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. (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 statement of the financial position and the results of operations of the Company. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements, and the footnotes thereto, included in the Company’s most recent Annual Report on Form 10-K. The Condensed Consolidated Balance Sheet at December 31, 2020, has been derived from the audited financial statements as of that date, but it does not include all the information and footnotes required by U.S. GAAP for a complete financial statement. Certain reclassifications have been made in the Company’s financial statements of the prior year to conform to the current year presentation.
Beginning January 1, 2021, the Company reported the operating results of its cookware product lines as part of the Food reporting unit within the Home Solutions segment, and no longer as part of the former Appliances and Cookware segment. This change was the result of an assessment by the chief operating decision maker (“CODM”) to better align the cookware product lines with other similar product lines in various food categories. In connection with this change, the Chief Executive Officer (“CEO”) for the Food business unit assumed full responsibility for the overall brand strategy, business modeling, marketing and innovation of these product lines. The Company determined this product line change did not result in a change to either of its Home Solutions or former Appliances and Cookware reportable segments. In connection with this change, the Appliances and Cookware segment was renamed as the Home Appliances segment. Prior period comparable results for both of these segments have been reclassified to conform to this product line change. The Company also revised the calculation of operating income (loss) by segment to include restructuring charges. Prior period comparable results have been reclassified to conform to the change in calculation (See Footnote 15).
Use of Estimates and Risks and Uncertainty of Coronavirus (COVID-19)
Since early 2020, the COVID-19 pandemic has resulted in various federal, state and local governments, as well as private entities, mandating restrictions on travel and public gatherings, closure of non-essential commerce, stay at home orders and quarantining of people to limit exposure to the virus. The Company's global operations, similar to those of many large, multi-national corporations, were adversely impacted by the COVID-19 pandemic.
During the first quarter of 2020, the Company concluded that an impairment triggering event had occurred, as it had experienced significant COVID-19 related disruption for all of its reporting units, and performed an impairment test for its goodwill and indefinite-lived intangible assets and a recoverability test for its long-lived assets, which primarily include finite-lived intangible assets, property plant and equipment and right of use lease assets. As a result of the impairment and recoverability testing performed in connection with the triggering event, the Company determined that certain of its goodwill, indefinite-lived intangible assets, property plant and equipment and right of use operating leases assets were impaired. During the first quarter of 2020, the Company recorded an aggregate non-cash charge of approximately $1.5 billion in connection with these impairments. See Footnotes 5 and 6 for further information.
The extent of the impact of the COVID-19 pandemic to the Company's future sales, operating results, cash flows, liquidity and financial condition will continue to be driven by numerous evolving factors that the Company cannot accurately predict and which will vary by jurisdiction and market, including the severity and duration of the pandemic, the emergence of new strains and variants of the coronavirus, the likelihood of a resurgence of positive cases, the development and availability of effective treatments and vaccines, especially in areas where conditions have recently worsened and lockdowns or travel bans have been reinstituted, the rate at which vaccines are administered to the general public, the impact of any vaccine mandates on our global businesses, the timing and amount of fiscal stimulus and relief programs packages that are available to the general public, the availability and prices of supply chain resources, including materials, products and transportation; and changes in consumer demand patterns for the Company's products as the impact of the global pandemic lessens. These primary drivers are beyond the Company's knowledge and control, and as a result, at this time it is difficult to predict the cumulative impact, both in terms of severity and duration, COVID-19 will have on its future sales, operating results, cash flows and financial condition.
Management’s application of U.S. GAAP in preparing the Company's consolidated financial statements requires the pervasive use of estimates and assumptions. As discussed above, the world continues to be impacted by the COVID-19 pandemic which has required greater use of estimates and assumptions in the preparation of the consolidated financial statements, more specifically, those estimates and assumptions utilized in the Company’s forecasted cash flows that form the basis in developing the fair values utilized in its impairment assessments as well as its annual effective tax rate. These estimates also include assumptions as to the duration and severity of the pandemic, timing and amount of demand shifts amongst sales channels, workforce availability, supply chain continuity, and timing as to a return to normalcy. Although management has made its best estimates based upon current information, actual results could materially differ from those estimates and may require future changes to such estimates and assumptions. If so, the Company may be subject to future incremental impairment charges as well as changes to recorded reserves and valuations.
Seasonal Variations
Sales of the Company’s 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 Company’s sales volume combined with the accounting for fixed costs, such as depreciation, amortization, rent, personnel costs and interest expense, impacts the Company’s results on a quarterly basis. In addition, the Company typically 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 Company’s results of operations for the three and nine months ended September 30, 2021 may not necessarily be indicative of the results that may be expected for the year ending December 31, 2021.
The Company's sales and operating results were disrupted by the COVID-19 pandemic, negatively impacting the Company's performance during the first half of 2020, with improved performance thereafter. While the Company believes the seasonality of its businesses will revert back to historical patterns as the impact of the global pandemic lessens, uncertainty still remains over the volatility of the direction of future consumer demand patterns.
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 FASB’s Accounting Standards Codification. The Company considers the applicability and impact of all ASUs.
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” In January 2021, the FASB clarified the scope of this guidance with the issuance of ASU 2021-01, Reference Rate Reform: Scope. ASU 2020-04 provides optional expedients and exceptions to account for contracts, hedging relationships and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate if certain criteria are met. ASU 2020-04 may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company is currently evaluating the potential effects of the adoption of ASU 2020-04.
Adoption of New Accounting Guidance
The Company’s accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements included in our 2020 Annual Report on Form 10-K. Such significant accounting policies are applicable for periods prior to the adoption of the following new accounting standards and updated accounting policies.
In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes” (Topic 740). ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 became effective for years, and interim periods within those years, beginning after December 15, 2020. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
Sales of Accounts Receivables
Factored receivables at September 30, 2021 associated with the Company's existing factoring agreement (the “Customer Receivables Purchase Agreement”) were approximately $450 million, an increase of approximately $100 million from December 31, 2020. Transactions under this agreement continue to be accounted for as sales of accounts receivable, and the receivables sold are removed from the Condensed Consolidated Balance Sheet at the time of the sales transaction. The Company classifies the proceeds received from the sales of accounts receivable as an operating cash flow in the unaudited Condensed Consolidated Statement of Cash Flows. The Company records the discount as other (income) expense, net in the Condensed Consolidated Statement of Operations and collections of accounts receivables not yet submitted to the financial institution as a financing cash flow.
Other Items
During the quarter ended June 30, 2021, the Company received a notice from a noncontrolling interest holder exercising its redemption rights in an international subsidiary, requiring the purchase of such interest by the Company. In the third quarter, the Company completed the transaction for approximately $22 million. The difference between the consideration paid and the noncontrolling interest was not material to the Company.
On August 31, 2020, the Company divested the foam board product line in its Learning and Development segment. As a result, during the three and nine months ended September 30, 2020, the Company recorded a pretax loss of $8 million, which was included in the other (income) expense, net in the Condensed Consolidated Statement of Operations.
Footnote 2 — Accumulated Other Comprehensive Income (Loss)
The following table displays the changes in Accumulated Other Comprehensive Income (Loss) (“AOCL”) by component, net of tax, for the nine months ended September 30, 2021 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
Translation
Adjustment
|
|
Pension and
Postretirement
Costs
|
|
Derivative
Financial
Instruments
|
|
AOCL
|
Balance at December 31, 2020
|
$
|
(481)
|
|
|
$
|
(356)
|
|
|
$
|
(43)
|
|
|
$
|
(880)
|
|
Other comprehensive income (loss) before reclassifications
|
(65)
|
|
|
2
|
|
|
8
|
|
|
(55)
|
|
Amounts reclassified to earnings
|
—
|
|
|
13
|
|
|
15
|
|
|
28
|
|
Net current period other comprehensive income (loss)
|
(65)
|
|
|
15
|
|
|
23
|
|
|
(27)
|
|
Balance at September 30, 2021
|
$
|
(546)
|
|
|
$
|
(341)
|
|
|
$
|
(20)
|
|
|
$
|
(907)
|
|
Reclassifications from AOCL to the results of operations for the three and nine months ended September 30, 2021 and 2020 were pre-tax (income) expense of (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Pension and postretirement benefit plans (1)
|
$
|
5
|
|
|
$
|
6
|
|
|
$
|
16
|
|
|
$
|
17
|
|
Derivative financial instruments (2)
|
8
|
|
|
(6)
|
|
|
19
|
|
|
(5)
|
|
(1)Primarily represents the amortization of net actuarial losses and plan settlements recorded in other (income) expense, net in the Consolidated Statements of Operations. See Footnote 10 for further information.
(2)See Footnote 9 for further information.
The income tax provision (benefit) allocated to the components of AOCL for the periods indicated are as follows (in millions):
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Foreign currency translation adjustments
|
$
|
7
|
|
|
$
|
(12)
|
|
|
$
|
16
|
|
|
$
|
(11)
|
|
Pension and postretirement benefit costs
|
1
|
|
|
1
|
|
|
3
|
|
|
3
|
|
Derivative financial instruments
|
4
|
|
|
(2)
|
|
|
7
|
|
|
5
|
|
Income tax provision (benefit) related to AOCL
|
$
|
12
|
|
|
$
|
(13)
|
|
|
$
|
26
|
|
|
$
|
(3)
|
|
Footnote 3 — 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.
Restructuring costs, net incurred by reportable business segments for all restructuring activities for the periods indicated are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Commercial Solutions
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
2
|
|
Home Appliances
|
—
|
|
|
1
|
|
|
4
|
|
|
1
|
|
Home Solutions
|
—
|
|
|
1
|
|
|
3
|
|
|
6
|
|
Learning and Development
|
—
|
|
|
1
|
|
|
1
|
|
|
2
|
|
Outdoor and Recreation
|
2
|
|
|
1
|
|
|
3
|
|
|
2
|
|
Corporate
|
3
|
|
|
—
|
|
|
4
|
|
|
1
|
|
|
$
|
6
|
|
|
$
|
4
|
|
|
$
|
16
|
|
|
$
|
14
|
|
Accrued restructuring costs activity for the nine months ended September 30, 2021 are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020
|
|
Restructuring
Costs, Net
|
|
Payments
|
|
|
|
|
|
Balance at
September 30, 2021
|
Severance and termination costs
|
$
|
7
|
|
|
$
|
13
|
|
|
$
|
(8)
|
|
|
|
|
|
|
$
|
12
|
|
Contract termination and other costs
|
4
|
|
|
3
|
|
|
(5)
|
|
|
|
|
|
|
2
|
|
|
$
|
11
|
|
|
$
|
16
|
|
|
$
|
(13)
|
|
|
|
|
|
|
$
|
14
|
|
2020 Restructuring Plan
The Company’s 2020 restructuring program, which was initiated during the second quarter of 2020 largely in response to the impact of the COVID-19 pandemic, was designed to reduce overhead costs, streamline certain underperforming operations and improve future profitability. The restructuring costs, which impact all segments, include employee-related costs, including severance and other termination benefits. During the nine months ended September 30, 2021, the Company recorded restructuring charges of $9 million. During the three and nine months ended September 30, 2020, the Company recorded $4 million and $12 million, respectively. In connection with the program, the Company has incurred cumulative charges of $28 million since inception. This restructuring program is substantially complete and all cash payments are expected to be paid within one year of charges incurred.
Accelerated Transformation Plan
During the nine months ended September 30, 2020 the company recorded restructuring charges of $2 million in connection with the Company's completed Accelerated Transformation Plan (“ATP”). The Company's ATP was designed in part, to divest the Company's non-core consumer businesses and focus on the realignment of the Company's management structure and overall costs structure as a result of the completed divestitures.
Other Restructuring and Restructuring-Related Costs
The Company regularly incurs other restructuring and restructuring-related costs in connection with various discrete initiatives. Restructuring-related costs are recorded in cost of products sold and SG&A in the Condensed Consolidated Statements of Operations based on the nature of the underlying costs incurred.
Footnote 4 — Inventories
Inventories are comprised of the following at the dates indicated (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
Raw materials and supplies
|
$
|
314
|
|
|
$
|
252
|
|
Work-in-process
|
159
|
|
|
157
|
|
Finished products
|
1,625
|
|
|
1,229
|
|
|
$
|
2,098
|
|
|
$
|
1,638
|
|
Footnote 5 — Property, Plant and Equipment, Net
Property, plant and equipment, net, is comprised of the following at the dates indicated (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
Land
|
$
|
83
|
|
|
$
|
86
|
|
Buildings and improvements
|
676
|
|
|
664
|
|
Machinery and equipment
|
2,359
|
|
|
2,314
|
|
|
3,118
|
|
|
3,064
|
|
Less: Accumulated depreciation
|
(1,963)
|
|
|
(1,888)
|
|
|
$
|
1,155
|
|
|
$
|
1,176
|
|
Depreciation expense was $50 million and $52 million for the three months ended September 30, 2021 and 2020, respectively, and $153 million and $146 million for the nine months ended September 30, 2021 and 2020, respectively.
During the first quarter of 2020, the Company concluded that a triggering event had occurred for all of its reporting units as a result of the COVID-19 pandemic. Pursuant to the authoritative accounting literature, the Company compared the sum of the undiscounted future cash flows attributable to the asset or group of assets (the lowest level for which identifiable cash flows are available) to their respective carrying amount and recorded a non-cash impairment charge of approximately $1 million during the nine months ended September 30, 2020, in the Home Solutions segment associated with its Yankee Candle retail store business. The impairment charge was calculated by subtracting the estimated fair value of the asset group from its carrying value. See Footnote 1 for further information.
During the nine months ended September 30, 2020, the Company also recorded a non-cash impairment charge of $10 million, to reflect a reduction in the carrying values of operating lease assets, mostly related to its Yankee Candle retail store business.
Footnote 6 — Goodwill and Other Intangible Assets, Net
Goodwill activity for the nine months ended September 30, 2021 is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segments
|
Net Book Value at December 31, 2020
|
|
|
|
Foreign
Exchange and Other
|
|
Gross
Carrying
Amount
|
|
Accumulated
Impairment
Charges
|
|
Net Book Value at
September 30, 2021
|
Commercial Solutions
|
$
|
747
|
|
|
|
|
$
|
—
|
|
|
$
|
1,241
|
|
|
$
|
(494)
|
|
|
$
|
747
|
|
Home Appliances
|
—
|
|
|
|
|
—
|
|
|
569
|
|
|
(569)
|
|
|
—
|
|
Home Solutions
|
164
|
|
|
|
|
—
|
|
|
2,567
|
|
|
(2,403)
|
|
|
164
|
|
Learning and Development
|
2,642
|
|
|
|
|
(37)
|
|
|
3,451
|
|
|
(846)
|
|
|
2,605
|
|
Outdoor and Recreation
|
—
|
|
|
|
|
—
|
|
|
788
|
|
|
(788)
|
|
|
—
|
|
|
$
|
3,553
|
|
|
|
|
$
|
(37)
|
|
|
$
|
8,616
|
|
|
$
|
(5,100)
|
|
|
$
|
3,516
|
|
During the third quarter of 2020, the Company divested a product line in its Learning and Development segment and allocated $3 million of reporting unit goodwill to the calculation of loss on disposal of business. See Footnote 1 for further information.
During the first quarter of 2020, the Company concluded that a triggering event had occurred for all of its reporting units as a result of the COVID-19 global pandemic. Pursuant to the authoritative literature, the Company performed an impairment test and determined that its goodwill associated with its Home Appliances and Food reporting units were impaired. During the nine months ended September 30, 2020, the Company recorded an aggregate non-cash charge of $212 million to reflect the impairments of goodwill as the reporting unit carrying values exceeded their fair values. See Footnote 1 for further information.
Other intangible assets, net, are comprised of the following at the dates indicated (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
|
|
|
Gross
Carrying
Amount
|
|
Accumulated Amortization
|
|
Net Book
Value
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Book
Value
|
|
|
Trade names — indefinite life
|
$
|
2,296
|
|
|
$
|
—
|
|
|
$
|
2,296
|
|
|
$
|
2,331
|
|
|
$
|
—
|
|
|
$
|
2,331
|
|
|
|
Trade names — other
|
154
|
|
|
(63)
|
|
|
91
|
|
|
157
|
|
|
(55)
|
|
|
102
|
|
|
|
Capitalized software
|
648
|
|
|
(512)
|
|
|
136
|
|
|
625
|
|
|
(486)
|
|
|
139
|
|
|
|
Patents and intellectual property
|
35
|
|
|
(26)
|
|
|
9
|
|
|
67
|
|
|
(52)
|
|
|
15
|
|
|
|
Customer relationships and distributor channels
|
1,237
|
|
|
(308)
|
|
|
929
|
|
|
1,259
|
|
|
(282)
|
|
|
977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,370
|
|
|
$
|
(909)
|
|
|
$
|
3,461
|
|
|
$
|
4,439
|
|
|
$
|
(875)
|
|
|
$
|
3,564
|
|
|
|
Amortization expense for intangible assets for the three months ended September 30, 2021 and 2020 were $28 million and $39 million, respectively and $91 million and $121 million for the nine months ended September 30, 2021 and 2020, respectively.
During the third quarter of 2020, the Company concluded that a triggering event had occurred for an indefinite-lived intangible asset in the Learning and Development segment as a result of a product line divestiture. Pursuant to the authoritative literature, the Company performed an impairment test and determined that the indefinite-lived asset was impaired, as its carrying value exceeded its fair value. During the three and nine months ended September 30, 2020, the Company recorded a non-cash charge of $2 million to reflect the impairment of this indefinite-lived intangible asset. See Footnote 1 for further information.
As a result of the impairment testing performed in connection with the COVID-19 pandemic triggering event during the first quarter of 2020, the Company determined that certain of its indefinite-lived intangible assets in all of its operating segments were impaired. During the nine months ended September 30, 2020, the Company recorded impairment charges of $1.3 billion to reflect impairment of these indefinite-lived trade names because their carrying values exceeded their fair values.
The impairment charges for the three and nine months ended September 30, 2020 were allocated to the Company’s reporting segments as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
September 30, 2020
|
|
|
|
Nine Months
Ended
September 30, 2020
|
Impairment of indefinite-lived intangibles assets:
|
Commercial Solutions
|
|
|
$
|
—
|
|
|
|
|
$
|
320
|
|
Home Appliances
|
|
|
—
|
|
|
|
|
87
|
|
Home Solutions
|
|
|
—
|
|
|
|
|
290
|
|
Learning and Development
|
|
|
2
|
|
|
|
|
80
|
|
Outdoor and Recreation
|
|
|
—
|
|
|
|
|
482
|
|
|
|
|
$
|
2
|
|
|
|
|
$
|
1,259
|
|
The Company believes the circumstances and global disruption caused by COVID-19 will continue to affect its businesses, operating results, cash flows and financial condition and that the scope and duration of the pandemic is highly uncertain. In addition, some of the other inherent estimates and assumptions used in determining fair value of the reporting units are outside the control of management, including interest rates, cost of capital, tax rates, industry growth, credit ratings and foreign exchange rates. Given the uncertainty of these factors, as well as the inherent difficulty in predicting the severity and duration of the COVID-19 global pandemic and associated recovery and the uncertainties regarding the potential financial impact on the Company's business and the overall economy as discussed further in Footnote 1, there can be no assurance that the Company's estimates and assumptions will prove to be accurate predictions of the future.
Footnote 7 — Other Accrued Liabilities
Other accrued liabilities are comprised of the following at the dates indicated (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
Customer accruals
|
$
|
739
|
|
|
$
|
683
|
|
Accrued income taxes
|
125
|
|
|
66
|
|
Operating lease liabilities
|
120
|
|
|
129
|
|
Accrued interest expense
|
118
|
|
|
60
|
|
Accrued self-insurance liabilities, contingencies and warranty
|
116
|
|
|
108
|
|
Accrued marketing and freight expenses
|
68
|
|
|
57
|
|
Other
|
220
|
|
|
290
|
|
|
$
|
1,506
|
|
|
$
|
1,393
|
|
Footnote 8 — Debt
Debt is comprised of the following at the dates indicated (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
|
|
|
|
3.15% senior notes due 2021
|
$
|
—
|
|
|
$
|
94
|
|
3.75% senior notes due 2021
|
—
|
|
|
369
|
|
4.00% senior notes due 2022
|
250
|
|
|
250
|
|
3.85% senior notes due 2023
|
1,086
|
|
|
1,090
|
|
4.00% senior notes due 2024
|
200
|
|
|
200
|
|
4.875% senior notes due 2025
|
494
|
|
|
492
|
|
3.90% senior notes due 2025
|
47
|
|
|
47
|
|
4.20% senior notes due 2026
|
1,975
|
|
|
1,973
|
|
|
|
|
|
5.375% senior notes due 2036
|
416
|
|
|
416
|
|
5.50% senior notes due 2046
|
658
|
|
|
657
|
|
|
|
|
|
|
|
|
|
Other debt
|
11
|
|
|
19
|
|
Total debt
|
5,137
|
|
|
5,607
|
|
Short-term debt and current portion of long-term debt
|
(253)
|
|
|
(466)
|
|
Long-term debt
|
$
|
4,884
|
|
|
$
|
5,141
|
|
Senior Notes
On October 15, 2021 the Company delivered a notice of redemption to the holders of the 4.00% senior notes due June 2022 (the “June 2022 Notes”) that the Company will redeem the June 2022 Notes on November 22, 2021 for a redemption price equal to the current outstanding aggregate principal amount of the notes, subject to a customary make-whole premium, plus accrued and unpaid interest to the date of redemption.
On September 28, 2021, the Company redeemed its 3.75% senior notes that were scheduled to mature in October 2021 (the “October 2021 Notes”) at a redemption price equal to 100% of the outstanding aggregate principal amount of the notes, plus accrued and unpaid interest to the redemption date.
On March 1, 2021, the Company redeemed its 3.15% senior notes due April 2021 (the “April 2021 Notes”) at a redemption price equal to 100% of the outstanding aggregate principal amount of the notes, plus accrued and unpaid interest to the redemption date.
During the first quarter of 2021, the Company repurchased $5 million of the 3.85% senior notes due 2023 at approximately 5% above par value. The total consideration, excluding accrued interest, was approximately $5 million. As a result of the partial debt repurchase the Company recorded an immaterial loss.
Receivables Facility
The Company maintains an Accounts Receivable Securitization Facility (the “Securitization Facility”). The aggregate commitment under the Securitization Facility is $600 million. The Securitization Facility matures in October 2022 and bears interest at a margin over a variable interest rate. The maximum availability under the Securitization Facility fluctuates based on eligible accounts receivable balances. At September 30, 2021, the Company did not have any amounts outstanding under the Securitization Facility.
Revolving Credit Facility
The Company has a $1.25 billion revolving credit facility that matures in December 2023 (the “Credit Revolver”). At September 30, 2021, the Company did not have any amounts outstanding under the Credit Revolver.
Other
The fair value of the Company’s senior notes are based upon prices of similar instruments in the marketplace and are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
|
Fair Value
|
|
Book Value
|
|
Fair Value
|
|
Book Value
|
Senior notes
|
$
|
5,778
|
|
|
$
|
5,126
|
|
|
$
|
6,277
|
|
|
$
|
5,588
|
|
The carrying amounts of all other significant debt approximates fair value.
Net Investment Hedge
The Company previously designated the €300 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. In conjunction with the redemption of the October 2021 Notes, the Company settled this net investment hedge. At September 30, 2021, $11 million of deferred losses have been recorded in AOCL. See Footnote 9 for disclosures regarding the Company’s derivative financial instruments.
Footnote 9 —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 Company’s risk of the possibility of increased interest costs. The cash paid and received from the settlement of interest rate swaps is included in interest expense.
Fair Value Hedges
At September 30, 2021, the Company had approximately $100 million notional amount of interest rate swaps that exchange a fixed rate of interest for variable rate (LIBOR) of interest plus a weighted average spread. These floating rate swaps are designated as fair value hedges against $100 million of principal on the 4.00% senior notes due 2024 for the remaining life of the note. 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 financing arrangements. The Company previously entered into two cross-currency swaps, maturing in January and February 2025, respectively, with an aggregate notional amount of $900 million. During the third quarter of 2021, the Company entered into another cross-currency swap with a notional amount of $358 million, maturing in September 2027. Each of these cross-currency swaps were designated as net investment hedges of the Company's foreign currency exposure of its net investment in certain Euro-functional currency subsidiaries with Euro-denominated net assets, and the Company pays a fixed rate of Euro-based interest and receives a fixed rate of U.S. dollar interest. The Company has elected the spot method for assessing the effectiveness of these contracts. During the three and nine months ended September 30, 2021, the Company recognized income of $4 million and $11 million, respectively, in interest expense, net, related to the portion of cross-currency swaps excluded from hedge effectiveness testing. During the three and nine months ended September 30, 2020, the Company recognized income of $3 million and $10 million, respectively, in interest expense, net, related to the portion of cross-currency swaps excluded from hedge effectiveness testing.
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 2022. 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 AOCL until it 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, 2021, the Company had approximately $525 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 contracts, to mitigate the exposure of foreign currency transactions. At September 30, 2021, the Company had approximately $1.0 billion notional amount outstanding of these foreign currency contracts that are not designated as effective hedges for accounting purposes and have maturity dates through September 2022. Fair market value gains or losses are included in the results of operations and are classified in other (income) expense, net.
The following table presents the fair value of derivative financial instruments at the dates indicated (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Derivatives
|
|
|
|
Assets (Liabilities)
|
|
Balance Sheet Location
|
|
September 30, 2021
|
|
December 31, 2020
|
Derivatives designated as effective hedges:
|
|
|
|
|
Cash Flow Hedges
|
|
|
|
|
|
Foreign currency contracts
|
Prepaid expenses and other current assets
|
|
$
|
10
|
|
|
$
|
1
|
|
Foreign currency contracts
|
Other accrued liabilities
|
|
(1)
|
|
|
(19)
|
|
Fair Value Hedges
|
|
|
|
|
|
Interest rate swaps
|
Other assets
|
|
4
|
|
|
7
|
|
|
|
|
|
|
|
Net Investment Hedges
|
|
|
|
|
|
Cross-currency swaps
|
Prepaid expenses and other current assets
|
|
13
|
|
|
10
|
|
Cross-currency swaps
|
Other noncurrent liabilities
|
|
(52)
|
|
|
(102)
|
|
|
|
|
|
|
|
Derivatives not designated as effective hedges:
|
|
|
|
|
Foreign currency contracts
|
Prepaid expenses and other current assets
|
|
10
|
|
|
10
|
|
Foreign currency contracts
|
Other accrued liabilities
|
|
(6)
|
|
|
(17)
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
(22)
|
|
|
$
|
(110)
|
|
The following table presents gain and (loss) activity (on a pre-tax basis) related to derivative financial instruments designated or previously designated, as effective hedges (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
September 30, 2021
|
|
Three Months
Ended
September 30, 2020
|
|
|
|
Gain/(Loss)
|
|
Gain/(Loss)
|
|
Location of gain/(loss) recognized in income
|
|
Recognized
in OCI
(effective portion)
|
|
Reclassified
from AOCL
to Income
|
|
Recognized
in OCI
(effective portion)
|
|
Reclassified
from AOCL
to Income
|
Interest rate swaps
|
Interest expense, net
|
|
$
|
—
|
|
|
$
|
(1)
|
|
|
$
|
—
|
|
|
$
|
(2)
|
|
Foreign currency contracts
|
Net sales and cost of products sold
|
|
11
|
|
|
(7)
|
|
|
(3)
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swaps
|
Other (income) expense, net
|
|
25
|
|
|
—
|
|
|
(47)
|
|
|
—
|
|
Total
|
|
|
$
|
36
|
|
|
$
|
(8)
|
|
|
$
|
(50)
|
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
Ended
September 30, 2021
|
|
Nine Months
Ended
September 30, 2020
|
|
|
|
Gain/(Loss)
|
|
Gain/(Loss)
|
|
Location of gain/(loss) recognized in income
|
|
Recognized
in OCI
(effective portion)
|
|
Reclassified
from AOCL
to Income
|
|
Recognized
in OCI
(effective portion)
|
|
Reclassified
from AOCL
to Income
|
Interest rate swaps
|
Interest expense, net
|
|
$
|
—
|
|
|
$
|
(4)
|
|
|
$
|
—
|
|
|
$
|
(5)
|
|
Foreign currency contracts
|
Net sales and cost of products sold
|
|
11
|
|
|
(15)
|
|
|
27
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swaps
|
Other (income) expense, net
|
|
53
|
|
|
—
|
|
|
(43)
|
|
|
—
|
|
Total
|
|
|
$
|
64
|
|
|
$
|
(19)
|
|
|
$
|
(16)
|
|
|
$
|
5
|
|
At September 30, 2021, net deferred gains of approximately $4 million within AOCL are expected to be reclassified to earnings over the next twelve months.
During the three and nine months ended September 30, 2021, the Company recognized income of $7 million and $11 million, respectively, in other (income) expense, net, related to derivatives that are not designated as hedging instruments. During the three and nine months ended September 30, 2020, the Company recognized expense of $3 million and income of $6 million, respectively, in other (income) expense, net, related to derivatives that are not designated as hedging instruments. Gains and losses on these derivatives are mostly offset by foreign currency movement in the underlying exposure.
Footnote 10 — Employee Benefit and Retirement Plans
The components of pension and postretirement benefit (income) expense for the periods indicated, are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
U.S.
|
|
International
|
|
U.S.
|
|
International
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Service cost
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
3
|
|
Interest cost
|
5
|
|
|
10
|
|
|
2
|
|
|
2
|
|
|
15
|
|
|
28
|
|
|
5
|
|
|
7
|
|
Expected return on plan assets
|
(13)
|
|
|
(16)
|
|
|
(1)
|
|
|
(2)
|
|
|
(38)
|
|
|
(46)
|
|
|
(3)
|
|
|
(5)
|
|
Amortization
|
5
|
|
|
6
|
|
|
1
|
|
|
1
|
|
|
16
|
|
|
18
|
|
|
3
|
|
|
2
|
|
Settlements
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
Total (income) expense
|
$
|
(3)
|
|
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
2
|
|
|
$
|
(7)
|
|
|
$
|
1
|
|
|
$
|
8
|
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement Benefits
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
Interest cost
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
Amortization
|
(1)
|
|
|
(1)
|
|
|
(3)
|
|
|
(4)
|
|
Total income
|
$
|
(1)
|
|
|
$
|
(1)
|
|
|
$
|
(3)
|
|
|
$
|
(3)
|
|
Footnote 11 — Income Taxes
The Company’s effective income tax rate for the three months ended September 30, 2021 and 2020 were 11.6% and (7.4)%, respectively and 18.5% and 19.0% for the nine months ended September 30, 2021 and 2020, respectively. The Company’s effective income tax rate fluctuates based on, among other factors, the geographic mix of income.
The difference between the U.S. federal statutory income tax rate of 21.0% and the Company’s effective income tax rate for the three and nine months ended September 30, 2021 and 2020 were impacted by a variety of factors, primarily resulting from the geographic mix of where the income was earned as well as certain taxable income inclusion items in the U.S. based on foreign earnings.
The three and nine months ended September 30, 2021 were also impacted by certain discrete items. Income tax expense for the three months ended September 30, 2021 included a discrete benefit of $37 million associated with a reduction in valuation allowance related to the integration of certain Luxembourg operations. Income tax expense for the nine months ended September 30, 2021 also included discrete benefits of $13 million associated with a reduction in valuation allowance related to the integration of certain U.K. operations and $9 million related to statute of limitation expiration in France.
The three and nine months ended September 30, 2020 were also impacted by certain discrete tax items. Income tax expense for three months ended September 30, 2020 included a discrete tax benefit of $87 million associated with the execution of certain tax planning strategies and $53 million for a reduction in valuation allowance related to the integration of certain U.S. operations, partially offset by $47 million of deferred tax effects associated with certain outside basis differences. Income tax expense for the nine months ended September 30, 2020 also included discrete tax benefits of $15 million related to statute of limitations expirations, $8 million of prior period adjustments identified during the first quarter of 2020 and $23 million associated with the execution of certain tax planning strategies, offset by tax expense of $27 million related to a change in the tax status of certain entities upon Internal Revenue Service approval during the first quarter, $8 million of excess book deductions related to equity-based compensation, $8 million for additional interest related to uncertain tax positions, and $5 million for effects of adopting the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The Company concluded the effects of such prior period adjustments were not material to the current period or previously issued financial statements.
The Company’s U.S. federal income tax returns for 2011 to 2015 and 2017 to 2019, as well as certain state and non-U.S. income tax returns for various years, are under examination.
On June 18, 2019, the U.S. Treasury and the Internal Revenue Service (“IRS”) released temporary regulations under IRC Section 245A (“Section 245A”) as enacted by the 2017 U.S. Tax Reform Legislation (“2017 Tax Reform”) and IRC Section 954(c)(6) (the “Temporary Regulations”) to apply retroactively to the date the 2017 Tax Reform was enacted. On August 21, 2020, the U.S. Treasury and IRS released finalized versions of the Temporary Regulations (collectively with the Temporary Regulations, the “Regulations”). The Regulations seek to limit the 100% dividends received deduction permitted by Section 245A for certain dividends received from controlled foreign corporations and to limit the applicability of the look-through exception to foreign personal holding company income for certain dividends received from controlled foreign corporations. Before the retroactive application of the Regulations, the Company benefited in 2018 from both the 100% dividends received deduction and the look-through exception to foreign personal holding company income. The Company analyzed the Regulations and concluded the relevant Regulations were not validly issued. Therefore, the Company has not accounted for the effects of the Regulations in its Condensed Consolidated Financial Statements for the period ending September 30, 2021. The Company believes it has strong arguments in favor of its position and believes it has met the more likely than not recognition threshold that its position will be sustained. However, due to the inherent uncertainty involved in challenging the validity of regulations as well as a potential litigation process, there can be no assurances that the relevant Regulations will be invalidated or that a court of law will rule in favor of the Company. If the Company’s position on the Regulations is not sustained, the Company would be required to recognize an income tax expense of approximately $180 million to $220 million related to an income tax benefit from fiscal year 2018 that was recorded based on regulations in existence at the time. In addition, the Company may be required to pay any applicable interest and penalties. The Company intends to vigorously defend its position.
Footnote 12 — 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,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
425.4
|
|
|
424.3
|
|
|
425.2
|
|
|
424.1
|
|
Dilutive securities (1)
|
3.1
|
|
|
1.1
|
|
|
2.7
|
|
|
—
|
|
Diluted weighted average shares outstanding
|
428.5
|
|
|
425.4
|
|
|
427.9
|
|
|
424.1
|
|
(1)The nine months ended September 30, 2020 excludes 0.9 million of potentially dilutive share-based awards as their effect would be anti-dilutive.
At September 30, 2021 and 2020 potentially dilutive restricted stock awards with performance-based vesting targets that have been met are included in the computation of diluted earnings per share.
Footnote 13 — Share-Based Compensation
During the nine months ended September 30, 2021, the Company awarded 1.1 million performance-based restricted stock units (“RSUs”), which had an aggregate grant date fair value of $29 million and entitle the recipients to shares of the Company’s common stock primarily 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, 2021, the Company also awarded 0.7 million time-based RSUs with an aggregate grant date fair value of $18 million. These time-based RSUs entitle recipients to shares of the Company’s common stock and primarily vest either at the end of a three-year period or in equal installments over a three-year period.
During the nine months ended September 30, 2021, the Company also awarded 2.4 million time-based stock options with an aggregate grant date fair value of $14 million. These stock options entitle recipients to purchase shares of the Company’s common stock at an exercise price equal to the fair market value of the underlying shares as of the grant date and primarily vest in equal installments over a three-year period.
The weighted average assumptions used to determine the fair value of stock options granted for the nine months ended September 30, 2021, is as follows:
|
|
|
|
|
|
Risk-free interest rates
|
0.8
|
%
|
Expected volatility
|
44.2
|
%
|
Expected dividend yield
|
5.1
|
%
|
Expected life (in years)
|
6
|
Exercise price
|
$23.95
|
|
|
Footnote 14 — Fair Value Disclosures
Recurring Fair Value Measurements
The following table presents the Company’s non-pension financial assets and liabilities, which are measured at fair value on a recurring basis (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
|
Fair value Asset (Liability)
|
|
Fair value Asset (Liability)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
$
|
—
|
|
|
$
|
37
|
|
|
$
|
—
|
|
|
$
|
37
|
|
|
$
|
—
|
|
|
$
|
28
|
|
|
$
|
—
|
|
|
$
|
28
|
|
Liabilities
|
—
|
|
|
(59)
|
|
|
—
|
|
|
(59)
|
|
|
—
|
|
|
(138)
|
|
|
—
|
|
|
(138)
|
|
Investment securities, including mutual funds
|
11
|
|
|
—
|
|
|
—
|
|
|
11
|
|
|
10
|
|
|
—
|
|
|
—
|
|
|
10
|
|
For publicly traded investment securities, including mutual funds, fair value is determined on the basis of quoted market prices and, accordingly, such investments are classified as Level 1. 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 Company’s derivative instruments are classified as Level 2.
Financial Instruments
The Company’s 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 Company’s debt and derivative instruments are disclosed in Footnote 8 and Footnote 9, respectively.
Nonrecurring Fair Value Measurements
The Company’s nonfinancial assets, which are measured at fair value on a nonrecurring basis, include property, plant and equipment, goodwill, intangible assets and certain other assets.
The Company’s goodwill and indefinite-lived intangibles are fair valued using discounted cash flows. Goodwill impairment testing requires significant use of judgment and assumptions including the identification of reporting units; the assignment of assets and liabilities to reporting units; and the estimation of future cash flows, business growth rates, terminal values and discount rates. The testing of indefinite-lived intangibles under established guidelines for impairment also requires significant use of judgment and assumptions, such as the estimation of cash flow projections, terminal values, royalty rates, contributory cross charges, where applicable, and discount rates. 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 Company’s annual impairment testing and as circumstances require. In connection with the Company's annual impairment testing at December 1, 2020, an intangible asset was fair valued at $135 million on a non-recurring basis.
The Company reviews property, plant and equipment and operating lease assets for impairment whenever events or circumstances indicate that carrying amounts may not be recoverable through future undiscounted cash flows. If the Company concludes that impairment exists, the carrying amount is reduced to fair value. See Footnote 5 for further information.
Footnote 15 — Segment Information
Beginning January 1, 2021, the Company reported the operating results of its cookware product lines as part of the Food reporting unit within the Home Solutions segment, and no longer as part of the former Appliances and Cookware segment. This change was the result of an assessment by the CODM to better align the cookware product lines with other similar product lines in various food categories. In connection with this change, the CEO for the Food business unit assumed full responsibility for the overall brand strategy, business modeling, marketing and innovation of these product lines. The Company determined this product line change did not result in a change to either of its Home Solutions or former Appliances and Cookware reportable segments. In connection with this change, the Appliances and Cookware segment was renamed as the Home Appliances segment. Prior period comparable results for both of these segments have been reclassified to conform to this product line change. The Company also revised the calculation of operating income (loss) by segment to include restructuring charges. Prior period comparable results have been reclassified to conform to the change in calculation.
The Company's five primary reportable segments are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
|
|
Key Brands
|
|
Description of Primary Products
|
Commercial Solutions
|
|
BRK®, First Alert®, Mapa®, Quickie®, Rubbermaid Commercial Products®, and Spontex®
|
|
Commercial cleaning and maintenance solutions; closet and garage organization; hygiene systems and material handling solutions; connected home and security and smoke and carbon monoxide alarms
|
Home Appliances
|
|
Calphalon®, Crock-Pot®, Mr. Coffee®, Oster® and Sunbeam®
|
|
Household products, including kitchen appliances
|
Home
Solutions
|
|
Ball® (1), Calphalon®, Chesapeake Bay Candle®, FoodSaver®, Rubbermaid®, Sistema®, WoodWick® and Yankee Candle®
|
|
Food and home storage products; fresh preserving products; vacuum sealing products; gourmet cookware, bakeware and cutlery and home fragrance products
|
Learning and
Development
|
|
Aprica®, Baby Jogger®, Dymo®, Elmer’s®, EXPO®, Graco®, Mr. Sketch®, NUK®, Paper Mate®, Parker®, Prismacolor®, Sharpie®, Tigex® Waterman® and X-Acto®
|
|
Baby gear and infant care products; writing instruments, including markers and highlighters, pens and pencils; art products; activity-based adhesive and cutting products and labeling solutions
|
Outdoor and Recreation
|
|
Coleman®, Contigo®, ExOfficio®, Marmot®
|
|
Products for outdoor and outdoor-related activities
|
(1)
and Ball® TM of Ball Corporation, used under license.
This structure reflects the manner in which the CODM regularly assesses information for decision-making purposes, including the allocation of resources. The Company also provides general corporate services to its segments which is reported as a non-operating segment, Corporate. As a result of the aforementioned changes, net sales, operating income (loss) and impairment of goodwill and indefinite-lived intangible assets for the three and nine months ended September 30, 2020 and segment assets as of December 31, 2020 have been recast. Selected information by segment is presented in the following tables (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Net sales (1)
|
|
|
|
|
|
|
|
|
Commercial Solutions
|
|
$
|
486
|
|
|
$
|
535
|
|
|
$
|
1,450
|
|
|
$
|
1,361
|
|
Home Appliances
|
|
443
|
|
|
430
|
|
|
1,197
|
|
|
1,021
|
|
Home Solutions
|
|
598
|
|
|
623
|
|
|
1,627
|
|
|
1,384
|
|
Learning and Development
|
|
869
|
|
|
728
|
|
|
2,330
|
|
|
1,887
|
|
Outdoor and Recreation
|
|
391
|
|
|
383
|
|
|
1,180
|
|
|
1,043
|
|
|
|
$
|
2,787
|
|
|
$
|
2,699
|
|
|
$
|
7,784
|
|
|
$
|
6,696
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) (2)
|
|
|
|
|
|
|
|
|
Commercial Solutions
|
|
$
|
18
|
|
|
$
|
84
|
|
|
$
|
111
|
|
|
$
|
(150)
|
|
Home Appliances
|
|
19
|
|
|
19
|
|
|
35
|
|
|
(274)
|
|
Home Solutions
|
|
75
|
|
|
123
|
|
|
189
|
|
|
(149)
|
|
Learning and Development
|
|
195
|
|
|
158
|
|
|
522
|
|
|
288
|
|
Outdoor and Recreation
|
|
27
|
|
|
39
|
|
|
90
|
|
|
(411)
|
|
Corporate
|
|
(53)
|
|
|
(60)
|
|
|
(169)
|
|
|
(186)
|
|
|
|
$
|
281
|
|
|
$
|
363
|
|
|
$
|
778
|
|
|
$
|
(882)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
Segment assets
|
|
|
|
|
|
|
|
|
Commercial Solutions
|
|
|
|
|
|
$
|
2,516
|
|
|
$
|
2,529
|
|
Home Appliances
|
|
|
|
|
|
1,094
|
|
|
970
|
|
Home Solutions
|
|
|
|
|
|
3,174
|
|
|
3,087
|
|
Learning and Development
|
|
|
|
|
|
4,561
|
|
|
4,663
|
|
Outdoor and Recreation
|
|
|
|
|
|
940
|
|
|
988
|
|
Corporate
|
|
|
|
|
|
2,235
|
|
|
2,463
|
|
|
|
|
|
|
|
$
|
14,520
|
|
|
$
|
14,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
September 30, 2020
|
|
Nine Months
Ended
September 30, 2020
|
Impairment of goodwill and indefinite-lived intangibles assets (3)
|
Commercial Solutions
|
|
|
|
|
|
$
|
—
|
|
|
$
|
320
|
|
Home Appliances
|
|
|
|
|
|
—
|
|
|
287
|
|
Home Solutions
|
|
|
|
|
|
—
|
|
|
302
|
|
Learning and Development
|
|
|
|
|
|
2
|
|
|
80
|
|
Outdoor and Recreation
|
|
|
|
|
|
—
|
|
|
482
|
|
|
|
|
|
|
|
$
|
2
|
|
|
$
|
1,471
|
|
(1)All intercompany transactions have been eliminated.
(2)Operating income (loss) by segment is net sales less cost of products sold, SG&A, restructuring and impairment of goodwill, intangibles and other assets. Certain Corporate 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 net sales basis, and included in segment operating income.
(3)The Company did not record any impairment charges during the nine months ended September 30, 2021. During the three months ended September 30, 2020, the Company concluded that a triggering event had occurred for an indefinite-lived intangible asset in the Learning and Development segment as a result of a product line divestiture. During the three and nine months ended September 30, 2020, the Company recorded a non-cash charge of $2 million to reflect the impairment of this indefinite-lived intangible asset. During the nine months ended September 30, 2020, the Company recorded impairment charges to reflect impairment of intangible assets related to certain of the Company’s indefinite-lived trade names and goodwill. See Footnote 6 for further information.
The following tables disaggregates revenue by major product grouping source and geography for the periods indicated (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2021
|
|
Commercial Solutions
|
|
Home
Appliances
|
|
Home
Solutions
|
|
Learning and Development
|
|
Outdoor and Recreation
|
|
Total
|
Commercial
|
$
|
381
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
381
|
|
Connected Home Security
|
105
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
105
|
|
Home Appliances
|
—
|
|
|
443
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
443
|
|
Food
|
—
|
|
|
—
|
|
|
330
|
|
|
—
|
|
|
—
|
|
|
330
|
|
Home Fragrance
|
—
|
|
|
—
|
|
|
268
|
|
|
—
|
|
|
—
|
|
|
268
|
|
Baby and Parenting
|
—
|
|
|
—
|
|
|
—
|
|
|
359
|
|
|
—
|
|
|
359
|
|
Writing
|
—
|
|
|
—
|
|
|
—
|
|
|
510
|
|
|
—
|
|
|
510
|
|
Outdoor and Recreation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
391
|
|
|
391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
486
|
|
|
$
|
443
|
|
|
$
|
598
|
|
|
$
|
869
|
|
|
$
|
391
|
|
|
$
|
2,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
363
|
|
|
$
|
249
|
|
|
$
|
480
|
|
|
$
|
651
|
|
|
$
|
236
|
|
|
$
|
1,979
|
|
International
|
123
|
|
|
194
|
|
|
118
|
|
|
218
|
|
|
155
|
|
|
808
|
|
Total
|
$
|
486
|
|
|
$
|
443
|
|
|
$
|
598
|
|
|
$
|
869
|
|
|
$
|
391
|
|
|
$
|
2,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2020
|
|
Commercial Solutions
|
|
Home
Appliances
|
|
Home
Solutions
|
|
Learning and Development
|
|
Outdoor and Recreation
|
|
Total
|
Commercial
|
$
|
416
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
416
|
|
Connected Home Security
|
119
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
119
|
|
Home Appliances
|
—
|
|
|
430
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
430
|
|
Food
|
—
|
|
|
—
|
|
|
353
|
|
|
—
|
|
|
—
|
|
|
353
|
|
Home Fragrance
|
—
|
|
|
—
|
|
|
270
|
|
|
—
|
|
|
—
|
|
|
270
|
|
Baby and Parenting
|
—
|
|
|
—
|
|
|
—
|
|
|
307
|
|
|
—
|
|
|
307
|
|
Writing
|
—
|
|
|
—
|
|
|
—
|
|
|
421
|
|
|
—
|
|
|
421
|
|
Outdoor and Recreation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
383
|
|
|
383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
535
|
|
|
$
|
430
|
|
|
$
|
623
|
|
|
$
|
728
|
|
|
$
|
383
|
|
|
$
|
2,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
407
|
|
|
$
|
249
|
|
|
$
|
510
|
|
|
$
|
529
|
|
|
$
|
232
|
|
|
$
|
1,927
|
|
International
|
128
|
|
|
181
|
|
|
113
|
|
|
199
|
|
|
151
|
|
|
772
|
|
Total
|
$
|
535
|
|
|
$
|
430
|
|
|
$
|
623
|
|
|
$
|
728
|
|
|
$
|
383
|
|
|
$
|
2,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2021
|
|
Commercial Solutions
|
|
Home
Appliances
|
|
Home
Solutions
|
|
Learning and Development
|
|
Outdoor and Recreation
|
|
Total
|
Commercial
|
$
|
1,162
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,162
|
|
Connected Home Security
|
288
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
288
|
|
Home Appliances
|
—
|
|
|
1,197
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,197
|
|
Food
|
—
|
|
|
—
|
|
|
927
|
|
|
—
|
|
|
—
|
|
|
927
|
|
Home Fragrance
|
—
|
|
|
—
|
|
|
700
|
|
|
—
|
|
|
—
|
|
|
700
|
|
Baby and Parenting
|
—
|
|
|
—
|
|
|
—
|
|
|
959
|
|
|
—
|
|
|
959
|
|
Writing
|
—
|
|
|
—
|
|
|
—
|
|
|
1,371
|
|
|
—
|
|
|
1,371
|
|
Outdoor and Recreation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,180
|
|
|
1,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
1,450
|
|
|
$
|
1,197
|
|
|
$
|
1,627
|
|
|
$
|
2,330
|
|
|
$
|
1,180
|
|
|
$
|
7,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
1,071
|
|
|
$
|
650
|
|
|
$
|
1,306
|
|
|
$
|
1,703
|
|
|
$
|
669
|
|
|
$
|
5,399
|
|
International
|
379
|
|
|
547
|
|
|
321
|
|
|
627
|
|
|
511
|
|
|
2,385
|
|
Total
|
$
|
1,450
|
|
|
$
|
1,197
|
|
|
$
|
1,627
|
|
|
$
|
2,330
|
|
|
$
|
1,180
|
|
|
$
|
7,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020
|
|
Commercial Solutions
|
|
Home
Appliances
|
|
Home
Solutions
|
|
Learning and Development
|
|
Outdoor and Recreation
|
|
Total
|
Commercial
|
$
|
1,109
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,109
|
|
Connected Home Security
|
252
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
252
|
|
Home Appliances
|
—
|
|
|
1,021
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,021
|
|
Food
|
—
|
|
|
—
|
|
|
849
|
|
|
—
|
|
|
—
|
|
|
849
|
|
Home Fragrance
|
—
|
|
|
—
|
|
|
535
|
|
|
—
|
|
|
—
|
|
|
535
|
|
Baby and Parenting
|
—
|
|
|
—
|
|
|
—
|
|
|
790
|
|
|
—
|
|
|
790
|
|
Writing
|
—
|
|
|
—
|
|
|
—
|
|
|
1,097
|
|
|
—
|
|
|
1,097
|
|
Outdoor and Recreation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,043
|
|
|
1,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
1,361
|
|
|
$
|
1,021
|
|
|
$
|
1,384
|
|
|
$
|
1,887
|
|
|
$
|
1,043
|
|
|
$
|
6,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
1,013
|
|
|
$
|
597
|
|
|
$
|
1,136
|
|
|
$
|
1,393
|
|
|
$
|
642
|
|
|
$
|
4,781
|
|
International
|
348
|
|
|
424
|
|
|
248
|
|
|
494
|
|
|
401
|
|
|
1,915
|
|
Total
|
$
|
1,361
|
|
|
$
|
1,021
|
|
|
$
|
1,384
|
|
|
$
|
1,887
|
|
|
$
|
1,043
|
|
|
$
|
6,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Footnote 16 — Litigation and Contingencies
The Company is subject to various claims and lawsuits in the ordinary course of business, including from time to time, contractual disputes, employment and environmental matters, product and general liability claims, claims that the Company has infringed on the intellectual property rights of others, and consumer and employment class actions. Some of the legal proceedings include claims for punitive as well as compensatory damages. In the ordinary course of business, the Company is also subject to legislative requests, regulatory and governmental examinations, information requests and subpoenas, inquiries, investigations, and threatened legal actions and proceedings. In connection with such formal and informal inquiries, the Company receives numerous requests, subpoenas, and orders for documents, testimony, and information in connection with various aspects of its activities. The Company previously disclosed that it had received a subpoena and related informal document requests from the SEC primarily relating to its sales practices and certain accounting matters for the time period beginning from January 1, 2016. The Company has cooperated with the SEC in connection with its investigation and ongoing requests for documents, testimony, and information and intends to continue to do so. The Company cannot predict the timing or outcome of this investigation. Further, on June 30, 2021, the Company received a subpoena from the SEC requesting the production of documents related to its disclosure of the potential impact of the U.S. Treasury regulations described in Footnote 11 - Income Taxes.
Securities Litigation
Certain of the Company’s current and former officers and directors have been named in shareholder derivative lawsuits. On October 29, 2018, a shareholder filed a putative derivative complaint, Streicher v. Polk, et al., in the United States District Court for the District of Delaware (the “Streicher Derivative Action”), purportedly on behalf of the Company against certain of the Company's current and former officers and directors. On October 30, 2018, another shareholder filed a putative derivative complaint, Martindale v. Polk, et al., in the United States District Court for the District of Delaware (the “Martindale Derivative Action”), asserting substantially similar claims purportedly on behalf of the Company against the same defendants. The complaints allege, among other things, violations of the federal securities laws, breaches of fiduciary duties, unjust enrichment, and waste of corporate assets. The factual allegations underlying these claims are similar to the factual allegations made in the In re Newell Brands, Inc. Securities Litigation that was previously pending in the United States District Court for the District of New Jersey. That matter was dismissed by the District Court on January 10, 2020, and the dismissal was affirmed by the United States District Court of Appeals for the Third Circuit on December 1, 2020. The complaints seek damages and restitution for the Company from the individual defendants, the payment of costs and attorneys’ fees, and that the Company be directed to reform certain governance and internal procedures. The Streicher Derivative Action and the Martindale Derivative Action have been consolidated and the case is now known as In re Newell Brands Inc. Derivative Litigation (the “Newell Brands Derivative Action”), which is pending in the United States District Court for the District of Delaware. On March 22, 2021, the United States District Court for the District of Delaware stayed the Newell Brands Derivative Action pending the resolution of any motions for summary judgment filed in Oklahoma Firefighters Pension and Retirement System v. Newell Brands Inc., et al. (described below). On December 30, 2020, two shareholders filed a putative derivative complaint, Weber, et al. v. Polk, et al., in the United States District Court for the District of Delaware (the “Weber Derivative Action”), purportedly on behalf of the Company against certain of the Company’s current and former officers and directors. The complaint in the Weber Derivative Action alleges, among other things, breaches of fiduciary duty and waste of corporate assets. The factual allegations underlying these claims are similar to the factual allegations made in the Newell Brands Derivative Action. On March 19, 2021, the United States District Court for the District of Delaware stayed the Weber Derivative Action pending final disposition of Oklahoma Firefighters Pension and Retirement System v. Newell Brands Inc., et al. (described below).
The Company and certain of its current and former officers and directors have been named as defendants in a putative securities class action lawsuit filed in the Superior Court of New Jersey, Hudson County, on behalf of all persons who acquired Company common stock pursuant or traceable to the S-4 registration statement and prospectus issued in connection with the April 2016 acquisition of Jarden (the “Registration Statement”). The action was filed on September 6, 2018 and is captioned Oklahoma Firefighters Pension and Retirement System v. Newell Brands Inc., et al., Civil Action No. HUD-L-003492-18. The operative complaint alleges certain violations of the securities laws, including, among other things, that the defendants made certain materially false and misleading statements and omissions in the Registration Statement regarding the Company’s financial results, trends, and metrics. The plaintiff seeks compensatory damages and attorneys’ fees and costs, among other relief. The Company is currently unable to predict the ultimate timing or outcome of this litigation or reasonably estimate the range of possible losses. The Company maintains insurance intended to cover losses arising out of this litigation up to specified limits (subject to deductibles, coverage limits and other terms and conditions), but any losses may exceed our current coverage levels, which could have an adverse impact on our financial results.
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 Comprehensive Environmental Response Compensation and Liability Act (“CERCLA”) and equivalent state laws. In assessing its environmental response costs, the Company has considered several factors, including the extent of the Company’s 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 Company’s 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 Company’s, and other parties’, status as PRPs is disputed.
The Company’s estimate of environmental remediation costs associated with these matters at September 30, 2021 was $38 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 Company’s cost estimates or reserves, nor do the Company’s cost estimates or reserves reflect any discounting for present value purposes, except with respect to certain long-term operations and maintenance CERCLA matters. 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 Company’s estimates.
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. The site is also subject to a Natural Resource Damage Assessment. Seventy-two of the GNL recipients, including the Company on behalf of itself 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. EPA’s cost estimates for its cleanup alternatives ranged from approximately $315 million to approximately $3.2 billion in capital costs plus from approximately $1 million to $2 million in annual maintenance costs for 30 years, with its preferred alternative carrying an estimated cost of approximately $1.7 billion plus an additional approximately $2 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. EPA’s 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 nine miles. The cost estimates for these alternatives ranged from approximately $28 million to $2.7 billion, including related operation, maintenance and monitoring costs. U.S. EPA issued a conditional approval of the RI report in June 2019.
U.S. EPA issued a Record of Decision for the lower 8.3 miles of the Lower Passaic River in March 2016 (the “2016 ROD”). The 2016 ROD 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 2016 ROD, 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, including Company Parties, as well as several additional entities. 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. EPA’s selected remedy for the lower 8.3 miles of the Lower Passaic River and reimburse U.S. EPA’s costs incurred for 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 $0.3 million to 20 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. In September 2017, U.S. EPA announced an allocation process involving all GNL recipients except those participating in the first-round cash-out settlement, and five public entities, with the intent of eventually offering cash-out settlements to a number of
parties, and the expectation that the private PRPs responsible for release of dioxin, furans, and/or PCBs will perform the lower 8.3 mile remedial action. The allocation process has concluded. U.S. EPA and certain parties to the allocation process, including the Company (for itself and Berol), are presently engaged in settlement discussions, the outcome of which remains uncertain.
Following discussion with U.S. EPA regarding the 2015 draft FS, and U.S. EPA’s issuance of the 2016 ROD, the participating parties refocused the FS on the upper 9 miles of the Lower Passaic River. The parties submitted most portions of a final Interim Remedy FS (the “IR FS”) on August 7, 2020, setting forth remedial alternatives ranging from no further action to targeted dredging and capping with different targets for post-remedy surface weighted average concentration of contamination. The parties subsequently completed their submittal of the IR FS, and on September 7, 2021, U.S. EPA approved the IR FS. On October 4, 2021, U.S. EPA issued an interim ROD selecting a combination of dredging and capping as the remedial alternative to this portion of the river, at a total cost of $441 million. The amount of this total cost allocable to the Company is not yet known.
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 Maxus’s 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, entered into a mutual contribution release agreement (“Passaic Release”) pertaining to certain costs, but not costs associated with ultimate remedy.
On June 30, 2018, OCC sued 120 parties, including the Company and Berol, in the U.S. District Court in New Jersey (“OCC Lawsuit”). OCC subsequently filed a separate, related complaint against five additional defendants. The OCC Lawsuit includes claims, counterclaims and cross-claims for cost recovery, contribution, and declaratory judgement under CERCLA. The current, primary focus of the claims, counterclaims and cross-claims against the defendants is on certain past and future costs for investigation, design and remediation of the 17-mile stretch of the Lower Passaic River and its tributaries, other than those subject to the Passaic Release. The complaint notes, however, that OCC may broaden its claims in the future if and when EPA selects remedial actions for other portions of the Site or completes a Natural Resource Damage Assessment. Given the uncertainties pertaining to this matter, including that the U.S. EPA is still reviewing the FS, that no framework for or agreement on allocation for the investigation and ultimate remediation has been established, 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. OCC stated in a subsequent filing that it anticipates asserting additional claims against the defendants regarding Newark Bay, which is also part of the Diamond Alkali Superfund Site, after the U.S. EPA has decided the Newark Bay remedy.
The Company is currently unable to reasonably estimate the range of possible losses for this matter. Based on currently known facts and circumstances, however, the Company does not believe that this matter is reasonably likely to have a material impact on the Company’s results of operations, including, among other factors, because there are numerous other parties who will likely share in any costs of remediation and/or damages. 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 Company’s 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 Company’s estimates.
Other Matters
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 Company’s 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 Company’s business, financial condition or results of operations. In connection with the 2018 sale of The Waddington Group, Novolex Holdings, Inc. (the “Buyer”) filed suit against the Company in October 2019 in the Superior Court of Delaware. The Buyer generally alleged that the Company fraudulently breached certain representations in the Equity Purchase Agreement between the Company and Buyer, dated May 2, 2018, resulting in an inflated purchase price for The Waddington Group. The Company intends to defend the litigation vigorously. Further, in connection with the Company’s sale of The United States Playing
Card Company (“USPC”), Cartamundi, Inc. and Cartamundi España, S.L., (the “Buyers”) have notified the Company of their contention that certain representations and warranties in the Stock Purchase Agreement, dated June 4, 2019, were inaccurate and/or breached, and have sought indemnification to the extent that the Buyers are required to pay related damages arising out of a third party lawsuit that was recently filed against USPC.
Although management of the Company cannot predict the ultimate outcome of other proceedings with certainty, it believes that the ultimate resolution of the Company’s proceedings, including any amounts it may be required to pay in excess of amounts reserved, will not have a material effect on the Company’s Condensed Consolidated Financial Statements, except as otherwise described in this Footnote 16.
At September 30, 2021, the Company had approximately $48 million in standby letters of credit primarily related to the Company’s self-insurance programs, including workers’ compensation, product liability and medical expenses.