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SPECTRUM BRANDS INC. Reports Operating Results (10-Q)

February 11, 2011 | About:

10qk

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SPECTRUM BRANDS INC. (SPB) filed Quarterly Report for the period ended 2011-01-02.

Spectrum Brands Holdings Inc. New has a market cap of $1.63 billion; its shares were traded at around $31.76 with and P/S ratio of 0.7. Hedge Fund Gurus that owns SPB: Steven Cohen of SAC Capital Advisors.

Highlight of Business Operations:

In connection with the Merger, we refinanced Spectrum Brands existing senior debt, except for Spectrum Brands 12% Senior Subordinated Toggle Notes due 2019 (the 12% Notes), which remain outstanding, and a portion of Russell Hobbs existing senior debt through a combination of a new $750 million Term Loan due June 16, 2016 (the Term Loan), a new $750 million 9.5% Senior Secured Notes maturing June 15, 2018 (the 9.5% Notes) and a new $300 million ABL revolving facility due June 16, 2014 (the ABL Revolving Credit Facility and together with the Term Loan, the Senior Credit Facilities and together with the 9.5% Notes, the Senior Secured Facilities).

Gross Profit. Gross profit for the Fiscal 2011 Quarter was $299 million versus $184 million for the Fiscal 2010 Quarter. Our gross profit margin for the Fiscal 2011 Quarter increased to 34.8% from 31.2% in the Fiscal 2010 Quarter. The increase in gross profit is primarily attributable to the Merger, which contributed $72 million of gross profit in the Fiscal 2011 Quarter, and the non-recurrence of a $34 million inventory revaluation charge we recognized associated with our adoption of fresh-start reporting upon emergence from Chapter 11 of the Bankruptcy Code. Inventory balances were revalued at August 30, 2009 resulting in an increase in such inventory balances of $49 million. As a result of the inventory revaluation, we recognized $34 million in additional cost of goods sold in the Fiscal 2010 Quarter. The increase in gross profit margin is also primarily due to the non-recurrence of the $34 million inventory revaluation charge recognized in the Fiscal 2010 Quarter as previously discussed.

Operating Expense. Operating expenses for the Fiscal 2011 Quarter totaled $230 million versus $166 million for the Fiscal 2010 Quarter representing an increase of $64 million. The increase in operating expenses during the Fiscal 2011 Quarter is primarily attributable to the Merger, which contributed $49 million of operating expenses in the Fiscal 2011 Quarter. Also contributing to the increase in operating expenses was a $14 million increase in Acquisition and integration related charges primarily related to the Merger. See Acquisition and Integration Related Charges below, as well as Note 2, Significant Accounting Policies Acquisition and Integration Related Charges, to our Condensed Consolidated Financial Statements (Unaudited) included in this Quarterly Report on Form 10-Q for additional information regarding our acquisition and integration related charges.

of $11 million, tempered by a $3 million sales decline in North America and unfavorable foreign exchange translation of $2 million. The electric shaving and grooming and personal care products net sales growth was attributable to a combination of new product introductions, product line extensions and expanded in-store promotions. Net sales of portable lighting products for the Fiscal 2011 Quarter increased to $26 million as compared to sales of $22 million for the Fiscal 2010 Quarter. This increase was primarily driven by increased sales with a major customer as a result of new product launches.

Segment profitability in the Fiscal 2011 Quarter increased to $93 million from $48 million in the Fiscal 2010 Quarter. Segment profitability as a percentage of net sales increased to 13.4% in the Fiscal 2011 Quarter compared from 11.3% in the Fiscal 2010 Quarter. The increase is due to the segment profit realized from the Merger of $12 million and the non-recurrence of a $19 million increase in cost of goods sold due to the revaluation of inventory in connection with our adoption of fresh-start reporting upon emergence from Chapter 11 of the Bankruptcy Code that we recognized during the Fiscal 2010 Quarter. Furthermore, segment profit has increased as a result of our cost reduction initiatives announced in Fiscal 2009 and our global realignment initiatives announced in January 2007. See Restructuring and Related Charges below, as well as Note 12, Restructuring and Related Charges, to our Condensed Consolidated Financial Statements (Unaudited) included in this Quarterly Report on Form 10-Q for additional information regarding our restructuring and related charges.

Segment assets at January 2, 2011 decreased to $2,345 million from $2,477 million at September 30, 2010. The decrease is primarily due to the impact of unfavorable foreign currency translation. Goodwill and intangible assets, which are directly a result of the revaluation impacts of fresh-start reporting and the Merger, at January 2, 2011 decreased slightly to $1,339 million from $1,355 million at September 30, 2010.

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