates. Refer to Note 2 - Significant Accounting Policies and Practices in the Notes to the Consolidated Financial Statements for all relevant accounting policies.

Goodwill, Intangible Assets and Other Long-Lived Assets

The Company’s goodwill, intangible assets and tangible fixed assets are stated at historical cost, net of depreciation and amortization, less any provision for impairment. Intangible and tangible assets with determinable useful lives are amortized or depreciated on a straight-line basis over estimated useful lives. Refer to Note 2 - Significant Accounting Policies and Practices in the Notes to the Consolidated Financial Statements for more information about useful lives.

On an annual basis, during the fourth quarter of the fiscal year, or more frequently if triggering events occur, the Company tests for impairment of goodwill by either performing a qualitative assessment or quantitative test for some or all reporting units. Our reporting units are consistent with our operating segments. See Note 21 - Segment Information in the Notes to the Consolidated Financial Statements for further discussion of operating and reporting segments. The Company evaluates qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. In performing a qualitative assessment, the Company considers events and circumstances, including, but not limited to macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, changes in management or key personnel, changes in strategy, changes in customers, changes in market value, composition or carrying amount of a reporting unit's net asset, and considering change in the market price of the Company’s common stock. If we determine that it is more likely than not the carrying value is greater than the fair value of a reporting unit after assessing the totality of facts and circumstances, a quantitative assessment is performed to determine the reporting unit fair value and measure the impairment. The estimated fair value represents the amount at which a reporting unit could be bought or sold in a current transaction between willing parties on an arms-length basis. In estimating the fair value of the reporting unit, we use both an income approach and a market approach. The income approach is a discounted cash flows methodology, which requires us to estimate future revenues, expenses, and capital expenditures and make assumptions about our weighted average cost of capital and perpetuity growth rate, among other variables. The market approach is a guideline public company method that assesses value of our reporting unit based upon market multiples derived from financial results of selected comparable companies. We test the aggregate estimated fair value of our reporting units by comparison to our total market capitalization, including both equity and debt capital. If the fair value of a reporting unit is less than its carrying value, an impairment loss is recorded for the difference between the fair value of the reporting unit goodwill and its carrying value. During the year ended September 30, 2024, the Company had no impairments of goodwill for any of its reporting units. See Note 10 - Goodwill and Intangible Assets in the Notes to the Consolidated Financial Statements for further discussion.

The Company also has indefinite-lived intangible assets that consist of acquired tradenames. On an annual basis, during the Company’s fourth quarter, or more frequently if triggering events occur, the Company tests for impairment by either performing a qualitative assessment or quantitative test for some or all indefinite-lived intangible assets. The Company evaluates qualitative factors to determine whether it is more likely than not that the fair value of the indefinite lived intangible assets is less than its carrying amount. In performing a qualitative assessment, the Company considers events and circumstances including, but not limited to, macroeconomic conditions, industry and market conditions, cost factors, changes in strategy and overall financial performance. If we determine that it is more likely than not the carrying value is greater than the fair value of an indefinite lived intangible asset, a quantitative assessment is performed to determine the fair value and measure the impairment. The fair value of indefinite-lived intangible assets is determined using an income approach, the relief-from-royalty methodology, which requires us to make estimates and assumptions about future revenues, royalty rates, and the discount rate, among others. If the fair value is less than its carrying value, an impairment loss is recorded for the excess. During the year ended September 30, 2024, we recognized an impairment charge for the Rejuvenate® tradename and a non-core tradename in response to triggering events identified earlier in the fiscal year, plus an impairment charge for the OmegaSea® tradename as part of our annual impairment analysis in the fourth quarter. See Note 10 - Goodwill and Intangible Assets in the Notes to the Consolidated Financial Statements for further discussion.

There is potential risk of impairment primarily associated with the Rejuvenate® and PowerXL® tradenames, with a cumulative carrying cost of $45.0 million as of September 30, 2024, attributable to recent impairment charges on the respective tradenames and recent operating performance results for the respective brands. We do not anticipate that these assets will be subject to further impairment based upon our projections and forecasts used in evaluating the current market value but cannot guarantee that no future impairment will be realized. The risk of future impairment for the Rejuvenate® and PowerXL® tradenames are based upon the results realized during the year ended September 30, 2024, recent impairments on the respective tradenames and dependency upon the timing and realization of projected revenues and growth strategies.

The Company also reviews other definite-lived intangible assets, tangible fixed assets and operating lease assets for impairment when events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Circumstances such as the discontinuation of a product or product line, a sudden or consistent decline in the sales forecast for a product, changes in technology or in the way an asset or asset group is being used, a history of operating or cash flow losses or an adverse change in legal factors or in the business climate, among others, may trigger an impairment review. If such indicators are present, the Company performs undiscounted cash flow analyses to determine if impairment exists. The asset value would be deemed impaired if the undiscounted cash flows expected to be generated by the asset or asset group did not exceed its carrying value. If impairment is determined to exist, any related impairment loss is calculated based on fair value. For the year ended September 30, 2024, the Company recognized an impairment on a right of use operating lease asset associated with the HPC distribution facilities that were exited prior to end of its term. See Note 12 - Leases in the Notes to the Consolidated Financial Statements for further discussion.

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A considerable amount of judgment and assumptions are required in performing the impairment tests, principally in determining the fair value of each reporting unit and assets subject to impairment testing. The assessment for the impairment of goodwill, intangible assets and other long-lived assets requires the consideration of a significant level of judgement and subjectivity, including the use of prospective financial information, which may be impacted by changes in the economic environment, future strategic business decisions, political, legal or regulatory conditions, competitive or market risk factors not readily identifiable or present, or other changes that may negatively impact prospective revenue generation or cash flow. Such changes may not be determinable but could adversely impact the fair value of its reporting unit goodwill, intangible assets or other long-lived assets and increase the risk of impairment, particularly associated with those assets recently acquired through a business without generating excess value since the initial acquisition. The Company believes its judgments and assumptions are reasonable, but different assumptions could change the estimated fair value, increasing the risk of impairment and potentially additional impairment charges could be required. The Company is subject to financial statement risk in the event that business or economic conditions unexpectedly decline and impairment is realized.

Income Taxes

The Company is subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes and recording the related deferred tax assets and liabilities.

The Company assesses its income tax positions and records tax liabilities for all years subject to examination based upon management’s evaluation of the facts and circumstances and information available for reporting. For those income tax positions where it is more likely than not that a tax benefit will be sustained upon conclusion of an examination, the Company has recorded a reserve based upon the largest amount of tax benefit having a cumulatively greater than 50% likelihood of being realized upon ultimate settlement with the applicable taxing authority assuming that it has full knowledge of all relevant information. For those income tax positions where it is more likely than not that a tax benefit will not be sustained, the Company did not recognize a tax benefit. As of September 30, 2024, the total amount of unrecognized tax benefits, including interest and penalties, that if not recognized would affect the effective tax rate in future periods was $108.5 million. Our effective tax rate includes the impact of income tax reserves and changes to those reserves when considered appropriate. A number of years may elapse before a particular matter for which we have established a reserve is finally resolved. Unfavorable settlement of any particular issue may require the use of cash or a reduction in our net operating loss carryforwards or tax credits. Favorable resolution would be recognized as a reduction to the effective rate in the year of resolution.

The Company recognizes deferred tax assets and liabilities for future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases, net operating losses, tax credit, and other carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company does not adjust its measurement for proposed future tax rate changes that have not yet been enacted into law. The Company regularly reviews its deferred tax assets for recoverability and establishes a valuation allowance based on historical losses, projected future taxable income, expected timing of the reversals of existing temporary differences, and ongoing prudent and feasible tax planning strategies. We base these estimates on projections of future income, including tax planning strategies, in certain jurisdictions. Changes in industry conditions and other economic conditions may impact our ability to project future income. Should we determine that we would not be able to realize all or part of our net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period we make that determination.

As of September 30, 2024, we have U.S. federal net operating loss carryforwards (“NOLs”) of $569.2 million, with a federal tax benefit of $119.5 million and future tax benefits related to state NOLs of $42.8 million. Our total valuation allowance for the tax benefit of deferred tax assets that may not be realized is $321.4 million at September 30, 2024. Of this amount, $203.6 million relates to U.S. net deferred tax assets and $117.8 million relates to foreign net deferred tax assets. We estimate that $131.7 million of valuation allowance related to domestic deferred tax assets cannot be released regardless of the amount of domestic operating income generated due to prior period ownership changes that limit the amount of NOLs and credits we can use.

As of September 30, 2024, we have provided no significant residual U.S. taxes on earnings not yet taxed in the U.S. As of September 30, 2024, we project $1.7 million of additional tax from non-U.S. withholding and other taxes expected to be incurred on repatriation of foreign earnings.

See Note 16 - Income Taxes in the Notes to the Consolidated Financial Statements elsewhere included in this Annual Report.

New Accounting Pronouncements

See Note 2 – Significant Accounting Policies and Practices in the Notes to the Consolidated Financial Statements elsewhere included in this Annual Report for information about recent accounting pronouncements not yet adopted.

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, 2023 and 2022, 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 the Notes to the Consolidated Financial Statements, included elsewhere in this Annual Report for an overview of our business. For a discussion of our fiscal 2021 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, 2022 filed with the SEC on November 22, 2022.

Acquisitions, Divestitures and Other Business Development Initiatives

The Company periodically evaluates strategic transactions that may result in the acquisition of a business or assets that qualify as a business combination, or a divestiture of a business or assets that may be recognized as either a component of continuing operations or discontinued operations, depending on the significance to the consolidated group. Acquisitions may impact the comparability of the consolidated or segment financial information, with the inclusion of the operating results for the acquired business in periods subsequent to acquisition date, the inclusion of acquired assets, both tangible and intangible (including goodwill), and the related amortization, depreciation or other non-cash purchase accounting adjustments of acquired assets. Divestitures may impact the comparability of the consolidated or segment financial information with the recognition of an impairment loss when held for sale, gain or loss on disposition, or change in classification to discontinued operations for a qualifying transactions. Moreover, the comparability of consolidated or segment financial information may be impacted by incremental costs to facilitate and effect such transactions and initiatives to integrate acquired business or separate divested operations and assets with the consolidated group. The following strategic transactions have been considered as having a significant impact on the comparability of the financial results on the consolidated financial statements and segment financial information.

•HHI Divestiture - On September 8, 2021, the Company entered into a Purchase Agreement with ASSA to sell its HHI segment. On June 20, 2023, the Company completed its divestiture of its HHI segment. The operating results of the HHI divestiture are included as Income From Discontinued Operations, Net of Tax for all periods presented through the date of the divestiture, including the gain on sale. See Note 3 - Divestitures in the Notes to the Consolidated Financial Statements, included elsewhere in this Annual Report for further detail. The Company has incurred incremental costs attributable to the divestiture, consisting of legal and professional fees to effect the realization of the Purchase Agreement, preparation for separation of systems and processes supporting the divested business and enabling functions under a transition services agreement ("TSA"). Transaction costs directly attributable to the close of the transaction including certain compensatory costs contingent upon the successful completion of the sale are included as a component of the gain on sale of discontinued operations. Incremental costs are expected to be incurred following consummation of the transaction to support TSA processes and mitigation following the close of the sale are expected to be incurred for a transition period of approximately 12-24 months following the close of the transaction.

•HPC Separation - The Company has initiated projects to facilitate a strategic separation of the Company's ownership in the HPC segment in the most advantageous way to realize value for both the HPC business as a standalone appliance business either through a spin, merger or other strategic transaction, and the retained GPC and H&G businesses of the consolidated group. Costs are primarily attributable to legal and professional fees incurred to assess opportunities, evaluate transaction considerations for a separation, including potential tax and compliance implications, costs directly attributable to the legal entity separation and transfer of net assets of the HPC operations from commingled operations of the Company, plus the segregation of systems and processes. Costs attributable to the initiative are expected to be incurred until a transaction is realized or otherwise cancelled.

•Tristar Business Acquisition - During the year ended September 30, 2022, on February 18, 2022, the Company acquired 100% of the Tristar Business that includes a portfolio of home appliances and cookware products sold under the PowerXL®, Emeril, and Copper Chef® brands. The net assets and operating results of the Tristar Business are included in the Consolidated Financial Statements and reported within the HPC reporting segment as of and for the years ended September 30, 2023 and 2022, effective as of the transaction date. See Note 4 - Acquisitions in the Notes to the Consolidated Financial Statements, included elsewhere in this Annual Report, for further detail. In addition to the transaction costs of $13.5 million to effect the close of the transaction, recognized during the year ended September 30, 2022, the Company has incurred incremental costs to combine and integrate the acquired business with the HPC segment, primarily towards the integration of systems and processes, merger of commercial operations and supply chain, professional fees to facilitate in the consolidation of financial records, plus incremental retention costs for personnel supporting the transition and integration efforts. Costs attributable to the integration of the Tristar Business were initiated with the close of the transaction and were substantial complete and recognized as of September 30, 2023.

•Rejuvenate Acquisition - During the year ended September 30, 2021, on May 28, 2021, the Company acquired 100% of the membership interests in For Life Products, LLC ("FLP"), a manufacturer of household cleaning, maintenance, and restoration products sold under the Rejuvenate® brand. The net assets and operating results of FLP are included in the Consolidated Financial Statements and reported within the H&G reporting segment as of and for the years ended September 30, 2023 and 2022. The Company has incurred incremental costs to combine and integrate the acquired business with the H&G segment, primarily towards the integration of systems and processes, transfer of inventory and integration to an existing H&G distribution center, retention costs for personnel supporting transition and integration efforts. Costs attributable to the integration of the Rejuvenate business were completed as of September 30, 2022.

•Armitage Acquisition - During the year ended September 30, 2021, on October 26, 2020, the Company completed the acquisition of Armitage Pet Care Ltd ("Armitage"), a pet treats and toys business in Nottingham, UK including a portfolio of brands that include the dog treats brand, Good Boy®, cat treats brand, Meowee!®, and Wildbird® bird feed products, among others, that are predominantly sold within the UK. The net assets and results of operations of Armitage are included in the Consolidated Financial Statements and reported within the GPC reporting segment as of and for the years ended September 30, 2023 and 2022. The Company has incurred incremental costs to combine and integrate the acquired business with the GPC segment, primarily towards the integration of systems and processes, transfer of inventory and integration to existing GPC supply chain and distribution centers within the EMEA region, plus retention costs for personnel supporting the transition and integration efforts. Costs attributable to the integration of the Armitage business were completed as of September 30, 2022.

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•Coevorden Operations - During the year ended September 30, 2020, on March 29, 2020, the Company completed the sale of its dog and cat food ("DCF") production facility and distribution center in Coevorden, Netherlands with United Petfood Producers NV ("UPP"). Following the separation of the Coevorden Operations, the Company incurred incremental costs attributable to a tolling charge for the continued production of DCF products through a three-year manufacturing agreement with the buyer entered into concurrently with the sale, rent charges associated with the transferred warehouse operated by the Company during an 18-month transition period, plus costs to facilitate the transfer of the warehouse operations to the buyer and the movement of inventory and distribution center operations. Incremental costs attributable to the tolling arrangement were completed in March 2023.

•Omega Acquisition - During the year ended September 30, 2020, on March 10, 2020, the Company acquired 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. The net assets and results of operations of Omega are included in the Consolidated Financial Statements and reported within GPC segment as of and for the years ended September 30, 2023 and 2022. The Company incurred incremental costs to combine and integrate the acquired business within the GPC segment, primarily towards the integration of systems and processes, transfer of inventory and production to an existing GPC facility, including related exit and disposal costs of the assumed leased facility, related start-up costs and operational inefficiencies attributable to the transferred production, plus retention costs for personnel supporting the transition and integration after the transaction date. Costs attributable to the integration of the Omega business were completed in the prior year.

The following is a summary of costs attributable to strategic transactions and business development costs for the respective projects during the years ended September 30, 2023 and 2022. In addition to the initiatives discussed above, the Company regularly engages in other business development initiatives that may incur incremental costs which may not result in a realized transaction or are less significant, and therefore have been separately disclosed and recognized as other project costs.

Restructuring and Optimization Initiatives

We continually seek and develop operating strategies to improve our operational efficiency, match our capacity and product costs to market demand and better utilize our manufacturing and distribution resources in order to reduce costs, increase revenues, and maintain or increase our current profit margins. 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. These changes and updates are inherently difficult and are made even more difficult by current global economic conditions. Our ability to achieve the anticipated cost savings and other benefits from such operating strategies may be affected by a number of other macro-economic factors such as COVID-19, or inflation and increased interest rates, many of which are beyond our control. The following initiatives have been considered as having a significant impact on the comparability of the financial results on the consolidated financial statements and segment financial information.

•Fiscal 2023 Restructuring - During the year ended September 30, 2023, the Company entered into an initiative in response to the continuing pressures within the consumer products and retail markets and adjusted strategic initiatives within certain segments, resulting in the realization of further of headcount reductions. Substantially all costs associated with the initiative had been recognized any accrued as of September 30, 2023. See Note 5 - Restructuring Charges in Notes to the Consolidated Financial Statements, included elsewhere in this Annual Report for further detail on related exit or disposal costs attributable to this initiative.

•Fiscal 2022 Restructuring - During the year ended September 30, 2022, the Company entered into a new initiative in response to changes observed within consumer products and retail markets, continued inflationary cost pressures and headwinds, resulting in the realization of a headcount reduction. Substantially all costs associated with the initiative had been recognized and accrued in the prior year with amounts during the year ended September 30, 2023 due to changes in estimates, headcounts and timing of communication. See Note 5 - Restructuring Charges in the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report for further detail on related exit or disposal costs attributable to this initiative.

•Russia Closing Initiative - During the year ended September 30, 2022, the Company initiated the close of its in-country commercial operations in Russia, predominantly supporting the HPC segment. The Company has recognized impairment costs on working capital assets such as inventory and receivables that were not considered recoverable due to the restriction and suspension of commercial activity in Russia and has liquidated substantially all assets. The initiative is subject to exit and disposal costs for severance benefits of personnel associated with the operations, see Note 5 - Restructuring Charges in the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report for further detail. Substantially all costs associated with the initiative has been recognized and accrued as of September 30, 2023.

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•Global ERP Transformation - During the year ended September 30, 2021, the Company entered into a SAP S/4 HANA ERP transformation project to upgrade and implement our enterprise-wide operating systems to SAP S/4 HANA on a global basis. This is a multi-year project that includes various costs, including software configuration and implementation costs that would be recognized as either capital expenditures or deferred costs in accordance with applicable accounting policies, with certain costs recognized as operating expense associated with project development and project management costs, and professional services with business partners engaged towards planning, design and business process review that would not qualify as software configuration and implementation costs. The Company has substantially completed the build phase and initiated a pilot deployment during the year ended September 30, 2023 with subsequent deployments and updates planned during the following year. Costs are anticipated to be incurred with various deployments expected through September 30, 2025.

•HPC Brand Portfolio Transitions - During the year ended September 30, 2021, in response to the acquisition of the Tristar Business and the PowerXL® brand, the HPC segment initiated a project to assess and evaluate the current utilization of tradenames and brands across its portfolio of home and kitchen appliance products. The project included incremental costs to facilitate transitions of branded product offerings on global basis, including investment with our supply base and retail partners to manage inventory and transition new branded products to market. Costs attributable to the initiative were completed during the year ended September 30, 2023.

•GPC Distribution Transition - During the year ended September 30, 2021, the GPC segment entered into an initiative to update its supply chain and distribution operations within the U.S. to address capacity needs, optimize and improve fill rates attributable to recent growth in the business and consumer demand, and improve overall operational effectiveness and throughput. The initiative includes the transition of its third party logistics (3PL) service provider at its existing distribution center, incorporating new facilities into the distribution footprint by expanding warehouse capacity and securing additional space to support long-term distribution and fulfillment, plus updating engagement and processes with suppliers and its transportation and logistics handlers. Incremental costs include one-time transition, implementation and start-up cost with the new 3PL service provider, including the integration of provider systems and technology, incentive-based compensation to maintain performance during transition, duplicative and redundant costs, and incremental costs for various disruptions in the operations during the transition period including supplemental transportation and storage costs, incremental detention and demurrage costs. Additionally, the Company experienced an increase in customer fines and penalties during the transition period (recognized as a reduction in net sales). Costs attributable to the initiative were completed during the year ended September 30, 2022.

•Global Productivity Improvement Program - During the year ended September 30, 2019, the Company initiated a company-wide, multi-year program, consisting of various restructuring related initiatives to redirect resources and spending to drive growth, identify cost savings and pricing opportunities through standardization and optimization, develop organizational and operating optimization, and reduce overall operational complexity across the Company. With the Company’s divestitures of GBL and GAC during the year ended September 30, 2019, the project focus includes the transition of the Company’s continuing operations in a post-divestiture environment and exiting of TSAs, which were fully exited in January 2022. The initiative includes review of global processes and organization design and structures, headcount reductions and transfers, and rightsizing the Company’s shared operations and commercial business strategy and exit of certain internal production to third-party suppliers, among others, resulting in the recognition of severance benefits and other exit and disposal costs to facilitate such activity. Costs attributable to the initiative were completed during the year ended September 30, 2022.

The following is a summary of impacts to operating results attributable to restructuring initiatives and other optimization projects incurred for the respective projects during the years ended September 30, 2023 and 2022. In addition to the projects and initiatives discussed above, the Company regularly incurs costs and engages in less significant restructuring and optimization initiatives that individually are not substantial and occur over a shorter time period (generally less than 12 months).

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Refinancing Activity

The following recent financing activity has a significant impact on the comparability of financial results on the consolidated financial statements.

•During the year ended September 30, 2023, following the close of the HHI divestiture, the Company repaid its outstanding term loan and all outstanding borrowings with the Revolver Facility under the Credit Agreement, and terminated the Incremental Revolving Credit Facility Tranche, along with the remaining $450.0 million aggregate principal amount of 5.750% Senior Notes due 2025 in full at the redemption price. The Company recognized $10.8 million as interest expense for the year ended September 30, 2023 from the write-down of deferred financing costs and original issuance discount.

•During the year ended September 30, 2023, the Company repurchased of $61.4 million of its outstanding bonds resulting in the early extinguishment of the debt and the recognition of a gain from debt repurchases of $7.9 million for the year ended September 30, 2023

•Additionally, during the year ended September 30, 2023, and prior to the closing of the HHI divestiture, the Company entered into the fourth amendment to the Credit Agreement to temporarily increase the maximum consolidated total net leverage ratio permitted to be no greater than 7.0 to 1.0 before returning to 6.0 to 1.0 at the earliest of (i) September 29, 2023, or (ii) 10 business days after the closing of the HHI divestiture or receipt of the related termination fee. Following the close of the HHI divestiture, the maximum consolidated total net leverage ratio was reverted to 6.0 to 1.0. The Company incurred $2.3 million in connection with the fourth amendment, which has been recognized as interest expense for the year ended September 30, 2023.

•During the year ended September 30, 2022, the Company entered into the third amendment to the Amended and Restated Credit Agreement (the "Credit Agreement") that provided incremental capacity on the Revolver Facility of $500 million that was used to support the acquisition of the Tristar Business and the continuing operations and working capital requirements of the Company. Borrowings under the incremental capacity are subject to a borrowing rate which is subject to SOFR plus margin ranging from 1.75% to 2.75%, per annum or base rate plus margin ranging from 0.75% to 1.75% per annum, with an increase by 25 basis points 270 days after the effective date of the third amendment and an additional 25 basis points on each 90 day anniversary of such date. Outstanding borrowings under the incremental capacity were paid down and the Incremental Revolving Credit Facility Tranche was terminated following the close of the HHI divestiture.

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.

Tristar Business Acquisition

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 returns, and overall increased amount of costs. Additionally, the segment has subsequently realized unusual losses attributable to the recognition of product recalls for products associated with the brands, increased risks over the realizability of receivables and inventory, and recognized an impairment on assets including the acquired goodwill and tradename intangible assets. Most recently the Company disposed of certain inventory and products associated with the acquired brands after assessing, among other things, performance and quality standards. As of September 30, 2023, the Company believes it has assessed appropriate risks and recognized applicable losses and reserves reflecting the net assets of the Company. The Company is pursuing avenues to remediate and recover such damages and losses realized since the acquisition.

Russia-Ukraine Conflict

The impacts of the Russia-Ukraine conflict and the sanctions imposed in response to the conflict may have an impact on the Company's consolidated operations and cash flow attributable to operations and distribution within the region. The Company does not maintain a significant level of operations within Ukraine and initiated the closing of its in-country commercial operations within Russia to reduce the relative risk and exposure within the region.

Inflation and Supply Chain Constraints

The Company has experienced an inflationary environment on a global basis in the wake of the COVID-19 pandemic and supply chain constraints such as increased labor shortages, increased freight and distribution costs from transportation and logistics, higher commodity costs, rising energy pricing, and foreign currency volatility. Together with labor shortages and higher demand for talent, the current economic environment is driving higher wages. Our ability to meet labor needs, control wage and labor-related costs and minimize labor disruptions will be key to our success of operating our business and executing our business strategies. In response to inflation, our segments have taken pricing actions to address rising costs and foreign currency fluctuations to mitigate impacts to our margins. While we have seen more stability in the recent economic environment, we are unable to predict how long the current inflationary environment will continue and we expect the economic environment to remain uncertain as we navigate the current geopolitical environment, post-pandemic volatility, labor challenges, changes in supply chain and the overall current economic environment.

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Non-GAAP Measurements

Our consolidated and segment results contain non-GAAP metrics such as organic net sales and Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization). While we believe organic net sales and Adjusted EBITDA are useful supplemental information, such adjusted results are not intended to replace our financial results in accordance with Accounting Principles Generally Accepted in the United States (“GAAP”) and should be read in conjunction with those GAAP results.

Organic Net Sales. We define organic net sales as net sales excluding the effect of changes in foreign currency exchange rates and/or impact from acquisitions (where applicable). We believe this non-GAAP measure provides useful information to investors because it reflects regional and operating segment performance from our activities without the effect of changes in currency exchange rates and acquisitions. We use organic net sales as one measure to monitor and evaluate our regional and segment performance. Organic growth is calculated by comparing organic net sales to net sales in the prior year. The effect of changes in currency exchange rates is determined by translating the current period net sales using the currency exchange rates that were in effect during the prior comparative period. Net sales are attributed to the geographic regions based on the country of destination. We exclude net sales from acquired businesses in the current year for which there are no comparable sales in the prior period.

The following is a reconciliation of net sales to organic net sales of SBH and SB/RH for the year ended September 30, 2023 compared to net sales for the year ended September 30, 2022:

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Adjusted EBITDA and Adjusted EBITDA Margin. Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP metric used by management, which we believe provide useful information to investors because they reflect 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. They also facilitate comparisons between peer companies since interest, taxes, depreciation, and amortization can differ greatly between organizations as a result of differing capital structures and tax strategies. Adjusted EBITDA is also used for determining compliance with the Company’s debt covenants. See Note 12 - Debt in the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report for additional detail.

EBITDA is calculated by excluding the Company’s income tax expense, interest expense, depreciation expense and amortization expense (from intangible assets) from net income. Adjusted EBITDA further excludes:

•Share based compensation costs consist of costs associated with long-term compensation arrangements that generally consist of non-cash, stock-based compensation. See Note 18 - Share Based Compensation in the Notes to the Consolidated Financial Statements, included elsewhere in this Annual Report, for further details;

•Incremental amounts attributable to strategic transactions and business development initiatives including, but not limited to, the acquisition or divestitures of a business, costs to effect and facilitate a transaction, including such cost to integrate or separate the respective business. These amounts are excluded from our performance metrics as they are reflective of incremental investment by the Company towards business development activities, incremental costs attributable to such transactions and are not considered recurring or reflective of the continuing ongoing operations of the consolidated group or segments;

•Incremental amounts realized towards restructuring and optimization projects including, but not limited to, costs towards the development and implementation of strategies to optimize operations and improve efficiency, reduce costs, increase revenues, increase or maintain our current profit margins, including recognition of one-time exit or disposal costs. These amounts are excluded from our ongoing performance metrics as they are reflective of incremental investment by the Company towards significant initiatives controlled by management, incremental costs directly attributable to such initiatives, indirect impact or disruption to operating performance during implementation, and are not considered recurring or reflective of the continuing ongoing operations of the consolidated group or segments;

•Unallocated shared costs associated with discontinued operations from certain shared and center-led administrative functions the Company's business units excluded from income from discontinued operations as they are not a direct cost of the discontinued business but a result of indirect allocations, including but not limited to, information technology, human resources, finance and accounting, supply chain, and commercial operations. Amounts attributable to unallocated shared costs would be mitigated through subsequent strategic or restructuring initiatives, TSAs, elimination of extraneous costs, or re-allocations or absorption of existing continuing operations following the completed sale of the discontinued operations. See Note 3 – Divestitures in Notes to the Consolidated Financial Statements, included elsewhere in this Annual Report for further details;

•Non-cash purchase accounting adjustments recognized in earnings from continuing operations subsequent to an acquisition, including, but not limited to, the costs attributable to the step-up in inventory value and the incremental value in operating lease assets with below market rent, among others;

•Non-cash asset impairments or write-offs realized and recognized in earnings from continuing operations, including impairments from property, plant and equipment, operating and finance leases, and goodwill and other intangible assets; See Note 10 - Property, Plant and Equipment, Note 11 - Goodwill and intangible Assets and Note 13 - Leases in Notes to the Consolidated Financial Statements included elsewhere in this Annual Report for further details;

•Non-cash gain from the remeasurement of the contingent consideration liability associated with the Tristar Business acquisition, recognized during the years ended September 30, 2023 and 2022. See Note 4 - Acquisitions in the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report for further details;

•Non-cash gain realized from the repurchase of debt obligations at a discount, net deferred financing costs, during the year ended September 30, 2023. See Note 12 - Debt in the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report for further details;

•Incremental reserves for non-recurring litigation or environmental remediation activity including the proposed settlement of outstanding litigation at our H&G and HPC segments attributable to significant and unusual nonrecurring matters with no previous history or precedent recognized during the years ended September 30, 2023 and 2022. See Note 20 – Commitments and Contingencies in the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report for further detail;

•Impact from the early settlement of foreign currency cash flow hedges in the prior year, resulting in subsequent assumed losses at the original stated maturities of foreign currency cash flow hedges in our EMEA region that were settled early due to changes in the Company's legal entity organizational structure and forecasted purchasing strategy of HPC finished goods inventory within the region, resulting in the recognition of excluded gains during the year ended September 30, 2022 intended to mitigate costs through the year ending September 30, 2023;

•Incremental costs recognized by the HPC segment during the year ended September 30, 2023 for the approved 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 further sale of the selected products as part of a shift in its strategy for distribution and development within its brand portfolio and avoid deterioration and further reduction in the value of the acquired brands and supported products;

•Incremental costs recognized by the HPC segment attributable to the realization of product recalls initiated by the Company with costs realized during the years ended September 30, 2023 and 2022. See Note 20 - Commitments and Contingencies in the Notes to the Consolidated Financial Statements, included elsewhere in this Annual Report for further details;

•Other adjustments primarily attributable to (1) costs associated with Salus as they are not considered a component of the continuing commercial products company; (2) key executive severance related costs; (3) asset write-off for exit of certain GPC brands within China during year ended September 30, 2022, and (4) write-off of cost based investment previously held by the GPC segment during the year ended September 30, 2022.

Adjusted EBITDA margin is calculated as Adjusted EBITDA as a percentage of reported net sales for the respective period and segment.

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The following is a reconciliation of net income (loss) from continuing operations to Adjusted EBITDA and Adjusted EBITDA margin for SBH and its segments for the year ended September 30, 2023.

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The following is a reconciliation of net income (loss) from continuing operations to Adjusted EBITDA and Adjusted EBITDA margin for SBH and its segments for the year ended September 30, 2022.

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The following is a reconciliation of net income (loss) from continuing operations to Adjusted EBITDA and Adjusted EBITDA margin for SB/RH and its segments for the year ended September 30, 2023.