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, 2021 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.
On March 31, 2022, the Company sold its Connected Home & Security (“CH&S”) business unit to Resideo Technologies, Inc. See Footnotes 2 and 16 for further information.
Use of Estimates and Risks and Uncertainty of Coronavirus (COVID-19)
Since early 2020, the COVID-19 pandemic 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. Although restrictions have eased since the first quarter of 2021 in certain areas, the Company's global operations, similar to those of many large, multi-national corporations, were adversely impacted by the COVID-19 pandemic.
The extent of the impact of the COVID-19 pandemic to the Company's future sales, operating results, cash flows, liquidity and financial condition continues to be driven by numerous evolving factors that the Company cannot reasonably 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 work restrictions, operational or travel bans have been reinstituted, the rate at which vaccines are administered to the general public, 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 reasonably 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 and supply chain continuity. 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 months ended March 31, 2022 may not necessarily be indicative of the results that may be expected for the year ending December 31, 2022.
The Company's sales and operating results, previously disrupted by the COVID-19 pandemic, reverted back to historical patterns in 2021, however, uncertainty still remains over the volatility and 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.
Sales of Accounts Receivables
Factored receivables at March 31, 2022 associated with the Company's existing factoring agreement (the “Customer Receivables Purchase Agreement”) were approximately $535 million, an increase of approximately $35 million from December 31, 2021. Transactions under this agreement are 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 Condensed Consolidated Statement of Cash Flows. The Company records the discount as other income, 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.
Footnote 2 — Divestiture Activity
On March 31, 2022, the Company sold its CH&S business unit to Resideo Technologies, Inc., for approximately $593 million, subject to customary working capital and other post-closing adjustments. As a result, the Company recorded a pretax gain of $130 million, which was included in other income, net in its Condensed Consolidated Statements of Operations.
Footnote 3 — 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 three months ended March 31, 2022 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Cumulative
Translation
Adjustment | | Pension and Postretirement Costs | | Derivative
Financial
Instruments | | AOCL |
| Balance at December 31, 2021 | $ | (575) | | | $ | (292) | | | $ | (15) | | | $ | (882) | |
| Other comprehensive income (loss) before reclassifications | 17 | | | 1 | | | (1) | | | 17 | |
| Amounts reclassified to earnings | 6 | | | 4 | | | 1 | | | 11 | |
| Net current period other comprehensive income | 23 | | | 5 | | | — | | | 28 | |
| Balance at March 31, 2022 | $ | (552) | | | $ | (287) | | | $ | (15) | | | $ | (854) | |
Reclassifications from AOCL to the results of operations for the three months ended March 31, 2022 and 2021 were pretax expense of (in millions):
| | | | | | | | | | | | | | | |
| | | Three Months Ended
March 31, |
| | | | | 2022 | | 2021 |
Cumulative translation adjustment (1) | | | | | $ | 6 | | | $ | — | |
Pension and postretirement benefit plans (2) | | | | | 4 | | | 5 | |
Derivative financial instruments (3) | | | | | 1 | | | 4 | |
(1)See Footnote 2 for further information.
(2)See Footnote 11 for further information.
(3)See Footnote 10 for further information.
The income tax provision (benefit) allocated to the components of AOCL for the periods indicated are as follows (in millions):
| | | | | | | | | | | | | | | |
| | | Three Months Ended
March 31, |
| | | | | 2022 | | 2021 |
| Foreign currency translation adjustments | | | | | $ | 1 | | | $ | 12 | |
| Pension and postretirement benefit costs | | | | | — | | | 1 | |
| Derivative financial instruments | | | | | (1) | | | 2 | |
| Income tax provision related to AOCL | | | | | $ | — | | | $ | 15 | |
Footnote 4 — Restructuring Costs
Restructuring costs, net incurred by reportable business segments for all restructuring activities for the periods indicated are as follows (in millions):
| | | | | | | | | | | | | | | |
| | | Three Months Ended
March 31, |
| | | | | 2022 | | 2021 |
| Commercial Solutions | | | | | $ | 1 | | | $ | — | |
| Home Appliances | | | | | 1 | | | 1 | |
| Home Solutions | | | | | 1 | | | 2 | |
| Learning and Development | | | | | 2 | | | 1 | |
| Outdoor and Recreation | | | | | — | | | 1 | |
| | | | | | | |
| | | | | $ | 5 | | | $ | 5 | |
Accrued restructuring costs activity for the three months ended March 31, 2022 are as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2021 | | Restructuring
Costs, Net | | Payments | | | | | | Balance at
March 31, 2022 |
| Severance and termination costs | $ | 8 | | | $ | 4 | | | $ | (5) | | | | | | | $ | 7 | |
| Contract termination and other costs | 2 | | | 1 | | | (2) | | | | | | | 1 | |
| $ | 10 | | | $ | 5 | | | $ | (7) | | | | | | | $ | 8 | |
2020 Restructuring Plan
The Company’s 2020 restructuring program, which was substantially complete at the end of 2021, was designed to reduce overhead costs, streamline certain underperforming operations and improve future profitability. The restructuring costs, which
impacted all segments, include employee-related costs such as severance and other termination benefits. During the three months ended March 31, 2021, the Company recorded restructuring charges of $5 million. Any remaining cash payments are expected to be paid within one year of charges incurred.
Other Restructuring and Restructuring-Related Costs
The Company regularly incurs other restructuring and restructuring-related costs in connection with various discrete initiatives, including certain costs associated with Project Ovid. Restructuring-related costs are recorded in cost of products sold and selling, general and administrative expenses (“SG&A”) in the Condensed Consolidated Statements of Operations based on the nature of the underlying costs incurred. During the three months ended March 31, 2022, the Company recorded restructuring charges of $5 million.
Footnote 5 — Inventories
Inventories are comprised of the following at the dates indicated (in millions):
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| Raw materials and supplies | $ | 321 | | | $ | 310 | |
| Work-in-process | 205 | | | 167 | |
| Finished products | 1,771 | | | 1,520 | |
| $ | 2,297 | | | $ | 1,997 | |
Footnote 6 — Property, Plant and Equipment, Net
Property, plant and equipment, net, is comprised of the following at the dates indicated (in millions):
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| Land | $ | 80 | | | $ | 82 | |
| Buildings and improvements | 636 | | | 678 | |
| Machinery and equipment | 2,314 | | | 2,387 | |
| 3,030 | | | 3,147 | |
| Less: Accumulated depreciation | (1,886) | | | (1,943) | |
| $ | 1,144 | | | $ | 1,204 | |
Depreciation expense was $49 million and $52 million for the three months ended March 31, 2022 and 2021, respectively.
During the quarter ended March 31, 2022, the Company took possession of a right of use operating lease asset with future obligations of approximately $64 million.
Footnote 7 — Goodwill and Other Intangible Assets, Net
Goodwill activity for the three months ended March 31, 2022 is as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Segments | Net Book Value at December 31, 2021 | | | | Foreign Exchange | | Gross Carrying Amount | | Accumulated Impairment Charges | | Net Book Value at March 31, 2022 |
| Commercial Solutions | $ | 747 | | | | | $ | — | | | $ | 916 | | | $ | (169) | | | $ | 747 | |
| Home Appliances | — | | | | | — | | | 569 | | | (569) | | | — | |
| Home Solutions | 164 | | | | | — | | | 2,567 | | | (2,403) | | | 164 | |
| Learning and Development | 2,593 | | | | | (18) | | | 3,421 | | | (846) | | | 2,575 | |
| Outdoor and Recreation | — | | | | | — | | | 788 | | | (788) | | | — | |
| $ | 3,504 | | | | | $ | (18) | | | $ | 8,261 | | | $ | (4,775) | | | $ | 3,486 | |
Other intangible assets, net, are comprised of the following at the dates indicated (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 | | |
| Gross Carrying Amount | | Accumulated Amortization | | Net Book Value | | Gross Carrying Amount | | Accumulated Amortization | | Net Book Value | | |
| Trade names — indefinite life | $ | 2,028 | | | $ | — | | | $ | 2,028 | | | $ | 2,219 | | | $ | — | | | $ | 2,219 | | | |
| Trade names — other | 165 | | | (72) | | | 93 | | | 159 | | | (65) | | | 94 | | | |
| Capitalized software | 581 | | | (461) | | | 120 | | | 631 | | | (495) | | | 136 | | | |
| Patents and intellectual property | 22 | | | (15) | | | 7 | | | 22 | | | (14) | | | 8 | | | |
| Customer relationships and distributor channels | 1,082 | | | (284) | | | 798 | | | 1,216 | | | (303) | | | 913 | | | |
| | | | | | | | | | | | | |
| $ | 3,878 | | | $ | (832) | | | $ | 3,046 | | | $ | 4,247 | | | $ | (877) | | | $ | 3,370 | | | |
Amortization expense for intangible assets was $27 million and $34 million for the three months ended March 31, 2022 and 2021, respectively.
Footnote 8 — Other Accrued Liabilities
Other accrued liabilities are comprised of the following at the dates indicated (in millions):
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| Customer accruals | $ | 652 | | | $ | 715 | |
| Operating lease liabilities | 125 | | | 122 | |
| Accrued self-insurance liabilities, contingencies and warranty | 121 | | | 125 | |
| Accrued interest expense | 115 | | | 56 | |
| Accrued marketing and freight expenses | 66 | | | 59 | |
| Accrued income taxes | 54 | | | 43 | |
| Other | 242 | | | 244 | |
| $ | 1,375 | | | $ | 1,364 | |
Footnote 9 — Debt
Debt is comprised of the following at the dates indicated (in millions): | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
3.85% senior notes due 2023 | $ | 1,087 | | | $ | 1,086 | |
4.00% senior notes due 2024 | 200 | | | 200 | |
4.875% senior notes due 2025 | 495 | | | 494 | |
3.90% senior notes due 2025 | 47 | | | 47 | |
4.20% senior notes due 2026 | 1,976 | | | 1,975 | |
5.375% senior notes due 2036 | 417 | | | 417 | |
5.50% senior notes due 2046 | 658 | | | 658 | |
| | | |
| | | |
| Other debt | 3 | | | 9 | |
Total debt | 4,883 | | | 4,886 | |
| Short-term debt and current portion of long-term debt | (3) | | | (3) | |
| Long-term debt | $ | 4,880 | | | $ | 4,883 | |
Senior Notes
On February 11, 2022, S&P Global Inc. (“S&P”) upgraded the Company’s debt rating to “BBB-” from “BB+” as S&P believed the Company has been able to achieve S&P’s target debt level. As a result of this upgrade, the Company is now in a position to access the commercial paper market, up to a maximum of $800 million, provided there is a sufficient amount available for borrowing under the Credit Revolver (defined hereafter). In addition, the interest rate on the relevant senior notes decreased by 25 basis points due to the upgrade, reducing the Company’s interest expense by approximately $10 million on an annualized basis (approximately $8 million in 2022). However, certain of the Company’s outstanding senior notes aggregating to approximately $4.2 billion are still subject to an interest rate adjustment of 25 basis points in connection with the Moody’s Corporation (“Moody’s”) downgraded debt rating in 2020.
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 March 31, 2022, 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 March 31, 2022, 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):
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| Fair Value | | Book Value | | Fair Value | | Book Value |
| Senior notes | $ | 5,010 | | | $ | 4,880 | | | $ | 5,477 | | | $ | 4,877 | |
The carrying amounts of all other significant debt approximates fair value.
Footnote 10 —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 March 31, 2022, 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 three cross-currency swaps, maturing in January 2025, February 2025 and September 2027, respectively, with an aggregate notional amount of $1.3 billion. 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 months ended March 31, 2022 and 2021, the Company recognized income of $5 million and $4 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 December 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 March 31, 2022, the Company had approximately $467 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 March 31, 2022, the Company had approximately $1.2 billion notional amount outstanding of these foreign currency contracts that are not designated as effective hedges for accounting purposes and have maturity dates through December 2022. Fair market value gains or losses are included in the results of operations and are classified in other income, net in the Company's Condensed Consolidated Statement of Operations.
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 | | March 31, 2022 | | December 31, 2021 |
| Derivatives designated as effective hedges: | | | | |
| Cash Flow Hedges | | | | | |
| Foreign currency contracts | Prepaid expenses and other current assets | | $ | 10 | | | $ | 12 | |
| Foreign currency contracts | Other accrued liabilities | | (6) | | | (2) | |
| Fair Value Hedges | | | | | |
| Interest rate swaps | Other assets | | — | | | 3 | |
| Interest rate swaps | Other accrued liabilities | | (1) | | | — | |
| Net Investment Hedges | | | | | |
| Cross-currency swaps | Prepaid expenses and other current assets | | 15 | | | 18 | |
| Cross-currency swaps | Other noncurrent liabilities | | (34) | | | (41) | |
| | | | | |
| Derivatives not designated as effective hedges: | | | | |
| Foreign currency contracts | Prepaid expenses and other current assets | | 16 | | | 7 | |
| Foreign currency contracts | Other accrued liabilities | | (21) | | | (14) | |
| | | | | |
| Total | | | $ | (21) | | | $ | (17) | |
The following table presents gain and (loss) activity (on a pretax basis) related to derivative financial instruments designated or previously designated, as effective hedges (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | Three Months
Ended
March 31, 2022 | | Three Months
Ended
March 31, 2021 |
| | | 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 | | $ | — | | | $ | (2) | | | $ | — | | | $ | (2) | |
Foreign currency contracts | Net sales and cost of products sold | | (1) | | | 1 | | | 3 | | | (2) | |
| | | | | | | | | |
Cross-currency swaps | Other income, net | | 4 | | | — | | | 36 | | | — | |
| Total | | | $ | 3 | | | $ | (1) | | | $ | 39 | | | $ | (4) | |
At March 31, 2022, net deferred gains of approximately $10 million within AOCL are expected to be reclassified to earnings over the next twelve months.
During the three months ended March 31, 2022 and 2021, the Company recognized expense of $3 million and income of $7 million, respectively, in other income, 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.
The Company is not a party to any derivatives that require collateral to be posted prior to settlement.
Footnote 11 — 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 |
| | | Three Months Ended March 31, |
| | | | | | | | | 2022 | | 2021 | | 2022 | | 2021 |
| Service cost | | | | | | | | | $ | — | | | $ | — | | | $ | 1 | | | $ | 1 | |
| Interest cost | | | | | | | | | 6 | | | 5 | | | 2 | | | 2 | |
| Expected return on plan assets | | | | | | | | | (12) | | | (12) | | | (2) | | | (1) | |
| Amortization | | | | | | | | | 4 | | | 5 | | | 1 | | | 1 | |
| | | | | | | | | | | | | | | |
| Total (income) expense | | | | | | | | | $ | (2) | | | $ | (2) | | | $ | 2 | | | $ | 3 | |
| | | | | | | | | | | | | | | |
| | | | | Postretirement Benefits |
| | | Three Months Ended
March 31, |
| | | | | 2022 | | 2021 |
| | | | | | | |
| | | | | | | |
| Amortization | | | | | $ | (1) | | | $ | (1) | |
| Total income | | | | | $ | (1) | | | $ | (1) | |
U.K. Defined Benefit Plan Buy-in
In February 2022, the Company entered into an agreement with an insurance company for a bulk annuity purchase or “buy-in” for one of its U.K. defined benefit pension plans, resulting in an exchange of plan assets for an annuity that matches the plan’s future projected benefit obligations to covered participants. The Company anticipates the “buy-out” for the plan to be completed by the end of 2022 or early 2023. The non-cash settlement charge associated with the transaction is expected to be material to the Company's results of operations.
Footnote 12 — Income Taxes
The Company’s effective income tax rate for the three months ended March 31, 2022 and 2021 were 17.0% and 29.4%, respectively, reflecting an increase in discrete tax benefits and a lower effective income tax rate associated with the divestiture of the CH&S business.
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 months ended March 31, 2022 and 2021 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 months ended March 31, 2022 were also impacted by certain discrete items. Income tax expense for the three months ended March 31, 2022 included a discrete benefit of $4 million associated with the approval of certain state tax credits, offset by $14 million of income tax expense related to the divestiture of the CH&S business unit. The three months ended March 31, 2021 were also impacted by $1 million of discrete tax items.
During the three months ended March 31, 2022, the Company amended its 2017 U.S. federal income tax return to carryback foreign tax credits generated in 2018 and capital losses generated in 2018 and 2020. This resulted in an increase in noncurrent income taxes receivable of approximately $261 million, a decrease in income taxes payable of approximately $95 million, and an increase in deferred tax liabilities of approximately $356 million.
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 March 31, 2022. 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. On April 4, 2022, in a case not involving the Company, the United States District Court for the District of Colorado granted the taxpayer's motion for summary judgment that the Temporary Regulations were not validly issued on the basis of improper promulgation. The Company is monitoring the impact of this decision and intends to continue to vigorously defend its position.
Footnote 13 — Earnings Per Share
The computations of the weighted average shares outstanding for the periods indicated are as follows (in millions):
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| | | Three Months Ended
March 31, |
| | | | | 2022 | | 2021 |
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| Basic weighted average shares outstanding | | | | | 421.9 | | | 424.9 | |
| Dilutive securities | | | | | 2.8 | | | 2.7 | |
| Diluted weighted average shares outstanding | | | | | 424.7 | | | 427.6 | |
At March 31, 2022 and 2021 dividends and equivalents for share-based awards expected to be forfeited did not have a material impact on net income for basic and diluted earnings per share.
Footnote 14 — Stockholders' Equity and Share-Based Compensation
During the three months ended March 31, 2022, the Company awarded 1.0 million performance-based restricted stock units (“RSUs”), which had an aggregate grant date fair value of $28 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 three months ended March 31, 2022, the Company also awarded 0.6 million time-based RSUs with an aggregate grant date fair value of $16 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 three months ended March 31, 2022, the Company also awarded 2.2 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 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 three months ended March 31, 2022, is as follows:
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| Risk-free interest rates | 1.9 | % |
| Expected volatility | 42.0 | % |
| Expected dividend yield | 5.1 | % |
| Expected life (in years) | 6 |
| Exercise price | $25.86 |
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Share Repurchase Program
On February 6, 2022, the Company's Board of Directors authorized a $375 million Share Repurchase Program (“SRP”), effective immediately through the end of 2022. The Company’s common shares may be purchased by the Company in the open market, in negotiated transactions or in other manners, as permitted by federal securities laws and other legal requirements. On February 25, 2022, the Company repurchased $275 million of its shares of common stock beneficially owned by Carl C. Icahn and certain of his affiliates (collectively, “Icahn Enterprises”), at a purchase price of $25.86 per share, the closing price of the Company's common shares on February 18, 2022. At March 31, 2022, the Company has remaining authority to repurchase approximately $100 million of shares of common stock under the SRP.
Footnote 15 — 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):
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| Fair value Asset (Liability) | | Fair value Asset (Liability) |
| Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| Derivatives: | | | | | | | | | | | | | | | |
| Assets | $ | — | | | $ | 41 | | | $ | — | | | $ | 41 | | | $ | — | | | $ | 40 | | | $ | — | | | $ | 40 | |
| Liabilities | — | | | (62) | | | — | | | (62) | | | — | | | (57) | | | — | | | (57) | |
Investment securities, including mutual funds | 13 | | | — | | | — | | | 13 | | | 13 | | | — | | | — | | | 13 | |
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 9 and Footnote 10, 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.
In connection with the Company's annual impairment testing at December 1, 2021, a tradename within the Learning and Development segment was fair valued at $47 million on a non-recurring basis.
Footnote 16 — Segment Information
On March 31, 2022, the Company sold its CH&S business unit to Resideo Technologies, Inc. The results of operations for CH&S continued to be reported in the Condensed Consolidated Statements of Operations as part of the Commercial Solutions segment through March 31, 2022.
The Company's five primary reportable segments are:
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| Segment | | Key Brands | | Description of Primary Products |
| Commercial Solutions | | Mapa, Quickie, Rubbermaid Commercial Products and Spontex | | Commercial cleaning and maintenance solutions; closet and garage organization; hygiene systems and material handling solutions |
| Home Appliances | | Calphalon, Crockpot, 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 and 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 chief operating decision maker (“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.
Selected information by segment is presented in the following tables (in millions):
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| | | | Three Months Ended
March 31, |
| | | | | | 2022 | | 2021 |
Net sales (1) | | | | | | | | |
| Commercial Solutions | | | | | | $ | 510 | | | $ | 471 | |
| Home Appliances | | | | | | 340 | | | 360 | |
| Home Solutions | | | | | | 500 | | | 504 | |
| Learning and Development | | | | | | 650 | | | 617 | |
| Outdoor and Recreation | | | | | | 388 | | | 336 | |
| | | | | | $ | 2,388 | | | $ | 2,288 | |
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Operating income (loss) (2) | | | | | | | | |
| Commercial Solutions | | | | | | $ | 55 | | | $ | 50 | |
| Home Appliances | | | | | | (18) | | | 3 | |
| Home Solutions | | | | | | 61 | | | 61 | |
| Learning and Development | | | | | | 130 | | | 110 | |
| Outdoor and Recreation | | | | | | 45 | | | 15 | |
| Corporate | | | | | | (56) | | | (47) | |
| | | | | | $ | 217 | | | $ | 192 | |
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| | | | | | March 31, 2022 | | December 31, 2021 |
| Segment assets | | | | | | | | |
Commercial Solutions (3) | | | | | | $ | 1,973 | | | $ | 2,522 | |
| Home Appliances | | | | | | 1,081 | | | 1,055 | |
| Home Solutions | | | | | | 3,130 | | | 3,109 | |
| Learning and Development | | | | | | 4,454 | | | 4,401 | |
| Outdoor and Recreation | | | | | | 1,029 | | | 907 | |
| Corporate | | | | | | 2,537 | | | 2,185 | |
| | | | | | $ | 14,204 | | | $ | 14,179 | |
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(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 reduction in the Commercial Solutions segment assets is primarily due to the sale of the CH&S business.
The following tables disaggregates revenue by major product grouping source and geography for the periods indicated (in millions):
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| Three Months Ended March 31, 2022 |
| Commercial Solutions | | Home
Appliances | | Home
Solutions | | Learning and Development | | Outdoor and Recreation | | Total |
| Commercial | $ | 401 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 401 | |
| Connected Home Security | 109 | | | — | | | — | | | — | | | — | | | 109 | |
| Home Appliances | — | | | 340 | | | — | | | — | | | — | | | 340 | |
| Food | — | | | — | | | 302 | | | — | | | — | | | 302 | |
| Home Fragrance | — | | | — | | | 198 | | | — | | | — | | | 198 | |
| Baby | — | | | — | | | — | | | 291 | | | — | | | 291 | |
| Writing | — | | | — | | | — | | | 359 | | | — | | | 359 | |
| Outdoor and Recreation | — | | | — | | | — | | | — | | | 388 | | | 388 | |
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| Total | $ | 510 | | | $ | 340 | | | $ | 500 | | | $ | 650 | | | $ | 388 | | | $ | 2,388 | |
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| North America | $ | 396 | | | $ | 178 | | | $ | 401 | | | $ | 468 | | | $ | 210 | | | $ | 1,653 | |
| International | 114 | | | 162 | | | 99 | | | 182 | | | 178 | | | 735 | |
| Total | $ | 510 | | | $ | 340 | | | $ | 500 | | | $ | 650 | | | $ | 388 | | | $ | 2,388 | |
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| Three Months Ended March 31, 2021 |
| Commercial Solutions | | Home
Appliances | | Home
Solutions | | Learning and Development | | Outdoor and Recreation | | Total |
| Commercial | $ | 380 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 380 | |
| Connected Home Security | 91 | | | — | | | — | | | — | | | — | | | 91 | |
| Home Appliances | — | | | 360 | | | — | | | — | | | — | | | 360 | |
| Food | — | | | — | | | 274 | | | — | | | — | | | 274 | |
| Home Fragrance | — | | | — | | | 230 | | | — | | | — | | | 230 | |
| Baby | — | | | — | | | — | | | 281 | | | — | | | 281 | |
| Writing | — | | | — | | | — | | | 336 | | | — | | | 336 | |
| Outdoor and Recreation | — | | | — | | | — | | | — | | | 336 | | | 336 | |
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| Total | $ | 471 | | | $ | 360 | | | $ | 504 | | | $ | 617 | | | $ | 336 | | | $ | 2,288 | |
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| North America | $ | 344 | | | $ | 195 | | | $ | 401 | | | $ | 426 | | | $ | 177 | | | $ | 1,543 | |
| International | 127 | | | 165 | | | 103 | | | 191 | | | 159 | | | 745 | |
| Total | $ | 471 | | | $ | 360 | | | $ | 504 | | | $ | 617 | | | $ | 336 | | | $ | 2,288 | |
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Footnote 17 — 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 12 - 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 March 31, 2022 was $37 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
Background
The U.S. EPA has issued General Notice Letters to over 100 entities, including the Company and its subsidiary, Berol Corporation (together, the “Company Parties”), alleging that they are PRPs at the Diamond Alkali Superfund Site (“Site”) pursuant to the CERCLA. The Site is the subject of investigation and remedial activities (the “CERCLA Administrative Actions”) and related settlement negotiations with the U.S. EPA. In addition, the Company Parties are defendants in related litigation, and the Site is also subject to a Natural Resource Damage Assessment.
CERCLA Administrative Actions
The Site is divided into four “operable units,” and the Company Parties have received General Notice Letters in connection with operable unit 2, which comprises the lower 8.3 miles of the Lower Passaic River and its tributaries (“Unit 2”), and operable unit 4, which comprises a 17-mile stretch of the Lower Passaic River and its tributaries (“Unit 4”). Unit 2 is geographically subsumed within Unit 4.
Unit 4 Investigation
The Company received its first general notice letter pertaining to Unit 4 in 2003. Beginning in 2004, the Company Parties, together with numerous other PRPs, entered into several administrative agreements with the U.S. EPA to fund and perform various investigation and clean-up activities in Unit 4. Pursuant to a 2007 Administrative Order on Consent, over 70 PRPs, including the Company Parties, have been performing or funding the remedial investigation and feasibility study for Unit 4. The parties performing the remedial investigation and feasibility study submitted the results of their remedial investigation to the U.S. EPA in July 2019. They also submitted an interim remedy feasibility study focused on the upper 9 miles of Unit 4 in September 2021. Activity under the remedial investigation and feasibility study for Unit 4 is not yet complete and remains underway.
In October 2021, the U.S. EPA issued a Record of Decision for an interim remedy for the upper 9 miles of Unit 4, selecting a combination of dredging and capping as the remedial alternative, which the U.S. EPA estimates will cost $441 million in the aggregate.
Unit 2 Investigation
Concurrent with activities under the remedial investigation and feasibility study for Unit 4, the U.S. EPA performed a Source Control Early Action Focused Feasibility Study for Unit 2, which culminated in a Record of Decision in 2016. The U.S. EPA estimates that the selected remedy for Unit 2 set forth in its Record of Decision will cost $1.4 billion in the aggregate. The U.S. EPA then issued a General Notice Letter for Unit 2 to the Company Parties and over 100 other entities, including those that received a General Notice Letter in connection with Unit 4. The Unit 2 General Notice Letter requested that Occidental Chemical Corporation (“OCC”) perform the remedial design for Unit 2, which OCC subsequently agreed to perform. The General Notice Letter indicated that, following execution of a remedial design consent decree, the U.S. EPA would begin negotiating a remedial action consent decree for Unit 2 with OCC and other major PRPs.
2016 Record of Decision and 2021 Record of Decision Remedy Performance
In March 2022, U.S. EPA issued a Notice of Potential Liability and Notice of Consent Decree Negotiations to OCC and several other entities, excluding the Company Parties, encouraging those parties to finance and perform the remedies selected in the 2016 and 2021 Records of Decision. The U.S. EPA specifically identified OCC and four other companies as “work parties” in connection with Units 2 and 4. The Company Parties were not recipients of this notice and were not identified as work parties.
The U.S. EPA Settlement
In September 2017, the U.S. EPA announced an allocation process involving roughly 80 Unit 2 General Notice Letter recipients, with the intent of offering cash-out settlements to a number of parties (the “U.S. EPA Settlement”). The PRPs responsible for release of dioxin, furans, and/or polychlorinated biphenyls would be expected to perform the remedial action for Unit 2 and would be excluded from the U.S. EPA Settlement. The allocation process has concluded. In February 2022, the U.S. EPA and certain parties to the allocation, including the Company Parties, reached an agreement in principle concerning a cash-out settlement for both Unit 2 and Unit 4. The agreement in principle remains subject to the negotiation and court entry of a consent decree finalizing the U.S. EPA Settlement.
The OCC Litigation
In June 2018, OCC sued over 100 parties, including the Company Parties, in the U.S. District Court in New Jersey pursuant to CERCLA, requesting cost recovery, contribution, and a declaratory judgement. The defendants, in turn, filed claims against 42 third-party defendants, and filed counterclaims against OCC (collectively, the “OCC Litigation”). The primary focus of the OCC Litigation has been certain past and future costs for investigation, design and remediation of Units 2 and 4. However, OCC has stated that it anticipates asserting claims against defendants regarding Newark Bay, which is also part of the Site, after the U.S. EPA has selected the Newark Bay remedy. OCC has also stated that it may broaden its claims in the future after completion of the Natural Resource Damage Assessment described below.
In a Motion for Stay of Proceedings filed in January 2022, certain defendants and all third-party defendants in the OCC Litigation moved to stay the case for a six-month period to allow the final stage of the parallel allocation proceedings and resulting settlement negotiations in the U.S. EPA Settlement to conclude. The U.S. District Court denied the motion in March 2022.
The Company Parties continue to vigorously defend the OCC Litigation. At this time, the Company cannot predict the eventual outcome.
The Natural Resource Damage Assessment
In 2007, the National Oceanic and Atmospheric Administration (“NOAA”), acting as the lead administrative trustee on behalf of itself and the U.S. Department of the Interior, issued a Notice of Intent to Perform a Natural Resource Damage Assessment to the Company Parties, along with numerous other entities, identifying the recipients as PRPs. The federal trustees (who now include the United States Department of Commerce, represented by NOAA, and the Department of the Interior, represented by the United States Fish and Wildlife Service) are presently undertaking the Natural Resource Damage Assessment.
As of the date of filing of this Quarterly Report, based on the agreement in principle noted above, the Company does not expect that its allocation in the U.S. EPA Settlement relating to Unit 2 and Unit 4, if the settlement is finalized, will be material to the Company. With respect to the OCC Litigation and Natural Resource Damage Assessment, the Company is currently unable to reasonably estimate the range of possible losses.
Based on currently known facts and circumstances, the Company does not believe that the Lower Passaic River matter is reasonably likely to have a material impact on the Company’s results of operations. 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 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. In the year ended December 31, 2021 the Company recorded an immaterial reserve to continuing operations in its Consolidated Financial Statements based on its best estimate of probable loss associated with this matter. 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 17.
At March 31, 2022, 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.