NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Footnote 1 Basis of Presentation and Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements of Newell Brands Inc. (formerly, Newell Rubbermaid Inc. (Newell Rubbermaid),
and collectively with its subsidiaries, the Company) have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the SEC) and do not include all of the information and
footnotes required by U.S. generally accepted accounting principles (U.S. GAAP) for complete financial statements. In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments (including
normal recurring accruals) considered necessary for a fair presentation of the financial position and the results of operations of the Company. It is recommended that these unaudited condensed consolidated financial statements and accompanying
footnotes be read in conjunction with the financial statements, and the footnotes thereto, included in the Companys most recent Annual Report on Form
10-K.
The condensed consolidated balance sheet as of
December 31, 2016, has been derived from the audited financial statements as of that date, but it does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. Certain reclassifications have been
made in the Companys financial statements of the prior year to conform to the current year presentation. These reclassifications have no impact on previously reported net income.
Seasonal Variations
Sales of the Companys
products tend to be seasonal, with sales, operating income and operating cash flow in the first quarter generally lower than any other quarter during the year, driven principally by reduced volume and the mix of products sold in the first quarter.
The seasonality of the Companys sales volume combined with the accounting for fixed costs, such as depreciation, amortization, rent, personnel costs and interest expense, impacts the Companys results on a quarterly basis. In addition,
the Company tends to generate the majority of its operating cash flow in the third and fourth quarters of the year due to seasonal variations in operating results, the timing of annual performance-based compensation payments, customer program
payments, working capital requirements and credit terms provided to customers. Accordingly, the Companys results of operations for the three months ended September 30, 2017 may not necessarily be indicative of the results that may be
expected for the year ending December 31, 2017.
Recent Accounting Pronouncements
Changes to U.S. GAAP are established by the Financial Accounting Standards Board (FASB) in the form of accounting standards updates
(ASUs) to the FASBs Accounting Standards Codification. The Company considers the applicability and impact of all ASUs.
In May 2014, the
FASB issued ASU
No. 2014-09,
Revenue from Contracts with Customers. Accounting Standard Codification 606 Revenue Recognition,
which established Accounting Standards
Codification Topic 606,
Revenue from Contracts with Customers
(ASC 606). ASC 606 will replace existing revenue recognition requirements in U.S. GAAP and will require entities to recognize revenue at an amount that
reflects the consideration to which we expect to be entitled in exchange for transferring goods or services to a customer. To achieve this core principle, the standard provides a five-step analysis of transactions to determine when and how revenue
is recognized. Other major provisions include the capitalization and amortization of certain contract costs, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized
before contingencies are resolved in certain circumstances. ASC 606 will also require significantly expanded disclosures regarding the qualitative and quantitative information of the Companys nature, amount, timing, and uncertainty of revenue
and cash flows arising from contracts with customers.
In May 2016, the FASB issued ASU
2016-12,
Revenue
from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients,
which updated ASU
2014-09.
ASU
2016-12
clarifies certain core
recognition principles including collectability, sales tax presentation, noncash consideration, contract modifications and completed contracts at transition and disclosures no longer required if the full retrospective transition method is adopted.
ASU
2014-09
and ASU
2016-12
are effective for annual reporting periods
beginning after December 15, 2017, including interim periods within those annual periods.
The standard permits two methods of adoption, either
retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method).
The Company has decided to use the modified retrospective transition method for ASC 606 adoption on January 1, 2018.
7
The Company is currently evaluating the effect that ASU
2014-09
and ASU
2016-12
will have on the Companys financial statements and related disclosures. To that end, the Companys implementation project team has completed the assessment process for all of its business units
and is currently in the design and implementation phase which will be completed during the fourth quarter of 2017. The Company is mainly expecting presentation changes in the balance sheet and income statement from the transition to ASC 606.
In February 2016, the FASB issued ASU
2016-02,
Leases (Topic 842)
, which requires lessees to
recognize a
right-of-use
asset and lease liability for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on
classification as a finance or operating lease. ASU
2016-02
is effective for the Company on January 1, 2019. The Company is beginning to evaluate the impact the adoption of ASU
2016-02
will have on the Companys consolidated financial statements.
In March 2017, the FASB issued ASU
2017-07,
Compensation Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.
ASU
2017-07
changes how employers that sponsor defined benefit pension plans and other postretirement plans present the net periodic benefit cost in the income statement. ASU
2017-07
requires that the service cost component of net periodic benefit cost be reported in the same line item or items as other compensation costs arising from services rendered by the pertinent employees
during the period. Other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. ASU
2017-07
also allows only the service cost component to be eligible for capitalization, when applicable. This guidance is effective for annual periods beginning after December 15, 2017, with early adoption
permitted. ASU
2017-07
is to be applied retrospectively for the income statement presentation requirements and prospectively for the capitalization requirements of the service cost component. The Company does
not expect that the adoption of ASU
2017-17
will have a material impact on the Companys consolidated financial statements.
In August 2017, the FASB issued ASU
2017-12,
Derivatives and Hedging (Topic 815): Targeted Improvements to
Accounting for Hedging Activities.
ASU
2017-12
amends existing guidance to better align an entitys risk management activities and financial reporting for hedging relationships. ASU
2017-12
also expands and refines hedge accounting for both nonfinancial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the
financial statements. ASU
2017-12
is effective for annual reporting periods beginning after December 15, 2018, including interim periods within those annual periods. The Company is beginning to evaluate
the impact the adoption of ASU
2017-22
will have on the Companys consolidated financial statements.
Other
recently issued ASUs were assessed and determined to be either not applicable or are expected to have a minimal impact on the Companys consolidated financial position and results of operations.
Adoption of New Accounting Guidance
In January
2017, the FASB issued ASU
2017-04,
Intangibles Goodwill and Other: Simplifying the Test for Goodwill Impairment.
ASU
2017-04
simplifies the
subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. ASU
2017-04
is effective for annual or interim impairment tests in fiscal years beginning after December 15,
2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company adopted ASU
2017-04
during the third quarter of 2017 in
connection with its annual goodwill impairment testing. See Footnote 8 for additional information.
In March 2016, the FASB issued ASU
No. 2016-09,
Compensation-Stock Compensation: Improvement to Employee Share-Based Payment Accounting.
ASU
2016-09
provides guidance intended to
simplify accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The guidance is effective for interim and
annual periods beginning after December 15, 2016. The new standard requires: (1) excess tax benefits and tax deficiencies related to share-based awards to be recognized as income tax benefit or expense on a prospective basis in the
reporting period in which they vest; (2) excess tax benefits from share-based payment arrangements to be presented within operating activities and withholding tax payments upon vesting of restricted stock units to be presented within financing
activities within the cash flow statement; (3) permits the employer to repurchase more of an employees shares for tax withholding purposes and not classify the award as a liability that requires valuation on a
mark-to-market
basis; and (4) allows for a policy election to account for forfeitures as they occur. The Company adopted this guidance in the first quarter of 2017 and
decided to continue its policy of estimating forfeitures. The Company has also elected to retrospectively reclassify the prior year cash flows related to excess tax benefits from share-based payment arrangements from financing activities to
operating activities within the condensed consolidated statements of cash flows. The Company adopted this guidance in the first quarter of 2017 and it did not have a material effect on the consolidated financial position, results of operations or
cash flows of the Company.
In July 2015, the FASB issued ASU
No. 2015-11,
Simplifying the
Measurement of Inventory,
which modified existing requirements regarding measuring
first-in,
first-out
and average cost inventory at the lower of cost or
market. Under past standards, the market amount requires consideration of replacement cost, net realizable value (NRV), and NRV less an approximately normal profit margin. ASU
2015-11
replaces
market with NRV, defined as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This eliminates the need to determine and consider replacement cost or NRV less an
8
approximately normal profit margin when measuring inventory. This guidance is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. The Company adopted
this guidance in the first quarter of 2017 and it did not have a material effect on the consolidated financial position, results of operations or cash flows of the Company.
Other Items
The Company holds a 25.8% investment
in Sprue Aegis (Sprue). During the three and nine months ended September 30, 2017 and 2016, the Companys related party sales to Sprue were $8.6 million and $7.0 million, respectively, and $24.0 million and
$14.3 million, respectively. During the nine months ended September 30, 2017, the Company provided notification to Sprue of its election to terminate the distribution agreement on March 31, 2018.
Footnote 2 Acquisitions
2017 Activity
In September 2017, the Company acquired Chesapeake Bay Candle, a leading developer, manufacturer and marketer of premium candles and other home
fragrance products, focused on consumer wellness and natural fragrance, for a cash purchase price of approximately $75 million. Chesapeake Bay Candle is included in the Live segment from the date of acquisition. Net sales and operating income
related to Chesapeake Bay Candle for the three and nine months ended September 30, 2017 were not material to the Companys consolidated financial statements.
In April 2017, the Company acquired Sistema Plastics (Sistema), a leading New Zealand based manufacturer and marketer of innovative food storage
containers with strong market shares and presence in Australia, New Zealand, U.K. and parts of continental Europe for a cash purchase price of approximately $472 million. Based on the Companys independent valuation the Company allocated
the total purchase price, net of cash acquired, to the identifiable tangible and intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition date. Based on the purchase price allocation, net of cash
acquired, the Company allocated approximately $39 million to identified net assets, $291 million to identified intangible assets and $142 million to goodwill. Sistema is included in the Live segment from the date of acquisition. Net
sales and operating income related to Sistema for the three and nine months ended September 30, 2017 were not material to the Companys consolidated financial statements.
In January 2017, the Company acquired Smith Mountain Industries (Smith Mountain), a leading provider of premium home fragrance products, sold
primarily under the WoodWick
®
Candle brand, for a cash purchase price of approximately $100 million. Smith Mountain is included in the Live segment from the date of acquisition. Net sales
and operating income related to Smith Mountain for the three and nine months ended September 30, 2017 were not material to the Companys consolidated financial statements.
2016 Activity
On April 15, 2016, Jarden
Corporation (Jarden) became a direct wholly-owned subsidiary of Newell Brands Inc., as a result of a series of merger transactions (the Jarden Acquisition). The Jarden Acquisition was effected pursuant to an Agreement and
Plan of Merger, dated as of December 13, 2015 (the Merger Agreement), among the Company, Jarden and two wholly-owned subsidiaries of the Company. Following the Jarden Acquisition, the Company was renamed Newell Brands Inc. Jarden
was a leading, global consumer products company with leading brands, such as Yankee Candle
®
,
Crock-Pot
®
, FoodSaver
®
,
Mr. Coffee
®
, Oster
®
, Coleman
®
, First Alert
®
, Rawlings
®
, Jostens
®
,
Marmot
®
and many others. The Jarden Acquisition enables the Company to scale the enterprise with leading brands in global markets. The scale of the Company in key categories, channels and
geographies enables it to deploy its strategy, which includes advantaged development and commercial capabilities, across a larger set of opportunities to generate accelerated growth and margin expansion. The Jarden Acquisition has been accounted for
using the purchase method of accounting, and Jardens assets, liabilities and results of operations are included in the Companys financial statements from the acquisition date. Adjustments made to the purchase price allocation during the
nine months ended September 30, 2017, primarily relate to goodwill and other intangible assets (see Footnote 8).
Pursuant to the Merger Agreement,
each share of Jarden common stock was exchanged for 0.862 of a share of the Companys common stock plus $21.00 in cash. The total merger consideration, including debt assumed, was approximately $18.7 billion. The aggregate consideration
paid or payable to the Jarden shareholders and convertible note holders was approximately $15.3 billion and was comprised of a cash payment of approximately $5.4 billion, the issuance of 213.9 million common shares of the Company with
a fair value of approximately $9.9 billion and accrued merger consideration of $627 million. The accrued merger consideration at acquisition related to approximately 9.1 million shares of the Companys common stock that had not
been issued and $222 million in cash that had not been paid as of the date of the acquisition for shares of Jarden common stock held by dissenting Jarden shareholders who exercised their appraisal rights and are seeking an appraisal of such
shares. In July 2017, approximately 6.6 million shares of the Companys common stock (representing the stock component of the merger consideration) were issued and approximately $162 million (representing the cash component of the
merger consideration) was paid to certain dissenting shareholders pursuant to settlement agreements (see Footnote 18). At September 30, 2017, the Company has accrued approximately $171 million of unpaid consideration related to
approximately 2.5 million shares of the Companys common stock that have not been issued and approximately $61 million of cash that has not been paid.
9
The following unaudited pro forma financial information presents the combined results of operations of Newell
Rubbermaid and Jarden for the three and nine months ended September 30, 2016 as if the Jarden Acquisition had occurred on January 1, 2015. The unaudited pro forma financial information is not intended to represent or be indicative of the
Companys consolidated results of operations that would have been reported had the Jarden Acquisition been completed as of January 1, 2015, and should not be taken as indicative of the Companys future consolidated results of
operations. The Company expects to incur restructuring and other integration costs that are not included in the pro forma results of operations presented below. Pro forma adjustments are
tax-effected
at the
Companys estimated statutory tax rates.
|
|
|
|
|
|
|
|
|
(in millions, except per share data)
|
|
Three Months
Ended
September 30,
2016
|
|
|
Nine Months
Ended
September 30,
2016
|
|
Net sales
|
|
$
|
3,954.6
|
|
|
$
|
11,521.7
|
|
Net income
|
|
|
273.2
|
|
|
|
588.8
|
|
Income loss per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.56
|
|
|
$
|
1.23
|
|
Diluted
|
|
$
|
0.56
|
|
|
$
|
1.22
|
|
The unaudited pro forma financial information for the three and nine months ended September 30, 2016 includes
$52.1 million and $156 million, respectively, for the amortization of acquired intangibles from the Jarden Acquisition based on the purchase price allocation, which was finalized during the second quarter of 2017.
Footnote 3 Discontinued Operations and Divestitures
Discontinued Operations
The following table provides a
summary of amounts included in discontinued operations for the periods indicated (in millions):
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
September 30,
2016
|
|
|
Nine Months
Ended
September 30,
2016
|
|
Net sales
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations before income taxes
|
|
|
|
|
|
|
(1.3
|
)
|
Income tax benefit
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
(1.0
|
)
|
Net gain from sale of discontinued operations, net of tax
|
|
|
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of tax
|
|
$
|
|
|
|
$
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
The discontinued operations for 2016 relate to the Companys Endicia business whose operations were ceased in 2015. The
consolidated results of operations for 2017 do not include discontinued operations.
10
Divestitures
On July 14, 2017, the Company sold its Winter Sports business for a selling price of approximately $240 million, subject to working capital
adjustments. For the three and nine months ended September 30, 2017 and 2016, net sales from the Winter Sports business were not material. During the nine months ended September 30, 2017, the Company recorded an impairment charge of
$59.1 million related to the writedown of the carrying value of the net assets of the Winter Sports business based on the expected proceeds to be received. Of this impairment charge, $12.6 million related to the impairment of goodwill and
$46.5 million related to the impairment of other intangible assets. The Company recorded a
pre-tax
loss on sale of $48.0 million driven by funding the business working capital needs and
withholding taxes between June 30, 2017 and July 14, 2017, which is included in other expense (income), net in condensed consolidated statement of operations for the three and nine months ended September 30, 2017.
During 2017, the Company sold its Rubbermaid
®
consumer storage totes business, its stroller business
under the Teutonia
®
brand, its Lehigh business, its firebuilding business and its triathlon apparel business under the Zoot
®
and
Squadra
®
brands. The selling prices for these businesses were not significant. Based on the consideration, during the nine months ended September 30, 2017 the Company recorded impairment
charges of $15.3 million related to the write down of the carrying value of the net assets of the firebuilding and Teutonia
®
stroller businesses to their estimated fair market value. The
Company sold the firebuilding business to Royal Oak Enterprises, LLC (Royal Oak). Company directors Martin E. Franklin and Ian G.H. Ashken are affiliates of Royal Oak.
In March 2017, the Company completed the sale of its Tools business, including the Irwin
®
, Lenox
®
and Hilmor
®
brands. The selling price was $1.95 billion, subject to customary working capital adjustments. The net assets of the
Tools business were approximately $1.1 billion, including approximately $711 million of goodwill, resulting in a pretax gain of $771.0 million, which is included in other (income) expense, net in the condensed consolidated statement
of operations for the nine months ended September 30, 2017. For the three and nine months ended September 30, 2016, the Tools business generated 4.5% and 5.9%, respectively, of the Companys consolidated net sales. Net sales for the
Tools business in 2017 were not material.
In June 2016, the Company sold its Décor business, including Levolor
®
and Kirsch
®
window coverings and drapery hardware, for consideration, net of fees, of approximately $224 million, resulting in a
pretax gain of $160 million, which is included in other (income) expense, net for the nine months ended September 30, 2016. For the nine months ended September 30, 2016, the Décor business generated 1.6% of the Companys
consolidated net sales.
Held for Sale
During 2016,
the Company committed to plans to divest several businesses and brands, most of which were disposed of during the nine months ended September 30, 2017, to strengthen the portfolio to better align with the long-term growth plan.
The following table presents information related to the major classes of assets and liabilities that were classified as assets and liabilities held for sale
in the condensed consolidated balance sheets as of September 30, 2017 and December 31, 2016 (in millions):
|
|
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
Accounts receivable, net
|
|
$
|
|
|
|
$
|
164.4
|
|
Inventories, net
|
|
|
|
|
|
|
311.6
|
|
Prepaid expenses and other
|
|
|
|
|
|
|
24.3
|
|
Property, plant and equipment, net
|
|
|
4.0
|
|
|
|
224.9
|
|
Goodwill
|
|
|
|
|
|
|
762.5
|
|
Other intangible assets, net
|
|
|
|
|
|
|
244.5
|
|
Other assets
|
|
|
|
|
|
|
13.5
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
4.0
|
|
|
$
|
1,745.7
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
|
|
|
$
|
88.2
|
|
Accrued compensation
|
|
|
|
|
|
|
35.3
|
|
Other accrued liabilities
|
|
|
|
|
|
|
81.6
|
|
Short-term debt and current portion long-term debt
|
|
|
|
|
|
|
4.3
|
|
Other noncurrent liabilities
|
|
|
|
|
|
|
131.1
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
|
|
|
$
|
340.5
|
|
|
|
|
|
|
|
|
|
|
11
Footnote 4 Accumulated Other Comprehensive Income (Loss)
The following tables display the changes in accumulated other comprehensive income (loss) (AOCI) by component net of tax for the nine months ended
September 30, 2017 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
Translation
Adjustment
|
|
|
Pension and
Postretirement
Costs
|
|
|
Derivative
Financial
Instruments
|
|
|
AOCI
|
|
Balance at December 31, 2016
|
|
$
|
(607.9
|
)
|
|
$
|
(400.0
|
)
|
|
$
|
(36.9
|
)
|
|
$
|
(1,044.8
|
)
|
Other comprehensive (loss) income before reclassifications
|
|
|
216.9
|
|
|
|
(10.2
|
)
|
|
|
(29.7
|
)
|
|
|
177.0
|
|
Amounts reclassified to earnings
|
|
|
87.4
|
|
|
|
8.7
|
|
|
|
0.1
|
|
|
|
96.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current period other comprehensive income (loss)
|
|
|
304.3
|
|
|
|
(1.5
|
)
|
|
|
(29.6
|
)
|
|
|
273.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2017
|
|
$
|
(303.6
|
)
|
|
$
|
(401.5
|
)
|
|
$
|
(66.5
|
)
|
|
$
|
(771.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and nine months ended September 30, 2017 and 2016, reclassifications from AOCI to the results of operations
for the Companys pension and postretirement benefit plans were a
pre-tax
expense of $4.5 million and $6.3 million, respectively, and $12.9 million and $13.3 million, respectively, and
primarily represent the amortization of net actuarial losses (see Footnote 12). These costs are recorded in selling, general and administrative expenses (SG&A) and cost of sales. For the three and nine months ended September 30,
2017 and 2016, reclassifications from AOCI to the results of operations for the Companys derivative financial instruments for effective cash flow hedges were
pre-tax
expense of $3.2 million and
$6.0 million, respectively, and $0.1 million and $32.6 million, respectively (see Footnote 11). The amounts reclassified to earnings from the cumulative translation adjustment is due to divestitures (see Footnote 3).
The income tax provision (benefit) allocated to the components of other comprehensive income (loss) (OCI) for the periods indicated are as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Foreign currency translation adjustments
|
|
$
|
1.9
|
|
|
$
|
|
|
|
$
|
0.8
|
|
|
$
|
|
|
Unrecognized pension and postretirement costs
|
|
|
1.5
|
|
|
|
1.2
|
|
|
|
4.2
|
|
|
|
3.5
|
|
Derivative financial instruments
|
|
|
(1.1
|
)
|
|
|
3.3
|
|
|
|
(7.7
|
)
|
|
|
(28.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision (benefit) related to OCI
|
|
$
|
2.3
|
|
|
$
|
4.5
|
|
|
$
|
(2.7
|
)
|
|
$
|
(25.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Footnote 5 Restructuring Costs
Restructuring Costs
Restructuring provisions were
determined based on estimates prepared at the time the restructuring actions were approved by management and are periodically updated for changes. Restructuring amounts also include amounts recognized as incurred.
As part of the Jarden Acquisition, the Company initiated a comprehensive strategic assessment of the business and launched a new corporate strategy that
focuses the portfolio, prioritizes investment in the categories with the greatest potential for growth, and extends the Companys advantaged capabilities in insights, product design, innovation, and
E-commerce
to the broadened portfolio. The investments in new capabilities are designed to unlock the growth potential of the portfolio and will be funded by a commitment to release cost savings from 2016 to
2021 of approximately $1.3 billion through the combination of the completion of Project Renewal (approximately $300 million) and delivery of cost synergies associated with the Jarden integration (approximately $1 billion). This new corporate
strategy is called the New Growth Game Plan and builds on the successful track record of growth acceleration, margin development, and value creation associated with the transformation of Newell Rubbermaid from 2011 through 2016.
Project Renewal
In April 2015, the Company committed to
a further expansion of Project Renewal (the April 2015 Expansion). Project Renewal was initially launched in October 2011 to reduce the complexity of the organization and increase investment in growth platforms within the business. Under
Project Renewal, the Company is simplifying and aligning its businesses around two key activitiesBrand & Category Development and Market Execution & Delivery. Pursuant to an expansion of Project Renewal in October 2014,
the Company is: (i) further streamlining its supply chain function, including reducing overhead and realigning the supply chain management structure; (ii) investing in value analysis and value engineering efforts to reduce product and
packaging costs; (iii) reducing operational and manufacturing complexity in its Learn segment; and (iv) further streamlining its distribution and transportation functions. Under the April 2015 Expansion, the Company is further implementing
additional activities designed to further streamline business partnering functions (e.g., Finance/IT, Legal and Human Resources), optimize global selling and trade marketing functions and rationalize the Companys real estate portfolio. Project
Renewal is expected to be complete by the end of 2017, and as a result, additional cash payments and savings will be realized thereafter.
12
Restructuring costs incurred in connection with Project Renewal for the periods indicated are as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Employee severance, termination benefits and relocation costs
|
|
$
|
0.2
|
|
|
$
|
1.4
|
|
|
$
|
1.8
|
|
|
$
|
(4.0
|
)
|
Exited contractual commitments and other
|
|
|
7.2
|
|
|
|
(1.6
|
)
|
|
|
15.9
|
|
|
|
17.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7.4
|
|
|
$
|
(0.2
|
)
|
|
$
|
17.7
|
|
|
$
|
13.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued restructuring costs activity for Project Renewal for the nine months ended September 30, 2017 is as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31,
2016
|
|
|
Restructuring
Costs
|
|
|
Payments
|
|
|
Non-Cash
Charges
and Other
|
|
|
Balance at
September 30,
2017
|
|
Employee severance, termination benefits and relocation costs
|
|
$
|
15.8
|
|
|
$
|
1.8
|
|
|
$
|
(6.3
|
)
|
|
$
|
(0.2
|
)
|
|
$
|
11.1
|
|
Exited contractual commitments and other
|
|
|
17.4
|
|
|
|
15.9
|
|
|
|
(7.5
|
)
|
|
|
|
|
|
|
25.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
33.2
|
|
|
$
|
17.7
|
|
|
$
|
(13.8
|
)
|
|
$
|
(0.2
|
)
|
|
$
|
36.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jarden Integration
The
Company currently expects to incur up to approximately $1.0 billion of restructuring and other costs through 2021 to integrate the legacy Newell Rubbermaid and Jarden businesses (the Jarden Integration). Initially, integration
projects will primarily be focused on driving cost synergies in procurement, overhead functions and organizational changes designed to redefine the operating model of the Company from a holding company to an operating company. Restructuring costs
associated with integration projects are expected to include employee-related cash costs, including severance, retirement and other termination benefits, and contract termination and other costs. In addition, other costs associated with the Jarden
Integration are expected to include advisory and personnel costs for managing and implementing integration projects.
Other Restructuring
In addition to Project Renewal and the Jarden Integration the Company has incurred restructuring costs for various other restructuring activities.
Accrued restructuring cost activity for the Jarden Integration and other restructuring for the nine months ended September 30, 2017 is as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31,
2016
|
|
|
Restructuring
Costs
|
|
|
Payments
|
|
|
Non-Cash
Charges
and Other
|
|
|
Balance at
September 30,
2017
|
|
Employee severance, termination benefits and relocation costs
|
|
$
|
38.2
|
|
|
$
|
50.3
|
|
|
$
|
(40.1
|
)
|
|
$
|
(8.6
|
)
|
|
$
|
39.8
|
|
Exited contractual commitments and other
|
|
|
0.5
|
|
|
|
14.2
|
|
|
|
(8.5
|
)
|
|
|
(0.1
|
)
|
|
|
6.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
38.7
|
|
|
$
|
64.5
|
|
|
$
|
(48.6
|
)
|
|
$
|
(8.7
|
)
|
|
$
|
45.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring Costs
Restructuring costs incurred by reportable business segment for all restructuring activities in continuing operations for the periods indicated are as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Live
|
|
$
|
3.0
|
|
|
$
|
2.9
|
|
|
$
|
10.7
|
|
|
$
|
2.3
|
|
Learn
|
|
|
3.0
|
|
|
|
3.7
|
|
|
|
8.8
|
|
|
|
8.8
|
|
Work
|
|
|
1.6
|
|
|
|
1.7
|
|
|
|
7.0
|
|
|
|
4.3
|
|
Play
|
|
|
1.6
|
|
|
|
2.3
|
|
|
|
10.6
|
|
|
|
2.6
|
|
Other
|
|
|
1.4
|
|
|
|
1.3
|
|
|
|
5.0
|
|
|
|
6.4
|
|
Corporate
|
|
|
27.8
|
|
|
|
1.1
|
|
|
|
40.1
|
|
|
|
17.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
38.4
|
|
|
$
|
13.0
|
|
|
$
|
82.2
|
|
|
$
|
41.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
Footnote 6 Inventories, Net
Inventories are stated at the lower of cost or market value and are comprised of the following as of the dates indicated (in millions):
|
|
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
Raw materials and supplies
|
|
$
|
449.4
|
|
|
$
|
350.7
|
|
Work-in-process
|
|
|
244.8
|
|
|
|
236.1
|
|
Finished products
|
|
|
2,167.3
|
|
|
|
1,529.2
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
2,861.5
|
|
|
$
|
2,116.0
|
|
|
|
|
|
|
|
|
|
|
Footnote 7 Property, Plant and Equipment, Net
Property, plant and equipment, net, is comprised of the following as of the dates indicated (in millions):
|
|
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
Land
|
|
$
|
108.8
|
|
|
$
|
108.4
|
|
Buildings and improvements
|
|
|
728.3
|
|
|
|
653.0
|
|
Machinery and equipment
|
|
|
2,704.4
|
|
|
|
2,454.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,541.5
|
|
|
|
3,216.0
|
|
Less: Accumulated depreciation
|
|
|
(1,866.3
|
)
|
|
|
(1,672.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,675.2
|
|
|
$
|
1,543.4
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for continuing operations was $71.7 million and $62.8 million for the three months ended
September 30, 2017 and 2016, respectively, and $210 million and $153 million for the nine months ended September 30, 2017 and 2016, respectively.
Footnote 8 Goodwill and Other Intangible Assets, Net
Goodwill activity for the nine months ended September 30, 2017 is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
|
|
Balance at
December 31,
2016
|
|
|
Acquisitions
|
|
|
Other
Adjustments (1)
|
|
|
Impairment (2)
|
|
|
Foreign
Currency
|
|
|
Balance at
September 30,
2017
|
|
Live
|
|
$
|
3,639.9
|
|
|
$
|
172.8
|
|
|
$
|
45.8
|
|
|
$
|
|
|
|
$
|
25.3
|
|
|
$
|
3,883.8
|
|
Learn
|
|
|
2,785.4
|
|
|
|
|
|
|
|
3.9
|
|
|
|
|
|
|
|
56.6
|
|
|
|
2,845.9
|
|
Work
|
|
|
1,871.0
|
|
|
|
|
|
|
|
(16.9
|
)
|
|
|
|
|
|
|
29.8
|
|
|
|
1,883.9
|
|
Play
|
|
|
1,161.4
|
|
|
|
|
|
|
|
(7.6
|
)
|
|
|
|
|
|
|
5.1
|
|
|
|
1,158.9
|
|
Other
|
|
|
761.2
|
|
|
|
|
|
|
|
(9.7
|
)
|
|
|
|
|
|
|
2.5
|
|
|
|
754.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,218.9
|
|
|
$
|
172.8
|
|
|
$
|
15.5
|
|
|
$
|
|
|
|
$
|
119.3
|
|
|
$
|
10,526.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Comprised primarily of adjustments related to the Jarden Acquisition, whose purchase price allocation was finalized during the second quarter of 2017 (see Footnote 2).
|
(2)
|
See Footnote 3 for impairment charges related to assets held for sale.
|
14
Other intangible assets, net are comprised of the following as of the dates indicated (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
|
|
Gross Carrying
Amount (1)
|
|
|
Accumulated
Amortization
|
|
|
Net Book
Value
|
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net Book
Value
|
|
Trade names indefinite life
|
|
$
|
10,199.3
|
|
|
$
|
|
|
|
$
|
10,199.3
|
|
|
$
|
9,935.1
|
|
|
$
|
|
|
|
$
|
9,935.1
|
|
Trade names other
|
|
|
375.5
|
|
|
|
(52.2
|
)
|
|
|
323.3
|
|
|
|
286.3
|
|
|
|
(34.2
|
)
|
|
|
252.1
|
|
Capitalized software
|
|
|
545.5
|
|
|
|
(331.4
|
)
|
|
|
214.1
|
|
|
|
482.0
|
|
|
|
(252.9
|
)
|
|
|
229.1
|
|
Patents and intellectual property
|
|
|
253.6
|
|
|
|
(133.3
|
)
|
|
|
120.3
|
|
|
|
227.9
|
|
|
|
(105.0
|
)
|
|
|
122.9
|
|
Customer relationships and distributor channels
|
|
|
3,703.8
|
|
|
|
(333.5
|
)
|
|
|
3,370.3
|
|
|
|
3,761.7
|
|
|
|
(204.0
|
)
|
|
|
3,557.7
|
|
Other
|
|
|
134.6
|
|
|
|
(54.3
|
)
|
|
|
80.3
|
|
|
|
25.9
|
|
|
|
(11.0
|
)
|
|
|
14.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,212.3
|
|
|
$
|
(904.7
|
)
|
|
$
|
14,307.6
|
|
|
$
|
14,718.9
|
|
|
$
|
(607.1
|
)
|
|
$
|
14,111.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
At September 30, 2017, the amounts attributable to the Jarden Acquisition are as follows: trade names indefinite life $9.4 billion; trade names other
$247 million; capitalized software $63.0 million; patents and intellectual property $99.1 million; customer relationships and distributor channels $3.5 billion; and, other intangible
assets $124 million.
|
The table below summarizes the Companys amortization periods for other intangible assets,
including capitalized software, as of September 30, 2017:
|
|
|
|
|
Amortization Periods
(in years)
|
Trade names indefinite life
|
|
N/A
|
Trade names other
|
|
330 years
|
Capitalized software
|
|
312 years
|
Patents and intellectual property
|
|
314 years
|
Customer relationships & distributor channels
|
|
330 years
|
Other
|
|
35 years
|
Amortization expense for intangible assets for continuing operations was $84.1 million and $75.1 million for the
three months ended September 30, 2017 and 2016, respectively, and $266 million and $154 million for the nine months ended September 30, 2017 and 2016, respectively. Amortization expense for the nine months ended
September 30, 2017 includes a measurement period expense adjustment of $13.6 million related to the valuation of
non-compete
agreements within other intangible assets.
Footnote 9 Other Accrued Liabilities
Other
accrued liabilities are comprised of the following as of the dates indicated (in millions):
|
|
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
Customer accruals
|
|
$
|
405.3
|
|
|
$
|
432.4
|
|
Accruals for manufacturing, marketing and freight expenses
|
|
|
78.5
|
|
|
|
89.3
|
|
Accrued self-insurance liabilities, contingencies and warranty
|
|
|
162.8
|
|
|
|
168.1
|
|
Deferred revenue
|
|
|
75.4
|
|
|
|
187.5
|
|
Derivative liabilities
|
|
|
79.8
|
|
|
|
14.7
|
|
Accrued income taxes
|
|
|
140.7
|
|
|
|
64.9
|
|
Accrued interest expense
|
|
|
189.8
|
|
|
|
108.5
|
|
Other
|
|
|
425.7
|
|
|
|
399.5
|
|
|
|
|
|
|
|
|
|
|
Other accrued liabilities
|
|
$
|
1,558.0
|
|
|
$
|
1,464.9
|
|
|
|
|
|
|
|
|
|
|
15
Footnote 10 Debt
Debt comprised of the following as of the dates indicated (in millions):
|
|
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
2.05% senior notes due 2017
|
|
$
|
349.9
|
|
|
$
|
349.4
|
|
6.25% senior notes due 2018
|
|
|
|
|
|
|
249.8
|
|
2.15% senior notes due 2018
|
|
|
299.4
|
|
|
|
298.9
|
|
2.60% senior notes due 2019
|
|
|
266.5
|
|
|
|
995.0
|
|
2.875% senior notes due 2019
|
|
|
348.5
|
|
|
|
347.9
|
|
4.70% senior notes due 2020
|
|
|
304.2
|
|
|
|
380.0
|
|
3.15% senior notes due 2021
|
|
|
993.1
|
|
|
|
991.7
|
|
3.75% senior notes due 2021
|
|
|
368.1
|
|
|
|
326.9
|
|
4.00% senior notes due 2022
|
|
|
248.7
|
|
|
|
248.5
|
|
3.85% senior notes due 2023
|
|
|
1,738.4
|
|
|
|
1,737.0
|
|
5.00% senior notes due 2023
|
|
|
312.6
|
|
|
|
314.1
|
|
4.00% senior notes due 2024
|
|
|
495.7
|
|
|
|
495.2
|
|
3.90% senior notes due 2025
|
|
|
297.1
|
|
|
|
296.8
|
|
4.20% senior notes due 2026
|
|
|
1,982.3
|
|
|
|
1,981.0
|
|
5.375% senior notes due 2036
|
|
|
494.9
|
|
|
|
494.7
|
|
5.50% senior notes due 2046
|
|
|
1,725.9
|
|
|
|
1,725.7
|
|
Term loan
|
|
|
299.7
|
|
|
|
399.5
|
|
Commercial paper
|
|
|
116.0
|
|
|
|
|
|
Receivables facilities
|
|
|
768.5
|
|
|
|
187.4
|
|
Other debt
|
|
|
65.9
|
|
|
|
73.3
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
11,475.4
|
|
|
|
11,892.8
|
|
Short-term debt and current portion of long-term debt
|
|
|
(1,291.0
|
)
|
|
|
(601.9
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
10,184.4
|
|
|
$
|
11,290.9
|
|
|
|
|
|
|
|
|
|
|
Senior Notes
In March
2017, the Company commenced cash tender offers (the Tender Offers) totaling approximately $1.06 billion for any and all of its 6.25% senior notes due 2018 and up to a maximum aggregate principal amount of certain of its other senior
notes. In March 2017, pursuant to the Tender Offers the Company repurchased approximately $63 million aggregate principal amount of its 6.25% senior notes due 2018, approximately $733 million aggregate principal amount of its 2.6% senior
notes due 2019 and approximately $76 million aggregate principal amount of its 4.7% senior notes due 2020 for total consideration, excluding accrued interest, of approximately $897 million. As a result of these debt extinguishments, the
Company recorded a loss on the extinguishment of debt of $27.8 million during the first quarter of 2017, primarily comprised of prepayment premiums and a
non-cash
charge due to the
write-off
of deferred debt issuance costs.
In April 2017, the Company redeemed the remaining approximately
$187 million aggregate principal amount of its 6.25% senior notes due 2018 for total consideration, excluding accrued interest of approximately $195 million. As a result of this debt extinguishment, the Company recorded a loss on the
extinguishment of debt of $4.5 million during the second quarter of 2017, primarily comprised of prepayment premiums, partially offset by the
write-off
of a deferred gain on previously terminated interest
rate swaps.
Net Investment Hedge
The Company has
designated the 300.0 million principal balance of the 3.75% senior notes due October 2021 as a net investment hedge of the foreign currency exposure of its net investment in certain Euro-functional currency subsidiaries with
Euro-denominated net assets. At September 30, 2017, $14.0 million of deferred losses have been recorded in AOCI.
The fair values of the
Companys senior notes are based on quoted market prices and are as follows (
in millions
):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
|
|
Fair Value
|
|
|
Book Value
|
|
|
Fair Value
|
|
|
Book Value
|
|
Senior notes
|
|
$
|
11,089.9
|
|
|
$
|
10,225.2
|
|
|
$
|
11,979.2
|
|
|
$
|
11,234.1
|
|
The carrying amounts of all other significant debt approximates fair value.
16
Footnote 11 Derivatives
From time to time, the Company enters into derivative transactions to hedge its exposures to interest rate, foreign currency rate and commodity price
fluctuations. The Company does not enter into derivative transactions for trading purposes.
Interest Rate Contracts
The Company manages its fixed and floating rate debt mix using interest rate swaps. The Company may use fixed and floating rate swaps to alter its exposure to
the impact of changing interest rates on its consolidated results of operations and future cash outflows for interest. Floating rate swaps would be used, depending on market conditions, to convert the fixed rates of long-term debt into short-term
variable rates. Fixed rate swaps would be used to reduce the Companys risk of the possibility of increased interest costs. Interest rate swap contracts are therefore used by the Company to separate interest rate risk management from the debt
funding decision. The cash paid and received from the settlement of interest rate swaps is included in interest expense.
Fair Value Hedges
At September 30, 2017, the Company had approximately $527 million notional amount of interest rate swaps that exchange a fixed rate of
interest for a variable rate (LIBOR) of interest plus a weighted average spread. These floating rate swaps are designated as fair value hedges against $277 million of principal on the 4.7% senior notes due 2020 and $250 million of
principal on the 4.0% senior notes due 2024 for the remaining life of these notes. The effective portion of the fair value gains or losses on these swaps is offset by fair value adjustments in the underlying debt.
Cross-Currency Contracts
The Company uses
cross-currency swaps to hedge foreign currency risk on certain intercompany financing arrangements with foreign subsidiaries. As of September 30, 2017, the notional value of outstanding cross-currency interest rate swaps was approximately
$161 million. The cross-currency interest rate swaps are intended to eliminate uncertainty in cash flows in U.S. Dollars and British Pounds in connection with the intercompany financing arrangements. The effective portions of the changes in
fair values of these cross-currency interest rate swap agreements are reported in AOCI and an amount is reclassified out of AOCI into other (income) expense, net, which is offset in the same period by the remeasurement in the carrying value of the
underlying foreign currency intercompany financing arrangements being hedged.
Foreign Currency Contracts
The Company uses forward foreign currency contracts to mitigate the foreign currency exchange rate exposure on the cash flows related to forecasted inventory
purchases and sales and have maturity dates through September 2018. The derivatives used to hedge these forecasted transactions that meet the criteria for hedge accounting are accounted for as cash flow hedges. The effective portion of the gains or
losses on these derivatives is deferred as a component of AOCI and is recognized in earnings at the same time that the hedged item affects earnings and is included in the same caption in the statements of operations as the underlying hedged item. At
September 30, 2017, the Company had approximately $448 million notional amount outstanding of forward foreign currency contracts that are designated as cash flow hedges of forecasted inventory purchases and sales.
The Company also uses foreign currency contracts, primarily forward foreign currency contracts, to mitigate the foreign currency exposure of certain other
foreign currency transactions. At September 30, 2017, the Company had approximately $2.7 billion notional amount outstanding of these foreign currency contracts that are not designated as effective hedges for accounting purposes and have
maturity dates through November 2017. Fair market value gains or losses are included in the results of operations and are classified in other (income) expense, net.
17
The following table presents the fair value of derivative financial instruments as of September 30, 2017 and
December 31, 2016 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
|
|
Fair Value of Derivatives
|
|
|
Fair Value of Derivatives
|
|
|
|
Asset (a)
|
|
|
Liability (a)
|
|
|
Asset (a)
|
|
|
Liability (a)
|
|
Derivatives designated as effective hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swaps
|
|
$
|
|
|
|
$
|
17.2
|
|
|
$
|
0.7
|
|
|
$
|
16.3
|
|
Foreign currency contracts
|
|
|
2.4
|
|
|
|
14.6
|
|
|
|
14.2
|
|
|
|
3.4
|
|
Fair value hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
0.9
|
|
|
|
4.5
|
|
|
|
|
|
|
|
5.9
|
|
Derivatives not designated as effective hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
|
|
35.1
|
|
|
|
65.3
|
|
|
|
18.2
|
|
|
|
10.9
|
|
Commodity contracts
|
|
|
0.1
|
|
|
|
|
|
|
|
0.2
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
38.5
|
|
|
$
|
101.6
|
|
|
$
|
33.3
|
|
|
$
|
36.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Consolidated balance sheet location:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset: Prepaid expenses and other, and other
non-current
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability: Other accrued liabilities, and current and
non-current
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables presents gain and loss activity (on a pretax basis) for the three and nine months ended
September 30, 2017 and 2016 related to derivative financial instruments designated or previously designated, as effective hedges (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2017
|
|
|
Three Months Ended
September 30, 2016
|
|
|
|
|
|
Gain/(Loss)
|
|
|
Gain/(Loss)
|
|
|
|
Location of gain/(loss)
recognized in income
|
|
Recognized
in OCI (a)
(effective portion)
|
|
|
Reclassified
from AOCI
to Income
|
|
|
Recognized
in OCI (a)
(effective portion)
|
|
|
Reclassified
from AOCI
to Income
|
|
Interest rate swaps
|
|
Interest expense, net
|
|
$
|
|
|
|
$
|
(2.1
|
)
|
|
$
|
|
|
|
$
|
(2.4
|
)
|
Foreign currency contracts
|
|
Sales and cost of sales
|
|
|
(12.8
|
)
|
|
|
(0.4
|
)
|
|
|
(0.7
|
)
|
|
|
1.6
|
|
Cross-currency swaps
|
|
Other income (expense), net
|
|
|
(0.4
|
)
|
|
|
(0.7
|
)
|
|
|
(3.7
|
)
|
|
|
(5.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
(13.2
|
)
|
|
$
|
(3.2
|
)
|
|
$
|
(4.4
|
)
|
|
$
|
(6.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2017
|
|
|
Nine Months Ended
September 30, 2016
|
|
|
|
|
|
Gain/(Loss)
|
|
|
Gain/(Loss)
|
|
|
|
Location of gain/(loss)
recognized in income
|
|
Recognized
in OCI (a)
(effective portion)
|
|
|
Reclassified
from AOCI
to Income
|
|
|
Recognized
in OCI (a)
(effective portion)
|
|
|
Reclassified
from AOCI
to Income
|
|
Interest rate swaps
|
|
Interest expense, net
|
|
$
|
|
|
|
$
|
(6.2
|
)
|
|
$
|
(88.1
|
)
|
|
$
|
(5.1
|
)
|
Foreign currency contracts
|
|
Sales and cost of sales
|
|
|
(35.8
|
)
|
|
|
12.4
|
|
|
|
7.3
|
|
|
|
2.1
|
|
Cross-currency swaps
|
|
Other income (expense), net
|
|
|
(1.6
|
)
|
|
|
(6.3
|
)
|
|
|
(29.3
|
)
|
|
|
(29.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
(37.4
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
(110.1
|
)
|
|
$
|
(32.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Represents effective portion recognized in OCI.
|
The amount of ineffectiveness related to cash flow hedges
during the three and nine months ended September 30, 2017 and 2016 was not material. At September 30, 2017, deferred net losses of approximately $22 million within AOCI are expected to be reclassified to earnings over the next twelve
months.
During the three and nine months ended September 30, 2017 and 2016, the Company recognized expense (income) of $12.7 million and ($0.8)
million, respectively, and $45.3 million and ($4.1) million, respectively, in other (income) expense, net, related to derivatives that are not designated as hedging instruments, which is mostly
offset by foreign currency movement in
the underlying exposure.
18
Footnote 12 Employee Benefit and Retirement Plans
The components of pension and postretirement benefits expense for the periods indicated, are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
|
Three Months Ended September 30,
|
|
|
|
U.S.
|
|
|
International
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Service cost
|
|
$
|
0.6
|
|
|
$
|
0.6
|
|
|
$
|
1.9
|
|
|
$
|
1.9
|
|
Interest cost
|
|
|
12.6
|
|
|
|
12.2
|
|
|
|
3.4
|
|
|
|
4.7
|
|
Expected return on plan assets
|
|
|
(18.3
|
)
|
|
|
(18.8
|
)
|
|
|
(4.7
|
)
|
|
|
(5.7
|
)
|
Amortization, net
|
|
|
6.0
|
|
|
|
5.5
|
|
|
|
0.7
|
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
$
|
0.9
|
|
|
$
|
(0.5
|
)
|
|
$
|
1.3
|
|
|
$
|
4.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
U.S.
|
|
|
International
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Service cost
|
|
$
|
2.0
|
|
|
$
|
2.0
|
|
|
$
|
5.6
|
|
|
$
|
5.0
|
|
Interest cost
|
|
|
37.9
|
|
|
|
32.3
|
|
|
|
10.1
|
|
|
|
14.2
|
|
Expected return on plan assets
|
|
|
(55.0
|
)
|
|
|
(49.4
|
)
|
|
|
(13.9
|
)
|
|
|
(17.0
|
)
|
Amortization, net
|
|
|
17.8
|
|
|
|
16.3
|
|
|
|
1.9
|
|
|
|
4.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
$
|
2.7
|
|
|
$
|
1.2
|
|
|
$
|
3.7
|
|
|
$
|
7.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement Benefits
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Service cost
|
|
$
|
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
Interest cost
|
|
|
0.5
|
|
|
|
0.6
|
|
|
|
1.6
|
|
|
|
1.6
|
|
Amortization, net
|
|
|
(2.2
|
)
|
|
|
(2.7
|
)
|
|
|
(6.8
|
)
|
|
|
(7.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic expense
|
|
$
|
(1.7
|
)
|
|
$
|
(2.0
|
)
|
|
$
|
(5.1
|
)
|
|
$
|
(6.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Footnote 13 Income Taxes
The Companys income tax expense and resulting effective tax rate are based upon the respective estimated annual effective tax rates applicable for the
respective periods adjusted for the effects of items required to be treated as discrete to the period, including changes in tax laws, changes in estimated exposures for uncertain tax positions and other items.
The Companys reported tax rate for the nine months ended September 30, 2017 and 2016 was 10.6% and 14.1%, respectively
.
The
difference from the statutory tax rate to the reported tax rate for the nine months ended September 30, 2017 is primarily due to $75.0 million of tax benefits related to the reversal of an outside basis difference and $42.0 million
for the resolution of certain income tax contingencies. Additionally, the tax rate was impacted by taxes related to the sale of the Tools, Winter Sports, and other businesses. The difference from the statutory tax rate to the reported tax rate for
the nine months ended September 30, 2016 is primarily due to the Jarden Acquisition, the geographical mix of earnings, a $19.4 million reduction in the valuation allowance related to certain deferred tax assets of its international
operations and $33.8 million for the resolution of certain income tax contingencies.
19
During the fourth quarter of 2016, the Company recorded $164 million of deferred tax expense related to its
Tools business outside basis difference. During the three months ended March 31, 2017, the Company determined the outside basis difference in a U.S. entity included goodwill attributable to certain foreign subsidiaries, the result of which, was
an overstatement of approximately $18 million of deferred tax expense during the fourth quarter of 2016. During the first quarter of 2017, the Company corrected this difference through current period tax expense.
Footnote 14 Earnings Per Share
The computations
of the weighted average shares outstanding for the periods indicated are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Weighted-average shares outstanding
|
|
|
489.6
|
|
|
|
482.3
|
|
|
|
485.2
|
|
|
|
396.9
|
|
Share-based payment awards classified as participating securities
|
|
|
0.8
|
|
|
|
1.7
|
|
|
|
1.1
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average shares outstanding
|
|
|
490.4
|
|
|
|
484.0
|
|
|
|
486.3
|
|
|
|
398.3
|
|
Dilutive securities (1)
|
|
|
1.1
|
|
|
|
2.2
|
|
|
|
1.6
|
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average shares outstanding
|
|
|
491.5
|
|
|
|
486.2
|
|
|
|
487.9
|
|
|
|
400.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
For the three and nine months ended September 31, 2017 and 2016 the amount of potentially dilutive securities that are excluded because their effect would be anti-dilutive are not material.
|
At September 30, 2017, there were approximately 2.5 million shares of the Companys common stock that had not been issued to the former holders
of Jarden shares who are exercising their right to judicial appraisal under Delaware law. Absent consent by the Company, these dissenting shareholders are no longer entitled to the merger consideration, but are instead entitled only to the
judicially determined fair value of their shares, plus interest accruing from the date of the Jarden Acquisition, payable in cash (see Footnote 18).
Footnote 15 Stockholders Equity and Share-Based Awards
During the nine months ended September 30, 2017, the Company awarded 1.4 million performance-based restricted stock units (RSUs), which had an
aggregate grant date fair value of $65.6 million and entitle the recipients to shares of the Companys common stock at the end of a three-year vesting period. The actual number of shares that will ultimately vest is dependent on the level
of achievement of the specified performance conditions.
During the nine months ended September 30, 2017, the Company also awarded 0.5 million
time-based RSUs, which had an aggregate grant date fair value of $23.4 million and entitle recipients to shares of the Companys common stock at the end of the specified vesting period.
In September 2017, the Company announced that it is reinstating its Stock Repurchase Program that the Company voluntarily suspended in the fourth quarter of
2015, in association with the Jarden Acquisition.
Footnote 16 Fair Value Disclosures
Recurring Fair Value Measurements
The following table
presents the Companys
non-pension
financial assets and liabilities which are measured at fair value on a recurring basis (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
|
|
Fair Value Asset (Liability)
|
|
|
Fair Value Asset (Liability)
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
|
|
|
$
|
38.5
|
|
|
$
|
|
|
|
$
|
38.5
|
|
|
$
|
|
|
|
$
|
33.3
|
|
|
$
|
|
|
|
$
|
33.3
|
|
Liabilities
|
|
|
|
|
|
|
(101.6
|
)
|
|
|
|
|
|
|
(101.6
|
)
|
|
|
|
|
|
|
(36.8
|
)
|
|
|
|
|
|
|
(36.8
|
)
|
Investment securities, including mutual funds
|
|
|
5.2
|
|
|
|
3.5
|
|
|
|
|
|
|
|
8.7
|
|
|
|
4.8
|
|
|
|
9.9
|
|
|
|
|
|
|
|
14.7
|
|
For publicly-traded mutual funds, fair value is determined on the basis of quoted market prices and, accordingly, such
investments have been classified as Level 1. Other investment securities are primarily comprised of money market accounts that are classified as Level 2. The Company determines the fair value of its derivative instruments using standard
pricing models and market-based assumptions for all significant inputs, such as yield curves and quoted spot and forward exchange rates. Accordingly, the Companys derivative instruments are classified as Level 2.
20
Nonrecurring Fair Value Measurements
The Companys nonfinancial assets that are measured at fair value on a nonrecurring basis include property, plant and equipment, goodwill, intangible
assets and certain other assets. In the absence of a definitive sales price for these and similar types of assets, the Company generally uses projected cash flows, discounted as necessary, or market multiples to estimate the fair values of the
impaired assets using key inputs such as managements projections of cash flows on a
held-and-used
basis (if applicable), managements projections of cash
flows upon disposition and discount rates. Key inputs into the market multiple approach include identifying companies comparable to the Companys business and estimated control premiums. Accordingly, these fair value measurements fall in
Level 3 of the fair value hierarchy. These assets and certain liabilities are measured at fair value on a nonrecurring basis as part of the Companys impairment assessments and as circumstances require. Additionally, the carrying value and
estimated fair value measurement of assets held for sale (see Footnote 3) are classified as Level 3, as the fair values utilize significant unobservable inputs.
Financial Instruments
The Companys financial
instruments include cash and cash equivalents, accounts receivable, accounts payable, derivative instruments, notes payable and short and long-term debt. The carrying values for current financial assets and liabilities, including cash and cash
equivalents, accounts receivable, accounts payable and short-term debt approximate fair value due to the short maturity of such instruments. The fair values of the Companys debt and derivative instruments are disclosed in Footnote 10 and
Footnote 11, respectively.
Footnote 17 Segment Information
In order to align reporting with the Companys New Growth Game Plan strategy and organization structure, effective January 1, 2017 the Company is
reporting its financial results in five segments as Live, Learn, Work, Play and Other.
This new structure reflects the manner in which the chief
operating decision maker regularly assesses information for decision-making purposes, including the allocation of resources. All prior periods have been reclassified to conform to the current reporting structure.
The Companys reportable segments are as follows:
|
|
|
|
|
Segment
|
|
Key Brands
|
|
Description of Primary Products
|
Live
|
|
Aprica
®
, Baby Jogger
®
, Ball
®
, Calphalon
®
,
Crock-Pot
®
, FoodSaver
®
, Graco
®
, Holmes
®
, Mr. Coffee
®
,
NUK
®
, Oster
®
, Rubbermaid
®
,
Sunbeam
®
, Tigex
®
, Yankee Candle
®
|
|
Household products, including kitchen appliances, gourmet cookware, bakeware and cutlery, food storage and home storage products, fresh preserving products, home fragrance products; baby gear, infant care and health products; home
environment products and durable beverage containers
|
Learn
|
|
Dymo
®
, Elmers
®
, Expo
®
, Jostens
®
, Mr. Sketch
®
, Paper Mate
®
, Parker
®
, Prismacolor
®
,
Sharpie
®
, Waterman
®
,
X-Acto
®
|
|
Writing instruments, including markers and highlighters, pens and pencils; art products; activity-based adhesive and cutting products; fine writing instruments, labeling solutions and a variety of support products for
schools
|
Work
|
|
Mapa
®
, Quickie
®
, Rainbow
®
, Rubbermaid
®
, Rubbermaid Commercial Products
®
, Spontex
®
, Waddington
|
|
Cleaning and refuse products; hygiene systems; material handling solutions, consumer and commercial totes and commercial food service and premium tableware products
|
Play
|
|
Berkley
®
, Coleman
®
, Contigo
®
, Ex Officio
®
, Marmot
®
, Rawlings
®
,
Shakespeare
®
|
|
Products for outdoor and outdoor-related activities
|
Other
|
|
Jarden Plastic Solutions, Jarden Applied Materials, Jarden Zinc Products, Goody
®
, Bicycle
®
, Rainbow
®
|
|
Plastic products including closures, contact lens packaging, medical disposables, plastic cutlery and rigid packaging, beauty products, vacuum cleaning systems and gaming products
|
21
Segment information as of and for the periods indicated is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2017
|
|
|
|
Live
|
|
|
Learn
|
|
|
Work
|
|
|
Play
|
|
|
Other
|
|
|
Corporate
|
|
|
Restructuring
Costs
|
|
|
Consolidated
|
|
Net sales (1)
|
|
$
|
1,483.3
|
|
|
$
|
642.0
|
|
|
$
|
738.2
|
|
|
$
|
610.6
|
|
|
$
|
204.1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,678.2
|
|
Operating income (loss) (2)
|
|
|
173.1
|
|
|
|
67.7
|
|
|
|
122.6
|
|
|
|
68.5
|
|
|
|
25.1
|
|
|
|
(95.2
|
)
|
|
|
(38.4
|
)
|
|
|
323.4
|
|
Other segment data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
14,358.9
|
|
|
|
5,823.5
|
|
|
|
5,413.5
|
|
|
|
4,836.3
|
|
|
|
2,132.4
|
|
|
|
1,323.4
|
|
|
|
|
|
|
|
33,888.0
|
|
|
|
|
|
Three Months Ended September 30, 2016
|
|
|
|
Live
|
|
|
Learn
|
|
|
Work
|
|
|
Play
|
|
|
Other
|
|
|
Corporate
|
|
|
Restructuring
Costs
|
|
|
Consolidated
|
|
Net sales (1)
|
|
$
|
1,450.2
|
|
|
$
|
637.8
|
|
|
$
|
726.9
|
|
|
$
|
596.5
|
|
|
$
|
543.2
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,954.6
|
|
Operating income (loss) (2)
|
|
|
136.1
|
|
|
|
124.3
|
|
|
|
116.8
|
|
|
|
3.6
|
|
|
|
46.2
|
|
|
|
(90.1
|
)
|
|
|
(13.0
|
)
|
|
|
323.9
|
|
Other segment data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
10,301.8
|
|
|
|
3,022.2
|
|
|
|
3,615.2
|
|
|
|
3,766.3
|
|
|
|
3,019.6
|
|
|
|
10,690.4
|
|
|
|
|
|
|
|
34,415.5
|
|
|
|
|
|
Nine Months Ended September 30, 2017
|
|
|
|
Live
|
|
|
Learn
|
|
|
Work
|
|
|
Play
|
|
|
Other
|
|
|
Corporate
|
|
|
Restructuring
Costs
|
|
|
Consolidated
|
|
Net sales (1)
|
|
$
|
3,828.7
|
|
|
$
|
2,222.5
|
|
|
$
|
2,089.6
|
|
|
$
|
2,020.6
|
|
|
$
|
837.7
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
10,999.1
|
|
Operating income (loss) (2)
|
|
|
326.9
|
|
|
|
460.4
|
|
|
|
306.0
|
|
|
|
213.8
|
|
|
|
(16.4
|
)
|
|
|
(306.0
|
)
|
|
|
(82.2
|
)
|
|
|
902.5
|
|
|
|
|
|
Nine Months Ended September 30, 2016
|
|
|
|
Live
|
|
|
Learn
|
|
|
Work
|
|
|
Play
|
|
|
Other
|
|
|
Corporate
|
|
|
Restructuring
Costs
|
|
|
Consolidated
|
|
Net sales (1)
|
|
$
|
2,895.3
|
|
|
$
|
1,934.4
|
|
|
$
|
1,642.3
|
|
|
$
|
1,342.6
|
|
|
$
|
1,313.5
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9,128.1
|
|
Operating income (loss) (2)
|
|
|
170.6
|
|
|
|
442.4
|
|
|
|
184.5
|
|
|
|
3.7
|
|
|
|
89.2
|
|
|
|
(261.7
|
)
|
|
|
(41.7
|
)
|
|
|
587.0
|
|
(1)
|
All intercompany transactions have been eliminated.
|
(2)
|
Operating income (loss) by segment is net sales less cost of products sold, SG&A and impairment of goodwill, intangibles and other assets for continuing operations. Certain headquarters expenses of an operational
nature are allocated to business segments primarily on a net sales basis. Corporate depreciation and amortization is allocated to the segments on a percentage of sales basis, and the allocated depreciation and amortization are included in segment
operating income.
|
Footnote 18 Litigation and Contingencies
The Company is involved in legal proceedings in the ordinary course of its business. These proceedings include claims for damages arising out of use of the
Companys products, allegations of infringement of intellectual property, commercial disputes and employment matters, as well as environmental matters. Some of the legal proceedings include claims for punitive as well as compensatory damages,
and certain proceedings may purport to be class actions.
Recall of Harness Buckles on Select Car Seats
In February 2014, Graco, a subsidiary of the Company, announced a voluntary recall in the U.S. of harness buckles used on approximately 4 million toddler
car seats manufactured between 2006 and 2013. In July 2014, Graco announced that it had agreed to expand the recall to include certain infant car seats manufactured between July 2010 and May 2013. In December 2014, the National Highway Traffic
Safety Administration (the NHTSA) announced an investigation into the timeliness of the recall, and in March 2015, the investigation concluded with Graco entering into a consent order with NHTSA pursuant to which Graco committed to spend
$7.0 million in total over a five-year period to enhance child passenger safety and make a $3.0 million payment to NHTSA. At September 30, 2017, the amount remaining to be paid associated with the consent order was immaterial to the
condensed consolidated financial statements of the Company.
Jarden Acquisition
Under the Delaware General Corporation Law (DGCL), any Jarden stockholder who did not vote in favor of adoption of the Merger Agreement, and
otherwise complies with the provisions of Section 262 of the DGCL, is entitled to seek an appraisal of his or her shares of Jarden common stock by the Court of Chancery of the State of Delaware as provided under Section 262 of the DGCL. As
of September 30, 2017, dissenting stockholders collectively holding approximately 2.9 million shares of Jarden common stock have delivered (and not withdrawn) to Jarden written demands for appraisal. Two separate appraisal petitions,
styled as
Dunham Monthly Distribution Fund v. Jarden Corporation
, Case No.
12454-VCS
(Court of Chancery of the State of Delaware) and
Merion Capital LP v. Jarden Corporation
, Case No.
12456-VCS
(Court of Chancery of the State of Delaware), respectively, were filed on June 14, 2016 by a
22
total of ten purported Jarden stockholders seeking an appraisal of the fair value of their shares of Jarden common stock pursuant to Section 262 of the DGCL. A third appraisal petition
(
Fir Tree Value Master Fund, LP v. Jarden Corporation
, Case No.
12546-VCS
(Court of Chancery of the State of Delaware)) was filed on July 8, 2016 by two purported Jarden stockholders seeking an
appraisal of the fair value of their shares of Jarden common stock pursuant to Section 262 of the DGCL. A fourth appraisal petition (
Veritian Partners Master Fund LTP v. Jarden Corporation
, Case No.
12650-VCS
(Court of Chancery of the State of Delaware)) was filed on August 12, 2016 by two purported Jarden stockholders seeking an appraisal of the fair value of their shares of Jarden common stock
pursuant to Section 262 of the DGCL. On or about October 3, 2016, the foregoing petitions were consolidated for joint prosecution under Case No.
12456-VCS,
and except as provided below, the
litigation is ongoing. The holders of a total of approximately 10.6 million former Jarden shares were represented in these actions initially.
On
July 5, 2017 and July 6, 2017, Jarden and eleven of the dissenting stockholders, specifically including Merion Capital ERISA LP, Merion Capital LP, Merion Capital II LP, Dunham Monthly Distribution Fund, WCM Alternatives: Event-Driven
Fund, Westchester Merger Arbitrage Strategy sleeve of the JNL Multi-Manager Alternative Fund, JNL/Westchester Capital Event Driven Fund, WCM Master Trust, The Merger Fund, The Merger Fund VL and SCA JP Morgan Westchester (collectively, the
Settling Petitioners), entered into settlement agreements with respect to approximately 7.7 million former Jarden shares (collectively, the Settlement Agreements). Pursuant to the Settlement Agreements in exchange for
withdrawing their respective demands for appraisal of their shares of Jarden common stock and a full and final release of all claims, among other things, the Settling Petitioners received the original merger consideration provided for under the
Merger Agreement, specifically (1) 0.862 of a share of Newell common stock, and (2) $21.00 in cash, per share of Jarden common stock (collectively, the Merger Consideration), excluding any and all other benefits, including, without
limitation, the right to accrued interest, dividends, and/or distributions. Accordingly, pursuant to the terms of the Settlement Agreements, Newell issued 6.6 million shares of Newell common stock to the Settling Petitioners (representing the
stock component of the Merger Consideration), and authorized payment to the Settling Petitioners of approximately $162 million (representing the cash component of the Merger Consideration). The Court of Chancery of the State of Delaware has
dismissed with prejudice the appraisal claims for the Settling Petitioners. Following the settlements, claims from the holders of approximately 2.9 million former Jarden shares remain outstanding in the proceedings. The fair value of the shares
of Jarden common stock held by these dissenting stockholders, as determined by the court, would be payable in cash and could be lower or higher than the merger consideration to which such Jarden stockholders would have been entitled under the Merger
Agreement.
Environmental Matters
The Company is
involved in various matters concerning federal and state environmental laws and regulations, including matters in which the Company has been identified by the U.S. Environmental Protection Agency (U.S. EPA) and certain state
environmental agencies as a potentially responsible party (PRP) at contaminated sites under the Federal Comprehensive Environmental Response, Compensation and Liability Act (the CERCLA) and equivalent state laws. In assessing
its environmental response costs, the Company has considered several factors, including the extent of the Companys volumetric contribution at each site relative to that of other PRPs; the kind of waste; the terms of existing cost sharing and
other applicable agreements; the financial ability of other PRPs to share in the payment of requisite costs; the Companys prior experience with similar sites; environmental studies and cost estimates available to the Company; the effects of
inflation on cost estimates; and the extent to which the Companys, and other parties, status as PRPs is disputed.
The Companys estimate
of environmental remediation costs associated with these matters as of September 30, 2017 was $49.5 million, which is included in other accrued liabilities and other noncurrent liabilities in the condensed consolidated balance sheets. No
insurance recovery was taken into account in determining the Companys cost estimates or reserves, nor do the Companys cost estimates or reserves reflect any discounting for present value purposes, except with respect to certain long-term
operations and maintenance CERCLA matters.
Lower Passaic River Matter
U.S. EPA has issued General Notice Letters (GNLs) to over 100 entities, including the Company and Berol Corporation, a subsidiary of the Company
(Berol), alleging that they are PRPs at the Diamond Alkali Superfund Site, which includes a
17-mile
stretch of the Lower Passaic River and its tributaries.
Seventy-two
of the GNL recipients, including the Company on behalf of itself and its subsidiaries, Goody Products, Inc. and Berol (the Company Parties), have taken over the performance of the
remedial investigation (RI) and feasibility study (FS) for the Lower Passaic River. On April 11, 2014, while work on the RI/FS remained underway, U.S. EPA issued a Source Control Early Action Focused Feasibility Study
(FFS), which proposed four alternatives for remediation of the lower 8.3 miles of the Lower Passaic River. U.S. EPAs cost estimates for its cleanup alternatives ranged from approximately $315 million to approximately
$3.2 billion in capital costs plus from $0.5 million to $1.8 million in annual maintenance costs for 30 years, with its preferred alternative carrying an estimated cost of approximately $1.7 billion plus an additional
$1.6 million in annual maintenance costs for 30 years. In February 2015, the participating parties submitted to the U.S. EPA a draft RI, followed by submission of a draft FS in April 2015. The draft FS sets forth various alternatives for
remediating the lower 17 miles of the Passaic River, ranging from a no action alternative, to targeted remediation of locations along the entire lower 17 mile stretch of the river, to remedial actions consistent with U.S. EPAs
preferred alternative as set forth in the FFS for the lower 8.3 miles coupled with monitored natural recovery and targeted remediation in the upper 9 miles. The cost estimates for these alternatives range from approximately $28.0 million to
$2.7 billion, including related operation maintenance and monitoring costs. The draft RI/FS remains under review by U.S. EPA and is the subject of ongoing discussions among the agency and the submitting parties.
23
U.S. EPA issued its final Record of Decision for the lower 8.3 miles of the Lower Passaic River (the
ROD) in March 2016, which, in the language of the document, finalizes as the selected remedy the preferred alternative set forth in the FFS, which U.S. EPA estimates will cost $1.4 billion. Subsequent to the release of the ROD in
March 2016, U.S. EPA issued GNLs for the lower 8.3 miles of the Lower Passaic River (the 2016 GNL) to numerous entities, apparently including all previous recipients of the initial GNL as well as several additional entities. As with the
initial GNL, the Company and Berol were among the recipients of the 2016 GNL. The 2016 GNL states that U.S. EPA would like to determine whether one entity, Occidental Chemical Corporation (OCC), will voluntarily perform the remedial
design for the selected remedy for the lower 8.3 miles, and that following execution of an agreement for the remedial design, U.S. EPA plans to begin negotiation of a remedial action consent decree under which OCC and the other major PRPs will
implement and/or pay for U.S. EPAs selected remedy for the lower 8.3 miles of the Lower Passaic River and reimburse U.S. EPAs costs incurred for the Lower Passaic River. The letter encourage[s] the major PRPs to meet and
discuss a workable approach to sharing responsibility for implementation and funding of the remedy without indicating who may be the major PRPs. Finally, U.S. EPA states that it believes that some of the parties that have
been identified as PRPs under CERCLA, and some parties not yet named as PRPs, may be eligible for a cash out settlement with U.S. EPA for the lower 8.3 miles of the Lower Passaic River. In September 2016, OCC and EPA entered into an
Administrative Order on Consent for performance of the remedial design. On March 30, 2017, U.S. EPA sent a letter offering a cash settlement in the amount of $280,600 to twenty PRPs, not including the Company Parties, for CERCLA Liability (with
reservations, such as for Natural Resource Damages) in the lower 8.3 miles of the Lower Passaic River. U.S. EPA further indicated in related correspondence that a cash out settlement might be appropriate for additional parties that are not
associated with the release of dioxins, furans, or PCBs to the Lower Passaic River. At this time, it is unclear how the cost of any cleanup would be allocated among any of the parties, including the Company Parties or any other entities. The
site is also subject to a Natural Resource Damage Assessment.
OCC has asserted that it is entitled to indemnification by Maxus Energy Corporation
(Maxus) for its liability in connection with the Diamond Alkali Superfund Site. OCC has also asserted that Maxuss parent company, YPF, S.A., and certain other affiliates (the YPF Entities) similarly must indemnify
OCC, including on an alter ego theory. On June 17, 2016, Maxus and certain of its affiliates commenced a chapter 11 bankruptcy case in the U.S. Bankruptcy Court for the District of Delaware. In connection with that proceeding,
the YPF Entities are attempting to resolve any liability they may have to Maxus and the other Maxus entities undergoing the chapter 11 bankruptcy. An amended Chapter 11 plan of liquidation became effective in July 2017. In conjunction with that
plan, Maxus and certain other parties, including the Company parties, entered into a mutual contribution release agreement pertaining to certain costs, but not costs associated with ultimate remedy.
Given the uncertainties pertaining to this matter, including that U.S. EPA is still reviewing the draft RI and FS, that no framework for or agreement on
allocation for the investigation and ultimate remediation has been developed, and that there exists the potential for further litigation regarding costs and cost sharing, the extent to which the Company Parties may be held liable or responsible is
not yet known. Accordingly, it is not possible at this time for the Company to estimate its ultimate liability related to this matter.
Based on currently
known facts and circumstances, the Company does not believe that this matter is reasonably likely to have a material impact on the Companys results of operations, including, among other factors, because the Company Parties facilities are
not even alleged to have discharged the contaminants which are of the greatest concern in the river sediments, and because there are numerous other parties who will likely share in any costs of remediation and/or damages. However, in the event of
one or more adverse determinations related to this matter, it is possible that the ultimate liability resulting from this matter and the impact on the Companys results of operations could be material.
Because of the uncertainties associated with environmental investigations and response activities, the possibility that the Company could be identified as a
PRP at sites identified in the future that require the incurrence of environmental response costs and the possibility that sites acquired in business combinations may require environmental response costs, actual costs to be incurred by the Company
may vary from the Companys estimates.
Clean Air Act Labeling Matter
In April 2015, the Company became aware that two beverage container products, one product of its recently acquired bubba brands business and one product of its
recently acquired Ignite business, contained closed cell rigid polyurethane foam insulation that was blown with HCFC-141b, which is listed as a Class II
ozone-depleting
substance under the Montreal
Protocol on Substances that Deplete the Ozone Layer. Under the Clean Air Act and U.S. EPAs regulations promulgated thereunder, as of January 1, 2015, certain products made with or containing ozone depleting substances, including
HCFC-141b, must bear a specific warning label. The Company discovered that the affected products imported in early 2015 did not display the required label. While the affected product lines were not compliant with applicable environmental
regulations regarding ozone depleting substances, use of the products is safe and poses no risk to consumers. Upon discovery, the Company self-reported the violations to the U.S. EPA and replaced the blowing agent in the products. In September 2017,
the Company entered into a Consent Agreement and Final Order with the U.S. EPA pursuant to which the Company has paid a penalty of $106,000.
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Other Matters
Although management of the Company cannot predict the ultimate outcome of these proceedings with certainty, it believes that the ultimate resolution of the
Companys proceedings, including any amounts it may be required to pay in excess of amounts reserved, will not have a material effect on the Companys Consolidated Financial Statements, except as otherwise described above.
In the normal course of business and as part of its acquisition and divestiture strategy, the Company may provide certain representations and indemnifications
related to legal, environmental, product liability, tax or other types of issues. Based on the nature of these representations and indemnifications, it is not possible to predict the maximum potential payments under all of these agreements due to
the conditional nature of the Companys obligations and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under these agreements did not have a material effect on the
Companys business, financial condition or results of operations.
As of September 30, 2017, the Company had approximately
$
69 million in standby letters of credit primarily related to the Companys self-insurance programs, including workers compensation, product liability and medical expenses.
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