Market Overview

Spectrum Brands Holdings Reports Fiscal 2018 Third Quarter Results from Continuing Operations

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Spectrum Brands Holdings, Inc. (NYSE:SPB), a global consumer products
company offering a broad portfolio of leading brands and focused on
driving innovation and exceptional customer service, today reported
results from continuing operations for the third quarter of fiscal 2018
ended June 30, 2018.

Effective July 13, 2018, the HRG merger was completed resulting in the
merger of Spectrum Brands and its former majority shareholder HRG Group,
Inc. As a result of the legal form of the merger, HRG Group, Inc. has
emerged as the surviving legal entity and renamed as Spectrum Brands
Holdings, Inc., with a combined shareholder group of the two former
entities, and will continue to operate as a global consumer products
company similar to the legacy Spectrum Brands company.

This press release includes non-GAAP metrics such as organic net sales,
adjusted diluted earnings per share (EPS), adjusted EBITDA, adjusted
EBITDA margin, organic adjusted EBITDA and adjusted free cash flow. See
Other Supplemental Information for reconciliation to comparable GAAP
metrics.

Fiscal 2018 Third Quarter Highlights from Continuing Operations:

  • Net sales of $945.5 million in the third quarter of fiscal 2018
    increased 9.6 percent compared to $862.9 million last year. Excluding
    the impact of $4.9 million of favorable foreign exchange and
    acquisition sales of $14.5 million, organic net sales increased 7.3
    percent versus the prior year.
  • Net income from continuing operations of $377.4 million and diluted
    EPS from continuing operations of $11.51 in the third quarter of
    fiscal 2018 increased compared to a net loss from continuing
    operations of $16.6 million and diluted loss per share from continuing
    operations of ($0.51) in fiscal 2017 primarily due to increased
    operating income, changes in the U.S. corporate tax rate, and release
    of HRG valuation allowances.
  • Adjusted diluted EPS from continuing operations of $1.76 in the
    third quarter of fiscal 2018 increased 23.9 percent versus $1.42 last
    year predominantly due to higher gross profit and changes in the U.S.
    corporate tax rate.
  • Operating income of $126.3 million in the third quarter of fiscal
    2018 increased 25.4 percent versus $100.7 million last year primarily
    as a result of higher volumes.
  • Operating income margin of 13.4 percent in the third quarter of
    fiscal 2018 increased 170 basis points versus 11.7 percent last year.
  • Adjusted EBITDA of $206.4 million in the third quarter of fiscal
    2018 increased 3.6 percent compared to $199.3 million in fiscal 2017.
    Excluding the impact of favorable foreign exchange of $0.4 million and
    acquisition EBITDA of $5.6 million, organic adjusted EBITDA of $200.4
    million increased 0.6 percent versus the prior year.
  • Adjusted EBITDA margin of 21.8 percent in the third quarter of
    fiscal 2018 decreased 130 basis points compared to 23.1 percent in
    fiscal 2017 primarily due to operating inefficiencies, input cost
    inflation and higher distribution costs.

"I am pleased to report to you today that the turnaround of our HHI and
GAC business units is well under way," said David Maura, Chairman and
CEO of Spectrum Brands Holdings. "While we have much more progress to
make and will be investing in further efficiency measures over the next
12 months, I am thrilled that the leadership changes we have made and
the focus on restoring the ownership accountability culture of our
Company are already reading through to positive financial results. To
execute 14.7 percent sales growth in our HHI division and a 12.5 percent
top-line growth in our GAC division is gratifying, and a testament to
what is possible with new leadership, new culture and an intense passion
to win from our employee partners in these divisions.

"As we are regaining operating momentum, we are on track to deliver the
improved performance we promised in the second half of this fiscal
year," Maura said. "As such, we reiterate our fiscal 2018 adjusted
EBITDA guidance for continuing operations of $600-$617 million and total
company adjusted free cash flow of $485-$505 million.

"Led by double-digit growth in our HHI and Auto Care businesses and a
strong top line in Home & Garden, we reported our highest organic sales
growth rate in many years in the third quarter, our largest fiscal
quarter, as we experienced solid market demand for our brands and
benefited from markedly reduced order backlogs in Kansas and Dayton," he
said. "Adjusted EBITDA grew 4 percent, while our margins continued to be
impacted by increased input and freight costs, unfavorable product mix,
and higher costs even as we continue to improve the efficiency of the
Kansas and Dayton facilities.

"I am particularly pleased with our EBITDA margin recovery in our GAC
business as we rebounded from a 16% EBITDA margin in our second quarter
to a 28.6% EBITDA margin in the third quarter," Maura said. "We have
much more work to do in Dayton, but we are on our way and the business
is rebounding, proving the issues we faced were indeed largely
transitory.

"As we anniversary our rawhide recall, I continue to be bullish on the
outlook for our Pet unit. This quarter's results, however, were impacted
by short-term, start-up issues in late April and May with the
consolidation of our European aquatics and pet distribution centers in
the Netherlands," said Maura. "The temporary customer order backlog that
developed in the third quarter we expect to ship in the fourth quarter
as this facility returns to normal operating rhythm. Our U.S. Pet
business delivered encouraging results in the third quarter, with our
PetMatrix and Glofish acquisitions leading the way and last year's
rawhide recall now essentially behind us.

"Our tax-free merger with HRG Group closed on July 13, and we welcome
HRG shareholders to the Spectrum Brands family," Maura said. "This
transaction results in a more widely distributed shareholder base,
meaningfully increased trading liquidity, and an independent governance
structure, while bringing us important tax attributes.

"We remain on track to close the sale of our Global Battery and Lighting
business to Energizer Holdings for $2 billion in cash by the end of
calendar 2018," he said, "and we remain in active discussions to divest,
and continue to market, our Personal Care and Small Appliances
businesses.

"The significant net proceeds we will receive from these divestitures,"
Maura said, "will be used to reduce debt, repurchase shares, and
increase investment in organic growth initiatives and bolt-on
acquisitions in our four higher-margin and faster-growing remaining
businesses."

Fiscal 2018 Third Quarter Consolidated Financial Results from
Continuing Operations

Net sales of $945.5 million in the third quarter of fiscal 2018
increased 9.6 percent compared to $862.9 million in fiscal 2017.
Excluding the impact of $4.9 million of favorable foreign exchange and
acquisition sales of $14.5 million, organic net sales increased 7.3
percent.

Gross profit and gross profit margin in the third quarter of fiscal 2018
were $354.6 million and 37.5 percent, respectively, compared to $320.3
million and 37.1 percent, respectively, last year. The gross profit
margin percentage increase was primarily due to lower year-over-year
supply chain restructuring costs.

Operating expenses of $228.3 million in the third quarter of fiscal 2018
compared to $219.6 million in the prior year. Operating income margin of
13.4 percent in the third quarter of fiscal 2018 increased 170 basis
points versus 11.7 percent last year.

Net income from continuing operations was $377.4 million, or $11.51
diluted EPS, in the third quarter of fiscal 2018 on average diluted
shares and common stock equivalents outstanding of 32.8 million. In the
third quarter of fiscal 2017, net loss from continuing operations was
($16.6) million, or ($0.51) diluted loss per share, on average diluted
shares and common stock equivalents outstanding of 32.3 million.
Weighted average shares have been retroactively adjusted to reflect the
reverse stock split that occurred on July 13, 2018 to facilitate the HRG
merger. The increase in net income and diluted EPS is primarily due to
higher operating income, changes in the U.S. corporate tax rate and the
release of HRG valuation allowances on taxable losses. Adjusted diluted
EPS from continuing operations of $1.76 in the third quarter of fiscal
2018 increased 23.9 percent versus $1.42 last year predominantly due to
higher gross profit and changes in the U.S. corporate tax rate.

As a result of the lower U.S. corporate tax rate due to recently enacted
tax reform, fiscal 2018 adjusted EPS reflects a 24.5 percent blended tax
rate versus 35.0 percent used in previous years.

Adjusted EBITDA of $206.4 million in the third quarter of fiscal 2018
increased 3.6 percent compared to $199.3 million in fiscal 2017.
Excluding the impact of $0.4 million of favorable foreign exchange and
acquisition EBITDA of $5.6 million, organic adjusted EBITDA of $200.4
million increased 0.6 percent versus the third quarter of fiscal 2017.
Reported adjusted EBITDA margin declined 130 basis points to 21.8
percent compared to 23.1 percent last year.

Fiscal 2018 Nine Months Consolidated Financial Results from
Continuing Operations

Net sales of $2.36 billion in the nine months of fiscal 2018 increased
6.1 percent compared to $2.22 billion for the same period in fiscal
2017. Excluding the favorable impact of $24.8 million of foreign
exchange and acquisition sales of $64.5 million, organic net sales of
$2.27 billion in the nine months of fiscal 2017 grew 2.1 percent from
the prior year.

Operating income of $180.8 million in the nine months of fiscal 2018
decreased 23.8 percent from $237.2 million last year, while operating
income margin fell to 7.7 percent versus 10.7 percent in 2017 primarily
as a result of lower gross margin, incremental restructuring costs, and
higher operating expenses.

Net income from continuing operations was $368.1 million, or $11.26
diluted EPS, in the nine months of fiscal 2018 on average shares and
common stock equivalents outstanding of 32.7 million. In the nine months
of fiscal 2017, net loss from continuing operations was ($88.6) million,
or ($2.75) diluted loss per share, on average shares and common stock
equivalents outstanding of 32.2 million. The Company generated adjusted
diluted EPS of $2.72 in the nine months of fiscal 2018 compared to $2.67
last year.

Fiscal 2018 nine months adjusted EBITDA from continuing operations of
$427.7 million compared to adjusted EBITDA in the nine months of fiscal
2017 of $464.7 million. Excluding the unfavorable impact of $0.8 million
of foreign exchange and acquisition EBITDA of $22.8 million, organic
adjusted EBITDA of $405.7 million decreased 12.7 percent in the nine
months of fiscal 2018 versus the prior year. The reported adjusted
EBITDA margin of 18.1 percent in the nine months of fiscal 2018 fell 280
basis points compared to 20.9 percent in fiscal 2017.

Fiscal 2018 Third Quarter Segment Level Data

 

Hardware & Home Improvement (HHI)

       
Three Month Periods Ended Nine Month Periods Ended
(in millions, except %) June 30, 2018   June 30, 2017 Variance June 30, 2018   June 30, 2017 Variance
Net Sales $ 372.4 $ 324.7 $ 47.7 14.7 % $ 1,016.8 $ 927.2 $ 89.6 9.7 %
Operating Income 51.1 45.1 6.0 13.3 % 102.4 137.4 (35.0 ) (25.5 %)
Operating Income Margin 13.7 % 13.9 % (20 ) bps 10.1 % 14.8 % (470 ) bps
Adjusted EBITDA 73.9 62.2 11.7 18.8 % 179.5 178.0 1.5 0.8 %
Adjusted EBITDA Margin 19.8 % 19.2 % 60 bps 17.7 % 19.2 % (150 ) bps
 

Significantly increased third quarter net sales were due to continued
strong demand in residential security and plumbing in the U.S. and
Canada, along with a reduction in the customer order backlog at the
Kansas distribution center. Excluding favorable foreign exchange impacts
of $1.3 million, organic net sales grew 14.3 percent.

Increases in third quarter operating income, adjusted EBITDA and
adjusted EBITDA margin were primarily a result of higher volumes.

       

Global Pet Supplies (PET)

 
Three Month Periods Ended Nine Month Periods Ended
(in millions, except %) June 30, 2018   June 30, 2017 Variance June 30, 2018   June 30, 2017 Variance
Net Sales $ 194.7 $ 190.0 $ 4.7 2.5 % $ 608.3 $ 576.0 $ 32.3 5.6 %
Operating Income 15.0 (5.2 ) 20.2 (388.5 %) 42.8 34.4 8.4 24.4 %
Operating Income Margin 7.7 % (2.7 %) 1,040 bps 7.0 % 6.0 % 100 bps
Adjusted EBITDA 34.9 36.1 (1.2 ) (3.3 %) 104.6 98.7 5.9 6.0 %
Adjusted EBITDA Margin 17.9 % 19.0 % (110 ) bps 17.2 % 17.1 % 10 bps
 

Third quarter net sales increased as a result of revenues from the
PetMatrix and GloFish acquisitions completed in June and May 2017,
respectively. Approximately $6 million of orders in-house were unable to
be shipped at the end of the quarter due to a temporary customer order
backlog that developed in the consolidation of European distribution
centers. Also partially offsetting the increase was a decline in
European dog and cat food sales largely from the planned exit of a pet
food customer tolling agreement of $5.2 million, which negatively
impacted segment sales by approximately 2.7 percent. U.S. companion
animal sales were adversely impacted by an estimated $6 million from
lost business as a result of the rawhide dog chew product safety recall
initiated in June 2017 which has now been fully annualized. Excluding
the impact of favorable foreign exchange of $2.9 million and acquisition
sales of $14.5 million, organic net sales decreased 6.7 percent in the
third quarter.

Increased operating income and margin were primarily driven by the
impact in the prior year of the U.S. rawhide recall. Adjusted EBITDA and
margin decreased as a result of lower volumes and unfavorable mix.
Excluding unfavorable foreign exchange impacts of $0.6 million and
acquisition EBITDA of $5.6 million, organic adjusted EBITDA of $29.9
million fell 17.2 percent.

       

Home and Garden (H&G)

 
Three Month Periods Ended Nine Month Periods Ended
(in millions, except %) June 30, 2018   June 30, 2017 Variance June 30, 2018   June 30, 2017 Variance
Net Sales $ 203.2 $ 192.4 $ 10.8 5.6 % $ 370.6 $ 374.2 $ (3.6 ) (1.0 %)
Operating Income 52.2 55.3 (3.1 ) (5.6 %) 73.3 88.4 (15.1 ) (17.1 %)
Operating Income Margin 25.7 % 28.7 % (300 ) bps 19.8 % 23.6 % (380 ) bps
Adjusted EBITDA 57.0 59.5 (2.5 ) (4.2 %) 87.7 100.8 (13.1 ) (13.0 %)
Adjusted EBITDA Margin 28.1 % 30.9 % (280 ) bps 23.7 % 26.9 % (320 ) bps
 

Higher third quarter net sales were driven by strong growth in outdoor
and household control product category revenues.

Lower operating income, adjusted EBITDA and margins decreased
predominantly due to unfavorable product mix and higher input costs.

                               

Global Auto Care (GAC)

 
Three Month Periods Ended     Nine Month Periods Ended  
(in millions, except %) June 30, 2018 June 30, 2017 Variance June 30, 2018   June 30, 2017 Variance
Net Sales $ 175.2 $ 155.8 $ 19.4 12.5 % $ 362.4 $ 344.2 $ 18.2 5.3 %
Operating Income 38.6 32.5 6.1 18.8 % 57.3 80.1 (22.8 ) (28.5 %)
Operating Income Margin 22.0 % 20.9 % 110 bps 15.8 % 23.3 % (750 ) bps
Adjusted EBITDA 50.1 50.7 (0.6 ) (1.2 %) 84.7 115.9 (31.2 ) (26.9 %)
Adjusted EBITDA Margin 28.6 % 32.5 % (390 ) bps 23.4 % 33.7 % (1,030 ) bps
 

The strong increase in third quarter net sales was driven by
double-digit growth in refrigerant revenues as well as improved
performance chemical sales. Also contributing to the growth was the
elimination of the customer order backlog at the Dayton facility.
Excluding favorable foreign exchange impacts of $0.7 million, organic
net sales increased 12.0 percent.

Improved operating income and margin were the result of higher volumes.
The lower adjusted EBITDA margin was predominantly driven by higher
refrigerant and other input costs and increased Project Alpha marketing
investments.

Fiscal 2018 Third Quarter and Nine Months Consolidated Financial
Results from GBA Discontinued Operations

Spectrum Brands announced on January 3, 2018 that it was exploring
strategic options for its Global Batteries & Appliances (GBA) businesses
with the intention to sell the units during 2018. As a result, effective
with the Company's fiscal 2018 first quarter financial results, the GBA
businesses have been reclassified as held for sale and are now reported
as discontinued operations for the third quarter and nine months of
fiscal 2018 and the comparable prior-year periods.

A loss from GBA discontinued operations, net of tax, of $9.5 million and
diluted loss of $0.29 from discontinued operations in the third quarter
of fiscal 2018 decreased compared to income of $28.3 million and $0.88,
respectively, in fiscal 2017.

Income from GBA discontinued operations, net of tax, of $32.0 million
and diluted EPS of $0.98 from discontinued operations in the nine months
of fiscal 2018 decreased compared to $99.8 million and $3.10,
respectively, in fiscal 2017.

Liquidity and Debt

Spectrum Brands completed the third quarter of fiscal 2018 on June 30,
2018 with ample liquidity of more than $1 billion, including a cash
balance of approximately $815 million and $234 million available on its
$800 million Cash Flow Revolver.

As of the end of the third quarter of fiscal 2018, the Company had
approximately $5,412 million of debt outstanding, consisting of $546
million on its Cash Flow Revolver, a series of secured Term Loans in the
aggregate amount of $1,267 million, $3,202 million of senior unsecured
notes, and approximately $397 million of capital leases and other
obligations.

Fiscal 2018 Outlook

Spectrum Brands expects fiscal 2018 reported net sales from continuing
operations to grow above category rates for most categories, along with
an anticipated modest positive impact from foreign exchange based upon
current rates.

Fiscal 2018 adjusted EBITDA from continuing operations is projected to
be approximately $600-$617 million compared to $639 million in fiscal
2017. Fiscal 2018 adjusted EBITDA from discontinued operations is now
expected to be approximately $265-$275 million.

Fiscal 2018 adjusted free cash flow is projected to be approximately
$485-$505 million compared to $587 million in fiscal 2017. Capital
expenditures are now expected to be between $100-$110 million.

Conference Call/Webcast Scheduled for 9:00 A.M. Eastern Time Today

Spectrum Brands will host an earnings conference call and webcast at
9:00 a.m. Eastern Time today, July 26. To access the live conference
call, U.S. participants may call 877-556-5260 and international
participants may call 973-532-4903. The conference ID number is 2197047.
A live webcast and related presentation slides will be available by
visiting the Event Calendar page in the Investor Relations section of
Spectrum Brands' website at www.spectrumbrands.com.

A replay of the live webcast also will be accessible through the Event
Calendar page in the Investor Relations section of the Company's
website. A telephone replay of the conference call will be available
through Thursday, August 9. To access this replay, participants may call
855-859-2056 and use the same conference ID number.

About Spectrum Brands Holdings, Inc.

Spectrum Brands Holdings, a member of the Russell 1000 Index, is a
global and diversified consumer products company and a leading supplier
of consumer batteries, residential locksets, residential builders'
hardware, plumbing, shaving and grooming products, personal care
products, small household appliances, specialty pet supplies, lawn and
garden and home pest control products, personal insect repellents, and
auto care products. Helping to meet the needs of consumers worldwide,
our Company offers a broad portfolio of market-leading, well-known and
widely trusted brands including Rayovac®, VARTA®, Kwikset®, Weiser®,
Baldwin®, National Hardware®, Pfister®, Remington®, George Foreman®,
Black + Decker®, Tetra®, Marineland®, GloFish®, Nature's Miracle®,
Dingo®, 8-in-1®, FURminator®, IAMS® and Eukanuba® (Europe only),
Healthy-Hide®, Digest-eeze™, DreamBone®, SmartBones®, Littermaid®,
Spectracide®, Cutter®, Repel®, Hot Shot®, Black Flag®, Liquid Fence®,
Armor All®, STP® and A/C PRO®. Spectrum Brands Holdings' products are
sold in approximately 160 countries. Spectrum Brands Holdings generated
net sales from continuing operations of approximately $3.0 billion in
fiscal 2017. For more information, visit
www.spectrumbrands.com.

Non-GAAP Measurements

Management believes that certain non-GAAP financial measures may be
useful in certain instances to provide additional meaningful comparisons
between current results and results in prior operating periods.
Management believes that organic net sales provide for a more complete
understanding of underlying business trends of regional and segment
performance by excluding the impact of currency exchange rate
fluctuations and the impact of acquisitions.
In addition, within
this release, including the supplemental information attached hereto,
reference is made to adjusted diluted EPS, adjusted earnings before
interest, taxes, depreciation and amortization (EBITDA), and adjusted
EBITDA margin.
Adjusted EBITDA is a metric used by management to
evaluate segment performance and frequently used by the financial
community which provides insight into an organization's operating trends
and facilitates comparisons between peer companies, since interest,
taxes, depreciation and amortization can differ greatly between
organizations as a result of differing capital structures and tax
strategies. Adjusted EBITDA also is one of the measures used for
determining the Company's debt covenant.
Adjusted EBITDA excludes
certain items that are unusual in nature or not comparable from period
to period. Adjusted EBITDA margin reflects adjusted EBITDA as a
percentage of net sales of the Company.
Organic adjusted EBITDA
excludes the impact of currency exchange rate fluctuations and
acquisitions. The Company's management uses adjusted diluted EPS as one
means of analyzing the Company's current and future financial
performance and identifying trends in its financial condition and
results of operations.
Management believes that adjusted diluted
EPS is a useful measure for providing further insight into our operating
performance because it eliminates the effects of certain items that are
not comparable from one period to the next.
An income tax
adjustment is included in adjusted diluted EPS to exclude the impact of
the valuation allowance against deferred taxes and other tax-related
items in order to reflect a normalized ongoing effective tax rate.
The
Company's management believes that adjusted free cash flow is useful to
both management and investors in their analysis of the Company's ability
to service and repay its debt and meet its working capital requirements.

Adjusted free cash flow should not be considered in isolation or as a
substitute for pretax income, net income, net cash from operating
activities or other statement of income or cash flow statement data
prepared in accordance with GAAP or as a measure of profitability or
liquidity.
In addition, the calculation of adjusted free cash
flow does not reflect cash used to service debt and therefore, does not
reflect funds available for investment or discretionary uses.
The
Company provides this information to investors to assist in comparisons
of past, present and future operating results and to assist in
highlighting the results of on-going operations.
While the
Company's management believes that non-GAAP measurements are useful
supplemental information, such adjusted results are not intended to
replace the Company's GAAP financial results and should be read in
conjunction with those GAAP results.
Other Supplemental
Information has been provided to demonstrate reconciliation of non-GAAP
measurements discussed above to most relevant GAAP financial
measurements.

Forward-Looking Statements

Certain matters discussed in this news release and other oral and
written statements by representatives of the Company regarding matters
such as statements under "Fiscal 2018 Outlook" and other statements
regarding the Company's ability to meet its expectations for its fiscal
2018 (including expectations regarding capital expenditures and its
ability to increase its net sales, free cash flow and adjusted EBITDA)
may be forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. We have tried, whenever
possible, to identify these statements by using words like "future,"
"anticipate", "intend," "plan," "estimate," "believe," "belief,"
"expect," "project," "forecast," "could," "would," "should," "will,"
"may," and similar expressions of future intent or the negative of such
terms. These statements are subject to a number of risks and
uncertainties that could cause results to differ materially from those
anticipated as of the date of this release.
Actual results may
differ materially as a result of (1) the impact of our indebtedness on
our business, financial condition and results of operations; (2) the
impact of restrictions in our debt instruments on our ability to operate
our business, finance our capital needs or pursue or expand business
strategies; (3) any failure to comply with financial covenants and other
provisions and restrictions of our debt instruments; (4) the impact of
actions taken by significant stockholders; (5) the impact of
fluctuations in commodity prices, costs or availability of raw materials
or terms and conditions available from suppliers, including suppliers'
willingness to advance credit; (6) interest rate and exchange rate
fluctuations; (7) the loss of significant reduction in, or dependence
upon, sales to any significant retail customer(s); (8) competitive
promotional activity or spending by competitors, or price reductions by
competitors; (9) the introduction of new product features or
technological developments by competitors and/or the development of new
competitors or competitive brands; (10) the effects of general economic
conditions, including inflation, recession or fears of a recession,
depression or fears of a depression, labor costs and stock market
volatility or changes in trade, tariff, monetary or fiscal policies in
the countries where we do business; (11) changes in consumer spending
preferences and demand for our products; (12) our ability to develop and
successfully introduce new products, protect our intellectual property
and avoid infringing the intellectual property of third parties; (13)
our ability to successfully implement, achieve and sustain manufacturing
and distribution cost efficiencies and improvements, and fully realize
anticipated cost savings; (14) the seasonal nature of sales of certain
of our products; (15) the effects of climate change and unusual weather
activity; (16) the cost and effect of unanticipated legal, tax or
regulatory proceedings or new laws or regulations (including
environmental, public health and consumer protection regulations); (17)
public perception regarding the safety of products that we manufacture
and sell, including the potential for environmental liabilities, product
liability claims, litigation and other claims related to products
manufactured by us and third parties; (18) the impact of pending or
threatened litigation; (19) the impact of cybersecurity breaches or our
actual or perceived failure to protect company and personal data; (20)
changes in accounting policies applicable to our business; (21) our
ability to utilize net operating loss carry-forwards to offset tax
liabilities from future taxable income; (22) government regulations;
(23) the impact of expenses resulting from the implementation of new
business strategies, divestitures or current and proposed restructuring
activities; (24) our inability to successfully integrate and operate new
acquisitions at the level of financial performance anticipate; (25) the
unanticipated loss of key members of senior management; (26) the effects
of political or economic conditions, terrorist attacks, acts of war or
other unrest in international markets; (27) the Company's ability to
consummate the announced sale of our Global Battery and Lighting
business on the expected terms and within the anticipated time period,
or at all, which is dependent on the parties' ability to satisfy certain
closing conditions, including receipt of regulatory approvals, and our
ability to realize the expected benefits of such transaction and to
successfully separate such business; (28) the outcome of the Company'
exploration of strategic options for its Personal Care and Small
Appliances businesses, including uncertainty regarding consummation of
any such transaction or transactions and the terms of such transaction
or transactions, if any, and, if consummated, the Company's ability to
realize the expected benefits of such transaction or transactions and
potential disruption to our business or diverted management attention as
a result of the exploration or negotiation of such transaction or
transactions; (29) the Company's ability to realize the expected
benefits from the merger with HRG Group, Inc.; (30) the transition to a
new chief executive officer and such officer's ability to determine and
implement changes at the Company to improve the Company's business and
financial performance; and (31) the Company's ability to implement a
successful restructuring of the leadership of the Global Auto Care
business unit with the Pet, Home & Garden business unit into a separate
Consumer Products group, and to realize the synergies and business and
financial benefits anticipated from such restructuring, and other risk
factors set forth in the securities filings of Spectrum Brands Holdings,
Inc., including the most recently filed Annual Report on Form 10-K or
Quarterly Report on Form 10-Q.

Spectrum Brands Holdings also cautions the reader that its estimates
of trends, market share, retail consumption of its products and reasons
for changes in such consumption are based solely on limited data
available to Spectrum Brands Holdings and management's reasonable
assumptions about market conditions, and consequently may be inaccurate,
or may not reflect significant segments of the retail market.
Spectrum
Brands Holdings also cautions the reader that undue reliance should not
be placed on any forward-looking statements, which speak only as of the
date of this release.
Spectrum Brands Holdings undertakes no duty
or responsibility to update any of these forward-looking statements to
reflect events or circumstances after the date of this report or to
reflect actual outcomes.

SPECTRUM BRANDS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
       
Three Month Periods Ended Nine Month Periods Ended
(in millions, except per share amounts) June 30, 2018 June 30, 2017 June 30, 2018 June 30, 2017
Net sales $ 945.5 $ 862.9 $ 2,358.1 $ 2,221.6
Investment income       0.1         1.1  
Revenue 945.5 863.0 2,358.1 2,222.7
Cost of goods sold 586.0 531.5 1,484.5 1,339.2
Restructuring and related charges   4.9     11.2   9.9     16.4  
Gross profit 354.6 320.3 863.7 867.1
Selling 123.9 127.9 363.8 353.9
General and administrative 74.7 69.3 226.9 228.6
Research and development 6.9 7.2 21.1 20.9
Acquisition and integration related charges 2.3 5.2 12.0 11.6
Restructuring and related charges   20.5     10.0     59.1     14.9  
Total operating expenses   228.3     219.6     682.9     629.9  
Operating income 126.3 100.7 180.8 237.2
Interest expense 63.5 76.1 206.6 232.4
Other non-operating (income) expense, net   (2.3 )   1.3     (4.6 )   1.7  
Income (loss) from continuing operations before income taxes 65.1 23.3 (21.2 ) 3.1
Income tax (benefit) expense   (337.8 )   19.5     (464.9 )   49.1  
Net income (loss) from continuing operations 402.9 3.8 443.7 (46.0 )
Income from discontinued operations - FGL, net of tax 5.9 7.7 465.9 195.4
(Loss) income from discontinued operations - GBA, net of tax   (9.5 )   28.3     32.0     99.8  
Net income 399.3 39.8 941.6 249.2
Net income attributable to non-controlling interest   22.0     37.7     93.9     117.0  
Net income attributable to controlling interest $ 377.3   $ 2.1   $ 847.7   $ 132.2  
Amounts attributable to controlling interest
Net income (loss) from continuing operations attributable to
controlling interest
$ 377.4 $ (16.6 ) $ 368.1 $ (88.6 )
Net (loss) income from discontinued operations attributable to
controlling interest
  (0.1 )   18.7     479.6     220.8  
Net income attributable to controlling interest $ 377.3   $ 2.1   $ 847.7   $ 132.2  
Earnings Per Share
Basic earnings per share from continuing operations $ 11.52 $ (0.51 ) $ 11.31 $ (2.75 )
Basic earnings per share from discontinued operations       0.57     14.74     6.85  
Basic earnings per share $ 11.52   $ 0.06   $ 26.05   $ 4.10  
Diluted earnings per share from continuing operations $ 11.51 $ (0.51 ) $ 11.26 $ (2.75 )
Diluted earnings per share from discontinued operations       0.57     14.67     6.85  
Diluted earnings per share $ 11.51   $ 0.06   $ 25.93   $ 4.10  
Weighted Average Shares Outstanding
Basic 32.7 32.3 32.5 32.2
Diluted 32.8 32.3 32.7 32.2
 
SPECTRUM BRANDS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)
   
Nine Month Periods Ended
(in millions) June 30, 2018 June 30, 2017
Cash flows from operating activities
Net income $ 941.6 $ 249.2
Income from discontinued operations, net of tax   497.9     295.2  
Net income from continuing operations 443.7 (46.0 )
Adjustments to reconcile net income to net cash from operating
activities:
Depreciation and amortization 99.4 94.3
Share based compensation 6.4 28.5
Amortization of debt issuance costs and debt discount 16.3 13.2
Write-off of unamortized discount and debt issuance costs (0.6 ) 2.5
Purchase accounting inventory adjustment 0.8 0.8
Pet safety recall inventory write-off 3.6 13.0
Dividends from subsidiaries classified as discontinued operations 3.1 9.3
Deferred tax (benefit) expense (497.9 ) 17.4
Net changes in operating assets and liabilities  

(226.0

)  

(211.4

)
Net cash used by operating activities from continuing operations

(151.2

)

(78.4

)
Net cash provided by operating activities from discontinued
operations
 

94.8

   

308.5

 
Net cash (used) provided by operating activities (56.4 ) 230.1
Cash flows from investing activities
Purchases of property, plant and equipment (49.2 ) (51.1 )
Proceeds from sales of property, plant and equipment 2.8

3.6

Business acquisitions, net of cash acquired (304.7 )
Proceeds from sale of insurance operations 1,546.8
Net asset-based loan repayments 29.8
Other investing activities, net   (0.4 )  

(1.2

)
Net cash provided (used) by investing activities from continuing
operations
1,500.0 (323.6 )
Net cash used by investing activities from discontinued operations   (201.8 )   (991.3 )
Net cash provided (used) by investing activities 1,298.2 (1,314.9 )
Cash flows from financing activities
Proceeds from issuance of debt 555.3

606.9

Payment of debt

(1,007.6

) (244.7 )
Payment of debt issuance costs (0.4 ) (7.0 )
Purchase of subsidiary stock, net (288.0 ) (165.9 )
Purchase of non-controlling interest (12.6 )
Dividend paid by subsidiary to non-controlling interest (28.4 ) (30.3 )
Share based award tax withholding payments, net of proceeds upon
vesting
(24.3 ) (40.7 )
Other financing activities, net   20.7     5.5  
Net cash (used) provided by financing activities from continuing
operations

(772.7

)

111.2

Net cash provided by financing activities from discontinued
operations
 

116.2

   

701.9

 
Net cash (used) provided by financing activities (656.5 ) 813.1
Effect of exchange rate changes on cash and cash equivalents   (3.1 )   (1.5 )
Net change in cash and cash equivalents 582.2 (273.2 )
Net change in cash and cash equivalents in discontinued operations   37.7     (74.2 )
Net change in cash and cash equivalents in continuing operations 544.5 (199.0 )
Cash and cash equivalents, beginning of period   270.1     465.2  
Cash and cash equivalents, end of period $ 814.6   $ 266.2  
 
SPECTRUM BRANDS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited)
   
(in millions) June 30, 2018 September 30, 2017
Assets
Cash and cash equivalents $ 814.6 $ 270.1
Trade receivables, net 384.2 266.0
Other receivables 38.1 19.7
Inventories 546.7 496.3
Prepaid expenses and other current assets 69.1 54.8
Current assets of business held for sale   1,910.5   28,929.2
Total current assets 3,763.2 30,036.1
Property, plant and equipment, net 497.4 503.9
Deferred charges and other 418.0 43.7
Goodwill 2,269.4 2,277.1
Intangible assets, net 1,564.8 1,612.0
Noncurrent assets of business held for sale     1,376.9
Total assets $ 8,512.8 $ 35,849.7
Liabilities and Shareholders' Equity
Current portion of long-term debt $ 70.8 $ 161.4
Accounts payable 348.3 373.1
Accrued wages and salaries 49.6 55.4
Accrued interest

75.7

78.0
Other current liabilities

130.6

125.8
Current liabilities of business held for sale   525.3   26,851.3
Total current liabilities 1,200.3 27,645.0
Long-term debt, net of current portion 5,189.4 5,543.7
Deferred income taxes 314.2 493.2
Other long-term liabilities 119.1 64.8
Noncurrent liabilities of business held for sale     156.1
Total liabilities 6,823.0 33,902.8
Shareholders' equity 1,052.4 758.0
Noncontrolling interest   637.4   1,188.9
Total equity   1,689.8   1,946.9
Total liabilities and equity $ 8,512.8 $ 35,849.7
 

SPECTRUM BRANDS HOLDINGS, INC.

OTHER SUPPLEMENTAL INFORMATION (Unaudited)

ADJUSTED DILUTED EPS

We define adjusted diluted EPS as reported diluted EPS excluding the
effect of one-time, non-recurring activity and volatility associated
with our income tax expense. The Company believes that adjusted diluted
EPS provides further insight and comparability in operating performance
as it eliminates the effects of certain items that are not comparable
from one period to the next. Adjustments to diluted EPS include (1)
proforma adjustment reflecting the change in weighted average shares for
the share exchange associated with the HRG Merger, including income
attributable to non-controlling interest in Spectrum recognized prior to
the consolidation of the shareholder groups; (2) acquisition and
integration costs that consist of transaction costs from nonrecurring
acquisition transactions during the period or subsequent integration
related project costs directly associated with the acquired business
further summarized below; (3) restructuring and related costs, which
consist of project costs associated with restructuring initiatives
across the segments further summarized below; (4) purchase accounting
inventory adjustments recognized in earnings subsequent to an
acquisition; (5) non-cash asset impairments or write-offs realized; (6)
estimated costs for a non-recurring voluntary recall of rawhide product
by the PET segment; (7) transaction costs associated with the HRG
Merger; (8) non-recurring HRG net operating costs that consist of
redundant and duplicative costs that are expected to be eliminated post
merger including compensation and benefits, directors fees, professional
fees, insurance, public company costs, among others, including interest
and other non-recurring income; (9) net operating costs associated with
Salus; (10) interest costs associated with HRG-originated debt through
the HRG Merger; and (10) other. During the three and nine month periods
ended June 30, 2018, other adjustments consisted of separation costs
with a key executive. Income tax adjustment to diluted EPS is to exclude
the impact of adjusting the valuation allowance against deferred taxes
and other tax related items in order to reflect a normalized ongoing
effective tax rate, net of adjustments made to diluted EPS. For the
three and nine month periods ended June 30, 2018, the normalized ongoing
effective tax rate was updated to 24.5% to reflect a lower tax rate from
35% due to changes in the enacted corporate tax rate in the United
States. The following is a reconciliation of reported diluted EPS to
adjusted diluted EPS for the three and nine month periods ended June 30,
2018 and 2017, respectively:

           
Three Month Period Ended June 30, 2018 Three Month Period Ended June 30, 2017
Cont. Ops Disc. Ops Total Cont. Ops Disc. Ops Total
Diluted earnings per share, as reported $ 11.51 $ $ 11.51 $ (0.51 ) $ 0.57 $ 0.06
Adjustments:
HRG Merger share exchange proforma adjustment (4.02 ) (0.07 ) (4.09 ) 0.58 (0.05 ) 0.53
Acquisition and integration related charges 0.04 0.45 0.49 0.09 0.01 0.10
Restructuring and related charges 0.47 0.01 0.48 0.37 0.37
Debt refinancing costs 0.02 0.02
Purchase accounting inventory adjustment 0.01 0.01
Pet safety recall 0.10 0.10 0.44 0.44
HRG merger related transaction costs 0.06 0.06 0.03 0.03
Non-recurring HRG net operating costs 0.03 0.03 0.15 0.15
Salus 0.01 0.01
HRG interest expense 0.37 0.37 0.64 0.64
Other 0.06 0.06
Income tax adjustment   (6.86 )   (0.20 )   (7.06 )   (0.41 )   0.04     (0.37 )
Total Adjustments   (9.75 )   0.19     (9.56 )   1.93         1.93  
Diluted earnings per share, as adjusted $ 1.76   $ 0.19   $ 1.95   $ 1.42   $ 0.57   $ 1.99  
 
Nine Month Period Ended June 30, 2018 Nine Month Period Ended June 30, 2017
Cont. Ops Disc. Ops Total Cont. Ops Disc. Ops Total
Diluted earnings per share, as reported $ 11.26 $ 14.67 $ 25.93 $ (2.75 ) $ 6.85 $ 4.10
Adjustments:
HRG Merger share exchange proforma adjustment (3.19 ) (5.71 ) (8.90 ) 1.94 (2.24 ) (0.30 )
Acquisition and integration related charges 0.22 0.90 1.12 0.20 0.06 0.26
Restructuring and related charges 1.25 0.03 1.28 0.55 0.02 0.57
Debt refinancing costs 0.15 0.15
Purchase accounting inventory adjustment 0.02 0.02 0.01 0.01
Pet safety recall 0.30 0.30 0.44 0.44
HRG merger related transaction costs 0.40 0.40 0.07 0.07
Non-recurring HRG net operating costs 0.24 0.24 0.59 0.59
Salus 0.02 0.02 0.09 0.09
HRG interest expense 1.50 1.50 1.95 1.95
Other 0.06 0.06
Income tax adjustment   (9.36 )   (2.38 )   (11.74 )   (0.57 )   (0.27 )   (0.84 )
Total Adjustments   (8.54 )   (7.16 )   (15.70 )   5.42     (2.43 )   2.99  
Diluted earnings per share, as adjusted $ 2.72   $ 7.51   $ 10.23   $ 2.67   $ 4.42   $ 7.09  
 

SPECTRUM BRANDS HOLDINGS, INC.

OTHER SUPPLEMENTAL INFORMATION (Unaudited)

ADJUSTED DILUTED EPS (continued)

The weighted average shares and adjusted earnings per share data are
adjusted for all periods to reflect the reverse stock split and share
exchange because of the HRG Merger, which closed on July 13, 2018. Using
(i) the 20-trading-day volume-weighted average price per share of
Spectrum common stock ending on Jul 11, 2018, (ii) the number of shares
of Spectrum common stock outstanding, the number of shares of Spectrum
common stock held by HRG and its subsidiaries and the number of shares
of Spectrum common stock outstanding as of July 12, 2018, (iii) $328.2
million of HRG net indebtedness and transaction expense at closing, and
(iv) a $200.0 million upward adjustment contemplated by the Merger
Agreement, each HRG stockholder receives approximately 0.1613 of a share
of the post-Merger combined company stock for each share of pre-Merger
common stock. The following is a recalculation of the weighted average
shares adjusted for the impact of the reverse stock split and share
exchange for the three and nine month periods ended June 30, 2018 and
2017.

               
Three Month Periods Ended Nine Month Periods Ended
(in millions, except per share amounts) June 30, 2018 June 30, 2017 June 30, 2018 June 30, 2017
Basic
Spectrum weighted average shares 55.3 58.7 56.7 58.9
Spectrum weighted average shares owned by HRG   34.3   34.3   34.3   34.3
Spectrum weighted average shares owned by third parties (A) 21.0 24.3 22.4 24.6
HRG weighted average shares 203.0 200.4 201.8 199.8
HRG share conversion at 1 to 0.1613 (B)   32.7   32.3   32.5   32.2
Total weighted average shares (A + B)   53.7   56.6   54.9   56.8
Diluted
Spectrum weighted average shares 55.4 58.9 56.7 59.1
Spectrum weighted average shares owned by HRG   34.3   34.3   34.3   34.3
Spectrum weighted average shares owned by third parties (A) 21.1 24.6 22.4 24.8
HRG weighted average shares 203.3 202.6 202.7 202.4
HRG share conversion at 1 to 0.1613 (B)   32.7   32.6   32.7   32.6
Total weighted average shares (A + B)   53.8   57.2   55.1   57.4
 

The following summarizes the acquisition and integration related charges
incurred by the Company for the three and nine month periods ended June
30, 2018 and 2017, respectively:

  Three Month Periods Ended June 30, 2018   Three Month Periods Ended June 30, 2017
(in millions) Cont. Ops   Disc. Ops   Total Cont. Ops   Disc. Ops   Total
HHI Business $ 0.9 $ $ 0.9 $ 1.8 $ $ 1.8
PetMatrix 0.8 0.8 1.7 1.7
Armored AutoGroup 0.3 0.3 0.6
Other   0.6   24.3   24.9   1.4   0.3   1.7
Total acquisition and integration related charges $ 2.3 $ 24.3 $ 26.6 $ 5.2 $ 0.6 $ 5.8
 
Nine Month Periods Ended June 30, 2018 Nine Month Periods Ended June 30, 2017
(in millions) Cont. Ops Disc. Ops Total Cont. Ops Disc. Ops Total
HHI Business $ 5.5 $ $ 5.5 $ 5.7 $ $ 5.7
PetMatrix 4.5 4.5 2.0 2.0
Armored AutoGroup 0.6 0.6 2.1 0.9 3.0
Other   1.4   49.4   50.8   1.8   2.5   4.3
Total acquisition and integration related charges $ 12.0 $ 49.4 $ 61.4 $ 11.6 $ 3.4 $ 15.0
 

The following summarizes the restructuring and related charges incurred
by the Company for the three and nine month periods ended June 30, 2018
and 2017:

           
Three Month Periods Ended June 30, 2018 Three Month Periods Ended June 30, 2017
(in millions) Cont. Ops Disc. Ops Total Cont. Ops Disc. Ops Total
HHI distribution center consolidation $ 11.6 $ $ 11.6 $ 9.0 $ $ 9.0
GAC business rationalization initiative 6.3 6.3 12.8 12.8
PET rightsizing initiative 3.1 3.1 2.2 2.2
Other restructuring activities   4.4   0.4   4.8   (2.8 )     (2.8 )
Total restructuring and related charges $ 25.4 $ 0.4 $ 25.8 $ 21.2   $ $ 21.2  
 
Nine Month Periods Ended June 30, 2018 Nine Month Periods Ended June 30, 2017
(in millions) Cont. Ops Disc. Ops Total Cont. Ops Disc. Ops Total
HHI distribution center consolidation $ 40.4 $ $ 40.4 $ 9.1 $ $ 9.1
GAC business rationalization initiative 13.5 13.5 19.8 19.8
PET rightsizing initiative 7.1 7.1 2.8 2.8
Other restructuring activities   8.0   1.4   9.4   (0.4 )   1.4   1.0  
Total restructuring and related charges $ 69.0 $ 1.4 $ 70.4 $ 31.3   $ 1.4 $ 32.7  
 

SPECTRUM BRANDS HOLDINGS, INC.

OTHER SUPPLEMENTAL INFORMATION (Unaudited)

NET SALES AND ORGANIC NET SALES

The following is a summary of net sales by segment for the three and
nine month periods ended June 30, 2018 and 2017, respectively:

                   
Three Month Periods Ended Nine Month Periods Ended
(in millions, except %) June 30, 2018 June 30, 2017 Variance June 30, 2018 June 30, 2017 Variance
HHI $ 372.4 $ 324.7 47.7 14.7 % $ 1,016.8 $ 927.2 89.6 9.7 %
PET 194.7 190.0 4.7 2.5 % 608.3 576.0 32.3 5.6 %
H&G 203.2 192.4 10.8 5.6 % 370.6 374.2 (3.6 ) (1.0 %)
GAC   175.2   155.8 19.4 12.5 %   362.4   344.2 18.2 5.3 %
Total $ 945.5 $ 862.9 82.6 9.6 % $ 2,358.1 $ 2,221.6 136.5 6.1 %
 

We define organic net sales as reported net sales excluding the effect
of changes in foreign currency exchange rates and acquisitions. 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 rate
and/or 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 reported net sales in the
prior year. The effect of changes in currency exchange rates is
determined by translating the period's net sales using the currency
exchange rates that were in effect during the prior 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 reported sales to organic
sales for the three and nine month periods ended June 30, 2018 compared
to reported net sales for the three and nine month periods ended June
30, 2017, respectively:

                 
June 30, 2018
Net Sales

 

Excluding
Effect of Effect of

Three month periods ended

Changes in Changes in Effect of Organic Net Sales

(in millions, except %)

Net Sales Currency Currency Acquisitions Net Sales June 30, 2017 Variance
HHI 372.4 (1.3 ) 371.1 371.1 324.7 46.4 14.3 %
PET 194.7 (2.9 ) 191.8 (14.5 ) 177.3 190.0 (12.7 ) (6.7 %)
H&G 203.2 203.2 203.2 192.4 10.8 5.6 %
GAC   175.2   (0.7 )   174.5       174.5   155.8 18.7 12.0 %
Total $ 945.5 $ (4.9 ) $ 940.6 $ (14.5 ) $ 926.1 $ 862.9 63.2 7.3 %
 
June 30, 2018
Net Sales

 

Excluding

 

Effect of Effect of

Nine month periods ended

Changes in Changes in Effect of Organic Net Sales

(in millions, except %)

Net Sales Currency Currency Acquisitions Net Sales June 30, 2017 Variance
HHI 1,016.8 (5.9 ) 1,010.9 1,010.9 927.2 83.7 9.0 %
PET 608.3 (16.3 ) 592.0 (64.5 ) 527.5 576.0 (48.5 ) (8.4 %)
H&G 370.6 370.6 370.6 374.2 (3.6 ) (1.0 %)
GAC   362.4   (2.6 )   359.8       359.8   344.2 15.6 4.5 %
Total $ 2,358.1 $ (24.8 ) $ 2,333.3 $ (64.5 ) $ 2,268.8 $ 2,221.6 47.2 2.1 %
 

SPECTRUM BRANDS HOLDINGS, INC.

OTHER SUPPLEMENTAL INFORMATION (Unaudited)

ADJUSTED EBITDA, ADJUSTED EBITDA MARGIN, AND ORGANIC ADJUSTED EBITDA

Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation,
Amortization) is a non-GAAP metric used by management that we believe
provides useful information to investors because it reflects 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 and facilitates comparisons between peer companies
since interest, taxes, depreciation and amortization can differ greatly
between organizations as a result of differing capital structures and
tax strategies. Further, adjusted EBITDA is a measure used for
determining the Company's debt covenant. 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: (1) share based
compensation expense as it is a non-cash based compensation cost,
including HRG share based compensation expense; (2) acquisition and
integration costs that consist of transaction costs from acquisition
transactions during the period, or subsequent integration related
project costs directly associated with the acquired business as
previously summarized; (3) restructuring and related costs, which
consist of project costs associated with restructuring initiatives as
previously summarized; (4) non-cash purchase accounting inventory
adjustments recognized in earnings subsequent to an acquisition; (5)
non-cash asset impairments or write-offs realized; (6) estimated costs
for a non-recurring voluntary recall of rawhide product by the PET
segment; (7) transaction costs associated with the HRG Merger; (8)
non-recurring HRG net operating costs that consist of redundant and
duplicative costs that are expected to be eliminated post merger
including compensation and benefits, directors fees, professional fees,
insurance, public company costs, among others, including interest and
other non-recurring income; (9) net operating costs associated with
Salus; (10) other. During the three and nine month periods ended June
30, 2018, other adjustments consisted of separation costs with a key
executive. Adjusted EBITDA margin is calculated as adjusted EBITDA as a
percentage of reported net sales for the respective period. Organic
adjusted EBITDA is calculated by excluding the effect of changes in
currency exchange rates and adjusted EBITDA contributed from acquired
businesses in the current year. The following is a reconciliation of
reported net income to adjusted EBITDA for the three month periods ended
June 30, 2018 and 2017, including the calculation of adjusted EBITDA
margin for each of the respective periods, and organic adjusted EBITDA
for the three month period ended June 30, 2018:

           
Three month period ended June 30, 2018 (in millions, except %) HHI PET H&G GAC Corporate Consolidated
Net income from continuing operations $ 52.1 $ 14.4 $ 52.2 $ 38.2 $ 246.0 $ 402.9
Income tax benefit (337.8) (337.8)
Interest expense 63.5 63.5
Depreciation and amortization   8.9   10.6   4.7   4.3   3.7   32.2
EBITDA 61.0 25.0 56.9 42.5 (24.6) 160.8
Share based compensation 5.3 5.3
Acquisition and integration related charges 0.9 1.1 0.3 2.3
Restructuring and related charges 12.0 3.7 0.1 7.6 2.0 25.4
Pet safety recall 5.1 5.1
HRG merger related transaction charges 3.1 3.1
Non-recurring HRG operating costs and interest income 1.2 1.2
Salus (0.1) (0.1)
Other           3.3   3.3
Adjusted EBITDA $ 73.9 $ 34.9 $ 57.0 $ 50.1 $ (9.5) $ 206.4
Net Sales   372.4   194.7   203.2   175.2     945.5
Adjusted EBITDA Margin   19.8%   17.9%   28.1%   28.6%     21.8%
 
Three month period ended June 30, 2017 (in millions, except %) HHI PET H&G GAC Corporate Consolidated
Net income from continuing operations $ 44.4 $ (5.4) $ 55.3 $ 32.5 $ (123.0) $ 3.8
Income tax expense 19.5 19.5
Interest expense 76.1 76.1
Depreciation and amortization   9.8   10.8   4.2   5.1   3.0   32.9
EBITDA 54.2 5.4 59.5 37.6 (24.4) 132.3
Share based compensation 5.0 5.0
Acquisition and integration related charges 1.8 3.0 0.3 0.1 5.2
Restructuring and related charges 6.2 2.0 12.8 0.2 21.2
Inventory acquisition step-up 0.8 0.8
Pet safety recall 24.9 24.9
HRG merger related transaction charges 1.4 1.4
Non-recurring HRG operating costs and interest income 7.8 7.8
Salus           0.7   0.7
Adjusted EBITDA $ 62.2 $ 36.1 $ 59.5 $ 50.7 $ (9.2) $ 199.3
Net Sales   324.7   190.0   192.4   155.8     862.9
Adjusted EBITDA Margin   19.2%   19.0%   30.9%   32.5%     23.1%
 
Organic Adjusted EBITDA (in millions, except %) HHI PET H&G GAC Corporate Consolidated
Adjusted EBITDA - three month period ended July 1, 2018 $ 73.9 $ 34.9 $ 57.0 $ 50.1 $ (9.5) $ 206.4
Effect of change in foreign currency   (1.8)   0.6     0.5   0.3   (0.4)
Net EBITDA Excluding Effect of Changes in Currency 72.1 35.5 57.0 50.6 (9.2) 206.0
Effect of acquisitions     (5.6)         (5.6)
Organic Adjusted EBITDA 72.1 29.9 57.0 50.6 (9.2) 200.4
Adjusted EBITDA - three month period ended July 2, 2017   62.2   36.1   59.5   50.7   (9.2)   199.3
Increase (Decrease) in Organic Adjusted EBITDA $ 9.9 $ (6.2) $ (2.5) $ (0.1) $ $ 1.1
Increase (Decrease) in Organic Adjusted EBITDA (%) 15.9% (17.2%) (4.2%) (0.2%) 0.0% 0.6%

SPECTRUM BRANDS HOLDINGS, INC.

OTHER SUPPLEMENTAL INFORMATION (Unaudited)

ADJUSTED EBITDA, ADJUSTED EBITDA MARGIN, AND ORGANIC ADJUSTED EBITDA
(continued)

The following is a reconciliation of reported net income to adjusted
EBITDA for the nine month periods ended June 30, 2018 and 2017,
including the calculation of adjusted EBITDA margin for each of the
respective periods, and organic adjusted EBITDA for the nine month
period ended June 30, 2018:

           
Nine month period ended June 30, 2018 (in millions, except %) HHI PET H&G GAC Corporate Consolidated
Net income from continuing operations $ 101.8 $ 42.5 $ 73.4 $ 57.3 $ 168.7 $ 443.7
Income tax benefit (464.9 ) (464.9 )
Interest expense 206.6 206.6
Depreciation and amortization   31.4     31.7     14.0     12.1     10.2     99.4  
EBITDA 133.2 74.2 87.4 69.4 (79.4 ) 284.8
Share based compensation 6.4 6.4
Acquisition and integration related charges 5.5 5.2 0.6 0.7 12.0
Restructuring and related charges 40.8 8.1 0.3 14.7 5.1 69.0
Inventory acquisition step-up 0.8 0.8
Pet safety recall 16.3 16.3
HRG merger related transaction charges 22.0 22.0
Non-recurring HRG operating costs and interest income 11.9 11.9
Salus 1.2 1.2
Other                   3.3     3.3  
Adjusted EBITDA $ 179.5   $ 104.6   $ 87.7   $ 84.7   $ (28.8 ) $ 427.7  
Net Sales   1,016.8     608.3     370.6     362.4         2,358.1  
Adjusted EBITDA Margin   17.7 %   17.2 %   23.7 %   23.4 %       18.1 %
 
Nine month period ended June 30, 2017 (in millions, except %) HHI PET H&G GAC Corporate Consolidated
Net income from continuing operations $ 136.7 $ 34.1 $ 88.4 $ 80.1 $ (385.3 ) $ (46.0 )
Income tax expense 49.1 49.1
Interest expense 232.4 232.4
Depreciation and amortization   28.0     31.6     12.4     13.9     8.4     94.3  
EBITDA 164.7 65.7 100.8 94.0 (95.4 ) 329.8
Share based compensation 28.5 28.5
Acquisition and integration related charges 5.6 3.6 2.1 0.3 11.6
Restructuring and related charges 7.7 3.7 19.8 0.1 31.3
Inventory acquisition step-up 0.8 0.8
Pet safety recall 24.9 24.9
HRG merger related transaction charges 4.2 4.2
Non-recurring HRG operating costs and interest income 28.6 28.6
Salus                   5.0     5.0  
Adjusted EBITDA $ 178.0   $ 98.7   $ 100.8   $ 115.9   $ (28.7 ) $ 464.7  
Net Sales   927.2     576.0     374.2     344.2         2,221.6  
Adjusted EBITDA Margin   19.2 %   17.1 %   26.9 %   33.7 %       20.9 %
 
Organic Adjusted EBITDA (in millions, except %) HHI PET H&G GAC Corporate Consolidated
Adjusted EBITDA - nine month period ended July 1, 2018 $ 179.5 $ 104.6 $ 87.7 $ 84.7 $ (28.8 ) $ 427.7
Effect of change in foreign currency   0.2     (0.5 )       0.1     1.0     0.8  
Net EBITDA Excluding Effect of Changes in Currency 179.7 104.1 87.7 84.8 (27.8 ) 428.5
Effect of acquisitions       (22.8 )               (22.8 )
Organic Adjusted EBITDA 179.7 81.3 87.7 84.8 (27.8 ) 405.7
Adjusted EBITDA - six month period ended July 2, 2017   178.0     98.7     100.8     115.9     (28.7 )   464.7  
Increase (Decrease) in Organic Adjusted EBITDA $ 1.7 $ (17.4 ) $ (13.1 ) $ (31.1 ) $ 0.9 $ (59.0 )
Increase (Decrease) in Organic Adjusted EBITDA (%) 1.0 % (17.6 %) (13.0 %) (26.8 %) (3.1 %) (12.7 %)
 

SPECTRUM BRANDS HOLDINGS, INC.

OTHER SUPPLEMENTAL INFORMATION (Unaudited)

ADJUSTED EBITDA, ADJUSTED EBITDA MARGIN, AND ORGANIC ADJUSTED EBITDA
(continued)

The following is a reconciliation of forecasted adjusted EBITDA for the
fiscal year ending September 30, 2018:

     
(in millions) Cont. Ops Disc Ops Total
Net income $ 207 - 221 $ 78 - 86 $ 285 - 307
Income tax (benefit) expense (78) - (75) (7) - (5) (85) - (80)
Interest expense 161 - 167 54 - 58 215 - 225
Depreciation and amortization   122 - 127   73 - 78   195 - 205
EBITDA 418 - 435 201 - 211 619 - 646
Share based compensation 18 2 20
Acquisition and integration related charges 14 - 15 59 - 61 73 - 76
Restructuring and related charges 88 - 90 2 90 - 92
Inventory acquisition step-up 1 1
Pet safety recall 16 - 18 16 - 18
Other   41 - 43     41 - 43
Adjusted EBITDA $ 600 - 617 $ 265 - 275 $ 865 - 892
 

ADJUSTED FREE CASH FLOW

Our definition of adjusted free cash flow, which is a non-GAAP financial
measure, takes into consideration capital investments required to
maintain the operations of our businesses and execute our strategy. We
believe adjusted free cash flow provides useful information to investors
regarding our ability to generate cash from business operations that is
available for acquisitions and other investments, service of debt
principal, dividends and share repurchases and meet its working capital
requirements. Our definition of adjusted free cash flow may be different
from definitions used by other companies. We also use adjusted free cash
flow, as defined, as one measure to monitor and evaluate performance.
The following is a reconciliation of the Company's forecasted adjusted
free cash flow for the fiscal year ending September 30, 2018:

   
(in millions) September 30, 2018 September 30, 2017
Net cash flow from operating activities $ 495 - 520 $ 665
GBA divestiture transaction costs 40 - 45
HRG merger transaction costs 35 - 40
Cash interest charges related to refinancing 5
Stanley settlement payment 23
Rawhide recall 10 - 15 9
Purchases of property, plant and equipment   (100) - (110)   (115)
Adjusted free cash flow $ 485 - 505 $ 587
 

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