SECURITIES AND EXCHANGE COMMISSION
___________________
___________________
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 | | | | | |
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2018
| | COMMISSION FILE NUMBER
|
| December 31, 2020 | 1-9608 |
___________________
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
___________________
| | | | | |
DELAWAREDelaware | | 36-3514169 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | | | | | | | |
221 River Street
Hoboken, New Jersey
6655 Peachtree Dunwoody Road, | | 0703030328 |
| Atlanta, | Georgia | (Zip Code) |
| (Address of principal executive offices) | | (Zip Code) |
Registrant’sRegistrant’s telephone number, including area code: (201)610-6600
(770) 418-7000
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
TITLE OF EACH CLASS | TRADING SYMBOL | NAME OF EACH EXCHANGE ON WHICH REGISTERED |
| Common Stock, $1 par value per share | NWL | Nasdaq Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of RegulationS-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of RegulationS-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form10-K or any amendment to this Form10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
| | | | | | | | | | | | | | |
| Large accelerated filer | ☒ | | Accelerated Filer | ☐ |
| Non-Accelerated Filer | ☒☐ | | Accelerated Filer | Smaller Reporting Company | ☐ |
| | | |
Non-Accelerated Filer | | ☐ | | Smaller Reporting Company | | ☐ |
| | | |
| | | | Emerging Growth Company | | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Act). Yes ☐ No ☒ Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☒ No ☐
There were
422.8424.6 million shares of the Registrant’s Common Stock outstanding (net of treasury shares)
as of January 31, 2019.at February 12, 2021. The aggregate market value of the shares of Common Stock
on June 30, 2020 (based upon the share count and closing price on the
New YorkNasdaq Stock Exchange on
June 30, 2018)such date) beneficially owned by
non-affiliates of the Registrant was approximately
$12.5$6.7 billion. For purposes of the foregoing calculation only, which is required by Form
10-K, the Registrant has included in the shares owned by affiliates those shares owned by directors and officers of the Registrant, and such inclusion shall not be construed as an admission that any such person is an affiliate for any purpose.
* * *
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Definitive Proxy Statement for its Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form
10-K.
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i
“Newell Brands” or the “Company” refers to Newell Brands Inc. alone or with its wholly owned subsidiaries, as the context requires. When this report uses the words “we,” “us” or “our,” it refers to the Company and its subsidiaries unless the context otherwise requires. The Company was founded in Ogdensburg, New York in 1903 and is incorporated in Delaware.
The Company’s principal executive office is located at 221 River Street, Hoboken, New Jersey 07030, and the Company’s telephone number is201-610-6600.
Website Access to Securities and Exchange Commission Reports
The Company makes available free of charge on or through its website its annual reports on Form10-K, quarterly reports on Form10-Q, current reports on Form8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) as soon as practicable after the Company files them with, or furnishes them to, the U.S. Securities and Exchange Commission (“SEC”). The Company’s Internet website can be found atwww.newellbrands.com. The information on the Company’s website is not incorporated by reference into this annualAnnual report on Form10-K.
Newell Brands is a
leading global
marketer of consumer
and commercial products that make life better every day, where they live, learn, work and play. Our products are marketed undergoods company with a strong portfolio of
leadingwell-known brands, including
Rubbermaid®, Paper
Mate®Mate®,
Sharpie®Sharpie®,
Dymo®Dymo®,
EXPO®EXPO®,
Parker®Parker®,
Elmer’s®Elmer’s®,
Coleman®Coleman®,
Marmot®Marmot®,
Oster®Oster®,
Sunbeam®Sunbeam®,
FoodSaver®FoodSaver®, Mr.
Coffee®Coffee®,
Graco®Rubbermaid Commercial Products®, Graco®, Baby
Jogger®Jogger®,
NUK®NUK®,
Calphalon®Calphalon®,
Rubbermaid®, Contigo®Contigo®, First
Alert®Alert®, Mapa®, Spontex® and Yankee
Candle®Candle®.
Newell Brands is committed to enhancing the lives of consumers around the world with planet-friendly, innovative and attractive products that create moments of joy and provide peace of mind. The Company sells its products in nearly 200 countries around the world and has operations on the ground in
nearly 100over 40 of these
countries.STRATEGIC INITIATIVES
In 2018, Newell Brands announcedcountries, excluding third-party distributors.
BUSINESS STRATEGY
The Company is continuing to execute on its Accelerated Transformation Plan, which aims to accelerate value creation and more rapidly transformturnaround strategy of building a global, next generation consumer products company that can unleash the portfolio to one best positioned to leverage the Company’s advantaged capabilitiesfull potential of its brands in innovation, design ande-commerce.a fast moving omni-channel environment. The Accelerated Transformation Planstrategy, developed in 2019, is designed to significantly increase shareholder valuedrive sustainable top line growth, improve operating margins, accelerate cash conversion cycle and strengthen the portfolio, organizational capabilities and employee engagement, while addressing key challenges facing the Company. These challenges include: shifting consumer preferences and behaviors; a highly competitive operating environment; a rapidly changing retail landscape, including the growth in e-commerce; continued macroeconomic and political volatility; and an evolving regulatory landscape. The coronavirus (COVID-19) pandemic and its impact to the Company’s business resulted in the acceleration of these initiatives in many respects.
The Company has made significant progress on the following imperatives it previously identified as part of its turnaround strategy:
•Strengthening the portfolio by investing in attractive categories aligned with its capabilities and strategy;
•Driving sustainable profitable growth by focusing on innovation, as well as growth in digital marketing, e-commerce and its international businesses;
•Improving margins by driving productivity and overhead savings, while reinvesting into the business;
•Enhancing cash efficiency by improving key working capital metrics, resulting in a lower cash conversion cycle; and
•Building a winning team through both strengthenedengagement and focusing the best people on the right things.
Continued execution of these strategic imperatives will better position the Company for long-term sustainable growth.
Coronavirus (COVID-19)
Beginning late in the fourth quarter of 2019 through 2020 and into 2021, COVID-19 emerged and subsequently spread globally, ultimately being declared a pandemic by the World Health Organization. The 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. The Company's global operations, similar to those of many large, multi-national corporations, experienced significant COVID-19 related disruption to its business in three primary areas:
•Supply chain. While the majority of the Company’s factories are considered essential in their applicable jurisdictions and have remained operational, the Company experienced disruption at certain of its facilities. Of its 135 manufacturing and distribution facilities, approximately 20 were temporarily closed at the end of the first quarter of 2020, the most significant of which were its South Deerfield, MA, Home Fragrance plant, its Mexicali, Mexico and India Writing facilities and its
Juarez, Mexico Connected Home and Security facility, all of which were closed in accordance with state government guidelines. By the end of the third quarter of 2020, substantially all of the Company's manufacturing and distribution facilities reopened and were operating at or near capacity. Since then, the Company's facilities have replenished most of the inventory levels that were depleted by lost production during the temporary closure period. The Company does, however, continue to face intermittent supply and labor shortages, capacity constraints, and transportation and logistical challenges and expects this to persist until the current economic and public health conditions improve globally.
•Retail. While the Company’s largest retail customers experienced a surge in sales as their stores remained open, a number of secondary customers, primarily in the specialty and department store channels, temporarily closed their brick and mortar doors in March 2020, and began to reopen in certain regions where conditions improved towards the end of the second quarter of 2020. These dynamics, in combination with some retailers’ prioritization of essential items, have had a meaningful impact on the Company's traditional order patterns. In addition, the Company temporarily closed its Yankee Candle retail stores in North America as of mid-March. All of these stores reopened by the end of the third quarter and have remained open since.
•Consumer demand patterns. During the quarantine phase of the pandemic, consumer purchasing behavior strongly shifted to certain focused categories. While certain of the Company’s product categories in the Food, Commercial and Appliances and Cookware business benefited from this shift, others, particularly the Writing business, experienced significant slowing. Changes in consumer purchasing patterns, temporary office closures, as well as the shift to remote learning for schools and other higher education programs in the Fall semester of 2020 adversely impacted the performance of the Writing business during 2020.
In response to the COVID-19 pandemic, the Company focused on protecting the health and well-being of its employees; maintaining financial
performanceviability and
deleveragingbusiness continuity; and keeping manufacturing facilities and distribution centers operating, where permitted and deemed prudent, to provide products to our consumers. The Company put in place internal protocols including the
balance sheet, while simultaneously returning capitalestablishment of a COVID-19 task force to
shareholders.monitor the situation, as well as communications and guidance issued by foreign, federal, state and local governments. The Company instituted mandatory work-from-home policies for employees able to work from home in various locations around the world and implemented a number of precautionary measures at its manufacturing plants, warehouses, distribution centers and R&D centers to reduce person-to-person contact and improve the personal safety for our front-line employees. Furthermore, the Company temporarily closed all of the world-wide Yankee Candle retail stores. By the end of the third quarter of 2020, all of the Company’s temporarily closed manufacturing and distribution sites reopened and were operating at or near capacity. In addition, most of the Company's office locations have reopened on a limited basis.
The Company continues to monitor developments, including government requirements and recommendations at the national, state, and local level to evaluate possible cessation or extensions to all or part of such COVID-19 precautionary initiatives. As part of the Company’s Accelerated Transformation Plan, during 2018,Company's efforts to contain costs and maintain financial liquidity and flexibility, it instituted a hiring freeze for non-essential roles, furloughed all field-based and most corporate retail employees in North America, from April 1, 2020 through the third quarter of 2020, tightened discretionary spending, reduced non-essential travel and optimized advertising and promotional expenses. In addition, the Company announced it was exploring strategic optionsa restructuring program during the second quarter of 2020 to reduce overhead costs, streamline certain underperforming operations and improve future profitability.
While the negative effects from the COVID-19 global pandemic in the first half of 2020 were material to the Company's operating results, the Company saw positive momentum, which included sales growth during the second half of the year and strong liquidity with over $1.4 billion in operating cash flow for its industrial and commercial product assets, including The Waddington Group (“Waddington”), Process Solutions, Rubbermaid Commercial Products, Rexair and Mapa businesses, as well asnon-core consumer businesses, including the Rawlings, Jostens, Pure Fishing, Rubbermaid Outdoor, Closet, Refuse and Garage, Goody Products and U.S. Playing Cards businesses. These businesses are classified as discontinued operations atyear ended December 31, 2018. Prior periods2020. The Company believes, however, the extent of the impact of the COVID-19 pandemic to its businesses, operating results, cash flows, liquidity and financial condition will be primarily driven by the severity and duration of the pandemic, the impact of new strains and variants of the coronavirus, the pandemic’s impact on the U.S. and global economies and the timing, scope and effectiveness of federal, state and local governmental plans to administer vaccines to the general public, especially in areas where conditions have recently worsened and lockdowns or travel bans have been reclassifiedreinstituted. Those primary drivers are beyond the Company's knowledge and control, and as a result, at this time it is difficult to conform withpredict the current presentation. During 2018,cumulative impact, both in terms of severity and duration, COVID-19 will have on its future sales, operating results, cash flows and financial condition. Furthermore, the Company sold Goody Products, Inc. (“Goody”), Jostens, Inc. (“Jostens”), Pure Fishing, Inc. (“Pure Fishing”),impact to the Rawlings Sporting Goods Company, Inc. (“Rawlings”)Company's businesses, operating results, cash flows, liquidity and Waddington Group, Inc.financial condition may be further adversely impacted if the COVID-19 global pandemic continues to exist or worsens for a prolonged period of time or if plans to administer vaccines are delayed.
See Recent Developments, Liquidity and various related subsidiaries as partCapital Resources and Critical Accounting Estimates in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Footnotes 1 and 7 of the Accelerated Transformation Plan. The Company expectsNotes to complete the remaining divestitures by the end of 2019.Consolidated Financial Statements
for further information.
Organizational Structure
In order to align reporting with the
The Company’s Accelerated Transformation Plan, effective June 30, 2018, the Company is reporting its financial results in fourfive primary operating segments are as follows:
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| Segment | | Key Brands | | Description of Primary Products |
| Appliances and Cookware | | Calphalon®, Crock-Pot®, Mr. Coffee®, Oster® and Sunbeam® | | Household products, including kitchen appliances, gourmet cookware, bakeware and cutlery |
| Commercial Solutions | | BRK®, First Alert®, Mapa®, Quickie®, Rubbermaid®, 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 Solutions | | Ball® (1), Chesapeake Bay Candle®, FoodSaver®, Rubbermaid®, Sistema®, WoodWick® and Yankee Candle® | | Food and home storage products; fresh preserving products, vacuum sealing products 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 Appliances, Home and Outdoor Living, Learning and Development and Other.Ball®, TMs Ball Corporation, used under license.
This new structure reflects the manner in which the chief operating decision maker regularly assesses information for decision-making purposes, including the allocation of resources. All prior periods have been reclassifiedThe Company also provides general corporate services to conformits segments which is reported as a non-operating segment, Corporate. See Footnote 17 of the Notes to the current reporting structure.Consolidated Financial Statements for further information.
Appliances and Cookware
The
Company’s three primary operating segments are as follows: | | | | |
Segment
| | Key Brands
| | Description of Primary Products
|
Food and Appliances | | Ball®, Calphalon®,Crock-Pot®, FoodSaver®, Mr. Coffee®, Oster®, Rubbermaid®, Sistema® and Sunbeam® | | Household products, including kitchen appliances, gourmet cookware, bakeware and cutlery, food storage and home storage products and fresh preserving products |
Home and Outdoor Living | | Chesapeake Bay Candle®, Coleman®, Contigo®, ExOfficio®, First Alert®, Marmot®, WoodWick® and Yankee Candle® | | Products for outdoor and outdoor-related activities, home fragrance products and connected home and security |
Learning and Development | | Aprica®, Baby Jogger®, Dymo®, Elmer’s®, Expo®, Graco®, Mr. Sketch®, NUK®, Paper Mate®, Parker®, Prismacolor®, Sharpie®, Tigex® Waterman® andX-Acto® | | Writing instruments, including markers and highlighters, pens and pencils; art products; activity-based adhesive and cutting products; labeling solutions; baby gear and infant care products |
Food and Appliances
The Food and AppliancesCookware segment designs, manufactures, or sources, markets and distributes a diverse line of household products. Kitchen appliances and home environment products are primarily sold under theCrock-Pot®, FoodSaver® Crock-Pot®, Mr. Coffee®Coffee®, Oster®, Sistema®Oster® and Sunbeam®Sunbeam® trademarks. Aluminum and stainless steelstainless-steel cookware and bakeware are sold under the Calphalon®Calphalon® trademark. The FoodAppliances and AppliancesCookware segment also has rights to sell various small appliance products in substantially all of Europe under the Breville®Breville® brand name.
The Appliances and Cookware segment primarily markets its products directly to warehouse clubs, department stores, drug/grocery stores, home centers, mass merchants, specialty retailers, distributors and e-commerce companies.
Commercial Solutions
The Commercial Solutions segment designs, manufactures, sources, and distributes commercial cleaning and maintenance solutions products, closet and garage organization products; hygiene systems and material handling solutions primarily under the Quickie®, Mapa®, Rubbermaid®, Rubbermaid Commercial Products® and Spontex® trademarks. The Company also manufactures and distributes connected home and security products as well as smoke and carbon monoxide alarms mostly under the BRK® and First Alert® trademarks.
The Commercial Solutions segment primarily markets its products directly to warehouse clubs, department stores, home centers, commercial products distributors, mass merchants, specialty retailers, distributors, e-commerce companies, select contract customers and other professional customers.
Home Solutions
The Home Solutions segment designs, manufactures, sources, markets and distributes a diverse line of household products. Food storage products are sold primarily under the
Rubbermaid®FoodSaver®, Rubbermaid® and
Sistema®Sistema® trademarks. The
FoodCompany also sells certain home canning and
Appliances segment also utilizes an extensive licensing strategy to extend the reach of the brands across categories, geographies and strategic product extensions.The Food and Appliances segment primarily markets itsfood storage products directly to club, department store, drug/grocery, mass merchant, specialty retailers, distributors ande-commerce companies.
Home and Outdoor Living
The Home and Outdoor Living segment manufactures or sources, markets and distributes global consumer active lifestyle products for outdoor and outdoor-related activities, home fragrance products and home security products. Active lifestyle products are sold primarily under the Coleman®, Contigo®, ExOfficio® and Marmot® trademarks.Ball® trademark, pursuant to a license from Ball Corporation. Home fragrance products are sold primarily under the Chesapeake Bay Candle®Candle®, WoodWick®WoodWick® and Yankee Candle®Candle® trademarks. Home security products are sold primarily sold under the First Alert® trademark.
The Home
and Outdoor LivingSolutions segment primarily markets its products directly to
club,warehouse clubs, department
store, drug/stores, grocery
stores, home centers, mass
merchant, sporting goods andmerchants, specialty retailers, distributors and
e-commerce companies, as well as direct to consumers
viaon-lineonline and
in Yankee Candle retail stores.
The Learning and Development segment designs, manufactures,
or sources, markets and distributes writing instruments, including markers and highlighters, pens and pencils; art products; activity-based adhesive and cutting products; labeling solutions; baby gear and infant care products. Writing instruments, activity-based adhesive and cutting products and labeling solutions products are sold primarily under the
Dymo®Dymo®,
Elmer’s®Elmer’s®,
Expo®EXPO®, Mr.
Sketch®Sketch®, Paper
Mate®Mate®,
Parker®Parker®,
Prismacolor®Prismacolor®,
Sharpie®Sharpie®,
Waterman®Waterman® and
X-Acto® X-Acto® trademarks. Baby gear and infant care and health products are sold primarily under the Baby
Jogger®Jogger®,
Graco®Graco®,
NUK®NUK® and
Tigex®Tigex® trademarks.
The Learning and Development segment primarily markets its products directly to mass merchants, warehouse clubs, drug/grocery stores, office superstores, office supply stores, contract stationers, travel retail, distributors and
e-commerce companies, and direct to consumers
on-line. online.
Outdoor and Recreation
The Outdoor and Recreation segment designs, manufactures, sources, markets and distributes global consumer active lifestyle products for outdoor and outdoor-related activities. Active lifestyle products are sold primarily under the Coleman®, Contigo®, ExOfficio® and Marmot® trademarks.
The Outdoor and Recreation segment primarily markets its products directly to warehouse clubs, department stores, grocery stores, mass merchants, sporting goods and specialty retailers, distributors and e-commerce companies, as well as direct to consumers online.
See Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Annual Report on Form 10-K for further discussion.
The Company’s broad product offering in multiple categories permits it to more effectively meet the needs of its customers. With families of leading brand names and profitable and innovative new products, the Company can assist volume purchasers in selling a more profitable product mix. As a potential single source for an entire product line, the Company can use program merchandising to improve product presentation, optimize display space for both sales and income, and encourage impulse buying by retail consumers.
Raw Materials and Sourced Finished Goods
The Company has multiple foreign and domestic sources of supply for substantially all of its material requirements. The raw materials and various purchased components required for its products have generally been available in sufficient
quantities.quantities, although the Company did experience capacity constraints around certain raw materials and finished goods in 2020 driven largely by demand volatility related to the COVID-19 pandemic. The Company’s product offerings require the purchase of resin, corrugate, glass, plastic, expanded polystyrene, extinguisher powder, nylon, paper, plastic resin, sawdust, tin plate, wax and wood, natural rubber, electrical components, glass fiber, magnesium, adhesives, various paper-related packaging materials and metals, including steel, stainless steel, aluminum and copper. The Company’s resin purchases
are principally
comprisecomprised of polyethylene, polypropylene and copolyester.
The Company also relies on third-party manufacturers as a source for finished goods. Historically, the Company has experienced inflation in sourced product costs due to currency fluctuations and increased input and labor costs. For a limited number of product lines, a single manufacturer or a limited number of manufacturers may supply substantially all the finished goods for a product line. In particular, certain businesses within the Company’s Learning and Development segment rely on third-party manufacturers for substantially all of their products. Specifically, the Baby
divisionbusiness unit has a single source of supply for products that comprise a majority of
its sales and which owns the intellectual property for many of those products.
See Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this Annual Report on Form10-K for further discussion.
The dollar value of unshipped
factory orders is not material.
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 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.
In 2020, 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 the year, partially offset by positive performance during the second half of the year. The Company believes the seasonality of its businesses will revert back to historical patterns as the impact of the global pandemic lessens.
The Company has many patents, trademarks, brand names and
trade namestradenames that are, in the aggregate, important to its business. The Company’s most significant registered trademarks include
Sharpie®Aprica®, Baby Jogger®, Calphalon®, Campingaz®, Coleman®, Contigo®, Crock-Pot®, Dymo®, Elmer’s®, EXPO®, First Alert®, FoodSaver®, Graco®, Mapa®, Marmot®, Mr. Coffee®, NUK®, Oster®, Paper
Mate®Mate®,
Elmer’s®Parker®,
Parker®, Waterman®, Dymo®, Prismacolor®Quickie®, Rubbermaid
® Commercial Products®,
Contigo®Rubbermaid®,
Calphalon®Sistema®,
Graco®Spontex®,
Baby Jogger®Sunbeam®,
NUK®WoodWick®,
Aprica®, Bionaire®, Coleman®,Crock-Pot®, First Alert®, FoodSaver®, Health o Meter®, Marmot®, Mr. Coffee®, Oster®, Rival®, Stearns®, Sistema®, Sunbeam®, Woodwick®Sharpie® and Yankee
Candle®Candle®.
The Company’s principal customers are large mass merchandisers, such as discount stores, home centers, warehouse clubs, office superstores,
direct-to-consumer channels, specialty retailers and wholesalers, commercial distributors
e-commerce companies and
Yankee Candle retail stores.e-commerce companies. The dominant share of the market represented by large mass merchandisers, together with consumer shopping patterns, contributes to a market environment in which dominant multi-category retailers and
e-commerce companies have strong negotiating power with suppliers. This environment may limit the Company’s ability to recover cost increases through
selling prices.pricing.
Current trends among retailers ande-commerce companies include fostering high levels of competition among suppliers, reducing current inventory levels, demanding innovative new products and products tailored to each of their unique requirements and requiring suppliers to maintain or reduce product prices and deliver products with shorter lead times. Other trends, in the absence of a strong new product development effort or strongend-user brands, are for retailers ande-commerce companies to import generic products directly from foreign sources and to source and sell products under their own private label brands, which compete with the Company’s products. The combination of these market influences has created an intensely competitive environment in which the Company’s principal customers continuously evaluate which product suppliers to use, resulting in downward pricing pressures and the need for big, consumer-meaningful brands, the ongoing introduction and commercialization of innovative new products, continuing improvements in category management and customer service, and the maintenance of strong relationships with large, high-volume
purchasers. The Company competes with numerous manufacturers and distributors of consumer products, many of which are large and well-established. Our Yankee Candle retail stores compete primarily with specialty candle and personal care retailers and a variety of other retailers, including department stores, gift stores and national specialty retailers that carrysells candles.
The Company’s principal methods of meeting its competitive challenges are creating and maintaining leading brands and differentiated products that deliver superior value and performance; delivering superior customer service and consistent
on-time delivery and producing and procuring products at a competitive cost. In addition, the Company has experienced management that focuses on building consumer loyalty and increased consumer demand through increased investment in consumer insights and using those insights to develop innovative products and product features that meet consumers’ needs.
The Company has also positioned itself to respond to the competitive challenges in the retail environment by developing strong relationships with large, high-volume purchasers. The Company markets its strong multi-product offering through virtually every category of high-volume retailers, including discount, drug/grocery and variety chains; warehouse clubs; department, hardware and specialty stores; home centers; office superstores; contract stationers; ande-commerce companies. The Company’s largest customer, Walmart Inc. and subsidiaries (“Walmart”), accounted for approximately 13.5%, 13.7% and 13.5%15% of net sales in 2020, 2019 and 2018. Amazon, the Company's second largest customer, accounted for 12%, 9%, and 8% of net sales in 2020, 2019 and 2018, 2017 and 2016, respectively, across substantially all segments.respectively. The Company’stop-ten customers in 20182020 included (in alphabetical order): amazon,Amazon, Bed, Bath & Beyond, Costco, Lowe’s, Kroger, Office Depot, Staples, Target, The Home Depot and Walmart.
Information regarding the Company’s environmental matters is included in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this Annual Report on Form
10-K and in Footnote
2018 of the Notes to Consolidated Financial Statements and is incorporated by reference herein.
The Company’s research and development efforts focus on developing new, differentiated and innovative products to meet consumers’ needs. The Company’s product development efforts begin with consumer insights. The Company continues to invest to strengthen its product design, research and development capabilities and has consolidated its design and innovation capabilities and consumer marketing and insight capabilities into a global center of excellence to further strengthen these capabilities.
Human Capital Management
Newell Brands is committed to creating a workplace where it supports the success of its people by investing in their personal development and career growth. The Company’s enhanced marketing and insight and research and development capabilities have been leveraged to implement a new ideation processCompany has employees located throughout the world. At December 31, 2020, the Company employed approximately 31,000 people worldwide. Approximately 3,300 were in the Asia-Pacific region, 4,600 were in the Europe, Middle East and Africa region, 7,700 were in the Latin America region and 15,400 were in the North America region. Of the Company's total employees, approximately 16,000 were employed in manufacturing and supply chain roles. The Company's strong employee base, along with its commitment to uncompromising values, provides the foundation of the Company’s success.
The Company's employees are responsible for upholding the Company's goal of creating a safer, sustainable, productive, and consumer-focused future. The Company's values of Transparency, Truth, Trust and Teamwork guide our own actions as well as our relationships with consumers, customers, suppliers and each other. They are grounded in a people-first philosophy enabling the Company to deliver results, drive long-term sustainability and promote a winning culture. The Company tracks and reports internally on key talent metrics including workforce demographics, critical role pipeline data, diversity data, and engagement and inclusion indices.
The Company embraces diversity, inclusion and belonging, and strongly believes that a truly consumer-focused workforce should be as diverse as the customers it serves and leverage the skills and perspectives of a wealth of backgrounds of all team members. To attract a global and diverse workforce, the Company strives to build a culture where employees can bring their whole selves to work. Employee resource groups (“ERGs”) are Company-sponsored groups of employees that support and promote certain mutual objectives of both the employees and the Company, including inclusion and diversity and the professional development of employees. The ERGs provide a space where employees can foster connections and develop in a supportive environment. At December 31, 2020, the Company had five ERGs:
•BEACON (Black and African ancestry);
•RAY (Women);
•OPEN (LGBTQ);
•NAAPA (Asian-American); and
•HOLA (Hispanic and Latinx).
The Company is focused on recruitment of diverse candidates and on internal talent development of its diverse leaders so they can advance their careers and move into leadership positions within the Company. The Company has adopted a policy requiring diverse slates for recruitment at the Director level and above. Also, during 2019, the Company conducted a fully digital, enterprise-wide engagement survey, which was given to all professional and clerical employees (excluding factory or hourly employees) and was available in 12 languages, which focused on measuring engagement and inclusion.
The Company continues to emphasize employee development and training, and strives to align and deliver its People Agenda with its business resulting in idea fragments that feedstrategies to recruit, develop and retain the right talent, skills and capabilities to deliver on its commitments. To empower employees, the Company provides a range of development programs and opportunities, skills, and resources needed to be successful. Our Grow@Newell eLearning platform, which is an online portal, supplements the Company's talent development strategies with access to instructor-led classroom or virtual courses and self-directed web-based courses. The Company has a robust talent and succession planning process and has established specialized programs to support the development of product concepts.Employees
As of December 31, 2018,its talent pipeline for critical roles in general management, engineering, and operations. On an annual basis, the Company had approximately 37,000conducts an Organization and Leadership Review process with its chief executive officer and all segment, business unit, and function leaders focusing on high -performing and high-potential talent, diverse talent, and the succession for its most critical roles.
The Company believes its management team has the experience necessary to effectively execute its strategy and advance its product and technology leadership. The Chief Executive Officer and Executive Committee Team have meaningful industry experience. They partner and work closely with an experienced and talented management team who is dedicated to maintaining and expanding our position as a global leader in the consumer products industry. For discussion of the risks relating to the attraction and retention of key management and executive employees, worldwide. Approximately 2,400see the “Risk Factors” section below.
ITEM 1A. RISK FACTORS
Ownership of the Company’s
employees are covered by collective bargaining agreements or are located in countries that have collective arrangements decreed by statute. Management believes that our relationships with our employees and collective bargaining unions are satisfactory.ITEM 1A. RISK FACTORS
The ownership of the Company’s common stocksecurities involves a number of risks and uncertainties. Potential investors should carefully consider the risks and uncertainties described below and the other information in this Annual Report on Form10-K before deciding whether to invest in the Company’s securities. The Company’s business, financial condition or results of operations could be materially adversely affected by any of these risks. The risks described below are not the only ones facing the Company. Additional risks that are currently unknown to the Company or that the Company currently considers to be immaterial may also impair its business or adversely affect its financial condition or results of operations.
The Company is subject to risks related to its dependence on
COVID-19 Related Risks
We must successfully manage the strength of retail, commercialdemand, supply, and industrial sectorsoperational challenges associated with the actual or perceived effects of the economy in various partsCOVID-19 pandemic or any other disease outbreak, including epidemics, pandemics, or similar widespread public health concerns.
Our business may be unfavorably impacted by the fear of exposure to or actual effects of the
world.The Company’s business depends on the strength of the retail, commercial and industrial sectors of the economy in various parts of the world, primarily in North America, and to a lesser extent Europe, Latin America and Asia. These sectors of the economy are affected primarily by factorsCOVID-19 pandemic or any other disease outbreak, epidemic, pandemic, or similar widespread public health concern, such as consumerreduced travel or recommendations or mandates from governmental authorities to cease particular business activities. These impacts include, but are not limited to:
•Significant reductions or volatility in demand for one or more of our products, which may be caused by, among other things: the temporary inability of consumers to purchase our products due to illness, store closures, school closures or delayed opening for schools and other higher education programs, quarantine or other travel restrictions, or financial hardship among customers, retailers and consumers, shifts in demand away from one or more of our more discretionary or higher priced products to lower priced products, or stockpiling; if prolonged, such impacts can further increase the condition of the retail industry,difficulty in planning our operations, which in turn, can be affected by specific events or general economic conditions, including worldwide or country-specific economic instability.For example, uncertainty over the terms and timing of the United Kingdom’s departure from the European Union has caused political and economic uncertainty in the United Kingdom and the rest of Europe, which could harm consumer demand and ultimatelymay adversely impact the Company’s business. Likewise, the failure of large employersour results, liquidity and financial condition;
•Inability to consistently pay workers similarmeet our customers’ needs and achieve cost targets due to what recently occurred during the partial U.S. federal government shutdown, could also adversely affect consumer demand and the Company’s business. Similarly, with continuing challenging global economic conditions, particularly outside of the U.S., and recent volatilitydisruptions in domestic and foreign equity markets, there has been considerable pressure on consumer demand, and the resulting impact
on consumer spending has had and may continue to have an adverse effect on demand for the Company’s products,our manufacturing operations, supply arrangements as well as itsdistribution centers caused by the loss or disruption of essential manufacturing and supply elements such as raw materials or other finished product components, transportation, workforce, or other manufacturing and distribution capability including as a result of governmental mandates to close certain of our manufacturing and distribution facilities;
•Failure of third parties on which we rely, including our suppliers, contract manufacturers, distributors, contractors, commercial banks, joint venture partners and external business partners, to meet their obligations to the Company, or significant disruptions in their ability to do so, which may be caused by their own financial or operational difficulties, which may adversely impact our operations, liquidity and financial condition; or
•Significant changes in the political and labor conditions in markets in which we manufacture, sell or distribute our products, including quarantines, governmental or regulatory actions, closures or other restrictions that limit or close our manufacturing, distribution, research and development and retail facilities; restrict our employees’ ability or willingness to travel or perform necessary business functions, or otherwise prevent our facilities or our third-party partners, suppliers, or customers from sufficiently staffing operations, including operations necessary for the production, distribution, sale, and support of our products, which could adversely impact our results, liquidity and financial condition.
There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and, as a result, the ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change. We do not yet know the full extent of the impacts on our business, our operations or the global economy as a whole. Despite our efforts to manage and remedy these impacts to the Company, the ultimate impact of the COVID-19 pandemic could materially and adversely impact our business, results of operations, liquidity and financial condition, and depends on factors beyond our knowledge or control. In this regard, the extent of the impact of the pandemic on our business, operating results, cash flows, liquidity and financial conditions will be primarily driven by the duration and severity of operations. The Company could also be negatively impacted by economic crises in specific countries or regions. Such events could negativelythe COVID-19 pandemic, its impact on the Company’s overall liquidity and/or create significant credit risks relative to its local customersU.S. and depository institutions. Consumer demandglobal economies and the conditiontiming, scope and effectiveness of these sectorsfederal, state and local governmental plans to administer vaccines to the general public, especially in areas where conditions have recently worsened and lockdowns or travel bans have been reinstituted.
We have experienced significant COVID-19-related disruptions to our businesses, and if we experience future disruption in the near-to-medium term, we may be unable to maintain compliance with the financial covenants or borrowing base requirements in certain of our debt facilities.
Under the terms of certain of our debt facilities, including the Securitization Facility and Credit Revolver, we are required to comply with certain financial covenants or satisfy certain borrowing basis requirements. As a result of the economyCOVID-19 pandemic, our operations have been and could be further disrupted, and if such disruptions significantly interfere with our operations in the near-to-medium term, we may also be impacted bynot be able to satisfy such requirements. In such a situation, we may choose to seek covenant waivers or other external factors such as war, terrorism, geopolitical uncertainties, public health issues, natural disastersrelief from the lenders under our debt facilities.
Covenant waivers may result in additional fees associated with obtaining the waiver, or our being subject to increased interest rates, additional restrictive covenants and other
business interruptions. The impactlender protections under our debt facilities. Our ability to provide additional lender protections under these facilities, including the granting of
these external factors is difficultsecurity interests in collateral, will be limited by the existing restrictions applicable to
predict, andthe Company under the various documents governing our indebtedness. There can be no assurance that we would be able to obtain future waivers in a timely manner, on acceptable terms or at all. If we were not able to obtain a covenant waiver under any one or more of these
factorsdebt facilities, if and when necessary, we could
adversely impactbe in default of such agreements, which could result in cross defaults to our other debt agreements and potential acceleration of amounts due under all of our outstanding debt and derivative contract liabilities. In such a situation, we would need to refinance or repay the
Company’s business.applicable debt facility or facilities and would be required to raise additional debt or equity capital, or divest assets, to refinance or repay such facility or facilities. If we were to be unable to obtain a covenant waiver in the future under any one or more of these debt facilities, there can be no assurance that we would be able to raise sufficient debt or equity capital, or divest assets, to refinance or repay such facility or facilities. As a result, the inability to obtain covenant waivers described above would have a material adverse effect on the Company.
Industry and Economic Risks
The Company is subject to intense competition in a marketplace dominated by large retailers and
e-commerce companies.
The Company competes with numerous other manufacturers and distributors of consumer and commercial products, many of which are large and well-established.
A proliferation of digitally native brands has further intensified the competitive landscape. The Company’s principal customers are large
retailers such asmass merchandisers, discount stores, home centers, warehouse clubs, office superstores,
specialty retailers, wholesalers, commercial distributors,
direct-to-consumer channels, and
e-commerce companies. The dominant share of the market represented by these large
mass merchandisers,retailers, together with changes in consumer shopping patterns, has contributed to the formation of dominant multi-category retailers and
e-commerce companies that have strong negotiating power with suppliers. Current trends among retailers and
e-commerce companies include fostering high levels of competition among suppliers, reducing inventory levels, demanding innovative new products and products tailored to each of their unique requirements, requiring suppliers to maintain or reduce product prices in response to competitive, economic or other factors, and requiring product delivery with shorter lead times. Other trends are for retailers and
e-commerce companies to import products directly from foreign sources and to source and sell products under their own private label brands, typically at lower prices, that compete with the Company’s products.
The combination of these market influences and retailer consolidation has created an intensely competitive environment in which the Company’s principal customers continuously evaluate which product suppliers to use, resulting in downward pricing pressures and the need for
big, consumer-meaningful brands, the ongoing introduction and commercialization of innovative new products, continuing improvements in category management and customer service, and the maintenance of strong relationships with large, high-volume purchasers. The Company also faces the risk of changes in the strategy or structure of its major customers, such as overall store and inventory reductions. The intense competition in the retail and
e-commerce sectors may result in a number of customers experiencing financial difficulty or failing in the future.
For example, the Company’s results were impacted negatively by the bankruptcy and liquidation of Toys ‘R’ Us. In particular, a loss of, or a failure by, another one of the Company’s large customers could adversely impact the Company’s sales and operating cash flows. To address these challenges, the Company must be able to respond to competitive factors, and the failure to respond effectively could result in a loss of sales, reduced profitability and a limited ability to recover cost increases through price increases.
The Company’s customers may further consolidate, which could materially adversely affect the Company’s sales and margins.
The Company’s customers have steadily consolidated over the last two decades. The Company expects any customers that consolidate will take actions to harmonize pricing from their suppliers, close retail outlets, reduce inventory, and rationalize their supply chain, which could adversely affect the Company’s business and results of operations. There can be no assurance that, following consolidation, the Company’s large customers will continue to buy from the Company across different product categories or geographic regions, or at the same levels as prior to consolidation, which could negatively impact the Company’s financial results. Further, if the consolidation trend continues, it could result in future pricing and other competitive pressures that could reduce the Company’s sales and margins.
Strategic and Operational Risks
The Company’s sales are dependent on purchases
fromby several large customers and any significant decline in these purchases or pressure from these customers to reduce prices could have a negative effect on the Company’s future financial performance.
The Company’s customer base is relatively fragmented. Although the Company has long-established relationships with many customers, the Company generally does not have any long-term supply or binding contracts or guarantees of minimum purchases with its largest customers.
PurchasesPurchase commitments by these customers are generally made using individual purchase orders. As a result, these customers may cancel their orders, change purchase quantities from forecast volumes, delay purchases for a number of reasons beyond the Company’s control or change other terms of the business relationship. Significant or numerous cancellations, reductions, delays in purchases or changes in business practices by customers could have a material adverse effect on the Company’s business, results of operations and financial condition. In addition, because many of the Company’s costs are fixed, a reduction in customer demand
due to decreased sales to end customers could have an adverse effect on the Company’s gross profit margins and operating income.
The retail landscape in many of the Company’s markets continues to be impacted by the rapid growth of e-commerce retailers, changing consumer preferences (as consumers increasingly shop online) and the emergence of alternative retail channels, such as subscription services and direct-to-consumer businesses. The rapid growth in e-commerce and emergence of alternative retail channels may adversely affect the Company’s relationships with its key retailers, whereby the number of products it sells will no longer be a reliable indicator of the amount of future business the Company can expect.
The Company depends on a continuous flow of new orders from large, high-volume retail customers; however, the Company may be unable to continually meet the needs of these customers. Retailers are increasing their demands on suppliers to:
•reduce lead times for product delivery, which may require the Company to increase inventories and could impact the timing of reported sales;
•improve customer service, such as with direct import programs, whereby product is supplied directly to retailers from third-party suppliers; and
•adopt technologies related to inventory management such as Radio Frequency Identification, otherwise known as RFID technology, which may have substantial implementation costs.
The Company cannot provide any assurance that it can continue to successfully meet the needs of its customers.customers or that customer demand will remain consistent. A substantial decrease in sales to any of its major customers and an inability to adapt to the emergence of alternative retail channels could have a material adverse effect on the Company’s business, results of operations and financial condition.
The Company’s customers may further consolidate, which could materially adversely affect the Company’s sales and margins.
The Company’s customers have steadily consolidated over the last two decades. The Company expects any customers that consolidate will take actions to harmonize pricing from their suppliers, close retail outlets and rationalize their supply chain, which could adversely affect the Company’s business and results of operations. There can be no assurance that, following consolidation, the Company’s large customers will continue to buy from the Company across different product categories or geographic regions, or at the same levels as prior to consolidation, which could negatively impact the Company’s financial results. Further, if the consolidation trend continues, it could result in future pricing and other competitive pressures that could reduce the Company’s sales and margins and have a material adverse effect on the Company’s business, results of operations and financial condition.
The Company’s plans to integrate its acquired businesses and to improve productivity and reduce complexity and costs may not be successful, which would materially adversely affect its ability to compete.
The Company’s success depends on its ability to integrate acquired businesses, to continuously improve its manufacturing operations to gain efficiencies, reduce supply chain costs and streamline or redeploy nonstrategic selling, general and administrative expenses in order to produce products at a best-cost position and allow the Company to invest in innovation and brand building, including advertising and promotion. The Company’s Accelerated Transformation Plan and the Company’s cost saving plans may not be completed substantially as planned, may be more costly to implement than expected, or may not result in, in full or in part, the positive effects anticipated. Both efforts are global initiatives designed to reduce the complexity of the organization and increase investment in the Company’s most significant growth platforms, including through divestment of the Company’s industrial and commercial product assets andnon-core consumer businesses. It is also possible that other major productivity, streamlining and divestment programs may be required in the future. Also, the Company may not be able to successfully integrate acquired businesses, product lines, obtain related cost savings, or make operating income improvements within a reasonable amount of time. Such initiatives require the Company to implement a significant amount of organizational change, which could have a negative impact on employee engagement, divert management’s attention from other concerns, and if not properly managed, impact the Company’s ability to retain key employees, cause disruptions in the Company’sday-to-day operations and have a negative impact on the Company’s financial results.
If the Company is unable to commercialize a continuing stream of new products that create demand, the Company’s ability to compete in the marketplace may be adversely impacted.
The Company’s strategy includes investment in new product development and a focus on innovation. Its long-term success in the competitive retail environment and the industrial and commercial markets depends on its ability to develop and commercialize a continuing stream of innovative new products and line extensions that create demand.
The Company’s ability to quickly innovate in order to adapt its products to meet changing consumer demands is essential, especially in light of e-commerce significantly reducing the barriers for even small competitors to quickly introduce new brands and products directly to consumers. New product development and commercialization efforts, including efforts to enter markets or product categories in which the Company has limited or no prior experience, have inherent risks. These risks include the costs involved, such as development and commercialization, product development or launch delays, and the failure of new products and line extensions to achieve anticipated levels of market acceptance or growth in sales or operating income. The Company also faces the risk that its competitors will introduce innovative new products that compete with the Company’s products. In addition, sales generated by new products or line extensions could cause a decline in sales of the Company’s existing products. If new product development and commercialization efforts are not successful, the Company’s financial results could be adversely affected.
If the Company does not continue to develop and maintain leading brands or realize the anticipated benefits of increased advertising and promotion spend
over the long term, its operating results may suffer.
The Company’s ability to compete successfully also depends increasingly on its ability to develop and maintain leading brands so that the Company’s retail and other customers will need
the Company’sits products to meet consumer demand. Leading brands allow the Company to realize economies of scale in its operations. The development and maintenance of such brands require significant investment in brand-building and marketing initiatives. While the Company plans
to continue to increase its expenditures for advertising and promotion and other brand-building and marketing initiatives over the long term, the initiatives may not deliver the anticipated results and the results of such initiatives may not cover the costs of the increased investment.
Circumstances associated with divestitures and product line exits under the Accelerated Transformation Plan could adversely affect
Failure to further expand the Company’s
results of operations and financial condition.On January 25, 2018, the Company announced that it will explore a series of strategic initiatives to accelerate its transformation plan, improve operational performance and enhance shareholder value (the “Accelerated Transformation Plan”). The components of that plan included exploring the sale of a number of its industrial, commercial and small consumer businesses such as The Waddington Group; Process Solutions; Rubbermaid Commercial Products; Mapa; Rawlings Sporting Goods Company, Inc., Goody Products, Inc., Rubbermaid Outdoor, Closet, Refuse and Garage; and The U.S. Playing Card Company. On May 4, 2018, the Company announced the expansion of its Accelerated Transformation Plan, adding Jostens and Pure Fishing to the list of divestitures previously announced.
Pursuant to this plan, the Company sold the Rawlings Sporting Goods Company, Inc., The Waddington Group, Goody Products, Inc., Pure Fishing and Jostens during 2018. The Company is continuing the divestiture process in 2019 and may decide to sell or discontinue other businesses or products in the future based on an evaluation of performance and strategic fit. Divestitures or discontinuations of businesses or products may result in asset impairments, including those related to goodwill and other intangible assets, and losses upon disposition, both of which could have an adverse effect on the Company’s results of operations and financial condition. In addition, the Company may encounter difficulty in finding buyers or executing alternative exit strategies at acceptable prices and terms and in a timely manner and prospective buyers may have difficulty obtaining financing. Divestitures ande-commerce business, discontinuations could involve additional risks, including the following:
difficulties in the separation of operations, services, products and personnel;
the diversion of management’s attention from other business concerns;
the retention of certain current or future liabilities in order to induce a buyer to complete a divestiture;
the disruption of the Company’s business; and
the potential loss of key employees.
The Company may not be successful in managing these or any other significant risks that it may encounter in divesting or discontinuing a business or exiting product lines, which could have a material adverse effect on its business.
Failure to grow the Company’sdespite increasing e-commerce business, and the cost of its increasinge-commerce investments, may materially and adversely affect the Company’s market position, net sales and financial performance.
The retail industry
ishas rapidly
evolvingevolved and consumers
are increasingly embracinghave embraced shopping online and through mobile commerce applications. As a result, the portion of total consumer expenditures with retailers occurring through digital platforms is increasing, and the pace of this increase
could accelerate.has accelerated. At the same time, the portion of retail business at traditional “brick and mortar” stores and shopping centers is decreasing.
The Company’s
Accelerated Transformation Plan,strategy includes investments in
e-commerce, and investments in technology
initiatives may notinitiatives. If these investments fail to adequately or effectively allow the Company to
growfurther expand its
e-commerce business, maintain or grow its overall market position or otherwise benefit the
Company. As a result,Company, the Company’s market position, net sales and financial performance could be adversely affected. In addition, a greater concentration of
e-commerce sales could result in a reduction in the amount of sales by the Company’s other customers, which could, if not offset by a greater increase in
e-commerce sales, materially adversely affect the business of the Company.
Furthermore, the cost of certain
e-commerce and technology investments may adversely impact the Company’s financial performance in the
short-termshort and
may adversely impact its financial performance over the longer term.long-term. There can be no assurance that investments in
e-commerce infrastructure and technology will result in increased sales, through
e-commerce or otherwise.
If we fail
The Company’s plans to remediateexecute its turnaround plan, improve productivity, reduce complexity and costs may not be successful, which would materially adversely affect its financial results.
The Company is executing a turnaround plan to build a global, next generation consumer products company that can unleash the
material weaknessfull potential of its brands in
our internal control over financial reportinga fast-moving omni-channel environment. The Company is implementing various global initiatives in connection with the turnaround plan to reduce costs and improve cash flows. These initiatives are designed to reduce the complexity of the organization, improve the Company’s cash conversion cycle and increase investment in the Company’s most significant growth platforms. These initiatives are further designed to reduce costs associated with direct materials, indirect expenses, and distribution and logistics, among other things. These initiatives may not be completed substantially as planned, may be more costly to implement than expected, or
are unable to maintain effective internal control over financial reporting, it couldmay not result in,
material misstatements in
our financial statements,full or in part, the positive effects anticipated. Other major productivity, streamlining and
our failuredivestment programs may also be required in the future to
meet our reporting and financial obligations,continue the turnaround plan. Such programs may require the Company to implement a significant amount of organizational change, which
in turn could have a negative impact on
our financial condition.In connection withemployee engagement, divert management’s attention from other concerns, and if not properly managed, impact the preparation of our Consolidated Financial Statements for the year ended December 31, 2018, management conducted an evaluation of the effectiveness of our disclosure controls and procedures and internal control over financial reporting and concluded that the disclosure controls and procedures and internal control over financial reporting were not effective as of December 31, 2018 dueCompany’s ability to a material weakness in internal control over financial reporting. The Company did not design and maintain effective controls over the accounting for the impact of divestitures. Specifically, the Company did not design and maintain effective controls to ensure deferred taxes were included completely and accuratelyretain key employees, cause disruptions in the carrying values of assets held for sale and the intraperiod tax allocation between continuing and discontinued operations was accurate. In addition, the Company did not design and maintain effective controls to ensure the current/noncurrent classification of assets held for sale was accurate. These deficiencies resulted in adjustments that were corrected in the assets and liabilities held for sale; loss from discontinued operations, net of tax; net loss and deferred income taxes accounts to the Company’s condensed consolidated financial statements for the quarter ended September 30, 2018, the income tax benefit to continuing operations; loss from continuingday-to-day operations and loss from discontinued operations, net of tax for the quarter and year ended December 31, 2018 as well as in the current/non-current classification of assets and liabilities held for sale in the prior year balance sheet, as presented in the December 31, 2018 financial statements. Additionally, these control deficiencies could result in a misstatement of the aforementioned accounts and disclosures that would result in a material misstatement of the annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, the Company’s management has determined that these control deficiencies constitute a material weakness.
Under standards established by the PCAOB, a material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Management is in the process of developing a full remediation plan and has begun enhancing certain controls to include refinements and improvements to the controls over the inputs used in divestiture calculations, as follows:
enhancing the level of review of deferred tax balances for each business held for sale;
supplementing the review of deferred tax balances by legal entity to ensure proper presentation for financial reporting purposes; and
enhancing the held for sale footnote reconciliation process.
The material weakness will not be considered remediated until management designs and implements effective controls that operate for a sufficient period of time and management has concluded, through testing, that these controls are effective. The Company will monitor the effectiveness of its remediation plan and will refine its remediation plan, as needed.
We can give no assurance that the measures we take will remediate the material weakness or that additional material weaknesses will not arise in the future. Any failure to remediate the material weakness, or the identification of new material weaknesses in our internal control over financial reporting, could result in material misstatements in our financial statements that may continue undetected, negatively impact the public perception of the Company and our securities and cause us to fail to meet our reporting and financial obligations or incur significant additional costs to remediate the material weakness, each of which could harm our ability to raise capital on favorable terms in the future or otherwise have a negative impact on ourthe Company’s financial condition.
Theresults. Further, the Company has substantial indebtedness which could materiallypursued and adversely affect the Company and its financial position, including decreasing its business flexibility, impacting its ratings and increasing its borrowing costs.
As of December 31, 2018, the Company had $7 billion in outstanding debt. During 2018, the Company reduced its debt from $10.6 billion and views paying down debt as a critical goal as the Company completes the divestitures contemplated under the Accelerated Transformation Plan. This is because the Company’s substantial indebtedness has had, and couldmay continue to have, important consequences for the Company, including:
requiringpursue acquisitions of brands, businesses, or technologies from third parties. The Company’s success depends on its ability to integrate such acquired brands, businesses, or technologies, to continuously improve its manufacturing operations to gain efficiencies, to reduce supply chain costs and to streamline and redeploy nonstrategic selling, general and administrative expenses in order to produce products at a best-cost position and allow the Company to dedicateinvest in innovation and brand building, including advertising and promotion. Future acquisitions could result in substantial additional debt, exposure to contingent liabilities, such as litigation or earn-out obligations, the potential impairment of goodwill or other intangible assets, or significant integration and transaction costs.
The Company’s operations are dependent upon third-party vendors and suppliers whose failure to perform adequately could disrupt the Company’s business operations.
The Company currently sources a substantialsignificant portion of parts and products from third parties. The Company’s ability to select and retain reliable vendors and suppliers who provide timely deliveries of quality parts and products will impact the Company’s success in meeting customer demand for timely delivery of quality products. In some cases, the Company does not enter into long-term contracts with its cash flow from operationsprimary vendors and suppliers, instead buying parts and products on a “purchase order” basis. As a result, the Company may be subject to payments on its indebtedness, which reducesunexpected changes in pricing or supply of products.
The ability of third-party suppliers to timely deliver finished goods and/or raw materials, and the availability of its cash flow to fund working capital requirements, capital expenditures, future acquisitions, dividends, repurchasesability of the Company’s common stockown facilities to timely deliver finished goods, may be affected by events beyond their control, such as inability of shippers to timely deliver merchandise due to work stoppages or slowdowns, demand volatility or port congestion, unavailability of shipping containers or other equipment, or significant weather and other general corporate purposes;
limiting the Company’s flexibility in planning for, health conditions affecting manufacturers and/or reacting to,shippers. Any adverse business and economic conditions or changeschange in the Company’s business and the industries in which it operates;
placing the Company at a competitive disadvantage compared torelationships with its competitors that have less debt; and
limiting, along withthird-party suppliers, the financial condition of third-party suppliers, the ability of third-party suppliers to manufacture and nonfinancial covenants indeliver outsourced parts or products on a timely basis, or the Company’s debt documents, its ability to borrow additional funds.
In addition, if the Company is unable to timely reduceimport products from third-party suppliers or its level of indebtedness, the Company will be subject to increased demands on its cash resources, which could increase its totaldebt-to-capitalization ratios, decrease its interest coverage ratios, lower its credit ratings, result in a breach of covenants or otherwise adversely affect the business and financial results of the Company going forward.
An increase in interest ratesown facilities could have a material adverse effect on the Company’s business.
Whilebusiness, results of operations and financial condition.
In addition, the vast majorityfinancial condition of the Company’s debtvendors and suppliers may be adversely affected by general economic conditions, such as credit difficulties and the uncertain macroeconomic environment in recent years. In addition, in some instances the Company maintains single-source or limited-source sourcing relationships, either because multiple sources are not available or the relationship is fixed, fluctuationsadvantageous due to performance, quality, support, delivery, capacity or price considerations. For example, certain businesses in interest rates can increase borrowing costs on the portionBaby business unit have a single source of supply for products that is variablecomprises a majority of their sales and interest rate increases on this portionwhich owns intellectual property rights in respect of many of those products. As another example, certain products manufactured by the Connected Home and Security business unit rely upon a single source for a key component part, and alternative sources for that component part are limited. Should any of these single source suppliers fail to manufacture sufficient supply, temporarily close their factories as a result of government mandates or other circumstances, go out of business or discontinue a particular component, the Company may not be able to find alternative vendors and suppliers in a timely manner, if at all. Any inability of the company’s debtCompany’s vendors and suppliers to timely deliver quality parts and products or any unanticipated change in supply, quality or pricing of products could be disruptive and costly to the Company. The Company cannot assure you that it could quickly or effectively replace any of its suppliers if the need arose, and the Company cannot assure you that it could retrieve tooling and molds possessed by any of its third-party suppliers. The Company’s dependence on these few suppliers could also adversely affect its ability to react quickly and effectively to changes in the market for its products.
A cyber-attack or failure of one or more key information technology systems, networks, processes, associated sites or service providers could have a material adverse effectimpact on the Company’s business or reputation.
The Company relies extensively on information technology (“IT”) systems, networks and services, including Internet sites, data hosting and processing facilities and tools and other hardware, software and technical applications and platforms, some of which are managed, hosted, provided and/or used by third parties or their vendors, to assist in conducting business. In responseThe various uses of these IT systems, networks and services include, but are not limited to:
•ordering and managing materials from suppliers;
•converting materials to finished products;
•shipping products to customers;
•marketing and selling products to consumers;
•collecting and storing customer, consumer, employee, investor and other stakeholder information and personal data, including data that may be subject to the last global economic recession, extraordinary monetary policy actionsGeneral Data Protection Regulation of the U.S. Federal ReserveEuropean Union (“GDPR”), the California Consumer Privacy Act (“CCPA”) or General Law for Protection of Personal Data (“LGPD”) of Brazil;
•processing transactions;
•summarizing and reporting results of operations;
•hosting, processing and sharing confidential and proprietary research, business plans and financial information;
•complying with regulatory, legal or tax requirements;
•providing data security; and
•handling other processes necessary to manage the Company’s business.
Increased IT security threats and cyber-crime, including advanced persistent threats, computer viruses, ransomware, other types of malicious code, hacking, phishing and social engineering schemes designed to provide access to the Company’s networks or data, pose a potential risk to the security of the Company’s IT systems, networks and services, as well as the confidentiality, availability and integrity of the Company’s data. Cyber threats are becoming more sophisticated, are constantly evolving and are being made by groups and individuals with a wide range of expertise and motives, and this increases the difficulty of detecting and successfully defending against them. The Company deploys technical and organizational measures to protect and prevent unauthorized access to or loss of data, however, as techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until launched against a target, the Company may be unable to anticipate these techniques or implement preventive measures. Furthermore, the Company’s relationships with, and access provided to, third parties and their vendors may create difficulties in anticipating and implementing adequate preventive measures or fully mitigating harms after an attack or breach occurs.
The Company cannot guarantee that its security efforts will prevent attacks and resulting breaches or breakdowns of the Company’s, or its third-party service providers’ databases or systems notwithstanding whether the Company takes reasonable steps to prevent such attacks. The Company’s operations, especially its retail operations, involve the storage and transmission of employees’, customers’ and consumers’ proprietary information, such as credit card and bank account numbers. The Company’s payment services may be subject to credit card and other central banking institutions,payment fraud schemes, including unauthorized use of credit cards, debit cards or bank account information, identity theft or merchant fraud. If the utilizationIT systems, networks or service providers relied upon fail to function properly, or if the Company suffers a loss or disclosure of quantitative easing, were takencustomers’ and consumers’ data, business or stakeholder information, due to createany number of causes, ranging from catastrophic events to power outages to security breaches, or the inability to effectively address these failures on a timely basis, the Company may suffer interruptions in its ability to manage operations, a risk of government enforcement action, litigation and maintainpossible liability, and reputational, competitive and/or business harm, which may
adversely impact the Company’s results of operations and/or financial condition. In addition, if the Company’s service providers, suppliers or customers experience a
low interest rate environment. However, the U.S. Federal Reserve raised its benchmark interest rate nine times since December 2015, each time by a quarter of a percentage point. While it is unclear whether the U.S. Federal Reserve will maintain this pattern in the future, any such changebreach or
market expectation of such changeunauthorized disclosure or system failure, their businesses could be disrupted or otherwise negatively affected, which may result in
significantly higher long-term interest rates. Such a
transition may be abrupt and may, among other things, reduce the availability and/or increase the costs of obtaining new debt and refinancing existing indebtedness.Governmental investigations or actions by other third parties could have a material adverse effect on management anddisruption in the Company’s supply chain or reduced customer orders or other business operations.
operations, which would adversely affect the Company.
The Company is subject to laws of various federal, statecountries where it operates or does business related to solicitation, collection, processing, transferring, storing or use of consumer, customer, vendor or employee information or related data, including the GDPR which went into effect in May 2018, the CCPA, which went into effect on January 1, 2020, and foreign lawsthe LGPD which went into effect in August 2020. The changes introduced by the GDPR, CCPA, and regulations. RespondingLGPD increase the complexity of regulations enacted to governmental investigations or actions by regulatory bodiesprotect business and personal data, subject the Company to additional costs and have required, and may be both time-consuming and disruptivein the future require, costly changes to the Company’s operationssecurity systems, policies, procedures and could divert the attention of management and key personnel from the Company’s business operations. The impact of these and other investigations and lawsuits could have a material adverse effect on the Company’s financial position and results of operations.practices.
The Company’s operating results can be adversely affected by changes in the cost or availability of raw materials, energy, transportation and other necessary supplies and
services.Pricing and availabilityservices, as well as the impact of raw materials, energy, transportation and other necessary supplies and services for use in the Company’s businesses can be volatile due to numerous factors beyond its control, including general, domestic and international economic conditions, natural disasters, labor costs, production levels, competition, consumer demand, import duties and tariffs and currency exchange rates. Specifically, recently enacted and contemplated tariffs on imports into the U.S. and exports to Canada, China and the European Union could increase costs for the Company. The U.S. government has announced its intention to increase some of the China tariffs from 10% to 25% if there is not a breakthrough in negotiations with the China government. The Company is working to mitigate the tariff exposure, in part through pricing, productivity and in some cases relocation. Any extension of tariffs to additional categories of goods or to additional importers or exporters could have a significant impact on the Company. This volatility can significantly affect the availability and cost of raw materials, energy, transportation and other supplies and services for the Company, and may, therefore, have a material adverse effect on the Company’s business, results of operations and financial condition.
tariffs.
The Company’s success is dependent, in part, on its continued ability to reduce its exposure to increases in
those coststhe cost of raw materials, energy, transportation and other necessary supplies and services through a variety of programs, including periodic purchases, future delivery purchases, long-term contracts, sales price adjustments and certain derivative instruments, while maintaining and improving margins and market share. Also, the Company relies on third-party manufacturers as a source for its products. These manufacturers are also subject to price volatility and labor cost and other inflationary pressures, which may, in turn, result in an increase in the amount the Company pays for sourced products. During periods of rising prices of raw materials, there can be no assurance that the Company will be able to pass any portion of such increases on to customers. Conversely, when raw material prices decline, customer demands for lower prices could result in lower sale prices and, to the extent the Company has existing inventory, lower margins. As a result, fluctuations in raw material prices could have a material adverse effect on the Company’s business, results of operations and financial condition.
Some of the products the Company manufactures require particular types of glass, metal, paper, plastic, resin, wax, wood or other materials. Supply shortages for a particular type of material can delay production or cause increases in the cost of manufacturing the Company’s products. Pricing and availability of finished goods, raw materials, energy, transportation and other necessary supplies and services for use in the Company’s businesses can be volatile due to numerous factors beyond its control, including general, domestic and international economic conditions, natural disasters, labor costs, production levels, competition, consumer demand, import duties and tariffs, currency exchange rates, international treaties, and changes in laws, regulations, and related interpretations.
Specifically, evolving trade policies could continue to make sourcing products from foreign countries difficult and costly, as the Company sources a significant amount of its products from outside of the United States. Considerable political uncertainty exists in the United States and abroad that could result in continuing changes to the national and international trade policies around which the Company has built its sourcing practices and operations. Additionally, the impact of new trade policy under the new U.S. Presidential administration is uncertain. Given the Company's reliance upon non-domestic suppliers, any significant changes to the United States trade policies (and those of other countries in response) may cause a material adverse effect on its ability to source products from other countries or significantly increase the costs of obtaining such products, which could result in a material adverse effect on our financial results. The prior presidential administration imposed a number of tariffs on Chinese-origin goods, as well as on certain products imported into the United States from the European Union. Any extension of tariffs to additional categories of goods or to additional importers or exporters or additional countries of origin could significantly increase the cost of some our products and reduce our margins. The Company will continue to work to mitigate the tariff exposure, in part through pricing, productivity and in some cases relocation. However, there can be no assurance these mitigation efforts will be successful.
Unfavorable shifts in industry-wide demand for the Company’s products could result in inventory valuation risk.
The Company evaluates its ending inventories for excess quantities, impairment of value, and obsolescence. This evaluation includes analysis of sales levels by product and projections of future demand based upon input received from our customers, sales team, and management. If inventories on hand are in excess of demand or slow moving, appropriate write-downs may be recorded. In addition, the Company writes off inventories that are considered obsolete based upon changes in customer demand, product design changes that result in existing inventory obsolescence, or new product introductions, which eliminate demand for existing products. Remaining inventory balances are adjusted to approximate net realizable market value.
If future demand or market conditions are less favorable than the Company’s estimates, inventory write-downs may be required. The Company cannot be certain that obsolete or excess inventories, which may result from unanticipated changes in the estimated total demand for its products, will not affect it beyond the inventory charges that have already been recorded.
The Company may not be able to attract, retain and develop key personnel.
The Company’s ability to successfully execute its turnaround plan and its future performance depends in significant part upon the continued service of its executive officers and other key personnel. The loss of the services of one or more executive officers or other key employees could have a material adverse effect on the Company’s business,
prospects, financial condition and results of
operations and financial condition.operations. The Company’s operations are dependent upon third-party vendorssuccess also depends, in part, on its continuing ability to attract, retain and suppliers whose failuredevelop highly qualified personnel. In 2020, the Company hired four new Business Unit CEOs and a new Chief Customer Officer. Both its President and Chief Executive Officer and its Chief Human Resources Officer joined the Company in 2019. Competition for such personnel is intense, and there can be no assurance that the Company can retain its key employees or attract, assimilate and retain other highly qualified personnel in the future.
Damage to perform adequately could disrupt the Company’s business operations.The Company currently sources a significant portionreputation or loss of parts and products from third parties. The Company’s ability to select and retain reliable vendors and suppliers who provide timely deliveries of quality parts and products will impact the Company’s success in meeting customer demand for timely delivery of quality products. In many cases, the Company does not enter into long-term contracts with its primary vendors and suppliers, instead buying parts and products on a “purchase order” basis. As a result, the Company may be subject to unexpected changes in pricing or supply of products.
The ability of third-party suppliers to timely deliver finished goods and/or raw materials, and the ability of the Company’s own facilities to timely deliver finished goods, may be affected by events beyond their control, such as inability of shippers to timely deliver merchandise due to work stoppages or slowdowns, or significant weather and health conditions affecting manufacturers and/or shippers. Any adverse change in the Company’s relationships with its third-party suppliers, the financial condition of third-party suppliers, the ability of third-party suppliers to manufacture and deliver outsourced parts or products on a timely basis, or the Company’s ability to import products from third-party suppliers or its own facilitiesconsumer confidence could have a materialan adverse effect on the Company’s business
.
Maintaining the Company’s strong reputation with consumers, customers and suppliers worldwide is critical to the Company’s continued success. Adverse publicity about the Company, its brands, corporate practices, or any other issue that may be associated with the Company, whether or not deserved, could jeopardize that reputation. Such adverse publicity could come from traditional sources such as government investigations or public or private litigation, but may also arise from negative comments on social media regarding the Company or its brands.
Additionally, due to the scale and scope of our business, we must rely on relationships with third parties, including our suppliers, distributors, contractors, and other external business partners, for certain functions. While we have policies and procedures for managing these relationships, they inherently involve a lesser degree of control over business operations, governance, and compliance, thereby potentially increasing our reputational and legal risk. If third parties fail to comply with our policies and procedures or similar compliance requirements set forth by our customers, the Company could potentially suffer significant losses of business and revenue from certain customers.
Further, third parties sell counterfeit versions of some of our products, which are often inferior or may pose safety risks. As a result, consumers of our brands could confuse our products with these counterfeit products, which could cause them to refrain from purchasing our brands in the future and in turn could impair our brand equity.
Finally, there has been an increased focus from certain investors, customers, consumers, employees, and other stakeholders concerning corporate citizenship and sustainability matters. From time to time, the Company announces certain initiatives regarding its focus areas, which may include environmental matters, packaging, responsible sourcing and social investments. In 2020, the Company published its Corporate Sustainability Report which included many of these focus areas. The Company could fail, or be perceived to fail, in its achievement of such initiatives or it could fail in accurately reporting its progress on such initiatives and goals. In addition, the Company could be criticized for the scope of such initiatives or perceived as not acting responsibly in connection with these matters. The Company’s reputation and business could be negatively impacted by such developments and may be required to invest significant resources to repair such impacts.
Damage to the Company’s reputation or a loss of consumer confidence in the Company’s brands could adversely affect the Company’s business, results of operations,
cash flows and financial
condition.In addition,condition, as well as, require resources to repair the financial condition ofharm.
A deterioration in labor relations could adversely impact the Company’s vendorsglobal business.
At December 31, 2020, the Company had approximately 31,000 employees worldwide, a portion of which are covered by collective bargaining agreements or are located in countries that have collective arrangements decreed by statute. The Company periodically negotiates with certain unions and supplierslabor representatives and may be adversely affected by general economic conditions,subject to work stoppages or may be unable to renew such as credit difficulties andcollective bargaining agreements on the uncertain macroeconomic environment in recent years. In addition, in some instances the Company maintains single-sourcesame or limited-source sourcing relationships, either because multiple sources are not availablesimilar terms, or the relationship is advantageous due to performance, quality, support, delivery, capacity or price considerations. For example, certain businesses in the Baby division have a single source of supply for products that comprise a majority of their sales and which owns intellectual property rights in respect of many of those products. Should any of these single source suppliers fail to manufacture sufficient supply, go out of business or discontinue a particular component, the Company may not be able to find alternative vendors and suppliers in a timely manner, if at all. Any inability of the Company’s vendors and suppliers to timely deliver quality parts and products or any unanticipated change in supply, quality or pricing of products could be disruptive and costly
Risks related to the Company.
The Company cannot assure you that it could quickly or effectively replace anystrength of its suppliers if the need arose,global retail, commercial and the Company cannot assure you that it could retrieve toolingindustrial sectors and molds possessed by any of its third-party suppliers. The Company’s dependence on these few suppliers could also adversely affect its ability to react quickly and effectively to changes in the market for its products.
Changes in foreign, cultural, political and financial market conditions could impair the Company’s international operations and financial performance.
Some
The Company’s business depends on the strength of the retail, commercial and industrial sectors of the economy in various parts of the world, primarily in North America, and to a lesser extent Europe, Latin America and the Asia Pacific region. These sectors of the economy are affected primarily by factors such as consumer demand and the condition of the retail industry, which, in turn, can be affected by specific events or general economic conditions, including worldwide or country-specific economic instability.
Continuing challenging global economic conditions, particularly outside of the U.S., and potential volatility in domestic and/or foreign equity markets, may result in considerable pressure on consumer demand, which may have an adverse effect on demand for
the Company’s products, as well as its financial condition and results of operations. The Company could also be negatively impacted by economic crises in specific countries or regions. Such events could negatively impact the Company’s overall liquidity and/or create significant credit risks relative to its local customers and depository institutions. Consumer demand and the condition of these sectors of the economy may also be impacted by other external factors such as war, terrorism, geopolitical uncertainties, public health issues, natural disasters and other business interruptions. The impact of these external factors is difficult to predict, and one or more of these factors could adversely impact the Company’s business.
Further, some of the Company’s operations are conducted or products are sold in countries where economic growth has slowed,
such as Brazil; or where economies have suffered economic, social and/or political instability or hyperinflation; or where the ability to repatriate funds has been significantly delayed or impaired. Current government economic and fiscal policies in these economies, including stimulus measures and currency exchange rates and controls, may not be sustainable and, as a result, the Company’s sales or profits related to those countries may decline. The economies of other foreign countries important to the Company’s operations could also suffer slower economic growth or economic, social and/or political instability or hyperinflation in the future. The Company’s international operations (and particularly its business in emerging markets), including manufacturing and sourcing operations (and the international operations of the Company’s customers), are subject to inherent risks which could adversely affect the Company, including, among other things:
•protectionist policies restricting or impairing the manufacturing, sales or import and export of the Company’s products, including tariffs and countermeasures;
•new restrictions on access to markets;
•lack of developed infrastructure;
•inflation (including hyperinflation) or recession;
•devaluations or fluctuations in the value of currencies;
•changes in and the burdens and costs of compliance with a variety of laws and regulations, including the Foreign Corrupt Practices Act, tax laws, accounting standards, trade protection measures and import and export licensing requirements, environmental laws and occupational health and safety laws;
•social, political or economic instability;
•acts of war and terrorism;
•natural disasters or other crises;
•reduced protection of intellectual property rights;
increases in duties and taxation;
•restrictions on transfer of funds and/or exchange of currencies;
•expropriation of assets or forced relocations of operations; and
•other adverse changes in policies, including monetary, tax and/or lending policies, encouraging foreign investment or foreign trade by host countries.
In addition, our global operations expose us to risks associated with public health crises, such as pandemics and epidemics, which could harm our business and cause our operational results to suffer. For example, the COVID-19 pandemic negatively impacted our revenues in the first half of 2020 and the eventual duration and financial impact of the pandemic are still uncertain.
Further, the United Kingdom exited the European Union on January 31, 2020, after protracted political and economic negotiations, with a transition period lasting until December 31, 2020. During the transition period, existing arrangements between the United Kingdom and the European Union remained in place while the United Kingdom and the European Union negotiated a trade and cooperation agreement that was entered into on December 24, 2020 and went into effect on January 1, 2021. While the agreement does not currently impose tariffs on imports across European Union borders for goods with a United Kingdom or European Union origin, customs procedures and border checks may cause delays and backlogs in the transport of goods, and tariffs still apply for some goods originating outside of the United Kingdom or European Union. Further, uncertainty still remains regarding the potential for the future imposition of tariffs on imports across European Union borders. In addition, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the United Kingdom determines which European Union laws to replace or replicate. These changes could also cause disruptions to free movement of people and services to and from the United Kingdom, disruptions to the workforce or the workforce of the Company’s suppliers or business partners, increased foreign exchange volatility with respect to the British pound and additional political and economic uncertainty. The foregoing could create uncertainty surrounding the Company’s business and the business of existing and future customers and suppliers, which could increase the cost of some of the Company’s products, thereby reducing its margins. Further, the foregoing risks could have a significant adverse impact on the Company’s ability to commercialize its products on a competitive basis in international markets and may have a material adverse effect on its business, financial condition, and results of operations. The Company’s small sales volume in some countries, relative to some multinational and local competitors, could exacerbate such risks. Depending on the extent to which the Company may be required to make material changes to its European operations beyond those currently planned, the Company’s results of operations and business prospects could be negatively affected.
Should any of these risks occur, the Company’s ability to manufacture, source, sell or export its products or repatriate profits could be impaired;impaired. In addition, the Company could experience a loss of sales and profitability from its international operations;operations and/or the Company could experience a substantial impairment or loss of assets, anyassets.
Financial Risks
The Company has substantial indebtedness, which could materially and adversely affect the Company and its financial position, including decreasing its business flexibility, impacting its ratings and increasing its borrowing costs.
At December 31, 2020, the Company had $5.6 billion in outstanding debt, reflecting a reduction of approximately $116 million versus December 31, 2019. The Company’s substantial indebtedness has had, and could continue to have, important consequences for the Company, including:
•requiring the Company to dedicate a substantial portion of its cash flow from operations to payments on its indebtedness, which reduces the availability of its cash flow to fund working capital requirements, capital expenditures, future acquisitions, dividends, repurchases of the Company’s common stock and other general corporate purposes;
•limiting the Company’s flexibility in planning for, or reacting to, adverse business and economic conditions or changes in the Company’s business and the industries in which it operates;
•placing the Company at a competitive disadvantage compared to its competitors that have less debt; and
•limiting, along with the financial and non-financial covenants in the Company’s debt documents, its ability to borrow additional funds.
In addition, if the Company is unable to timely reduce its level of indebtedness, the Company will be subject to increased demands on its cash resources, which could increase its total debt-to-capitalization ratios, decrease its interest coverage ratios, lower its credit ratings, result in a breach of covenants or otherwise adversely affect the business and financial results of the Company going forward.
An increase in interest rates could have a material adverse
impacteffect on the Company’s business.
The Company has foreign currency translation and transaction risks that may materially adversely affect
While the
Company’s operating results, financial condition and liquidity.The financial position and results of operations of manyvast majority of the Company’s international subsidiaries are initially recordeddebt is fixed, fluctuations in various foreign currencies and then translated into U.S. Dollars at the applicable exchange rate for inclusion in the Company’s financial statements. The strengthening of the U.S. Dollar against these foreign currencies ordinarily has a negative impactinterest rates can increase borrowing costs on the Company’s reported sales, operating marginportion that is variable, and operating income (and conversely, the weakening of the U.S. Dollar has a positive impact). For the year ended December 31, 2018, foreign currency negatively affected reported sales by approximately $15 million compared to prior year; however, the volatility of foreign exchange rates is unpredictable and could materially adversely affect the Company’s operating results.
The Company realizes margin impacts from changes in foreign currency because the Company’s costs for produced and sourced products are largely denominated in U.S. Dollars, and the Company’s international operations generally sell the Company’s products at prices denominated in local currencies. When local currencies decline in value relative to the U.S. Dollar in the regions in which the Company sells products whose costs are denominated in U.S. Dollars, the Company’s international businesses would need to increase the local currency sales prices of the products and/or reduce costs through productivity or other initiatives in order to maintain the
same level of profitability. The Company may not be able to increase the selling prices of its products in its international businesses due to market dynamics, competition or otherwise and may not realize cost reductions through productivity or other initiatives. As a result, gross margins and overall operating resultsinterest rate increases on this portion of the Company’s international businesses would be adversely affected when the U.S. Dollar strengthens.
See Management’s Discussion and Analysis of Financial Condition and Results of Operations and Footnote 1 of the Notes to Consolidated Financial Statements for further information.
A failure of one or more key information technology systems, networks, processes, associated sites or service providersdebt could have a material adverse impacteffect on the Company’s business or reputation.
The Company relies extensively on information technology (IT) systems, networksbusiness. Indeed, increases in interest rates would increase the cost of servicing our debt and services, including Internet sites, data hostingcould reduce our profitability and processing facilities and toolscash flows. In response to the last global economic recession, extraordinary monetary policy actions of the U.S. Federal Reserve and other hardware, softwarecentral banking institutions, including the utilization of quantitative easing, were taken to create and technical applicationsmaintain a low interest rate environment. However, the U.S. Federal Reserve raised its benchmark interest rate nine times since December 2015, including four times in 2018, each time by a quarter of a percentage point, before reducing interest rates in 2019 three times. In response to the COVID-19 pandemic, the U.S. Federal Reserve reduced its benchmark interest rate to 0% in March 2020 before voting in November 2020 to keep short-term interest rates anchored in a range between 0% and platforms, some0.25%. Any change in the fiscal policies or stated target interest rates of whichthe U.S. Federal Reserve or other central banking institutions, or market expectations of such change, are managed, hosted, provided and/or used by third parties or their vendors,difficult to assistpredict and may result in conducting business. The various uses of these IT systems, networks and services include, but are not limited to:
ordering and managing materials from suppliers;
converting materials to finished products;
shipping products to customers;
marketing and selling products to consumers;
collecting and storing customer, consumer, employee, investor and other stakeholder information and personal data, including data thatsignificantly higher long-term interest rates. Such a transition may be subjectabrupt and may, among other things, reduce the availability and/or increase the costs of obtaining new debt and refinancing existing indebtedness.
An increase in interest rates may also occur from changes in regulatory standards or industry practices, such as the contemplated transition away from the London Interbank Offered Rate (“LIBOR”) as a benchmark reference for short-term interest rates. Such a transition may result in the usage of a higher reference rate for our variable rate debt. The U.S. Federal Reserve has sponsored the Alternative Reference Rates Committee (“ARRC”), which serves as a forum to coordinate and track planning as market participants currently using LIBOR consider (a) transitioning to alternative reference rates where it is deemed appropriate and (b) addressing risks in legacy contracts language given the possibility that LIBOR might stop. On April 3, 2018, the U.S. Federal Reserve began publishing three new reference rates, including the Secured Overnight Financing Rate (“SOFR”). SOFR is observed and backward looking, which stands in contrast with LIBOR under the current methodology, which is an estimated forward-looking rate and relies, to some degree, on the expert judgment of submitting panel members. Given that SOFR is a secured rate backed by government securities, it will be a rate that does not take into account bank credit risk (as is the case with LIBOR). SOFR is therefore likely to be lower than LIBOR and is less likely to correlate with the funding costs of financial institutions. ARRC has recommended SOFR as the alternative to LIBOR and published fallback interest rate consultations for public comment and a Paced Transition Plan to SOFR use. The Financial Stability Board has taken an interest in LIBOR and possible replacement indices as a matter of risk management. The International Organisation of Securities Commissions, or IOSCO, has been active in this area and is expected to call on market participants to have backup options if a reference rate, such as LIBOR, ceases publication. The International Swaps and Derivatives Association (“ISDA”) has published guidance on interest rate benchmarks and alternatives in July and August 2018. ISDA also published a protocol providing details of the fallback rate conversion methodology in October 2020. It cannot be predicted whether SOFR or another index or indices will become a market standard that replaces LIBOR, and if so, the effects on our future results of
operations or financial condition. In a November 30, 2020 announcement, LIBOR’s administrator signaled to the General Data Protection Regulationmarket that USD LIBOR for the most liquid maturities is now likely to continue to be published until June 30, 2023, which would allow time for most legacy contracts to mature before USD LIBOR is no longer available, and would also allow for more time for SOFR to develop. If LIBOR ceases to exist prior to the maturity of our contracts, we may need to renegotiate our credit agreements that utilize LIBOR as a factor in determining the interest rate to replace LIBOR with the new standard that is established.
Reductions in the Company’s credit ratings could materially and adversely affect its business, financial condition and results of operations.
The Company’s credit ratings impact the cost and availability of future borrowings and, accordingly, the Company’s cost of capital. The Company’s credit ratings reflect each rating organization’s opinion of its financial strength, operating performance and ability to meet its debt obligations. The credit ratings assigned to the Company also impact the interest rates paid on short- and long-term financing.
On November 1, 2019, S&P Global Inc. (“S&P”) downgraded the Company’s debt rating to “BB+” as S&P believed the Company would fail to meet S&P’s target debt level for 2019. In addition, on March 9, 2020, Moody’s Corporation (“Moody’s”) downgraded the Company’s debt rating to “Ba1” based on a view that the Company would fail to meet Moody's target debt level for 2020. Subsequently on April 15, 2020, Fitch Ratings (“Fitch”) downgraded the Company’s debt rating to “BB” as they believed the Company would fail to meet Fitch's target debt level for 2020. As a result of the European Union;
summarizingS&P and reporting results of operations;
hosting, processing and sharing confidential and proprietary research, business plans and financial information;
complying with regulatory, legal or tax requirements;
providing data security; and
handling other processes necessary to manageMoody's downgrades, the Company’s business.
Increased IT security threatsability to borrow from the commercial paper market on terms it deems acceptable or favorable was eliminated and more sophisticated computer crime, including advanced persistent threats, computer viruses, ransomware, other typesits cost of malicious code, hacking, phishingborrowing increased.
Any further downgrade by Moody’s or S&P would further increase the Company’s borrowing costs and social engineering schemes designedcontinue to provideadversely affect the Company’s financial results. In addition, in the event of a future reduction in credit rating, the Company would likely be required to pay a higher interest rate in future financings, and its potential pool of investors and funding sources could decrease. If the Company’s short-term ratings were to be further lowered, it would further limit, or eliminate entirely, the Company’s access to the commercial paper market.
The ratings from credit agencies are not recommendations to buy, sell or hold the Company’s networks or data, posesecurities, and each rating should be evaluated independently of any other rating.
See Factors Affecting Liquidity in Liquidity and Capital Resources in Item 7.
Failure to successfully remediate the material weakness in internal control over financial reporting and to maintain effective internal control over financial reporting could result in material misstatements in our financial statements, and our failure to meet our reporting and financial obligations, which in turn could have a potential risknegative impact on our financial condition.
As further detailed in Item 9A. Controls and Procedures, management continues to have a material weakness in its internal control over financial reporting. A material weakness was disclosed in the Company’s 2019 Annual Report on Form 10-K, filed on March 2, 2020 and subsequent quarterly reports on Form 10-Q, related to the securityaccounting for certain aspects of income taxes. At December 31, 2019, the Company identified that it did not design and maintain controls related to the completeness and accuracy of accounting for state income tax and the accuracy of determining uncertain tax positions, including but not limited to verifying the accrued interest associated with uncertain tax positions was properly determined and recorded. In addition, during the fourth quarter of 2020, management identified that the Company did not design and maintain effective controls to ensure the accuracy of accounting for non-recurring tax planning transactions. These control deficiencies, in the aggregate, could result in a misstatement of the Company’s IT systems, networksCompany's aforementioned accounts and services,disclosures that would result in a material misstatement of the annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, management has determined that these control deficiencies, in the aggregate, constitute a material weakness.
A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
As of December 31, 2020, management designed and implemented the following measures to remediate the deficiencies related to the completeness and accuracy of accounting for state income tax and the accuracy of determining uncertain tax positions, including but not limited to verifying that the accrued interest associated with uncertain tax positions was properly determined and recorded:
•Hired experienced resources with substantive backgrounds in accounting for income taxes as well as U.S. multinational public company experience;
•Engaged a third party to review the confidentiality, availabilityCompany’s tax provision processes, identify inefficiencies, and integrityrecommend process enhancements;
•Implemented a tax reporting software solution that has enhanced our visibility of uncertain tax positions as well as a software solution that has enhanced our state income tax reporting capabilities;
•Implemented enhancements and process improvements to the quarterly and annual provision with respect to uncertain tax positions and state income taxes; and
•Undertook extensive training for key personnel in each reporting jurisdiction on tax reporting requirements and our redesigned processes.
In addition, as summarized below, management is in the process of developing a full remediation plan for and has begun enhancing certain controls to include refinements and improvements to the controls with respect to the deficiencies related to the accuracy of accounting for non-recurring tax planning transactions:
•Enhancing the precision of the Company’s data. The Company’s operations, especially its retail operations, involvecontrol over the storagecalculation and transmissionanalysis of employees’, customers’non-recurring tax planning transactions.
While management believes that the measures already designed and
consumers’ proprietary information, such as credit cardimplemented in both the state tax and
bank account numbers. The Company’s payment services mayuncertain tax positions processes are effective, the material weakness, in the aggregate, will not be
susceptible to credit card and other payment fraud schemes, including unauthorized use of credit cards, debit cards or bank account information, identity theft or merchant fraud. If the IT systems, networks or service providers relied upon fail to function properly, or if the Company suffers a loss or disclosure of customers’ and consumers’ data, business or stakeholder information, due to any number of causes, ranging from catastrophic events to power outages to security breaches, and business continuity plans do not effectively address these failures on a timely basis, the Company may suffer interruptions in its ability to manage operations, a risk of government enforcement action, litigation and possible liability, and reputational, competitive and/or business harm, which may adversely impact the Company’s results of operations and/or financial condition.As techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognizedconsidered fully remediated until launched against a target, the Company may be unable to anticipate these techniques or implement adequate preventative measures. Furthermore, the Company’s relationships with, and access provided to, third parties and their vendors may create difficulties in anticipating and implementing adequate preventative measures or fully mitigating harms after an attack or breach occurs.
If an actual or perceived breachall aspects of the Company’s security occurs,controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. The Company will monitor the effectiveness of its remediation plan and will refine its remediation plan as appropriate.
Any failure to remediate the material weakness, or the identification of new material weaknesses in our internal control over financial reporting, could result in material misstatements in our financial statements that may continue undetected, negatively impact the public perception of the effectivenessCompany and our securities and cause us to fail to meet our reporting and financial obligations or incur significant additional costs to remediate the material weakness, each of which could harm our ability to raise capital on favorable terms in the future or otherwise have a negative impact on our financial condition.
Continued declines in the future expected cash flows for the Company’s
security measuresbusinesses or changes to underlying assumptions used to calculate fair value could
be harmed and the Company could lose customers and consumers,result in additional impairment charges which
could adversely affect its business.Impairment charges could have a material adverse effect on the Company’s financial results.
results of operations.
The Company is required under U.S. GAAP to review its amortizable intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable, and are also required to conduct impairment tests on goodwill and other indefinite-lived intangible assets annually or more frequently, if circumstances indicate that the carrying value may not be recoverable or that an other-than-temporary impairment exists.
During the yearyears ended December 31, 2020, 2019 and 2018, the Company recorded non-cash impairment charges related to goodwill and indefinite lived intangibles of $1.5 billion, $1.2 billion and $8.3 billion, respectively, in continuing operations and $112 million and $1.5 billion, in discontinued operations.operations in 2019 and 2018, respectively. Future events or factors may occur that would adversely affect the reportedfair value of the Company’s assets and require impairment charges. Such events or factors may include, but are not limited to, divestitures of certain businesses or product lines, strategic decisions made in response to changes in economic and competitive conditions, the impact of the economic environment on the Company’s sales and customer base, the unfavorable resolution of litigation, a material adverse change in the Company’s relationship with significant customers or business partners, or a sustained decline in the Company’s stock price. The Company continues to evaluateIn the impact of economic and other
developments on the Company and its business units to assess whetherevent any such impairment indicators become known or are present. Accordingly,present, the Company may be required to perform impairment tests based on changes in the economic environment and other factors, and these tests could result in impairment charges in the future. Given the Company’s recent history of impairment charges, in 2018, there is minimal difference between the estimated fair values and the carrying values of some of the Company’s reporting units,its intangible assets, increasing the possibility of future impairment charges.
See Critical Accounting Estimates in Item 7 and Footnotes 1 and 7 of Notes to Consolidated Financial Statements.
The Company is exposed to both foreign currency translation and transaction risks that may materially adversely affect the Company’s operating results, financial condition and liquidity.
The reporting currency for the Company’s financial statements is the U.S. dollar and it has substantial assets, liabilities, revenues and costs denominated in currencies other than U.S. dollars. The preparation of the Company’s Consolidated Financial Statements requires translation of those assets, liabilities, revenues and expenses into U.S. dollars at then-applicable exchange rates. Consequently, increases and decreases in the value of the U.S. dollar versus other currencies will affect the amount of these items in the Company’s Consolidated Financial Statements, even if their value has not changed in their original currency. These translations could result in significant changes to the Company’s results of operations from period to period. Although the Company may employ, at times, a variety of techniques to mitigate the impact of exchange rate fluctuations, including foreign currency hedging activities, it cannot guarantee that such risk management strategies will be effective, and its financial condition or results of operations could be adversely impacted.
In addition, foreign currency transaction risk arises when the Company and its subsidiaries enter into transactions where the settlement occurs in a currency other than its functional currency. Exchange differences (gains and losses) arising on the settlement of monetary items or on translation of monetary items at rates different from those at which they were translated on initial recognition during the period or in previous financial statements are recognized in the Consolidated Statement of Operations in the period in which they arise. Although the Company may employ, at times, a variety of techniques to mitigate the impact of foreign currency transaction risk, including the hedging of forecasted cash inflows and outflows, it cannot guarantee that such risk management strategies will be effective, and its financial condition or results of operations could be adversely impacted.
See Management’s Discussion and Analysis of Financial Condition and Results of Operations and Footnote 10 of the Notes to Consolidated Financial Statements for further information.
Circumstances associated with divestitures and product line exits could adversely affect the Company’s results of operations and financial condition.
The Company may decide to sell or discontinue other businesses or products in the future based on an evaluation of performance and strategic fit. Divestitures or discontinuations of businesses or products may result in asset impairments, including those related to goodwill and other intangible assets, and losses upon disposition, both of which could have an adverse effect on the Company’s results of operations and financial condition. In addition, the Company may encounter difficulty in finding buyers or executing alternative exit strategies at acceptable prices and terms and in a timely manner, and prospective buyers may have difficulty obtaining financing. Past and future divestitures and business discontinuations also involve additional risks, including the following:
•difficulties in the separation of operations, services, products and personnel;
•the retention of certain current or future liabilities in order to induce a buyer to complete a divestiture;
•the disruption of the Company’s business;
•the potential loss of key employees; and
•disputes or litigation with the buyers.
The Company may not be successful in managing these or any other significant risks that it may encounter in divesting or discontinuing a business or exiting product lines, which could have a material adverse effect on its business.
Legal, Tax and Regulatory Risks
Governmental investigations or actions by other third parties could have a material adverse effect on management and the Company’s business operations.
The Company is subject to various federal, state and foreign laws and regulations. In the ordinary course of business, the Company is also subject to formal and informal regulatory and governmental examinations, subpoenas, requests for documents, testimony or information, inquiries, investigations, threatened legal actions and proceedings. The Company previously disclosed that it had received a subpoena and related informal document requests from the U.S. Securities and Exchange Commission (the “SEC”) primarily relating to its sales practices and certain accounting matters for the time period beginning from January 1, 2016. See Footnote 18 of the Notes to the Consolidated Financial Statements for further information. Responding to governmental investigations, voluntary document requests, subpoenas or actions by regulatory bodies may be time-consuming, expensive and disruptive to the Company’s operations and could divert the attention of management and key personnel from the Company’s business operations.
The Company’s businesses and operations are subject to regulation in the U.S. and abroad.
Changes in laws, regulations and related interpretations may alter the environment in which the Company does business. This includes changes in environmental,
data privacy, competitive and product-related laws, as well as changes in accounting standards, taxation and other regulations. Accordingly, the Company’s ability to manage regulatory, tax and legal matters (including environmental, human resource, product liability, patent and
other intellectual property matters), and to resolve pending legal and environmental matters without significant liability could require the Company to record significant reserves in excess of amounts accrued to date or pay significant fines during a reporting period, which could materially impact the Company’s results. In addition, new regulations may be enacted in the U.S. or abroad that may require the Company to incur additional personnel-related, environmental or other costs on an ongoing basis, significantly restrict the Company’s ability to sell certain products, or incur fines or penalties for noncompliance, any of which could adversely affect the Company’s results of operations.
As a U.S.-based multinational company, the Company is also subject to tax regulations in the U.S. and multiple foreign jurisdictions, some of which are interdependent. For example, certain income that is earned and taxed in countries outside the U.S. may not be taxed in the U.S. until those earnings are actually repatriated or deemed repatriated. If these or other tax regulations should change, the Company’s financial results could be impacted.
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 Consolidated Financial Statements for the period ending December 31, 2020. 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 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.
The resolution of the Company’s tax contingencies may result in additional tax liabilities, which could adversely impact the Company’s cash flows and results of operations.
The Company is subject to income tax in the U.S. and numerous jurisdictions internationally. Significant estimation and judgment are required in determining the Company’s worldwide provision for income taxes. In the ordinary course of the Company’s business, there are many transactions and calculations where the ultimate tax determination is uncertain. The Company is regularly under audit by various worldwide tax authorities. Although the Company believes its tax estimates are reasonable, the final outcome of tax audits and related litigation could be materially different than that reflected in its historical income tax provisions and accruals. There can be no assurance that the resolution of any audits or litigation will not have an adverse effect on future operating results.
The Company may incur significant costs in order to comply with environmental remediation obligations.
In addition to operational standards, environmental laws also impose obligations on various entities to clean up contaminated properties or to pay for the cost of such remediation, often upon parties that did not actually cause the contamination. Accordingly, the Company may be liable, either contractually or by operation of law, for remediation costs even if the contaminated property is not presently owned or operated by the Company, is a landfill or other location where it has disposed of wastes, or if the contamination was caused by third parties during or prior to the Company’s ownership or operation of the property. Given the nature of the past industrial operations conducted by the Company and others at these properties, there can be no assurance that all potential instances of soil or groundwater contamination have been identified, even for those properties where an environmental site assessment has been conducted. The Company does not believe that any of the Company’s existing remediation obligations, including at third-party sites where it has been named a potentially responsible party, will have a material adverse effect upon its business, results of operations or financial condition. However, future events, such as changes in existing laws or policies or their enforcement, or the discovery of currently unknown contamination, may give rise to additional remediation liabilities that may be material. See “Environmental“Environmental Matters” under in Footnote 2018 of the notesNotes to the Company’s consolidated financial statements in this Annual Report on Form10-K for the year ended December 31, 2018Consolidated Financial Statements for a further discussion of these and other environmental-related matters.The Company may not be able to attract, retain and develop key personnel.
The Company’s success at implementing its Accelerated Transformation Plan and its future performance depends in significant part upon the continued service of its executive officers and other key personnel. The loss of the services of one or more executive officers or other key employees could have a material adverse effect on the Company’s business, prospects, financial condition and results of operations. The Company’s success also depends, in part, on its continuing ability to attract, retain and develop highly qualified personnel. Competition for such personnel is intense, and there can be no assurance that the Company can retain its key employees or attract, assimilate and retain other highly qualified personnel in the future.
The resolution of the Company’s tax contingencies may result in additional tax liabilities, which could adversely impact the Company’s cash flows and results of operations.
The Company is subject to income tax in the U.S. and numerous jurisdictions outside the U.S. Significant estimation and judgment are required in determining the Company’s worldwide provision for income taxes. In the ordinary course of the Company’s business, there are many transactions and calculations where the ultimate tax determination is uncertain. The Company is regularly under audit by various worldwide tax authorities. Although the Company believes its tax estimates are reasonable, the final outcome of tax audits and related litigation could be materially different than that reflected in its historical income tax provisions and accruals. There can be no assurance that the resolution of any audits or litigation will not have an adverse effect on future operating results.
The Company’s business involves the potential for product recalls, product liability and other claims against it, which could affect its earnings and financial condition.
As a manufacturer and distributor of consumer products, the Company is subject to the United StatesU.S. Consumer Products Safety Act of 1972, as amended by the Consumer Product Safety Improvement Act of 2008, which empowers the U.S. Consumer Products Safety Commission to exclude from the market products that are found to be unsafe or hazardous, and similar laws under foreign jurisdictions. Under certain circumstances, the Consumer Products Safety Commission or a comparable foreign agency could require the Company to repurchase or recall one or more of its products. Additionally, other laws and agencies, such as the National Highway Traffic Safety Administration, regulate certain consumer products sold by the Company in the United States and abroad, and more restrictive laws and regulations may be adopted in the future. From time to time, the Company has announced voluntary recalls of its products where it has identified potential product safety concerns. For example, in 2019 the Company announced a voluntary recall of the Contigo Gizmo product due to occurrences of the silicone spout detaching from the nylon base, which resulted in significant product returns and other costs. Any repurchase or recall of the Company’s products could be costly and damaging to the Company’s reputation. IfWhen the Company wereis required to remove, or it voluntarily removed,removes, its products from the market, the Company’s reputation could be tarnished and the Company might have large quantities of finished products that it could not sell. The Company also faces exposure to product liability claims in the event that one of its products is alleged to have resulted in property damage, bodily injury or other adverse effects.
In addition to the risk of substantial monetary judgments or fines or penalties that may result from any governmental investigations, product liability claims or regulatory actions could result in negative publicity that could harm the Company’s reputation in the marketplace, adversely impact the value of its
end-user brands, or result in an increase in the cost of producing the Company’s products. Similar to product liability claims, the Company faces exposure to class action
law suitslawsuits related to the performance, safety or advertising of its products. Such class action
suitsuits could result in substantial monetary judgments, injunctions related to the sale of products and potentially tarnish the Company’s reputation.
Although the Company maintains product liability insurance in amounts that it believes are reasonable, that insurance is, in most cases, subject to large self-insured retentions for which the Company is responsible, and the Company cannot assure you that it will be able to maintain such insurance on acceptable terms, if at all, in the future or that product liability claims will not exceed the amount of insurance coverage.
The Company does not maintain insurance against many types of claims involving alleged defects in its products that do not involve personal injury or property damage. Additionally, the Company does not maintain product recall insurance and may not have insurance coverage for claims asserted in class action lawsuits. As a result, product recalls,
or product liability
claims and other product-related claims could have a material adverse effect on the Company’s business, results of operations and financial condition.
In addition, the Company faces potential other types of litigation arising out of alleged defects in its products or otherwise, such as the previously noted class action lawsuits. The Company does not maintain insurance against many types of claims involving alleged defects in its products that do not involve personal injury or property damage. The Company spends substantial resources ensuring compliance with governmental and other applicable standards. However, compliance with these standards does not necessarily prevent individual or class action lawsuits, which can entail significant cost and risk. As a result, these types of claims could have a material adverse effect on the Company’s business, results of operations and financial condition.
The Company’s product liability insurance program is an occurrence-based program based on its current and historical claims experience and the availability and cost of insurance. The Company currently either self-insures or administers a high retention insurance program for most product liability risks. Historically, product liability awards have rarely exceeded the Company’s individual per occurrence self-insured retention. The Company cannot
assure you,give assurance, however, that its future product liability experience will be consistent with its past experience or that claims and awards subject to self-insured retention will not be material.
See Footnote 2018 of the notesNotes to the consolidated financial statements included in this Annual Report on Form10-K for the year ended December 31, 2018Consolidated Financial Statements for a further discussion of these and other regulatory and litigation-related matters.
If the Company fails to adequately protect its intellectual property rights, competitors may manufacture and market similar products, which could adversely affect the Company’s market share and results of operations.
The Company’s success with its proprietary products depends, in part, on its ability to protect its current and future technologies and products and to defend its intellectual property rights, including its patent,
trade secret and trademark rights. If the Company fails to adequately protect its intellectual property rights, competitors may manufacture and market similar products.
The Company holds numerous design and utility patents covering a wide variety of products. The Company cannot be sure that it will receive patents for any of its patent applications or that any existing or future patents that it receives or licenses will provide competitive advantages for its products. The Company also cannot be sure that competitors will not challenge, invalidate or avoid the application of any existing or future patents that the Company receives or licenses. In addition, patent rights may not prevent competitors from developing, using or selling products that are similar or functionally equivalent to the Company’s products.
A reduction
If the Company is found to have infringed the intellectual property rights of others or cannot obtain necessary intellectual property rights from others, its competitiveness could be negatively impaired.
If the Company is found to have violated the trademark, trade secret, copyright, patent or other intellectual property rights of others, directly or indirectly, including through the use of third-party marks, ideas, or technologies, such a finding could result in the need to cease use of such mark, trade secret, copyrighted work or patented invention in the Company’s
credit ratingsbusiness, as well as the obligation to pay for past infringement. If rights holders are willing to permit the Company to continue to use such intellectual property rights, they could
materiallyrequire a payment of a substantial amount for continued use of those rights. Either ceasing use or paying such amounts could cause the Company to become less competitive and
adversely affect itscould have a material adverse effect on the Company’s business, financial condition, and results of operations.
The Company’s credit ratings impact the cost and availability of future borrowings and, accordingly, the Company’s cost of capital. The Company’s credit ratings reflect each rating organization’s opinion of its financial strength, operating performance and ability to meet its debt obligations. For example, on February 20, 2019, Fitch downgraded the Company’s Long-term issuer default Ratingfrom”BBB-“ to (BB+) and Short-term issuer default Rating to “B” from “F3”. The Company cannot be sure that any of its current ratings will remain in effect for any given period of time or that a rating will not be lowered by a rating agency
Even if in its judgment, circumstances in the future so warrant. A downgrade by Moody’s Investor Services, Inc. (“Moody’s”) or Standard & Poor’s Ratings Services (“Standard & Poor’s”), which would reduce the Company’s senior debt below investment-grade, would increase the
Company’s borrowing costs, which would adversely affect the Company’s financial results. Specifically, the interest rate payable on Notes issued in March 2016 are subject to adjustment from time to time if either Moody’s or Standard & Poor’s downgrades (or subsequently upgrades) its rating assigned to the Notes, though the interest on these notes will permanently cease to be subject to any adjustment (notwithstanding any subsequent decrease in ratings by either credit Rating Agency), if such Notes become rated “Baa1” or higher by Moody’s and “BBB+” or higher by Standard & Poors, in each case with stable or positive outlook. In addition, in the event of a reduction in credit rating, the Company would likely be requiredis not found to payinfringe a higher interest rate in future financings, and its potential poolthird party’s intellectual property rights, claims of investors and funding sources could decrease. If the Company’s short-term ratings were to be lowered, it would limit, or eliminate entirely, the Company’s access to the commercial paper market. The ratings from credit agencies are not recommendations to buy, sell or hold the Company’s securities, and each rating should be evaluated independently of any other rating.
The level of returns on pension and postretirement plan assets and the actuarial assumptions used for valuation purposes could affect the Company’s earnings and cash flows in future periods. Changes in government regulations could also affect the Company’s pension and postretirement plan expenses and funding requirements.
The funding obligations for the Company’s pension plans are impacted by the performance of the financial markets, particularly the equity markets, and interest rates. Funding obligations are determined under government regulations and are measured each year based on the value of assets and liabilities on a specific date. If the financial markets do not provide the long-term returns that are expected under the governmental funding calculations, the Company could be required to make larger contributions. The equity markets can be very volatile, and therefore the Company’s estimate of future contribution requirements can change dramatically in relatively short periods of time. Similarly, changes in interest rates and legislation enacted by governmental authorities can impact the timing and amounts of contribution requirements. An adverse change in the funded status of the plans could significantly increase the Company’s required contributions in the future and adversely impact its liquidity.
Assumptions used in determining projected benefit obligations and the fair value of plan assets for the Company’s pension and postretirement benefit plans are determined by the Company in consultation with outside actuaries. In the event that the Company determines that changes are warranted in the assumptions used, such as the discount rate, expected long-term rate of return on assets, expected health care costs, or mortality rates, the Company’s future pension and postretirement benefit expenses could increase or decrease. Due to changing market conditions or changes in the participant population, the assumptions that the Company uses may differ from actual results, which could have a significant impact on the Company’s pension and postretirement liabilities and related costs and funding requirements.
Damage to the Company’s reputation could have an adverse effect on the Company’s business.
Maintaining the Company’s strong reputation with consumers and suppliers worldwide is critical to the Company’s continued success. Adverse publicity about the Company, its brands, corporate practices, or any other issue that may be associated with the Company, whether or not deserved, could jeopardize that reputation. Such adverse publicity could come from traditional sources such as government investigations or public or private litigation, but may also arise from negative comments on social media regarding the Company or its brands. Damage to the Company’s reputation or a loss of consumer confidence in the Company’s brandsinfringement could adversely affect the Company’s business, results of operations, cash flowsbusiness. The Company could incur significant legal costs and financial condition, as well as require resourcesrelated expenses to repair the harm.
A deterioration in labor relations could adversely impact the Company’s global business.
As of December 31, 2018,defend against such claims, and the Company had approximately 37,000 employees worldwide. Approximately 2,400 of the Company’s employees are covered by collective bargaining agreementscould incur significant costs associated with discontinuing to use, provide, or are located in countries thatmanufacture certain products, services or trademarks even if it is ultimately found not to have collective arrangements decreed by statute. The Company periodically negotiates with certain unions representing Company employees and may be subject to work stoppages or may be unable to renewinfringed such collective bargaining agreements on the same or similar terms, or at all, all of which may have a material adverse effect on the business of the Company.
rights.
ITEM 1B. UNRESOLVED STAFF COMMENTS
The Company's primary corporate offices are located in an owned office space in Atlanta, Georgia and a leased office space in Hoboken, New Jersey, Atlanta, Georgia and Norwalk, Connecticut. The Company owns or leases and operates 33At December 31, 2020, the Company's global physical presence included approximately 55 manufacturing facilities (20 in the U.S. and 37 facilities outside the U.S. that are primarily used for manufacturing. The Company also owns or leases and operates 66 facilities in the U.S. and 54 facilities outside the U.S. that are primarily used as), approximately 70 regional distribution centers and warehouses.
At December 31, 2018,warehouses (35 in the Company and its subsidiaries lease or own facilities throughout the U.S.), some of which have multiple buildings and warehouses encompassing approximately 31 million square feet. We lease or own international facilities encompassing approximately 14 million square feet primarily in Asia, Canada, Europe and Latin America.
Aside from the principal properties described above, the Company leases many140 offices worldwide for sales, research and development and administrative purposes. The Company leasespurposes (40 in the U.S.), as well as approximately 545425 retail stores (405 in the U.S.) primarily related to Yankee Candle. Approximately 90% of our global properties are leased (95% in the U.S.), which primarily reflect the Yankee Candle retail stores worldwide.
stores.
In general, ourthe Company's properties are well-maintained, considered adequate and are utilized for their intended purposes. See Footnote 86 of the Notes to Consolidated Financial Statements Property, Plant and Equipment, which discloses for amounts invested in land, buildings and machinery and equipment. Also, see Footnote 13 of the Notes to Consolidated Financial Statements Commitments, to our Consolidated Financial Statements, which discloses for information about the Company’s operating lease commitments.leased properties.
ITEM 3. LEGAL PROCEEDINGS
Information regarding legal proceedings is included in Footnote
2018 of the Notes to Consolidated Financial Statements and is incorporated by reference herein.
ITEM 4. MINE SAFETY DISCLOSURES
SUPPLEMENTARY ITEM — INFORMATION ABOUT OUR EXECUTIVE OFFICERS
| | | | |
SUPPLEMENTARY ITEM — EXECUTIVE OFFICERS OF THE REGISTRANT (AS OF JANUARY 1, 2019) |
| | | | | | | | |
Name | | Age | | | Present Position with the Company
Title |
Michael B. Polk
Ravichandra K. Saligram | | 64 | 58 | | | President and Chief Executive Officer |
William A. Burke III
| | | 58 | | | Executive Vice President, Chief Operating Officer |
Christopher H. Peterson | | 54 | 52 | | | Executive Vice President, Chief Financial Officer & President, Business Operations |
Bradford R. Turner | | 48 | 46 | | | Chief Legal and Administrative Officer and Corporate Secretary |
Russell Torres
Stephen B. Parsons | | 56 | 47 | Chief Human Resources Officer |
| Michael M. Hayes | | Group52 | | Chief Customer Officer |
| Laurel M. Hurd | | 51 | | Segment President, Learning and Development |
| Kristine K. Malkoski | | 60 | | Business Unit CEO, Food |
| Michael P. McDermott | | 51 | | Business Unit CEO, Commercial |
| James A. Pisani | | 54 | | Business Unit CEO, Outdoor and Recreation |
| Christine M. Robins | | 55 | | Business Unit CEO, Appliances and Cookware |
Michael B. Polk
Ravichandra K. Saligram has
beenserved as President and Chief Executive Officer of the Company and as a member of the Company's Board of Directors since October 2019. Prior to joining the Company, Mr. Saligram was Chief Executive Officer and Director of Ritchie Bros. Auctioneers Incorporated, the world’s largest onsite/online industrial equipment auctioneer, from July 2014 until July 2019. From November 2010 until November 2013, Mr. Saligram was Chief Executive Officer, President, and a member of the Board of Directors of OfficeMax Inc., an omnichannel provider of workplace products, services and solutions where he oversaw the historic 2013 merger of OfficeMax and Office Depot. From 2003 through November 2010, Mr. Saligram served in executive management positions with ARAMARK, a global provider of food services, facilities management and uniforms, including as President of ARAMARK International, Chief Globalization Officer and Executive Vice President of ARAMARK. From 1994 through 2002, Mr. Saligram served in various capacities for the InterContinental Hotels Group, a global hospitality company, including as President of Brands and Franchise for North America; Chief Marketing Officer and Managing Director, Global Strategy; President, International; and President, Asia Pacific. Earlier in his career, Mr. Saligram held various general and brand management roles at S.C. Johnson & Son, Inc., a consumer products company. Mr. Saligram began his career at Leo Burnett, an advertising firm. He has served on the Board of Directors of Church & Dwight Co., Inc. since 2006. Mr. Saligram brings to the Board an extensive background in consumer brands, omnichannel commerce and global operations as well as experience leading corporate transformations and building innovative and diverse employee cultures. He also brings an important perspective to the Board as the President and Chief Executive Officer of the
Company since May 2018. He served as Chief Executive Officer between April 2016 and May 2018 and served as President and Chief Executive Officer from July 2011 to April 2016. He joined the Company’s Board of Directors in November 2009. Prior to joining the Company, Mr. Polk was President, Global Foods, Home & Personal Care, Unilever (a consumer packaged goods manufacturer and marketer) since 2010. He joined Unilever in 2003 as Chief Operating Officer, Unilever Foods USA and subsequently became President, Unilever USA in 2005. From 2007 to 2010, he served as President, Unilever Americas. Prior to joining Unilever, he spent 16 years at Kraft Foods Inc. and three years at The Procter & Gamble Company.
At Kraft Foods, he was President, Kraft Foods Asia Pacific; President, Biscuits and Snacks Sector; and was a member of the Kraft Foods Management Committee. Mr. Polk also serves as a director of Colgate-Palmolive Company.William A. Burke III has been Executive Vice President, Chief Operating Officer since January 2017 and served as President, Jarden Group from April 2016 to January 2017. Prior to this role, he served as Executive Vice President from January 2016 to March 2016; Executive Vice President and Chief Operating Officer from October 2012 to December 2015; President, Newell Professional from January 2012 to September 2012; President, Tools, Hardware & Commercial Products from January 2009 through December 2011; and, President, Tools and Hardware from December 2007 to January 2009. Prior to these roles, he was President, North American Tools from 2004 through 2006. He served as President of the Company’s Lenox division from 2003 through 2004. From 1982 through 2002, he served in a variety of positions with The Black & Decker Corporation (a manufacturer and marketer of power tools and accessories), culminating as Vice President and General Manager of Product Service.
Christopher H. Peterson has been the Executive Vice President, Chief Financial Officer of Newell Brands since December 2018 and
President, Business Operations since February 2020. He also served as Interim Chief Executive Officer from June 28, 2019 until October 2, 2019. From April 2018 to August 2018, Mr. Peterson served as the Executive Vice President and Chief Operating Officer, Operations of Revlon, Inc.
(a, a global beauty
company) from April 2018 to August 2018. Prior tocompany. Before that, Mr. Peterson served as
both Revlon’s Chief Operating Officer, Operations
&and Chief Financial Officer from June 2017 until March 2018, and
asleading into that, he held the title of Chief Operating Officer, Operations from April 2017 until June 2017. Prior to
joininghis positions at Revlon, Mr. Peterson held several senior management roles at Ralph Lauren Corporation,
(aa designer, marketer, and distributor of premium lifestyle
products),products, including serving as President, Global Brands from April 2015 to May 2016, Executive Vice President, Chief Administrative Officer & Chief Financial Officer from November 2013 to March 2015, and Senior Vice President and Chief Financial Officer from September 2012 to November 2013. Previously, Mr. Peterson held several financial management positions at The Procter & Gamble Company,
(aa global consumer products
company)company, from 1992 to 2012.
Mr. Peterson serves on the Board of Directors of BJ’s Wholesale Club Holdings, Inc.
Bradford R. Turner has been the Chief Legal and Administrative Officer and Corporate Secretary since August 2017 and served as Chief Legal Officer and Corporate Secretary from April 2016 to August 2017. Prior to this role, he served as Senior Vice President, General Counsel, and Corporate Secretary from March 2015 to March 2016. Mr. Turner joined the Company in 2004 and has served in various legal roles including Vice President and Deputy General Counsel from October 2011 to March 2015, and Group Vice President & General Counsel, — Office Products, from June 2007 to October 2011.
Stephen B. Parsons has been Group President since May 2018. Previously Mr. Torres served as Chief TransformationHuman Resources Officer of the Company since October 2019. Prior to joining the Company, Mr. Parsons served as Global Operating Partner, Z Capital Partners, the private equity fund management arm of Z Capital Group since 2016. Prior to that, he served as Chief Human Resources Officer at Stage Stores, Inc. from 2014 to 2016 and as Global Chief Human Resources Officer at OfficeMax from 2011 to 2014. Earlier in his career, Mr. Parsons held a variety of senior human resources roles at Rite Aid Corporation, Sears Holdings Corporation and Whirlpool Corporation.
Michael M. Hayes has served as Chief Customer Officer of the Company since April 2020. Prior to joining the Company, from January 2011 to April 2020, Mr. Hayes served as the Senior Vice President, Sales & Sales Strategy of Georgia-Pacific LLC. Previously, he led Georgia-Pacific LLC's North American sales organization as Chief Sales Officer. Prior to joining Georgia-Pacific LLC in 2008, Mr. Hayes spent numerous years in sales and marketing leadership roles with the Sara Lee Corporation, Information Resources, Inc., The Dial Corporation and the Small Business Association. Mr. Hayes is a decorated U.S. military veteran, serving six years as a Navy Corpsman with the United States Marine Corps, and on active duty in Operations Desert Shield and Desert Storm.
Laurel M. Hurd has served as Segment President, Learning and Development, leading both Newell Brands' Baby and Writing businesses since February 2019. Previously, Ms. Hurd was the Division Chief Executive Officer for the Company’s Writing division starting in February 2018. From 2016 to February 2018, she served as CEO of the Company’s Baby division. From May 2014 until 2016, Ms. Hurd was President of Baby and Parenting, leading the acquisition of Baby Jogger and later assuming leadership of the Home and Baby segment, including the Calphalon®, Goody®, and Rubbermaid® consumer brands. From 2012 to 2014, Ms. Hurd was Vice President, Global Development, leading both Marketing and Research & Development for the Graco®, Aprica®, and Teutonia® brands globally.
Kristine K. Malkoski has served as Business Unit CEO, Food of the Company since February 2020. Prior to joining the Company, from April 2019 to January 2020, Ms. Malkoski was Chief Executive Officer, Americas, for Arc International, a global manufacturer of glassware products for the housewares industry, where she was responsible for housewares sales, marketing, manufacturing and distribution across North and South America. From January 2015 to August 2017, Ms. Malkoski served as President, Global Business and Chief Commercial Officer for World Kitchen, a privately owned international housewares company, where she oversaw operations for its retail stores, and, previously, from June 2012 to January 2015, as President, North America, Chief Innovation Officer, and President North America Household for World Kitchen. Prior thereto, Ms. Malkoski served as Vice President and General Manager of the Craftsman division of Sears Holding Company and in various other management roles at Sears, Ubiquity Brands and Procter & Gamble. From 1997 to 2002, Ms. Malkoski founded and served as President and Chief Operating Officer of Pharmaceutical Corporation of America, the first contract product management company for the prescription drug industry.
Michael P. McDermott has served as Business Unit CEO, Commercial of the Company since January 2020. Prior to joining the Company, Mr. McDermott served as President of Omni-Channel Retail at Bass Pro Shops in 2019. Previously, Mr. McDermott served as Executive Vice President and Chief Customer Officer at Lowe's Companies Inc. from 2016 to 2019; Chief Merchandising Officer from 2014 to 2016; and Senior Vice President from 2011-2013. Prior to working with Lowe's Companies Inc., Mr. McDermott held various management roles at General Electric Company.
James A. Pisani has served as Business Unit CEO, Outdoor and Recreation of the Company since May 2020. Prior to joining the Company, Mr. Pisani served as Global Brand President of Timberland LLC from August 2016 to April 2020 and, from August 2018 to April 2020, on the executive leadership team at VF Corporation, where he was responsible for the company integrationoversight and cost reduction effortsstrategic direction of the Timberland brand worldwide. Prior to his work at Timberland LLC, Mr. Pisani served as President of VF Corporation's Licensed Sports Group from July 2008 to August 2016. Previously, Mr. Pisani served in various capacities at Kraft Foods and at PepsiCo, where he was responsible forVice President of Business Development.
Christine M. Robins has served as Business Unit CEO, Appliances and Cookware of the Waddington Group.Company since June 2020. Prior to joining the Company, Mr. Torresfrom June 2014 to August 2019, Ms. Robins served as President and Chief Executive Officer at Char-Broil, LLC, a manufacturer of gas, charcoal and electric grills, smokers, fryers, and grilling accessories. Prior to joining Char-Broil, LLC, from 2009 to 2014, Ms. Robins was President, CEO and Board Member at BodyMedia, Inc., a partnermedical and consumer technology company. From 2006 to 2009, she was President and CEO of Philips Oral Healthcare, a global division of Philips Electronics. Prior thereto, from 2005 to 2006, Ms. Robins served as Vice President of Global Innovation and Marketing for Philips Oral Healthcare. Ms. Robins began her career in finance and brand management and served in various roles at BainS.C. Johnson & Company where he led large scaleSon, Inc., a consumer products transformations and merger integrations from June 2013 to April 2016. From June 2011 to June 2013, Mr. Torres wascompany. Ms. Robins currently serves on the board of Husqvarna Group, a senior executive at Mondelez International in its North American Business Unit.Swedish manufacturer of outdoor power equipment.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company’s common stock is listed on the Nasdaq
Global SelectStock Market (symbol: NWL).
The Company transferred its listing from the New York Stock Exchange to the Nasdaq Global Select Market in December 2018. As of January 31, 2019,At February 12, 2021 there were
10,3209,439 stockholders of record.
The following Performance Graph and related information shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that the Company specifically incorporates it by reference into such filing.
The graph below compares total stockholder return on the Company’s common stock from December 31,
20132015 through December 31,
20182020 with the cumulative total return of (a) the Standard and Poor’s (“S&P”) 500 Index, and (b) the
DJDow Jones ("DJ") Consumer Goods Index, assuming a $100 investment made on December 31,
2013.2015. Each of the three measures of cumulative total return assumes reinvestment of dividends, if applicable. The stock performance shown on the graph below is based on historical data and is not indicative of, or intended to forecast, possible future performance of the Company’s common stock.
ISSUER PURCHASES OF EQUITY SECURITIES
The following table provides information about the Company’s purchases of equity securities during the
quarterthree months ended December 31,
2018: | | | | | | | | | | | | | | | | |
Calendar Month | | Total Number
of Shares
Purchased (1) | | | Average
Price Paid
Per Share | | | Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs
Repurchase Program (2) | | | Maximum
Approximate
Dollar Value of
Shares that May
Yet Be Purchased
Under the Plans
or Programs (2) | |
October | | | — | | | $ | | | | | — | | | $ | 3,092,359,000 | |
November | | | 22,183,554 | | | | 21.93 | | | | 22,174,200 | | | $ | 2,606,068,000 | |
December | | | 21,825,000 | | | | 23.36 | | | | 21,825,000 | | | $ | 2,096,216,000 | |
| | | | | | | | | | | | | | | | |
Total | | | 44,008,554 | | | | 22.64 | | | | 43,999,200 | | | | | |
| | | | | | | | | | | | | | | | |
(1) | All shares purchased by the Company during the three months ended December 31, 2018, other than those pursuant to the Company’s share repurchase program (“SRP”), were acquired to satisfy employees’ tax withholding and payment obligations in connection with the vesting of awards of restricted stock units, which were purchased by the Company based on their fair market value on the vesting date. In November 2018, in addition to the shares purchased pursuant to the SRP, the Company purchased 9,353 shares (average price $20.18) in connection with the vesting of employee stock-based awards,
|
(2) | Under the Company’s SRP, the Company may repurchase shares of its common stock through a combination of10b5-1 automatic trading plans, discretionary market purchases or in privately negotiated transactions. On June 11, 2018, the Company announced that its Board of Directors authorized a $2.5 billion increase in the then available amount under its existing SRP. Under the updated SRP, the Company is authorized to repurchase up to approximately $3.6 billion of its outstanding shares through the end of 2019. The average per share price for the shares purchased under the SRP for November and December 2018 were $21.93 and $23.36, respectively.
|
2020: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Calendar Month | | Total Number
of Shares
Purchased (1) | | Average
Price Paid
Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum
Approximate
Dollar Value of
Shares that May
Yet Be Purchased
Under the Plans
or Programs |
| October | | — | | | $ | — | | | — | | | $ | — | |
| November | | 19,361 | | | 18.88 | | | — | | | — | |
| December | | 26,020 | | | 21.77 | | | — | | | — | |
| Total | | 45,381 | | | 20.54 | | | — | | | |
(1)All shares purchased during the three months ended December 31, 2020, were acquired to satisfy employees’ tax withholding and payment obligations in connection with the vesting of awards of restricted stock units, which were purchased by the Company based on their fair market value on the vesting date.
ITEM 6. SELECTED FINANCIAL DATA
The following is a summary of certain consolidated financial data relating to the Company. The summary has been derived in part from, and should be read in conjunction with, the Consolidated Financial Statements of the Company included elsewhere in this report and the schedules thereto. The selected financial data as of and for the years ended December 31, 2015 and 2014 were derived and updated to reflect discontinued operations from audited consolidated financial statements of the Company not included in this report.
| | | | | | | | | | | | | | | | | | | | |
| | | As of and for the Years Ended December 31, | |
(in millions, except per share data) | | 2018 (1) | | | 2017 (1) | | | 2016 (1) | | | 2015 | | | 2014 | |
STATEMENTS OF OPERATIONS DATA (2) (3) | | | | | | | | | | | | | | | | | | | | |
Net sales | | $ | 8,630.9 | | | $ | 9,552.0 | | | $ | 9,181.1 | | | $ | 4,993.8 | | | $ | 4,004.2 | |
Gross profit | | | 3,008.8 | | | | 3,263.0 | | | | 2,970.9 | | | | 1,935.5 | | | | 1,606.7 | |
Operating income (loss) | | | (7,828.5 | ) | | | 385.5 | | | | 298.1 | | | | 337.8 | | | | 208.1 | |
Income (loss) before income taxes | | | (8,267.7 | ) | | | 592.4 | | | | 18.8 | | | | 74.4 | | | | 66.5 | |
Income (loss) from continuing operations | | | (6,789.6 | ) | | | 2,170.8 | | | | (38.3 | ) | | | 103.2 | | | | 134.6 | |
Income (loss) income from discontinued operations | | | (128.3 | ) | | | 578.0 | | | | 566.1 | | | | 246.8 | | | | 243.2 | |
Net income (loss) | | $ | (6,917.9 | ) | | $ | 2,748.8 | | | $ | 527.8 | | | $ | 350.0 | | | $ | 377.8 | |
Earnings (loss) per share: | | | | | | | | | | | | | | | | | | | | |
Basic: | | | | | | | | | | | | | | | | | | | | |
Income (loss) from continuing operations | | $ | (14.33 | ) | | $ | 4.46 | | | $ | (0.09 | ) | | $ | 0.38 | | | $ | 0.49 | |
Income (loss) from discontinued operations (3) | | | (0.27 | ) | | | 1.19 | | | | 1.34 | | | | 0.92 | | | | 0.88 | |
| | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | (14.60 | ) | | $ | 5.65 | | | $ | 1.25 | | | $ | 1.30 | | | $ | 1.37 | |
| | | | | | | | | | | | | | | | | | | | |
Diluted: | | | | | | | | | | | | | | | | | | | | |
Income (loss) from continuing operations | | $ | (14.33 | ) | | $ | 4.45 | | | $ | (0.09 | ) | | $ | 0.38 | | | $ | 0.49 | |
Income (loss) from discontinued operations | | | (0.27 | ) | | | 1.18 | | | | 1.34 | | | | 0.91 | | | | 0.87 | |
| | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | (14.60 | ) | | $ | 5.63 | | | $ | 1.25 | | | $ | 1.29 | | | $ | 1.36 | |
| | | | | | | | | | | | | | | | | | | | |
Dividends | | $ | 0.92 | | | $ | 0.88 | | | $ | 0.76 | | | $ | 0.76 | | | $ | 0.66 | |
BALANCE SHEET DATA | | | | | | | | | | | | | | | | | | | | |
Inventories, net | | $ | 1,583.1 | | | $ | 1,662.4 | | | $ | 1,389.9 | | | $ | 643.7 | | | $ | 544.2 | |
Working capital (4) | | | 4,418.8 | | | | 5,818.0 | | | | 3,192.5 | | | | 506.4 | | | | 404.8 | |
Total assets | | | 17,716.4 | | | | 33,135.5 | | | | 33,834.8 | | | | 7,211.4 | | | | 6,564.3 | |
Short-term debt, including current portion of long-term debt | | | 318.7 | | | | 661.8 | | | | 600.4 | | | | 388.8 | | | | 397.4 | |
Long-term debt, net of current portion | | | 6,696.3 | | | | 9,889.2 | | | | 11,286.9 | | | | 2,621.0 | | | | 2,084.5 | |
Total stockholders’ equity | | | 5,277.8 | | | | 14,181.3 | | | | 11,384.4 | | | | 1,826.4 | | | | 1,854.9 | |
(1) | Supplemental data regarding 2018, 2017 and 2016 is provided in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations. During the year ended December 31, 2018, the Company recorded non-cash impairment charges related to goodwill and indefinite-lived intangibles of $8.3 billion in continuing operations and $1.5 billion in discontinued operations.
|
(2) | The results of Chesapeake Bay Candle, Sistema Plastics, Smith Mountain Industries, Jarden Corporation, Elmer’s Products, Inc., Baby Jogger Holdings, Inc., bubba brands. and Ignite Holdings, LLC are included from their dates of acquisition of September 2017, April 2017, January 2017, April 2016, October 2015, December 2014, October 2014 and September 2014, respectively.
|
(3) | The results of the Company’s winter sports business, tools business, Décor business and Rubbermaid® medical cart business were included in continuing operations up until their dates of disposition of July 2017, March 2017, June 2016 and August 2015, respectively. Also, at various dates during 2017, the Company sold a number of smaller businesses, including its Rubbermaid® consumer storage totes business, its Teutonia® stroller business, its Lehigh business, its Firebuilding business and its triathlon apparel business, the results of which, were included in continuing operations up until their respective dates of disposition. The results of the Company’s Jostens business, Pure Fishing business, Goody business, Team Sports business and Waddington business, were included in discontinued operations up until their dates of disposition of December 2018, December 2018, August 2018, June 2018 and June 2018, respectively.
|
(4) | Working capital is defined as current assets less current liabilities.
|
Selected Quarterly Financial Data (Unaudited)
| | | | | | | | | | | | | | | | | | | | |
(in millions, except per share amounts) | | First
Quarter | | | Second
Quarter | | | Third
Quarter (2) | | | Fourth
Quarter (3) | | | Total | |
2018 | | | | | | | | | | | | | | | | | | | | |
Net sales | | $ | 1,811.5 | | | $ | 2,201.6 | | | $ | 2,277.2 | | | $ | 2,340.6 | | | $ | 8,630.9 | |
Gross profit | | $ | 605.3 | | | $ | 774.8 | | | $ | 817.0 | | | $ | 811.7 | | | $ | 3,008.8 | |
Income (loss) from continuing operations | | $ | (54.7 | ) | | $ | (76.4 | ) | | $ | (6,795.3 | ) | | $ | 136.8 | | | $ | (6,789.6 | ) |
Income (loss) from discontinued operations | | | 108.0 | | | | 208.1 | | | | (515.7 | ) | | | 71.3 | | | | (128.3 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 53.3 | | | $ | 131.7 | | | $ | (7,311.0 | ) | | $ | 208.1 | | | $ | (6,917.9 | ) |
| | | | | | | | | | | | | | | | | | | | |
Earnings per share (1): | | | | | | | | | | | | | | | | | | | | |
Basic: | | | | | | | | | | | | | | | | | | | | |
Income (loss) from continuing operations | | $ | (0.11 | ) | | $ | (0.16 | ) | | $ | (14.43 | ) | | $ | 0.30 | | | $ | (14.33 | ) |
Income (loss) from discontinued operations | | | 0.22 | | | | 0.43 | | | | (1.09 | ) | | | 0.16 | | | | (0.27 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 0.11 | | | $ | 0.27 | | | $ | (15.52 | ) | | $ | 0.46 | | | $ | (14.60 | ) |
| | | | | | | | | | | | | | | | | | | | |
Diluted: | | | | | | | | | | | | | | | | | | | | |
Income (loss) from continuing operations | | $ | (0.11 | ) | | $ | (0.16 | ) | | $ | (14.43 | ) | | $ | 0.30 | | | $ | (14.33 | ) |
Income (loss) from discontinued operations | | | 0.22 | | | | 0.43 | | | | (1.09 | ) | | | 0.16 | | | | (0.27 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 0.11 | | | $ | 0.27 | | | $ | (15.52 | ) | | $ | 0.46 | | | $ | (14.60 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | First
Quarter | | | Second
Quarter | | | Third
Quarter | | | Fourth
Quarter (4) | | | Total | |
2017 | | | | | | | | | | | | | | | | | | | | |
Net sales | | $ | 2,087.4 | | | $ | 2,508.8 | | | $ | 2,466.6 | | | $ | 2,489.2 | | | $ | 9,552.0 | |
Gross profit | | $ | 707.8 | | | $ | 876.5 | | | $ | 864.9 | | | $ | 813.8 | | | $ | 3,263.0 | |
Income from continuing operations | | $ | 545.0 | | | $ | 15.9 | | | $ | 111.1 | | | $ | 1,498.8 | | | $ | 2,170.8 | |
Income from discontinued operations | | | 93.5 | | | | 207.1 | | | | 123.3 | | | | 154.1 | | | | 578.0 | |
| | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 638.5 | | | $ | 223.0 | | | $ | 234.4 | | | $ | 1,652.9 | | | $ | 2,748.8 | |
| | | | | | | | | | | | | | | | | | | | |
Earnings per share (1): | | | | | | | | | | | | | | | | | | | | |
Basic: | | | | | | | | | | | | | | | | | | | | |
Income from continuing operations | | $ | 1.13 | | | $ | 0.03 | | | $ | 0.23 | | | $ | 3.07 | | | $ | 4.46 | |
Income from discontinued operations | | | 0.19 | | | | 0.43 | | | | 0.25 | | | | 0.32 | | | | 1.19 | |
| | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 1.32 | | | $ | 0.46 | | | $ | 0.48 | | | $ | 3.39 | | | $ | 5.65 | |
| | | | | | | | | | | | | | | | | | | | |
Diluted: | | | | | | | | | | | | | | | | | | | | |
Income from continuing operations | | $ | 1.12 | | | $ | 0.03 | | | $ | 0.23 | | | $ | 3.07 | | | $ | 4.45 | |
Income from discontinued operations | | | 0.19 | | | | 0.43 | | | | 0.25 | | | | 0.31 | | | | 1.18 | |
| | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 1.31 | | | $ | 0.46 | | | $ | 0.48 | | | $ | 3.38 | | | $ | 5.63 | |
| | | | | | | | | | | | | | | | | | | | |
(1) | Earnings per share calculations each quarter are based on weighted average number of shares outstanding each period, and the sum of the quarterly amounts may not necessarily equal the annual earnings per share amounts.
|
(2) | The results of operations for the third quarter of 2018 includes $8.1 billion non-cash charge for the impairment of goodwill and intangibles in continuing operations and $629 million non-cash charge for the impairment of goodwill and intangibles in discontinued operations (see Footnotes 4 and 9 of the Notes to the Consolidated Financial Statements).
|
(3) | The results of operations for the fourth quarter of 2018 includes a $156 millionnon-cash charge for the impairment of intangibles in continuing operations and $385 millionnon-cash charge for the impairment of goodwill and intangibles in discontinued operations. (See Footnotes 4 and 9 of the Notes to Consolidated Financial Statements).
|
(4) | As a result of the Tax Cuts and Jobs Act in the United States, during the fourth quarter of 2017, the Company recorded a deferred tax benefit of $1.5 billion due to statutory tax rate changes and an $87.2 million of tax benefit to reverse the Company’s APB 23 liability on historical Jarden earnings, partially offset by a $195 million tax expense relating to a mandatory repatriation tax.
|
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion
This Management's Discussion and
analysis provides information which management believes is relevant to an assessmentAnalysis of Financial Condition and
understandingResults of
the Company’s consolidated results of operations and financial condition. The discussionOperations section should be read in conjunction with
“Financial Statements and Supplementary Data” included in Part II, Item 8 of this 2020 Annual Report and the
accompanyingCompany's audited Consolidated Financial Statements and Notes
thereto.Business thereto included elsewhere in this 2020 Annual Report. The following “Business Strategy” and "Recent Developments" sections below is a brief presentation of our business and certain significant items addressed in this section or elsewhere in this 2020 Annual Report. This section should be read along with the relevant portions of this 2020 Annual Report for a complete discussion of the events and items summarized below.
Newell Brands is a leading global consumer goods company with a strong portfolio of well-known brands, including
Rubbermaid®, Paper
Mate®Mate®,
Sharpie®Sharpie®,
Dymo®Dymo®,
EXPO®EXPO®,
Parker®Parker®,
Elmer’s®Elmer’s®,
Coleman®Coleman®,
Marmot®Marmot®,
Oster®Oster®,
Sunbeam®Sunbeam®,
FoodSaver®FoodSaver®, Mr.
Coffee®Coffee®,
Graco®Rubbermaid Commercial Products®, Graco®, Baby
Jogger®Jogger®,
NUK®NUK®,
Calphalon®Calphalon®,
Rubbermaid®, Contigo®Contigo®, First
Alert®Alert®, Mapa®, Spontex® and Yankee
Candle®Candle®.
For hundreds of millionsNewell Brands is committed to enhancing the lives of consumers
Newell Brands makes life better every day, where they live, learn, workaround the world with planet-friendly, innovative and
play.attractive products that create moments of joy and provide peace of mind. The Company sells its products in nearly 200 countries around the world and has operations on the ground in over 40 of these countries, excluding third-party distributors.
Business Strategy
In 2018, Newell Brands announced
The Company is continuing to execute on its
Accelerated Transformation Plan, which aims to accelerate value creation and more rapidly transformturnaround strategy of building a global, next generation consumer products company that can unleash the
portfolio to one best positioned to leverage the Company’s advantaged capabilitiesfull potential of its brands in
innovation, design ande-commerce.a fast moving omni-channel environment. The
Accelerated Transformation Planstrategy, developed in 2019, is designed to
significantly increase shareholder value through both strengthened operationaldrive sustainable top line growth, improve operating margins, accelerate cash conversion cycle and
financial performance,strengthen the portfolio, organizational capabilities and employee engagement, while
simultaneously deleveragingaddressing key challenges facing the
balance sheetCompany. These challenges include: shifting consumer preferences and
returning capitalbehaviors; a highly competitive operating environment; a rapidly changing retail landscape, including the growth in e-commerce; continued macroeconomic and political volatility; and an evolving regulatory landscape. The coronavirus (COVID-19) pandemic and its impact to
shareholders.As part of the Company’s Accelerated Transformation Plan, during 2018,business resulted in the acceleration of these initiatives in many respects.
The Company
announcedhas made significant progress on the following imperatives it
was exploring strategic options for its industrial and commercial product assets, including The Waddington Group, Process Solutions, Rubbermaid Commercial Products, Rexair and Mapa businesses, as well asnon-core consumer businesses, including Rawlings, Jostens, Pure Fishing, Rubbermaid Outdoor, Closet, Refuse and Garage, Goody Products and U.S. Playing Cards businesses. These businesses are classified as discontinued operations at December 31, 2018. Prior periods have been reclassified to conform with the current presentation. During 2018, the Company sold Goody Products, Inc. (“Goody”), Jostens, Inc. (“Jostens”), Pure Fishing, Inc. (“Pure Fishing”), the Rawlings Sporting Goods Company, Inc. (“Rawlings”) and Waddington Group, Inc. (“Waddington”) and various other subsidiariespreviously identified as part of
the Accelerated Transformation Plan. The Company expects to complete the remaining divestitures by the end of 2019.The Company expects to incur costs and expenses in connection with the transformation ofits turnaround strategy:
•Strengthening the portfolio by investing in attractive categories aligned with its capabilities and strategy;
•Driving sustainable profitable growth by focusing on innovation, as well as growth in digital marketing, e-commerce and its international businesses;
•Improving margins by driving productivity and overhead savings, while reinvesting into the business;
•Enhancing cash efficiency by improving key working capital metrics, resulting in a lower cash conversion cycle; and
•Building a winning team through engagement and focusing the best people on the right things.
Continued execution of
businesses as part of the Accelerated Transformation Plan.Organizational Structure
In order to align reporting with the company’s Accelerated Transformation Plan, effective June 30,these strategic imperatives will better position the Company is reporting its financial results in fourfor long-term sustainable growth.
Organizational Structure
The Company’s five primary operating segments are as follows:
| | | | | | | | | | | | | | |
| Segment | | Key Brands | | Description of Primary Products |
| Appliances and Cookware | | Calphalon®, Crock-Pot®, Mr. Coffee®, Oster® and Sunbeam® | | Household products, including kitchen appliances, gourmet cookware, bakeware and cutlery |
| Commercial Solutions | | BRK®, First Alert®, Mapa®, Quickie®, Rubbermaid®, 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 Solutions | | Ball® (1), Chesapeake Bay Candle®, FoodSaver®, Rubbermaid®, Sistema®, WoodWick® and Yankee Candle® | | Food and home storage products; fresh preserving products, vacuum sealing products 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 Appliances, Home and Outdoor Living, Learning and Development and Other.Ball®, TMs Ball Corporation, used under license.
This new structure reflects the manner in which the chief operating decision maker regularly assesses information for decision-making purposes, including the allocation of resources. All prior periods have been reclassifiedThe Company also provides general corporate services to conformits segments which is reported as a non-operating segment, Corporate. See Footnote 17 of the Notes to the current reporting structure.Consolidated Financial Statements
for further information.
Recent Developments
Coronavirus (COVID-19)
Beginning late in the fourth quarter of 2019 through 2020 and into 2021, COVID-19 emerged and subsequently spread globally, ultimately being declared a pandemic by the World Health Organization. The Company’spandemic 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, experienced significant COVID-19 related disruption to its business in three primary operating segmentsareas:
•Supply chain. While the majority of the Company’s factories are as follows: | | | | |
Segment
| | Key Brands
| | Description of Primary Products
|
Food and Appliances | | Ball®, Calphalon®,Crock-Pot®, FoodSaver®, Mr. Coffee®, Oster®, Rubbermaid®, Sistema® and Sunbeam® | | Household products, including kitchen appliances, gourmet cookware, bakeware and cutlery, food storage and home storage products and fresh preserving products |
Home and Outdoor Living | | Chesapeake Bay Candle®, Coleman®, Contigo®, ExOfficio®, First Alert®, Marmot®, WoodWick® and Yankee Candle® | | Products for outdoor and outdoor-related activities, home fragrance products and connected home and security |
Learning and Development | | Aprica®, Baby Jogger®, Dymo®, Elmer’s®, Expo®, Graco®, Mr. Sketch®, NUK®, Paper Mate®, Parker®, Prismacolor®, Sharpie®, Tigex® Waterman® andX-Acto® | | Writing instruments, including markers and highlighters, pens and pencils; art products; activity-based adhesive and cutting products; labeling solutions; baby gear and infant care products |
Summary of Significant 2018 Activities
On June 11, 2018,considered essential in their applicable jurisdictions and have remained operational, the Company announced that its Board of Directors authorized an increase in the then available amount under its existing Stock Repurchase Program (“SRP”). Under the updated SRP, the Company is authorized to repurchase up to approximately $3.6 billionexperienced disruption at certain of its outstanding shares throughfacilities. Of its 135 manufacturing and distribution facilities, approximately 20 were temporarily closed at the end of 2019. During 2018, the Company repurchased approximately $1.5 billionfirst quarter of 2020, the most significant of which were its shares of common stock (see “Capital Resources”).
During 2018, the Company completed the sale ofSouth Deerfield, MA, Home Fragrance plant, its Goody business, Jostens, Pure Fishing, Team Sports business, as well as the Rawlings brand,Mexicali, Mexico and India Writing facilities and its Waddington business (collectively,Juarez, Mexico Connected Home and Security facility, all of which were closed in accordance with state government guidelines. By the “Divestitures”).
During 2018,end of the Company repurchased approximately $2.6 billion aggregate principal amountthird quarter of its senior notes (see “Capital Resources”).
2020, substantially all of the Company's manufacturing and distribution facilities reopened and were operating at or near capacity. Since then, the Company's facilities have replenished most of the inventory levels that were depleted by lost production during the temporary closure period. The Company recorded non-cash impairment charges relateddoes, however,
continue to goodwillface intermittent supply and indefinite lived intangibleslabor shortages, capacity constraints, and transportation and logistical challenges and expects this to persist until the current economic and public health conditions improve globally.
•Retail. While the Company’s largest retail customers experienced a surge in sales as their stores remained open, a number of $8.3 billion in continuing operations and $1.5 billion in discontinued operations.
Acquisitions
2017 Activity
In September 2017, the Company acquired Chesapeake Bay Candle, a leading developer, manufacturer and marketer of premium candles and other home fragrance products, focused on consumer wellness and natural fragrance, for a cash purchase price of approximately $75 million. Chesapeake Bay Candle is includedsecondary customers, primarily in the Homespecialty and Outdoor Living segment from the date of acquisition.
In April, 2017, the Company acquired Sistema Plastics, a leading New Zealand based manufacturerdepartment store channels, temporarily closed their brick and marketer of innovative food storage containers with strong market sharesmortar doors in March 2020, and presencebegan to reopen in Australia, New Zealand, U.K. and parts of continental Europe for a cash purchase price of approximately $472 million. Sistema is included in the Food and Appliances segment from the date of acquisition.
In January 2017, the Company acquired Smith Mountain Industries (“Smith Mountain”), a leading provider of premium home fragrance products, sold primarily under the WoodWick® Candle brand, for a cash purchase price of approximately $100 million. Smith Mountain is included in the Home and Outdoor Living segment from the date of acquisition.
2016 Activity
On April 15, 2016, the Company acquired Jarden for total consideration of $18.7 billion including cash paid, shares issued and debt assumed, net of cash acquired (“the Jarden Acquisition”). The total consideration paid or payable for shares of Jarden common stock was approximately $15.3 billion, including $5.4 billion of cash and $9.9 billion of the Company’s common stock. Jarden’s results of operations are included in the Company’s results of operations since the acquisition date.
Divestitures
2018 Activity
On June 29, 2018, the Company sold Rawlings, its Team Sports business, to a fund managed by Seidler Equity Partners with aco-investment of Major League Baseball for approximately $400 million, subject to customary working capital and transaction adjustments. As a result, during 2018, the Company recorded a pretax loss of $128 million, which is included in the income (loss) from discontinued operations.
On June 29, 2018, the Company sold Waddington to Novolex Holdings LLC for approximately $2.3 billion, subject to customary working capital and transaction adjustments. As a result, during 2018, the Company recorded a pretax gain of $599 million, which is included in the income (loss) from discontinued operations.
On August 31, 2018, the Company sold its Goody business, to a fund managed by ACON Investments, L.L.C. for approximately $109 million, subject to customary working capital and transaction adjustments. As a result, during 2018, the Company recorded a pretax gain of $20.3 million, which is included in the income (loss) from discontinued operations.
On December 21, 2018, the Company sold Jostens to Platinum Equity for approximately $1.3 billion, subject to customary working capital and transaction adjustments. As a result, during 2018, the Company recorded a pretax loss of $32.1 million, which is included in the income (loss) from discontinued operations.
On December 21, 2018, the Company sold Pure Fishing to Sycamore Partners for approximately $1.3 billion, subject to customary working capital and transaction adjustments. As a result, during 2018, the Company recorded a pretax gain of $372 million, which is included in the income (loss) from discontinued operations.
During 2018, the Company recorded an impairment charge primarily related to goodwill and intangible assets totaling $1.5 billion, respectively, which is included in the income (loss) from discontinued operations, primarily related to the write-down of the carrying value of the net assets of certain held for sale businesses based on their estimated fair value.
2017 Activity
On July 14, 2017, the Company sold its Winter Sports business for a selling price of approximately $240 million, subject to working capital and transaction adjustments. For 2017, net sales from the Winter Sports business were not material. During 2017, the Company recorded an impairment charge of $59.1 million related to the write-down of the carrying value of the net assets of the Winter Sports business to their estimated fair market value.
During 2017, the Company sold its Rubbermaid® consumer storage totes business, its stroller business under the Teutonia® brand, its Lehigh business, its Firebuilding business and its triathlon apparel business under the Zoot® and Squadra® brands. The selling prices for these businesses were not significant. During 2017, the Company recorded impairment charges of $15.3 million related to the write down of the carrying value of the net assets of the Firebuilding and Teutonia® stroller businesses to their estimated fair market value.
In March 2017, the Company sold its Tools business, including the Irwin®, Lenox® and Hilmor® brands. The selling price was $1.95 billion, subject to customary working capital and transaction adjustments. As a result, during 2017, the Company recorded a pretax gain of $771 million, which is included in other (income) expense, net. Net sales for the Tools business in 2017 were not material.
2016 Activity
In June 2016, the Company sold its Décor business, including Levolor® and Kirsch® window coverings and drapery hardware, for consideration, net of fees of approximately $224 million, resulting in a pretax gain of $160 million, which is included in other (income) expense, net for 2016.
Subsequent Event
On February 25, 2019, the Company signed a definitive agreement to sell its Rexair business to investment funds affiliated with Rhône Group for $235 million, subject to customary working capital and transaction adjustments. The transaction is expected to close byregions where conditions improved towards the end of the second quarter 2019, subjectof 2020. These dynamics, in combination with some retailers’ prioritization of essential items, have had a meaningful impact on the Company's traditional order patterns. In addition, the Company temporarily closed its Yankee Candle retail stores in North America as of mid-March. All of these stores reopened by the end of the third quarter and have remained open since.
•Consumer demand patterns. During the quarantine phase of the pandemic, consumer purchasing behavior strongly shifted to customary closing conditions, including regulatory approvals.Ongoing Restructuring Initiatives
Accelerated Transformation Plan
certain focused categories. While certain of the Company’s product categories in the Food, Commercial and Appliances and Cookware business benefited from this shift, others, particularly the Writing business, experienced significant slowing. Changes in consumer purchasing patterns, temporary office closures, as well as the shift to remote learning for schools and other higher education programs in the Fall semester of 2020 adversely impacted the performance of the Writing business during 2020.
In response to the COVID-19 pandemic, the Company focused on protecting the health and well-being of its employees; maintaining financial viability and business continuity; and keeping manufacturing facilities and distribution centers operating, where permitted and deemed prudent, to provide products to our consumers. The Company began restructuringput in place internal protocols including the establishment of a COVID-19 task force to monitor the situation, as well as communications and other actionsguidance issued by foreign, federal, state and local governments. The Company instituted mandatory work-from-home policies for employees able to work from home in 2016various locations around the world and implemented a number of precautionary measures at its manufacturing plants, warehouses, distribution centers and R&D centers to integratereduce person-to-person contact and improve the legacy Newell Rubbermaid and Jarden businesses (the “Jarden Integration”). Initially, integration projects were primarily focused on driving cost synergies in procurement, overhead functions and organizational changes designed to redefinepersonal safety for our front-line employees. Furthermore, the operating modelCompany temporarily closed all of the world-wide Yankee Candle retail stores. By the end of the third quarter of 2020, all of the Company’s temporarily closed manufacturing and distribution sites reopened and were operating at or near capacity. In addition, most of the Company's office locations have reopened on a limited basis.
The Company continues to monitor developments, including government requirements and recommendations at the national, state, and local level to evaluate possible cessation or extensions to all or part of such COVID-19 precautionary initiatives. As part of the Company's efforts to contain costs and maintain financial liquidity and flexibility, it instituted a hiring freeze for non-essential roles, furloughed all field-based and most corporate retail employees in North America, from a holding company to an operating company. Subsequently,April 1, 2020 through the third quarter of 2020, tightened discretionary spending, reduced non-essential travel and optimized advertising and promotional expenses. In addition, the Company announced its Accelerated Transformation Plana restructuring program during the firstsecond quarter of 20182020 to divestreduce overhead costs, streamline certain underperforming operations and improve future profitability.
While the negative effects from the COVID-19 global pandemic in the first half of 2020 were material to the Company's operating results, the Company saw positive momentum, which included sales growth during the second half of the Company’s industrialyear and commercial product assets andnon-core consumer businesses.strong liquidity with over $1.4 billion in operating cash flow for the year ended December 31, 2020. The Accelerated Transformation Plan continues someCompany believes, however, the extent of the Jarden Integration projects forimpact of the continuing operationsCOVID-19 pandemic to its businesses, operating results, cash flows, liquidity and focusesfinancial condition will be primarily driven by the severity and duration of the pandemic, the impact of new strains and variants of the coronavirus, the pandemic’s impact on the realignmentU.S. and global economies and the timing, scope and effectiveness of federal, state and local governmental plans to administer vaccines to the Company’s management structuregeneral public, especially in areas where conditions have recently worsened and overall cost structurelockdowns or travel bans have been reinstituted. Those 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. Furthermore, the completedimpact to the Company's businesses, operating results, cash flows, liquidity and planned divestitures. Restructuring costs associated with integration projectsfinancial condition may be further adversely impacted if the COVID-19 global pandemic continues to exist or worsens for a prolonged period of time or if plans to administer vaccines are delayed.
See Results of Operations, Critical Accounting Estimates and the transformation plan include employee-related cash costs, including severance, retirementFootnotes 1 and other termination benefits, and contract termination and other costs. In addition, other costs associated with the Jarden Integration include advisory and personnel costs for managing and implementing integration projects.Project Renewal
The Company’s Project Renewal restructuring plan was completed during 2017. Project Renewal was designed, in part, to simplify and align the Company’s businesses, streamline and realign the supply chain functions, reduce operational and manufacturing complexity, streamline the distribution and transportation functions, optimize global selling and trade marketing functions and rationalize the Company’s real estate portfolio.
See Footnote 67 of the Notes to Consolidated Financial Statements
for further information.
Goodwill and Other Indefinite-Lived Intangible Asset Impairments
In conjunction with the Company's annual impairment testing of goodwill and indefinite-lived intangible assets during the fourth quarter (on December 1), the Company recorded a non-cash impairment charge of $20 million associated with a tradename in the Learning and Development segment, as its carrying value exceeded its fair value. The impairment reflected a downward revision of forecasted results due to the impact of the delayed and limited re-opening of schools and offices as a result of the COVID-19 global pandemic, as well as the continued deterioration in sales for slime-related adhesive products.
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. Pursuant to the authoritative literature the Company performed an impairment test and determined that an indefinite-lived intangible asset was impaired. During the three months ended September 30, 2020, the Company recorded a non-cash charge of $2 million to reflect impairment of this indefinite-lived tradename as its carrying value exceeded its fair value.
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 certain of its indefinite-lived intangible assets in the Appliances and Cookware, Home and Outdoor Living and Learning and Development segments were impaired. During the three months ended March 31, 2020, the Company recorded an aggregate non-cash charge of $1.3 billion to reflect impairment of these indefinite-lived tradenames as their carrying values exceeded their fair values. In addition, the Company determined that its goodwill associated with its Appliances and Cookware segment was fully impaired. During, the three months ended March 31, 2020, the Company recorded a non-cash charge of $212 million to reflect the impairment of its goodwill as its carrying value exceeded its fair value.
See Results of Operations, Critical Accounting Estimates and Footnotes 1 and 7 of the Notes to Consolidated Financial Statements for further information.
The current U.S. presidential administration has implemented new U.S. tariffs that could impact the level of trade between the U.S and Canada, China, and the European Union in addition to global commerce in general. U.S. trading partners such as Canada, China and the European Union have responded by announcing retaliatoryUnited States Trade Representative (“USTR”) imposed increased tariffs on some U.S. exports. Tariffs on importsChinese goods imported into the U.S. and exports to Canada, China and the European Union will increaseUnited States, resulting in increased costs for the Company. TheIn 2020, the Company has beenwas successful at negotiating an exceptionsecuring from the USTR exemptions and exclusions for some of its products, with the most notable exemptions being for certain of the U.S. tariffs planned onits baby gear products, which represents a substantial portion of the Company’s tariff exposure. However, the U.S. government has announced its intention to increase some of the China tariffs from 10% to 25% if there is not a breakthrough in negotiations with the China government. The Company’s annualized gross tariff cost exposure from all these actions is estimated at approximately $105 million. The Company is working to mitigate thehas largely mitigated its tariff exposure, in part through pricing, productivity and, in some cases, relocation. The Phase 1 agreement signed on January 15, 2020 with China reduced tariffs under List 4a from 15% to 7.5%, effective February 14, 2020, and suspended 301 tariffs under List 4b, which went into effect on December 15, 2019. The terms of the agreement significantly reduced the estimated impact on tariffs for 2020. In addition, ifspite of the U.S. presidential administration were to extend theagreement, a full year of previously implemented tariffs to additional categories of goods made in China it could havehad a significantmaterial impact on the Company's operating results and cash flows, with gross impact of approximately $91 million in 2020, primarily relating to its Appliances and Cookware, Commercial Solutions, and Outdoor and Recreation businesses. The Company will continue to monitor the impact, if any, of new trade policy under the new U.S. Presidential administration and deploy mitigation efforts to offset the gross exposure. However, there can be no assurance that the Company will be successful in its mitigation efforts.
U.S. Treasury Regulations
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 Consolidated Financial Statements for the period ending December 31, 2020. 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.
Debt Redemption
In November 2020, the Company repurchased $300 million of the 3.85% Senior Notes due 2023 with available cash on hand. The total consideration, excluding accrued interest, was approximately $318 million. The Company recorded a loss on extinguishment of
debt of $20 million as a result of the partial debt repayment. See Footnote 9 in Notes to Consolidated Financial Statements for further information.
Consolidated Operating Results
20182020 vs.
2017 | | | | | | | | | | | | | | | | |
| | | Years Ended December 31, | |
(in millions) | | 2018 | | | 2017 | | | Increase
(Decrease) | | | %
Change | |
Net sales | | $ | 8,630.9 | | | $ | 9,552.0 | | | $ | (921.1 | ) | | | (9.6 | )% |
Cost of products sold | | | 5,622.1 | | | | 6,289.0 | | | | (666.9 | ) | | | (10.6 | ) |
| | | | | | | | | | | | | | | | |
Gross profit | | | 3,008.8 | | | | 3,263.0 | | | | (254.2 | ) | | | (7.8 | ) |
Selling general and administrative expenses (“SG&A”) | | | 2,434.8 | | | | 2,705.6 | | | | (270.8 | ) | | | (10.0 | ) |
Restructuring costs, net | | | 80.5 | | | | 87.6 | | | | (7.1 | ) | | | (8.1 | ) |
Impairment of goodwill, intangibles and other assets | | | 8,322.0 | | | | 84.3 | | | | 8,237.7 | | | | NMF | |
| | | | | | | | | | | | | | | | |
Operating income (loss) | | | (7,828.5 | ) | | | 385.5 | | | | (8,214.0 | ) | | | NMF | |
Interest expense, net | | | 446.3 | | | | 469.1 | | | | (22.8 | ) | | | (4.9 | ) |
Loss on extinguishment of debt | | | 4.1 | | | | 32.3 | | | | (28.2 | ) | | | (87.3 | ) |
Other (income) expense, net | | | (11.2 | ) | | | (708.3 | ) | | | 697.1 | | | | (98.4 | ) |
| | | | | | | | | | | | | | | | |
Income (loss) before taxes | | $ | (8,267.7 | ) | | $ | 592.4 | | | $ | (8,860.1 | ) | | | NMF | |
| | | | | | | | | | | | | | | | |
NMF — Not meaningful
The decrease in net2019
| | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in millions, except per share data) | 2020 | | 2019 | | $ Change | | % Change |
| Net sales | $ | 9,385 | | | $ | 9,715 | | | $ | (330) | | | (3.4)% |
| Gross profit | 3,079 | | | 3,219 | | | (140) | | | (4.3)% |
| Gross margin | 32.8 | % | | 33.1 | % | | | | |
| | | | | | | |
| Operating loss | (634) | | | (482) | | | (152) | | | (31.5)% |
| Operating margin | (6.8) | % | | (5.0) | % | | | | |
| | | | | | | |
| Interest expense, net | 274 | | | 303 | | | (29) | | | (9.6)% |
| Loss on extinguishment of debt | 20 | | | 28 | | | (8) | | | (28.6)% |
| Other expense, net | 78 | | | 39 | | | 39 | | | 100.0% |
| Loss before income taxes | (1,006) | | | (852) | | | (154) | | | (18.1)% |
| Income tax benefit | (236) | | | (1,038) | | | 802 | | | 77.3% |
| Income tax rate | 23.5 | % | | 121.9 | % | | | | |
| | | | | | | |
| Diluted earnings (loss) per share - continuing operations | $ | (1.82) | | | $ | 0.44 | | | | | |
| Diluted earnings (loss) per share - discontinued operations | — | | | (0.19) | | | | | |
| Diluted earnings (loss) per share - attributable to common shareholders | $ | (1.82) | | | $ | 0.25 | | | | | |
Net sales for 2018 was primarily2020 decreased 3%, due to the 2017 divestitures (approximately 3%), a decline in sales within Learning and Development and Outdoor and Recreation segments. The Learning and Development segment was impacted by changes in consumer purchasing patterns as well as delays and limited opening of schools and offices caused by the COVID-19 pandemic. Net sales in the Outdoor and Recreation segment were impacted by lower overall demand. The net sales decline was partially offset by growth in the Appliances and Cookware, Commercial Solutions and Home Solutions segments due to an increase in demand, notably through online channels. Changes in foreign currency unfavorably impacted net sales by $108 million, or 1%.
Gross profit for 2020 decreased 4% and gross profit margin declined to 32.8% as compared with 33.1% in the prior year period. The gross margin decline was driven by higher costs associated with lower sales volume and certain temporary manufacturing closures, primarily during the first half of the year, as well as business unit mix and inflation related to input costs. The decline in gross margin also reflected increased costs across all segments (approximately 5%)most of its business units related to the COVID-19 pandemic, including increased employee costs, such as expanded benefits and frontline incentives, and other costs, such as procurement of personal protective equipment. The gross profit decline was partially offset by the cumulative depreciation expense recorded during the prior year, as a result of the Company’s decision to retain the Commercial Business, as well as gross productivity and lower product recall costs. Changes in foreign currency exchange rates unfavorably impacted gross profit by $25 million, or 1%.
All of the Company's manufacturing and distribution facilities are operating at or near capacity and its facilities have replenished most of the inventory levels that were depleted by lost production during the temporary closure period, however, the Company does continue to face intermittent supply and labor shortages, capacity constraints, and transportation and logistical challenges, which have negatively impacted net sales growth, and expects this to persist until the conditions improve globally. While the negative effects from the COVID-19 pandemic in the first half of 2020 were material to the Company's operating results, the Company saw positive momentum during the second half of the year. At this time, the Company is unable to predict any further impact, both in terms of severity and duration, that the COVID-19 global pandemic will have on its businesses, customers and suppliers. While the Company has deployed cost containment initiatives to mitigate the impact of the adoptionpandemic, such actions may not be sufficient to mitigate the entire impact. The Company will continue to monitor developments, including government requirements and recommendations to evaluate possible further cessation or extensions of new revenue recognition standards (approximately 2%), partially offset byits operations.
See Recent Developments,Critical Accounting Estimates and Footnote 1 in the impact of acquisitions (approximately 1%).The decreaseNotes to Consolidated Financial Statements
for further information.
Notable items impacting operating loss for 2020 and 2019 are as follows:
| | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, | |
| (in millions) | | 2020 | | 2019 | | $ Change | |
| Impairment of goodwill and intangible assets (See Footnote 7) | | $ | 1,491 | | | $ | 1,213 | | | $ | 278 | | |
| Restructuring and restructuring related (See Footnote 4) (a) | | 44 | | | 82 | | | (38) | | |
| Held for sale depreciation and amortization catch-up adjustments (See Footnotes 6 and 7) | | — | | | 57 | | | (57) | | |
| Product recall costs (See Footnote 18) | | 2 | | | 20 | | | (18) | | |
| Transactions and related costs | | 4 | | | 30 | | | (26) | | |
(a)Restructuring-related costs reported in cost of products sold and selling, general and administrative expenses (“SG&A”) for 20182020 were $4 million and $19 million, respectively, and primarily relate to facility closures. Restructuring-related costs reported in cost of products sold and SG&A for 2019 were $16 million and $39 million, respectively, and primarily relate to accelerated depreciation associated with restructuring activities.
Operating loss increased to $634 million in 2020 as compared to $482 million in 2019. Operating loss included non-cash impairment charges of goodwill and certain indefinite-lived intangible assets of $1.5 billion recorded in 2020 as compared to $1.2 billion of non-cash impairment charges of goodwill and certain indefinite-lived intangible assets recorded in 2019, which included non-cash impairment charges of goodwill for businesses previously classified as held for sale. This performance was primarily driven by the impact of the 2017 divestitures (approximately $187 million) and lower sales (approximately $340 million) and impact of the adoption of new revenue recognition standards (approximately $184 million), partially offset by productivity improvement from various initiatives, lower restructuring and restructuring-related charges, lower overhead costs and discretionary spending, including advertising and promotional costs, cumulative depreciation expense recorded during the impact of acquisitions (approximately $58 million). Reported gross margin was 34.9% versus 34.2%prior year, as the benefit from pricing, product mix and cost savings was mostly offset by the impact of inflation related to cost of goods, freight and tariffs.The decrease in SG&A for 2018 was primarily due the impacta result of the 2017 divestitures (approximately $78 million), a decrease in integration cost (approximately $133 million), as well asCompany’s decision to retain the benefitsCommercial Business, lower transaction and related costs associated with the completion of cost savings.
The restructuring costs for 2018 and 2017 were mostly comprised of costs related to the Accelerated Transformation Plan (“ATP”) in the prior year and lower costs associated with a 2019 product recall in the Outdoor and Recreation segment. See
Footnotes 7 and 18 of the Notes to Consolidated Financial Statements for further information.
Interest expense, net for 2020 decreased primarily consistingdue to lower debt levels, slightly offset by the higher rate as a result of severance costs.During 2018, in connection with the Company’s annual impairment testing and subsequent triggering events, the Company recorded anon-cash charge of $8.3 billion to reflect impairment of goodwill and intangible assets. The impairment charge affected the Company’s reporting segments as follows (in millions):
| | | | | | | | |
| | | Year Ended
December 31, 2018 | |
| | | Goodwill | | | Intangibles | |
Food and Appliances | | $ | 1,766.9 | | | $ | 1,746.7 | |
Home and Outdoor Living | | | 1,985.0 | | | | 2,434.1 | |
Learning and Development | | | 105.3 | | | | 246.0 | |
| | | | | | | | |
| | $ | 3,857.2 | | | $ | 4,426.8 | |
| | | | | | | | |
previously disclosed debt ratings downgrades. See
Footnote 9 of the Notes to Consolidated Financial Statements for further information regardinginformation. The weighted average interest rate for 2020 and 2019 was approximately 4.6% and 4.4%, respectively.
The loss on the extinguishment of debt of $20 million and $28 million for 2020 and 2019, respectively, are related to the Company’s tender offer of certain of its senior notes and debt redemptions. See Footnote 9 of the Notes to the Consolidated Financial Statements for further information.
Other expense, net, for 2020 and 2019 include the following items: | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | | 2020 | | 2019 |
| Pension settlement and non-service costs, net (See Footnote 11) | | $ | 53 | | | $ | 1 | |
| Foreign exchange losses, net (See Footnote 10) | | 17 | | | 13 | |
| Fair value equity adjustments (See Footnote 16) | | — | | | 21 | |
| Loss on disposition of businesses, net | | 9 | | | — | |
| Other | | (1) | | | 4 | |
| | $ | 78 | | | $ | 39 | |
Income tax benefit for 2020 was $236 million as compared to $1.0 billion in 2019. The effective tax rate for 2020 was 23.5% as compared to 121.9% in 2019. The income tax benefit for 2020 primarily relates to the impact of goodwill impairment charges,In addition discrete tax benefits associated with the execution of certain tax planning strategies, $53 million for a reduction in valuation allowance related to integration of certain U.S. operations, partially offset by $54 million for a reduction of an uncertain tax position due to a statute of limitation expiration, $47 million deferred tax effects associated with certain outside basis differences and tax expense of $27 million related to a change in the tax status of certain entities upon Internal Revenue Service approval. The income tax benefit for 2019 primarily relates to a benefit of $522 million related to the deferred tax effects associated with the internal realignment of certain intellectual property rights, a benefit of $227 million associated with a taxable loss related to the impairment of certain assets and the pre-tax net loss for the year. See
Footnote 12 of the Notes to Consolidated Financial Statements for information.
Business Segment Operating Results 2020 vs. 2019
Appliances and Cookware
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | | 2020 | | 2019 | | $ Change | | % Change |
| Net sales | | $ | 1,706 | | | $ | 1,692 | | | $ | 14 | | | 0.8 | % |
| | | | | | | | |
| Operating loss | | (217) | | | (535) | | | 318 | | | 59.4 | % |
| Operating margin | | (12.7) | % | | (31.6) | % | | | | |
| | | | | | | | |
| Notable items impacting operating loss comparability: | | | | | | | | |
| Impairment of goodwill and other intangible assets (See Footnote 7) | | $ | 299 | | | $ | 600 | | | $ | (301) | | | |
Appliances and Cookware net sales for 2020 increased 1%, which reflects strong sales growth driven by category growth at stay at home products including cooking appliances, most notably in Latin America, the U.K. and Australia. This performance was partially offset by continued loss in domestic market share in North America for certain appliance categories driven by the success of newly launched competitor products. Changes in foreign currency unfavorably impacted net sales by $77 million, or 4%.
Operating loss for 2020 decreased to $217 million as compared to $535 million in 2019. The improvement in operating results is primarily due to lower non-cash impairment charges forof goodwill and certain indefinite-lived intangible assets as well as productivity improvements and lower discretionary spending including advertising and promotional costs, partially offset by transactional foreign exchange losses in Latin America.
Commercial Solutions
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | | 2020 | | 2019 | | $ Change | | % Change |
| Net sales | | $ | 1,859 | | | $ | 1,779 | | | $ | 80 | | | 4.5% |
| | | | | | | | |
| Operating loss | | (85) | | | (136) | | | 51 | | | 37.5% |
| Operating margin | | (4.6) | % | | (7.6) | % | | | | |
| | | | | | | | |
| Notable items impacting operating loss comparability: | | | | | | | | |
| Impairment of goodwill and other intangible assets (See Footnote 7) | | $ | 320 | | | $ | 310 | | | $ | 10 | | | |
Held for sale depreciation and amortization catch-up adjustment
(See Footnotes 6 and 7) | | — | | | 57 | | | (57) | | | |
Commercial Solutions net sales for 2020 increased 4% which reflected sales growth in the Commercial business, partially offset by decline in the Connected Home and Security business unit. The Commercial business unit performance reflected increased demand in consumable washroom, refuse, hand protection, and outdoor and laundry categories, partially offset by weakness in food service and hospitality vertical channels as a result of the ongoing COVID-19 pandemic. The decline in net sales in the Connected Home and Security business unit was primarily due to the ongoing COVID-19 pandemic, which shifted consumer purchasing patterns and caused supply chain constraints, impacting sales to its retail and contractor channels. Changes in foreign currency unfavorably impacted net sales by $18 million, or 1%.
Operating loss for 2020 decreased to $85 million as compared to $136 million in 2019. The improvement in operating results is primarily due to the cumulative depreciation and amortization expense adjustment in the prior year, as a result of the Company’s decision to retain the Commercial Business. The improvement in the operating results also reflects cost containment initiatives to mitigate the impact of the COVID-19 pandemic while facilities were closed, including employee furloughs, gross productivity and lower discretionary spending, including advertising and promotional costs. This operating performance was partially offset by the higher costs in Connected Home and Security associated with lower sales volumes and the temporary closure of its key manufacturing facility in Mexico during 2018, the Company recorded $38.0 millionfirst half of the year, as well as higher non-cash impairment charges onof goodwill and certain other assets,indefinite-lived intangible assets.
Home Solutions
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | | 2020 | | 2019 | | $ Change | | % Change |
| Net sales | | $ | 1,971 | | | $ | 1,875 | | | $ | 96 | | | 5.1% |
| | | | | | | | |
| Operating loss | | (12) | | | (17) | | | 5 | | | 29.4% |
| Operating margin | | (0.6) | % | | (0.9) | % | | | | |
| | | | | | | | |
| Notable items impacting operating loss comparability: | | | | | | | | |
| Impairment of goodwill and other intangible assets (See Footnote 7) | | 290 | | | 158 | | | 132 | | | |
Home Solutions net sales for 2020 increased 5%, as strong sales performance in the majority of which relate toFood business unit was partially offset by sales declines in the Home Fragrance business unit. The increase in Food business unit sales reflected increased demand across the vacuum sealing, fresh preserving and Rubbermaid Food Storage categories, as a result of the ongoing COVID-19 pandemic, partially offset by supply chain disruption related to the temporary closure of the since re-opened Sistema manufacturing facility in New Zealand, as well as supply and capacity constraints negatively affecting the fresh preserving and vacuum sealing categories. The decrease in Home Fragrance sales was primarily due to the temporary closure of all of its North American Yankee Candle retail stores, supply chain disruptions resulting from the temporary closure of its key manufacturing facility in Massachusetts and the temporary closure of certain third-party retail stores in the first half of 2020 as a result of the ongoing COVID-19 global pandemic. Yankee Candle retail stores re-opened during the third quarter. The decrease in Home Fragrance sales also reflected the exit of 77 underperforming Yankee Candle retail stores as well as the exiting of its fundraising business in third quarter of 2020. Changes in foreign currency favorably impacted net sales by $4 million.
Operating loss for 2020 decreased to $12 million as compared to $17 million in 2019. The decrease in operating loss reflects higher sales volume in the Food business unit, cost containment initiatives to mitigate the impact while Yankee Candle retail stores and operating facilities were temporarily closed, including employee furloughs, lower discretionary spending, including promotional costs, and gross productivity. This performance was partially offset by non-cash impairment charges of certain indefinite-lived intangible assets of $290 million recorded in 2020 as compared to $158 million of non-cash impairment charges of goodwill and certain indefinite-lived intangible assets recorded in 2019. Operating loss was also unfavorably impacted by higher costs associated with lower sales volume in the Home
Fragrance business unit and
Outdoor Living segment.Consolidatedthe temporary closure of their key manufacturing facility in Massachusetts, during the first half of 2020, and non-cash impairment charges of $8 million primarily related to operating income (loss) as a percentageleases of its Yankee Candle retail store business.
Learning and Development
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | | 2020 | | 2019 | | $ Change | | % Change |
| Net sales | | $ | 2,557 | | | $ | 2,956 | | | $ | (399) | | | (13.5)% |
| | | | | | | | |
| Operating income | | 362 | | | 588 | | | (226) | | | (38.4)% |
| Operating margin | | 14.2 | % | | 19.9 | % | | | | |
| | | | | | | | |
| Notable items impacting operating income comparability: | | | | | | | | |
| Impairment of goodwill and other intangible assets (See Footnote 7) | | $ | 100 | | | $ | 25 | | | $ | 75 | | | |
Learning and Development net sales for 2018 and 2017 was approximately (90.7)% and 4.0%, respectively. The change is2020 decreased 13% primarily due to increasedthe shift in consumer purchasing patterns, third-party retail store closures and supply chain disruptions affecting the Writing and Baby and Parenting business units as a result of the ongoing COVID-19 global pandemic, including the impact of the delayed re-opening of schools and offices. In particular, the ongoing COVID-19 global pandemic negatively impacted consumption patterns of markers, pens and dry erase products. In addition, the net sales decline also reflected softening trends related to sales of slime-related adhesive products, which is expected to continue in 2021, as well as the exiting of the North American distribution of Uniball® products in the prior year. Net sales for the Baby and Parenting business were relatively flat for 2020. Changes in foreign currency unfavorably impacted net sales by $5 million.
Operating income for 2020 decreased to $362 million as compared to $588 million in the prior year period. Operating income was unfavorably impacted by lower sales as mentioned above, higher costs associated with lower sales volume and certain temporary manufacturing closures, higher non-cash impairment charges and increased costs associated with the negative impact of lower sales,COVID-19 global pandemic, partially offset by synergieslower overhead, productivity improvements and cost savings,discretionary spending, including advertising and promotional costs.
Outdoor and Recreation
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | | 2020 | | 2019 | | $ Change | | % Change |
| Net sales | | $ | 1,292 | | | $ | 1,413 | | | $ | (121) | | | (8.6)% |
| | | | | | | | |
| Operating loss | | (418) | | | (64) | | | (354) | | | NM |
| Operating margin | | (32.4) | % | | (4.5) | % | | | | |
| | | | | | | | |
| Notable items impacting operating loss comparability: | | | | | | | | |
| Impairment of goodwill and other intangible assets (See Footnote 7) | | $ | 482 | | | $ | 120 | | | $ | 362 | | | |
| Product recall costs (See Footnote 18) | | 2 | | | 20 | | | (18) | | | |
NM — Not meaningful
Outdoor and Recreationsegment net sales for 2020 decreased 9% primarily due to a shift in consumer purchasing patterns, as a result of the ongoing COVID-19 pandemic, which negatively impacted performance during the first half of the year. During the second half of the year, demand for outdoor products and coolers, primarily in North America and Asia improved, partially offset by decreased demand in apparel and beverage products. Changes in foreign currency unfavorably impacted net sales by $12 million, or 1%.
Operating loss for 2020 was $418 million as compared to $64 million in the prior year period. This performance was primarily due to higher non-cash impairment charges of certain indefinite-lived intangibles assets, lower integration and acquisition-relatedsales volume as noted above, unfavorable product mix, partially offset by lower overhead costs and lower discretionary spending, including advertising and promotional costs, as well as lower costs associated with a product recall in the prior year, and productivity improvements.
Consolidated Operating Results 2019 vs. 2018
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions, except per share data) | | 2019 | | 2018 | | $ Change | | % Change |
| Net sales | | $ | 9,715 | | | $ | 10,154 | | | $ | (439) | | | (4.3)% |
| Gross profit | | 3,219 | | | 3,518 | | | (299) | | | (8.5)% |
| Gross margin | | 33.1 | % | | 34.6 | % | | | | |
| | | | | | | | |
| Operating loss | | (482) | | | (7,554) | | | 7,072 | | | 93.6% |
| Operating margin | | (5.0) | % | | (74.4) | % | | | | |
| | | | | | | | |
| Interest expense, net | | 303 | | | 446 | | | (143) | | | (32.1)% |
| Loss on extinguishment of debt | | 28 | | | 4 | | | 24 | | | NM |
| Other (income) expense, net | | 39 | | | (12) | | | 51 | | | NM |
| Loss before income taxes | | (852) | | | (7,992) | | | 7,140 | | | 89.3% |
| Income tax benefit | | (1,038) | | | (1,359) | | | 321 | | | 23.6% |
| Income tax rate | | 121.9 | % | | 17.0 | % | | | | |
| | | | | | | | |
| Diluted earnings (loss) per share - continuing operations | | $ | 0.44 | | | $ | (14.00) | | | | | |
| Diluted loss per share - discontinued operations | | (0.19) | | | (0.65) | | | | | |
| Diluted earnings (loss) per share - attributable to common shareholders | | $ | 0.25 | | | $ | (14.65) | | | | | |
NM — Not meaningful
Net sales for 2019 decreased 4%, with declines across all segments, primarily within the Appliances and Cookware, Commercial Solutions, and Outdoor and Recreation segments. Changes in foreign currency exchange rates unfavorably impacted net sales by $163 million, or 2%.
Gross profit for 2019 decreased 8% and gross profit margin declined to 33.1% in 2019 as compared with 34.6% in 2018. This performance was primarily due to lower net sales, product mix, inflation related to input costs and tariffs. Gross profit and margin in 2019 were also unfavorably impacted by a cumulative catch-up adjustment for depreciation expense of $48 million related to the Company’s decision to retain the Commercial Business. Approximately $27 million of this depreciation expense related to the amounts that would have been recorded in the prior year had the Commercial Business been continuously classified as held and used. See Footnote 6 of the Notes to the Consolidated Financial Statements for further information. In addition, gross profit and margin in 2019 were unfavorably impacted by approximately $20 million of costs associated with a product recall in the Outdoor and Recreation segment. See Footnote 18 of the Notes to the Consolidated Financial Statements for further information. The gross profit decrease was partially offset by productivity improvement in 2019 from various initiatives. Changes in foreign currency exchange rates unfavorably impacted gross profit by $56 million, or 2%.
Notable items impacting operating loss for 2019 and 2018 are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | | 2019 | | 2018 | | $ Change |
| Impairment of intangible assets (See Footnote 7) | | $ | 1,213 | | | $ | 8,296 | | | $ | (7,083) | |
Restructuring and restructuring related
(See Footnote 4) (a) | | 82 | | | 98 | | | (16) | |
Held for sale depreciation and amortization catch-up adjustments
(See Footnotes 6 and 7) (b) | | 57 | | | — | | | 57 | |
| Product recall costs (See Footnote 18) | | 20 | | | — | | | 20 | |
| Bad debt write-off for large customer | | — | | | 26 | | | (26) | |
(a)Restructuring-related costs reported in cost of products sold and SG&A for 2019 were $16 million and $39 million, respectively, and primarily relate to accelerated depreciation associated with restructuring costs.
The decrease in interest expenseactivities. Restructuring-related costs of $11 million for 2018 were reported in SG&A. Restructuring costs for 2019 and 2018 were $27 million and $87 million, respectively, and primarily represent costs associated with the ATP, which was completed at the end of 2019.
(b)Amounts reported in cost of products sold and SG&A for 2019 were $48 million and $9 million, respectively.
Operating loss decreased to $482 million in 2019 as compared to $7.6 billion in 2018. Operating loss included non-cash impairment charges of goodwill and certain indefinite-lived intangible assets of $1.2 billion recorded in 2019 as compared to $8.3 billion of non-cash impairment charges of goodwill and certain indefinite-lived intangible assets recorded in 2018. This performance also included overhead reduction driven by various initiatives, lower restructuring and restructuring-related charges in 2019 primarily related to the now completed ATP, and the lapping of a bad debt write off of $26 million from a large customer in the prior year. These decreases in operating loss and operating margin were partially offset by the cumulative catch-up adjustment for depreciation and amortization expense of $57 million recorded in 2019 as a result of the Company’s decision to retain the Commercial Business. Approximately $33 million of this depreciation and amortization expense in 2019 related to the amounts that would have been recorded in the prior year had the Commercial Business been continuously classified as held and used. In addition, operating loss and operating margin in 2019 were unfavorably impacted by $20 million of costs associated with a product recall in the Outdoor and Recreation segment.
Interest expense, net for 2019 decreased primarily due to lower debt levels. The weighted average interest rates for 2019 and 2018 were approximately 4.4% and 4.2%, respectively.
The loss on the extinguishment of debt of $28 million and $4 million for 2019 and 2018, respectively, were related to the Company’s tender offer of certain of its senior notes and debt redemptions. See Footnote 9 of the Notes to the Consolidated Financial Statements for further information.
Other (income) expense, net for 2019 and 2018 include the following items:
| | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | | 2019 | | 2018 |
| Foreign exchange losses, net (See Footnote 10) | | $ | 13 | | | $ | 8 | |
| Fair value equity adjustments (See Footnote 16) | | 21 | | | 1 | |
| Pension-related non-service costs, net (See Footnote 11) | | 1 | | | (6) | |
| Gain on legacy Jarden investment | | — | | | (11) | |
| Gain on disposition of businesses, net | | — | | | (2) | |
| Other | | 4 | | | (2) | |
| | $ | 39 | | | $ | (12) | |
Income tax benefit for 2019 was $1.0 billion as compared to $1.4 billion in 2018. The effective tax rate for 20182019 was 121.9% as compared to 17.0% in 2018. The income tax benefit for 2019 primarily relates to a benefit of $522 million related to the deferred tax effects associated with the internal realignment of certain intellectual property rights, a benefit of $227 million associated with a taxable loss related to the impairment of certain assets and 2017 was approximately 4.2% and 4.0%, respectively.the pre-tax net loss for the year. See
Footnote 1412 of the Notes to Consolidated Financial Statements for information regardinginformation. The income taxes.tax benefit for 2018 primarily relates to the pre-tax net loss for the year, partially offset by the impact of goodwill impairment charges which were not tax effected.
Business Segment Operating Results
20182019 vs.
2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net Sales | | | Operating Income (Loss) | |
| | | Years Ended December 31, | | | Years Ended December 31, | |
(in millions) | | 2018 | | | 2017 | | | Increase
(Decrease) | | | %
Change | | | 2018 | | | 2017 | | | Increase
(Decrease) | | | %
Change | |
Food and Appliances | | $ | 2,699.1 | | | $ | 2,921.1 | | | $ | (222.0 | ) | | | (7.6 | )% | | $ | (3,290.0 | ) | | $ | 311.1 | | | $ | (3,601.1 | ) | | | NMF | % |
Home and Outdoor Living | | | 2,946.7 | | | | 3,114.1 | | | | (167.4 | ) | | | (5.4 | ) | | | (4,237.7 | ) | | | 274.0 | | | | (4,511.7 | ) | | | NMF | |
Learning and Development | | | 2,981.6 | | | | 3,269.1 | | | | (287.5 | ) | | | (8.8 | ) | | | 237.9 | | | | 540.4 | | | | (302.5 | ) | | | (56.0 | ) |
Other | | | 3.5 | | | | 247.7 | | | | (244.2 | ) | | | (98.6 | ) | | | 3.8 | | | | (89.5 | ) | | | 93.3 | | | | (104.2 | ) |
Corporate | | | — | | | | — | | | | — | | | | — | | | | (462.0 | ) | | | (562.9 | ) | | | 100.9 | | | | 17.9 | |
Restructuring | | | — | | | | — | | | | — | | | | — | | | | (80.5 | ) | | | (87.6 | ) | | | 7.1 | | | | (8.1 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | 8,630.9 | | | $ | 9,552.0 | | | $ | (921.1 | ) | | | (9.6 | ) | | $ | (7,828.5 | ) | | $ | 385.5 | | | $ | (8,214.0 | ) | | | NMF | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2018
Appliances and Cookware
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | | 2019 | | 2018 | | $ Change | | % Change |
| Net sales | | $ | 1,692 | | | $ | 1,819 | | | $ | (127) | | | (7.0)% |
| | | | | | | | |
| Operating loss | | (535) | | | (1,596) | | | 1,061 | | | 66.5% |
| Operating margin | | (31.6) | % | | (87.7) | % | | | | |
| | | | | | | | |
| Notable items impacting operating loss comparability: | | | | | | | | |
| Impairment of goodwill and other intangible assets (See Footnote 7) | | 600 | | | 1,712 | | | (1,112) | | | |
Appliances and Cookware net sales for 2019 decreased 7% primarily due to a loss in domestic market share in North America for certain appliance categories driven by the success of newly launched competitive products. The net sales decline in North America was partially offset by sales growth in Latin America primarily due to higher volume. Changes in foreign currency exchange rates unfavorably impacted net sales by $35 million, or 2%.
Operating loss decreased to $535 million in 2019 as compared to $1.6 billion in 2018. Operating loss included non-cash impairment charges of goodwill and certain indefinite-lived intangible assets of $600 million recorded in 2019 as compared to $1.7 billion of non-cash impairment charges of goodwill and certain indefinite-lived intangible assets recorded in 2018. This decrease in operating loss and operating margin was partially offset by the unfavorable impact of lower sales and inflation related to input costs and tariffs.
Commercial Solutions
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | | 2019 | | 2018 | | $ Change | | % Change |
| Net sales | | $ | 1,779 | | | $ | 1,900 | | | $ | (121) | | | (6.4)% |
| | | | | | | | |
| Operating loss | | (136) | | | (134) | | | (2) | | | (1.5)% |
| Operating margin | | (7.6) | % | | (7.1) | % | | | | |
| | | | | | | | |
| Notable items impacting operating loss comparability: | | | | | | | | |
| Impairment of goodwill and other intangible assets (See Footnote 7) | | $ | 310 | | | $ | 410 | | | $ | (100) | | | |
Held for sale depreciation and amortization catch-up adjustment
(See Footnotes 6 and 7) | | 57 | | | — | | | 57 | | | |
Commercial Solutions net sales for 2019 decreased 6% primarily due to lower sales in the Commercial business unit, in part due to volume declines at certain major retailers, and softness in the cleaning and outdoor organization categories, partially offset by effective net pricing in certain categories. Changes in foreign currency exchange rates unfavorably impacted net sales by $42 million, or 2%.
Operating loss was $136 million in 2019 as compared to $134 million in 2018. Operating loss included non-cash impairment charges of goodwill and certain indefinite-lived intangible assets of $310 million recorded in 2019 as compared to $410 million of non-cash impairment charges of goodwill and certain indefinite-lived intangible assets recorded in 2018. This decrease in operating loss and operating margin also reflected productivity improvement in 2019 from various initiatives, partially offset by the unfavorable impact of lower sales and inflation. In addition, operating loss was unfavorably impacted by the cumulative catch-up adjustment for depreciation and amortization expense of $57 million recorded in 2019 as a result of the Company’s decision to retain the Commercial Business. Approximately $33 million of this depreciation and amortization expense in 2019 related to the amounts that would have been recorded in the prior year had the Commercial Business been continuously classified as held and used. See Footnotes 2, 6 and 7 of the Notes to the Consolidated Financial Statements for further information.
Home Solutions
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | | 2019 | | 2018 | | $ Change | | % Change |
| Net sales | | $ | 1,875 | | | $ | 1,935 | | | $ | (60) | | | (3.1)% |
| | | | | | | | |
| Operating loss | | (17) | | | (4,270) | | | 4,253 | | | 99.6% |
| Operating margin | | (0.9) | % | | (220.7) | % | | | | |
| | | | | | | | |
| Notable items impacting operating loss comparability: | | | | | | | | |
| Impairment of goodwill and other intangible assets (See Footnote 7) | | $ | 158 | | | $ | 4,406 | | | $ | (4,248) | | | |
Home Solutions net sales for 2019 decreased 3% primarily due to decline in the Food
business unit, in part due to volume declines at certain major retailers and
Appliancessoftness in the fresh preserving and food storage categories, partially offset by growth in sales from Sistema products. Net sales declined in the Home Fragrance business unit due to the exit of 75 underperforming Yankee Candle
retail stores, partially offset by growth in Europe. Changes in foreign currency exchange rates unfavorably impacted net sales by $20 million, or 1%.
Operating loss for 2019 was $17 million as compared to $4.3 billion in 2018. Operating loss included non-cash impairment charges of goodwill and certain indefinite-lived intangible assets of $4.4 billion recorded in 2018. This decrease in operating loss and operating margin was also impacted by lower overhead and advertising and promotional costs.
Learning and Development
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | | 2019 | | 2018 | | $ Change | | % Change |
| Net sales | | $ | 2,956 | | | $ | 2,982 | | | $ | (26) | | | (0.9) | % |
| | | | | | | | |
| Operating income | | 588 | | | 238 | | | 350 | | | NM |
| Operating margin | | 19.9 | % | | 8.0 | % | | | | |
| | | | | | | | |
| Notable items impacting operating income comparability: | | | | | | | | |
| Impairment of goodwill and other intangible assets (See Footnote 7) | | $ | 25 | | | $ | 351 | | | $ | (326) | | | |
| Fire-related losses, net of insurance recoveries | | — | | | (11) | | | 11 | | | |
| Bad debt write off for large customer | | — | | | 26 | | | (26) | | | |
NM — Not meaningful
Learning and Development net sales for 2019 decreased 1%. Changes in foreign currency exchange rates unfavorably impacted net sales by $43 million or 1%. The decrease in net sales for 2018 was also driven by softening trends in the Writing business related to sales of slime-related adhesive products, partially offset by international net sales growth in the Writing business.
Operating income increased to $588 million in 2019 as compared to $238 million in 2018. Operating income and operating margins
improved primarily due to
the continuing competitive challengeslower non-cash impairment charges of certain indefinite-lived intangible assets of $25 million recorded in 2019 as compared to $351 million of non-cash impairment charges of goodwill and certain indefinite-lived intangible assets recorded in 2018. The increase in operating income also included overhead reduction driven by various initiatives in the
U.S. appliance businesscurrent year and the
impactlapping of
a bad debt write off from a large customer in the
adoption of new revenue recognition standards,prior year, partially offset by
improved saleshigher advertising and promotion costs in
other categories.Operating income (loss) asthe current year and net insurance recoveries from a percentage offire-related loss in the prior year.
Outdoor and Recreation
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | | 2019 | | 2018 | | $ Change | | % Change |
| Net sales | | $ | 1,413 | | | $ | 1,515 | | | $ | (102) | | | (6.7)% |
| | | | | | | | |
| Operating loss | | (64) | | | (1,293) | | | 1,229 | | | 95.1% |
| Operating margin | | (4.5) | % | | (85.3) | % | | | | |
| | | | | | | | |
| Notable items impacting operating loss comparability: | | | | | | | | |
| Impairment of goodwill and other intangible assets (See Footnote 7) | | $ | 120 | | | $ | 1,417 | | | $ | (1,297) | | | |
| Product recall costs (See Footnote 18) | | $ | 20 | | | $ | — | | | $ | 20 | | | |
Outdoor and Recreation segment net sales for
2018 and 2017 was approximately (122)% and 10.7%. The decrease was primarily driven by impairment charges, the negative impact of lower sales and cost of goods and freight inflation.Home and Outdoor Living
The decrease in net sales for 2018 was primarily driven by decline in the Outdoor & Recreation and Home Fragrance businesses, primarily due to2019 decreased 7% reflecting lost distribution in the certain product categories and continuing declines in the Home Fragrance retail channel, unfavorable weather conditions affecting the Coleman business; and the impact of the adoption of new revenue recognition standard,business, partially offset by improvedincreased sales in Connected Home & Security. Home Fragrance was burdened by continued sales declines at certain of the mall-based Yankee Candle retail stores. The Company intends to exit unprofitable mall-based retail stores as their leases expire.
Operating income (loss) as a percentage ofairbeds and outdoor cooking categories. Changes in foreign currency exchange rates unfavorably impacted net sales for 2018by $23 million, or 2%.
Operating loss decreased to $64 million in 2019 as compared to $1.3 billion in 2018. Operating loss included non-cash impairment charges of goodwill and
2017 was approximately (144)% and 8.8%, respectively. The decrease was primarily driven bycertain indefinite-lived intangible assets of $120 million recorded in 2019 as compared to $1.4 billion of non-cash impairment
charges.Learning and Development
charges of certain indefinite-lived intangible assets recorded in 2018. The decrease in net sales for 2018operating loss was primarilyalso due to a decline in the Writing business related to significant inventory contraction in the U.S. office superstore and distributive trade channels, sales declines in the baby gear category largely attributable to the bankruptcy and liquidation of a top global customer of the Baby division, partially offset by a revenue shift to other major retailers; and the impact of the adoption of new revenue recognition standards.
Operating income as a percentage of net sales for 2018 and 2017 was approximately 8.0% and 16.5%, respectively. The decrease was primarilyoverhead reduction driven by impairment charges,various initiatives. These decreases in operating loss were partially offset by a decrease in SG&A and productivity savings.
Other
The decrease in net sales for 2018 was due to impact of the 2017 divestitures.
The change in operating income (loss) for 2018 and 2017 was primarily due to impairment charges and other costs incurred during 2017, related to the 2017 divestitures and assets held for sale.
Consolidated Operating Results 2017 vs. 2016
| | | | | | | | | | | | | | | | |
| | | Years Ended December 31, | |
(in millions) | | 2017 | | | 2016 | | | Increase
(Decrease) | | | %
Change | |
Net sales | | $ | 9,552.0 | | | $ | 9,181.1 | | | $ | 370.9 | | | | 4.0 | % |
Cost of products sold | | | 6,289.0 | | | | 6,210.2 | | | | 78.8 | | | | 1.3 | |
| | | | | | | | | | | | | | | | |
Gross profit | | | 3,263.0 | | | | 2,970.9 | | | | 292.1 | | | | 9.8 | |
Selling general and administrative expenses | | | 2,705.6 | | | | 2,610.6 | | | | 95.0 | | | | 3.6 | |
Restructuring costs, net | | | 87.6 | | | | 62.2 | | | | 25.4 | | | | 40.8 | |
Impairment of goodwill, intangibles and other assets | | | 84.3 | | | | — | | | | 84.3 | | | | NMF | |
| | | | | | | | | | | | | | | | |
Operating income | | | 385.5 | | | | 298.1 | | | | 87.4 | | | | 29.3 | |
Interest expense, net | | | 469.1 | | | | 404.2 | | | | 64.9 | | | | 16.1 | |
Loss on extinguishment of debt | | | 32.3 | | | | 47.6 | | | | (15.3 | ) | | | (32.1 | ) |
Other (income) expense, net | | | (708.3 | ) | | | (172.5 | ) | | | (535.8 | ) | | | 310.6 | |
| | | | | | | | | | | | | | | | |
Income before taxes | | $ | 592.4 | | | $ | 18.8 | | | $ | 573.6 | | | | NMF | |
| | | | | | | | | | | | | | | | |
NMF — Not meaningful
The increase in net sales for 2017 was primarily due to the Jarden Acquisition, as well as other acquisitions (approximately 14%) and increased sales, partially offset by divestitures (approximately 12%). Foreign currency impacts on a period-over-period basis were not material.
The change in cost of products sold for 2017 was primarily due to the Jarden Acquisition, as well as other acquisitions (approximately $910 million) and the impact of increased sales and unfavorable foreign currency (collectively approximately $90 million), partially offset by inventorystep-up charges primarily related to the Jarden Acquisition recorded in 2016 (approximately $293 million) and the impact of divestitures (approximately $632 million). Gross margin was 34.2% versus 32.4% percent in 2016. The change was primarily due to the impact of the inventorystep-up charge recorded in 2016 and the benefits of synergies and productivity, partially offset by the negative mix effects partially related to the Jarden Acquisition.
The change in SG&A for 2017 was primarily due to the Jarden Acquisition, as well as other acquisitions (approximately $305 million) and increased investment related to brand development,e-commerce and insights, partially offset by the impact of divestitures (approximately $230 million) and benefits of synergies and productivity. Additionally, the decrease in certain labor-related costs was mostly offset by an increase in integration costs.
The restructuring costs for 2017 were mostly comprised of costs related to the Jarden Integration and other restructuring activities, which primarily relate to the Jarden Acquisition. The majority of the restructuring costs for 2016 related to Project Renewal.
Consolidated operating income as a percentage of net sales for 2017 and 2016 was approximately 4.0% and 3.3%, respectively. The decrease in aforementioned inventorystep-up charge related to the Jarden Acquisition, the impact of increased net sales and the benefits of synergies and productivity, as well as a reduction in bonus expense, were mostly offset by the negative mix effects related to the Jarden Acquisition, increased investment related to the expansion of brand development,e-commerce and insights, as well as costs associated with the delivery of synergies, the increase in the impairment of goodwill, intangibles and other assets and the acquisition-related increase in amortization of intangibles.
The increase in interest expense for 2017 was primarily due to higher average debt levels versus the same prior year period. The weighted average interest rate for 2017 and 2016 was approximately 4.0% and 3.7%, respectively.
As a result of the Tax Cuts and Jobs Act in the United States, during the fourth quarter of 2017, the Company recorded a deferred tax benefit of $1.5 billion due to statutory tax rate changes in the United States and an $87.2 million tax benefit to reverse the Company’s APB 23 liability on historical Jarden earnings, partially offset by a $195 million tax expense relating to a mandatory repatriation tax. See Footnote 17 of the Notes to Consolidated Financial Statements for information regarding income taxes.
Business Segment Operating Results 2017 vs. 2016
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Sales | | | Operating Income | |
| | | Years Ended December 31, | | | Years Ended December 31, | |
(in millions) | | 2017 | | | 2016 | | | Increase
(Decrease) | | | %
Change | | | 2017 | | | 2016 | | | Increase
(Decrease) | | | %
Change | |
Food and Appliances | | $ | 2,921.1 | | | $ | 2,453.3 | | | $ | 467.8 | | | | 19.1 | % | | $ | 311.1 | | | $ | 191.8 | | | $ | 119.3 | | | | 62.2 | % |
Home and Outdoor Living | | | 3,114.1 | | | | 2,289.7 | | | | 824.4 | | | | 36.0 | | | | 274.0 | | | | 167.3 | | | | 106.7 | | | | 63.8 | |
Learning and Development | | | 3,269.1 | | | | 3,100.6 | | | | 168.5 | | | | 5.4 | | | | 540.4 | | | | 606.4 | | | | (66.0 | ) | | | (10.9 | ) |
Other | | | 247.7 | | | | 1,337.5 | | | | (1,089.8 | ) | | | (81.5 | ) | | | (89.5 | ) | | | 113.1 | | | | (202.6 | ) | | | (179.1 | ) |
Corporate | | | — | | | | — | | | | — | | | | — | | | | (562.9 | ) | | | (718.3 | ) | | | 155.4 | | | | (21.6 | ) |
Restructuring | | | — | | | | — | | | | — | | | | — | | | | (87.6 | ) | | | (62.2 | ) | | | (25.4 | ) | | | (40.8 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | 9,552.0 | | | $ | 9,181.1 | | | $ | 370.9 | | | | 4.0 | | | $ | 385.5 | | | $ | 298.1 | | | $ | 87.4 | | | | 29.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Food and Appliances
The increase in net sales for 2017 was primarily due to acquisitions (approximately 17%), partially offset primarily by sales declines in the Appliance and Cookware category.
Operating income as a percentage of net sales for 2017 and 2016 was approximately 10.7% and 7.8%, respectively. The increase was primarily driven by the impact of the 2016 inventorystep-up charge related to the Jarden Acquisition (approximately $118 million) and a reduction in bonus expense, which more than offset the negative product mix impact of the Jarden Acquisition, and the acquisition-related increase in amortization of intangibles, as well as the impact of incremental promotional activity.
Home and Outdoor Living
The increase in net sales for 2017 was primarily due to the Jarden Acquisition (approximately 34%), with the balance of growth generated primarily by the Beverage, Coleman and Technical Apparel categories.
Operating income as a percentage of net sales for 2017 and 2016 was approximately 8.8% and 7.3%, respectively. The increase was primarily driven by the impact of the 2016 inventorystep-up charge related to the Jarden Acquisition (approximately $140 million), cost synergies, and a reduction in bonus expense.
Learning and Development
The increase in net sales for 2017 was primarily due to an increase in sales in the Writing business, in part due to increases in Elmer’s glue sales and strong growth in the baby gear category partially offset by decreases in other Writing categories due to inventory reductions at certain mass market retailers and a decline in the Fine Art category.
Operating income as a percentage of net sales for 2017 and 2016 was approximately 16.5% and 19.6%, respectively. The decrease was primarily driven by the unfavorable impact of lower sales, cost of goods inflation and $20 million of costs associated with a product mix due to the growth of Elmer’s glue sales within the Writing business, increased advertising and promotion costs, and fire-related losses at a Writing warehouse in Mexico.
Other
The decrease in net sales for 2017 was primarily due to impact of divestitures.
Operating earnings (loss) as a percentage of net sales for 2017 and 2016 was approximately (36.1%) and 8.5%, respectively. The change was affected by an increase in the impairment of goodwill, intangibles and other assets (approximately $70 million), the impact of divestitures, and other costs that are primarily related to assets held for sale, partially offset by the impact of the 2016 inventorystep-up charge related to the Jarden Acquisition (approximately $34 million).
recall.
Liquidity and Capital Resources
At the onset of the COVID-19 global pandemic, in light of uncertainty in the global economy as well as equity and bond markets, the Company undertook several actions to further strengthen its financial position and balance sheet, and maintain financial liquidity and flexibility, including, issuing debt, evaluating supply purchases, enhancing customer credit review processes, reviewing operating expenses, prioritizing capital expenditures, as well as extending payment terms for goods and services. While the Company has the ability to continue to take more of these actions, if needed, it also has the ability to borrow under its existing Accounts Receivable Securitization Facility (the “Securitization Facility”) and $1.25 billion revolving credit facility that matures in December 2023 (the “Credit Revolver”). At December 31, 2018,2020, the Company had no outstanding drawings against the Securitization Facility and Credit Revolver. The Company currently believes its capital structure and cash resources can continue to support the funding of future dividends and will continue to evaluate all actions to strengthen its financial position and balance sheet, and to maintain its financial liquidity, flexibility and capital allocation strategy.
At December 31, 2020, the Company had cash and cash equivalents of
$496approximately $981 million, of which approximately
$308$505 million was held by the Company’s
non-U.S. subsidiaries. Overall, the Company believes that available cash and cash equivalents, cash flows generated from future
operations, access to capital markets,operating activities and
availability under its revolving credit facility and receivables purchase agreement will be adequate to support the cash needs of the Company. The Company intends to use available cash, borrowing capacity,
cash flows from futurealong with the actions noted above, provide the Company with continued financial viability and adequate liquidity to fund its operations,
and alternative financing arrangements to invest in capital expenditures in support
of the Company’sits growth platforms,
to maintain its dividend per sharepay down debt and
to repay debt maturities as they come due and
to complete its ongoing
restructuringturnaround initiatives.
Cash The Company’s cash requirements are subject to change as business conditions warrant. As the COVID-19 global pandemic is complex and rapidly evolving, the Company's plans as described above may change. Although the Company saw positive momentum and strong cash generated from operating activities over the second half of 2020, the Company is still unable to predict the duration and severity of this pandemic, which could have a material adverse impact on the Company’s future sales, results of operations, financial position and cash flows, particularly if the global pandemic continues to exist or worsens for a prolonged period of time, or if plans to administer vaccines are delayed. Any such material adverse impacts could result in the Company's inability to satisfy financial maintenance covenants and could limit the ability to make future borrowings under existing debt instruments.
Cash, cash equivalents
and restricted cash changed as follows for
2018, 20172020, 2019 and
20162018 (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Increase (Decrease) | |
| Continuing Operations | | 2018 | | | 2017 | | | 2016 | | | 2018 | | | 2017 | |
Cash provided by operating activities | | $ | 524.1 | | | $ | 834.4 | | | $ | 1,668.3 | | | $ | (310.3 | ) | | $ | (833.9 | ) |
Cash provided by (used in) investing activities | | | (176.5 | ) | | | 1,216.1 | | | | (8,662.7 | ) | | | (1,392.6 | ) | | | 9,878.8 | |
Cash provided by (used in) financing activities | | | (5,453.8 | ) | | | (2,194.4 | ) | | | 7,332.3 | | | | (3,259.4 | ) | | | (9,526.7 | ) |
| | | | | |
| Discontinued Operations | | | | | | | | | | | | | | | | | | | | |
Cash provided by operating activities | | $ | 155.9 | | | $ | 131.8 | | | $ | 172.1 | | | $ | 24.1 | | | $ | (40.3 | ) |
Cash provided by (used in) investing activities | | | 4,983.9 | | | | (137.6 | ) | | | (162.1 | ) | | | 5,121.5 | | | | 24.5 | |
Cash used in financing activities | | | (0.7 | ) | | | (1.4 | ) | | | (3.8 | ) | | | 0.7 | | | | 2.4 | |
| Total Company | | | | | | | | | | | | | | | | | | | | |
Cash provided by operating activities | | $ | 680.0 | | | $ | 966.2 | | | $ | 1,840.4 | | | $ | (286.2 | ) | | $ | (874.2 | ) |
Cash provided by (used in) investing activities | | | 4,807.4 | | | | 1,078.5 | | | | (8,824.8 | ) | | | 3,728.9 | | | | 9,903.3 | |
Cash provided by (used in) financing activities | | | (5,454.5 | ) | | | (2,195.8 | ) | | | 7,328.5 | | | | (3,258.7 | ) | | | (9,524.3 | ) |
Currency effect on cash and cash equivalents | | | (22.9 | ) | | | 49.3 | | | | (31.4 | ) | | | (72.2 | ) | | | 80.7 | |
| | | | | | | | | | | | | | | | | | | | |
Increase (decrease) in cash and cash equivalents | | $ | 10.0 | | | $ | (101.8 | ) | | $ | 312.7 | | | $ | 111.8 | | | $ | (414.5 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Increase (Decrease) |
| Continuing Operations | 2020 | | 2019 | | 2018 | | 2020 | 2019 |
| Cash provided by operating activities | $ | 1,432 | | | $ | 1,090 | | | $ | 557 | | | $ | 342 | | $ | 533 | |
| Cash used in investing activities | (228) | | | (242) | | | (208) | | | 14 | | (34) | |
| Cash used in financing activities | (559) | | | (972) | | | (321) | | | 413 | | (651) | |
| Discontinued Operations | | | | | | | | |
| Cash provided by (used in) operating activities | $ | — | | | $ | (46) | | | $ | 123 | | | $ | 46 | | $ | (169) | |
| Cash provided by investing activities | — | | | 978 | | | 5,015 | | | (978) | | (4,037) | |
| Cash used in financing activities | — | | | (932) | | | (5,133) | | | 932 | | 4,201 | |
| Total Company | | | | | | | | |
| Cash provided by operating activities | $ | 1,432 | | | $ | 1,044 | | | $ | 680 | | | $ | 388 | | $ | 364 | |
| Cash provided by (used in) investing activities | (228) | | | 736 | | | 4,807 | | | (964) | | (4,071) | |
| Cash used in financing activities | (559) | | | (1,904) | | | (5,454) | | | 1,345 | | 3,550 | |
| Exchange rate effect on cash, cash equivalents and restricted cash | 5 | | | (1) | | | (23) | | | 6 | | 22 | |
| Increase (decrease) in cash, cash equivalents and restricted cash | $ | 650 | | | $ | (125) | | | $ | 10 | | | $ | 775 | | $ | (135) | |
The Company tends to generate the majority of its operating cash flow in third and fourth quarters of the year due to seasonal variations in operating results, the timing of annual performance-based compensation payments, working capital requirements and credit terms provided to customers.
Factors Affecting Liquidity
As a result of the debt ratings downgrades by Moody’s Corporation ("Moody’s") and S&P Global Inc. ("S&P") described in Footnote 9 of the Notes to Consolidated Financial Statements, the Company’s ability to borrow from the commercial paper market on terms it deems acceptable or favorable was eliminated. Previously, the Company was able to issue commercial paper up to a maximum of $800 million provided there was a sufficient amount available for borrowing under the Credit Revolver. The Company’s ability to borrow under the Credit Revolver was not affected by the downgrades. As such, the Company does not expect any change in its ability to access liquidity in the short term as a result of the downgrades. The interest rate for borrowings under the
Credit Revolver is the borrowing period referenced LIBOR rate plus 127.5 basis points. On April 15, 2020, Fitch Ratings ("Fitch") downgraded the Company’s debt rating to "BB" as they believed the Company would fail to meet Fitch's target debt level for 2020.
The Credit Revolver requires the maintenance of certain financial covenants. A failure by the Company to maintain its financial covenants would impair its ability to borrow under the Credit Revolver. At the time of filing this Annual Report on Form 10-K, the Company is in compliance with all of its financial covenants.
In addition, certain of the Company’s Senior Notes aggregating to approximately $4.3 billion in principal amount outstanding are subject to an interest rate adjustment of 25 basis points as a result of the downgrades from S&P and Moody's, for a total of 50 basis points. This increase to the interest rates of each series of the Company's senior notes subject to adjustment increased the Company’s interest expense for 2020 by approximately $17 million and approximately $21 million thereafter, on an annualized basis. The Fitch downgrade did not impact the interest rates on any of the Company's senior notes.
Furthermore, the Company may be required to pay a higher interest rate in future financings, and its potential pool of investors and funding sources could decrease as a result of the downgrades.
Cash Flows from Operating Activities
The change in net cash provided by operating activities is primarily due to successful working capital initiatives, which included: the extension of payment terms for goods and services with vendors, enhanced customer credit review and collections processes and evaluating supply purchases and focused inventory management. In addition, net cash from operating activities benefited from higher accounts receivable sold under the Customer Receivables Purchase Agreement and a timing benefit from higher payables due to inventory build to support demand, which is expected to partially reverse in 2021. The change in net cash was partially offset by higher annual incentive compensation payments in the current year.
The change in net cash provided by operating activities from continuing operations for 2019 is in partprimarily due to an increasefavorable working capital management as a result of the Company’s continued focus on improving its working capital. Accounts receivable decreased in 2019 due to better terms compliance as a result of improvements in the Company’s dispute resolution process and accounts receivable sold under the Customer Receivables Purchase Agreement. Operating cash flow also benefited from a decrease in cash paid for interest and income taxes paid (approximately $135 million) relatedof approximately $154 million and $136 million, respectively.
See Capital Resources for further information.
Cash Flows from Investing Activities
The change in cash used in investing activities for 2020 was primarily due to the gain onhigher proceeds from the sale of the Tools business, lower payables in 2018 and favorable working capital benefits in 2017 related to the divested businesses in the prior year, partially offset by strong inventory managementlower capital expenditures.
The change in cash used in investing activities for 2019 was primarily due to higher proceeds from the sale of divested businesses in 2018, cash received by the Company in 2018 for insurance claims, which include a claim from fire-related losses and
other workingsettlement of a note receivable related to a legacy Jarden investment, partially offset by lower capital
initiatives and timing, as well as lower bonus and incentive payments.expenditures.
Cash Flows from Financing Activities
The change in net cash provided by continuing operations for 2017 isused in part due to operating cash flows that were unusually high in 2016 driven by substantial benefits that did not repeat related to the Jarden Acquisition, including the absence of seasonal cash outflows for the legacy Jarden businesses, prior to the transaction; an increase in cash interest paid (approximately $143 million); an increase in make-whole interest and fees related to the extinguishment of debt (approximately $34 million); an increase in integration-related costs (approximately $137 million), an increase in cash taxes paid (approximately $73 million) and unfavorable working capital movements primarily related to the timing of inventory purchases.Cash Flows from Investing Activities
The change in cash provided by (used in) investingfinancing activities from continuing operations was primarily due to a decreasehigher payments of long-term debt in the prior year, as well as current-year proceeds from the saleissuance of businesses (approximately $2.1 billion), partially offset by a decrease in cash usedthe June 2025 Notes (defined below). See
Footnote 9 of the Notes to Consolidated Financial Statements for the acquisition of businesses (approximately $634 million). For 2018 and 2017, capital expenditures from continuing operations were $229 million and $266 million, respectively.further information.
The change in cash provided by (used in) investing activities from continuing operations for 2017 was primarily due to a decrease in cash used for the acquisition of businesses, net of cash acquired (approximately $8 billion), primarily due to the Jarden Acquisition and a $1.9 billion increase in the proceeds from the sale of businesses. For 2017, capital expenditures from continuing operations were $266 million versus $292 million for 2016.Cash Flows from Financing Activities
The change in net cash provided by (used in) financing activities from continuing operationsfor 2019 was primarily due to the period-over-period decreaseyear-over-year change in borrowings on short-term debt (approximately $1.0$2.2 billion), an increase and a decrease in shares repurchased (approximately $1.4 billion), and an increase in the payments on long-term debt (approximately $1.1$1.5 billion), partially offset bynon-repeating payments to dissenting shareholders in 20172019 (approximately $162$171 million).
The change in net cash provided by (used in) financing activities from continuing operations for 2017 was primarily due to the decrease in the proceeds from the issuance of long-term debt, primarily used to fundconnection with the Jarden Acquisition, in excess of payments on long-term debt (approximately $9.8 billion) an increase in cash dividends paid (approximately $100 million), an increase in the repurchase of sharesacquisition. See Footnote 18 of the Company (approximately $152 million) and cash paidNotes to dissenting former Jarden shareholders (approximately $162 million), partially offset by the period-over-period increase in the net change in short-term debt (approximately $753 million).
Consolidated Financial Statements for further information.
In
September 2018,March 2020, the Company
redeemedrepurchased $15 million of the
entire principal amount of its 2.15% senior notes due 2018 at a price approximating par value.In October 2018, the Company commenced cash tender offers (the “Tender Offers”) totaling approximately $1.0 billion for any and all of its 2.875% senior notes due 2019 (the “2.875% Notes”) and up to a maximum aggregate principal amount of its 3.15% senior notes due 2021 (the “3.15% Notes”), 3.85% senior notes due 2023 and 4.20% senior notes due 2026.
In October 2018, pursuant to the Tender Offers, the Company repurchased2026 at approximately $249 million aggregate principal amount of its 2.875% Notes due 2019 and approximately $650 million aggregate principal amount of its 3.15% Notes due 2021 forpar value. The total consideration, excluding accrued interest, was approximately $15 million. As a result of the partial debt extinguishment, the Company recorded an immaterial loss.
In May 2020, the Company completed a registered public offering of $500 million in aggregate principal amount of 4.875% senior notes that mature in June 2025 (the “June 2025 Notes”) and received proceeds of approximately
$893 million.In October 2018,$491 million, net of fees and expenses paid. The June 2025 Notes are subject to similar restrictive and financial covenants as the Company’s existing senior notes, however, they are not subject to the interest rate adjustment or coupon step up provisions of certain other notes described below. The June 2025 Notes are redeemable in whole or in part, at the option of the Company also instructed(1) at any time prior to one month before the trusteestated maturity at a redemption price equal to the greater of (a) 100% of the principal amount or (b) the discounted present value of principal and interest at the Treasury Rate plus 50 basis points, plus accrued interest to but excluding the redemption date; or (2) at any time on or after one month prior to the stated maturity at a price equal to 100% of the principal amount being redeemed, plus accrued interest to but excluding the redemption date. The Company used the net proceeds from the June 2025 Notes for general corporate purposes, including repayment of outstanding borrowings under the 2.875%Credit Revolver and accounts receivable securitization facility, and the redemption of the outstanding 4.70% Senior Notes to deliver an irrevocabledue in August 2020 at maturity.
In November 2020, the Company repurchased $300 million of the 3.85% Senior Notes due 2023 with available cash on hand. The total consideration, excluding accrued interest, was approximately $318 million. The Company recorded a loss on extinguishment of debt of $20 million as a result of the partial debt repayment.
On January 25, 2021, the Company delivered a notice of redemption to the holders of the
2.875%3.150% senior notes that will mature in April 2021 (the “April 2021 Notes”) that the Company will redeem the April 2021 Notes
on March 1, 2021 (the “Redemption Date”) for
any and alla redemption price equal to 100% of the
2.875% Notes not tendered in the Tender Offers. Pursuant to the notice of redemption, the Company redeemed the entirecurrent outstanding aggregate principal amount of the
2.875% Notes outstanding on November 9, 2018, at the redemption price determined in accordance with the terms for redemption set forth in the 2.875% Notesnotes, plus accrued and
the indenture governing the 2.875% Notes.In December, 2018, the Company commenced an additional cash tender (the “Second Tender Offer”) totaling approximately $1.6 billion for any and all of its 3.15% Notes due 2021 and up to a maximum aggregate principal amount of certain other of its senior notes. In December, 2018, pursuantunpaid interest to the Second Tender Offer,Redemption Date.
Under the
Company repurchased approximately $252 million aggregate principal amount of its 3.15% Notes, approximately $1.1 billion aggregate principal amount of its 5.5% senior notes due 2046, approximately $209 million aggregate principal amount of its 3.9% senior notes due 2025 and approximately $80 million aggregate principal amount of its 5.375% senior notes due 2036, for total consideration, excluding accrued interest, of approximately $1.6 billion.As a result of these debt extinguishments, the Company recorded a loss on the extinguishment of debt of $4.1 million, primarily comprised of anon-cash charge due to thewrite-off of deferred debt issuance costs, partially offset by prepayment gains.
The Company maintains aCompany's $1.25 billion revolving credit facilityCredit Revolver that matures in December 2023, (the “Facility”). Under the Facility, the Company may borrow funds on a variety of interest rate terms. SincePrior to the Facility providesMoody’s and S&P downgrades discussed above, the Credit Revolver provided the committed backup liquidity required to issue commercial paper,paper. As a result of the S&P and Moody's downgrades, the Company maycould no longer borrow from the commercial paper market on terms it deems acceptable or favorable. Previously, the Company was able to issue commercial paper up to a maximum of $800 million provided there iswas a sufficient amount available for borrowing under the Facility.Credit Revolver. The FacilityCredit Revolver also provides for the issuance of up to $100 million of letters of credit, so long as there is a sufficient amount available for borrowing under the Facility.Credit Revolver. During the second quarter of 2020, the Company drew down $125 million on the Credit Revolver and used a portion of the proceeds to repay the outstanding commercial paper of $40 million outstanding at March 31, 2020. At December 31, 2018,2020, there waswere no commercial paper outstanding,balance borrowings. In addition, there were approximately $30$20 million of outstanding standby letters of credit issued against the FacilityCredit Revolver and there were no borrowings outstanding under the Facility. TheCredit Revolver. At December 31, 2020, the net availability under the FacilityCredit Revolver was approximately $1.2 billion.
The Company maintains a $950 million receivables purchase agreement thatan Accounts Receivable Securitization Facility. The aggregate commitment under the Securitization Facility is $600 million. The Securitization Facility matures in October 2019 (the “Securitization Facility”)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. In March 2020, the Company amended its Securitization Facility with respect to certain customer receivables and to remove an originator from the Securitization Facility. At December 31, 2018,2020, the borrowing rate marginCompany did not have any amounts outstanding under the Securitization Facility.
During the first quarter of 2020, the Company amended its existing factoring agreement (the “Customer Receivables Purchase Agreement”) to increase the amount of certain customer receivables that may be sold. The balance of factored receivables at December 31, 2020 was approximately $350 million. Transactions under this agreement continue to be accounted for as sales of accounts receivable, and the
unused line fee onreceivables sold are removed from the
Securitization Facility were 0.80%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 Consolidated Statement of Cash Flows. The Company records the discount as other (income) expense, net in the Consolidated Statement of Operations and
0.40% per annum, respectively. At December 31, 2018, net availability undercollections of accounts receivables not yet submitted to the
Facility was approximately $761 million.financial institution as a financing cash flow.
The Company was
not in
default of anycompliance with all of its debt covenants at December 31,
2018.At December 31, 2018, there were approximately 2.5 million shares of the Company’s common stock that had not been issued and $61 million in cash that had not been paid to the former holders of Jarden shares who are exercising their right to judicial appraisal under Delaware law. Absent consent by the Company, these dissenting shareholders are no longer entitled to the merger consideration, but are instead entitled only to the judicially determined fair value of their shares, plus interest accruing from the date of the Jarden Acquisition, payable in cash. However, it is possible that the Company could issue a consent to or reach agreement with one or more of these shareholders resulting in the issuance of Company shares (in lieu of or along with the payment of cash) in settlement of the dissenters’ claims. At December 31, 2018, the Company has accrued approximately $171 million of unpaid consideration related to these former shares of Jarden common stock.
2020.On June 11, 2018, the Company announced that its Board of Directors authorized a $2.5 billion increase in the then available amount under its existing Stock Repurchase Program (“SRP”). Under the updated SRP, the Company is authorized to repurchase up to approximately $3.6 billion of its outstanding shares through the end of 2019. The repurchase of additional shares in the future will depend upon many factors, including the Company’s financial condition, liquidity and legal requirements. During 2018, the Company repurchased approximately 63 million shares of its common stock valued at approximately $1.5 billion under the SRP. At December 31, 2018, approximately $2.1 billion remains available under the SRP.
On February 20, 2019, Fitch Ratings (Fitch) concluded its review of its rating of Newell Brands Inc. and has downgraded the Company’s Long-Term Issuer Default Rating to ‘BB+’ from‘BBB-’ and Short-Term IDR to ‘B’ from ‘F3’. The Rating Outlook is Stable. This action reflected Fitch’s view that recent declines in business performance expectations and risks associated with completion of the Accelerated Transformation Plan could indicate execution issues and share losses.
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.
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. Interest rate swap contracts are therefore used by the Company to separate interest rate risk
management from the debt funding decision. The cash paid and received from the settlement of interest rate swaps is included in interest expense.
At December 31,
2018,2020, the Company had approximately
$527$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
$277$100 million of principal on the
4.7% senior notes due 2020 and $250 million of principal on the 4.0%4.00% senior notes due 2024 for the remaining life of
these notes.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.
On August 15, 2020, a $277 million notional interest rate swap matured concurrently with the maturity of the 4.70% senior notes which were repaid during the third quarter.
The Company uses cross-currency swaps to hedge foreign currency risk on certain
intercompany financing
arrangementsarrangements. During the first quarter of 2020, the Company entered into two cross-currency swaps with
foreign subsidiaries. During 2018, allan aggregate notional amount of $900 million, which were designated as net investment hedges of the
Company’sCompany's foreign currency exposure of its net investment in certain Euro-functional currency subsidiaries with Euro-denominated net assets. With these cross-currency
swaps, which mature in January and February 2025, 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 year ended December 31, 2020, the Company recognized income of $14 million in interest expense, net, related to the portion of cross-currency swaps
matured.excluded from hedge effectiveness testing. The
Company had no cross-currency
interest rate swaps
were intended to eliminate uncertaintyused as hedging instruments in
cash flows in U.S. Dollars and British Pounds in connection with the intercompany financing arrangements.2019.
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
2019.2021. 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
AOCIaccumulated other comprehensive income (loss) (“AOCL”) and is recognized in earnings at the same time that the hedged item affects earnings and is included in the same caption in the statements of operations as the underlying hedged item. At December 31,
2018,2020, the Company had approximately
$504$509 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 December 31, 2018,2020, the Company had approximately $1.0 billion$994 million notional amount outstanding of these foreign currency contracts that are not designated as effective hedges for accounting purposes and have maturity dates through October 2020.December 2021. Fair market value gains or losses are included in the results of operations and are classified in other (income) expense, net.
Commodity Contracts
To a lesser extent, the Company also enters into commodity-based derivatives in order to mitigate the risk that the rising price of these commodities could have on the cost of certain of the Company’s raw materials. These commodity-based derivatives provide the Company with cost certainty. At December 31, 2020, the Company had no notional amount outstanding of commodity-based derivatives that are designated as effective hedges for accounting purposes. Fair market value gains or losses are included in the results of operations and are classified in cost of products sold.
The following table presents the fair value of derivative financial instruments
as ofat December 31,
20182020 (in millions):
| | | | |
| | | December 31,
2018 | |
| | | Asset
(Liability) | |
Derivatives designated as effective hedges: | | | | |
Cash flow hedges: | | | | |
Foreign currency contracts | | $ | 12.6 | |
Fair value hedges: | | | | |
Interest rate swaps | | | (11.5 | ) |
Derivatives not designated as effective hedges: | | | | |
Foreign currency contracts | | | 8.7 | |
Commodity contracts | | | (0.9 | ) |
| | | | |
Total | | $ | 8.9 | |
| | | | |
| | | | | |
| |
| Asset
(Liability) |
| Derivatives designated as effective hedges: | |
| Cash flow hedges: | |
| Foreign currency contracts | $ | (18) | |
| |
| Fair value hedges: | |
| Interest rate swaps | 7 | |
| Net investment hedges: | |
| Cross-currency swaps | (92) | |
| Derivatives not designated as effective hedges: | |
| Foreign currency contracts | (7) | |
| Total | $ | (110) | |
Contractual Obligations, Commitments and
Off-Balance Sheet Arrangements
The Company has outstanding debt obligations maturing at various dates through 2046. Certain other items, such as purchase commitments and other executory contracts, are not recognized as liabilities in the Company’s consolidated financial statements but are required to be disclosed. Examples of items not recognized as liabilities in the Company’s consolidated financial statements are commitments to purchase raw materials or inventory that has not yet been received
as ofat December 31,
2018,2020, and
future minimum lease payments for the use of propertyother non-cancelable obligations including capital assets and
equipment under operating lease agreements.other licensing services.
The following table summarizes the effect, that
lease and other material contractual obligations
isand commitments are expected to have on the Company’s cash flow in the indicated
period. In addition, the table reflects the timing of principal and interest payments on borrowings outstanding as ofperiod at December 31,
2018.2020. Additional details regarding these obligations are provided in the Notes to Consolidated Financial Statements:
| | | | | | | | | | | | | | | | | | | | |
| | | Year(s) | |
(in millions) | | Total | | | 1 | | | 2-3 | | | 4-5 | | | After 5 | |
Debt (1) | | $ | 7,057.1 | | | $ | 269.4 | | | $ | 806.5 | | | $ | 2,301.9 | | | $ | 3,679.3 | |
Interest on debt (2) | | | 2,693.0 | | | | 302.2 | | | | 570.2 | | | | 476.5 | | | | 1,344.1 | |
Operating lease obligations (3) | | | 877.4 | | | | 180.0 | | | | 261.8 | | | | 171.7 | | | | 263.9 | |
Purchase obligations (4) | | | 392.3 | | | | 303.9 | | | | 76.9 | | | | 11.4 | | | | 0.1 | |
Tax obligations (5) | | | 118.1 | | | | 10.5 | | | | 20.5 | | | | 29.5 | | | | 57.6 | |
| | | | | | | | | | | | | | | | | | | | |
Total (6) | | $ | 11,137.9 | | | $ | 1,066.0 | | | $ | 1,735.9 | | | $ | 2,991.0 | | | $ | 5,345.0 | |
| | | | | | | | | | | | | | | | | | | | |
(1) | Amounts represent contractual obligations based on the earliest date that the obligation may become due, excluding interest, based on borrowings outstanding as of December 31, 2018. For further information relating to these obligations, see Footnote 11 of the Notes to Consolidated Financial Statements.
|
(2) | Amounts represent estimated interest payable on borrowings outstanding as of December 31, 2018, excluding the impact of fixed to floating rate interest rate swaps. Interest on floating-rate debt was estimated using the rate in effect as of December 31, 2018. For further information, see Footnote 11 of the Notes to Consolidated Financial Statements.
|
(3) | Amounts represent contractual minimum lease obligations on operating leases as of December 31, 2018. For further information relating to these obligations, see Footnote 13 of the Notes to Consolidated Financial Statements.
|
(4) | Primarily consists of purchase commitments with suppliers entered into as of December 31, 2018, for the purchase of materials, packaging and other components and services. These purchase commitment amounts represent only those items which are based on agreements that are legally enforceable and that specify all significant terms including minimum quantity, price and term and do not represent total anticipated purchases.
|
(5) | Represents the future cash payments related to Tax Cuts and Jobs Act enacted in 2018, for theone-time provisional transition tax on the Company’s previously untaxed foreign earnings. See Footnote 17 of the Notes to Consolidated Financial Statements for additional information.
|
(6) | Total does not include contractual obligations reported on the December 31, 2018 balance sheet as current liabilities, except for current portion of long-term debt, short-term debt and accrued interest.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| (in millions) | | Total | | 1 year | | 2-3 years | | 4-5 years | | After
5 years |
| Debt (1) | | $ | 5,633 | | | $ | 465 | | | $ | 1,348 | | | $ | 748 | | | $ | 3,072 | |
| Interest on debt (2) | | 2,216 | | | 270 | | | 470 | | | 353 | | | 1,123 | |
| Lease obligations (3) | | 709 | | | 159 | | | 241 | | | 141 | | | 168 | |
| Purchase obligations (4) | | 347 | | | 248 | | | 74 | | | 21 | | | 4 | |
| Tax obligations (5) | | 107 | | | 11 | | | 33 | | | 63 | | | — | |
| Total (6) | | $ | 9,012 | | | $ | 1,153 | | | $ | 2,166 | | | $ | 1,326 | | | $ | 4,367 | |
(1)Amounts represent contractual obligations based on the earliest date that the obligation may become due, excluding interest, based on borrowings outstanding at December 31, 2020. For further information relating to these obligations, see Footnote 9 of the Notes to Consolidated Financial Statements.
(2)Amounts represent estimated interest payable on borrowings outstanding at December 31, 2020, excluding the impact of fixed to floating rate interest rate swaps. Interest on floating-rate debt was estimated using the rate in effect at December 31, 2020. For further information, see Footnote 9 of the Notes to Consolidated Financial Statements.
(3)Amounts represent lease liabilities on operating and financing leases at December 31, 2020. See Footnote 13 of the Notes to Consolidated Financial Statements.
(4)Primarily consists of purchase commitments with suppliers entered into at December 31, 2020, for the purchase of materials, packaging and other components and services. These purchase commitment amounts represent only those items which are based on agreements that are legally enforceable and that specify all significant terms including minimum quantity, price and term and do not represent total anticipated purchases.
(5)Represents the future cash payments related to 2017 Tax Reform, for the one-time provisional transition tax on the Company’s previously untaxed foreign earnings.
(6)Total does not include contractual obligations reported on the December 31, 2020 balance sheet as current liabilities, except for current portion of long-term debt, short-term debt and accrued interest.
The Company also has liabilities for uncertain tax positions and unrecognized tax benefits. The Company is under audit fromtime-to-time by the IRS and other taxing authorities, and it is possible that the amount of the liability for uncertain tax positions and unrecognized tax benefits could change in the coming year. While it is possible that one or more of these examinations may be resolved in the next year, the Company is not able to reasonably estimate the timing or the amount by which the liability will be settled over time; therefore, the $463$452 million in unrecognized tax benefits as ofat December 31, 2018,2020, is excluded from the preceding table. See Footnote 1712 of the Notes to Consolidated Financial Statements for additional information.
Additionally, the Company has obligations with respect to its pension and postretirement benefit plans, which are excluded from the preceding table. The timing and amounts of the funding requirements are uncertain because they are dependent on interest rates and actual returns on plan assets, among other factors. See Footnote 1411 of the Notes to Consolidated Financial Statements for further information.As of
At December 31, 2018,2020, the Company had $74.6approximately $51 million in standby letters of credit primarily related to the Company’s self-insurance programs, including workers’ compensation, product liability and medical. See Footnote 2018 of the Notes to Consolidated Financial Statements for further information.As of
At December 31,
2018,2020, the Company did not have any significant
off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of
SEC Regulation
S-K.
Critical Accounting Estimates
The Company’s
significant accounting policies are more fully described in Footnote 1 of the Notes to Consolidated Financial Statements. As disclosed in that footnote, the preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying footnotes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results
inevitably will differ from those estimates, and such differences may be material to the Consolidated Financial Statements. The following sections describe the Company’s critical accounting policies.
Sales
Revenue Recognition
Customer Programs and Variable Consideration
The Company recognizes revenue when performance obligations under the terms of a contract with the customer are satisfied and are recognized at a point in time, which generally occurs either on shipment or on delivery based on contractual terms, which is also when control is transferred. The Company’s primary performance obligation is the distribution and sales of its consumer and commercial products to its customers. Prior to the adoption of Accounting Standards Codification Topic 606,“
Revenue
from Contracts with Customers” (“Topic 606”), the Company deferred recognition of revenue for limited FOB shipping point transactions where it had a practice of providing the buyer with replacement goods at no additional cost if there was loss or damage while the goods were in transit. After the adoption of Topic 606, the Company recognizes revenue at the time of shipment for these transactions.The Company measures revenueis measured as the amount of consideration for which it expects to be entitled in exchange for transferring goods or providing services. Certain customers may receive cash and/ornon-cash incentives such as cash discounts, returns, credits or reimbursements related to defective products, customer discounts (such as volume or trade discounts), cooperative advertising and other customer-related programs, which are accounted for as variable consideration. In some cases, the Company must apply judgment, including contractual rates and historical payment trends, when estimating variable consideration.
In addition, the Company participates in various programs and arrangements with customers designed to increase the sale of products by these customers. Among the programs negotiated are arrangements under which allowances are earned by customers for attaining agreed-upon sales levels or for participating in specific marketing programs. Coupon programs are also developed on a customer- and territory-specific basis with the intent of increasing sales by all customers.
Under customer programs and arrangements that require sales incentives to be paid in advance, the Company amortizes the amount paid over the period of benefit or contractual sales volume. When incentives are paid in arrears, the Company accrues the estimated amount to be paid based on the program’s contractual terms, expected customer performance and/or estimated sales volume. These estimates are determined using historical customer experience and other factors, which sometimes require significant judgment. Due to the length of time necessary to obtain relevant data from customers, among other factors, actual amounts paid can differ from these estimates.
As a result of the adoption of Topic 606, certain costs
Sales taxes and
cash payments madeother similar taxes are excluded from revenue. The Company has elected to
customers previously recorded in costs of products soldaccount for shipping and
selling, general and administrative expenses have been reclassified against net sales as they do not meet the specific criteria to qualifyhandling activities as a
distinct good or service under the new guidance, primarily related to payments to customers for defective products under warranty.For further information regarding revenue recognition see Footnotes 1 and 2 of the Notes to the Consolidated Financial Statements
Inventory Reserves
fulfillment cost. The Company reduces its inventory value for estimated obsolete and slow-moving inventory in an amount equalalso elected not to disclose the difference between the cost of inventory and the net realizable value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.
Business Combinations
The Company allocates purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration overunsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which revenue is recognized at the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed,amount to which the Company makes significant estimates and assumptions, especially with respecthas the right to intangible assets.
Critical estimates in valuing intangible assets include, but are not limited to, future expected cash flows from customer relationships, trade names and trademarks and acquired patents and developed technology; the period of time the Company expects to use the acquired intangible asset; and discount rates. In estimating the future cash flows, the Company considers demand, competition and other economic factors. The Company’s estimates are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates, which could result in impairment charges in the future. Estimates associated with the accountinginvoice for business combinations may change as additional information becomes available regarding the assets acquired and liabilities assumed, which could result in adjustments to the values of tangible assets acquired, liabilities assumed and intangible assets acquired or could result in future income or expenses if such changes in estimates are identified beyond one year from the date of acquisition.
The Company considers various factors in determining whether an acquired trademark or trade name has an indefinite life. In assessing whether an acquired trademark or trade name has an indefinite life, the Company considers legal and regulatory provisions that may limit the useful life, customer loyalty, brand strength and positioning, the effects of obsolescence and other economic factors, the Company’s plans for incorporating the trademark or trade name into its brand portfolio and the Company’s historical experience in using and renewing similar assets. The Company considers all other acquired intangible assets definite-lived assets and generally amortizes the assets on a straight-line basis. The Company determines the amortizable life of acquired definite-lived intangible assets based on the number of years over which a significant amount of the discounted cash flows contributes to the estimated fair value of the asset.
The Company accounts for costs to exit or restructure certain activities of an acquired company separately from the business combination. A liability for costs associated with an exit or disposal activity is recognized and measured at its fair value in the consolidated statement of operations in the period in which the liability is incurred. When estimating the costs of exiting facilities, estimates are made regarding future sublease payments to be received, which can differ materially from actual results. As a result, the Company may be required to revise its estimates which may affect the Company’s results of operations and financial position in the period the revision is made.
services performed.
Goodwill and Indefinite-Lived Intangibles
As a result of acquisitions in prior years, the Company has significant intangible assets on its balance sheet that include goodwill and indefinite-lived intangibles (primarily, trademarks and tradenames). The Company’s goodwill
Goodwill and indefinite-lived intangibles are tested and reviewed for impairment annually
as of July 1,during the fourth quarter (on December 1), or more frequently if facts and circumstances warrant.
The Company performs its annual On December 1, 2020, the carrying values for total goodwill and indefinite-lived intangible assets were $3.5 billion and $2.3 billion, respectively.
Goodwill
Goodwill is tested for impairment testing of goodwill at a reporting unit level, and all of the Company’s goodwill is assigned to the Company’sits reporting units. Reporting units are determined based upon the Company’s organizational structure in place at the date of the goodwill impairment testing and generally one level below the operating segment level. As a result of theThe Company’s Accelerated Transformation Plan that resulted in a number of businesses designated as held for sale, the Company is nowoperations are comprised of seveneight reporting units, within its five primary operating segments.
During the first quarter of 2020, the Company concluded that an impairment triggering event had occurred for all of its reporting units as the Company has experienced significant COVID-19 related disruption to its business in three primary
operating segmentsareas: supply chain, as
partcertain manufacturing and distribution facilities were temporarily closed in line with government guidelines; the temporary closure of
its continuing operations.secondary customer retail stores as well as the Company's Yankee Candle retail stores in North America; and changes in consumer demand patterns to certain focused categories. The
amount of goodwill attributable to continuing operations subject to its annual goodwill impairment testing as of July 1, 2018 was $6.8 billion. Additionally, the carrying value of the Company’s indefinite-lived intangible assets attributable to continuing operations was approximately $8.5 billion as of the July 1, 2018. In addition to annual testing, the Company had triggering events as of September 30, 2018 and December 31, 2018 that resulted in impairment charges being recorded.During the current year, the Company used a quantitative approach, to test goodwill and indefinite-lived intangibles and bypassed the qualitative approach. The quantitative approach in the goodwill impairment testwhich involves comparing the fair value of each of the reporting units to the carrying value of those reporting units. If the carrying value of a reporting unit exceeds theits fair value, of the reporting unit, an impairment loss would be recognized (notcalculated as the differences between these amounts, limited to exceed the carrying amount of goodwill).
Goodwillreporting unit goodwill allocated to the reporting unit.
The quantitative goodwill impairment testing requires significant use of judgment and assumptions, includingsuch as 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, discount rates and total enterprise value. The Company primarily usesincome approach used is the discounted cash flow valuation methodsmethodology and is based on five-year cash flow projections. The cash flows projected are analyzed on a “debt-free” basis (before cash payments to equity and interest bearinginterest-bearing debt investors) in order to develop an enterprise value from operations for the reporting unit. A provision is also made, based on these projections, for the value of the reporting unit at the end of the forecast period, or terminal value. The present value of the finite-period cash flows and the terminal value are determined using a selected discount rate.
The indefinite-lived intangible assetCompany estimated the fair values of its reporting units based on discounted cash flow methodology reflecting its latest projections which included, among other things, the impact of tariffs on Chinese imports, the current expectations as to the impact of COVID-19 on its operations, as well as other inflation at the time the Company performed its impairment testing.
As a result of the impairment testing performed in connection with the COVID-19 global pandemic triggering event, the Company determined that its goodwill associated with its Appliances and Cookware segment was impaired. During first quarter of 2020, the Company recorded a non-cash charge of $212 million to reflect the impairment of its goodwill as its carrying value exceeded its fair value. There was no goodwill impairment recorded in conjunction with the Company’s annual impairment testing in the fourth quarter, and, as of December 31, 2020, there were no reporting units with fair values within 10% of the associated carrying values. Additionally, a hypothetical 10% reduction in forecasted earnings before interest, taxes and amortization used in the discounted cash flows to estimate the fair value of each reporting unit would not have resulted in a goodwill impairment charge.
See Footnotes 1 and 7 of the Notes to Consolidated Financial Statements for further information.
Indefinite-lived intangibles
The testing of indefinite-lived intangibles (primarily trademarks and tradenames) under established guidelines for impairment also requires significant use of judgment and assumptions (such as cash flow projections,
royalty rates, terminal values and discount rates).
An indefinite-lived intangible asset is impaired by the amount its carrying value exceeds its estimated fair value. For impairment testing purposes, the fair value of indefinite-lived intangibles is determined using
the same method which was used for determining the initial fair value upon acquisition. The first method iseither the relief from royalty method
whichor the excess earnings method. The relief from royalty method estimates the value of a tradename by discounting the hypothetical avoided royalty payments to their present value over the economic life of the asset. The
second method is the excess earnings method
which estimates the value of the intangible asset by quantifying the residual (or excess) cash flows generated by the asset and
discountingdiscounts those cash flows to the present. The excess earnings methodology requires the application of contributory asset charges. Contributory asset charges typically include assumed payments for the use of working capital, tangible assets and other intangible assets. Changes in forecasted operations and other assumptions could materially affect the estimated fair values. Changes in business conditions could potentially require adjustments to these asset valuations.
The Company’s
As a result of the impairment testing date is July 1; however,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 the Appliances and Cookware, Commercial Solutions, Home Solutions, Learning and Development and Outdoor and Recreation segments were impaired. During the first quarter of 2020, the Company recorded impairment charges of $1.3 billion to reflect impairment of these indefinite-lived tradenames because their carrying values exceeded their fair values.
During the third quarter of 2020, the Company concluded that a triggering event had occurred as of September 30, 2018,for an indefinite-lived intangible asset in the Learning and Development segment as a result of (1)a product line divestiture. Pursuant to the decline inauthoritative literature, the Company’s stock price during the third quarter suchCompany performed an impairment test and determined that the Company’s market capitalizationindefinite-lived intangible asset was well below bookimpaired as its carrying value (net shareholders’ equity) and (2) updated cash flow projections for
exceeded its businesses. As of September 30, 2018, the Company therefore applied higher risk adjusted discount rates to the projected cash flows of its reporting units which reduced the fair values of each of the Company’s reporting units, except the Writing division, below their carrying values.value. During the third quarter of 2018,2020, the Company recorded goodwilla non-cash charge of $2 million to reflect the impairment charges of $3.9 billionthis indefinite-lived intangible asset. See Footnotes 1 and 7 of the Notes to reduce the carrying values of these reporting units to their fair values (see Footnote 9 to the Condensed Consolidated Financial Statements). In addition, as of December 31, 2018, the Company concluded that another triggering event had occurredStatements for the Food, Appliances and Cookware, Connected Home and Security, Baby and Home Fragrance reporting units. At December 31, 2018, the Company updated the fair values of its reporting units based on a discounted cash flow methodology reflecting the latest projections which included, among other things, the pricing impacts of the recently announced tariffs on Chinese imports, other inflation, as well as projected benefits from the Company’s cost savings programs. Given the Company’s impairment charges in 2018, there is minimal difference between the estimated fair values and the carrying values of some of the Company’s reporting units increasing the likelihood of future impairment charges. As of December 31, 2018, the implied fair value of the Company’s reporting units exceeded their respective carrying value by more than 10%, other than the Connected Home and Security and Home Fragrance reporting units. The carrying values of these two reporting units comprise $0.2 billion of $3.0 billion of remaining goodwill, and approximate their fair values.further information.
During the thirdfourth quarter of 2018, the Company performed the quantitative impairment tests2020, in conjunction with its annual impairment testing, the Company recorded a non-cash impairment charge of $20 million associated with a tradename in the Learning and Development segment, as its carrying value exceeded its fair value. The impairment reflected a downward revision of forecasted results due to the impact of the delayed and limited re-opening of schools and offices as a result of the COVID-19 global pandemic, as well as the continued deterioration in sales for all its trade names using eitherslime-related adhesive products. An increase of 100 basis points in the relief from royalty method or excess earnings method similar to their initial valuations. Thediscount rate used in the discounted cash flows to estimate fair values of this tradename would have resulted in an increase to the impairment charge of approximately $14 million. The remaining carrying value of this tradename is approximately $135 million.
The remaining tradenames within the Company's Learning and Development segment with no impairment during the fourth quarter of 2020 impairment test had carrying values of $387 million, with $310 million of those with fair values in excess of 10% of carrying values, respectively. An increase of 100 basis points in the discount rate used in the discounted cash flows to estimate fair values of the trade names employed under eitherremaining Learning and Development tradenames would have resulted in an impairment charge of these methods reflected the higher risk adjusted discount rates that affected the respective reporting units. In addition, the Company updated its quantitative analysis as of December 31, 2018 as a resultapproximately $5 million.
There were no impairments of the
triggering event noted above. During 2018, the Company recorded impairment charges of $4.4 billion, of which $0.2 billion was recorded during the fourth quarter 2018, related to various trade names within its reporting units as follows:Trade namesCompany’s tradenames within the FoodAppliances and Appliances segment, primarily acquired in the Jarden acquisition, were impaired by $0.1 billionCookware and Outdoor and Recreation segments during the fourth quarter of 2018,2020 impairment test. The remaining carrying value of tradenames within these segments were approximately $58 million and $1.7 billion during 2018, as their$119 million, respectively, with $54 million and $113 million of those tradenames with fair values in excess of 10% of the carrying values, exceeded theirrespectively. An increase of 100 basis points in the discount rate used in the discounted cash flows to estimate fair values of the Appliances and Cookware tradenames would not have resulted in an impairment charge. An increase of 100 basis points in the discount rate used in the discounted cash flows to estimate fair values of the Outdoor and Recreation tradenames would have resulted in an impairment charge of approximately $1 million.
There were no impairments of the Company’s tradenames within the Commercial Solutions and Home Solutions segments during the fourth quarter of 2020 impairment test. The remaining carrying value of tradenames within these segments were approximately $$576 million and $1.0 billion, respectively, and all tradenames have fair values in excess of 10% of the carrying values. An increase of 100 basis points in the discount rate used in the discounted cash flows to estimate fair values of
thesethe Commercial Solutions tradenames would have resulted in an
increase to the impairment charge of approximately
$0.1 billion. The remaining carrying value of trade names within this segment is approximately $1.6 billion, with $0.7 billion of those trade names with fair values in excess of 10% of the carrying values.Trade names within the Home and Outdoor Living segment, all acquired in the Jarden acquisition, were impaired by $0.1 billion during the fourth quarter of 2018, and $2.4 billion during 2018, as their carrying values exceeded their fair values.$6 million. An increase of 100 basis points in the discount rate used in the discounted cash flows to estimate fair values of these tradenames would have resulted in an increase to the impairment charge of approximately $0.2 billion. The remaining carrying value of trade names within this segment is approximately $1.9 billion, with $0.7 billion of those trade names with fair values in excess of 10% of the carrying values.
Trade names within the Learning and Development segment, primarily acquired in the Jarden acquisition, were impaired by $0.2 billion during 2018 as their carrying values exceeded their fair values. An increase of 100 basis points in the discount rate used in the discounted cash flows to estimate fair values of theseHome Solutions tradenames would not have resulted in an increaseimpairment charge.
The Company believes the circumstances and global disruption caused by COVID-19 may continue to
affect its businesses, future operating results, cash flows and financial condition and that the
impairment charge. The remaining carrying value of trade names within this segment is approximately $0.6 billion, all with fair values in excess of 10%scope and duration of the
carrying values.Somepandemic 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, foreign exchange rates, labor inflation and industry growth. Whiletariffs. 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, there can be no assurance that the Company's estimates and assumptions made for purposes of the goodwill and indefinite-lived intangible asset impairment testing performed during the fourth quarter of 2020 will prove to be accurate predictions of the future.
The Company believes it has made reasonable estimates and assumptions to calculate the fair values of the reporting units and other indefinite-lived intangible assets itwhich were based on facts and circumstances known at this time. It is, however, possible changesthat new events may occur or actual events may result in forecasted cash flows, revenue and earnings that differ from those that formed the basis of the Company’s estimates and assumptions. Actual results could occur. Approximately $0.2 billionbe materially different from the Company’s estimates and assumptions used to calculate fair value for each of the Company’s reporting units if the global pandemic caused by COVID-19 continues to persist for an extended period of time. If such a scenario were to occur, the Company may be required to recognize material impairments to goodwill and $2.1 billion
ofand/or indefinite-lived intangible assets are recorded at their approximate fair value, which exceed their carrying values by less than 10%, and are highly susceptible to changes in estimates and assumptions.assets. The Company will continue to monitor its reporting units and indefinite-lived intangible assets for any triggering events or other signs of impairment. The Company may be required to perform additional impairment teststesting based on changesfurther deterioration of the global economic environment, continued disruptions to the Company’s business, further declines in operating results of the economic environment,Company’s reporting units and/or tradenames, further sustained deterioration of the Company’s market capitalization, and other factors, which could result in impairment charges in the future. Although management cannot predict when improvements in macroeconomic conditions will occur, if consumer confidence and consumer spending decline significantly in the future or if commercial and industrial economic activity or the market capitalization deteriorates significantlyexperiences a sustained deterioration from current levels, it is reasonably likely the Company will be required to record impairment charges in the future.
Valuation of Assets held for Sale
As of
At December 31, 2018,2020, there were four indefinite-lived tradenames with fair values less than 10% of their associated carrying values within the Company had five disposal groups classified as held for sale. Current assets held for sale, net of current liabilities held for sale were $2.9 billion at December 31, 2018. Upon designation as held for sale,Appliances and Cookware, Learning and Development, and Outdoor and Recreation segments. A hypothetical 10% reduction in the Company’s disposal groups are assessed for impairment by comparingforecasted debt-free cash flows used in the excess earnings method to determine the fair value of certain indefinite-lived intangibles of the disposal groupsCompany would not have resulted an impairment. A hypothetical 10% reduction in forecasted revenue used in the relief from royalty method to their carrying values. Thedetermine the fair value of the disposal groups is estimated using a market multiple approach. For the year ended December 31, 2018, the Company recordedcertain indefinite-lived intangibles would have resulted in incremental impairment charges in the Company's Learning and Development and Outdoor and Recreation segments of $697$35 million related to the Process Solutions disposal group, $131and $1 million, related to its Rexair disposal group, and $80 million related to its U.S. Playing Cards disposal group. The Company uses various assumptions to estimate fair value under the market multiple approach, including estimating the market multiples expected from the eventual salerespectively. See Footnote 7 of the disposal groups based on information obtained as a result of its marketing process.Capitalized Software Costs
The Company capitalizes costs associated withinternal-use software during the application development stage after both the preliminary project stage has been completed and the Company’s management has authorized and committedNotes to fundingConsolidated Financial Statements
for further project development. Capitalizedinternal-use software costs include: (i) external direct costs of materials and services consumed in developing or obtaining the software; (ii) payroll and payroll-related costs for employees who are directly associated with and who devote time directly to the project; and (iii) interest costs incurred while developing the software. Capitalization of these costs ceases no later than the point at which the project is substantially complete and ready for its intended purpose. The Company expenses as incurred research and development, general and administrative, and indirect costs associated withinternal-use software. In addition, the Company expenses as incurred training, maintenance and otherinternal-use software costs incurred during the post-implementation stage. Costs associated with upgrades and enhancements ofinternal-use software are capitalized only if such modifications result in additional functionality of the software.The Company amortizesinternal-use software costs using the straight-line method over the estimated useful life of the software. Capitalized software costs are evaluated annually for indicators of impairment, including but not limited to a significant change in available technology or the manner in which the software is being used. Impaired items are written down to their estimated fair values.
information.
The Company continuously evaluates whether impairment indicators related to its property, plant and equipment, operating leases and other long-lived assets are present. These impairment indicators may include a significant decrease in the market price of a long-lived asset or asset group, early termination of an operating lease, a significant adverse change in the extent or manner in which a long-lived asset or asset group is being used or in its physical condition, or a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group. If impairment indicators are present, the Company estimates the future cash flows for the asset or group of assets. The sum of the undiscounted future cash flows attributable to the asset or group of assets is compared to their carrying amount. The cash flows are estimated utilizing various assumptions regarding future sales and expenses, working capital and proceeds from asset disposals on a basis consistent with the Company’s forecasts. If the carrying amount exceeds the sum of the undiscounted future cash flows, the Company discounts the future cash flows using a discount rate required for a similar investment of like risk and records an impairment charge as the difference between the fair value and the carrying value of the asset group. The Company performs its testing of the asset group at the reporting unit level, as this is the lowest level for which identifiable cash flows are available, with the exception of the Yankee Candle business, where testing is performed at the retail store level. See Footnotes 6, 7, and 13 of the Notes to Consolidated Financial Statements for further information.
Income Taxes
The Company accounts for deferred income taxes using the asset and liability approach. Under this approach, deferred income taxes are recognized based on the tax effects of temporary differences between the financial statement and tax bases of assets and liabilities, as measured by current enacted tax rates. Valuation allowances are recorded to reduce the deferred tax assets to an amount that will more likely than not be realized.
The Company’s income tax provisions are based on calculations and assumptions that are subject to examination by various worldwide tax authorities. Although the Company believes that the positions taken on previously filed tax returns are reasonable, it has established tax, interest and penalty reserves in recognition that various taxing authorities may challenge the positions taken, which could result in additional liabilities for taxes, interest and penalties. The Company regularly reviews its deferred tax assets for recoverability considering historical profitability, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies.
For uncertain tax positions, the Company applies the provisions of relevant authoritative guidance, which requires application of a “more likely than not” threshold to the recognition and derecognition of tax positions. The Company’s ongoing assessments of the more likely than not outcomes of tax authority examinations and related tax positions require significant judgment and can increase or decrease the Company’s effective tax rate, as well as impact operating results.
The Company’s provision for income taxes is subject to volatility and could be favorably or adversely affected by earnings being higher or lower in countries that have lower tax rates and higher or lower in countries that have higher tax rates; by changes in the valuation of deferred tax assets and liabilities; by expiration of or lapses in tax-related legislation; by expiration of or lapses in tax incentives; by tax effects of nondeductible compensation; by changes in accounting principles; by liquidity needs driving repatriations of non-U.S. cash to the U.S.; or by changes in tax laws and regulations, including possible U.S. changes to the taxation of earnings of foreign subsidiaries, the deductibility of expenses attributable to foreign income, or the foreign tax credit rules.
The Company’s effective tax rate differs from the statutory rate, primarily due to the tax impact of state taxes, foreign tax rates, tax credits, the domestic manufacturing deduction, tax audit settlements and valuation allowance adjustments. Significant judgment is required in evaluating uncertain tax positions, determining valuation allowances recorded against deferred tax assets, and ultimately, the income tax provision.
It is difficult to predict when resolution of income tax matters will occur and when recognition of certain income tax assets and liabilities is appropriate, and the Company’s income tax expense in the future may continue to differ from the statutory rate because of the effects of similar items. For example, if items are favorably resolved or management determines a deferred tax asset is realizable that was previously reserved, the Company will recognize period tax benefits. Conversely, to the extent tax matters are
unfavorably resolved or management determines a valuation allowance is necessary for a tax asset that was not previously reserved, the Company will recognize incremental period tax expense. These matters are expected to contribute to the tax rate differing from the statutory rate and continued volatility in the Company’s effective tax rate. See Footnote 12 of the Notes to Consolidated Financial Statements for further information.
Pensions and Postretirement Benefits
The Company records annual amounts relating to its pension and postretirement plans based on calculations, which include various actuarial assumptions, including discount rates, assumed rates of return, compensation increases, turnover rates and health care cost trend rates. The Company reviews its actuarial assumptions on an annual basis and makes modifications to the assumptions based on current rates and trends when it is deemed appropriate to do so. The effect of modifications is generally deferred and amortized over future periods. The Company believes that the assumptions utilized in recording its obligations under its plans are reasonable based on its experience, market conditions and the input from its actuaries and investment advisors. The pension and postretirement obligations are measured at December 31, 2020 and 2019.
The Company employs a total return investment approach for its pension and postretirement benefit plans whereby a mix of equities and fixed income investments are used to maximize the long-term return of pension plan assets. The intent of this strategy is to minimize plan expenses by outperforming plan liabilities over the long run. Risk tolerance is established through careful consideration of plan liabilities, plan funded status, and corporate financial condition. The investment portfolios contain a diversified blend of equity and fixed-income investments. Furthermore, equity investments are diversified across geography and market capitalization through investments in U.S. large-capitalization stocks, U.S. small-capitalization stocks and international securities. Investment risk is measured and monitored on an ongoing basis through annual liability measurements, periodic asset/liability studies and quarterly investment portfolio reviews.
The expected long-term rate of return for plan assets is based upon many factors including expected asset allocations, historical asset returns, current and expected future market conditions, risk and active management premiums. The target asset allocations for the Company’s domestic pension plans may vary by plan, in part due to plan demographics, funded status and liability duration. In general, the Company’s target asset allocations are as follows: global equities approximately 20% to 40%; fixed income approximately 50% to 70%; and cash, alternative investments and other, approximately zero to 20% at December 31, 2020. Actual asset allocations may vary from the targeted allocations for various reasons, including market conditions and the timing of transactions. The Company maintains numerous international defined benefit pension plans. The asset allocations for the international investment may vary by plan and jurisdiction and are primarily based upon the plan structure and plan participant profile. At December 31, 2020, the domestic plan assets were allocated as follows: Equities: approximately 24% and Other Investments (alternative investments, fixed-income securities, cash and other): approximately 76%. Actual asset allocations may vary from the targeted allocations for various reasons, including market conditions and the timing of transactions.
For 2020, 2019 and 2018, the actual return (loss) on plan assets for the Company’s U.S. pension plan assets was approximately $178 million, $213 million and $(71) million, respectively, versus an expected return on plan assets of approximately $59 million, $59 million and $67 million, respectively. The actual amount of future contributions will depend, in part, on long-term actual return on assets and future discount rates. Pension contributions for all the Company’s pension plans for 2021 are estimated to be approximately $22 million, as compared to the 2020 contributions of approximately $25 million.
The weighted average expected return on plan assets assumption for 2020 was approximately 4.1% for the Company’s pension plans. The weighted average discount rate at the 2020 measurement date used to measure the pension and postretirement benefit obligations was approximately 1.9% and 1.8%, respectively. A 25 basis points decrease in the discount rate at the 2020 measurement date would increase the pension plans’ projected benefit obligation by approximately $64 million.
The healthcare cost trend rates used in valuing the Company’s postretirement benefit obligation are established based upon actual healthcare cost trends and consultation with actuaries and benefit providers. At the 2020 measurement date, the current weighted average healthcare cost trend rate assumption was approximately 6.7%. The current healthcare cost trend rate is assumed to gradually decrease to an ultimate healthcare cost trend rate of 4.5%. See Footnote 11 of the Notes to Consolidated Financial Statements for further information.
Recent Accounting Pronouncements
A summary of recent accounting pronouncements is included in Footnote 1 of the Notes to Consolidated Financial Statements.
International Operations
For 2020, 2019 and 2018, the Company’s non-U.S. businesses accounted for approximately 33% of net sales (see Footnote 17 of the Notes to Consolidated Financial Statements).
Forward-Looking Statements
Forward-looking statements in this Report are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements generally can be identified by the use of words such as “intend,” “anticipate,” “believe,” “estimate,” “project,” “target,” “plan,” “expect,” "setting up," "beginning to," “will,” “should,” “would,” "resume," "are confident that," "remain optimistic that" or similar statements. The Company cautions that forward-looking statements are not guarantees because there are inherent difficulties in predicting future results. Actual results may differ materially from those expressed or implied in the forward-looking statements. Important factors that could cause actual results to differ materially from those suggested by the forward-looking statements include, but are not limited to:
•the Company's ability to manage the demand, supply and operational challenges with the actual or perceived effects of the COVID-19 pandemic;
•the Company’s dependence on the strength of retail, commercial and industrial sectors of the economy in various parts of the world;
•competition with other manufacturers and distributors of consumer products;
•major retailers’ strong bargaining power and consolidation of the Company’s customers;
•the Company’s ability to improve productivity, reduce complexity and streamline operations;
•the Company’s ability to develop innovative new products, to develop, maintain and strengthen end-user brands and to realize the benefits of increased advertising and promotion spend;
•the Company's ability to successfully remediate its material weakness in internal control over financial reporting and to maintain effective internal control over financial reporting;
•risks related to the Company’s substantial indebtedness, potential increases in interest rates or changes in the Company’s credit ratings;
•future events that could adversely affect the value of the Company’s assets and/or stock price and require additional impairment charges;
•the impact of cost associated with acquisition and divestitures;
•our ability to effectively execute our turnaround plan;
•changes in the prices of raw materials and sourced products and the Company's ability to obtain raw materials and sourced products in a timely manner;
•the impact of governmental investigation, inspections, lawsuits, legislation requests or other actions or other activities by third parties;
•the risks inherent to the Company’s foreign operations, including currency fluctuations, exchange controls and pricing restrictions;
•a failure of one of the Company’s key information technology systems, networks, processes or related controls or those of the Company’s services providers;
•the impact of United States or foreign regulations on the Company’s operations, including the impact of tariffs and environmental remediation costs;
•the potential inability to attract, retain and motivate key employees;
•the resolution of tax contingencies resulting in additional tax liabilities;
•product liability, product recalls or related regulatory actions;
•the Company’s ability to protect its intellectual property rights; and
•significant increases in the funding obligations related to the Company’s pension plans.
The information contained in this Annual Report on Form 10-K is as of the date indicated. The Company assumes no obligation to update any forward-looking statements contained in this Annual Report on Form 10-K as a result of new information or future events or developments. In addition, there can be no assurance that the Company has correctly identified and assessed all of the factors affecting the Company or that the publicly available and other information the Company receives with respect to these factors is complete or correct.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
In general, business enterprises can be exposed to market risks including fluctuations in interest rates, foreign currency exchange rates and certain commodity prices, and that can affect the cost of operating, investing and financing under those conditions. The Company believes it has moderate exposure to these risks. The Company assesses market risk based on changes in interest rates, foreign currency rates and commodity prices utilizing a sensitivity analysis that measures the potential loss in earnings, fair values and cash flows based on hypothetical changes in rates and prices.
The Company is exposed to interest rate risk on its variable rate debt and price risk on its fixed rate debt. As such, the Company monitors the interest rate environment and uses interest rate swap agreements to manage its interest rate risk and price risk by balancing its exposure to fixed and variable interest rates while attempting to minimize interest costs. At December 31, 2020, approximately $100 million of the Company’s debt carries a variable rate of interest either by nature or through the use of interest rate swaps. The remainder of the debt (approximately $5.5 billion) carries a fixed rate of interest. Based upon the Company’s debt structure at December 31, 2020, a hypothetical 1% increase in these interest rates would increase interest expense by approximately $1 million and decrease the fair value of debt by approximately $332 million.
While the Company transacts business predominantly in U.S. dollars and most of its revenues are collected in U.S. dollars, a substantial portion of the Company’s operating costs are denominated in other currencies, such as the Brazilian Real, British Pound, Canadian dollar, European Euro, Japanese Yen and Mexican Peso. Changes in the relation of these and other currencies to the U.S. dollar will affect Company’s sales and profitability and could result in exchange losses. For 2020, approximately 33% of the Company’s sales were denominated in foreign currencies, the most significant of which were: European Euro, approximately 10%; Canadian dollar, approximately 4%; and British pounds, approximately 4%. The primary purpose of the Company’s foreign currency hedging activities is to mitigate the foreign exchange rate exposure on the cash flows related to forecasted inventory purchases and sales. A hypothetical 10% change in foreign currency exchange rates would not have a material effect on foreign currency gains and losses related to the foreign currency derivatives or the net fair value of the Company’s foreign currency derivatives.
The Company is exposed to the price risk that the rising cost of commodities has on certain of its raw materials. As such, the Company monitors the commodities markets and from time to time the Company enters into commodity-based derivatives in order to mitigate the impact that the rising price of these commodities has on the cost of certain of the Company’s raw materials. A hypothetical 10% change in the commodity prices underlying the derivatives would not have a material effect on the related gains and losses included in the Company’s results of operations. In this sensitivity analysis, all other assumptions are constant and assumes that a change in one currency’s rate relative to the U.S. dollar would not impact another currency’s rates relative to the U.S. dollar.
The Company is exposed to credit loss in the event of non-performance by the counterparties to its derivative financial instruments, all of which are highly rated institutions; however, the Company does not anticipate non-performance by such counterparties.
The Company does not enter into derivative financial instruments for trading purposes.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To theBoard of Directors and Stockholders of Newell Brands Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Newell Brands Inc. and its subsidiaries(the “Company”) as of December 31, 2020 and 2019,and the related consolidated statements of operations, of comprehensive income (loss), of stockholders’ equity and of cash flowsfor each of the three years in the period ended December 31, 2020, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2020 appearing after the signature pages (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework(2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013)issued by the COSO because a material weakness in internal control over financial reporting existed as of that date related to not designing and maintaining effective controls over the accounting for certain aspects of income taxes.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness referred to above is described in Management's Annual Report on Internal Control Over Financial Reporting appearing under Item 9A. We considered this material weakness in determining the nature, timing, and extent of audit tests applied in our audit of the 2020 consolidatedfinancial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidatedfinancial statements.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.
Basis for Opinions
The Company's management is responsible for these consolidatedfinancial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in management's report referred to above. Our responsibility is to express opinions on the Company’s consolidatedfinancial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidatedfinancial statements included performing procedures to assess the risks of material misstatement of the consolidatedfinancial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidatedfinancial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidatedfinancial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to theconsolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidatedfinancial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Impairment Assessments- Goodwill for Certain Reporting Units and Certain Indefinite-Lived Intangible Assets
As described in Notes 1 and 7 to the consolidated financial statements, the Company’s goodwill and indefinite-lived intangible assets balances were $3.6 billion and $2.3 billion as of December 31, 2020, respectively. These assets are tested and reviewed for impairment annually on December 1, or more frequently if facts and circumstances warrant. Management used a quantitative approach, which involves comparing the fair value to the carrying value. If the carrying value of a reporting unit exceeds its fair value, an impairment loss is calculated as the difference between these amounts. An indefinite-lived intangible asset is impaired by the amount its carrying value exceeds its estimated fair value. During the first quarter of 2020, the Company concluded that an impairment triggering event had occurred due to COVID-19 related disruption and as a result, the Company performed an impairment test for its goodwill and indefinite-lived intangible assets. During the first quarter of 2020, the Company recorded an impairment charge of $212 million and $1.3 billion to reflect the impairment of its goodwill and indefinite-lived intangible assets, respectively. As disclosed by management 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 and the Company recorded an impairment charge of $2 million. During the fourth quarter of 2020, in conjunction with its annual impairment testing, the Company recorded an impairment charge of $20 million associated with an indefinite-lived intangible asset in the Learning and Development segment. Fair value is estimated by management using the income approach for reporting units and the relief from royalty method or the excess earnings method for indefinite-lived intangible assets. Management’s cash flow projections requires significant use of judgment and assumptions relating to the estimation of future cash flows, business growth rates, terminal values, discount rates and total enterprise value for goodwill, and estimation of future cash flows, royalty rates, terminal values, discount rates, residual (or excess) cash flows and contributory asset charges for indefinite-lived intangible assets.
The principal considerations for our determination that performing procedures relating to the impairment assessments of goodwill for certain reporting units and certain indefinite-lived intangible assets is a critical audit matter are (i) the significant judgment by management when developing the fair value measurements; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to the estimation of future cash flows, business growth rates, terminal values, discount rates and total enterprise value for goodwill and estimation of future cash flows, royalty rates, terminal values, discount rates, residual (or excess) cash flows, and contributory asset charges for indefinite-lived intangible assets; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s impairment assessments of goodwill and indefinite-lived intangible assets, including controls over the valuation of
the Company’s reporting units and indefinite-lived intangible assets. These procedures also included, among others, (i) testing management’s process for developing the fair value estimate of the reporting units and indefinite-lived intangible assets; (ii) evaluating the appropriateness of the income approach, relief from royalty method and excess earnings method; (iii) testing the completeness and accuracy of underlying data used in the estimates; and (iv) evaluating the significant assumptions used by management related to estimation of future cash flows, business growth rates, terminal values, discount rates, and total enterprise value for goodwill and estimation of future cash flows, royalty rates, terminal values, discount rates, residual (or excess) cash flows and contributory asset charges for indefinite-lived intangible assets. Evaluating management’s assumptions related to the estimation of future cash flows, business growth rates, terminal values and total enterprise value for goodwill and estimation of future cash flows, terminal values, and residual (or excess cash flows) for indefinite-lived intangible assets involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the reporting units and indefinite-lived intangible assets; (ii) the consistency with external and industry data; and (iii) whether the assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of (i) the Company’s income approach, relief from royalty method, and excess earnings method and (ii) the discount rates for goodwill and the discount rates, royalty rates, and contributory asset charges for indefinite-lived intangible assets.
Uncertain Tax Positions
As described in Notes 1 and 12 to the consolidated financial statements, the Company has liabilities recorded for unrecognized tax benefits of $452 million as of December 31, 2020. As disclosed by management, the Company’s income tax provisions are based on calculations and assumptions that are subject to examination by various worldwide tax authorities. It has established tax, interest and penalty reserves in recognition that various taxing authorities may challenge the positions taken, which could result in additional liabilities for taxes, interest and penalties. For uncertain tax positions, management applies the provisions of relevant authoritative guidance, which requires application of a “more likely than not” threshold to the recognition and derecognition of tax positions. Management’s ongoing assessments of the more likely than not outcomes of tax authority examinations and related tax positions require significant judgment.
The principal considerations for our determination that performing procedures relating to uncertain tax positions is a critical audit matter are (i) the significant judgment by management when determining uncertain tax positions, including a high degree of estimation uncertainty relative to the numerous and complex tax laws, court rulings, tax planning strategies, frequency of tax audits, and potential for significant adjustments as a result of such audits; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s timely identification and accurate measurement of uncertain tax positions; (iii) the evaluation of audit evidence available to support the uncertain tax positions is complex and resulted in significant auditor judgment as the nature of the evidence is often highly subjective; and (iv) the audit effort involved the use of professionals with specialized skill and knowledge. As described in the “Opinions on the Financial Statements and Internal Control over Financial Reporting” section, a material weakness was identified related to this matter.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included among others (i) testing the information used in the calculation of the uncertain tax positions, including intercompany agreements and international, federal, and state filing positions; (ii) testing the calculation of uncertain tax positions by jurisdiction, including management’s assessment of the technical merits of tax positions and estimates of the amount of tax benefit expected to be sustained; (iii) testing the completeness of management’s assessment of both the identification of uncertain tax positions and possible outcomes of each uncertain tax position; and (iv) evaluating the status and results of income tax audits with the relevant tax authorities. Professionals with specialized skill and knowledge were used to assist in the evaluation of the completeness and measurement of the Company’s uncertain tax positions, including evaluating the reasonableness of management’s assessment of whether tax positions are more-likely-than-not of being sustained, the amount of potential benefit to be realized, and the application of relevant tax laws.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 18, 2021
We have served as the Company’s auditor since 2016.
NEWELL BRANDS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in millions, except per share data)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, | 2020 | | 2019 | | 2018 |
| Net sales | $ | 9,385 | | | $ | 9,715 | | | $ | 10,154 | |
| Cost of products sold | 6,306 | | | 6,496 | | | 6,636 | |
| Gross profit | 3,079 | | | 3,219 | | | 3,518 | |
| Selling, general and administrative expenses | 2,189 | | | 2,451 | | | 2,648 | |
| Restructuring costs, net | 21 | | | 27 | | | 87 | |
| Impairment of goodwill, intangibles and other assets | 1,503 | | | 1,223 | | | 8,337 | |
| Operating loss | (634) | | | (482) | | | (7,554) | |
| Non-operating expenses: | | | | | |
| Interest expense, net | 274 | | | 303 | | | 446 | |
| Loss on extinguishment of debt | 20 | | | 28 | | | 4 | |
| Other (income) expense, net | 78 | | | 39 | | | (12) | |
| Loss before income taxes | (1,006) | | | (852) | | | (7,992) | |
| Income tax benefit | (236) | | | (1,038) | | | (1,359) | |
| Income (loss) from continuing operations | (770) | | | 186 | | | (6,633) | |
| Loss from discontinued operations, net of tax | 0 | | | (79) | | | (309) | |
| Net income (loss) | $ | (770) | | | $ | 107 | | | $ | (6,942) | |
| Weighted average common shares outstanding: | | | | | |
| Basic | 424.1 | | | 423.3 | | | 473.7 | |
| Diluted | 424.1 | | | 423.9 | | | 473.7 | |
| Earnings (loss) per share: | | | | | |
| Basic: | | | | | |
| Income (loss) from continuing operations | $ | (1.82) | | | $ | 0.44 | | | $ | (14.00) | |
| Loss from discontinued operations | 0 | | | (0.19) | | | (0.65) | |
| Net income (loss) | $ | (1.82) | | | $ | 0.25 | | | $ | (14.65) | |
| Diluted: | | | | | |
| Income (loss) from continuing operations | $ | (1.82) | | | $ | 0.44 | | | $ | (14.00) | |
| Loss from discontinued operations | 0 | | | (0.19) | | | (0.65) | |
| Net income (loss) | $ | (1.82) | | | $ | 0.25 | | | $ | (14.65) | |
See Notes to Consolidated Financial Statements.
NEWELL BRANDS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Amounts in millions)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, | 2020 | | 2019 | | 2018 |
| Comprehensive income (loss): | | | | | |
| Net income (loss) | $ | (770) | | | $ | 107 | | | $ | (6,942) | |
| Comprehensive income (loss), net of tax: | | | | | |
| Foreign currency translation adjustments | (2) | | | 14 | | | (174) | |
| Unrecognized pension and postretirement costs | 43 | | | (1) | | | 42 | |
| Derivative financial instruments | (1) | | | (20) | | | 45 | |
| Total other comprehensive income (loss), net of tax | 40 | | | (7) | | | (87) | |
| Comprehensive income (loss) including noncontrolling interest | (730) | | | 100 | | | (7,029) | |
| | | | | |
| | | | | |
| Total comprehensive income (loss) attributable to noncontrolling interests | (4) | | | 1 | | | (2) | |
| Total comprehensive income (loss) attributable to parent | $ | (726) | | | $ | 99 | | | $ | (7,027) | |
See Notes to Consolidated Financial Statements.
NEWELL BRANDS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in millions, except par values)
| | | | | | | | | | | |
| December 31, | 2020 | | 2019 |
| Assets: | | | |
| Cash and cash equivalents | $ | 981 | | | $ | 349 | |
| Accounts receivable, net | 1,678 | | | 1,842 | |
| Inventories | 1,638 | | | 1,606 | |
| Prepaid expenses and other current assets | 331 | | | 313 | |
| Total current assets | 4,628 | | | 4,110 | |
| Property, plant and equipment, net | 1,176 | | | 1,155 | |
| Operating lease assets | 530 | | | 615 | |
| Goodwill | 3,553 | | | 3,709 | |
| Other intangible assets, net | 3,564 | | | 4,916 | |
| Deferred income taxes | 838 | | | 776 | |
| Other assets | 411 | | | 361 | |
| Total assets | $ | 14,700 | | | $ | 15,642 | |
| Liabilities: | | | |
| Accounts payable | $ | 1,526 | | | $ | 1,102 | |
| Accrued compensation | 236 | | | 204 | |
| Other accrued liabilities | 1,393 | | | 1,340 | |
| Short-term debt and current portion of long-term debt | 466 | | | 332 | |
| Total current liabilities | 3,621 | | | 2,978 | |
| Long-term debt | 5,141 | | | 5,391 | |
| Deferred income taxes | 414 | | | 625 | |
| Operating lease liabilities | 472 | | | 541 | |
| Other noncurrent liabilities | 1,152 | | | 1,111 | |
| Total liabilities | 10,800 | | | 10,646 | |
| Commitments and contingencies (Footnote 18) | 0 | | 0 |
| Stockholders' equity: | | | |
| Preferred stock (10.0 authorized shares, $1.00 par value, 0 shares issued at December 31, 2020 and 2019) | 0 | | | 0 | |
| Common stock (800.0 authorized shares, $1.00 par value, 448.4 shares and 447.1 shares issued at December 31, 2020 and 2019, respectively) | 448 | | | 447 | |
| Treasury stock, at cost 24.0 and 23.6 shares at December 31, 2020 and 2019, respectively) | (598) | | | (590) | |
| Additional paid-in capital | 8,078 | | | 8,430 | |
| Retained deficit | (3,174) | | | (2,404) | |
| Accumulated other comprehensive loss | (880) | | | (920) | |
| Stockholders' equity attributable to parent | 3,874 | | | 4,963 | |
| Stockholders' equity attributable to minority interests | 26 | | | 33 | |
| Total stockholders' equity | 3,900 | | | 4,996 | |
| Total liabilities and stockholders' equity | $ | 14,700 | | | $ | 15,642 | |
See Notes to Consolidated Financial Statements.
NEWELL BRANDS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in millions)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, | 2020 | | 2019 | | 2018 |
| Cash flows from operating activities: | | | | | |
| Net income (loss) | $ | (770) | | | $ | 107 | | | $ | (6,942) | |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | |
| Depreciation and amortization | 357 | | | 446 | | | 434 | |
| Impairment of goodwill, intangibles and other assets | 1,503 | | | 1,335 | | | 9,801 | |
| (Gain) loss from sale of businesses, net | 9 | | | (7) | | | (833) | |
| Deferred income taxes | (261) | | | (1,068) | | | (1,585) | |
| Stock based compensation expense | 41 | | | 42 | | | 76 | |
| Pension settlement charge | 53 | | | 1 | | | 2 | |
| Loss on extinguishment of debt | 20 | | | 28 | | | 4 | |
| Loss on change in fair value of investments | 0 | | | 21 | | | 0 | |
| Other, net | 1 | | | 4 | | | 3 | |
| Changes in operating accounts excluding the effects of divestitures: | | | | | |
| Accounts receivable | 168 | | | 311 | | | 162 | |
| Inventories | (29) | | | 131 | | | 126 | |
| Accounts payable | 415 | | | (109) | | | (309) | |
| Accrued liabilities and other | (75) | | | (198) | | | (259) | |
| Net cash provided by operating activities | 1,432 | | | 1,044 | | | 680 | |
| Cash flows from investing activities: | | | | | |
| Proceeds from sale of divested businesses | 16 | | | 996 | | | 5,133 | |
| | | | | |
| Capital expenditures | (259) | | | (265) | | | (384) | |
| Other investing activities | 15 | | | 5 | | | 58 | |
| Net cash provided by (used in) investing activities | (228) | | | 736 | | | 4,807 | |
| Cash flows from financing activities: | | | | | |
| Net short term debt | (26) | | | (26) | | | (904) | |
| Net proceeds from issuance of debt | 491 | | | 0 | | | 0 | |
| Payments on current portion of long-term debt | (305) | | | (268) | | | 0 | |
| Payments on long-term debt | (320) | | | (1,004) | | | (2,580) | |
| Debt extinguishment and issuance costs | (18) | | | (39) | | | (10) | |
| Repurchase of shares of common stock | 0 | | | 0 | | | (1,507) | |
| Cash dividends | (392) | | | (391) | | | (435) | |
| Payments to dissenting shareholders | 0 | | | (171) | | | 0 | |
| Equity compensation activity and other, net | 11 | | | (5) | | | (18) | |
| Net cash used in financing activities | (559) | | | (1,904) | | | (5,454) | |
| Exchange rate effect on cash, cash equivalents and restricted cash | 5 | | | (1) | | | (23) | |
| Increase (decrease) in cash, cash equivalents and restricted cash | 650 | | | (125) | | | 10 | |
| Cash, cash equivalents and restricted cash at beginning of period | 371 | | | 496 | | | 486 | |
| Cash, cash equivalents and restricted cash at end of period | $ | 1,021 | | | $ | 371 | | | $ | 496 | |
| Supplemental disclosures: | | | | | |
| Restricted cash at beginning of period | $ | 22 | | | $ | 0 | | | $ | 0 | |
| Restricted cash at end of period | 40 | | | 22 | | | 0 | |
| Cash paid for income taxes, net of refunds | 106 | | | 156 | | | 292 | |
| Cash paid for interest | 281 | | | 304 | | | 458 | |
| Net cash provided by (used in) discontinued operating activities | 0 | | | (46) | | | 123 | |
| Net cash provided by discontinued investing activities | 0 | | | 978 | | | 5,015 | |
| Capital expenditures for discontinued operations | 0 | | | 17 | | | 121 | |
See Notes to Consolidated Financial Statements.
NEWELL BRANDS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Amounts in millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common
Stock | | Treasury
Stock | | Additional Paid-In Capital | | Retained Deficit | | Accumulated Other Comprehensive Income (Loss) | | Stockholders' Equity Attributable to Parent | | Non-
controlling Interest | | Total Stockholders' Equity |
| Balance at December 31, 2017 | $ | 508 | | | $ | (574) | | | $ | 10,362 | | | $ | 4,611 | | | $ | (763) | | | $ | 14,144 | | | $ | 37 | | | $ | 14,181 | |
| Comprehensive loss | — | | | — | | | — | | | (6,942) | | | (83) | | | (7,025) | | | (4) | | | (7,029) | |
| Dividends declared on common stock - $0.92 per share | — | | | — | | | (211) | | | (225) | | | — | | | (436) | | | — | | | (436) | |
| Equity compensation, net of tax | 1 | | | (11) | | | 74 | | | — | | | — | | | 64 | | | — | | | 64 | |
| Common stock purchased and retired | (63) | | | — | | | (1,444) | | | — | | | — | | | (1,507) | | | — | | | (1,507) | |
| Impact of accounting standard adoption | — | | | — | | | — | | | 45 | | | (63) | | | (18) | | | — | | | (18) | |
| Portion of net loss attributable to noncontrolling interests | — | | | — | | | — | | | — | | | (4) | | | (4) | | | 2 | | | (2) | |
| Balance at December 31, 2018 | $ | 446 | | | $ | (585) | | | $ | 8,781 | | | $ | (2,511) | | | $ | (913) | | | $ | 5,218 | | | $ | 35 | | | $ | 5,253 | |
| Comprehensive income (loss) | — | | | — | | | — | | | 107 | | | (6) | | | 101 | | | (1) | | | 100 | |
| Dividends declared on common stock - $0.92 per share | — | | | — | | | (393) | | | — | | | — | | | (393) | | | — | | | (393) | |
| Equity compensation, net of tax | 1 | | | (5) | | | 42 | | | — | | | — | | | 38 | | | — | | | 38 | |
| Portion of net income attributable to noncontrolling interests | — | | | — | | | — | | | — | | | (1) | | | (1) | | | 2 | | | 1 | |
| Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (3) | | | (3) | |
| Balance at December 31, 2019 | $ | 447 | | | $ | (590) | | | $ | 8,430 | | | $ | (2,404) | | | $ | (920) | | | $ | 4,963 | | | $ | 33 | | | $ | 4,996 | |
| Comprehensive income (loss) | — | | | — | | | — | | | (770) | | | 45 | | | (725) | | | (5) | | | (730) | |
| Dividends declared on common stock - $0.92 per share | — | | | — | | | (392) | | | — | | | — | | | (392) | | | — | | | (392) | |
| Equity compensation, net of tax | 1 | | | (8) | | | 40 | | | — | | | — | | | 33 | | | — | | | 33 | |
| Portion of net loss attributable to noncontrolling interests | — | | | — | | | — | | | — | | | (5) | | | (5) | | | 1 | | | (4) | |
| Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (3) | | | (3) | |
| Balance at December 31, 2020 | $ | 448 | | | $ | (598) | | | $ | 8,078 | | | $ | (3,174) | | | $ | (880) | | | $ | 3,874 | | | $ | 26 | | | $ | 3,900 | |
| | | | | | | | | | | | | | | |
See Notes to Consolidated Financial Statements.
NEWELL BRANDS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Footnote 1 — Basis of Presentation and Significant Accounting Policies
Description of Business
Newell Brands is a leading global consumer goods company with a strong portfolio of well-known brands, including Rubbermaid®, Paper Mate®, Sharpie®, Dymo®, EXPO®, Parker®, Elmer’s®, Coleman®, Marmot®, Oster®, Sunbeam®, FoodSaver®, Mr. Coffee®, Rubbermaid Commercial Products®, Graco®, Baby Jogger®, NUK®, Calphalon®, Contigo®, First Alert®, Mapa®, Spontex® and Yankee Candle®. Newell Brands is committed to enhancing the lives of consumers around the world with planet-friendly, innovative and attractive products that create moments of joy and provide peace of mind. The Company sells its products in nearly 200 countries around the world and has operations on the ground in over 40 of these countries, excluding third-party distributors.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and include the consolidated accounts of the Company and its majority-owned subsidiaries after elimination of intercompany transactions and balances.
The preparation of these consolidated financial statements requires the use of certain estimates and assumptions by management in determining the Company’s assets, liabilities, sales and expenses, and related disclosures. Significant estimates in these Consolidated Financial Statements include restructuring charges, estimates of future cash flows associated with asset impairments, useful lives for depreciation and amortization, loss contingencies (including legal, environmental and product liability reserves), net realizable value of inventories, valuation of assets held for sale, estimated contract revenue and related costs, capitalized software costs, income taxes, uncertain tax provisions, tax valuation allowances, and pension and postretirement employee benefit liabilities and expenses. Actual results could differ from those estimates.
In connection with changes to the Company's management reporting structure made by the chief operating decision maker (“CODM”) during the second quarter of 2020, the Company realigned into the following 5 reportable segments: Appliances and Cookware, Commercial Solutions, Home Solutions, Learning and Development, and Outdoor and Recreation. The Company also provides general corporate services to its segments which will be reported as a non-operating segment, Corporate (See Footnote 17).
At the end of 2019, the Company completed its previously announced Accelerated Transformation Plan (“ATP”), which resulted in the sale of several businesses during 2018 and 2019. The ATP was designed to accelerate value creation and more rapidly transform the portfolio to one best positioned to leverage the Company’s advantaged capabilities in innovation, design and e-commerce. The ATP was also designed to significantly increase shareholder value through both meaningful returns of capital to shareholders and strengthened operational and financial performance, while simultaneously deleveraging the balance sheet. See Footnote 2 for further information on the Company's discontinued operations and divestitures.
Certain prior year amounts have been reclassified to conform to the current presentation.
Out-of-Period Adjustments
During 2019, the Company recorded an aggregate after-tax adjustment benefit of $10 million ($6 million in continuing operations and $4 million in discontinued operations) in its Consolidated Statement of Operations reflecting the cumulative impact of prior period errors identified and corrected during the period.
The prior period errors were primarily associated with income tax accounting matters more specifically related to: reserves for uncertain tax positions and the reconciliation of state income tax payables/receivables that resulted in a net after-tax benefit of $21 million ($10 million in continuing operations and $11 million in discontinued operations, respectively) recorded in the Consolidated Statement of Operations. In addition, as a result of certain of those income tax prior period adjustments, certain of the Company's previously recorded goodwill and intangible asset impairment charges and gain/loss on disposal calculations were incorrect, which resulted in a net after-tax charge of $8 million ($2 million in continuing operations and $6 million in discontinued operations, respectively) recorded in the Consolidated Statement of Operations. See Footnote 7 for further information on how certain of these income tax matters impacted the Company's goodwill balances. The Company also recorded a net after-tax charge of $3 million in continuing operations in its Consolidated Statement of Operations related to other out-of-period adjustments.
Based on an analysis of qualitative and quantitative factors, the Company concluded that the cumulative impact of these errors was not material to any of the Company's previously issued financial statements.
Uncertainty Related to Coronavirus (COVID-19)
Beginning late in the fourth quarter of 2019 and into 2020, COVID-19 emerged and subsequently spread globally, ultimately being declared a pandemic by the World Health Organization. The 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 for all of its reporting units as the Company had experienced significant COVID-19 related disruption to its business in three primary areas: supply chain, as certain manufacturing and distribution facilities were temporarily closed in line with government guidelines; the temporary closure of secondary customer retail stores as well, as the Company's Yankee Candle retail stores in North America; and changes in consumer demand patterns to certain focused categories. As a result, the Company performed an impairment test for its goodwill and indefinite-lived intangible assets. In addition, the Company performed 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 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 6, 7 and 13 for further information.
While the negative effects from the COVID-19 global pandemic in the first half of 2020 were material to the Company's operating results, the Company saw positive momentum, which included sales growth during the second half of the year and strong liquidity with over $1.4 billion in operating cash flow for the year ended December 31, 2020. The Company believes, however, the extent of the impact of the COVID-19 pandemic to its businesses, operating results, cash flows, liquidity and financial condition will be primarily driven by the severity and duration of the pandemic, the impact of new strains and variants of the coronavirus, the pandemic’s impact on the U.S. and global economies and the timing, scope and effectiveness of federal, state and local governmental plans to administer vaccines to the general public, especially in areas where conditions have recently worsened and lockdowns or travel bans have been reinstituted. Those 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. Furthermore, the impact to the Company's businesses, operating results, cash flows, liquidity and financial condition may be further adversely impacted if the COVID-19 global pandemic continues to exist or worsens for a prolonged period of time or if plans to administer vaccines are delayed.
Management’s application of U.S. GAAP in preparing the Company's audited consolidated financial statements requires the pervasive use of estimates and assumptions. As discussed above, the world continues to be impacted by the global 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 annual effective tax rate. This has included 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 the Company has made its best estimates based upon current information, the effects of the COVID-19 pandemic on its business may result in future changes to management’s estimates and assumptions, especially if the severity of the pandemic continues to exist or worsens for a prolonged period of time or if plans to administer the vaccines are delayed. Actual results could materially differ from the estimates and assumptions developed by management. If so, the Company may be subject to future incremental impairment charges as well as changes to recorded reserves and valuations.
Other Items
At December 31, 2020, the Company held a 23.4% investment in FireAngel Safety Technology Group PLC (formerly known as Sprue Aegis PLC) (“FireAngel”), which the Company accounts for under the equity method of accounting. During 2019, the Company recorded an other-than-temporary impairment of approximately $12 million. The Company's carrying value of its investment in FireAngel was $3 million and $4 million at December 31, 2020 and 2019, respectively. On March 31, 2018, the Company terminated its distribution agreement with FireAngel. There were 0 related party sales to FireAngel during 2020 and 2019 and $8 million during 2018.
For 2020, 2019 and 2018, the income attributable to non-controlling interests was $1 million, $2 million and $2 million, respectively.
Significant Accounting Policies
Concentration of Credit Risk
The Company’s forward exchange contracts do not subject the Company to risk due to foreign exchange rate movement, because gains and losses on these instruments generally offset gains and losses on the assets, liabilities and other transactions being hedged. The Company is exposed to credit-related losses in the event of non-performance by counterparties to certain derivative financial instruments. The Company does not obtain collateral or other security to support derivative financial instruments subject to credit risk, but monitors the credit standing of its counterparties.
Revenue Recognition
The Company recognizes revenue when performance obligations under the terms of a contract with the customer are satisfied and are recognized at a point in time, which generally occurs either on shipment or on delivery based on contractual terms, which is also when control is transferred. The Company’s primary performance obligation is the distribution and sales of its consumer and commercial products to its customers. In the normal course of business, the Company offers warranties for a variety of its products. The specific terms and conditions of the warranties vary depending upon the specific product and markets in which the products were sold. The Company accrues for the estimated cost of product warranty at the time of sale based on historical experience.
Revenue is measured as the amount of consideration for which it expects to be entitled in exchange for transferring goods or providing services. Certain customers may receive cash and/or non-cash incentives such as cash discounts, returns, credits or reimbursements related to defective products, customer discounts (such as volume or trade discounts), cooperative advertising and other customer-related programs, which are accounted for as variable consideration. In some cases, the Company must apply judgment, including contractual rates and historical payment trends, when estimating variable consideration. In addition, the Company participates in various programs and arrangements with customers designed to increase the sale of products by these customers. Among the programs negotiated are arrangements under which allowances are earned by customers for attaining agreed-upon sales levels or for participating in specific marketing programs. Coupon programs are also developed on a customer- and territory-specific basis with the intent of increasing sales by all customers.
Under customer programs and arrangements that require sales incentives to be paid in advance, the Company amortizes the amount paid over the period of benefit or contractual sales volume. When incentives are paid in arrears, the Company accrues the estimated amount to be paid based on the program’s contractual terms, expected customer performance and/or estimated sales volume. These estimates are determined using historical customer experience and other factors, which sometimes require significant judgment. Due to the length of time necessary to obtain relevant data from customers, among other factors, actual amounts paid can differ from these estimates.
Sales taxes and other similar taxes are excluded from revenue. The Company elected to account for shipping and handling activities as a fulfillment cost. The Company also elected not to disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which revenue is recognized at the amount to which the Company has the right to invoice for services performed.
Goodwill and Indefinite-Lived Intangibles
Goodwill and indefinite-lived intangibles are tested and reviewed for impairment annually during the fourth quarter (on December 1), or more frequently if facts and circumstances warrant.
Goodwill
Goodwill is tested for impairment at a reporting unit level, and all of the Company’s goodwill is assigned to its reporting units. Reporting units are determined based upon the Company’s organizational structure in place at the date of the goodwill impairment testing and generally one level below the operating segment level. The Company’s operations are comprised of 8 reporting units, within its 5 primary operating segments.
The Company may use a qualitative approach, and when appropriate, has bypassed the qualitative and used a quantitative approach, which involves comparing the fair value of each of the reporting units to the carrying value of those reporting units. If the carrying value of a reporting unit exceeds its fair value, an impairment loss would be calculated as the differences between these amounts, limited to the amount of reporting unit goodwill allocated to the reporting unit.
The quantitative goodwill impairment testing requires significant use of judgment and assumptions, such as 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, discount rates and total enterprise value. The income approach used is the discounted cash flow methodology and is based on five-year cash flow projections. The cash flows projected are analyzed on a “debt-free” basis (before cash payments to equity and interest-bearing debt investors) in order to develop an enterprise value from operations for the reporting unit. A provision is made, based on these projections, for the value of the reporting unit at the end of the forecast period, or terminal value. The present value of the finite-period cash flows and the terminal value are determined using a selected discount rate. See Footnote 7 for further information associated with non-cash goodwill impairment charges resulting from COVID-19 related trigger events during 2020.
Indefinite-lived intangibles
The testing of indefinite-lived intangibles (primarily trademarks and tradenames) under established guidelines for impairment also requires significant use of judgment and assumptions (such as cash flow projections, royalty rates, terminal values and discount rates). An indefinite-lived intangible asset is impaired by the amount its carrying value exceeds its estimated fair value. For impairment testing purposes, the fair value of indefinite-lived intangibles is determined using either the relief from royalty method or the excess earnings method. The relief from royalty method estimates the value of a tradename by discounting the hypothetical avoided royalty payments to their present value over the economic life of the asset. The excess earnings method estimates the value of the intangible asset by quantifying the residual (or excess) cash flows generated by the asset and discounts those cash flows to the present. The excess earnings methodology requires the application of contributory asset charges. Contributory asset charges typically include assumed payments for the use of working capital, tangible assets and other intangible assets. Changes in forecasted operations and other assumptions could materially affect the estimated fair values. Changes in business conditions could potentially require adjustments to these asset valuations. See Footnote 7 for further information associated with non-cash indefinite-lived intangible asset impairment charges resulting from COVID-19 related trigger events during 2020.
Other Long-Lived Assets
The Company continuously evaluates whether impairment indicators related to its property, plant and equipment, operating leases and other long-lived assets are present. These impairment indicators may include a significant decrease in the market price of a long-lived asset or asset group, early termination of an operating lease, a significant adverse change in the extent or manner in which a long-lived asset or asset group is being used or in its physical condition, or a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group. If impairment indicators are present, the Company estimates the future cash flows for the asset or group of assets. The sum of the undiscounted future cash flows attributable to the asset or group of assets is compared to their carrying amount. The cash flows are estimated utilizing various assumptions regarding future sales and expenses, working capital and proceeds from asset disposals on a basis consistent with the Company’s forecasts. If the carrying amount exceeds the sum of the undiscounted future cash flows, the Company discounts the future cash flows using a discount rate required for a similar investment of like risk and records an impairment charge as the difference between the fair value and the carrying value of the asset group. Generally, the Company performs its testing of the asset group at the reporting unit level, as this is the lowest level for which identifiable cash flows are available. As a result of COVID-19 related trigger events during 2020, the Company recorded non-cash impairment charges for certain operating lease assets. See
Footnote 13 for further information.
Income Taxes
The Company accounts for deferred income taxes using the asset and liability approach. Under this approach, deferred income taxes are recognized based on the tax effects of temporary differences between the financial statement and tax bases of assets and liabilities, as measured by current enacted tax rates. Valuation allowances are recorded to reduce the deferred tax assets to an amount that will more likely than not be realized.
The Company regularly reviews its deferred tax assets for recoverability considering historical profitability, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies.
For uncertain tax positions, the Company applies the provisions of relevant authoritative guidance, which requires application of a “more likely than not” threshold to the recognition and derecognition of tax positions. The Company’s ongoing assessments of the more likely than not outcomes of tax authority examinations and related tax positions require significant judgment and can increase or decrease the Company’s effective tax rate, as well as impact operating results. See Footnote 12 for further information.
Sales of Accounts Receivables
In June 2019, the Company entered into a new factoring agreement with a financial institution to sell certain customer receivables at a more attractive discount rate than its previous cash discount terms offered to these customers (the “Customer Receivables Purchase Agreement”). The Company received approximately $200 million under the agreement during the second quarter of 2019,
which was substantially unchanged at December 31, 2019. The balance of the factored receivables at December 31, 2020 was approximately $350 million. Transactions under this agreement are accounted for as sales of accounts receivable, and the receivables are removed from the 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 Consolidated Statement of Cash Flows. The Company records the discount as other (income) expense, net in the Consolidated Statement of Operations and collections of accounts receivables not yet submitted to the financial institution as a financing cash flow.
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents include cash on hand and highly liquid investments that have a maturity of three months or less when purchased. Restricted cash reflects cash received on previously sold customer receivables in connection with the new factoring program that are required to be remitted to a financial institution. Restricted cash is reported as prepaid expenses and other current assets on the Consolidated Balance Sheets.
Accounts Receivable, Net
Accounts receivables, net, include amounts billed and due from customers. Payment terms vary but generally are 90 days or less. An allowance for expected credit losses is based on the amount it ultimately expects to collect from its customers. The Company evaluates the collectability of accounts receivable based on a combination of factors including the length of time the receivables are past due, historical collection experience, current market conditions and forecasted direction of economic and business environment. Accounts deemed uncollectible are written off, net of expected recoveries.
Capitalized Software Costs
The Company capitalizes costs associated with internal-use software during the application development stage after both the preliminary project stage has been completed and the Company’s management has authorized and committed to funding for further project development. Capitalized internal-use software costs include: (i) external direct costs of materials and services consumed in developing or obtaining the software; (ii) payroll and payroll-related costs for employees who are directly associated with and who devote time directly to the project; and (iii) interest costs incurred while developing the software. Capitalization of these costs ceases no later than the point at which the project is substantially complete and ready for its intended purpose. The Company expenses as incurred research and development, general and administrative, and indirect costs associated with internal-use software. In addition, the Company expenses as incurred training, maintenance and other internal-use software costs incurred during the post-implementation stage. Costs associated with upgrades and enhancements of internal-use software are capitalized only if such modifications result in additional functionality of the software. The Company amortizes internal-use software costs using the straight-line method over the estimated useful life of the software. Capitalized software costs are evaluated annually for indicators of impairment, including but not limited to a significant change in available technology or the manner in which the software is being used. Impaired items are written down to their estimated fair values.
Capitalized implementation costs for certain qualified Software-as-a-Service (“SaaS”) arrangements are also subject to the same accounting criteria described above, when the Company does not own the intellectual property for the software license used in the arrangement. SaaS arrangements are included in prepaid expenses and other current assets and other assets in the Consolidated Balance Sheets. The straight-line amortization of these costs is presented along with the fees related to the hosted cloud computing service in the Consolidated Statements of Operations.
Product Liability Reserves
The Company has a self-insurance program for product liability that includes reserves for self-retained losses and certain excess and aggregate risk transfer insurance. The Company uses historical loss experience combined with actuarial evaluation methods, review of significant individual files and the application of risk transfer programs in determining required product liability reserves. The Company’s actuarial evaluation methods take into account claims incurred but not reported when determining the Company’s product liability reserve. While the Company believes that it has adequately reserved for these claims, the ultimate outcome of these matters may exceed the amounts recorded by the Company, and such additional losses may be material to the Company’s Consolidated Financial Statements.
Legal and Environmental Reserves
The Company is subject to losses resulting from extensive and evolving federal, state, local, and foreign laws and regulations, as well as contract and other disputes. The Company evaluates the potential legal and environmental losses relating to each specific case and estimates the probability and amount of loss based on historical experience and estimates of cash flows. The estimated losses take into account anticipated costs associated with investigative and remediation efforts where an assessment has indicated that a probable liability has been incurred and the cost can be reasonably estimated. No insurance recovery is taken into account in determining the Company’s cost estimates or reserve, nor do the Company’s cost estimates or reserve reflect any discounting for present value purposes, except with respect to long-term operations and maintenance, Comprehensive Environmental Response Compensation and Liability Act (“CERCLA”) and other matters which are estimated at present value.
Income Taxes
In accordance with relevant authoritative guidance, the Company accounts for deferred income taxes using the asset and liability approach. Under this approach, deferred income taxes are recognized based on the tax effects of temporary differences between the financial statement and tax bases of assets and liabilities, as measured by current enacted tax rates. Valuation allowances are recorded to reduce the deferred tax assets to an amount that will more likely than not be realized.
The Company’s income tax provisions are based on calculations and assumptions that are subject to examination by the IRS and other tax authorities. Although the Company believes that the positions taken on previously filed tax returns are reasonable, it has established tax, interest and penalty reserves in recognition that various taxing authorities may challenge the positions taken, which could result in additional liabilities for taxes, interest and penalties. The Company regularly reviews its deferred tax assets for recoverability considering historical profitability, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies.
For uncertain tax positions, the Company applies the provisions of relevant authoritative guidance, which requires application of a “more likely than not” threshold to the recognition and derecognition of tax positions. The Company’s ongoing assessments of the more likely than not outcomes of tax authority examinations and related tax positions require significant judgment and can increase or decrease the Company’s effective tax rate as well as impact operating results.
The Company’s provision for income taxes is subject to volatility and could be favorably or adversely affected by earnings being higher or lower in countries that have lower tax rates and higher or lower in countries that have higher tax rates; by changes in the valuation of deferred tax assets and liabilities; by expiration of or lapses intax-related legislation; by expiration of or lapses in tax incentives; by tax effects of nondeductible compensation; by changes in accounting principles; by liquidity needs driving repatriations ofnon-U.S. cash to the U.S.; or by changes in tax laws and regulations, including possible U.S. changes to the taxation of earnings of foreign subsidiaries, the deductibility of expenses attributable to foreign income, or the foreign tax credit rules.
The Company’s effective tax rate differs from the statutory rate, primarily due to the tax impact of state taxes, foreign tax rates, tax credits, the domestic manufacturing deduction, tax audit settlements and valuation allowance adjustments. Significant judgment is required in evaluating uncertain tax positions, determining valuation allowances recorded against deferred tax assets, and ultimately, the income tax provision.
It is difficult to predict when resolution of income tax matters will occur and when recognition of certain income tax assets and liabilities is appropriate, and the Company’s income tax expense in the future may continue to differ from the statutory rate because of the effects of similar items. For example, if items are favorably resolved or management determines a deferred tax asset is realizable that was previously reserved, the Company will recognize period tax benefits. Conversely, to the extent tax matters are unfavorably resolved or management determines a valuation allowance is necessary for a tax asset that was not previously reserved, the Company will recognize incremental period tax expense. These matters are expected to contribute to the tax rate differing from the statutory rate and continued volatility in the Company’s effective tax rate.
See Footnote 17 of the Notes to Consolidated Financial Statements for further information.
Pensions and Postretirement Benefits
The Company records annual amounts relating to its pension and postretirement plans based on calculations, which include various actuarial assumptions, including discount rates, assumed rates of return, compensation increases, turnover rates and health care cost trend rates. The Company reviews its actuarial assumptions on an annual basis and makes modifications to the assumptions based on current rates and trends when it is deemed appropriate to do so. The effect of modifications is generally deferred and amortized over future periods. The Company believes that the assumptions utilized in recording its obligations under its plans are reasonable based on its experience, market conditions and the input from its actuaries and investment advisors. The pension and postretirement obligations are measured as of December 31 for 2018 and 2017.
The Company employs a total return investment approach for its pension and postretirement benefit plans whereby a mix of equities and fixed income investments are used to maximize the long-term return of pension plan assets. The intent of this strategy is to minimize plan expenses by outperforming plan liabilities over the long run. Risk tolerance is established through careful consideration of plan liabilities, plan funded status, and corporate financial condition. The investment portfolios contain a diversified blend of equity and fixed-income investments. Furthermore, equity investments are diversified across geography and market capitalization through investments in U.S. large-capitalization stocks, U.S. small-capitalization stocks and international securities. Investment risk is measured and monitored on an ongoing basis through annual liability measurements, periodic asset/liability studies and quarterly investment portfolio reviews.
The expected long-term rate of return for plan assets is based upon many factors including expected asset allocations, historical asset returns, current and expected future market conditions, risk and active management premiums. The target asset allocations for the Company’s domestic pension plans may vary by plan, based in part due to plan demographics, funded status and liability duration. In general, the Company’s target asset allocations are as follows: equities approximately 20% to 40%; fixed income approximately 40% to 60%; and cash, alternative investments and other, approximately 10% to 30% as of December 31, 2018. Actual asset allocations may vary from the targeted allocations for various reasons, including market conditions and the timing of transactions. The Company maintains numerous international defined benefit pension plans. The asset allocations for the international investment may vary by plan and jurisdiction and are primarily based upon the plan structure and plan participant profile. At December 31, 2018, the domestic plan assets were allocated as follows: Equities: approximately 16% and Other Investments (alternative investments, fixed-income securities, cash and other): approximately 84%. Actual asset allocations may vary from the targeted allocations for various reasons, including market conditions and the timing of transactions.
For 2018, 2017 and 2016, the actual return (loss) on plan assets for the Company’s U.S. pension plan assets was approximately ($71) million, $172 million and $71 million, respectively, versus an expected return on plan assets of approximately $68 million, $73 million and $69 million, respectively. The actual amount of future contributions will depend, in part, on long-term actual return on assets and future discount rates. Pension contributions for all the Company’s pension plans for 2019 are estimated to be approximately $24 million, which is consistent with the 2018 contributions.
The weighted average expected return on plan assets assumption for 2018 was approximately 5.1% for the Company’s pension plans. The weighted average discount rate at the 2018 measurement date used to measure the pension and postretirement benefit obligations was approximately 3.7% and 4.0%, respectively. A 25 basis points decrease in the discount rate at the 2018 measurement date would increase the pension plans’ projected benefit obligation by approximately $53 million.
The healthcare cost trend rates used in valuing the Company’s postretirement benefit obligation are established based upon actual healthcare cost trends and consultation with actuaries and benefit providers. At the 2018 measurement date, the current weighted average healthcare cost trend rate assumption was approximately 6.7%. The current healthcare cost trend rate gradually decreases to an ultimate healthcare cost trend rate of 4.5%. A one percentage point change in assumed healthcare cost trend rates would not have a material effect on the postretirement benefit obligation or the service and interest cost components of postretirement benefit costs.
See Footnote 14 of the Notes to Consolidated Financial Statements for additional information regarding the Company’s pension and postretirement benefit plans.
Restructuring
The Company has and expects to continue to engage in restructuring activities, which requires management to utilize significant estimates related to the timing and amount of severance and other employee separation costs for workforce reductions and other separation programs, realizable values of assets made redundant or obsolete, lease cancellation costs, sublease income and other exit costs, including environmental and legal contingencies associated with restructuring activities. The Company accrues for severance and other employee separation costs under these activities when it is probable that benefits will be paid and the amount is reasonably estimable. The rates used in determining severance accruals are based on existing plans, historical experience and previously negotiated settlements. The Company accrues for future lease costs, net of management’s estimate for future sublease income, when the leased property has been vacated and is no longer being used. When estimating the costs of exiting facilities, estimates are made regarding future sublease payments to be received, which can differ materially from actual results and result in additional restructuring costs in future periods. Environmental and legal contingencies associated with restructuring activities are accrued when the liability is probable of being incurred and is estimable.
Recent Accounting Pronouncements
See Item 8 of Part II, “Financial Statements and Supplementary Data — Footnote 1 — Description of Business and Significant Accounting Policies — Recent Accounting Pronouncements.”
International Operations
For 2018, 2017 and 2016, the Company’snon-U.S. businesses accounted for approximately 33%, 29% and 28% of net sales, respectively (see Footnote 18 of the Notes to Consolidated Financial Statements).
Forward-Looking Statements
Forward-looking statements in this Report are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements generally can be identified by the use of words such as “intend,” “anticipate,” “believe,” “estimate,” “project,” “target,” “plan,” “expect,” “will,” “should,” “would” or similar statements. The Company cautions that forward-looking statements are not guarantees because there are inherent difficulties in predicting future results. In addition, there are no assurances that the company will complete any or all of the potential transactions referenced in this Annual Report on Form10-K. Actual results may differ materially from those expressed or implied in the forward-looking statements. Important factors that could cause actual results to differ materially from those suggested by the forward-looking statements include, but are not limited to:
the Company’s dependence on the strength of retail, commercial and industrial sectors of the economy in various parts of the world;
competition with other manufacturers and distributors of consumer products;
major retailers’ strong bargaining power and consolidation of the Company’s customers;
the Company’s ability to improve productivity, reduce complexity and streamline operations;
the Company’s ability to develop innovative new products, to develop, maintain and strengthenend-user brands and to realize the benefits of increased advertising and promotion spend;
the Company’s ability to remediate the material weakness in internal control over financial reporting and to maintain effective internal control over financial reporting;
risks related to the Company’s substantial indebtedness, potential increases in interest rates or changes in the Company’s credit ratings;
future events that could adversely affect the value of the Company’s assets and/or stock price and require additional impairment charges;
the Company’s ability to effectively accelerate its transformation plan and explore and execute its strategic options;
the Company’s ability to complete planned divestitures, and other unexpected costs or expenses associated with dispositions;
changes in the prices of raw materials and sourced products and the Company’s ability to obtain raw materials and sourced products in a timely manner;
the impact of governmental investigations or other actions or other activities by third parties;
the risks inherent to the Company’s foreign operations, including currency fluctuations, exchange controls and pricing restrictions;
a failure of one of the Company’s key information technology systems, networks, processes or related controls or those of the Company’s services providers;
the impact of United States or foreign regulations on the Company’s operations, including the impact of tariffs and environmental remediation costs;
the potential inability to attract, retain and motivate key employees;
the resolution of tax contingencies resulting in additional tax liabilities;
product liability, product recalls or related regulatory actions;
the Company’s ability to protect its intellectual property rights; and
significant increases in the funding obligations related to the Company’s pension plans.
The information contained in this Annual Report on Form10-K is as of the date indicated. The Company assumes no obligation to update any forward-looking statements contained in this Annual Report on Form10-K as a result of new information or future events or developments. In addition, there can be no assurance that the Company has correctly identified and assessed all of the factors affecting the Company or that the publicly available and other information the Company receives with respect to these factors is complete or correct.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
In general, business enterprises can be exposed to market risks including fluctuations in interest rates, foreign currency exchange rates and certain commodity prices, and that can affect the cost of operating, investing and financing under those conditions. The Company believes it has moderate exposure to these risks. The Company assesses market risk based on changes in interest rates, foreign currency rates and commodity prices utilizing a sensitivity analysis that measures the potential loss in earnings, fair values and cash flows based on hypothetical changes in rates and prices.
The Company is exposed to interest rate risk on its variable rate debt and price risk on its fixed rate debt. As such, the Company monitors the interest rate environment and uses interest rate swap agreements to manage its interest rate risk and price risk by balancing its exposure to fixed and variable interest rates while attempting to minimize interest costs. As of December 31, 2018, approximately $527 million of the Company’s debt carries a variable rate of interest either by nature or through the use of interest rate swaps. The remainder of the debt (approximately $6.5 billion) carries a fixed rate of interest. Based upon the Company’s debt structure at December 31, 2018, a hypothetical 1% increase in these interest rates would increase interest expense by approximately $5 million and decrease the fair values of debt by approximately $373 million.
While the Company transacts business predominantly in U.S. dollars and most of its revenues are collected in U.S. dollars, a substantial portion of the Company’s operating costs are denominated in other currencies, such as the Brazilian Real, British Pound, Canadian dollar, Chinese Renminbi, European Euro, Japanese Yen and Mexican Peso. Changes in the relation of these and other currencies to the U.S. dollar will affect Company’s sales and profitability and could result in exchange losses. For 2018, approximately 33% of the Company’s sales were denominated in foreign currencies, the most significant of which were: European Euro-approximately 8%; and Canadian dollar-approximately 5%. The primary purpose of the Company’s foreign currency hedging activities is to mitigate the foreign currency exchange rate exposure on the cash flows related to forecasted inventory purchases and sales. A hypothetical 10% change in foreign currency exchange rates would not have a material effect on foreign currency gains and losses related to the foreign currency derivatives or the net fair value of the Company’s foreign currency derivatives.
The Company is exposed to the price risk that the rising cost of commodities has on certain of its raw materials. As such, the Company monitors the commodities markets and from time to time the Company enters into commodity-based derivatives in order to mitigate the impact that the rising price of these commodities has on the cost of certain of the Company’s raw materials. A hypothetical 10% change in the commodity prices underlying the derivatives would not have a material effect on the related gains and losses included in the Company’s results of operations.
The Company is exposed to credit loss in the event ofnon-performance by the counterparties to its derivative financial instruments, all of which are highly rated institutions; however, the Company does not anticipatenon-performance by such counterparties.
The Company does not enter into derivative financial instruments for trading purposes.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To theBoard of Directors and Stockholders of Newell Brands Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Newell Brands Inc. and its subsidiaries(the “Company”) as of December 31, 2018 and 2017,and the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flowsfor each of the three years in the period ended December 31, 2018, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2018 appearing under Item 15 (collectively referred to as the “consolidatedfinancial statements”).We also have audited the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established inInternal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established inInternal Control - Integrated Framework (2013) issued by the COSO because a material weaknessin internal control over financial reporting existed as of that date related to not designing and maintaining effective controls over the accounting for impact of divestitures.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness referred to above is described in Management’s Annual Report on Internal Control Over Financial Reporting appearing under Item 9A. We considered this material weakness in determining the nature, timing, and extent of audit tests applied in our audit of the 2018 consolidatedfinancial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for revenues from contracts with customers in 2018.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in management’s report referred to above. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 4, 2019
We have served as the Company’s auditor since 2016.
NEWELL BRANDS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in millions, except per share data)
| | | | | | | | | | | | |
| Year Ended December 31, | | 2018 | | | 2017 | | | 2016 | |
Net sales | | $ | 8,630.9 | | | $ | 9,552.0 | | | $ | 9,181.1 | |
Cost of products sold | | | 5,622.1 | | | | 6,289.0 | | | | 6,210.2 | |
| | | | | | | | | | | | |
Gross profit | | | 3,008.8 | | | | 3,263.0 | | | | 2,970.9 | |
Selling, general and administrative expenses | | | 2,434.8 | | | | 2,705.6 | | | | 2,610.6 | |
Restructuring costs, net | | | 80.5 | | | | 87.6 | | | | 62.2 | |
Impairment of goodwill, intangibles and other assets | | | 8,322.0 | | | | 84.3 | | | | — | |
| | | | | | | | | | | | |
Operating income (loss) | | | (7,828.5 | ) | | | 385.5 | | | | 298.1 | |
Non-operating expenses: | | | | | | | | | | | | |
Interest expense, net | | | 446.3 | | | | 469.1 | | | | 404.2 | |
Loss on extinguishment of debt | | | 4.1 | | | | 32.3 | | | | 47.6 | |
Other expense (income), net | | | (11.2 | ) | | | (708.3 | ) | | | (172.5 | ) |
| | | | | | | | | | | | |
Income (loss) before income taxes | | | (8,267.7 | ) | | | 592.4 | | | | 18.8 | |
Income tax expense (benefit) | | | (1,478.1 | ) | | | (1,578.4 | ) | | | 57.1 | |
| | | | | | | | | | | | |
Income from continuing operations | | | (6,789.6 | ) | | | 2,170.8 | | | | (38.3 | ) |
Income (loss) from discontinued operations, net of tax | | | (128.3 | ) | | | 578.0 | | | | 566.1 | |
| | | | | | | | | | | | |
Net income (loss) | | $ | (6,917.9 | ) | | $ | 2,748.8 | | | $ | 527.8 | |
| | | | | | | | | | | | |
Weighted average shares outstanding: | | | | | | | | | | | | |
Basic | | | 473.7 | | | | 486.7 | | | | 421.3 | |
Diluted | | | 473.7 | | | | 488.0 | | | | 421.3 | |
Earnings per share: | | | | | | | | | | | | |
Basic: | | | | | | | | | | | | |
Income (loss) from continuing operations | | $ | (14.33 | ) | | $ | 4.46 | | | $ | (0.09 | ) |
Income (loss) from discontinued operations | | | (0.27 | ) | | | 1.19 | | | | 1.34 | |
| | | | | | | | | | | | |
Net income (loss) | | $ | (14.60 | ) | | $ | 5.65 | | | $ | 1.25 | |
| | | | | | | | | | | | |
Diluted: | | | | | | | | | | | | |
Income (loss) from continuing operations | | $ | (14.33 | ) | | $ | 4.45 | | | $ | (0.09 | ) |
Income (loss) from discontinued operations | | | (0.27 | ) | | | 1.18 | | | | 1.34 | |
| | | | | | | | | | | | |
Net income (loss) | | $ | (14.60 | ) | | $ | 5.63 | | | $ | 1.25 | |
| | | | | | | | | | | | |
See Notes to Consolidated Financial Statements.
NEWELL BRANDS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in millions)
| | | | | | | | | | | | |
| Year Ended December 31, | | 2018 | | | 2017 | | | 2016 | |
Comprehensive income: | | | | | | | | | | | | |
Net income (loss) | | $ | (6,917.9 | ) | | $ | 2,748.8 | | | $ | 527.8 | |
Other comprehensive income (loss), net of tax: | | | | | | | | | | | | |
Foreign currency translation adjustments | | | (173.8 | ) | | | 289.1 | | | | (196.2 | ) |
Unrecognized pension and postretirement costs | | | 41.9 | | | | 14.5 | | | | 22.3 | |
Derivative financial instruments | | | 44.8 | | | | (21.9 | ) | | | (37.1 | ) |
| | | | | | | | | | | | |
Total other comprehensive income (loss), net of tax | | | (87.1 | ) | | | 281.7 | | | | (211.0 | ) |
| | | | | | | | | | | | |
Comprehensive income (loss) | | $ | (7,005.0 | ) | | $ | 3,030.5 | | | $ | 316.8 | |
| | | | | | | | | | | | |
See Notes to Consolidated Financial Statements.
NEWELL BRANDS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in millions, except par values)
| | | | | | | | |
| December 31, | | 2018 | | | 2017 | |
Assets: | | | | | | | | |
Cash and cash equivalents | | $ | 495.7 | | | $ | 485.7 | |
Accounts receivable, net | | | 1,850.7 | | | | 1,879.3 | |
Inventories, net | | | 1,583.1 | | | | 1,662.4 | |
Prepaid expenses and other | | | 278.0 | | | | 327.9 | |
Current assets held for sale | | | 3,541.3 | | | | 6,370.4 | |
| | | | | | | | |
Total current assets | | | 7,748.8 | | | | 10,725.7 | |
Property, plant and equipment, net | | | 925.6 | | | | 972.4 | |
Goodwill | | | 2,970.2 | | | | 6,873.0 | |
Other intangible assets, net | | | 5,579.6 | | | | 10,199.6 | |
Deferred income taxes | | | 165.2 | | | | 144.8 | |
Other assets | | | 327.0 | | | | 377.8 | |
Noncurrent assets held for sale | | | — | | | | 3,842.2 | |
| | | | | | | | |
Total assets | | $ | 17,716.4 | | | $ | 33,135.5 | |
| | | | | | | | |
Liabilities: | | | | | | | | |
Accounts payable | | $ | 1,019.5 | | | $ | 1,226.8 | |
Accrued compensation | | | 159.1 | | | | 85.9 | |
Other accrued liabilities | | | 1,182.3 | | | | 1,271.9 | |
Short-term debt and current portion of long-term debt | | | 318.7 | | | | 661.8 | |
Current liabilities held for sale | | | 650.4 | | | | 1,661.3 | |
| | | | | | | | |
Total current liabilities | | | 3,330.0 | | | | 4,907.7 | |
Long-term debt | | | 6,696.3 | | | | 9,889.2 | |
Deferred income taxes | | | 1,041.8 | | | | 2,552.7 | |
Other noncurrent liabilities | | | 1,370.5 | | | | 1,362.1 | |
Noncurrent liabilities held for sale | | | — | | | | 242.5 | |
| | | | | | | | |
Total liabilities | | | 12,438.6 | | | | 18,954.2 | |
Commitments and contingencies (Footnote 20) | | | — | | | | — | |
Stockholders’ equity: | | | | | | | | |
Preferred stock (10.0 authorized shares, $1.00 par value, no shares issued at December 31, 2018 and 2017) | | | — | | | | — | |
Common stock (800 authorized shares, $1.00 par value 446.1 shares and 508.1 shares issued at December 31, 2018 and 2017, respectively) | | | 446.1 | | | | 508.1 | |
Treasury stock, at cost (23.3 and 22.9 shares at December 31, 2018 and 2017, respectively): | | | (584.7 | ) | | | (573.5 | ) |
Additionalpaid-in capital | | | 8,781.1 | | | | 10,362.0 | |
Retained earnings (deficit) | | | (2,486.7 | ) | | | 4,611.2 | |
Accumulated other comprehensive loss | | | (912.8 | ) | | | (763.1 | ) |
| | | | | | | | |
Stockholders’ equity attributable to parent | | | 5,243.0 | | | | 14,144.7 | |
Stockholders’ equity attributable to noncontrolling interests | | | 34.8 | | | | 36.6 | |
| | | | | | | | |
Total stockholders’ equity | | | 5,277.8 | | | | 14,181.3 | |
| | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 17,716.4 | | | $ | 33,135.5 | |
| | | | | | | | |
See Notes to Consolidated Financial Statements.
NEWELL BRANDS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in millions)
| | | | | | | | | | | | |
| Year Ended December 31, | | 2018 | | | 2017 | | | 2016 | |
Cash flows from operating activities: | | | | | | | | | | | | |
Net income (loss) | | $ | (6,917.9 | ) | | $ | 2,748.8 | | | $ | 527.8 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | |
Depreciation and amortization | | | 433.9 | | | | 635.6 | | | | 437.2 | |
Impairment of goodwill, intangibles and other assets | | | 9,789.5 | | | | 85.0 | | | | — | |
Net gain from sale of businesses | | | (832.9 | ) | | | (713.0 | ) | | | (161.1 | ) |
Loss on extinguishment of debt | | | (6.3 | ) | | | (1.9 | ) | | | 47.6 | |
Deferred income taxes | | | (1,597.9 | ) | | | (1,781.8 | ) | | | 33.4 | |
Stock-based compensation expense | | | 75.7 | | | | 70.9 | | | | 63.9 | |
Pension settlement charge (gain) | | | — | | | | (2.4 | ) | | | 2.7 | |
Other, net | | | 4.2 | | | | 11.0 | | | | 44.7 | |
Changes in operating assets and liabilities, excluding the effects of acquisitions and divestitures: | | | | | | | | | | | | |
Accounts receivable | | | 161.7 | | | | 288.7 | | | | (324.5 | ) |
Inventories | | | 125.7 | | | | (350.4 | ) | | | 784.6 | |
Accounts payable | | | (309.3 | ) | | | 211.0 | | | | 282.0 | |
Accrued liabilities and other | | | (246.4 | ) | | | (235.3 | ) | | | 102.1 | |
| | | | | | | | | | | | |
Net cash provided by operating activities | | | 680.0 | | | | 966.2 | | | | 1,840.4 | |
| | | | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | | | |
Proceeds from sale of divested businesses | | | 5,133.3 | | | | 2,106.9 | | | | 227.2 | |
Acquisitions and acquisition-related activity | | | — | | | | (634.3 | ) | | | (8,635.2 | ) |
Capital expenditures | | | (384.4 | ) | | | (406.2 | ) | | | (441.4 | ) |
Other investing activities | | | 58.5 | | | | 12.1 | | | | 24.6 | |
| | | | | | | | | | | | |
Net cash provided by (used in) investing activities | | | 4,807.4 | | | | 1,078.5 | | | | (8,824.8 | ) |
| | | | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | | | |
Net short-term debt | | | (903.5 | ) | | | 111.8 | | | | (641.4 | ) |
Loss on extinguishment of debt | | | (10.4 | ) | | | (34.2 | ) | | | — | |
Proceeds from issuance of debt, net of debt issuance costs | | | — | | | | — | | | | 9,414.6 | |
Payments on long-term debt | | | (2,579.9 | ) | | | (1,512.2 | ) | | | (1,100.0 | ) |
Repurchase and retirement of shares of common stock | | | (1,507.3 | ) | | | (152.4 | ) | | | — | |
Cash dividends | | | (434.6 | ) | | | (428.6 | ) | | | (328.6 | ) |
Payments to dissenting shareholders | | | — | | | | (161.6 | ) | | | — | |
Option proceeds net of repurchase of restricted shares for vesting | | | (18.8 | ) | | | (18.6 | ) | | | (16.1 | ) |
| | | | | | | | | | | | |
Net cash provided by (used in) financing activities | | | (5,454.5 | ) | | | (2,195.8 | ) | | | 7,328.5 | |
| | | | | | | | | | | | |
Exchange rate effect on cash and cash equivalents | | | (22.9 | ) | | | 49.3 | | | | (31.4 | ) |
| | | | | | | | | | | | |
Increase (decrease) in cash and cash equivalents | | | 10.0 | | | | (101.8 | ) | | | 312.7 | |
Cash and cash equivalents at beginning of period | | | 485.7 | | | | 587.5 | | | | 274.8 | |
| | | | | | | | | | | | |
Cash and cash equivalents at end of period | | $ | 495.7 | | | $ | 485.7 | | | $ | 587.5 | |
| | | | | | | | | | | | |
Supplemental disclosures: | | | | | | | | | | | | |
Net cash provided by discontinued operating activities | | $ | 155.9 | | | $ | 131.8 | | | $ | 172.1 | |
Net cash provided by (used in) discontinued investing activities | | | 4,983.9 | | | | (137.6 | ) | | | (162.1 | ) |
Capital expenditures for discontinued operations | | | (155.4 | ) | | | (140.0 | ) | | | (149.3 | ) |
Common stock issued for Jarden Acquisition | | | — | | | | — | | | | 9,480.3 | |
Debt assumed, at fair value, in the Jarden Acquisition | | | — | | | | — | | | | 1,198.7 | |
Cash paid for income taxes, net of refunds | | | 292.0 | | | | 261.8 | | | | 189.2 | |
Cash paid for interest | | | 457.6 | | | | 459.4 | | | | 316.0 | |
See Notes to Consolidated Financial Statements.
NEWELL BRANDS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Amounts in millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common
Stock | | | Treasury
Stock | | | Additional
Paid-In
Capital | | | Retained
Earnings
(Deficit) | | | Accumulated
Other
Comprehensive
Loss | | | Stockholders’
Equity
Attributable
to Parent | | | Non-controlling
Interests | | | Total
Stockholders’
Equity | |
Balance at December 31, 2015 | | $ | 287.5 | | | $ | (523.1 | ) | | $ | 801.4 | | | $ | 2,090.9 | | | $ | (833.8 | ) | | $ | 1,822.9 | | | $ | 3.5 | | | $ | 1,826.4 | |
Comprehensive income | | | — | | | | — | | | | — | | | | 527.8 | | | | (211.0 | ) | | | 316.8 | | | | — | | | | 316.8 | |
Cash dividends on common stock | | | — | | | | — | | | | — | | | | (328.6 | ) | | | — | | | | (328.6 | ) | | | — | | | | (328.6 | ) |
Stock-based compensation and other | | | 3.4 | | | | (22.2 | ) | | | 76.4 | | | | (0.2 | ) | | | — | | | | 57.4 | | | | 32.1 | | | | 89.5 | |
Equity issued for acquisition | | | 213.9 | | | | — | | | | 9,266.4 | | | | — | | | | — | | | | 9,480.3 | | | | — | | | | 9,480.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2016 | | $ | 504.8 | | | $ | (545.3 | ) | | $ | 10,144.2 | | | $ | 2,289.9 | | | $ | (1,044.8 | ) | | $ | 11,348.8 | | | $ | 35.6 | | | $ | 11,384.4 | |
Comprehensive income | | | — | | | | — | | | | — | | | | 2,748.8 | | | | 281.7 | | | | 3,030.5 | | | | — | | | | 3,030.5 | |
Cash dividends on common stock | | | — | | | | — | | | | — | | | | (427.5 | ) | | | — | | | | (427.5 | ) | | | — | | | | (427.5 | ) |
Stock-based compensation and other | | | 8.3 | | | | (28.2 | ) | | | 365.2 | | | | — | | | | — | | | | 345.3 | | | | 1.0 | | | | 346.3 | |
Common stock purchased and retired | | | (5.0 | ) | | | — | | | | (147.4 | ) | | | — | | | | — | | | | (152.4 | ) | | | — | | | | (152.4 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2017 | | $ | 508.1 | | | $ | (573.5 | ) | | $ | 10,362.0 | | | $ | 4,611.2 | | | $ | (763.1 | ) | | $ | 14,144.7 | | | $ | 36.6 | | | $ | 14,181.3 | |
Comprehensive income (loss) | | | — | | | | — | | | | — | | | | (6,917.9 | ) | | | (87.1 | ) | | | (7,005.0 | ) | | | — | | | | (7,005.0 | ) |
Cash dividends on common stock | | | — | | | | — | | | | (210.7 | ) | | | (224.8 | ) | | | — | | | | (435.5 | ) | | | — | | | | (435.5 | ) |
Stock-based compensation and other | | | 1.3 | | | | (11.2 | ) | | | 73.8 | | | | — | | | | — | | | | 63.9 | | | | (1.8 | ) | | | 62.1 | |
Common stock purchased and retired | | | (63.3 | ) | | | — | | | | (1,444.0 | ) | | | — | | | | — | | | | (1,507.3 | ) | | | — | | | | (1,507.3 | ) |
Reclassifications | | | — | | | | — | | | | — | | | | 44.8 | | | | (62.6 | ) | | | (17.8 | ) | | | — | | | | (17.8 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2018 | | $ | 446.1 | | | $ | (584.7 | ) | | $ | 8,781.1 | | | $ | (2,486.7 | ) | | $ | (912.8 | ) | | $ | 5,243.0 | | | $ | 34.8 | | | $ | 5,277.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See Notes to Consolidated Financial Statements.
NEWELL BRANDS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Footnote 1 — Description of Business and Significant Accounting Policies
Description of Business
Newell Brands is a leading global consumer goods company with a strong portfolio of well-known brands, including Paper Mate®, Sharpie®, Dymo®, EXPO®, Parker®, Elmer’s®, Coleman®, Marmot®, Oster®, Sunbeam®, FoodSaver®, Mr. Coffee®, Graco®, Baby Jogger®, NUK®, Calphalon®, Rubbermaid®, Contigo®, First Alert® and Yankee Candle®. For hundreds of millions of consumers, Newell Brands makes life better every day, where they live, learn, work and play. The Company’s multi-product offering consists of well-known, name brand consumer and commercial products. Effective June 30, 2018, the Company changed its reporting structure and began reporting its financial results in the following business segments: Food and Appliances, Home and Outdoor Living, Learning and Development and Other (see Footnote 19 for additional information). All prior periods have been reclassified to conform to the current reporting structure.
Additionally, the Company has revised the classification of certain items, principally related to customer supply chain related payments, in its consolidated statement of operations for 2017. The impact on the Consolidated Statements of Operations for the three months ended March 31, 2017, June 30, 2017, September 30, 2017, and the year ended December 31, 2017, was a decrease to net sales and a corresponding decrease to cost of products sold of $1.8 million, $15.9 million, $12.9 million and $40.1 million, respectively. The impact on discontinued operations for the three months ended March 31, 2017, June 30, 2017, September 30, 2017, and the year ended December 31, 2017, was a decrease to net sales and a corresponding decrease to cost of products sold of $1.3 million, $1.6 million, $1.7 million and $7.3 million, respectively. The impact of this revision was not material to the Consolidated Statements of Operations for any period and there was no impact to the Company’s Consolidated Balance Sheet at December 31, 2017, or Consolidated Statements of Cash Flows and Statements of Stockholders’ Equity for any periods in the year ended December 31, 2017.
Discontinued Operations
During 2018, the Company implemented the Accelerated Transformation Plan, which was designed in part, to rationalize the organization and its portfolio of products. Pursuant to the Accelerated Transformation Plan, a number of the Company’s businesses were designated for disposal. At December 31, 2018, these businesses have been classified as discontinued operations as these businesses together represent a strategic shift that has a major effect on the Company’s operations and financial results (see Footnote 4). Prior periods have been reclassified to conform with the current presentation. As of December 31, 2018, the expected form of sale for certain businesses designated for disposal has changed since the Company’s original assumptions, which has resulted in the reclassification of certain items, primarily related to income taxes.
Principles of Consolidation
The consolidated financial statements include the consolidated accounts of the Company and have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”).
The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries after elimination of intercompany transactions and balances.
Use of Estimates
The preparation of these consolidated financial statements requires the use of certain estimates by management in determining the Company’s assets, liabilities, sales and expenses, and related disclosures. Actual results could differ from those estimates.
Other Items
The Company holds a 23.4% investment in Sprue Aegis (“Sprue”). During the year ended December 31, 2018, 2017 and 2016, the Company’s related party sales to Sprue were $8.4 million, $33.5 million and $23.2 million, respectively. On March 31, 2018, the Company terminated its distribution agreement with Sprue.
During the year ended December 31, 2018, 2017 and 2016, the income attributable tonon-controlling interests was $1.6 million, $3.5 million and $1.9 million, respectively.
Concentration of Credit Risk
The Company sells products to customers in diversified industries and geographic regions and, therefore, has no significant concentrations of credit risk. The Company continuously evaluates the creditworthiness of its customers and generally does not require collateral.
The Company evaluates the collectability of accounts receivable based on a combination of factors. When aware of a specific customer’s inability to meet its financial obligations, such as in the case of bankruptcy filings or deterioration in the customer’s operating results or financial position, the Company records a specific reserve for bad debt to reduce the related receivable to the amount the Company reasonably believes is collectible. The Company also records reserves for bad debt for all other customers based on a variety of factors, including the length of time the receivables are past due and historical collection experience. Accounts are also reviewed for potentialwrite-off on acase-by-case basis. Accounts deemed uncollectible are written off, net of expected recoveries. If circumstances related to specific customers change, the Company’s estimates of the recoverability of receivables could be further adjusted.
The Company’s forward exchange contracts do not subject the Company to risk due to foreign exchange rate movement, because gains and losses on these instruments generally offset gains and losses on the assets, liabilities and other transactions being hedged. The Company is exposed to credit-related losses in the event ofnon-performance by counterparties to certain derivative financial instruments. The Company does not obtain collateral or other security to support derivative financial instruments subject to credit risk, but monitors the credit standing of the counterparties.
Sales Recognition, Customer Programs and Variable Consideration
The Company recognizes revenue when performance obligations under the terms of a contract with the customer are satisfied and are recognized at a point in time, which generally occurs either on shipment or on delivery based on contractual terms, which is also when control is transferred. The Company’s primary performance obligation is the distribution and sales of its consumer and commercial products to its customers. Prior to the adoption of Accounting Standards Codification Topic 606,“Revenue from Contracts with Customers” (“Topic 606”), the Company deferred recognition of revenue for limited FOB shipping point transactions where it had a practice of providing the buyer with replacement goods at no additional cost if there was loss or damage while the goods were in transit. Effective on January 1, 2018 under Topic 606, the Company recognizes revenue at the time of shipment for these transactions.
The Company measures revenue as the amount of consideration for which it expects to be entitled in exchange for transferring goods or providing services. Certain customers may receive cash and/ornon-cash incentives such as cash discounts, returns, credits or reimbursements related to defective products, customer discounts (such as volume or trade discounts), cooperative advertising and other customer-related programs, which are accounted for as variable consideration. In some cases, the Company must apply judgment, including contractual rates and historical payment trends, when estimating variable consideration.
In addition, the Company participates in various programs and arrangements with customers designed to increase the sale of products by these customers. Among the programs negotiated are arrangements under which allowances are earned by customers for attaining agreed-upon sales levels or for participating in specific marketing programs. Coupon programs are also developed on a customer- and territory-specific basis with the intent of increasing sales by all customers.
Under customer programs and arrangements that require sales incentives to be paid in advance, the Company amortizes the amount paid over the period of benefit or contractual sales volume. When incentives are paid in arrears, the Company accrues the estimated amount to be paid based on the program’s contractual terms, expected customer performance and/or estimated sales volume.
The Company sells gift cards to customers in its retail stores, third-party retail stores and through consumer direct operations. Gift cards do not have an expiration date. At the point of sale of a gift card, the Company records deferred revenue. Gift card revenue is recognized when the gift card is redeemed by the customer or the likelihood of the gift card being redeemed by the customer is remote (“gift card breakage”). Gift card breakage income is recognized in proportion to the actual redemption of gift cards based on the Company’s historical redemption pattern and is included in net sales in the Company’s Consolidated Statements of Operations.
For further information regarding revenue recognition see Footnote 2.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and highly liquid investments that have a maturity of three months or less when purchased.
Inventories
Inventories are stated at the lower of cost or market value using thelast-in,first-out (LIFO) orfirst-in,first-out (FIFO) methods (see Footnote 7 for additional information). The Company reduces its inventory value for estimated obsolete and slow-moving inventory in an amount equal to the difference between the cost of inventory and the net realizable value based upon estimates about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Expenditures for maintenance and repairs are expensed as incurred. Depreciation expense is calculated principally on the straight-line basis. Useful lives determined by the Company are as follows: buildings and improvements (20 — 40 years) and machinery and equipment (3 — 15 years).
Goodwill and Other Indefinite-Lived Intangible Assets
The Company conducts its annual test for impairment of goodwill and indefinite-lived intangible assets as of July 1.
The Company evaluates goodwill for impairment annually at the reporting unit level. The Company also tests for impairment if events and circumstances indicate that it is more likely than not that the fair value of a reporting unit is below its carrying amount. If the carrying amount of the reporting unit is greater than the fair value, impairment will be present. The Company assesses the fair value of each reporting unit for its goodwill impairment test based on a discounted cash flow model. Estimates critical to the Company’s fair value estimates under the discounted cash flow model include projected financial performance and cash flows of the reporting unit, the discount rate, long-term sales growth rate, product and overhead costs and the working capital investment required.
The Company measures the amount of any goodwill impairment by comparing the fair value to the carrying value of the reporting unit. An impairment charge is recognized to the extent the carrying value of the reporting unit exceeds the fair value.
The Company evaluates indefinite-lived intangible assets (primarily trademarks and trade names) for impairment annually. The Company also tests for impairment if events and circumstances indicate that it is more likely than not that the fair value of an indefinite-lived intangible asset is below its carrying amount. Estimates critical to the Company’s evaluation of indefinite-lived intangible assets for impairment include the discount rate, royalty rates and assumptions on excess earnings, where applicable, used in its evaluation of trade names, projected average revenue growth and projected long-term growth rates in the determination of terminal values. An impairment charge is recorded if the carrying amount of an indefinite-lived intangible asset exceeds the estimated fair value on the measurement date.
See Footnote 9 for additional detail on goodwill and other intangible assets.
Valuation of Assets held for Sale
As of December 31, 2018, the Company had five disposal groups classified as held for sale. Current assets held for sale, net of current liabilities held for sale were $2.9 billion at December 31, 2018. Upon designation as held for sale, the Company’s disposal groups are assessed for impairment by comparing the fair value of the disposal groups to their carrying values. The fair value of the disposal groups is estimated using a market multiple approach. For the year ended December 31, 2018, the Company recorded impairment charges of $697 million related to the Process Solutions disposal group, $131 million related to its Rexair disposal group, and $80 million related to its U.S. Playing Cards disposal group, which were held for sale as of December 31, 2018. The Company uses various assumptions to estimate fair value under the market multiple approach, including estimating the market multiples expected from the eventual sale of the disposal groups based on information obtained as a result of its marketing process.
Other Long-Lived Assets
The Company tests its other long-lived assets for impairment in accordance with relevant authoritative guidance. The Company evaluates if impairment indicators related to its property, plant and equipment and other long-lived assets are present. These impairment indicators may include a significant decrease in the market price of a long-lived asset or asset group, a significant adverse change in the extent or manner in which a long-lived asset or asset group is being used or in its physical condition, or a current period operating or cash flow loss combined with a history of operating or cash flow losses or a forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group. If impairment indicators are present, the Company estimates the future cash flows for the asset or group of assets. The sum of the undiscounted future cash flows attributable to the asset or group of assets is compared to their carrying amount. The cash flows are estimated utilizing various projections of sales and expenses, working capital and proceeds from asset disposals on a basis consistent with the strategic plan. If the carrying amount exceeds the sum of the undiscounted future cash flows, the Company determines the assets’ fair value by discounting the future cash flows using a discount rate required for a similar investment of like risk and records an impairment charge as the difference between the fair value and the carrying value of the asset group. Generally, the Company performs its testing of the asset group at the reporting unit level, as this is the lowest level for which identifiable cash flows are available.
Shipping and Handling Costs
The Company records shipping and handling costs as a component of cost of products sold.
Product Liability Reserves
The Company has a self-insurance program for product liability that includes reserves for self-retained losses and certain excess and aggregate risk transfer insurance. The Company uses historical loss experience combined with actuarial evaluation methods, review of significant individual files and the application of risk transfer programs in determining required product liability reserves. The Company’s actuarial evaluation methods take into account claims incurred but not reported when determining the Company’s product liability reserve. While the Company believes that it has adequately reserved for these claims, the ultimate outcome of these matters may exceed the amounts recorded by the Company, and such additional losses may be material to the Company’s Consolidated Financial Statements.
Product Warranties
In the normal course of business, the Company offers warranties for a variety of its products. The specific terms and conditions of the warranties vary depending upon the specific product and markets in which the products were sold. The Company accrues for the estimated cost of product warranty at the time of sale based on historical experience.
The Company expenses production costs of print, radio, television and other advertisements as of the first date the advertisements take place, and the Company expenses all other advertising and marketing costs when incurred. Advertising and promotion costs are recorded in selling, general and administrative expenses and totaled
$374$362 million,
$447$389 million and
$364$397 million in
2020, 2019 and 2018,
2017 and 2016, respectively.
Research and Development Costs
Research and development costs relating to both future and current products are charged to selling, general and administrative expenses as incurred. These costs totaled $135$144 million, $149 million and $151 million in 2020, 2019 and 2018, respectively.
Other Significant Accounting Policies
Other significant accounting policies are disclosed as follows:
•Discontinued Operations - Footnote 2
•Restructuring – Footnote 4
•Inventory – Footnote 5
•Property, Plant & Equipment – Footnote 6
•Derivative Instruments – Footnote 10
•Foreign Currency Operations – Footnote 10
•Pensions and Postretirement Benefits – Footnote 11
•Leases – Footnote 13
•Share-Based Compensation – Footnote 15
•Legal and Environmental Reserves – Footnote 18
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 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 is effective for years, and interim periods within those years, beginning after December 15, 2020, with early adoption permitted. Depending on the amendment, adoption may be applied on the retrospective, modified retrospective or prospective basis. The adoption of ASU 2019-12 will not have a material impact on the Company’s consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on FinancialReporting.” In January 2021, the FASB clarified the scope of that 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 referenceLIBOR 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
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which requires lessees to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. The Company adopted ASU 2016-02 prospectively starting on January 1, 2019. As part of the adoption, the Company elected the package of practical expedients permitted under the transition guidance that includes not to reassess historical lease classification, and not to recognize short-term leases on the balance sheet, nor separate lease and non-lease components for all its leases. In addition, the Company used hindsight to determine the lease term and applied its incremental borrowing rate based on the remaining term of the lease as of the adoption date. The impact upon adoption, related to operating leases in continuing operations, as of January 1, 2019, resulted in the recognition of right-of-use assets of approximately $664 million, lease liabilities of approximately $725 million and a minimal cumulative-effect adjustment on retained deficit on the Company's Consolidated Balance Sheet. See Footnote 13 for further information.
In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 involves several aspects of the accounting for credit losses related to certain financial instruments including assets measured at amortized cost, available-for-sale debt securities and certain off-balance sheet commitments. ASU 2016-13, and subsequent updates, broadens the information that an entity must consider in developing its estimated credit losses expected to occur over the remaining life of assets measured either collectively or individually to include historical experience, current conditions and reasonable and supportable forecasts, replacing the existing incurred credit loss model and other models with the Current Expected Credit Losses (“CECL”) model. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019. The Company adopted ASU 2016-13 on a modified retrospective basis effective January 1, 2020. The adoption of ASU 2016-03 did not have a material impact on the Company’s consolidated financial statements. The Company's reserves for expected credit losses at December 31, 2020 and December 31, 2019 were $36 million and $29 million respectively.
In February 2018, the FASB issued ASU No. 2018-02, “Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” ASU No. 2018-02 provides companies with an option to reclassify stranded tax effects within accumulated other comprehensive income (loss) (“AOCL”) to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. ASU No. 2018-02 also requires disclosure of the accounting policy for releasing income tax effects from AOCL and whether an election was made to reclassify the stranded income tax effects from the Tax Cuts and Jobs Act. ASU No. 2018-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. Companies can adopt the provisions of ASU 2018-02 in either the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company adopted this guidance in the second quarter of 2018 and reclassified the stranded income tax effects from the Tax Cuts and Jobs Act from AOCL of $63 million to retained earnings.
In August 2018, the FASB issued ASU 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting forImplementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” ASU 2018-15 clarifies the accounting treatment for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license. ASU 2018-15 is effective for public business entities for years, and interim periods within those years, beginning after December 15, 2019. The Company adopted ASU 2018-15 prospectively to all implementation costs incurred after January 1, 2020, the date of adoption. The adoption of ASU 2018-15 did not have a material impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU 2018-14, “Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans.” ASU 2018-14 modifies disclosure requirements for defined benefit pension and other postretirement plans. ASU 2018-14 is effective for fiscal years ending after December 15, 2020. Since ASU 2018-14 only impacts the disclosure requirements related to defined benefit pension and other postretirement plans, the adoption of ASU 2018-14 did not have a material impact on the Company’s consolidated financial statements. See Footnote 11 for further information.
Footnote 2 — Discontinued Operations and Divestitures
Discontinued Operations
In connection with the ATP, the Company completed the sale of several businesses during 2018 and 2019. In 2018, the Company sold: Goody Products, Inc. (“Goody”), Jostens, Inc. (“Jostens”), Pure Fishing, Inc. (“Pure Fishing”), the Rawlings Sporting Goods Company, Inc. (“Rawlings”), Waddington Group, Inc. (“Waddington”) and other related subsidiaries. In 2019, the Company sold: the Process Solutions business, Rexair Holdings Inc. ("Rexair"), The United States Playing Card Company (“The Playing Cards Company”) and other related subsidiaries.
In July 2019, the Company announced its decision to no longer pursue the sale of the majority of the Rubbermaid Outdoor, Closet, Refuse, Garage and Cleaning businesses (“Commercial Products”). The decision to keep Commercial Products was based on the strength of the brand, its competitive position in a large and growing category, and track record of cash flow generation, revenue growth and margin expansion. Management believes that retaining this business will further enhance the value creation opportunity for the Company. In October 2019, the Company decided to no longer pursue the sale of the Mapa/Spontex and Quickie businesses. The decision to keep these businesses was based on their financial profile, relative to expected sales proceeds.
At December 31, 2019, the Rubbermaid Outdoor, Closet, Refuse, Garage and Cleaning businesses and the Mapa/Spontex and Quickie businesses (collectively referred to as the “Commercial Business”) were no longer classified as held for sale in the Company's Consolidated Balance Sheets nor as discontinued operations in the Company's Consolidated Statement of Operations. These businesses are reported in the Commercial Solutions segment for all periods presented.
The following table provides a summary of amounts included in discontinued operations for the years ended December 31, (in millions):
| | | | | | | | | | | | | | | |
| | | 2019 | | 2018 |
| Net sales (1) | | | $ | 368 | | | $ | 2,879 | |
| Cost of products sold (1) | | | 266 | | | 1,798 | |
| Gross profit | | | 102 | | | 1,081 | |
| Selling, general and administrative expenses | | | 48 | | | 624 | |
| Restructuring costs, net | | | 0 | | | 3 | |
| Impairment of goodwill, intangibles and other assets | | | 112 | | | 1,464 | |
| Operating loss | | | (58) | | | (1,010) | |
| Non-operating income, net (2) | | | 10 | | | 830 | |
| Loss before income taxes | | | (48) | | | (180) | |
| Income tax provision | | | 31 | | | 129 | |
| Net loss | | | $ | (79) | | | $ | (309) | |
(1)2018 includes a reclassification from cost of products sold to net sales of $13 million related to the adoption of ASU 2014-9 - “Revenue from Contracts with Customers (Topic 606)”.
(2)2019 and 2018 include gains on sale of discontinued operations of $7 million and $831 million, respectively.
Divestitures
2020
On August 31, 2020, the Company divested the foam board product line in its Learning and Development segment. As a result, the Company recorded a pre-tax loss of $8 million, which is included in the other (income) expense, net in the Consolidated Statements of Operations.
2019
On May 1, 2019, the Company sold its Rexair business to investment funds affiliated with Rhône Capital for approximately $235 million, subject to customary working capital and other post-closing adjustments. As a result, during 2019, the Company recorded a pre-tax gain of $2 million, which is included in the loss from discontinued operations.
On May 1, 2019, the Company sold its Process Solutions business to an affiliate of One Rock Capital Partners, LLC, for approximately $500 million, subject to customary working capital and other post-closing adjustments. As a result, during 2019, the Company recorded a pre-tax loss of $7 million, which is included in the loss from discontinued operations.
On December 31, 2019, the Company sold The Playing Cards Company to Cartamundi Inc. and Cartamundi España S.L. for $220 million, subject to customary working capital and other post-closing adjustments. As a result, during 2019, the Company recorded a pre-tax loss of $5 million, which is included in the loss from discontinued operations.
During 2019, the Company recorded impairment charges of $112 million, which is included in the loss from discontinued operations, related to the write-down of the carrying value of the net assets of certain held for sale businesses based on their estimated fair value.
2018
On June 29, 2018, the Company sold Rawlings to a fund managed by Seidler Equity Partners with a co-investment of Major League Baseball for approximately $400 million, subject to customary working capital and other post-closing adjustments. As a result, during 2018, the Company recorded a pre-tax loss of $128 million, which is included in the loss from discontinued operations.
On June 29, 2018, the Company sold Waddington to Novolex Holdings LLC for approximately $2.3 billion, subject to customary working capital and other post-closing adjustments. As a result, during 2018, the Company recorded a pre-tax gain of $599 million, which is included in the loss from discontinued operations.
On August 31, 2018, the Company sold its Goody business, to a fund managed by ACON Investments, L.L.C. for approximately $109 million, subject to customary working capital and other post-closing adjustments. As a result, during 2018, the Company recorded a pre-tax gain of $20 million, which is included in the loss from discontinued operations.
On December 21, 2018, the Company sold Jostens to Platinum Equity for approximately $1.3 billion, subject to customary working capital and other post-closing adjustments. As a result, during 2018, the Company recorded a pre-tax loss of $32 million, which is included in the loss from discontinued operations.
On December 21, 2018, the Company sold Pure Fishing to Sycamore Partners for approximately $1.3 billion, subject to customary working capital and other post-closing adjustments. As a result, during 2018, the Company recorded a pre-tax gain of $372 million, which is included in the loss from discontinued operations.
During 2018, the Company recorded an impairment charge primarily related to goodwill and indefinite-lived intangible assets totaling $1.5 billion, which is included in the loss from discontinued operations, primarily related to the write-down of the carrying value of the net assets of certain held for sale businesses based on their estimated fair value.
Footnote 3 — Accumulated Other Comprehensive Income (Loss)
The following tables display the components of AOCL, net of tax, as of and for the years ended December 31, 2020 and 2019 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Cumulative
Translation
Adjustment | | Pension and Postretirement Cost | | Derivative Financial Instruments | | AOCL |
| Balance at December 31, 2018 | $ | (493) | | | $ | (398) | | | $ | (22) | | | $ | (913) | |
| Other comprehensive income (loss) before reclassifications | 4 | | | (8) | | | (14) | | | (18) | |
| Amounts reclassified to earnings | 10 | | | 7 | | | (6) | | | 11 | |
| Net current period other comprehensive income (loss) | 14 | | | (1) | | | (20) | | | (7) | |
| Balance at December 31, 2019 | $ | (479) | | | $ | (399) | | | $ | (42) | | | $ | (920) | |
| Other comprehensive income (loss) before reclassifications | (2) | | | (4) | | | 3 | | | (3) | |
| Amounts reclassified to earnings | 0 | | | 47 | | | (4) | | | 43 | |
| Net current period other comprehensive income (loss) | (2) | | | 43 | | | (1) | | | 40 | |
| Balance at December 31, 2020 | $ | (481) | | | $ | (356) | | | $ | (43) | | | $ | (880) | |
Reclassifications from AOCL to the results of operations for the years ended December 31, were pre-tax (income) expense of (in millions): | | | | | | | | | | | | | | | | | |
| 2020 | | 2019 | | 2018 |
| Pension and postretirement benefit plans (1) | $ | 72 | | | $ | 9 | | | $ | 16 | |
| Derivative financial instruments for effective cash flow hedges | (6) | | | (7) | | | 43 | |
(1)Primarily represents the amortization of net actuarial losses and plan settlements recorded in cost of products sold, selling, general and administrative expenses (“SG&A”) and other (income) expense, net in the Consolidated Statements of Operations. See Footnote 11 for further information.
The income tax provision (benefit) allocated to the components of AOCL for the years ended December 31, are as follows (in millions): | | | | | | | | | | | | | | | | | |
| 2020 | | 2019 | | 2018 |
| Foreign currency translation adjustments | $ | (28) | | | $ | 0 | | | $ | 4 | |
| Unrecognized pension and postretirement costs | 23 | | | 0 | | | 11 | |
| Derivative financial instruments | (1) | | | (3) | | | 19 | |
| Income tax provision (benefit) related to AOCL | $ | (6) | | | $ | (3) | | | $ | 34 | |
Footnote 4 — Restructuring
The Company has engaged and expects to continue to engage in restructuring activities, which requires management to utilize significant estimates related to the timing and amount of severance and other employee separation costs for workforce reductions and other separation programs and other exit costs associated with restructuring activities. The Company's accrual for severance and other employee separation costs depends on whether the costs result from an ongoing severance plan or are one-time costs. The Company accounts for relevant expenses as severance costs when we have an established severance policy, statutory requirements dictate the severance amounts, or if our historical experience is to routinely provide certain benefits to impacted employees. The Company recognizes severance costs when it is probable that benefits will be paid and the amount can be reasonably estimated. The Company estimates one-time severance and other employee costs related to exit and disposal activities not resulting from an ongoing severance plan based on the benefits available to the employees being terminated. The Company recognizes these costs when we identify the specific classification or functions of the employees being terminated, notify the employees who might be included in the termination, and expect to terminate employees within the legally required notification period. When employees are receiving incentives to stay beyond the legally required notification period, we record the cost of their severance over the remaining service period.
Restructuring costs incurred by reportable business segment for all restructuring activities in continuing operations for the years ended December 31, are as follows (in millions):
| | | | | | | | | | | | | | | | | |
| 2020 | | 2019 | | 2018 |
| Appliances and Cookware | $ | 1 | | | $ | 2 | | | $ | 3 | |
| Commercial Solutions | 4 | | | 3 | | | 6 | |
| Home Solutions | 10 | | | 9 | | | 8 | |
| Learning and Development | 3 | | | 6 | | | 8 | |
| Outdoor and Recreation | 2 | | | 2 | | | 27 | |
| Corporate | 1 | | | 5 | | | 35 | |
| $ | 21 | | | $ | 27 | | | $ | 87 | |
Accrued restructuring costs activity for the year ended December 31, 2020 are as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2019 | | Restructuring Costs, Net | | Payments | | | | Foreign Currency and Other | | Balance at December 31, 2020 |
| Severance and termination costs | $ | 10 | | | $ | 15 | | | $ | (18) | | | | | $ | 0 | | | $ | 7 | |
| Contract termination and other costs | 12 | | | 6 | | | (9) | | | | | (5) | | | 4 | |
| $ | 22 | | | $ | 21 | | | $ | (27) | | | | | $ | (5) | | | $ | 11 | |
Accrued restructuring costs activity for the year ended December 31, 2019 are as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2018 | | Restructuring Costs, Net | | Payments | | Reclassifications (1) | | Foreign Currency and Other (2) | | Balance at December 31, 2019 |
| Severance and termination costs | $ | 24 | | | $ | 20 | | | $ | (33) | | | $ | 0 | | | $ | (1) | | | $ | 10 | |
| Contract termination and other costs | 47 | | | 7 | | | (27) | | | (14) | | | (1) | | | 12 | |
| $ | 71 | | | $ | 27 | | | $ | (60) | | | $ | (14) | | | $ | (2) | | | $ | 22 | |
(1)Reclassification due to the adoption of ASU 2016-02 - “Leases (Topic 842)”, which requires lessees to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months.
(2)Includes non-cash restructuring charges primarily related to stock-based awards of $1 million for 2019.
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 year ended December 31, 2020, the Company recorded restructuring charges of $19 million in connection with the program. The Company currently estimates aggregate restructuring charges of approximately $30 million to $35 million to be incurred for projects launched in connection with the program. All cash payments are expected to be paid within one year of charges incurred.
Accelerated Transformation Plan
The Company’s ATP, which was initiated during the first quarter of 2018 and completed at the end of 2019, 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 cost structure as a result of the completed divestitures. Restructuring costs associated with the ATP included employee-related costs, including severance, retirement and other termination benefits, as well as contract termination costs and other costs. Restructuring costs incurred during 2019 and 2018 are primarily related to the ATP.
Other Restructuring-Related Costs
The Company regularly incurs other restructuring-related costs in connection with various discrete initiatives which are recorded in cost of products sold and SG&A in the Consolidated Statements of Operations based on the nature of the underlying costs incurred.
Footnote 5 — Inventories
Inventories are stated at the lower of cost or net realizable value using the last-in, first-out (LIFO) or first-in, first-out (FIFO) methods. The Company reduces its inventory value for estimated obsolete and slow-moving inventory in an amount equal to the difference between the cost of inventory and the net realizable value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.
The components of inventories were as follows at December 31, (in millions):
| | | | | | | | | | | |
| 2020 | | 2019 |
| Raw materials and supplies | $ | 252 | | | $ | 231 | |
| Work-in-process | 157 | | | 135 | |
| Finished products | 1,229 | | | 1,240 | |
| $ | 1,638 | | | $ | 1,606 | |
Inventory costs include direct materials, direct labor and manufacturing overhead, or when finished goods are sourced, the cost is the amount paid to the third party. Approximately 24.9% and 22.8% of gross inventory costs at December 31, 2020 and 2019, respectively, were determined by the LIFO method; for the balance, cost was determined using the FIFO method. At December 31, 2020 and 2019, LIFO reserves were contra-assets of $8 million and $14 million, respectively. The pre-tax expense from continuing operations recognized by the Company related to the liquidation of LIFO-based inventories were immaterial in 2020 and 2018, and $3 million in 2019.
Footnote 6 — Property, Plant and Equipment, Net
Property, plant and equipment are stated at cost. Expenditures for maintenance and repairs are expensed as incurred. Depreciation expense is calculated principally on the straight-line basis. Useful lives determined by the Company are as follows: buildings and improvements (20 - 40 years) and machinery and equipment (3 - 15 years).
Property, plant and equipment, net, consisted of the following at December 31, (in millions):
| | | | | | | | | | | |
| 2020 | | 2019 |
| Land | $ | 86 | | | $ | 86 | |
| Buildings and improvements | 664 | | | 641 | |
| Machinery and equipment | 2,314 | | | 2,151 | |
| 3,064 | | | 2,878 | |
| Less: Accumulated depreciation | (1,888) | | | (1,723) | |
| $ | 1,176 | | | $ | 1,155 | |
Depreciation expense for continuing operations was $200 million, $254 million and $183 million in 2020, 2019 and 2018, respectively. Depreciation expense for discontinued operations was NaN in 2020 and 2019 and $19 million in 2018. Depreciation expense for assets held for sale was nil for 2020 and 2019 as the Company ceased depreciating property, plant, and equipment relating to businesses which satisfied the criteria to be classified as held for sale during the second quarter of 2018.
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. As a result of the impairment testing performed in connection with the triggering event, the Company recorded a non-cash fixed asset impairment charge of approximately $1 million during 2020, in the Home Solutions segment associated with its Yankee Candle retail store business. The impairment charge was calculated as the excess of carrying value over fair value of the asset group.
In 2018, as part of the ATP, the Company approved a plan to market for sale the Commercial Business. This business was classified as held for sale in the Company's historical Consolidated Balance Sheets. During 2019, the Company decided not to sell this business. As a result, the business no longer satisfied the requirements to be classified as held for sale in the Company's Consolidated Balance Sheet at December 31, 2019. Accordingly, the Consolidated Balance Sheet at December 31, 2018 was recast to reclassify the Commercial Business from held for sale to held and used. The Company measured the business at the lower of its (i) carrying amount before it was classified as held for sale, adjusted for depreciation and amortization expense that would have been recognized had the Commercial Business been continuously classified as held and used, or (ii) fair value at the date the decision not to sell was made. The Company recorded a charge of $50 million in 2019 relating to the amount of depreciation expense that would have been recorded in prior periods had the Commercial Business been continuously classified as held and used.
During 2018, the Company recorded $41 million of impairment charges on certain other assets, the majority of which relate to the Home Fragrance business in the Home Solutions segment.
Footnote 7 — Goodwill and Other Intangible Assets, Net
A summary of changes in the Company’s goodwill by reportable business segment is as follows for 2020 and 2019 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | December 31, 2020 |
| Segments: | | Net Book Value at December 31, 2019 | | Other
Adjustments
(1) | | Impairment
Charges
(2) | | Foreign
Exchange | | Gross
Carrying
Amount | | Accumulated
Impairment
Charges | | Net Book
Value |
| Appliances and Cookware | | $ | 212 | | | $ | 0 | | | $ | (212) | | | $ | 0 | | | $ | 744 | | | $ | (744) | | | $ | 0 | |
| Commercial Solutions | | 747 | | | 0 | | | 0 | | | 0 | | | 1,241 | | | (494) | | | 747 | |
| Home Solutions | | 164 | | | 0 | | | 0 | | | 0 | | | 2,392 | | | (2,228) | | | 164 | |
| Learning and Development | | 2,586 | | | (3) | | | 0 | | | 59 | | | 3,488 | | | (846) | | | 2,642 | |
| Outdoor and Recreation | | 0 | | | 0 | | | 0 | | | 0 | | | 788 | | | (788) | | | 0 | |
| | $ | 3,709 | | | $ | (3) | | | $ | (212) | | | $ | 59 | | | $ | 8,653 | | | $ | (5,100) | | | $ | 3,553 | |
(1)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 2 for further information.
(2)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 the goodwill associated with its Appliances and Cookware reporting unit was fully impaired and recorded a non-cash charge of $212 million to reduce the reporting unit's goodwill to 0. See Footnote 1 for further information.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | December 31, 2019 |
| Segments: | | Net Book Value at December 31, 2018 | | Other
Adjustments
(1) | | Impairment
Charges
(2) | | Foreign
Exchange | | Gross
Carrying
Amount | | Accumulated
Impairment
Charges | | Net Book
Value |
| Appliances and Cookware | | $ | 211 | | | $ | (7) | | | $ | 7 | | | $ | 1 | | | $ | 744 | | | $ | (532) | | | $ | 212 | |
| Commercial Solutions | | 904 | | | 1 | | | (158) | | | 0 | | | 1,241 | | | (494) | | | 747 | |
| Home Solutions | | 164 | | | 6 | | | (6) | | | 0 | | | 2,392 | | | (2,228) | | | 164 | |
| Learning and Development | | 2,595 | | | 1 | | | (1) | | | (9) | | | 3,432 | | | (846) | | | 2,586 | |
| Outdoor and Recreation | | $ | 0 | | | $ | 2 | | | $ | (2) | | | $ | 0 | | | $ | 788 | | | $ | (788) | | | $ | 0 | |
| | $ | 3,874 | | | $ | 3 | | | $ | (160) | | | $ | (8) | | | $ | 8,597 | | | $ | (4,888) | | | $ | 3,709 | |
(1)During 2019, in connection with the Company’s state income tax payable/receivable reconciliation process, the Company identified that a state income tax receivable initially recorded in March 2017 was overstated by $20 million. The Company determined that the offset to this overstated receivable was recorded as a reduction to goodwill and, subsequently, recorded an entry during the current year to increase goodwill by this amount with a corresponding reduction to its state income tax receivable. Additionally, the Company identified and reversed $9 million of reserves for uncertain tax positions that were no longer required as the statutes of limitations had previously expired across multiple prior years. Therefore, the Company recorded an adjustment to income tax expense with a corresponding reduction to its reserves for uncertain tax positions. The Company was required to allocate the goodwill and reversal of reserves for uncertain tax positions to its businesses and reporting units in order to determine whether or not the carrying value of a disposal group or reporting unit that was previously sold or impaired needed to be updated. Based on its analysis, the Company concluded that the entire $20 million goodwill balance and the reversal of $9 million of reserves for uncertain tax positions would have been impaired or recognized as a loss on disposal in previously issued financial statements. As such, in 2019 the Company recorded pre-tax out-of-period impairment charges and a loss on sale of divested businesses of $3 million and $8 million, respectively, of which $3 million ($2 million after-tax) and $8 million ($6 million after-tax) were reflected in continuing operations and discontinued operations, respectively, in the Company’s Consolidated Statement of Operations. The Company concluded the effects of such adjustments were not material to the current period or previously issued financial statements. See Footnote 1 for further information.
(2)In 2019, the Company recorded non-cash impairment charges in the Commercial Solutions segment to reflect a decrease in the carrying values of Mapa/Spontex and Quickie by a total of $158 million while these businesses were classified as held for sale.
Acquired intangible asset impairment charges were recorded in the Company’s reporting segments as follows (in millions):
| | | | | | | | | | | |
| | 2020 (1) | | 2019 (2) |
| Impairment of acquired intangible assets | | | |
| Appliances and Cookware | $ | 87 | | | $ | 607 | |
| Commercial Solutions | 320 | | | 152 | |
| Home Solutions | 290 | | | 152 | |
| Learning and Development | 100 | | | 24 | |
| Outdoor and Recreation | 482 | | | 118 | |
| $ | 1,279 | | | $ | 1,053 | |
(1)During the fourth quarter of 2020, in conjunction with its annual impairment testing, the Company recorded a non-cash impairment charge of $20 million associated with a tradename in the Learning and $147Development segment, as its carrying value exceeded its fair value. The impairment reflected a downward revision of forecasted results due to the impact of the delayed and limited re-opening of schools and offices as a result of the COVID-19 global pandemic, as well as the continued deterioration in sales for slime-related adhesive products. The rate and duration of the decline for such products, which is expected to continue into the future, is difficult to predict. Further impairments of this tradename may also occur if future expected cash flows are not achieved. During the first quarter of 2020, as a result of the impairment testing performed in connection with COVID-19 pandemic triggering event, the Company determined that certain of its indefinite-lived intangible assets in all of its operating segments were impaired and recorded non-cash impairment charges of $1.3 billion to reflect the impairment of these indefinite-lived tradenames because their carrying values exceeded their fair values.
(2)The carrying value of certain Appliances and Cookware tradenames exceeded their fair value primarily due to the announced tariffs on Chinese imports, as well as a decline in sales volume due to a loss in market share for certain appliance categories driven by the success of newly launched competitive products. Both of these factors resulted in downward revisions to forecasted results. In 2019, the Company recorded impairment charges in the Commercial Solution segment to reflect a decrease in the carrying values of Mapa/Spontex and Quickie while these businesses were classified as held for sale. In the Home Solution segment, the impairment charges relate to certain Home Fragrance trademarks/tradenames. The Home Fragrance business has experienced a shift in product mix, which resulted in a downward revision to forecasted results for one of its tradenames. In the Learning and Development segment, the impairment charge related to certain Writing trademarks/tradenames. The Writing business experienced softening trends in sales of slime-related adhesive products. Related sales of such products during the fourth quarter of 2019 deteriorated at a faster rate than expected, which resulted in a downward revision to forecasted results for one of its tradenames. The carrying value of certain Outdoor and Recreation tradenames exceeded their fair value primarily due to decline in demand for certain products, which resulted in a downward forecasted results.
The table below summarizes the balance of other intangible assets, net and the related amortization periods using the straight-line method and attribution method at December 31, 2020 and 2019 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 | | December 31, 2019 | | |
| | Gross
Carrying
Amount | | Accumulated
Amortization | | Net
Book
Value | | Gross
Carrying
Amount | | Accumulated
Amortization | | Net
Book
Value | | Amortization
Periods
(In years) |
| Tradenames - indefinite life | $ | 2,331 | | | $ | — | | | $ | 2,331 | | | $ | 3,560 | | | $ | — | | | $ | 3,560 | | | N/A |
| Tradenames - other | 157 | | | (55) | | | 102 | | | 169 | | | (50) | | | 119 | | | 2 - 15 |
| Capitalized software | 625 | | | (486) | | | 139 | | | 587 | | | (435) | | | 152 | | | 3 - 12 |
| Patents and intellectual property | 67 | | | (52) | | | 15 | | | 135 | | | (102) | | | 33 | | | 3 - 14 |
| Customer relationships and distributor channels | 1,259 | | | (282) | | | 977 | | | 1,328 | | | (283) | | | 1,045 | | | 3 - 30 |
| Other | 0 | | | 0 | | | 0 | | | 109 | | | (102) | | | 7 | | | 3 - 5 |
| | | | | | | | | | | | | |
| $ | 4,439 | | | $ | (875) | | | $ | 3,564 | | | $ | 5,888 | | | $ | (972) | | | $ | 4,916 | | | |
Amortization expense for intangible assets for continuing operations was $157 million, $192 million and $189 million in 2020, 2019 and 2018, 2017respectively. Amortization expense for intangible assets prior to being classified as discontinued operations was $43 million in 2018. Amortization expense for assets held for sale was nil for 2020 and 2016,2019 as the Company ceased amortizing other finite-lived intangible assets relating to businesses which satisfied the criteria to be classified as held for sale during the second quarter of 2018.
In 2018, as part of the ATP, the Company approved a plan to market for sale the Commercial Business and classified it as held for sale in the Company's historical Consolidated Balance Sheets. During 2019, the Company decided not to sell this business and measured the business at the lower of its (i) carrying amount before it was classified as held for sale, adjusted for depreciation and amortization expense that would have been recognized had the Commercial Business been continuously classified as held and used, or (ii) fair value at the date the decision not to sell was made as it no longer satisfied the requirements to be classified as held for sale in the Company's Consolidated Balance Sheet at December 31, 2019. Accordingly, the Company recorded a charge of $7 million in 2019 reflecting to the amount of amortization expense that would have been recorded in prior periods had the Commercial Business been continuously classified as held and used.
At December 31, 2020, the aggregate estimated intangible amortization amounts for the succeeding five years are as follows (in millions):
| | | | | | | | |
| Years ending December 31, | | Amount |
| 2021 | | $ | 120 | |
| 2022 | | 105 | |
| 2023 | | 95 | |
| 2024 | | 88 | |
| 2025 | | 80 | |
| Thereafter | | 745 | |
Footnote 8 — Other Accrued Liabilities
Other accrued liabilities included the following at December 31, (in millions):
| | | | | | | | | | | |
| 2020 | | 2019 |
| Customer accruals | $ | 683 | | | $ | 605 | |
| Operating lease liabilities | 129 | | | 132 | |
| Accrued self-insurance liabilities, contingencies and warranty | 113 | | | 124 | |
| Accrued income taxes | 66 | | | 114 | |
| Accrued interest expense | 60 | | | 63 | |
| Accruals for manufacturing, marketing and freight expenses | 57 | | | 50 | |
| Other | 285 | | | 252 | |
| $ | 1,393 | | | $ | 1,340 | |
Customer accruals are promotional allowances and rebates, including cooperative advertising, given to customers in exchange for their selling efforts and volume purchased, as well as allowances for returns. Payments for annual rebates and other customer programs are generally made in the first quarter of the year. Self-insurance liabilities relate to casualty liabilities such as workers’ compensation, general and product liability and auto liability and are estimated based upon historical loss experience combined with actuarial evaluation methods, review of significant individual files and the application of risk transfer programs.
Footnote 9 — Debt
The following is a summary of outstanding debt at December 31, (in millions):
| | | | | | | | | | | |
| 2020 | | 2019 |
| 4.70% senior notes due 2020 | $ | 0 | | | $ | 305 | |
| 3.15% senior notes due 2021 | 94 | | | 94 | |
| 3.75% senior notes due 2021 | 369 | | | 342 | |
| 4.00% senior notes due 2022 | 250 | | | 249 | |
| 3.85% senior notes due 2023 | 1,090 | | | 1,388 | |
| 4.00% senior notes due 2024 | 200 | | | 199 | |
| 4.875% senior notes due 2025 | 492 | | | 0 | |
| 3.90% senior notes due 2025 | 47 | | | 47 | |
| 4.20% senior notes due 2026 | 1,973 | | | 1,986 | |
| 5.375% senior notes due 2036 | 416 | | | 416 | |
| 5.50% senior notes due 2046 | 657 | | | 657 | |
| Commercial paper | 0 | | | 25 | |
| | | |
| Other debt | 19 | | | 15 | |
| Total debt | 5,607 | | | 5,723 | |
| Short-term debt and current portion of long-term debt | (466) | | | (332) | |
| Long-term debt | $ | 5,141 | | | $ | 5,391 | |
Credit Revolver and Commercial Paper
On November 1, 2019, S&P Global Inc. ("S&P") downgraded the Company’s debt rating to “BB+” as S&P believed the Company would fail to meet S&P’s target debt level for 2019. In addition, on March 9, 2020, Moody’s Corporation ("Moody’s") downgraded the Company’s debt rating to “Ba1” based on a view that the Company would fail to meet Moody's target debt level for 2020. Subsequently on April 15, 2020, Fitch Ratings ("Fitch") downgraded the Company’s debt rating to "BB" as they believed the Company would fail to meet Fitch's target debt level for 2020. As a result of the S&P and Moody's downgrades, the Company could no longer borrow from the commercial paper market on terms it deems acceptable or favorable.
Previously, the Company was able to issue commercial paper up to a maximum of $800 million provided there was a sufficient amount available for borrowing under the Company’s $1.25 billion revolving credit facility that matures in December 2023 (“the Credit Revolver”). The Company’s ability to borrow under the Credit Revolver was not affected by the downgrades. The interest rate for borrowings under the Credit Revolver is the borrowing period referenced LIBOR rate plus 127.5 basis points. At December 31, 2020 and 2019, the Company did 0t have any amounts outstanding under the Credit Revolver.
Senior Notes
In May 2020, the Company completed a registered public offering of $500 million in aggregate principal amount of 4.875% senior notes that mature in June 2025 (the “June 2025 Notes”) and received proceeds of approximately $491 million, net of fees and expenses paid. The June 2025 Notes are subject to similar restrictive and financial covenants as the Company’s existing senior notes, however, they are not subject to the interest rate adjustment or coupon step up provisions of certain other notes described below. The June 2025 Notes are redeemable in whole or in part, at the option of the Company (1) at any time prior to one month before the stated maturity at a redemption price equal to the greater of (a) 100% of the principal amount or (b) the discounted present value of principal and interest at the Treasury Rate plus 50 basis points, plus accrued interest to but excluding the redemption date; or (2) at any time on or after one month prior to the stated maturity at a price equal to 100% of the principal amount being redeemed, plus accrued interest to but excluding the redemption date. The Company used the net proceeds from the June 2025 Notes for general corporate purposes, including repayment of outstanding borrowings under the Credit Revolver and accounts receivable securitization facility, and the redemption of the outstanding 4.70% Senior Notes due in August 2020 at maturity.
In March 2020, the Company repurchased $15 million of the 4.20% senior notes due 2026 at approximately par value. The total consideration, excluding accrued interest, was approximately $15 million. As a result of the partial debt extinguishment, the Company recorded an immaterial loss.
In November 2020, the Company repurchased $300 million of the 3.85% Senior Notes due 2023 with available cash on hand. The total consideration, excluding accrued interest, was approximately $318 million. The Company recorded a loss on extinguishment of debt of $20 million as a result of the partial debt repayment.
On January 25, 2021, the Company delivered a notice of redemption to the holders of the 3.15% senior notes that will mature in April 2021 (the “April 2021 Notes”) that the Company will redeem the April 2021 Notes on March 1, 2021 (the “Redemption Date”) for a redemption price equal to 100% of the current outstanding aggregate principal amount of the notes, plus accrued and unpaid interest to the Redemption Date.
As a result of the aforementioned debt rating downgrades by Moody's and S&P, certain of the Company’s outstanding senior notes aggregating to approximately $4.3 billion are subject to an interest rate adjustment of 25 basis points as a result of each downgrade, for a total of 50 basis points. This increase to the interest rates of each series of the Company's senior notes subject to adjustment, increased the Company’s interest expense for 2020 by approximately $17 million and expected to increase by approximately $21 million thereafter, on an annualized basis. The Fitch downgrade did not impact the interest rates on any of the Company's senior notes.
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. In March 2020, the Company amended its Securitization Facility with respect to certain customer receivables and to remove an originator from the Securitization Facility. At December 31, 2020, the Company did 0t have any amounts outstanding under the Securitization Facility.
Future Debt Maturities
The Company’s debt maturities for the five years following December 31, 2020 and thereafter are as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | Thereafter | | Total |
| $465 | | $253 | | $1,095 | | $201 | | $547 | | $3,072 | | $5,633 |
Other
In connection with the ATP, the Company completed the sale of several businesses during 2019. In 2019, the Company sold: its Process Solutions business, Rexair, The Playing Cards Company and other related subsidiaries. As a result of these transactions, the Company received gross proceeds of $996 million in 2019, most of which was used to pay down debt.
The indentures governing the Company’s senior notes contain usual and customary nonfinancial covenants. The Company’s borrowing arrangements other than the senior notes contain usual and customary nonfinancial covenants and certain financial covenants, including minimum interest coverage and maximum debt-to-total-capitalization ratios.
At December 31, 2020 and 2019, unamortized deferred debt issue costs were $29 million and $33 million, respectively.
Derivative Financial Instruments
These costs are included in total debt and are being amortized over the respective terms of the underlying debt.
The fair values of the Company’s senior notes are based on quoted market prices and are as follows at December 31, (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | 2019 |
| Fair Value | | Book Value | | Fair Value | | Book Value |
| Senior notes | $ | 6,277 | | | $ | 5,588 | | | $ | 5,990 | | | $ | 5,683 | |
The carrying amounts of all other significant debt approximates fair value.
Net Investment Hedge
The Company has 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. At December 31, 2020, $26 million of deferred losses have been recorded in AOCL. See Footnote 10 for disclosures regarding the Company’s derivative financial instruments.
Footnote 10 — Derivatives and Foreign Currency Operations
Derivatives
Derivative financial instruments are generally used to manage certain commodity, interest rate and foreign currency risks. These instruments primarily include interest rate swaps, forward starting interest rate swaps, forward exchange contracts and options. The Company’s forward exchange contracts and options do not subject the Company to exchange rate risk because gains and losses on these instruments generally offset gains and losses on the assets, liabilities and other transactions being hedged. However, these instruments, when settled, impact the Company’s cash flows from operations to the extent the underlying transaction being hedged is not simultaneously settled due to an extension, a renewal or otherwise.
On the date when the Company enters into a derivative, the derivative is designated as a hedge of the identified exposure. The Company measures effectiveness of its hedging relationships both at hedge inception and on an ongoing basis.
Foreign Currency Operations
Assets and liabilities of foreign subsidiaries are translated into U.S. dollars at the rates of exchange in effect atyear-end. The related translation adjustments are made directly to accumulated other comprehensive income (loss). Income and expenses are translated at the average monthly rates of exchange in effect during the year. Foreign currency transaction gains and losses are included in the results of operations and are generally classified in other (income) expense, net, in the Consolidated Statements of Operations. Foreign currency transaction net losses for 2018, 2017 and 2016 were $8.3 million, $11.3 million and $3.1 million, respectively.
The Company designates certain foreign currency denominated, long-term intercompany financing transactions as being of a long-term investment nature and records gains and losses on the transactions arising from changes in exchange rates as translation adjustments.
Income Taxes
The Company accounts for deferred income taxes using the asset and liability approach. Under this approach, deferred income taxes are recognized based on the tax effects of temporary differences between the financial statement and tax bases of assets and liabilities, as measured by current enacted tax rates. Valuation allowances are recorded to reduce the deferred tax assets to an amount that will more likely than not be realized.
The Company’s income tax provisions are based on calculations and assumptions that are subject to examination by various worldwide tax authorities. Although the Company believes that the positions taken on previously filed tax returns are reasonable, it has established tax, interest and penalty reserves in recognition that various taxing authorities may challenge the positions taken, which could result in additional liabilities for taxes, interest and penalties. The Company regularly reviews its deferred tax assets for recoverability considering historical profitability, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies.
The authoritative guidance requires application of a “more likely than not” threshold to the recognition and derecognition of tax positions. The Company’s ongoing assessments of the more likely than not outcomes of tax authority examinations and related tax positions require significant judgment and can increase or decrease the Company’s effective tax rate, as well as impact operating results.
Stock-Based Compensation
Stock-based compensation expense is adjusted for estimated forfeitures and is recognized on a straight-line basis over the requisite service period of the award, which is generally three years for stock options and one to three years for restricted stock units and performance-based restricted stock units. The Company estimates future forfeiture rates based on its historical experience (see Footnote 16 for additional information).
Recent Accounting Pronouncements
Changes to U.S. Generally Accepted Accounting Principles (“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 February 2016, the FASB issued ASU2016-02, “Leases (Topic 842),” which requires lessees to recognize aright-of-use asset and lease liability on the balance sheet. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. ASU2016-02 is effective for the Company on January 1, 2019 and, pursuant to the standard, the Company will adopt the new standard effective January 1, 2019 using the optional transition method and will not restate comparative periods. The Company is electing the package of practical expedients permitted under the transition guidance, as well as choosing to combine lease andnon-lease components and to keep leases with an initial term of 12 months or less off the balance sheet and recognize the associated lease payments in the Consolidated Statements of Operations on a straight-line basis over the lease term. The Company is in the process of determining the impact of the adoption of ASU2016-02 on the Company’s Consolidated Financial Statements, but this standard will have a material impact on the Consolidated Balance Sheets. See Note 13 for a summary of the Company’s undiscounted minimum rental commitments under operating leases as of December 31, 2018.
In August 2017, the FASB issued ASU2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” ASU2017-12 amends existing guidance to better align an entity’s risk management activities and financial reporting for hedging relationships. ASU2017-12 also expands and refines hedge accounting for both nonfinancial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. ASU2017-12 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within those annual periods. The Company is evaluating the impact the adoption of ASU2017-12 will have on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU2018-15,“Intangibles – Goodwill and Other –Internal-Use Software (Subtopic350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” ASU2018-15 clarifies the accounting treatment for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license. ASU2018-15 is effective for public business entities for fiscal years, and interim periods within those years, beginning after December 15, 2019, with early adoption permitted. ASU2018-15 may be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently assessing the impact that adoption of ASU2018-15 will have on the consolidated financial statements.
Other recently issued ASUs were assessed and determined to be either not applicable or are expected to have a minimal impact on the Company’s consolidated financial position and results of operations.
Adoption of New Accounting Guidance
In May 2014, the FASB issued ASU2014-09, “Revenue from Contracts with Customers (Topic 606).” The Company adopted ASU2014-09 and all the related amendments (“Topic 606”) on January 1, 2018, using the modified retrospective transition method and applied this approach to contracts not completed as of that date. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The adoption of Topic 606 did not result in a material adjustment to the opening balance of retained earnings. The Company does not expect the adoption of Topic 606 to have a material impact to its net income on an ongoing basis.
The cumulative effect of the changes made to the Consolidated Balance Sheet at January 1, 2018 from the adoption of Topic 606 were as follows (in millions):
| | | | | | | | | | | | |
| | | Balance at
December 31,
2017 | | | Adjustments
due to Topic
606 | | | Balance at
January 1,
2018 | |
Accounts receivable, net | | $ | 1,879.3 | | | $ | 100.3 | | | $ | 1,979.6 | |
Prepaid expenses and other | | | 327.9 | | | | 14.6 | | | | 342.5 | |
Current assets held for sale | | | 6,370.4 | | | | 21.3 | | | | 6,391.7 | |
Noncurrent assets held for sale | | | 3,842.2 | | | | 33.8 | | | | 3,876.0 | |
Other accrued liabilities | | | 1,271.9 | | | | 114.9 | | | | 1,386.8 | |
Current liabilities held for sale | | | 1,661.3 | | | | 21.3 | | | | 1,682.6 | |
Noncurrent liabilities held for sale | | | 242.5 | | | | 33.8 | | | | 276.3 | |
Retained earnings | | | 4,611.2 | | | | — | | | | 4,611.2 | |
As part of Topic 606, the Company reclassified items such as cash discounts, allowances for returns, and credits or incentives provided to customers from accounts receivable, net to other accrued liabilities as of the adoption date. These items are accounted for as variable consideration when estimating the amount of revenue to recognize. Also as part of the new standard, the Company recognizes right to recover assets associated with its estimated allowances for returns in prepaid expenses and other, which were previously netted against the allowance for returns included in accounts receivable, net.
The impact of adoption of Topic 606 on the Consolidated Balance Sheet and Consolidated Statement of Operations as of and for the period indicated was as follows (in millions):
| | | | | | | | | | | | |
| | | December 31, 2018 | |
| | | As
Reported | | | Excluding
Adjustments
due to Topic
606 | | | As
Adjusted | |
Accounts receivable, net | | $ | 1,850.7 | | | $ | (109.2 | ) | | $ | 1,741.5 | |
Inventory, net | | | 1,583.1 | | | | 0.3 | | | | 1,583.4 | |
Prepaid expenses and other | | | 278.0 | | | | (14.7 | ) | | | 263.3 | |
Current assets held for sale | | | 3,541.3 | | | | (36.7 | ) | | | 3,504.6 | |
Other accrued liabilities | | | 1,182.3 | | | | (123.1 | ) | | | 1,059.2 | |
Current liabilities held for sale | | | 650.4 | | | | (36.7 | ) | | | 613.7 | |
Retained deficit | | | (2,486.7 | ) | | | (0.5 | ) | | | (2,487.2 | ) |
| | | | | | | | | | | | |
| | | Year Ended December 31, 2018 | |
| | | As
Reported | | | Excluding
Adjustments
due to Topic
606 | | | As
Adjusted | |
Net sales | | $ | 8,630.9 | | | $ | 192.0 | | | $ | 8,822.9 | |
Cost of products sold | | | 5,622.1 | | | | 184.3 | | | | 5,806.4 | |
Selling, general and administrative expenses | | | 2,434.8 | | | | 8.4 | | | | 2,443.2 | |
Operating loss | | | (7,828.5 | ) | | | (0.7 | ) | | | (7,829.2 | ) |
Income tax benefit | | | (1,478.1 | ) | | | (0.2 | ) | | | (1,478.3 | ) |
Loss from continuing operations | | | (6,789.6 | ) | | | (0.5 | ) | | | (6,790.1 | ) |
Loss from discontinued operations, net of tax | | | (128.3 | ) | | | — | | | | (128.3 | ) |
Net loss | | | (6,917.9 | ) | | | (0.5 | ) | | | (6,918.4 | ) |
Certain costs and cash payments made to customers previously recorded in costs of products sold and selling, general and administrative expenses have been reclassified against net sales as they do not meet the specific criteria to qualify as a distinct good or service under the new guidance, primarily related to payments to customers for defective products under warranty.
Refer to Footnote 2 for additional information regarding the Company’s adoption of Topic 606.
In August 2016, the FASB issued ASU2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” ASU2016-15 provides guidance on the classification of certain cash receipts and payments in the statement of cash flows, including debt prepayment and debt extinguishment costs. ASU2016-15 is effective for annual periods beginning after December 15, 2017 and the Company retrospectively adopted ASU2016-15 effective January 1, 2018. As a result of the adoption ASU2016-15, the Company reclassified $34.2 million of certain debt extinguishment payments, which had the effect of increasing the Company’s cash provided by operating activities and increasing net cash used in financing activities by $34.2 million for 2017.
In October 2016, the FASB issued ASU2016-16, “Intra-Entity Transfers of Assets Other Than Inventory (Topic 740),” which requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. ASU2016-16 is effective for annual and interim periods beginning after December 15, 2017. The Company adopted ASU2016-16 effective January 1, 2018. As a result of the adoption of ASU2016-16, the Company recorded an adjustment as of January 1, 2018, that reduced retained earnings and prepaid expenses and other by $17.8 million.
In November 2016, the FASB issued ASU2016-18,“Statement of Cash Flows (Topic 230): Restricted Cash.” The new guidance is intended to reduce diversity in practice by adding or clarifying guidance on classification and presentation of changes in restricted cash on the statement of cash flows. ASU2016-18 required disclosure of the nature and amounts of restricted cash. ASU2016-18 is effective for annual and interim periods beginning after December 15, 2017. The Company retrospectively adopted ASU2016-18 effective January 1, 2018 and the impact was not material to the Company’s Consolidated Financial Statements.
In March 2017, the FASB issued ASU2017-07,“Compensation— Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” ASU2017-07 changes how employers that sponsor defined benefit pension plans and other postretirement plans present the net periodic benefit cost in the income statement. ASU2017-07 requires that the service cost component of net periodic benefit cost be reported in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. Other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. ASU2017-07 also allows only the service cost component to be eligible for capitalization, when applicable. This guidance is effective for annual periods beginning after December 15, 2017, with early adoption permitted. ASU2017-07 is to be applied retrospectively for the income statement presentation requirements and prospectively for the capitalization requirements of the service cost component. The Company adopted this guidance in the first quarter of 2018 and retrospectively reclassified the other components of net periodic pension cost and net periodic postretirement benefit cost using the practical expedient permitted under the guidance. As a result, $11.9 million and $8.4 million, respectively of income was reclassified from selling, general and administrative expenses (“SG&A”) to other expense (income), net, for 2017 and 2016 (see Footnote 14).
In February 2018, the FASB issued ASUNo. 2018-02, “Income Statement— Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” ASUNo. 2018-02 provides companies with an option to reclassify stranded tax effects within accumulated other comprehensive income (“AOCI”) to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. ASUNo. 2018-02 also requires disclosure of the accounting policy for releasing income tax effects from AOCI and whether an election was made to reclassify the stranded income tax effects from the Tax Cuts and Jobs Act. ASUNo. 2018-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. Companies can adopt the provisions of ASU2018-02 in either the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company adopted this guidance in the second quarter of 2018 and reclassified the stranded income tax effects from the Tax Cuts and Jobs Act from AOCI of $62.6 million to retained earnings (see Footnote 5).
Other recently issued ASUs were assessed and determined to be either not applicable or are expected to have a minimal impact on the Company’s consolidated financial position and results of operations.
Footnote 2 — Revenue Recognition
Net sales include sales of consumer and commercial products across the Company’s four segments: Food and Appliances, Home and Outdoor Living, Learning and Development and Other. In accordance with Topic 606, the Company recognizes revenue when performance obligations under the terms of a contract with the customer are satisfied, which generally occurs either on shipment or on delivery based on contractual terms. Timing of revenue recognition for the majority of the Company’s sales remains consistent between the new and old revenue standard. However, previously under Topic 605, the Company deferred recognition of revenue for limited FOB shipping point transactions where it had a practice of providing the buyer with replacement goods at no additional cost if there was loss or damage while the goods were in transit. Under Topic 606, the Company recognizes revenue at the time of shipment for these transactions. This change did not have a material impact on the Company’s Consolidated Financial Statements upon adoption on January 1, 2018.
The Company measures revenue as the amount of consideration for which it expects to be entitled in exchange for transferring goods or providing services. Certain customers may receive cash and/ornon-cash incentives such as cash discounts, returns, customer discounts (such as volume or trade discounts), cooperative advertising and other customer-related programs, which are accounted for as variable consideration. In some cases, the Company must apply judgment, including contractual rates and historical payment trends, when estimating variable consideration.
Sales taxes and other similar taxes are excluded from revenue. The Company has elected to account for shipping and handling activities as a fulfillment cost as permitted by the standard. The Company has elected not to disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which revenue is recognized at the amount to which it has the right to invoice for services performed.
The following table disaggregates revenue by major product grouping source and geography for the year ended December, 31 (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | | 2018 | |
| | | Food and
Appliances | | | Home
and
Outdoor
Living | | | Learning
and
Development | | | Other | | | Total | |
Appliances and Cookware | | $ | 1,813.1 | | | $ | — | | | | — | | | $ | — | | | $ | 1,813.1 | |
Food | | | 886.0 | | | | — | | | | — | | | | — | | | | 886.0 | |
Connected Home and Security | | | — | | | | 376.5 | | | | — | | | | — | | | | 376.5 | |
Home Fragrance | | | — | | | | 1,054.5 | | | | — | | | | — | | | | 1,054.5 | |
Outdoor and Recreation | | | — | | | | 1,515.7 | | | | — | | | | — | | | | 1,515.7 | |
Baby and Parenting | | | — | | | | — | | | | 1,132.7 | | | | — | | | | 1,132.7 | |
Writing | | | — | | | | — | | | | 1,848.9 | | | | — | | | | 1,848.9 | |
Other | | | — | | | | — | | | | — | | | | 3.5 | | | | 3.5 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 2,699.1 | | | $ | 2,946.7 | | | | 2,981.6 | | | $ | 3.5 | | | $ | 8,630.9 | |
| | | | | | | | | | | | | | | | | | | | |
North America | | $ | 1,942.2 | | | $ | 2,174.7 | | | $ | 2,082.4 | | | $ | 3.1 | | | $ | 6,202.4 | |
International | | | 756.9 | | | | 772.0 | | | | 899.2 | | | | 0.4 | | | | 2,428.5 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 2,699.1 | | | $ | 2,946.7 | | | | 2,981.6 | | | $ | 3.5 | | | $ | 8,630.9 | |
| | | | | | | | | | | | | | | | | | | | |
Accounts Receivable, Net
Accounts receivables, net, include amounts billed and due from customers. Payment terms vary but generally are 90 days or less. The Company evaluates the collectability of accounts receivable based on a combination of factors. When aware of a specific customer’s inability to meet its financial obligations, such as in the case of bankruptcy filings or deterioration in the customer’s operating results or financial position, the Company records a specific reserve for bad debt to reduce the related receivable to the amount the Company reasonably believes is collectible. The Company also records reserves for bad debt for all other customers based on a variety of factors, including the length of time the receivables are past due and historical collection experience. Accounts deemed uncollectible are written off, net of expected recoveries.
During the 2018, the Companywrote-off $35.7 million, primarily related to one of its former top 10 customers in the Baby and Parenting division within the Learning and Development segment, who filed for liquidation of its bankrupt operations 2018.
At December 31, 2018 and 2017, accounts receivables are net of allowances of $21.7 million and $28.5 million, respectively.
Footnote 3 — Acquisitions and Mergers
2017 Activity
In September 2017, the Company acquired Chesapeake Bay Candle, a leading developer, manufacturer and marketer of premium candles and other home fragrance products, focused on consumer wellness and natural fragrance, for a cash purchase price of approximately $75 million. Chesapeake Bay Candle is included in the Home and Outdoor Living segment from the date of acquisition.
In April 2017, the Company acquired Sistema Plastics (“Sistema”), a leading New Zealand based manufacturer and marketer of innovative food storage containers with strong market shares and presence in Australia, New Zealand, U.K. and parts of continental Europe for a cash purchase price of approximately $472 million. Sistema is included in the Food and Appliances segment from the date of acquisition.
In January 2017, the Company acquired Smith Mountain Industries (“Smith Mountain”), a leading provider of premium home fragrance products, sold primarily under the WoodWick® Candle brand, for a cash purchase price of approximately $100 million. Smith Mountain is included in the Home and Outdoor Living segment from the date of acquisition.
2016 Activity
On April 15, 2016, the Company acquired Jarden for total consideration of $18.7 billion including cash paid, shares issued and debt assumed, net of cash acquired (“the Jarden Acquisition”). The total consideration paid or payable for shares of Jarden common stock was approximately $15.3 billion, including $5.4 billion of cash and $9.9 billion of the Company’s common stock. The Jarden Acquisition was accounted for using the purchase method of accounting, and accordingly, Jarden’s results of operations are included in the Company’s results of operations since the acquisition date. Jarden was a leading, global consumer products company with leading brands such as Yankee Candle®,Crock-Pot®, FoodSaver®, Mr. Coffee®, Oster®, Coleman®, First Alert®, Marmot® and many others.
At December 31, 2018, the Company has accrued approximately $171 million of unpaid consideration related to approximately 2.5 million shares of the Company’s common stock that have not been issued and approximately $61 million of cash that has not been paid to the former holders of Jarden shares who are exercising their right to judicial appraisal under Delaware law. Absent consent by the Company, these dissenting shareholders are no longer entitled to the merger consideration, but are instead entitled only to the judicially determined fair value of their shares, plus interest accruing from the date of the acquisition of Jarden, payable in cash (see Footnote 20).
Other Items
The goodwill associated with the acquisitions is primarily attributable to synergies expected to arise after the acquisitions. At December 31, 2018, approximately $255 million of the goodwill is expected to be deductible for income tax purposes.
Footnote 4 — Divestitures and Held for Sale
Discontinued Operations
As part of the Company’s Accelerated Transformation Plan, during 2018, the Company announced it was exploring strategic options for its industrial and commercial product assets, including The Waddington Group, Process Solutions, Rubbermaid Commercial Products, Rexair and Mapa businesses, as well asnon-core consumer businesses, including Jostens, Pure Fishing, Rawlings, Rubbermaid Outdoor, Closet, Refuse and Garage, Goody Products and U.S. Playing Cards businesses. These businesses are classified as discontinued operations at December 31, 2018. Prior periods have been reclassified to conform with the current presentation. During 2018, the Company sold Goody Products, Inc. (“Goody”), Jostens, Inc. (“Jostens”), Pure Fishing, Inc. (“Pure Fishing”), the Rawlings Sporting Goods Company, Inc. (“Rawlings”) and Waddington Group, Inc. (“Waddington”) and other related subsidiaries as part of the Accelerated Transformation Plan. The Company expects to complete the remaining divestitures by the end of 2019.
The following table provides a summary of amounts included in discontinued operations for the years ended December 31, (in millions):
| | | | | | | | | | | | |
| | | 2018 | | | 2017 | | | 2016 | |
Net sales (1) | | $ | 4,402.2 | | | $ | 5,142.8 | | | $ | 4,055.2 | |
Cost of products sold (1) | | | 2,812.5 | | | | 3,316.5 | | | | 2,627.3 | |
Selling, general and administrative expenses | | | 836.8 | | | | 971.6 | | | | 621.3 | |
Restructuring costs, net | | | 9.5 | | | | 24.3 | | | | 12.7 | |
Impairment of goodwill, intangibles and other assets | | | 1,467.5 | | | | 0.7 | | | | — | |
| | | | | | | | | | | | |
Operating income (loss) | | | (724.1 | ) | | | 829.7 | | | | 793.9 | |
Non-operating expense (income) (2) | | | (831.9 | ) | | | (6.9 | ) | | | (1.1 | ) |
| | | | | | | | | | | | |
Income before income taxes | | | 107.8 | | | | 836.6 | | | | 795.0 | |
Income tax expense | | | 236.1 | | | | 258.6 | | | | 228.9 | |
| | | | | | | | | | | | |
Net income (loss) | | $ | (128.3 | ) | | $ | 578.0 | | | $ | 566.1 | |
| | | | | | | | | | | | |
(1) | 2018 includes a reclassification from cost of products sold to net sales of $51.3 million related to the adoption of Topic 606. See Footnotes 1 and 2 for additional information regarding the Company’s adoption of Topic 606.
|
(2) | 2018 includes a gain on sale of discontinued operations of $832 million.
|
Held for Sale
The following table presents information related to the major classes of assets and liabilities that were classified as assets and liabilities held for sale in the Consolidated Balance Sheets as of December 31, (in millions):
| | | | | | | | |
| | | 2018 | | | 2017 | |
Accounts receivable, net | | $ | 411.7 | | | $ | 794.7 | |
Inventories, net | | | 338.7 | | | | 836.4 | |
Prepaid expenses and other | | | 40.4 | | | | 87.6 | |
Property, plant and equipment, net (1) (2) | | | 515.9 | | | | 291.9 | |
Goodwill (1) | | | 954.4 | | | | 1,966.3 | |
Other intangible assets, net (1) | | | 1,270.8 | | | | 2,364.1 | |
Other assets (1) | | | 9.4 | | | | 29.4 | |
| | | | | | | | |
Current assets held for sale | | $ | 3,541.3 | | | $ | 6,370.4 | |
| | | | | | | | |
Property, plant and equipment, net | | $ | — | | | $ | 447.2 | |
Goodwill | | | — | | | | 1,720.8 | |
Other intangible assets, net | | | — | | | | 1,672.3 | |
Other assets (1) | | | — | | | | 1.9 | |
| | | | | | | | |
Noncurrent assets held for sale | | $ | — | | | $ | 3,842.2 | |
| | | | | | | | |
Accounts payable | | $ | 256.7 | | | $ | 534.8 | |
Accrued compensation | | | 57.0 | | | | 101.6 | |
Other accrued liabilities | | | 152.9 | | | | 434.0 | |
Deferred income taxes (1) | | | 170.3 | | | | 526.0 | |
Other liabilities (1) | | | 13.5 | | | | 64.9 | |
| | | | | | | | |
Current liabilities held for sale | | $ | 650.4 | | | $ | 1,661.3 | |
| | | | | | | | |
Deferred income taxes (1) | | $ | — | | | $ | 228.3 | |
Other liabilities (1) | | | — | | | | 14.2 | |
| | | | | | | | |
Noncurrent liabilities held for sale | | $ | — | | | $ | 242.5 | |
| | | | | | | | |
(1) | Classification as current or long-term based on management’s best estimate as to the timing of the disposal of the underlying asset or liability as of the respective dates indicated.
|
(2) | Balance at December 31, 2017, includes a $4.0 million building held for sale that is not included in discontinued operations. This building was sold during 2018.
|
Divestitures
2018 Activity
On June 29, 2018, the Company sold Rawlings, its Team Sports business, to a fund managed by Seidler Equity Partners with aco-investment of Major League Baseball for approximately $400 million, subject to customary working capital and transaction adjustments. As a result, during 2018, the Company recorded a pretax loss of $128 million, which is included in the income (loss) from discontinued operations.
On June 29, 2018, the Company sold Waddington to Novolex Holdings LLC for approximately $2.3 billion, subject to customary working capital and transaction adjustments. As a result, during 2018, the Company recorded a pretax gain of $599 million, which is included in the income (loss) from discontinued operations.
On August 31, 2018, the Company sold its Goody business, to a fund managed by ACON Investments, L.L.C. for approximately $109 million, subject to customary working capital and transaction adjustments. As a result, during 2018, the Company recorded a pretax gain of $20.3 million, which is included in the income (loss) from discontinued operations.
On December 21, 2018, the Company sold Jostens to Platinum Equity for approximately $1.3 billion, subject to customary working capital and transaction adjustments. As a result, during 2018, the Company recorded a pretax loss of $32.1 million, which is included in the income (loss) from discontinued operations.
On December 21, 2018, the Company sold Pure Fishing to Sycamore Partners for approximately $1.3 billion, subject to customary working capital and transaction adjustments. As a result, during 2018, the Company recorded a pretax gain of $372 million, which is included in the income (loss) from discontinued operations.
During 2018, the Company recorded an impairment charge primarily related to goodwill and indefinite-lived intangible assets totaling $1.5 billion, respectively, which is included in the income (loss) from discontinued operations, primarily related to the write-down of the carrying value of the net assets of certain held for sale businesses based on their estimated fair value.
2017 Activity
On July 14, 2017, the Company sold its Winter Sports business for a selling price of approximately $240 million, subject to customary working capital and transaction adjustments. For 2017, net sales from the Winter Sports business were not material. During 2017, the Company recorded an impairment charge of $59.1 million related to the write-down of the carrying value of the net assets of the Winter Sports business to their estimated fair market value.
During 2017, the Company sold its Rubbermaid® consumer storage totes business, its stroller business under the Teutonia® brand, its Lehigh business, its Firebuilding business and its triathlon apparel business under the Zoot® and Squadra® brands. The selling prices for these businesses were not significant. During 2017, the Company recorded impairment charges of $15.3 million related to the write down of the carrying value of the net assets of the Frebuilding and Teutonia® stroller businesses to their estimated fair market value.
In March 2017, the Company sold its Tools business, including the Irwin®, Lenox® and Hilmor® brands. The selling price was $1.95 billion, subject to customary working capital and transaction adjustments. As a result, during 2017, the Company recorded a pretax gain of $768 million, which is included in other (income) expense, net. Net sales for the Tools business in 2017 were not material.
2016 Activity
In June 2016, the Company sold its Décor business, including Levolor® and Kirsch® window coverings and drapery hardware, for consideration, net of fees of approximately $224 million, resulting in a pretax gain of $160 million, which is included in other (income) expense, net for 2016.
Subsequent Event
On February 25, 2019, the Company signed a definitive agreement to sell its Rexair business to investment funds affiliated with Rhône Group for $235 million, subject to customary working capital and transaction adjustments. The transaction is expected to close by the end of the second quarter 2019, subject to customary closing conditions, including regulatory approvals.
Footnote 5 — Stockholders’ Equity
The following tables display the components of accumulated other comprehensive income (loss) (“AOCI”) as of and for the years ended December 31, 2018 and 2017 (in millions):
| | | | | | | | | | | | | | | | |
| | | Cumulative
Translation
Adjustment | | | Pension and
Postretirement
Costs | | | Derivative
Financial
Instruments | | | AOCI | |
Balance at December 31, 2016 | | $ | (607.9 | ) | | $ | (400.0 | ) | | $ | (36.9 | ) | | $ | (1,044.8 | ) |
Other comprehensive (loss) income before reclassifications | | | 201.7 | | | | 6.6 | | | | (27.8 | ) | | | 180.5 | |
Amounts reclassified to earnings | | | 87.4 | | | | 7.9 | | | | 5.9 | | | | 101.2 | |
| | | | | | | | | | | | | | | | |
Net current period other comprehensive income (loss) | | | 289.1 | | | | 14.5 | | | | (21.9 | ) | | | 281.7 | |
| | | | | | | | | | | | | | | | |
Balance at December 31, 2017 | | $ | (318.8 | ) | | $ | (385.5 | ) | | $ | (58.8 | ) | | $ | (763.1 | ) |
Other comprehensive (loss) income before reclassifications | | | (203.0 | ) | | | 29.1 | | | | 14.6 | | | | (159.3 | ) |
Amounts reclassified to earnings | | | 29.2 | | | | 12.8 | | | | 30.2 | | | | 72.2 | |
| | | | | | | | | | | | | | | | |
Net current period other comprehensive income (loss) | | | (173.8 | ) | | | 41.9 | | | | 44.8 | | | | (87.1 | ) |
Reclassification to retained earnings (1) | | | — | | | | (54.5 | ) | | | (8.1 | ) | | | (62.6 | ) |
| | | | | | | | | | | | | | | | |
Balance at December 31, 2018 | | $ | (492.6 | ) | | $ | (398.1 | ) | | $ | (22.1 | ) | | $ | (912.8 | ) |
| | | | | | | | | | | | | | | | |
(1) | Reclassification is due to the adoption of ASU2018-02 (see Footnote 1).
|
For 2018, 2017 and 2016 reclassifications from AOCI to the results of operations for the Company’s pension and postretirement benefit plans were apre-tax expense of $16.3 million, $14.6 million and $16.5 million, respectively, and primarily represent the amortization of net actuarial losses and plan settlements (see Footnote 14). These costs are recorded in selling, general and administrative expenses and cost of sales. For 2018, 2017 and 2016, reclassifications from AOCI to the results of operations for the Company’s derivative financial instruments for effective cash flow hedges werepre-tax loss of $42.7 million, $8.3 million and $12.0 million, respectively (see Footnote 12). The amounts reclassified to earnings from the cumulative translation adjustment are due to divestitures (see Footnote 4).
The income tax provision (benefit) allocated to the components of OCI for the years ended December 31, are as follows (in millions):
| | | | | | | | | | | | |
| | | 2018 | | | 2017 | | | 2016 | |
Foreign currency translation adjustments | | $ | 3.7 | | | $ | 0.5 | | | $ | — | |
Unrecognized pension and postretirement costs | | | 11.3 | | | | 12.3 | | | | 19.6 | |
Derivative hedging (loss) gain | | | 18.6 | | | | (8.7 | ) | | | (20.7 | ) |
| | | | | | | | | | | | |
Income tax provision (benefit) related to OCI | | $ | 33.6 | | | $ | 4.1 | | | $ | (1.1 | ) |
| | | | | | | | | | | | |
Footnote 6 — Restructuring Costs
Restructuring provisions were determined based on estimates prepared at the time the restructuring actions were approved by management and are periodically updated for changes. Restructuring amounts also include amounts recognized as incurred.
As part of acquisition of Jarden in 2016, the Company initiated a comprehensive strategic assessment of the business and launched a new corporate strategy that focuses the portfolio, prioritizes investment in the categories with the greatest potential for growth, and extends the Company’s advantaged capabilities in insights, product design, innovation, ande-commerce to the broadened portfolio.
Accelerated Transformation Plan
The Company began restructuring and other actions in 2016 to integrate the legacy Newell Rubbermaid and Jarden businesses (the “Jarden Integration”). Initially, integration projects were primarily focused on driving cost synergies in procurement, overhead functions and organizational changes designed to redefine the operating model of the Company from a holding company to an operating company. Subsequently, the Company announced its Accelerated Transformation Plan during the first quarter of 2018 to divest the Company’s industrial and commercial product assets andnon-core consumer businesses. The Accelerated Transformation Plan continues some of the Jarden Integration projects for the continuing operations and focuses on the realignment of the Company’s management structure and overall cost structure as a result of the completed and planned divestitures. Restructuring costs associated with integration projects and the transformation plan include employee-related costs, including severance, retirement and other termination benefits, and contract termination and other costs. In addition, other costs associated with the Jarden Integration include advisory and personnel costs for managing and implementing integration projects.
Project Renewal
The Company’s Project Renewal restructuring plan was completed during 2017. Project Renewal was designed, in part, to simplify and align the Company’s businesses, streamline and realign the supply chain functions, reduce operational and manufacturing complexity, streamline the distribution and transportation functions, optimize global selling and trade marketing functions and rationalize the Company’s real estate portfolio.
Other Restructuring
In addition to Project Renewal and the Jarden Integration the Company has incurred restructuring costs for various other restructuring activities.
Restructuring Costs
Restructuring costs incurred by reportable business segment for all restructuring activities in continuing operations for the years ended December 31, are as follows (in millions):
| | | | | | | | | | | | |
| | | 2018 | | | 2017 | | | 2016 | |
Food and Appliances | | $ | 6.8 | | | $ | 8.6 | | | $ | 13.7 | |
Home and Outdoor Living | | | 30.5 | | | | 9.3 | | | | 5.9 | |
Learning and Development | | | 7.9 | | | | 10.9 | | | | 13.9 | |
Other | | | — | | | | 3.2 | | | | 7.8 | |
Corporate | | | 35.3 | | | | 55.6 | | | | 20.9 | |
| | | | | | | | | | | | |
| | $ | 80.5 | | | $ | 87.6 | | | $ | 62.2 | |
| | | | | | | | | | | | |
Restructuring costs incurred during 2018 and 2017, are primarily related to the Accelerated Transformation Plan and Jarden Integration. Restructuring costs incurred during 2016 are primarily related to Project Renewal.
Accrued restructuring costs activity for 2018 and 2017 are as follows (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | | Balance at
December 31,
2017 | | | Restructuring
Costs, Net | | | Payments | | | Foreign
Currency
and
Other (1) | | | Balance at
December 31,
2018 | |
Employee severance, termination benefits and relocation costs | | $ | 47.2 | | | $ | 45.1 | | | $ | (47.2 | ) | | $ | (24.5 | ) | | $ | 20.6 | |
Exited contractual commitments and other | | | 32.1 | | | | 35.4 | | | | (22.3 | ) | | | 1.4 | | | | 46.6 | |
| | | | | | | | | | | | | | | | | | | | |
| | $ | 79.3 | | | $ | 80.5 | | | $ | (69.5 | ) | | $ | (23.1 | ) | | $ | 67.2 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | Balance at
December 31,
2016 | | | Restructuring
Costs, Net | | | Payments | | | Foreign
Currency
and
Other (1) | | | Balance at
December 31,
2017 | |
Employee severance, termination benefits and relocation costs | | $ | 46.5 | | | $ | 64.9 | | | $ | (51.3 | ) | | $ | (12.9 | ) | | $ | 47.2 | |
Exited contractual commitments and other | | | 18.1 | | | | 22.7 | | | | (9.7 | ) | | | 1.0 | | | | 32.1 | |
| | | | | | | | | | | | | | | | | | | | |
| | $ | 64.6 | | | $ | 87.6 | | | $ | (61.0 | ) | | $ | (11.9 | ) | | $ | 79.3 | |
| | | | | | | | | | | | | | | | | | | | |
(1) | Includesnon-cash restructuring charges of $22.2 million and $10.3 million for 2018 and 2017, respectively.
|
Footnote 7 — Inventories, Net
The components of net inventories were as follows as of December 31, (in millions):
| | | | | | | | |
| | | 2018 | | | 2017 | |
Raw materials and supplies | | $ | 215.5 | | | $ | 208.9 | |
Work-in-process | | | 130.7 | | | | 147.9 | |
Finished products | | | 1,236.9 | | | | 1,305.6 | |
| | | | | | | | |
| | $ | 1,583.1 | | | $ | 1,662.4 | |
| | | | | | | | |
Inventory costs include direct materials, direct labor and manufacturing overhead, or when finished goods are sourced, the cost is the amount paid to the third party. Approximately 18.2% and 20.5% of gross inventory costs at December 31, 2018 and 2017, respectively, were determined by thelast-in,first-out (“LIFO”) method; for the balance, cost was determined using thefirst-in,first-out (“FIFO”) method. As of December 31, 2018 and 2017, LIFO reserves were an asset $11.1 million and $4.4 million, respectively. The pretax income (expense) from continuing operations recognized by the Company related to the liquidation of LIFO-based inventories in 2018, 2017 and 2016 was ($0.9) million, $1.5 million and ($0.2) million, respectively.
Footnote 8 — Property, Plant & Equipment, Net
Property, plant and equipment, net, consisted of the following as of December 31, (in millions):
| | | | | | | | |
| | | 2018 | | | 2017 | |
Land | | $ | 69.9 | | | $ | 72.4 | |
Buildings and improvements | | | 479.1 | | | | 491.4 | |
Machinery and equipment | | | 1,575.1 | | | | 1,523.0 | |
| | | | | | | | |
| | | 2,124.1 | | | | 2,086.8 | |
Less: Accumulated depreciation | | | (1,198.5 | ) | | | (1,114.4 | ) |
| | | | | | | | |
| | $ | 925.6 | | | $ | 972.4 | |
| | | | | | | | |
Depreciation expense for continuing operations was $169 million, $158 million and $122 million in 2018, 2017 and 2016, respectively. Depreciation expense for discontinued operations was $33.2 million, $126 million and $92.4 million in 2018, 2017 and 2016, respectively, prior to the businesses meeting held for sale criteria.
During 2018, the Company recorded $38.0 million of impairment charges on certain other assets, the majority of which relate to the Home Fragrance business in the Home and Outdoor Living segment.
Footnote 9 — Goodwill and Other Intangible Assets, Net
A summary of changes in the Company’s goodwill by reportable business segment is as follows for 2018 and 2017 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | December 31, 2018 | |
Segment | | Net Book
Value at
December 31,
2017 | | | Other Adjustments | | | Impairment Charges (1) | | | Foreign Exchange | | | Gross Carrying Amount | | | Accumulated Impairment Charges | | | Net Book Value | |
Food and Appliances | | $ | 1,990.0 | | | $ | — | | | $ | (1,766.9 | ) | | $ | (11.9 | ) | | $ | 2,097.4 | | | $ | (1,886.2 | ) | | $ | 211.2 | |
Home and Outdoor Living | | | 2,148.0 | | | | — | | | | (1,985.0 | ) | | | 0.8 | | | | 2,148.8 | | | | (1,985.0 | ) | | | 163.8 | |
Learning and Development | | | 2,735.0 | | | | — | | | | (105.3 | ) | | | (34.5 | ) | | | 3,441.2 | | | | (846.0 | ) | | | 2,595.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | 6,873.0 | | | $ | — | | | $ | (3,857.2 | ) | | $ | (45.6 | ) | | $ | 7,687.4 | | | $ | (4,717.2 | ) | | $ | 2,970.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | December 31, 2017 | |
Segment | | Net Book
Value at
December 31,
2016 | | | Other Adjustments (2) | | | Impairment Charges | | | Foreign Exchange | | | Gross Carrying Amount | | | Accumulated Impairment Charges | | | Net Book Value | |
Food and Appliances | | $ | 1,791.8 | | | $ | 189.1 | | | $ | — | | | $ | 9.1 | | | $ | 2,109.3 | | | $ | (119.3 | ) | | $ | 1,990.0 | |
Home and Outdoor Living | | | 2,074.3 | | | | 62.8 | | | | — | | | | 10.9 | | | | 2,148.0 | | | | — | | | | 2,148.0 | |
Learning and Development | | | 2,654.6 | | | | 7.4 | | | | — | | | | 73.0 | | | | 3,475.7 | | | | (740.7 | ) | | | 2,735.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | 6,520.7 | | | $ | 259.3 | | | $ | — | | | $ | 93.0 | | | $ | 7,733.0 | | | $ | (860.0 | ) | | $ | 6,873.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) | In the Food and Appliances segment, the impairment charges of $1.3 billion and $420 million were recorded within the Food and Appliances and Cookware reporting units, respectively. In the Home and Outdoor Living segment, the impairment charges of $875 million, $787 million and $323 million were recorded within the Home Fragrance, Outdoor and Recreation and Connected Home and Security reporting units, respectively. In the Learning and Development segment, the impairment charge was attributable to the Baby reporting unit.
|
(2) | Comprised primarily of adjustments primarily related to the acquisitions of Sistema in Food and Appliances, Smith Mountain and Chesapeake Bay Candle in Home and Outdoors in 2017 and the Jarden Acquisition, whose purchase price allocation was finalized during the second quarter of 2017 (see Footnote 2).
|
The Company concluded that a triggering event had occurred during the third quarter of 2018 for all of its reporting units as a result of (1) the decline in the Company’s stock price during the third quarter such that the Company’s market capitalization was well below book value (net shareholders’ equity) and (2) updated cash flow projections for its businesses. During the fourth quarter of 2018, the Company concluded that another triggering event had occurred for the Food and Appliances, Connected Home and Security, Baby and Home Fragrance reporting units. In 2018, the Company recorded goodwill impairment charges of $3.9 billion to reduce the carrying values of these reporting units to their fair values.
Other intangible asset impairment charges were allocated to the Company’s reporting segments as follows (in millions):
| | | | |
| | | Year Ended
December 31, 2018 | |
Impairment of intangibles (1) | | | | |
Food and Appliances | | $ | 1,746.7 | |
Home and Outdoor Living | | | 2,434.1 | |
Learning and Development | | | 246.0 | |
| | | | |
Total | | $ | 4,426.8 | |
| | | | |
| (1) | In the Food and Appliances segment, impairment charges of $1.3 billion and $455 million were recorded within the Appliances and Cookware and Food reporting units, respectively. In the Home and Outdoor Living segment, impairment charges of $1.7 billion, $630 million and $75 million were recorded within the Home Fragrance, Outdoor and Recreation and Connected Home and Security reporting units, respectively. In the Learning and Development segment, the impairment charge recorded was attributable to the Baby reporting unit.
|
The table below summarizes the balance of other intangible assets, net and the related amortization periods using the straight-line method and attribution method as of December 31, (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2018 | | | 2017 | | | | |
| | | Gross
Carrying
Amount | | | Accumulated
Amortization | | | Net Book
Value | | | Gross
Carrying
Amount | | | Accumulated
Amortization | | | Net Book
Value | | | Amortization
Periods
(in years) | |
Trade names — indefinite life | | $ | 4,093.0 | | | $ | — | | | $ | 4,093.0 | | | $ | 8,563.6 | | | $ | — | | | $ | 8,563.6 | | | | N/A | |
Trade names — other | | | 170.5 | | | | (36.5 | ) | | | 134.0 | | | | 190.7 | | | | (35.7 | ) | | | 155.0 | | | | 2-15 | |
Capitalized software | | | 520.0 | | | | (348.1 | ) | | | 171.9 | | | | 485.8 | | | | (302.9 | ) | | | 182.9 | | | | 3–12 | |
Patents and intellectual property | | | 136.4 | | | | (79.2 | ) | | | 57.2 | | | | 152.0 | | | | (81.4 | ) | | | 70.6 | | | | 3–14 | |
Customer relationships and distributor channels | | | 1,269.7 | | | | (180.9 | ) | | | 1,088.8 | | | | 1,324.7 | | | | (159.6 | ) | | | 1,165.1 | | | | 3–30 | |
Other | | | 109.0 | | | | (74.3 | ) | | | 34.7 | | | | 112.8 | | | | (50.4 | ) | | | 62.4 | | | | 3–5 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | 6,298.6 | | | $ | (719.0 | ) | | $ | 5,579.6 | | | $ | 10,829.6 | | | $ | (630.0 | ) | | $ | 10,199.6 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization expense for intangible assets for continuing operations was $187 million, $195 million and $123 million in 2018, 2017 and 2016, respectively. Amortization expense for intangible assets for discontinued operations was $44.6 million, $156 million and $99.8 million in 2018, 2017 and 2016, respectively, prior to the businesses meeting held for sale criteria. Amortization expense for 2017 includes a measurement period expense adjustment of $13.6 million, of which $16.4 million is related to continuing operations, related to the valuation ofnon-compete agreements within other intangible assets.
As of December 31, 2018, the aggregate estimated intangible amortization amounts for the succeeding five years are as follows (in millions):
| | | | |
Years Ending December 31, | | Amount | |
2019 | | $ | 178.1 | |
2020 | | | 148.0 | |
2021 | | | 122.3 | |
2022 | | | 87.5 | |
2023 | | | 68.7 | |
Thereafter | | | 882.0 | |
Footnote 10 — Other Accrued Liabilities
Other accrued liabilities included the following as of December 31, (in millions):
| | | | | | | | |
| | | 2018 | | | 2017 | |
Customer accruals | | $ | 535.8 | | | $ | 356.5 | |
Accruals for manufacturing, marketing and freight expenses | | | 34.3 | | | | 35.1 | |
Accrued self-insurance liabilities, contingencies and warranty | | | 123.3 | | | | 220.5 | |
Derivative liabilities | | | 4.9 | | | | 27.3 | |
Accrued income taxes | | | 166.9 | | | | 220.9 | |
Accrued interest expense | | | 72.9 | | | | 100.1 | |
Other | | | 244.2 | | | | 311.5 | |
| | | | | | | | |
| | $ | 1,182.3 | | | $ | 1,271.9 | |
| | | | | | | | |
Customer accruals are promotional allowances and rebates, including cooperative advertising, given to customers in exchange for their selling efforts and volume purchased as well as allowances for returns. Payments for annual rebates and other customer programs are generally made in the first quarter of the year. Self-insurance liabilities relate to casualty liabilities such as workers’ compensation, general and product liability and auto liability and are estimated based upon historical loss experience combined with actuarial evaluation methods, review of significant individual files and the application of risk transfer programs.
Footnote 11 — Debt
The following is a summary of outstanding debt as of December 31, (in millions):
| | | | | | | | |
| | | 2018 | | | 2017 | |
2.15% senior notes due 2018 | | $ | — | | | $ | 299.5 | |
2.60% senior notes due 2019 | | | 267.3 | | | | 266.7 | |
2.875% senior notes due 2019 | | | — | | | | 348.6 | |
4.70% senior notes due 2020 | | | 304.6 | | | | 304.3 | |
3.15% senior notes due 2021 | | | 97.5 | | | | 993.6 | |
3.75% senior notes due 2021 | | | 353.2 | | | | 373.2 | |
4.00% senior notes due 2022 | | | 249.0 | | | | 248.8 | |
3.85% senior notes due 2023 | | | 1,740.8 | | | | 1,738.8 | |
5.00% senior notes due 2023 | | | 310.0 | | | | 312.1 | |
4.00% senior notes due 2024 | | | 496.4 | | | | 495.8 | |
3.90% senior notes due 2025 | | | 90.3 | | | | 297.2 | |
4.20% senior notes due 2026 | | | 1,984.5 | | | | 1,982.7 | |
5.375% senior notes due 2036 | | | 415.8 | | | | 495.0 | |
5.50% senior notes due 2046 | | | 657.2 | | | | 1,726.0 | |
Term loan | | | — | | | | 299.8 | |
Commercial paper | | | — | | | | — | |
Receivables facilities | | | — | | | | 298.3 | |
Other debt | | | 48.4 | | | | 70.6 | |
| | | | | | | | |
Total debt | | | 7,015.0 | | | | 10,551.0 | |
Short-term debt and current portion of long-term debt | | | (318.7 | ) | | | (661.8 | ) |
| | | | | | | | |
Long-term debt | | $ | 6,696.3 | | | $ | 9,889.2 | |
| | | | | | | | |
Senior Notes
In September 2018, the Company redeemed the entire principal amount of its 2.15% senior notes due 2018 at a price approximating par value.
In October 2018, the Company commenced cash tender offers (the “Tender Offers”) totaling approximately $1.0 billion for any and all of its 2.875% senior notes due 2019 (the “2.875% Notes”) and up to a maximum aggregate principal amount of its 3.15% senior notes due 2021 (the “3.15% Notes”), 3.85% senior notes due 2023 and 4.20% senior notes due 2026.
In October 2018, pursuant to the Tender Offers, the Company repurchased approximately $249 million aggregate principal amount of its 2.875% Notes and approximately $650 million aggregate principal amount of its 3.15% Notes for total consideration, excluding accrued interest, of approximately $893 million.
In October 2018, the Company also instructed the trustee for the 2.875% Notes to deliver an irrevocable notice of redemption to the holders of the 2.875% Notes for any and all of the 2.875% Notes not tendered in the Tender Offers. Pursuant to the notice of redemption, the Company redeemed the entire aggregate principal amount of the 2.875% Notes outstanding on November 9, 2018, at the redemption price determined in accordance with the terms for redemption set forth in the 2.875% Notes and the indenture governing the 2.875% Notes.
In December, 2018, the Company commenced an additional cash tender offers (the “Second Tender Offer”) totaling approximately $1.6 billion for any and all of its 3.15% Notes and up to a maximum aggregate principal amount of certain other of its senior notes. In December, 2018, pursuant to the Second Tender Offer, the Company repurchased approximately $252 million aggregate principal amount of its 3.15% Notes, approximately $1.1 billion aggregate principal amount of its 5.5% Notes due 2046, approximately $209 million aggregate principal amount of its 3.9% Notes due 2025 and approximately $80 million aggregate principal amount of its 5.375% Notes due 2036, for total consideration, excluding accrued interest, of approximately $1.6 billion.
As a result of the aforementioned debt extinguishments, the Company recorded a loss on the extinguishment of debt of $4.1 million, primarily comprised of anon-cash charge due to thewrite-off of deferred debt issuance costs, partially offset by prepayment gains.
Generally, the senior notes are redeemable by the Company at a price equal to the greater of (i) the aggregate principal amount of the senior notes to be redeemed or (ii) the sum of the present values of the remaining scheduled payments, plus in each case, accrued and unpaid interest. Additionally, generally within three and six months to scheduled maturity, depending on the debt instrument, the senior notes may be redeemed at a price equal to the aggregate principal amount of the notes being redeemed, plus accrued and unpaid interest.
Revolving Credit Facility and Commercial Paper
The Company maintains a $1.25 billion revolving credit facility that matures in December 2023 (the “Facility”). Under the Facility, the Company may borrow funds on a variety of interest rate terms. Since the Facility provides the committed backup liquidity required to issue commercial paper, the Company may issue commercial paper up to a maximum of $800 million provided there is a sufficient amount available for borrowing under the Facility. The Facility also provides for the issuance of up to $100 million of letters of credit, so long as there is a sufficient amount available for borrowing under the Facility.
Receivables Facility
The Company maintains a $950 million receivables purchase agreement that matures in October 2019 and bears interest at a margin over a variable interest rate (the “Securitization Facility”). At December 31, 2018, the borrowing rate margin and the unused line fee on the Securitization Facility were 0.80% and 0.40% per annum, respectively.
Future Debt Maturities
The Company’s debt maturities for the five years following December 31, 2018 and thereafter are as follows (in millions):
| | | | | | | | | | | | |
| 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter | | Total |
| $269.4 | | $362.4 | | $444.1 | | $251.6 | | $2,050.3 | | $3,679.3 | | $7,057.1 |
Other
The indentures governing the Company’s senior notes contain usual and customary nonfinancial covenants. The Company’s borrowing arrangements other than the senior notes contain usual and customary nonfinancial covenants and certain financial covenants, including minimum interest coverage and maximumdebt-to-total-capitalization ratios.
At December 31, 2018 and 2017, unamortized deferred debt issue costs were $43.7 and $68.9. These costs are included in total debt and are being amortized over the respective terms of the underlying debt.
The fair values of the Company’s senior notes are based on quoted market prices and are as follows as of December 31, (in millions):
| | | | | | | | | | | | | | | | |
| | | 2018 | | | 2017 | |
| | | Fair Value | | | Book Value | | | Fair Value | | | Book Value | |
Senior notes | | $ | 6,911.2 | | | $ | 6,966.6 | | | $ | 10,688.5 | | | $ | 9,882.3 | |
The carrying amounts of all other significant debt approximates fair value.
Net Investment Hedge
The Company has designated the €300.0 million principal balance of the 3.75% senior notes due October 2021 as a net investment hedge of the foreign currency exposure of its net investment in certain Euro-functional currency subsidiaries with Euro-denominated net assets. At December 31, 2018, $3.6 million of deferred losses have been recorded in AOCI. See Footnote 12 for disclosures regarding the Company’s derivative financial instruments.
Footnote 12 — 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. Interest rate swap contracts are therefore used by the Company to separate interest rate risk management from the debt funding decision. The cash paid and received from the settlement of interest rate swaps is included in interest expense.
At December 31,
2018,2020, the Company had approximately
$527$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
$277$100 million of principal on the
4.7% senior notes due 2020 and $250 million of principal on the 4.0%4.00% senior notes due 2024 for the remaining life of
these notes.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.
A $277 million notional interest rate swap matured concurrently with the maturity of the 4.70% senior notes which were repaid during the third quarter of 2020.
During 2019, the Company also terminated approximately $150 million notional amount of these floating rate swaps and received consideration of $6 million, which is included in net cash provided by operating activities in the Consolidated Statement of Cash Flows for 2019. These floating rate swaps that were designated as fair value hedges, were terminated in connection with the extinguishment of a portion of the principal balance of the 2024 Notes pursuant to the Tender Offers (See Footnote 9). The termination of these floating rate swaps resulted in a total gain of $6 million, which is included in loss on extinguishment for 2019 in the Consolidated Statements of Operations.
The Company uses cross-currency swaps to hedge foreign currency risk on certain
intercompany financing arrangements with foreign subsidiaries. During 2018, all the Company’s cross-currency interest rate swaps matured. The cross-currency interest rate swaps were intended to eliminate uncertainty in cash flows in U.S. Dollars and British Pounds in connection with the intercompany financing arrangements.
During the first quarter of 2020, the Company entered into 2 cross-currency swaps with an aggregate notional amount of $900 million, which 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. With these cross-currency swaps, which mature in January and February 2025, 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 twelve months ended December 31, 2020, the Company recognized income of $14 million in interest expense, net, related to the portion of cross-currency swaps excluded from hedge effectiveness testing. The Company had 0 cross-currency swaps used as hedging instruments in 2019.
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
2019.2021. 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
AOCIAOCL and is recognized in earnings at the same time that the hedged item affects earnings and is included in the same caption in the statements of operations as the underlying hedged item. At December 31,
2018,2020, the Company had approximately
$504$509 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 December 31,
2018,2020, the Company had approximately
$1.0 billion$994 million notional amount outstanding of these foreign currency contracts that are not designated as effective hedges for accounting purposes and have maturity dates through
October 2020.December 2021. Fair market value gains or losses are included in the results of operations and are classified in other (income) expense, net in the Company’s Consolidated Statement of Operations.
Commodity Contracts
From time to time the Company may enter into commodity-based derivatives in order to mitigate the risk that the rising price of these commodities could have on the cost of certain of the Company’s raw materials. These commodity-based derivatives provide the Company with cost certainty. At December 31, 2020, the Company had 0 notional amount outstanding of commodity-based derivatives. Fair market value gains or losses are included in the results of operations and are classified in cost of products sold.
The following table presents the fair value of derivative financial instruments
as ofat December 31, (in millions):
| | | | | | | | | | | | | | | | |
| | | 2018 | | | 2017 | |
| | | Fair Value of Derivatives | | | Fair Value of Derivatives | |
| | | Asset (a) | | | Liability (a) | | | Asset (a) | | | Liability (a) | |
Derivatives designated as effective hedges: | | | | | | | | | | | | | | | | |
Cash flow hedges: | | | | | | | | | | | | | | | | |
Cross-currency swaps | | $ | — | | | $ | — | | | $ | — | | | $ | 21.5 | |
Foreign currency contracts | | | 13.3 | | | | 0.7 | | | | 2.0 | | | | 6.6 | |
Fair value hedges: | | | | | | | | | | | | | | | | |
Interest rate swaps | | | — | | | | 11.5 | | | | — | | | | 7.8 | |
Derivatives not designated as effective hedges: | | | | | | | | | | | | | | | | |
Foreign currency contracts | | | 12.9 | | | | 4.2 | | | | 12.7 | | | | 20.8 | |
Commodity contracts | | | — | | | | 0.9 | | | | 0.2 | | | | — | |
| | | | | | | | | | | | | | | | |
Total | | $ | 26.2 | | | $ | 17.3 | | | $ | 14.9 | | | $ | 56.7 | |
| | | | | | | | | | | | | | | | |
(a) Consolidated balance sheet location: | | | | | | | | | | | | | | | | |
Asset: Prepaid expenses and other, and othernon-current assets | | | | | | | | | | | | | | | | |
Liability: Other accrued liabilities, and othernon-current liabilities | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | 2020 | | 2019 |
| Balance Sheet Location | | Assets/(Liabilities) |
| Derivatives designated as effective hedges: | | | | | |
| Cash Flow Hedges: | | | | | |
| Foreign currency contracts | Prepaid expenses and other current assets | | $ | 1 | | | $ | 1 | |
| Foreign currency contracts | Other accrued liabilities | | (19) | | | (13) | |
| Fair Value Hedges: | | | | | |
| Interest rate swaps | Other assets | | 7 | | | 2 | |
| Interest rate swaps | Other accrued liabilities | | 0 | | | (1) | |
| Net Investment Hedges: | | | | | |
| Cross-currency swaps | Prepaid expenses and other current assets | | 10 | | | 0 | |
| Cross-currency swaps | Other noncurrent liabilities | | (102) | | | 0 | |
| | | | | |
| Derivatives not designated as effective hedges: | | | | | |
| Foreign currency contracts | Prepaid expenses and other current assets | | 10 | | | 10 | |
| Foreign currency contracts | Other accrued liabilities | | (17) | | | (4) | |
| Total | | | $ | (110) | | | $ | (5) | |
The Company recognized expense
(income) of
$1.8$9 million,
$41.5$11 million and
($25.6)$2 million in other (income) expense, net, during
the years ended December 31,2020 and 2019 and 2018,
and 2017 and 2016, respectively, related to derivatives that are not designated as hedging instruments.
The Company is not a party to any derivatives that require collateral to be posted prior to settlement.
The following table presents
pre-tax gain and loss activity
(on a pretax basis) for
2018, 20172020, 2019 and
20162018 related to derivative financial instruments designated as effective hedges:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2018 | | | 2017 | | | 2016 | |
| | | Gain/(Loss) | | | Gain/(Loss) | | | Gain/(Loss) | |
(in millions) | | Recognized
in OCI(a) | | | Reclassified
from AOCI
to Income | | | Recognized
in OCI(a) | | | Reclassified
from AOCI
to Income | | | Recognized
in OCI(a) | | | Reclassified
from AOCI
to Income | |
Interest rate swaps (b) | | $ | — | | | $ | (26.6 | ) | | $ | — | | | $ | (8.2 | ) | | $ | (88.1 | ) | | $ | (6.2 | ) |
Foreign currency contracts (c) | | | 24.1 | | | | (13.0 | ) | | | (33.1 | ) | | | 6.8 | | | | 31.3 | | | | 7.4 | |
Cross-currency swaps (d) | | | (1.7 | ) | | | (3.1 | ) | | | (5.8 | ) | | | (6.9 | ) | | | (13.0 | ) | | | (13.2 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 22.4 | | | $ | (42.7 | ) | | $ | (38.9 | ) | | $ | (8.3 | ) | | $ | (69.8 | ) | | $ | (12.0 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
(a) | Represents effective portion recognized in Other Comprehensive Income (“OCI”).
|
(b) | Portion reclassified from AOCI to income recognized in interest expense.
|
(c) | Portion reclassified from AOCI to income recognized in sales and cost of products sold.
|
(d) | Portion reclassified from AOCI to income recognized in other income (expense), net
|
The ineffectiveness related
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| | Gain/(Loss) | | Gain/(Loss) | | Gain/(Loss) |
| (in millions) | Recognized
in OCL (1) | | Reclassified
from AOCL
to Income | | Recognized
in OCL (1) | | Reclassified
from AOCL
to Income | | Recognized
in OCL (1) | | Reclassified
from AOCL
to Income |
| Interest rate swaps (2) | $ | 0 | | | $ | (7) | | | $ | 0 | | | $ | (8) | | | $ | 0 | | | $ | (27) | |
| Foreign currency contracts (3) | 4 | | | 13 | | | (16) | | | 15 | | | 24 | | | (13) | |
| Cross-currency swaps (4) | (92) | | | 0 | | | 0 | | | 0 | | | (2) | | | (3) | |
| Total | $ | (88) | | | $ | 6 | | | $ | (16) | | | $ | 7 | | | $ | 22 | | | $ | (43) | |
(1)Represents effective portion recognized in Other Comprehensive Loss (“OCL”).
(2)Portion reclassified from AOCL to cash flow hedges during 2018, 2017income recognized in interest expense, net.
(3)Portion reclassified from AOCL to income recognized in net sales and 2016 was not material. cost of products sold.
(4)Portion reclassified from AOCL to income recognized in other expense, net.
At December 31,
2018,2020, deferred net
gainslosses of approximately
$17.9$18 million within
AOCIAOCL are expected to be reclassified to earnings over the next twelve months.
Footnote 13 — Commitments
Foreign Currency Operations
Assets and liabilities of foreign subsidiaries are translated into U.S. dollars at the rates of exchange in effect at year-end. The related translation adjustments are made directly to accumulated other comprehensive income (loss). Income and expenses are translated at the average monthly rates of exchange in effect during the year. Foreign currency transaction gains and losses are included in the results of operations and are generally classified in other (income) expense, net, in the Consolidated Statements of Operations. Foreign currency transaction net losses for 2020, 2019 and 2018 were $14 million, $6 million and $8 million, respectively.
The Company
leases manufacturing, warehousedesignates certain foreign currency denominated, long-term intercompany financing transactions as being of a long-term investment nature and
other facilities; real estate;records gains and
transportation, data processing and other equipment under leases that expire at various dates throughlosses on the
year 2036. Rent expense, which is recognized on a straight-line basis over the life of the lease term, for continuing operations, was $208 million, $207 million and $172 milliontransactions arising from changes in
2018, 2017 and 2016, respectively.Future minimum rental payments for operating leases with initial or remaining terms in excess of one year areexchange rates as follows as of December 31, 2018 (in millions):
| | | | | | | | | | | | |
| 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter | | Total |
| $180.0 | | $144.0 | | $117.8 | | $97.7 | | $74.0 | | $263.9 | | $877.4 |
translation adjustments.
Footnote
1411 — Employee Benefit and Retirement Plans
The Company and its subsidiaries have noncontributory pension, profit sharing and contributory 401(k) plans covering substantially all of their international and domestic employees.
PlanPension plan benefits are generally based on years of service and/or compensation. The Company’s funding policy is to contribute not less than the minimum amounts required by the Employee Retirement Income Security Act of 1974, as amended, the Internal Revenue Code of 1986, as amended, or foreign statutes to ensure that plan assets will be adequate to provide retirement benefits.
The funded status of the Company’s defined benefit pension plans and postretirement benefit plans is recognized in the Consolidated Balance Sheets. The funded status is measured as the difference between the fair value of plan assets and the benefit obligation at December 31, the measurement date. For defined benefit pension and postretirement benefit plans, the benefit obligation is the projected benefit obligation (“PBO”), which represents the actuarial present value of benefits expected to be paid upon retirement based on employee services already rendered and estimated future compensation levels. The fair value of plan assets represents the current market value of assets held for the sole benefit of participants. Overfunded plans, with the fair value of plan assets exceeding the benefit obligation, are aggregated and recorded as a prepaid pension asset equal to this excess. Underfunded plans, with the benefit obligation exceeding the fair value of plan assets, are aggregated and recorded as a retirement and postretirement benefit obligation equal to this excess. The current portion of the retirement and postretirement benefit obligations represents the actuarial present value of benefits payable in the next 12 months exceeding the fair value of plan assets, measured on a plan-by-plan basis. This obligation is recorded in other accrued liabilities in the Consolidated Balance Sheets. Net periodic pension and postretirement benefit cost/(income) is recorded in the Consolidated Statements of Operations and includes service cost, interest cost, expected return on plan assets, amortization of prior service costs/(credits) and (gains)/losses previously recognized as a component of AOCL and amortization of the net transition asset remaining in AOCL. The service cost component of net benefit cost is recorded in cost of products sold and SG&A in the Consolidated Statements of Operations (unless eligible for capitalization) based on the employees’ respective functions. The other components of net benefit cost are presented separately from service cost within other (income) expense, net in the Consolidated Income Statement. The amount of
AOCIAOCL expected to be recognized in pension and postretirement benefit expense for
the year ending December 31, 20192021 is
$8.3$21 million and is substantially comprised of net unrecognized actuarial losses.
(Gains)/losses and prior service costs/(credits) are recognized as a component of OCL in the Consolidated Statements of Comprehensive Income (Loss) as they arise. Those (gains)/losses and prior service costs/(credits) are subsequently recognized as a component of net periodic cost/(income) pursuant to the recognition and amortization provisions of applicable accounting guidance. (Gains)/losses arise as a result of differences between actual experience and assumptions or as a result of changes in actuarial assumptions. Prior service costs/(credits) represent the cost of benefit changes attributable to prior service granted in plan amendments.
The measurement of benefit obligations and net periodic cost/(income) is based on estimates and assumptions approved by the Company’s management. These valuations reflect the terms of the plans and use participant-specific information such as compensation, age and years of service, as well as certain assumptions, including estimates of discount rates, expected return on plan assets, rate of compensation increases, interest crediting rates and mortality rates.
During the fourth quarter of 2020, the Company entered into an agreement with an insurance company to purchase a group annuity contract to settle approximately $157 million of projected benefit obligations for approximately 44% of the retirees in one of its U.S. defined benefit pension plans. The irrevocable transaction for the transfer of pension liability to the insurance company was funded with the plan’s existing assets. Payments from the insurance company to the beneficiaries commences on January 1, 2021. In connection with this transaction, the Company recorded a pre-tax settlement loss to reclassify approximately $49 million into earnings from AOCL.
The Company has a Supplemental Executive Retirement Plan (“SERP”), which is a nonqualified defined benefit and defined contribution plan pursuant to which the Company will pay supplemental benefits to certain key employees upon retirement based upon the employees’ years of service and compensation. The SERP is primarily funded through a trust agreement with a trustee that owns life insurance policies on both active and former key employees with aggregate net death benefits of $313.2$313 million. At December 31, 20182020 and 2017,2019, the life insurance contracts were accounted for using the investment method and had a cash surrender value of $135$137 million and $123$134 million, respectively, and are included in other assets in the Consolidated Balance Sheets. All premiums paid and proceeds received associated with the life insurance policies are included in accrued liabilities and otheras investing activities in the Consolidated Statements of Cash Flows. The projected benefit obligation was $115$119 million and $127$118 million at December 31, 20182020 and 2017,2019, respectively. The SERP liabilities are included in the pension table below; however, the value of the Company’s investments in the life insurance contracts, cash and mutual funds are excluded from the table, as they do not qualify as plan assets.
The Company’s matching contributions to the
Company's contributory 401(k) plans were
$24.8$35 million,
$30.2$32 million and
$25.5$25 million for
2020, 2019 and 2018,
2017 and 2016, respectively.
Defined Benefit Pension Plans
The following provides a reconciliation of benefit obligations, plan assets and funded status of the Company’s noncontributory defined benefit pension plans, including the SERP,
as ofat December 31, (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Pension Benefits | | | Postretirement
Benefits | |
| | | U.S. | | | International | | | | | | | |
| Change in benefit obligation: | | 2018 | | | 2017 | | | 2018 | | | 2017 | | | 2018 | | | 2017 | |
Benefit obligation at beginning of year | | $ | 1,553.7 | | | $ | 1,561.0 | | | $ | 666.2 | | | $ | 626.4 | | | $ | 65.1 | | | $ | 74.6 | |
Service cost | | | 0.8 | | | | 2.8 | | | | 5.3 | | | | 6.4 | | | | 0.3 | | | | 0.1 | |
Interest cost | | | 46.4 | | | | 49.6 | | | | 13.0 | | | | 13.2 | | | | 1.8 | | | | 2.2 | |
Actuarial (gain) loss | | | (147.7 | ) | | | 81.9 | | | | (32.7 | ) | | | 3.2 | | | | (8.9 | ) | | | (0.4 | ) |
Amendments | | | — | | | | — | | | | 2.5 | | | | 0.4 | | | | — | | | | (5.0 | ) |
Currency translation | | | — | | | | — | | | | (31.5 | ) | | | 69.4 | | | | | | | | — | |
Benefits paid | | | (105.2 | ) | | | (100.4 | ) | | | (30.0 | ) | | | (22.8 | ) | | | (4.9 | ) | | | (6.4 | ) |
Acquisitions and dispositions, net | | | — | | | | — | | | | 0.8 | | | | (13.9 | ) | | | — | | | | — | |
Curtailments, settlements and other | | | — | | | | (41.2 | ) | | | (23.4 | ) | | | (16.1 | ) | | | (0.4 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Benefit obligation at end of year (1) | | $ | 1,348.0 | | | $ | 1,553.7 | | | $ | 570.2 | | | $ | 666.2 | | | $ | 53.0 | | | $ | 65.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Change in plan assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Fair value of plan assets at beginning of year | | $ | 1,271.1 | | | $ | 1,230.6 | | | $ | 602.1 | | | $ | 547.6 | | | $ | — | | | $ | — | |
Actual return (loss) on plan assets | | | (71.2 | ) | | | 171.4 | | | | (11.0 | ) | | | 24.2 | | | | — | | | | — | |
Contributions | | | 10.2 | | | | 10.7 | | | | 14.0 | | | | 15.2 | | | | — | | | | — | |
Currency translation | | | — | | | | — | | | | (29.2 | ) | | | 58.5 | | | | — | | | | — | |
Benefits paid | | | (105.2 | ) | | | (100.4 | ) | | | (30.7 | ) | | | (22.1 | ) | | | — | | | | — | |
Acquisitions and dispositions, net | | | — | | | | — | | | | 0.8 | | | | (5.5 | ) | | | — | | | | — | |
Settlements and other | | | — | | | | (41.2 | ) | | | (22.4 | ) | | | (15.8 | ) | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Fair value of plan assets at end of year | | $ | 1,104.9 | | | $ | 1,271.1 | | | $ | 523.6 | | | $ | 602.1 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Funded status at end of year | | $ | (243.1 | ) | | $ | (282.6 | ) | | $ | (46.6 | ) | | $ | (64.1 | ) | | $ | (53.0 | ) | | $ | (65.1 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Amounts recognized in the Consolidated Balance Sheets: | | | | | | | | | | | | | | | | | | | | | | | | |
Prepaid benefit cost, included in other assets | | $ | — | | | $ | — | | | $ | 71.5 | | | $ | 63.5 | | | $ | | | | $ | — | |
Accrued current benefit cost—other accrued liabilities | | | (9.9 | ) | | | (10.3 | ) | | | (4.7 | ) | | | (5.0 | ) | | | (5.3 | ) | | | (5.8 | ) |
Accrued noncurrent benefit cost— other noncurrent liabilities | | | (233.2 | ) | | | (272.3 | ) | | | (113.4 | ) | | | (122.6 | ) | | | (47.7 | ) | | | (59.3 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net amount recognized | | $ | (243.1 | ) | | $ | (282.6 | ) | | $ | (46.6 | ) | | $ | (64.1 | ) | | $ | (53.0 | ) | | $ | (65.1 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Assumptions: | | | | | | | | | | | | | | | | | | | | | | | | |
Weighted-average assumptions used to determine benefit obligation: | | | | | | | | | | | | | | | | | | | | | | | | |
Discount rate | | | 4.12 | % | | | 3.48 | % | | | 2.53 | % | | | 2.25 | % | | | 3.97 | % | | | 3.32 | % |
Long-term rate of compensation increase | | | 3.00 | % | | | 2.50 | % | | | 2.43 | % | | | 3.53 | % | | | — | | | | — | |
Current health care cost trend rates | | | — | | | | — | | | | — | | | | — | | | | 6.99 | % | | | 6.70 | % |
Ultimate health care cost trend rates | | | — | | | | — | | | | — | | | | — | | | | 4.50 | % | | | 4.50 | % |
(1) | The accumulated benefit obligation for all defined benefit pension plans was $1.9 billion and $2.2 billion at December 31, 2018 and 2017, respectively.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension Benefits | | Postretirement Benefits |
| United States | | International | | | | |
| Change in benefit obligation: | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
| Benefit obligation at beginning of year | $ | 1,449 | | | $ | 1,348 | | | $ | 626 | | | $ | 581 | | | $ | 52 | | | $ | 53 | |
| Service cost | 0 | | | 1 | | | 4 | | | 6 | | | 0 | | | 0 | |
| Interest cost | 35 | | | 49 | | | 9 | | | 13 | | | 1 | | | 2 | |
| Actuarial loss | 133 | | | 151 | | | 29 | | | 45 | | | 2 | | | 2 | |
| Amendments | 0 | | | 0 | | | 1 | | | 1 | | | 0 | | | 0 | |
| Currency translation | 0 | | | 0 | | | 29 | | | 15 | | | 0 | | | 0 | |
| Benefits paid | (95) | | | (100) | | | (21) | | | (22) | | | (4) | | | (5) | |
| Acquisitions and dispositions, net | 2 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Curtailments, settlements and other | (167) | | | 0 | | | (9) | | | (13) | | | 0 | | | 0 | |
| Benefit obligation at end of year (1) | $ | 1,357 | | | $ | 1,449 | | | $ | 668 | | | $ | 626 | | | $ | 51 | | | $ | 52 | |
| Change in plan assets: | | | | | | | | | | | |
| Fair value of plan assets at beginning of year | 1,228 | | | 1,105 | | | 580 | | | 532 | | | 0 | | | 0 | |
| Actual return on plan assets | 178 | | | 213 | | | 47 | | | 51 | | | 0 | | | 0 | |
| Contributions | 17 | | | 10 | | | 8 | | | 13 | | | 4 | | | 0 | |
| Currency translation | 0 | | | 0 | | | 22 | | | 19 | | | 0 | | | 0 | |
| Benefits paid | (95) | | | (100) | | | (21) | | | (22) | | | (4) | | | 0 | |
| | | | | | | | | | | |
| Settlements and other | (167) | | | 0 | | | (9) | | | (13) | | | 0 | | | 0 | |
| Fair value of plan assets at end of year | $ | 1,161 | | | $ | 1,228 | | | $ | 627 | | | $ | 580 | | | $ | 0 | | | $ | 0 | |
| Funded status at end of year | $ | (196) | | | $ | (221) | | | $ | (41) | | | $ | (46) | | | $ | (51) | | | $ | (52) | |
| Amounts recognized in the Consolidated Balance Sheets: | | | | | | | | | | | |
| Prepaid benefit cost, included in other assets | $ | 0 | | | $ | 0 | | | $ | 104 | | | $ | 89 | | | $ | 0 | | | $ | 0 | |
| Accrued current benefit cost—other accrued liabilities | (11) | | | (15) | | | (5) | | | (4) | | | (5) | | | (6) | |
| Accrued noncurrent benefit cost— other noncurrent liabilities | (185) | | | (206) | | | (140) | | | (131) | | | (46) | | | (46) | |
| Net amount recognized | $ | (196) | | | $ | (221) | | | $ | (41) | | | $ | (46) | | | $ | (51) | | | $ | (52) | |
| Assumptions: | | | | | | | | | | | |
| Weighted-average assumptions used to determine benefit obligation: | | | | | | | | | | | |
| Discount rate | 2.16 | % | | 3.06 | % | | 1.22 | % | | 1.79 | % | | 1.80 | % | | 2.80 | % |
| Long-term rate of compensation increase | 3.00 | % | | 3.00 | % | | 2.18 | % | | 2.31 | % | | 0 | % | | 0 | % |
| Current health care cost trend rates | 0 | % | | 0 | % | | 0 | % | | 0 | % | | 6.48 | % | | 6.74 | % |
| Ultimate health care cost trend rates | 0 | % | | 0 | % | | 0 | % | | 0 | % | | 4.50 | % | | 4.50 | % |
(1)The accumulated benefit obligation for all defined benefit pension plans was $2.0 billion and $2.1 billion at December 31, 2020 and 2019, respectively.
There are no plan assets associated with the Company’s postretirement benefit plans.
The current healthcare cost trend rate gradually declines through
20372038 to the ultimate trend rate and remains level thereafter. A one percentage point change in assumed healthcare cost trend rate would not have a material effect on the postretirement benefit obligation or the service and interest cost components of postretirement benefit costs.
Summary of under-funded or
non-funded pension benefit plans with projected benefit obligations in excess of plan assets at December 31, (in millions):
| | | | | | | | |
| | | Pension Benefits | |
| | | 2018 | | | 2017 | |
Projected benefit obligation | | $ | 1,653.6 | | | $ | 1,895.6 | |
Fair value of plan assets | | | 1,292.6 | | | | 1,485.2 | |
| | | | | | | | | | | |
| Pension Benefits |
| 2020 | | 2019 |
| Projected benefit obligation | $ | 1,721 | | | $ | 1,792 | |
| Fair value of plan assets | 1,380 | | | 1,435 | |
Summary of pension plans with accumulated obligations in excess of plan assets at December 31, (in millions):
| | | | | | | | |
| | | Pension Benefits | |
| | | 2018 | | | 2017 | |
Accumulated benefit obligation | | $ | 1,648.9 | | | $ | 1,887.1 | |
Fair value of plan assets | | | 1,292.6 | | | | 1,485.2 | |
| | | | | | | | | | | |
| Pension Benefits |
| 2020 | | 2019 |
| Accumulated benefit obligation | $ | 1,711 | | | $ | 1,784 | |
| Fair value of plan assets | 1,380 | | | 1,435 | |
Pension and Postretirement Benefit Expense
The components of pension and postretirement benefit expense for the periods indicated are as follows (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Pension Benefits | |
| | | U.S. | | | International | |
| | | 2018 | | | 2017 | | | 2016 | | | 2018 | | | 2017 | | | 2016 | |
Service cost | | $ | 0.8 | | | $ | 2.8 | | | $ | 2.7 | | | $ | 5.3 | | | $ | 6.4 | | | $ | 6.0 | |
Interest cost | | | 46.4 | | | | 49.6 | | | | 44.4 | | | | 13.0 | | | | 13.2 | | | | 17.2 | |
Expected return on plan assets | | | (67.5 | ) | | | (73.3 | ) | | | (69.1 | ) | | | (14.7 | ) | | | (18.2 | ) | | | (20.3 | ) |
Amortization: | | | | | | | | | | | | | | | | | | | | | | | | |
Prior service cost (credit) | | | (0.1 | ) | | | (0.1 | ) | | | (0.1 | ) | | | 0.4 | | | | 0.4 | | | | 0.5 | |
Net actuarial loss | | | 21.4 | | | | 23.7 | | | | 21.8 | | | | 2.0 | | | | 2.0 | | | | 2.4 | |
Curtailment, settlement and termination (benefit) costs | | | — | | | | (3.7 | ) | | | — | | | | 1.3 | | | | 1.3 | | | | 2.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total expense (income) | | $ | 1.0 | | | $ | (1.0 | ) | | $ | (0.3 | ) | | $ | 7.3 | | | $ | 5.1 | | | $ | 8.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Assumptions | | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average assumption used to calculate net periodic cost: | | | | | | | | | | | | | | | | | | | | | | | | |
Effective discount rate for benefit obligations | | | 3.48 | % | | | 3.99 | % | | | 4.07 | % | | | 2.25 | % | | | 2.12 | % | | | 3.30 | % |
Effective rate for interest on benefit obligations | | | 3.09 | % | | | 3.28 | % | | | 3.22 | % | | | 1.96 | % | | | 1.72 | % | | | 2.94 | % |
Effective rate for service cost | | | 3.32 | % | | | 3.83 | % | | | 4.16 | % | | | 2.34 | % | | | 2.46 | % | | | 3.41 | % |
Effective rate for interest on service cost | | | 2.98 | % | | | 3.38 | % | | | 3.67 | % | | | 2.29 | % | | | 2.41 | % | | | 3.38 | % |
Long-term rate of return on plan assets | | | 5.75 | % | | | 6.04 | % | | | 6.34 | % | | | 2.58 | % | | | 3.21 | % | | | 3.94 | % |
Long-term rate of compensation increase | | | 2.54 | % | | | 2.50 | % | | | 2.50 | % | | | 3.53 | % | | | 3.59 | % | | | 3.55 | % |
| | | | | | | | | | | | |
| | | Postretirement Benefits | |
| | | 2018 | | | 2017 | | | 2016 | |
Service cost | | $ | 0.3 | | | $ | 0.1 | | | $ | 0.1 | |
Interest cost | | | 1.8 | | | | 2.2 | | | | 2.2 | |
Amortization: | | | | | | | | | | | | |
Prior service credit | | | (6.6 | ) | | | (5.2 | ) | | | (5.2 | ) |
Net actuarial gain | | | (3.6 | ) | | | (3.9 | ) | | | (5.2 | ) |
| | | | | | | | | | | | |
Total income | | $ | (8.1 | ) | | $ | (6.8 | ) | | $ | (8.1 | ) |
| | | | | | | | | | | | |
Assumptions | | | | | | | | | | | | |
Weighted average assumption used to calculate net periodic cost: | | | | | | | | | | | | |
Effective discount rate for benefit obligations | | | 3.09 | % | | | 3.76 | % | | | 3.97 | % |
Effective rate for interest on benefit obligations | | | 2.71 | % | | | 3.07 | % | | | 3.10 | % |
Effective rate for service cost | | | 2.98 | % | | | 3.25 | % | | | 3.46 | % |
Effective rate for interest on service cost | | | 2.78 | % | | | 3.02 | % | | | 3.19 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension Benefits |
| United States | | International |
| 2020 | | 2019 | | 2018 | | 2020 | | 2019 | | 2018 |
| Service cost | $ | 0 | | | $ | 1 | | | $ | 1 | | | $ | 4 | | | $ | 6 | | | $ | 6 | |
| Interest cost | 35 | | | 49 | | | 46 | | | 9 | | | 13 | | | 13 | |
| Expected return on plan assets | (59) | | | (59) | | | (67) | | | (6) | | | (13) | | | (15) | |
| Amortization: | | | | | | | | | | | |
| Prior service cost | 0 | | | 0 | | | 0 | | | 1 | | | 0 | | | 1 | |
| Net actuarial loss | 23 | | | 15 | | | 21 | | | 3 | | | 2 | | | 2 | |
| Curtailment, settlement and termination costs | 52 | | | 0 | | | 0 | | | 1 | | | 1 | | | 1 | |
| Total expense | $ | 51 | | | $ | 6 | | | $ | 1 | | | $ | 12 | | | $ | 9 | | | $ | 8 | |
| Assumptions | | | | | | | | | | | |
| Weighted average assumption used to calculate net periodic cost: | | | | | | | | | | |
| Effective discount rate for benefit obligations | 3.06 | % | | 4.12 | % | | 3.48 | % | | 1.79 | % | | 2.52 | % | | 2.24 | % |
| Effective rate for interest on benefit obligations | 2.65 | % | | 3.79 | % | | 3.09 | % | | 1.55 | % | | 2.20 | % | | 1.94 | % |
| Effective rate for service cost | 3.43 | % | | 3.93 | % | | 3.32 | % | | 0.92 | % | | 1.89 | % | | 2.33 | % |
| Effective rate for interest on service cost | 3.41 | % | | 3.62 | % | | 2.98 | % | | 0.75 | % | | 2.24 | % | | 2.27 | % |
| Long-term rate of return on plan assets | 5.50 | % | | 5.25 | % | | 5.75 | % | | 1.08 | % | | 2.47 | % | | 2.58 | % |
| Long-term rate of compensation increase | 3.00 | % | | 3.00 | % | | 2.54 | % | | 2.32 | % | | 2.32 | % | | 3.47 | % |
| | | | | | | | | | | | | | | | | |
| Postretirement Benefits |
| 2020 | | 2019 | | 2018 |
| | | | | |
| Interest cost | $ | 1 | | | $ | 2 | | | $ | 2 | |
| Amortization: | | | | | |
| Prior service credit | (2) | | | (5) | | | (7) | |
| Net actuarial gain | (4) | | | (4) | | | (3) | |
| Total income | $ | (5) | | | $ | (7) | | | $ | (8) | |
| | | | | |
| Assumptions | | | | | |
| Weighted average assumption used to calculate net periodic cost: | | | | | |
| Effective discount rate for benefit obligations | 2.80 | % | | 3.90 | % | | 3.09 | % |
| Effective rate for interest on benefit obligations | 2.41 | % | | 2.71 | % | | 2.71 | % |
| Effective rate for service cost | 2.52 | % | | 2.97 | % | | 2.98 | % |
| Effective rate for interest on service cost | 2.27 | % | | 2.78 | % | | 2.78 | % |
The components of net periodic pension and postretirement costs other than the service cost component are included in other (income) expense, net in the Consolidated Statements of Operations.
The Company employs a total return investment approach for its pension plans whereby a mix of equities and fixed income investments are used to maximize the long-term return of pension plan assets. The intent of this strategy is to minimize plan expenses by outperforming plan liabilities over the long run. Risk tolerance is established through careful consideration of plan liabilities, plan funded status, and the Company’s financial condition. The domestic investment portfolios contain a diversified blend of equity and fixed-income investments. The domestic equity investments are diversified across geography and market capitalization through investments in U.S. large-capitalization stocks, U.S. small-capitalization stocks and international securities. The domestic fixed income investments are primarily comprised of investment-grade and high-yield securities through investments in corporate and government bonds, government agencies and asset-backed securities. The Level 1 investments are primarily based upon quoted market prices. The domestic Level 3 investments are primarily comprised of insurance contracts valued at contract value. The investments excluded from the fair value hierarchy areNAV-based hedge fund investments that generally have a redemption frequency of 90 days or less, with various redemption notice periods that are generally less than a month. The notice periods for certain investments may vary based on the size of the redemption. The international Level 2 investments are primarily comprised of insurance contracts whose fair values are estimated based on the future cash flows to be received under the contracts discounted to the present using a discount rate that approximates the discount rate used to measure the associated pension plan liabilities. The international Level 3 investments are primarily comprised of alternative investments.insurance contracts valued at contract value. Investment risk is measured and monitored on an ongoing basis through annual liability measurements, periodic asset/liability studies and quarterly investment portfolio reviews.
The expected long-term rate of return for plan assets is based upon many factors, including expected asset allocations, historical asset returns, current and expected future market conditions, risk and active management premiums. The expected long-term rate of return is adjusted when there are fundamental changes in expected returns on the Company’s defined benefit pension plan’s investments. The target asset allocations for the Company’s domestic pension plans may vary by plan, based in part due to plan demographics, funded status and liability duration. In general, the Company’s target asset allocations are as follows: equities approximately 20% to 40%; fixed income approximately 40%50% to 60%70%; and cash, alternative investments and other, approximately 10%0 to 30% as of20% at December 31, 2018.2020. Actual asset allocations may vary from the targeted allocations for various reasons, including market conditions and the timing of transactions. The Company maintains numerous international defined benefit pension plans. The asset allocations for the international investment may vary by plan and jurisdiction and are primarily based upon the plan structure and plan participant profile.
The composition of domestic pension plan assets at December 31,
20182020 and
20172019 is as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Plan Assets — Domestic Plans | |
| | | December 31, 2018 | |
| | | Fair Value Measurements | | | | | | | |
Asset Category | | Level 1 | | | Level 2 | | | Level 3 | | | Subtotal | | | NAV-based
assets | | | Total | |
Equity securities and funds: | | | | | | | | | | | | | | | | | | | | | | | | |
Global equities | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 179.8 | | | $ | 179.8 | |
Fixed income securities and funds | | | 413.3 | | | | — | | | | — | | | | 413.3 | | | | 269.3 | | | | 682.6 | |
Alternative investments | | | 40.7 | | | | — | | | | — | | | | 40.7 | | | | 177.1 | | | | 217.8 | |
Cash and other | | | 8.9 | | | | 14.8 | | | | 1.0 | | | | 24.7 | | | | — | | | | 24.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 462.9 | | | $ | 14.8 | | | $ | 1.0 | | | $ | 478.7 | | | $ | 626.2 | | | $ | 1,104.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| |
| | | Plan Assets — Domestic Plans | |
| | | December 31, 2017 | |
| | | Fair Value Measurements | | | | | | | |
Asset Category | | Level 1 | | | Level 2 | | | Level 3 | | | Subtotal | | | NAV-based
assets | | | Total | |
Equity securities and funds: | | | | | | | | | | | | | | | | | | | | | | | | |
Global equities | | $ | 205.3 | | | $ | — | | | $ | — | | | $ | 205.3 | | | $ | 89.0 | | | $ | 294.3 | |
Fixed income securities and funds | | | 395.4 | | | | — | | | | — | | | | 395.4 | | | | 207.5 | | | | 602.9 | |
Alternative investments | | | 23.8 | | | | — | | | | — | | | | 23.8 | | | | 149.9 | | | | 173.7 | |
Cash and other | | | 183.9 | | | | 15.2 | | | | 1.1 | | | | 200.2 | | | | — | | | | 200.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 808.4 | | | $ | 15.2 | | | $ | 1.1 | | | $ | 824.7 | | | $ | 446.4 | | | $ | 1,271.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Plan Assets — Domestic Plans |
| | December 31, 2020 |
| | Fair Value Measurements | | | | |
| Asset Category | | Level 1 | | Level 2 | | Level 3 | | Subtotal | | NAV-based assets | | Total |
| | | | | | | | | | | | |
| Equity securities and funds | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 273 | | | $ | 273 | |
| Fixed income securities and funds | | 441 | | | 0 | | | 0 | | | 441 | | | 319 | | | 760 | |
| Alternative investments | | 0 | | | 0 | | | 0 | | | 0 | | | 104 | | | 104 | |
| Cash and other | | 8 | | | 15 | | | 1 | | | 24 | | | 0 | | | 24 | |
| Total | | $ | 449 | | | $ | 15 | | | $ | 1 | | | $ | 465 | | | $ | 696 | | | $ | 1,161 | |
| | | | | | | | | | | | |
| | Plan Assets — Domestic Plans |
| | December 31, 2019 |
| | Fair Value Measurements | | | | |
| Asset Category | | Level 1 | | Level 2 | | Level 3 | | Subtotal | | NAV-based assets | | Total |
| | | | | | | | | | | | |
| Equity securities and funds | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 233 | | | $ | 233 | |
| Fixed income securities and funds | | 400 | | | 0 | | | 0 | | | 400 | | | 330 | | | 730 | |
| Alternative investments | | 47 | | | 0 | | | 0 | | | 47 | | | 192 | | | 239 | |
| Cash and other | | 10 | | | 15 | | | 1 | | | 26 | | | 0 | | | 26 | |
| Total | | $ | 457 | | | $ | 15 | | | $ | 1 | | | $ | 473 | | | $ | 755 | | | $ | 1,228 | |
The composition of international pension plan assets at December 31,
20182020 and
20172019 is as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Plan Assets – International Plans | |
| | | December 31, 2018 | |
| | | Fair Value Measurements | | | | | | | |
Asset Category | | Level 1 | | | Level 2 | | | Level 3 | | | Subtotal | | | NAV-based
assets | | | Total | |
Equity securities and funds | | $ | 14.3 | | | $ | — | | | $ | — | | | $ | 14.3 | | | $ | 9.1 | | | $ | 23.4 | |
Fixed income securities and funds | | | 266.7 | | | | — | | | | — | | | | 266.7 | | | | 6.6 | | | | 273.3 | |
Cash and other | | | 6.2 | | | | 204.9 | | | | 1.5 | | | | 212.6 | | | | 14.3 | | | | 226.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 287.2 | | | $ | 204.9 | | | $ | 1.5 | | | $ | 493.6 | | | $ | 30.0 | | | $ | 523.6 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| |
| | | Plan Assets – International Plans | |
| | | December 31, 2017 | |
| | | Fair Value Measurements | | | | | | | |
Asset Category | | Level 1 | | | Level 2 | | | Level 3 | | | Subtotal | | | NAV-based
assets | | | Total | |
Equity securities and funds | | $ | 38.8 | | | $ | — | | | $ | — | | | $ | 38.8 | | | $ | 14.1 | | | $ | 52.9 | |
Fixed income securities and funds | | | 258.8 | | | | — | | | | — | | | | 258.8 | | | | 14.4 | | | | 273.2 | |
Cash and other | | | 5.1 | | | | 233.7 | | | | 5.4 | | | | 244.2 | | | | 31.8 | | | | 276.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 302.7 | | | $ | 233.7 | | | $ | 5.4 | | | $ | 541.8 | | | $ | 60.3 | | | $ | 602.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Plan Assets — International Plans |
| | December 31, 2020 |
| | Fair Value Measurements | | | | |
| Asset Category | | Level 1 | | Level 2 | | Level 3 | | Subtotal | | NAV-based assets | | Total |
| Equity securities and funds | | $ | 3 | | | $ | 3 | | | $ | 0 | | | $ | 6 | | | $ | 0 | | | $ | 6 | |
| Fixed income securities and funds | | 262 | | | 3 | | | 0 | | | 265 | | | 0 | | | 265 | |
| Cash and other | | 4 | | | 234 | | | 9 | | | 247 | | | 109 | | | 356 | |
| Total | | $ | 269 | | | $ | 240 | | | $ | 9 | | | $ | 518 | | | $ | 109 | | | $ | 627 | |
| | | | | | | | | | | | |
| | Plan Assets — International Plans |
| | December 31, 2019 |
| | Fair Value Measurements | | | | |
| Asset Category | | Level 1 | | Level 2 | | Level 3 | | Subtotal | | NAV-based assets | | Total |
| Equity securities and funds | | $ | 3 | | | $ | 0 | | | $ | 0 | | | $ | 3 | | | $ | 2 | | | $ | 5 | |
| Fixed income securities and funds | | 298 | | | 0 | | | 0 | | | 298 | | | 3 | | | 301 | |
| Cash and other | | 8 | | | 255 | | | 8 | | | 271 | | | 3 | | | 274 | |
| Total | | $ | 309 | | | $ | 255 | | | $ | 8 | | | $ | 572 | | | $ | 8 | | | $ | 580 | |
A reconciliation of the change in
the fair value
measurement of the defined benefit plans’
consolidated assets using significant unobservable inputs (Level 3) for
20182020 and
20172019 is as follows (in millions):
| | | | |
| | | Total | |
Balance, December 31, 2016 | | $ | 12.9 | |
Realized gains | | | — | |
Unrealized losses | | | (0.4 | ) |
Purchases, sales, settlements, and other, net | | | (6.0 | ) |
| | | | |
Balance, December 31, 2017 | | $ | 6.5 | |
Realized gains | | | 0.1 | |
Unrealized gains | | | — | |
Purchases, sales, settlements and other, net | | | (4.1 | ) |
| | | | |
Balance, December 31, 2018 | | $ | 2.5 | |
| | | | |
| | | | | |
| Total |
| Balance December 31, 2018 | $ | 10 | |
| |
| |
| Purchases, sales, settlements, and other, net | (1) | |
| Balance December 31, 2019 | 9 | |
| |
| Unrealized gains | 1 | |
| |
| Balance December 31, 2020 | $ | 10 | |
Contributions and Estimated Future Benefit Payments
During
2019,2021, the Company expects to make cash contributions of approximately
$9.9$16 million and
$14.0$11 million to its domestic and international defined benefit plans, respectively.
Estimated future benefit payments under the Company’s defined benefit pension plans and postretirement benefit plans are as follows at December 31, 2020 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | Thereafter |
| Pension benefits | $ | 114 | | | $ | 112 | | | $ | 112 | | | $ | 110 | | | $ | 109 | | | $ | 530 | |
| Postretirement benefits | $ | 5 | | | $ | 5 | | | $ | 5 | | | $ | 5 | | | $ | 5 | | | $ | 16 | |
Footnote 12 — Income Taxes
The components of income (loss) before income taxes for the years ended December 31, (in millions): | | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| Domestic | | $ | (928) | | | $ | (1,249) | | | $ | (8,099) | |
| Foreign | | (78) | | | 397 | | | 107 | |
| Total | | $ | (1,006) | | | $ | (852) | | | $ | (7,992) | |
| | | | | | |
The provision for income taxes consists of the following for the years ended December 31, (in millions): | | | | | | | | | | | | | | | | | |
| 2020 | | 2019 | | 2018 |
| Current: | | | | | |
| Federal | $ | (50) | | | $ | 8 | | | $ | 121 | |
| State | 1 | | | 11 | | | 31 | |
| Foreign | 74 | | | 42 | | | 204 | |
| Total current | 25 | | | 61 | | | 356 | |
| Deferred: | | | | | |
| Federal | (136) | | | (355) | | | (1,036) | |
| State | (33) | | | (63) | | | (283) | |
| Foreign | (92) | | | (650) | | | (267) | |
| Total deferred | (261) | | | (1,068) | | | (1,586) | |
| Total income tax benefit | (236) | | | (1,007) | | | (1,230) | |
| Total income tax provision - discontinued operations | 0 | | | 31 | | | 129 | |
| Total income tax benefit - continuing operations | $ | (236) | | | $ | (1,038) | | | $ | (1,359) | |
A reconciliation of the U.S. statutory rate to the effective income tax rate on a continuing basis is as follows for the years ended December 31:
| | | | | | | | | | | | | | | | | |
| 2020 | | 2019 | | 2018 |
| Statutory rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
| Add (deduct) effect of: | | | | | |
| State income taxes, net of federal income tax effect | 2.4 | | | 3.8 | | | 2.4 | |
| U.S. foreign inclusions and foreign tax credit (1) | 3.6 | | | (1.6) | | | 2.1 | |
| Foreign rate differential | 2.7 | | | 4.9 | | | 0.4 | |
| Change in uncertain tax positions | 4.5 | | | 5.9 | | | 0.2 | |
| Change in valuation allowance reserve | 3.0 | | | (5.9) | | | 0.8 | |
| | | | | |
| Impairments | (4.4) | | | (3.3) | | | (9.7) | |
| | | | | |
| Capital loss | 3.0 | | | 25.4 | | | 0 | |
| Reversal of outside basis difference | (5.2) | | | 0.4 | | | 0 | |
| | | | | |
| | | | | |
| Non-deductible compensation | (1.2) | | | (1.6) | | | (0.1) | |
| Return to provision | 1.7 | | | 2.2 | | | (0.1) | |
| Other taxes | (0.9) | | | 1.6 | | | 0.1 | |
| Outbound transfer of U.S. assets (2) | (6.9) | | | 68.3 | | | 0 | |
| Other | 0.2 | | | 0.8 | | | (0.1) | |
| Effective rate | 23.5 | % | | 121.9 | % | | 17.0 | % |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
(1)The Company accounts for tax on GILTI as a period cost and the effects are included herein.
(2)In connection with the Company's execution to rationalize its legal entities along with centralizing the ownership of certain intellectual property rights for its comprehensive management and protection, the Company transferred these intellectual property rights to a wholly-owned subsidiary, which resulted in the creation of deferred tax assets and a corresponding income tax benefit of $522 million for the year ended December 31, 2019.
At December 31, 2020, the Company has accumulated unremitted earnings generated by our foreign subsidiaries of approximately $6.0 billion. A portion of these earnings were subject to U.S. federal taxation with the one-time toll charge. The Company is no longer asserting indefinite reinvestment on a portion of its unremitted earnings of its foreign subsidiaries at December 31, 2020 and is recognizing deferred income taxes of approximately $5 million, primarily related to the future U.S. state tax effects of unremitted
foreign earnings. With respect to unremitted earnings of $6.0 billion and any other additional outside basis differences where the Company is continuing to assert indefinite reinvestment, any future reversals could be subject to additional foreign withholding taxes, U.S. state taxes and certain tax impacts relating to foreign currency exchange effects on any future repatriations of the unremitted earnings. The determination of any unrecognized deferred tax liabilities on the amount of unremitted earnings and other outside basis differences where the Company is asserting indefinite reinvestment is not practicable.
Deferred tax assets (liabilities) consist of the following at December 31, (in millions):
| | | | | | | | | | | |
| 2020 | | 2019 |
| Deferred tax assets: | | | |
| Accruals | $ | 138 | | | $ | 124 | |
| Inventory | 39 | | | 29 | |
| Pension and postretirement benefits | 60 | | | 79 | |
| Net operating losses | 350 | | | 342 | |
| Foreign tax credits | 185 | | | 156 | |
| Capital loss carryforward | 241 | | | 212 | |
| Operating lease liabilities | 162 | | | 172 | |
| Other | 158 | | | 157 | |
| Total gross deferred tax assets | 1,333 | | | 1,271 | |
| Less valuation allowance | (213) | | | (271) | |
| Net deferred tax assets after valuation allowance | 1,120 | | | 1,000 | |
| Deferred tax liabilities: | | | |
| Accelerated depreciation | (92) | | | (80) | |
| Amortizable intangibles | (282) | | | (518) | |
| Outside basis differences | (93) | | | (40) | |
| Operating lease assets | (145) | | | (158) | |
| Other | (84) | | | (53) | |
| Total gross deferred tax liabilities | (696) | | | (849) | |
| Net deferred tax assets | $ | 424 | | | $ | 151 | |
The net deferred tax amounts have been classified in the balance sheet at December 31, (in millions):
| | | | | | | | | | | | | | |
| | 2020 | | 2019 |
| Noncurrent deferred tax assets | | $ | 838 | | | $ | 776 | |
| Noncurrent deferred tax liabilities | | (414) | | | (625) | |
| Total | | $ | 424 | | | $ | 151 | |
At December 31, 2020, the Company has net operating losses (“NOLs”) of approximately $1.4 billion, comprised of $249 million in the U.S. and $1.2 billion outside of the U.S. Approximately $982 million of these NOLs do not expire and approximately $434 million expire between 2021 and 2038. Additionally, approximately $102 million of U.S. federal NOLs are subject to varying limitations on their use under Section 382 of the Internal Revenue Code of 1986, as amended. Of these U.S. federal NOLs, approximately $98 million are not reflected in the consolidated financial statements and approximately $32 million were utilized in the current year. At December 31, 2020, the Company has approximately $1.0 billion of post-apportioned state NOLs, which expire between 2021 and 2038. Additionally, approximately $38 million of post-apportioned state NOLs are subject to varying limitations on their use under Section 382 of the Internal Revenue Code of 1986, as amended. Of these post-apportioned state NOLs, approximately $38 million are not reflected in the consolidated financial statements and approximately $6 million were utilized in the current year.
The majority of the U.S. foreign tax credits are recognized as a deferred tax asset at December 31, 2020 and were generated at December 31, 2018 and can be carried back one year and carried forward ten years. The Company has approximately $755 million of U.S. capital loss carryforwards of which approximately $313 million were generated at December 31, 2018, and $442 million were generated at December 31, 2020 and can be carried back three years and carried forward five years. The Company has approximately $292 million of post-apportioned state capital loss carryforwards of which $136 million was generated at December 31, 2018, and $156 million was generated at December 31, 2020. Of these post-apportioned state capital loss
carryforwards, $183 million can be carried back three years and carried forward five years, and $109 million can be carried forward five years.
The Company routinely reviews valuation allowances recorded against deferred tax assets on a more likely than not basis as to whether the Company will realize the deferred tax assets. In making such a determination, the Company takes into consideration all available and appropriate positive and negative evidence, including projected future taxable income, future reversals of existing taxable temporary differences, the ability to carryback net operating losses, and available tax planning strategies. Although realization is not assured, based on this existing evidence, the Company believes it is more likely than not that the Company will realize the benefit of existing deferred tax assets, net of the valuation allowances.
At December 31, 2020, the Company has a valuation allowance recorded against certain U.S., state, and foreign NOLs and other deferred tax assets the Company believes do not meet the more than likely to be realized threshold due to the uncertainty resulting from a lack of previous taxable income within the applicable tax jurisdictions. A valuation allowance of $213 million and $271 million was recorded against certain deferred tax asset balances at December 31, 2020 and 2019, respectively. For 2020, the Company recorded a net valuation allowance decrease of $58 million, primarily related to U.S. NOLs and other deferred tax assets related to a subsidiary previously excluded from the Company’s U.S. consolidated income tax return of $53 million, state capital loss, and other miscellaneous changes in U.S., state and non-U.S. valuation allowances related to ongoing operations. For 2019, the Company recorded a net valuation allowance increase of $76 million, primarily comprised of U.S. NOLs and other deferred tax assets related to a subsidiary previously excluded from the Company’s U.S. consolidated income tax return of $53 million, state capital loss, and other miscellaneous changes in U.S., state and non-U.S. valuation allowances related to ongoing operations.
The following table summarizes the changes in gross unrecognized tax benefits periods indicated are as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2019 | �� | | 2020 | | | 2021 | | | 2022 | | | 2023 | | | Thereafter | |
Pension benefits | | $ | 121.2 | | | $ | 121.4 | | | $ | 121.3 | | | $ | 120.8 | | | $ | 120.6 | | | $ | 579.4 | |
Postretirement benefits | | $ | 5.3 | | | $ | 5.3 | | | $ | 5.2 | | | $ | 5.1 | | | $ | 5.0 | | | $ | 20.6 | |
| | | | | | | | | | | | | | | | | |
| 2020 | | 2019 | | 2018 |
| Unrecognized tax benefits, January 1, | $ | 474 | | | $ | 463 | | | $ | 385 | |
| Increases (decreases): | | | | | |
| Increases in tax positions for prior years | 4 | | | 35 | | | 36 | |
| Decreases in tax positions for prior years | 0 | | | (31) | | | (21) | |
| Increase in tax positions for the current period | 40 | | | 84 | | | 115 | |
| Purchase accounting adjustments (See Footnote 1 and Footnote7) | 0 | | | (9) | | | 0 | |
| | | | | |
| Settlements with taxing authorities | 0 | | | (2) | | | (6) | |
| Lapse of statute of limitations | (66) | | | (66) | | | (46) | |
| Unrecognized tax benefits, December 31, | $ | 452 | | | $ | 474 | | | $ | 463 | |
If recognized, $387 million, $437 million and $444 million of unrecognized tax benefits at December 31, 2020, 2019, and 2018 respectively, would affect the effective tax rate. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits as a component of income tax expense. During 2020, 2019, and 2018 the Company recognized income tax expense on interest and penalties of $5 million, $11 million and $8 million, respectively, due to the accrual of current year interest on existing positions offset by the resolution of certain tax contingencies.
The Company anticipates approximately $4 million of unrecognized tax benefits will reverse within the next 12 months. It is reasonably possible due to activities of various worldwide taxing authorities, including proposed assessments of additional tax and possible settlement of audit issues that additional changes to the Company’s unrecognized tax benefits could occur. In the normal course of business, the Company is subject to audits by worldwide taxing authorities regarding various tax liabilities. The Company’s U.S. federal income tax returns for 2011, 2012, 2013, 2014, 2015, 2017 and 2018, as well as certain state and non-U.S. income tax returns for various years, are under examination.
The Company files numerous consolidated and separate income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The statute of limitations for the Company’s U.S. federal income tax returns has expired for years prior to 2011 and for 2016. The Company’s Canadian tax returns are subject to examination for years after 2011. With few exceptions, the Company is no longer subject to other income tax examinations for years before 2015.
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 Consolidated Financial Statements for the period ending December 31, 2020. 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 1513 — Leases
The Company recognizes a right of use (“ROU”) asset and a liability for all leases whose term is more than 12 months at the lease inception date. ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term, which includes any extension the Company reasonably expects to exercise. The Company assesses whether certain service arrangements contain embedded leases where the contract conveys the right to use an asset but are not explicitly identified as lease arrangements; examples include information technology, third-party logistics and original equipment manufacturers. The Company uses incremental borrowing rates, updated quarterly, that reflect its own external unsecured borrowing rates that are risk-adjusted to approximate secured borrowing rates over similar terms.
For certain non-real estate leases, the portfolio approach is used. The Company also has lease agreements with lease and non-lease components, which are accounted for as a single lease component.
Operating lease expense is recognized on a straight-line basis over the lease term. Operating lease assets and Operating lease liabilities are reported as separate lines in the Consolidated Balance Sheets. The current portion of Operating lease liabilities is reported in Other accrued liabilities in the Consolidated Balance Sheets.
For finance leases, lease payments are allocated between interest expense and reduction of the liability in accordance with an amortization schedule. The ROU asset is amortized on a straight-line basis over the lease term. Assets acquired under finance leases are recorded in property, plant and equipment, net.
The depreciable life of leasehold improvements and other lease-related assets are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.
Supplemental consolidated balance sheet information for leases at December 31, is as follows (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | Classification | | 2020 | | 2019 |
| Assets | | | | | | |
| Operating leases | | Operating lease assets (1) | | $ | 530 | | | $ | 615 | |
| Finance leases | | Property, plant and equipment, net (2) | | 10 | | | 15 | |
| Total lease assets | | | | $ | 540 | | | $ | 630 | |
| | | | | | |
| Liabilities | | | | | | |
| Current | | | | | | |
| Operating leases | | Other accrued liabilities | | $ | 129 | | | $ | 132 | |
| Finance leases | | Short-term debt and current portion of long-term debt | | 3 | | | 3 | |
| Noncurrent | | | | | | |
| Operating leases | | Long-term operating lease liabilities | | 472 | | | 541 | |
| Finance leases | | Long-term debt | | 5 | | | 10 | |
| Total lease liabilities | | | | $ | 609 | | | $ | 686 | |
| | | | | | |
(1)During 2020, the Company concluded that a triggering event had occurred for all of its reporting units as a result of overall macroeconomic conditions and developments in the equity and credit markets primarily driven by 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 at the lowest level for which identifiable cash flows are available to their respective carrying amount. As a result of the impairment testing performed in connection with the triggering event, the Company recorded a non-cash impairment charge of $8 million in the Home Solutions segment related to the operating leases of its Yankee Candle retail
store business. In addition, the Company recorded an impairment charge of $2 million in the Corporate segment to reflect a reduction in the carrying values of certain operating lease assets. The impairment charges were calculated by subtracting the estimated fair value of the asset group from its carrying value.
(2)Net of accumulated depreciation of $12 million and $8 million, respectively.
Components of lease expense for the years ended December 31, are as follows (in millions):
| | | | | | | | | | | | | | |
| | 2020 | | 2019 |
| Operating lease cost: | | | | |
| Operating lease cost (1) | | $ | 180 | | | $ | 207 | |
| Variable lease costs (2) | | 25 | | | 26 | |
| Finance lease cost | | | | |
| Amortization of leased assets | | 4 | | | 5 | |
| | | | |
(1)Includes short-term leases, which are immaterial.
(2)Consists primarily of additional payments for non-lease components, such as maintenance costs, payments of taxes and additional rent based on a level of the Company’s retail store sales.
Rent expense for continuing operations for the year ended December 31, 2018 was $227 million.
Remaining lease term and discount rates at December 31, are as follows:
| | | | | | | | | | | |
| 2020 | | 2019 |
| Weighted-average remaining lease term (years): | | | |
| Operating leases | 6 | | 7 |
| Finance leases | 2 | | 3 |
| Weighted-average discount rate: | | | |
| Operating leases | 4.2% | | 4.3% |
| Finance leases | 3.4% | | 3.5% |
Supplemental cash flow information related to leases for the years ended December 31, are as follows (in millions):
| | | | | | | | | | | |
| 2020 | | 2019 |
| Cash paid for amounts included in the measurement of lease liabilities: | | | |
| Operating cash flows from operating leases | $ | 177 | | | $ | 201 | |
| Operating cash flows from finance leases | 0 | | | 1 | |
| Financing cash flows from finance leases | 4 | | | 4 | |
| | | |
| Right of use assets obtained in exchange for lease liabilities: | | | |
| Operating leases | 75 | | | 130 | |
| Finance leases | 0 | | | 7 | |
| | | |
Maturities of lease liabilities at December 31, 2020, are as follows (in millions): | | | | | | | | | | | |
| Operating
Leases | | Finance
Leases |
| 2021 | $ | 155 | | | $ | 4 | |
| 2022 | 135 | | | 3 | |
| 2023 | 102 | | | 1 | |
| 2024 | 79 | | | 0 | |
| 2025 | 62 | | | 0 | |
| Thereafter | 168 | | | 0 | |
| Total lease payments | 701 | | | 8 | |
| Less: imputed interest | (100) | | | 0 | |
| Present value of lease liabilities | $ | 601 | | | $ | 8 | |
Footnote 14 — Earnings Per Share
The computations of the weighted average shares outstanding for the years ended December 31, are as follows (in millions):
| | | | | | | | | | | | |
| | | 2018 | | | 2017 | | | 2016 | |
Weighted-average shares outstanding | | | 473.3 | | | | 485.7 | | | | 418.3 | |
Share-based payment awards classified as participating securities | | | 0.4 | | | | 1.0 | | | | 1.5 | |
Dilutive effect from Jarden Acquisition | | | — | | | | — | | | | 1.5 | |
| | | | | | | | | | | | |
Basic weighted-average shares outstanding | | | 473.7 | | | | 486.7 | | | | 421.3 | |
Dilutive securities (1) | | | — | | | | 1.3 | | | | — | |
| | | | | | | | | | | | |
Diluted weighted-average shares outstanding | | | 473.7 | | | | 488.0 | | | | 421.3 | |
| | | | | | | | | | | | |
(1) | For 2018, 0.6 million potentially dilutive share-based awards are excluded as their effect would be anti-dilutive. For 2017 and 2016, the amount of potentially dilutive securities that are excluded because their effect would be anti-dilutive are not material.
|
As of
| | | | | | | | | | | | | | | | | |
| 2020 | | 2019 | | 2018 |
| Weighted-average shares outstanding | 424.1 | | | 423.2 | | | 473.3 | |
| Share-based payment awards classified as participating securities | 0 | | | 0.1 | | | 0.4 | |
| Basic weighted-average shares outstanding | 424.1 | | | 423.3 | | | 473.7 | |
| Dilutive securities (1) | 0 | | | 0.6 | | | 0 | |
| Diluted weighted-average shares outstanding | 424.1 | | | 423.9 | | | 473.7 | |
(1)For 2020 and 2018, 1.1 million and 0.6 million, respectively, potentially dilutive share-based awards are excluded as their effect would be anti-dilutive.
At December 31,
2020, there were 0 potentially dilutive restricted share awards with performance-based vesting targets that were not met and as such, have been excluded from the computation of diluted earnings per share. At December 31, 2019 and 2018 there were
0.5 million and 1.6 million potentially dilutive restricted share awards with performance-based vesting targets that were not met and as such, have been excluded from the computation of diluted earnings per share.
For
2018, 20172020, 2019 and
20162018 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.
At December 31, 2018, there were approximately 2.5 million shares
Footnote 15 — Share-Based Compensation
Stock-based compensation expense is adjusted for estimated forfeitures and is recognized on a straight-line basis over the requisite service period of the Company’s commonaward, which is generally three years for stock that had not been issuedoptions and one to the former holders of Jarden shares who are exercising their right to judicial appraisal under Delaware law. Absent consent by thethree years for restricted stock units and performance-based restricted stock units. The Company these dissenting shareholders are no longer entitled to the merger consideration, but are instead entitled only to the judicially determined fair value of their shares, plus interest accruing from the date of the acquisition of Jarden, payable in cash (see Footnote 20).Footnote 16 — Stockholders’ Equity and Share-Based Awards
For the 2018, 2017 and 2016 dividends per share were $0.92, $0.88 and $0.76, respectively.
estimates future forfeiture rates based on its historical experience.
The Company maintains a 2013 stock plan (the “2013 Plan”), which allows for grants of stock-based awards. At December 31,
2018,2020, there were approximately
3427 million share-based awards collectively available for grant under the 2013 Plan. The 2013 Plan generally provides for awards to vest over a minimum
three-year period,of three years, although some awards entitle the recipient to shares of common stock if specified market or performance conditions are achieved and vest no earlier than one year from the date of grant. The stock-based awards granted to employees include stock options and time-based and performance-based restricted stock units, as follows:
In years in which the Company has issued both nonqualified and incentiveelected to grant stock options, it has issued them at exercise prices equal to the Company’s common stock price on the date of grant with contractual terms of ten years. Stock options issued by the Company generally vest and are expensed ratably over three years. Stock option grants are generally subject to forfeiture if employment terminates prior to vesting, except upon retirement, in which case the options may remain outstanding and exercisable for a specified period not to exceed the remaining contractual term of the option. The
During 2019, as inducement to join the Company
has not grantedand in connection with his appointment as President and Chief Executive Officer, the Company awarded Mr. Ravichandra K. Saligram 1.3 million performance-based non-qualified stock options
since 2011.which entitle Mr. Saligram to purchase shares of the Company’s common stock at a price equal to the closing price of a share of the Company’s common stock on the date of grant. For stock option awards with performance conditions that are based on stock price (“Stock-Price Based Stock Options”), the grant date fair value of certain Stock-Price Based Stock Options is estimated using a Monte Carlo simulation, with the primary input into such valuation being the expected future volatility of the Company’s common stock, the expected life, risk-free interest rate and expected dividend yield. The Stock-Price Based Stock Options awarded to Mr. Saligram had an aggregate grant date fair value of $5 million. The vesting of the awarded stock options will occur ratably upon the 18-month, two-year and three-year anniversaries of the grant date, subject to the attainment of a performance condition that, during any 30-day period between the date that is 18 calendar months following the grant date and the third anniversary of the grant date, the average of the Company’s closing stock price must exceed 125% of the closing stock price on July 29, 2019, which has already been achieved. The award also provides for vesting in the event of a termination of Mr. Saligram’s employment by the Company without Good Cause, or by Mr. Saligram for Good Reason, as such terms are defined in the Company’s 2013 Incentive Plan, in each case subject to attainment of the applicable performance condition (with the performance condition, for this purpose only, measured as of any 30-day period falling between the grant date and the third anniversary of the grant date).
The following table summarizes the changes in the number of shares of common stock for 2020 (shares and aggregate intrinsic value in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Shares | | Weighted-
Average
Exercise
Price Per
Share | | Weighted
Average
Remaining Life
(years) | | Aggregate
Intrinsic
Value |
| Outstanding at December 31, 2019 | 1.6 | | | $ | 17 | | | | | |
| Granted | 1.1 | | | 20 | | | | | |
| Exercised | 0 | | | 18 | | | | | |
| Forfeited | 0 | | | 20 | | | | | |
| Outstanding at December 31, 2020 | 2.7 | | | $ | 18 | | | 8.2 | | 7.7 | |
| | | | | | | |
| Options exercisable, end of year | 0.2 | | | $ | 15 | | | 0.5 | | 1.4 | |
During 2020, the Company awarded 1.1 million time-based stock options with an aggregate grant fair value of $6 million. These stock options entitle recipients to 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 years ended December 31, are as follows: | | | | | | | | | | | |
| 2020 | | 2019 |
| Expected life in years | 6 | | 6 |
| Risk-free interest rate | 1.4 | % | | 1.6 | % |
| Expected volatility | 41.3 | % | | 32.5 | % |
| Expected dividend yield | 3.9 | % | | 3.0 | % |
| | | |
The total intrinsic value of options exercised was immaterial in 2020 and 2019 and $1 million in 2018.
Time-Based
and Performance-Based Restricted Stock Units
Awards of time-based restricted stock units are independent of stock option grants and are generally subject to forfeiture if employment terminates prior to vesting. The awards generally cliff-vest in three years or vest ratably over three years from the date of grant. In the case of retirement (as defined in the award agreement), awards vest depending on the employee’s age and years of service.
The time-based restricted stock units have rights to dividend equivalents payable in cash. Time-based restricted stock units issued in 2016 and prior receive dividend payments at the same time as the shareholders of the Company’s stock. Time-based restricted stock units issued subsequent to 2016 have dividend equivalents credited to the recipient and are paid only to the extent the applicable service criteria is met and the time-based restricted stock units vest and the related stock is issued.
Performance-Based Restricted Stock Units
Performance-based restricted stock unit awards (“Performance-Based RSUs”) represent the right to receive unrestricted shares of stock based on the achievement of Company performance objectives and/or individual performance goals established by the Organizational Development & Compensation Committee and the Board of Directors.
The Performance-Based RSUs generally entitle recipients to shares of common stock if performance objectives are achieved, and typically vest no earlier than one year from the date of grant and primarily, no later than three years from the date of grant. The actual number of shares that will ultimately vest is dependent on the level of achievement of the specified performance conditions. For restricted stock units with performance conditions that are based on stock price (“Stock-Price Based RSUs”), the grant date fair value of certain Stock-Price based RSUs is estimated using a Monte Carlo simulation, with the primary input into such valuation being the expected future volatility of the Company’s common stock, and if applicable, the volatilities of the common stocks of the companies in the Company’s peer group, upon which the relative total shareholder return performance is measured. In the case of retirement (as defined in the award agreement), awards vest depending on the employee’s age and years of service, subject to the satisfaction of the applicable performance criteria.
The Company accounts for stock-based compensation pursuant to relevant authoritative guidance, which requires measurement of compensation cost for all stock awards at fair value on the date of grant and recognition of compensation, net of estimated
forfeitures, over the longer of the derived service period or explicit requisite service period for awards expected to vest. For
nonnon- stock-price based Performance-Based RSUs, the Company assesses the probability of achievement of the performance conditions each period and records expense for the awards based on the probable achievement of such metrics.
With respect to Performance-Based RSUs, dividend equivalents are credited to the recipient and are paid only to the extent the applicable performance criteria are met and the Performance-Based RSUs vest and the related stock is issued.
The following table summarizes the changes in the number of shares of common stock under option for 2018 (shares and aggregate intrinsic value in millions):
| | | | | | | | | | | | | | | | |
| | | Shares | | | Weighted-
Average
Exercise
Price Per
Share | | | Weighted
Average
Remaining Life
(years) | | | Aggregate
Intrinsic
Value | |
Outstanding at December 31, 2017 | | | 0.4 | | | $ | 16 | | | | | | | | | |
Exercised | | | (0.1 | ) | | $ | 18 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Outstanding at December 31, 2018 (a) | | | 0.3 | | | $ | 15 | | | | 2.2 | | | $ | 1.2 | |
| | | | | | | | | | | | | | | | |
(a) All options outstanding are exercisable
The total intrinsic value of options exercised was $1.0 million, $5.5 million and $11.3 million in 2018, 2017 and 2016, respectively.
The following table summarizes the changes in the number of outstanding restricted stock units for
20182020 (shares in millions):
| | | | | | | | |
| | | Restricted
Stock
Units | | | Weighted-
Average
Average Grant
Date Fair Value
Per Share | |
Outstanding at December 31, 2017 | | | 4.4 | | | $ | 50 | |
Granted | | | 2.8 | | | | 29 | |
Vested | | | (1.2 | ) | | | 44 | |
Forfeited | | | (1.3 | ) | | | 43 | |
| | | | | | | | |
Outstanding at December 31, 2018 | | | 4.7 | | | | 41 | |
| | | | | | | | |
Expected to vest at December 31, 2018 | | | 2.9 | | | | 32 | |
| | | | | | | | | | | |
| Restricted
Stock
Units | | Weighted-
Average Grant
Date Fair Value
Per Share |
| Outstanding at December 31, 2019 | 4.8 | | | $ | 25 | |
| Granted | 2.0 | | | 21 |
| Grant adjustment (1) | (0.5) | | | 48 |
| Vested | (1.2) | | | 26 |
| Forfeited | (0.8) | | | 21 |
| Outstanding at December 31, 2020 | 4.3 | | | 21 |
| | | |
| Expected to vest at December 31, 2020 | 4.8 | | | 20 |
(1)The Grant Adjustment primarily relates to an adjustment in the quantity of Stock-Price Based RSUs ultimately vested during 2020 that were dependent on the level of achievement of the specified performance conditions.
The weighted-average grant-date fair values of awards granted were
$47$17 and
$54$29 per share in
20172019 and
2016,2018, respectively. The fair values of awards that vested were
$31.7$23 million,
$67.6$18 million and
$54.1$32 million in
2020, 2019 and 2018,
2017 and 2016, respectively.
During 2018,2020, the Company awarded 1.10.7 million performance-basedtime-based RSUs, which had an aggregate grant date fair value of $35.1$13 million, andthat generally vest in equal annual installments over a three-year period.
During 2020, the Company also awarded 1.3 million performance-based RSUs with an aggregate grant date fair value of $29 million, that 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 2018,
Other Share-Based Awards Data
Michael B. Polk, the Company’s former President and Chief Executive Officer and member of the Company’s Board of Directors (the “Board”), retired from the Company alsoat the end of the second quarter of 2019.
In connection with Mr. Polk’s retirement from the Company, on June 28, 2019 (the “Retirement Date”), the Company and Mr. Polk entered into a Retirement Agreement and General Release (the “Retirement Agreement”), pursuant to which, Mr. Polk agreed to a customary release and restrictive covenants. Pursuant to certain terms and conditions, Mr. Polk’s unexercised 2011 stock options will remain exercisable until expiration in July 2021 consistent with the terms of the underlying option agreement. Additionally, Mr. Polk’s unvested performance-based RSUs awarded 1.8 million time-basedin February 2018 will continue to vest in February 2021 (subject to the satisfaction of applicable performance conditions) and a pro rata portion of the RSUs with an aggregate grant dateawarded to Mr. Polk in February 2019, reflecting four months of service and totaling 45,724 RSUs, will continue to vest in February 2022 (subject to the satisfaction of applicable performance conditions).
Furthermore, Mr. Polk forfeited his unvested performance-based RSUs awarded in February 2017. The Company accounted for the treatment of his 2018 and 2019 awards as modification of his initial awards based on the terms and conditions of such awards. As such, the cumulative compensation expense of his 2017, 2018 and 2019 awards were reversed during the first quarter of 2019 while the fair value of $47.4the modified awards was recognized as compensation expense over the contractual service period. During 2019, the Company recorded a net benefit of approximately $5 million, of which, 0.1 million time-based RSUs with a grant date fair value of $3.3 million were awarded to employees within businesses classified as discontinued operations. These time-based RSU’s entitle recipients to sharesbased on the aforementioned terms and conditions of the Company’s common stock and primarily vest in equal installments over a three-year period.Retirement Agreement.
Excess tax benefits (detriments) related to stock-based compensation for 2018, 2017 and 2016 were ($5.8) million, $5.9 million and $11.9 million, respectively.
The following table summarizes the Company’sCompany's total unrecognized compensation cost related to stock-based compensation as ofat December 31, 2020:
| | | | | | | | |
| (in millions) | Unrecognized Compensation Cost | Weighted Average Period of Expense Recognition
(in years) |
| Restricted stock units | $ | 40 | | 1 |
| Stock options | 6 | | 1 |
| Total | $ | 46 | | 1 |
| | |
Excess tax detriments related to stock-based compensation for 2020, 2019 and 2018 (in millions): | | | | | | | | |
| | | Unrecognized
Compensation
Cost | | | Weighted-
Average Period
of Expense Recognition
(in years) | |
Restricted stock units | | $ | 65.3 | | | | 1 | |
Footnote 17 — Income Taxes
On December 22, 2017, the Tax Cutswere $8 million, $14 million and Jobs Act$6 million, respectively.
The Company’s share repurchase program (“
U.S. Tax Reform”SRP”)
was enacted. The legislation significantly changed U.S. tax law by lowering the federal corporate tax rate from 35.0% to 21.0%, effective January 1, 2018, modifying the foreign earnings deferral provisions, and imposing a one-time toll chargeexpired on
deemed repatriated earnings of foreign subsidiaries as of December 31,
2017. Effective for 2018 and forward, there are additional changes including changes to bonus depreciation, the deduction for executive compensation and interest expense, a tax on global intangible low-taxed income provisions (“GILTI”), the base erosion antiabuse tax (“BEAT”), and a deduction for foreign-derived intangible income (“FDII”). As of December 31, 2017, two provisions that affected the consolidated financial statements were the corporate tax rate reduction and the one-time toll charge. As the corporate tax rate reduction was enacted in 2017 and effective January 1, 2018, the Company appropriately accounted for the tax rate change in the valuation of its deferred taxes. As a result, the Company recorded a tax benefit of $1.5 billion in the prior year statement of operations.The SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides the Company with up to one year to finalize accounting for the impacts of U.S. Tax Reform. In 2017, the Company estimated the provisional tax impacts related to the toll charge, deferred income taxes, including the impacts of the change in corporate tax rate, executive compensation, and its indefinite reinvestment assertion. As of the fourth quarter of 2018, the Company has completed its accounting for the tax effects of U.S. Tax Reform. The Company recorded immaterial adjustments to its toll change and finalized its accounting related to deferred income taxes, executive compensation, and our indefinite reinvestment assertion. The Company elected to account for the tax on GILTI as a period cost and therefore has not recorded deferred taxes related to GILTI on its foreign subsidiaries.
As of December 31, 2018, the Company has accumulated unremitted earnings generated by our foreign subsidiaries of approximately $5.5 billion. A significant portion of these earnings were subject to U.S. federal taxation in the prior year with the one-time toll charge. The Company is no longer asserting indefinite reinvestment on a portion of its unremitted earnings of its foreign subsidiaries as of December 31, 2018 and is recognizing deferred income taxes of approximately $17.6 million, primarily related to the future U.S. state tax effects of unremitted foreign earnings. With respect to unremitted earnings of $1.9 billion where the Company is continuing to assert indefinite reinvestment, any future remittances could be subject to additional foreign withholding taxes, U.S. state taxes and certain tax impacts relating to foreign currency exchange effects on any future repatriations of the unremitted earnings. It is not practicable for the Company to estimate the amount of any unrecognized tax effects on these reinvested earnings.
The provision for income taxes consists of the following for the years ended December 31, (in millions):
| | | | | | | | | | | | |
| | | 2018 | | | 2017 | | | 2016 | |
Current: | | | | | | | | | | | | |
Federal | | $ | 121.4 | | | $ | 272.1 | | | $ | 126.6 | |
State | | | 31.0 | | | | 21.4 | | | | 39.0 | |
Foreign | | | 203.5 | | | | 168.5 | | | | 87.0 | |
| | | | | | | | | | | | |
Total current | | | 355.9 | | | | 462.0 | | | | 252.6 | |
Deferred | | | (1,597.9 | ) | | | (1,781.8 | ) | | | 33.4 | |
| | | | | | | | | | | | |
Total income tax provision (benefit) | | | (1,242.0 | ) | | | (1,319.8 | ) | | | 286.0 | |
Total provision — discontinued operations | | | 236.1 | | | | 258.6 | | | | 228.9 | |
| | | | | | | | | | | | |
Total provision (benefit)— continuing operations | | $ | (1,478.1 | ) | | $ | (1,578.4 | ) | | $ | 57.1 | |
| | | | | | | | | | | | |
Thenon-U.S. component of income before income taxes was $52 million, $966 million and $350 million in 2018, 2017 and 2016, respectively.
A reconciliation of the U.S. statutory rate to the effective income tax rate on a continuing basis is as follows for the years ended December 31:
| | | | | | | | | | | | |
| | | 2018 | | | 2017 | | | 2016 | |
Statutory rate | | | 21.0 | % | | | 35.0 | % | | | 35.0 | % |
Add (deduct) effect of: | | | | | | | | | | | | |
State income taxes, net of federal income tax effect | | | 2.4 | | | | 2.0 | | | | 100.5 | |
Foreign tax credit | | | 2.1 | | | | 4.3 | | | | 47.0 | |
Foreign rate differential | | | 0.5 | | | | (28.2 | ) | | | (319.1 | ) |
Resolution of tax contingencies, net of increases | | | 0.2 | | | | (5.0 | ) | | | (112.4 | ) |
Valuation allowance reserve (decrease) increase | | | 0.8 | | | | (7.4 | ) | | | (149.5 | ) |
Manufacturing deduction | | | — | | | | (1.3 | ) | | | (60.7 | ) |
Foreign statutory tax rate change | | | — | | | | (2.7 | ) | | | (52.9 | ) |
Impairment | | | (9.3 | ) | | | 2.8 | | | | — | |
Sale of businesses | | | — | | | | (11.8 | ) | | | — | |
Tools outside basis difference | | | — | | | | — | | | | 878.3 | |
Reversal of outside basis difference | | | — | | | | (11.4 | ) | | | — | |
U.S. Tax Reform, impact of change in tax rate and other | | | — | | | | (269.2 | ) | | | — | |
U.S. Tax Reform, federal income tax on mandatory deemed repatriation | | | 0.2 | | | | 29.7 | | | | — | |
Other | | | — | | | | (1.9 | ) | | | (60.2 | ) |
| | | | | | | | | | | | |
Effective rate | | | 17.9 | % | | | (265.1 | )% | | | 306.0 | % |
| | | | | | | | | | | | |
The components of net deferred tax assets are as follows as of December 31, (in millions):
| | | | | | | | |
| | | 2018 | | | 2017 | |
Deferred tax assets: | | | | | | | | |
Accruals not currently deductible for tax purposes | | $ | 147.5 | | | $ | 173.0 | |
Inventory | | | 31.6 | | | | 34.6 | |
Postretirement liabilities | | | 28.0 | | | | 24.0 | |
Pension liabilities | | | 53.6 | | | | 49.4 | |
Net operating losses | | | 355.1 | | | | 374.0 | |
Foreign tax credits | | | 133.3 | | | | 7.5 | |
Other | | | 123.9 | | | | 137.3 | |
| | | | | | | | |
Total gross deferred tax assets | | | 873.0 | | | | 799.8 | |
Less valuation allowance | | | (195.0 | ) | | | (293.0 | ) |
| | | | | | | | |
Net deferred tax assets after valuation allowance | | | 678.0 | | | | 506.8 | |
| | | | | | | | |
Deferred tax liabilities: | | | | | | | | |
Accelerated depreciation | | | (87.2 | ) | | | (59.0 | ) |
Amortizable intangibles | | | (1,405.4 | ) | | | (2,801.6 | ) |
Outside basis differences | | | (13.1 | ) | | | (18.3 | ) |
Other | | | (49.0 | ) | | | (35.6 | ) |
| | | | | | | | |
Total gross deferred tax liabilities | | | (1,554.7 | ) | | | (2,914.5 | ) |
| | | | | | | | |
Net deferred tax liabilities | | $ | (876.7 | ) | | $ | (2,407.7 | ) |
| | | | | | | | |
At December 31, 2018, the Company has approximately $1.3 billion of U.S., state, and foreign net operating losses (“NOLs”), of which approximately $886 million do not expire and approximately $438 million expire between 2019 and 2038. Additionally, approximately $197 million U.S. federal NOLs are subject to varying limitations on their use under Section 382 of the Internal Revenue Code of 1986, as amended. Of these U.S. federal NOLs, approximately $189 million arewas not reflected in the consolidated financial statements and approximately $31 million were utilized in the current year. The majority of the U.S. foreign tax credits are recognized as a deferred tax asset as of December 31, 2018 can be carried back one year and carried forward ten years.
The Company routinely reviews valuation allowances recorded against deferred tax assets on a more likely than not basis as to whether the Company has the ability to realize the deferred tax assets. In making such a determination, the Company takes into consideration all available and appropriate positive and negative evidence, including projected future taxable income, future reversals of existing taxable temporary differences, the ability to carryback net operating losses, and available tax planning strategies. Although realization is not assured, based on this existing evidence, the Company believes it is more likely than not that the Company will realize the benefit of existing deferred tax assets, net of the valuation allowances.
extended.As of December 31, 2018, the Company has a valuation allowance recorded against foreign NOLs and other deferred tax assets the Company believes are not more likely than not to be realized due to the uncertainty resulting from a lack of previous taxable income within the applicable tax jurisdictions. A valuation allowance of $195 million and $293 million was recorded against certain deferred tax asset balances as of December 31, 2018 and 2017, respectively. For the year ended December 31, 2018, the Company recorded a net valuation allowance decrease of $98 million, comprised of a valuation allowance decrease of $64.2 million relating to the Company’s French operations for which the Company concluded the deferred tax assets were realizable, expiration of NOLs in Japan on which a valuation allowance was recorded, and other miscellaneous changes in valuation allowances related to ongoing operations. For the year ended December 31, 2017, the Company recorded a net valuation allowance decrease of $30.5 million, comprised of a valuation allowance decrease of $35.2 million relating to the Company’s German operations for which the Company concluded the deferred tax assets were realizable; and an increase in valuation allowance in the current year in certain jurisdictions that the Company previously determined were not more likely than not to be realized.
The following table summarizes the changes in gross unrecognized tax benefits for the years ended December 31, (in millions):
| | | | | | | | |
| | | 2018 | | | 2017 | |
Unrecognized tax benefits, January 1, | | $ | 385.3 | | | $ | 379.0 | |
Increases (decreases): | | | | | | | | |
Increases in tax positions for prior years | | | 35.9 | | | | 26.0 | |
Decreases in tax positions for prior years | | | (20.6 | ) | | | (12.3 | ) |
Increase in tax positions for the current period | | | 115.0 | | | | 34.5 | |
Settlements with taxing authorities | | | (6.2 | ) | | | — | |
Lapse of statute of limitations | | | (46.4 | ) | | | (41.9 | ) |
| | | | | | | | |
Unrecognized tax benefits, December 31, | | $ | 463.0 | | | $ | 385.3 | |
| | | | | | | | |
If recognized, $444 million and $365 million of unrecognized tax benefits as of December 31, 2018, and 2017, respectively, would affect the effective tax rate. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits as a component of income tax expense. During 2018 and 2017, the Company recognized income tax expense on interest and penalties of $8 million and $8.3 million, respectively, due to the accrual of current year interest on existing positions offset by the resolution of certain tax contingencies.
The Company anticipates approximately $66.7 million of unrecognized tax benefits will reverse within the next 12 months. It is reasonably possible due to activities of various worldwide taxing authorities, including proposed assessments of additional tax and possible settlement of audit issues that additional changes to the Company’s unrecognized tax benefits could occur. In the normal course of business, the Company is subject to audits by worldwide taxing authorities regarding various tax liabilities. The Company’s U.S. federal income tax returns for 2011, 2012, 2013, 2014 and 2015 as well as certain state andnon-US income tax returns for various years, are under routine examination.
The Company files numerous consolidated and separate income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The statute of limitations for the Company’s U.S. federal income tax returns has expired for years prior to 2011. The Company’s Canadian tax returns are subject to examination for years after 2010. With few exceptions, the Company is no longer subject to other income tax examinations for years before 2013.
Footnote
1816 — Fair Value
Disclosures
Accounting principles generally accepted in the U.S. define fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). These valuation techniques are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. As the basis for evaluating such inputs, a three-tier value hierarchy prioritizes the inputs used in measuring fair value as follows:
Level 1: Observable inputs such as quoted prices for identical assets or liabilities in active markets.
Level 2: Observable inputs other than quoted prices that are directly or indirectly observable for the asset or liability, including quoted prices for similar assets or liabilities in active markets; quoted prices for similar or identical assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.
Recurring Fair Value Measurements
The Company’s financial assets and liabilities adjusted to fair value at least annually are its money market fund investments included in cash and cash equivalents, its mutual fund investments included in other assets, and its derivative instruments, which are primarily included in prepaid expenses and other, other assets, other accrued liabilities and other noncurrent liabilities.
The following tables present the Company’s
non-pension financial assets and liabilities, which are measured at fair value on a recurring basis (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2018 | | | December 31, 2017 | |
| | | Fair Value Asset (Liability) | | | Fair Value Asset (Liability) | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Derivatives: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Assets | | $ | — | | | $ | 26.2 | | | $ | — | | | $ | 26.2 | | | $ | — | | | $ | 14.9 | | | $ | — | | | $ | 14.9 | |
Liabilities | | | — | | | | (17.3 | ) | | | — | | | | (17.3 | ) | | | — | | | | (56.7 | ) | | | — | | | | (56.7 | ) |
Investment securities, including mutual funds | | | — | | | | 1.9 | | | | — | | | | 1.9 | | | | 5.2 | | | | 3.5 | | | | — | | | | 8.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| Derivatives: | | | | | | | | | | | | | | | |
| Assets | $ | 0 | | | $ | 28 | | | $ | 0 | | | $ | 28 | | | $ | 0 | | | $ | 13 | | | $ | 0 | | | $ | 13 | |
| Liabilities | 0 | | | (138) | | | 0 | | | (138) | | | 0 | | | (18) | | | 0 | | | (18) | |
| Investment securities, including mutual funds | 10 | | | 0 | | | 0 | | | 10 | | | 10 | | | 1 | | | 0 | | | 11 | |
For publicly-traded
investment securities, including mutual funds, fair value is determined on the basis of quoted market prices and, accordingly, such investments
have beenare classified as Level 1. Other investment securities are primarily comprised of money market accounts that are classified as Level 2. The Company determines the fair value of its derivative instruments using standard pricing models and market-based assumptions for all significant inputs, such as yield curves and quoted spot and forward exchange rates. Accordingly, the Company’s derivative instruments are classified as Level 2.
During 2019, the Company acquired an equity investment for $18 million, which is traded on an active exchange and therefore has a readily determinable fair value. At December 31, 2020, the fair value of the equity investment was $9 million. For equity investments with readily determinable fair values, the Company recorded an immaterial amount and $9 million of unrealized losses within other (income) expense, net in the Consolidated Statement of Operations for 2020 and 2019, respectively.
The Company adjusts its pension asset values to fair value on an annual basis (see (See Footnote 14)11).
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
nonfinancialnon-financial 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 and market multiple methods. 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.
The following table summarizes the assets that are measured at fair value on a
non-recurring nonrecurring basis at December
31, 20181, (in millions):
| | | | | | | | |
| | | December 31,
2018 | | | Level 3 | |
Goodwill | | $ | 1,039.5 | | | $ | 1,039.5 | |
Indefinite-lived intangible assets | | $ | 3,698.0 | | | $ | 3,698.0 | |
| | | | | | | | | | | |
| 2020 | | 2019 |
| Level 3 |
| | | |
| Indefinite-lived intangibles | 135 | | | 1,365 | |
At December 31,
2018,2020 and 2019, goodwill of certain reporting units and certain intangible assets are recorded at fair value based upon the Company’s impairment
testing (see Note 9).testing. The most significant unobservable inputs (Level 3) used to estimate the fair values of the Company's reporting unit goodwill and indefinite-lived intangible assets are discount rates, which range from 6.5% to 7.5% for reporting unit goodwill and 7.5% to 10.5% for indefinite-lived intangible assets.
In the first quarter 2020, as a result of uncertainty related to the COVID-19 pandemic, certain indefinite-lived intangible assets within Appliances and Cookware, Home Solutions, Outdoor and Recreation, and Learning and Development segments were written down to its fair value of $796 million as of March 31, 2020. In the fourth quarter 2020, a trade name within the Learning and Development segment was measured at its fair value of $135 million.
The Company reviews property, plant and equipment 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.
The carrying value and estimated fair value measurement of assets held for sale are classified as Level 3, as the fair values utilize significant unobservable inputs (see
Footnote
4).Footnote 1917 — Segment Information
In order to align reporting with
During the
Company’s Accelerated Transformation Plan, effective June 30, 2018,first quarter of 2020, the Company
is reportingappointed separate Chief Executive Officers for its
financial results in four segments as Food and
Appliances, Home and Outdoor Living, Learning and Development and Other.This new structure reflectsCommercial business units, each reporting directly to the manner in which theCompany's chief operating decision maker regularly assesses information for decision-making purposes, including(CODM). The Company determined these appointments required a reassessment of its operating and reportable segments. As a result of its assessment, the allocation of resources. All prior periods have been reclassified to conform toCompany concluded that the current reporting structure.
The Company’s three primaryFood and Commercial business units were 2 separate operating segments arebut met the requirements to be aggregated into a single reportable segment, pursuant to authoritative accounting literature, as follows:
they had similar economic and qualitative characteristics.
During the second quarter of 2020, the Company implemented further changes to its management reporting structure, which
included:
•The appointment of Chief Executive Officers for the Appliances and Cookware and Outdoor and Recreation business
•units;
•Expanding the responsibilities of the Food business unit Chief Executive Officer to include oversight of the Home Fragrance business unit; and
•Expanding the responsibilities of the Commercial business unit Chief Executive Officer to include oversight of the Connected Home & Security business unit.
The Company determined these appointments required a reassessment of its operating and reportable segments. As a result of its
assessment, the Company concluded that it had the following 5 primary reportable segments:
| | | | | | | | | | | | | | |
Segment | | Key Brands | | Description of Primary Products |
FoodAppliances and AppliancesCookware | | Ball®Calphalon®, Calphalon®,Crock-Pot®, FoodSaver®Crock-Pot®, Mr. Coffee®Coffee®, Oster®, Rubbermaid®, Sistema®Oster® and Sunbeam®Sunbeam® | | Household products, including kitchen appliances, gourmet cookware, bakeware and cutlery food storage and home storage products and fresh preserving products |
Home and Outdoor LivingCommercial Solutions | | Chesapeake Bay Candle®, Coleman®, Contigo®, ExOfficio®BRK®, First Alert®Alert®, Marmot®Mapa®, WoodWick®Quickie®, Rubbermaid®, Rubbermaid Commercial Products®, and Yankee Candle®Spontex® | | Products for outdoorCommercial cleaning and outdoor-related activities, home fragrance productsmaintenance solutions; closet and garage organization; hygiene systems and material handling solutions; connected home and security productsand smoke and carbon monoxide alarms |
| Home Solutions | | Ball® (1), Chesapeake Bay Candle®, FoodSaver®, Rubbermaid®, Sistema®, WoodWick® and Yankee Candle® | | Food and home storage products; fresh preserving products, vacuum sealing products and home fragrance products |
| Learning and Development | | Aprica®Aprica®, Baby Jogger®Jogger®, Dymo®Dymo®, Elmer’s®Elmer’s®, Expo®EXPO®, Graco®Graco®, Mr. Sketch®Sketch®, NUK®NUK®, Paper Mate®Mate®, Parker®Parker®, Prismacolor®Prismacolor®, Sharpie®Sharpie®, Tigex® Waterman®Tigex® Waterman® andX-Acto® X-Acto® | | WritingBaby gear and infant care products; writing instruments, including markers and highlighters, pens and pencils; art products; activity-based adhesive and cutting products;products and labeling solutions; baby gearsolutions |
Outdoor and infant care productsRecreation | | Coleman®, Contigo®, ExOfficio®, Marmot® | | Products for outdoor and outdoor-related activities |
(1)and Ball®, TMs Ball Corporation, used under license.
The financial information below for 2019 and 2018 has been recast for the current segment structure. 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.
The Company’s segment and geographic results are as follows
as ofat and for the years ended December 31, (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2018 | |
| | | Food and
Appliances | | | Home and
Outdoor
Living | | | Learning
and
Development | | | Other | | | Corporate | | | Restructuring
Costs | | | Consolidated | |
Net sales (1) | | $ | 2,699.1 | | | $ | 2,946.7 | | | $ | 2,981.6 | | | $ | 3.5 | | | $ | — | | | $ | — | | | $ | 8,630.9 | |
Operating income (loss) (2) | | | (3,290.0 | ) | | | (4,237.7 | ) | | | 237.9 | | | | 3.8 | | | | (462.0 | ) | | | (80.5 | ) | | | (7,828.5 | ) |
Other segment data: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 4,055.4 | | | $ | 4,103.2 | | | $ | 4,882.1 | | | $ | — | | | $ | 1,134.4 | | | $ | — | | | $ | 14,175.1 | |
Capital expenditures | | | 48.7 | | | | 51.2 | | | | 54.5 | | | | — | | | | 74.6 | | | | — | | | | 229.0 | |
Depreciation and amortization | | | 71.7 | | | | 94.7 | | | | 74.3 | | | | — | | | | 115.6 | | | | — | | | | 356.3 | |
| |
| | | 2017 | |
| | | Food and
Appliances | | | Home and
Outdoor
Living | | | Learning
and
Development | | | Other | | | Corporate | | | Restructuring
Costs | | | Consolidated | |
Net sales (1) | | $ | 2,921.1 | | | $ | 3,114.1 | | | $ | 3,269.1 | | | $ | 247.7 | | | $ | — | | | $ | — | | | $ | 9,552.0 | |
Operating income (loss) (2) | | | 311.1 | | | | 274.0 | | | | 540.4 | | | | (89.5 | ) | | | (562.9 | ) | | | (87.6 | ) | | | 385.5 | |
Other segment data: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 7,616.7 | | | $ | 8,511.6 | | | $ | 5,486.1 | | | $ | 27.5 | | | $ | 1,285.0 | | | $ | — | | | $ | 22,926.9 | |
Capital expenditures | | | 19.6 | | | | 54.9 | | | | 8.2 | | | | 7.4 | | | | 176.1 | | | | — | | | | 266.2 | |
Depreciation and amortization | | | 72.0 | | | | 105.6 | | | | 68.8 | | | | 4.6 | | | | 102.3 | | | | — | | | | 353.3 | |
| |
| | | 2016 | |
| | | Food and
Appliances | | | Home and
Outdoor
Living | | | Learning
and
Development | | | Other | | | Corporate | | | Restructuring
Costs | | | Consolidated | |
Net sales (1) | | $ | 2,453.3 | | | $ | 2,289.7 | | | $ | 3,100.6 | | | $ | 1,337.5 | | | $ | — | | | $ | — | | | $ | 9,181.1 | |
Operating income (loss) (2) | | | 191.8 | | | | 167.3 | | | | 606.4 | | | | 113.1 | | | | (718.3 | ) | | | (62.2 | ) | | | 298.1 | |
Other segment data: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Capital expenditures | | $ | 18.3 | | | $ | 88.9 | | | $ | 81.3 | | | $ | 31.0 | | | $ | 72.6 | | | $ | — | | | $ | 292.1 | |
Depreciation and amortization | | | 46.9 | | | | 70.9 | | | | 61.1 | | | | 26.1 | | | | 40.0 | | | | — | | | | 245.0 | |
| | | | | | | | | | | | |
| Geographic Area Information | | | | | | | | | |
| | | 2018 | | | 2017 | | | 2016 | |
Net Sales (1) (3) | | | | | | | | | | | | |
United States | | $ | 5,805.7 | | | $ | 6,491.4 | | | $ | 6,354.0 | |
Canada | | | 396.7 | | | | 445.0 | | | | 428.6 | |
| | | | | | | | | | | | |
Total North America | | | 6,202.4 | | | | 6,936.4 | | | | 6,782.6 | |
| | | | | | | | | | | | |
Europe, Middle East and Africa | | | 1,096.1 | | | | 1,215.6 | | | | 1,201.2 | |
Latin America | | | 647.8 | | | | 679.7 | | | | 570.6 | |
Asia Pacific | | | 684.6 | | | | 720.3 | | | | 626.7 | |
| | | | | | | | | | | | |
Total International | | | 2,428.5 | | | | 2,615.6 | | | | 2,398.5 | |
| | | | | | | | | | | | |
| | $ | 8,630.9 | | | $ | 9,552.0 | | | $ | 9,181.1 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | 2020 | | 2019 | | 2018 |
| Net sales (1) | | | | | | |
| Appliances and Cookware | | $ | 1,706 | | | $ | 1,692 | | | $ | 1,819 | |
| Commercial Solutions | | 1,859 | | | 1,779 | | | 1,900 | |
| Home Solutions | | 1,971 | | | 1,875 | | | 1,935 | |
| Learning and Development | | 2,557 | | | 2,956 | | | 2,982 | |
| Outdoor and Recreation | | 1,292 | | | 1,413 | | | 1,515 | |
| Other | | 0 | | | 0 | | | 3 | |
| | $ | 9,385 | | | $ | 9,715 | | | $ | 10,154 | |
| | | | | | | | | | | | | | | | | | | | |
| | | 2020 | | 2019 | | 2018 |
| Operating income (loss) (2) | | | | | | |
| Appliances and Cookware | | $ | (217) | | | $ | (535) | | | $ | (1,596) | |
| Commercial Solutions | | (85) | | | (136) | | | (134) | |
| Home Solutions | | (12) | | | (17) | | | (4,270) | |
| Learning and Development | | 362 | | | 588 | | | 238 | |
| Outdoor and Recreation | | (418) | | | (64) | | | (1,293) | |
| Other | | 0 | | | 0 | | | 4 | |
| Corporate | | (243) | | | (291) | | | (416) | |
| Restructuring | | (21) | | | (27) | | | (87) | |
| | $ | (634) | | | $ | (482) | | | $ | (7,554) | |
| | | | | | | | | | | | | | | | | | | | |
| | | 2020 | | 2019 | | 2018 |
| Depreciation and amortization | | | | | | |
| Appliances and Cookware | | $ | 21 | | | $ | 23 | | | $ | 23 | |
| Commercial Solutions | | 57 | | | 94 | | | 31 | |
| Home Solutions | | 92 | | | 89 | | | 82 | |
| Learning and Development | | 64 | | | 67 | | | 74 | |
| Outdoor and Recreation | | 39 | | | 44 | | | 46 | |
| Corporate | | 84 | | | 129 | | | 116 | |
| | $ | 357 | | | $ | 446 | | | $ | 372 | |
| | | | | | | | | | | | | | | | | | | | |
| | | 2020 | | 2019 | | 2018 |
| Impairment of goodwill and intangible assets | | | | | | |
| Appliances and Cookware | | $ | 299 | | | $ | 600 | | | $ | 1,712 | |
| Commercial Solutions | | 320 | | | 310 | | | 410 | |
| Home Solutions | | 290 | | | 158 | | | 4,406 | |
| Learning and Development | | 100 | | | 25 | | | 351 | |
| Outdoor and Recreation | | 482 | | | 120 | | | 1,417 | |
| | | | | | |
| | $ | 1,491 | | | $ | 1,213 | | | $ | 8,296 | |
| | | | | | | | | | | | | | | | | | | | |
| | | 2020 | | 2019 | | 2018 |
| Capital expenditures | | | | | | |
| Appliances and Cookware | | $ | 16 | | | $ | 17 | | | $ | 23 | |
| Commercial Solutions | | 72 | | | 40 | | | 44 | |
| Home Solutions | | 38 | | | 43 | | | 50 | |
| Learning and Development | | 69 | | | 68 | | | 55 | |
| Outdoor and Recreation | | 24 | | | 21 | | | 16 | |
| Corporate | | 40 | | | 59 | | | 75 | |
| | $ | 259 | | | $ | 248 | | | $ | 263 | |
| | | | | | | | | | | | | | |
| | | December 31, 2020 | | December 31, 2019 |
| Segment assets | | | | |
| Appliances and Cookware | | $ | 1,040 | | | $ | 1,468 | |
| Commercial Solutions | | 2,529 | | | 2,731 | |
| Home Solutions | | 3,017 | | | 3,327 | |
| Learning and Development | | 4,663 | | | 4,800 | |
| Outdoor and Recreation | | 988 | | | 1,570 | |
| Corporate | | 2,463 | | | 1,746 | |
| | $ | 14,700 | | | $ | 15,642 | |
| | | | | | | | | | | | | | | | | |
| Geographic area information | | | | | |
| 2020 | | 2019 | | 2018 |
| Net Sales (1) (3) | | | | | |
| United States | $ | 6,260 | | | $ | 6,497 | | | $ | 6,808 | |
| Canada | 413 | | | 423 | | | 456 | |
| Total North America | 6,673 | | | 6,920 | | | 7,264 | |
| Europe, Middle East and Africa | 1,394 | | | 1,398 | | | 1,463 | |
| Latin America | 657 | | | 702 | | | 709 | |
| Asia Pacific | 661 | | | 695 | | | 718 | |
| Total International | 2,712 | | | 2,795 | | | 2,890 | |
| $ | 9,385 | | | $ | 9,715 | | | $ | 10,154 | |
(1)All intercompany transactions have been eliminated.
(2)Operating income (loss) by segment is net sales less cost of products sold, SG&A and impairment of goodwill, intangibles and other assets for continuing operations. Certain headquarters expenses of an operational nature are allocated to business segments primarily on a net sales basis. Corporate depreciation and amortization is allocated to the segments on a percentage of sales basis, and the allocated depreciation and amortization are included in segment operating income.
(3)Geographic sales information is based on the region from which the products are shipped and invoiced. Long-lived assets by geography are not presented because it is impracticable to do so.
Sales to Walmart Inc. and subsidiaries amounted to approximately
13.5%, 13.7% and 13.5%15% of consolidated net sales in
2020, 2019 and 2018,
2017substantially across all segments. Sales to Amazon amounted to approximately 12%, 9% and
2016,8% of consolidated net sales in 2020, 2019 and 2018, respectively, substantially across all segments.
(1) | All intercompany transactions have been eliminated.
|
(2) | Operating income (loss) by segment is net sales less cost of products sold and selling, general & administrative expenses (“SG&A”). Operating income by geographic area is net sales less cost of products sold, SG&A, impairment charges and restructuring costs. Certain headquarters expenses of an operational nature are allocated to business segments and geographic areas primarily on a net sales basis. Depreciation and amortization is allocated to the segments on a percentage of sales basis, and the allocated depreciation and amortization is included in segment operating income.
|
(3) | Geographic sales information is based on the region from which the products are shipped and invoiced. Long-lived assets by geography are not presented because it is impracticable to do so.
|
The following table disaggregates revenue by major product grouping source and geography for the years ended December 31, (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 |
| Appliances and Cookware | | Commercial Solutions | | Home
Solutions | | Learning and Development | | Outdoor and Recreation | | | | Total |
| Appliances and Cookware | $ | 1,706 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | | | $ | 1,706 | |
| Commercial | 0 | | | 1,502 | | | 0 | | | 0 | | | 0 | | | | | 1,502 | |
| Connected Home Security | 0 | | | 357 | | | 0 | | | 0 | | | 0 | | | | | 357 | |
| Food | 0 | | | 0 | | | 1,053 | | | 0 | | | 0 | | | | | 1,053 | |
| Home Fragrance | 0 | | | 0 | | | 918 | | | 0 | | | 0 | | | | | 918 | |
| Baby and Parenting | 0 | | | 0 | | | 0 | | | 1,112 | | | 0 | | | | | 1,112 | |
| Writing | 0 | | | 0 | | | 0 | | | 1,445 | | | 0 | | | | | 1,445 | |
| Outdoor and Recreation | 0 | | | 0 | | | 0 | | | 0 | | | 1,292 | | | | | 1,292 | |
| Total | $ | 1,706 | | | $ | 1,859 | | | $ | 1,971 | | | $ | 2,557 | | | $ | 1,292 | | | | | $ | 9,385 | |
| North America | $ | 1,068 | | | $ | 1,387 | | | $ | 1,568 | | | $ | 1,845 | | | $ | 805 | | | | | $ | 6,673 | |
| International | 638 | | | 472 | | | 403 | | | 712 | | | 487 | | | | | 2,712 | |
| Total | $ | 1,706 | | | $ | 1,859 | | | $ | 1,971 | | | $ | 2,557 | | | $ | 1,292 | | | | | $ | 9,385 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2019 |
| Appliances and Cookware | | Commercial Solutions | | Home
Solutions | | Learning and Development | | Outdoor and Recreation | | | | Total |
| Appliances and Cookware | $ | 1,692 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | | | $ | 1,692 | |
| Commercial | 0 | | | 1,402 | | | 0 | | | 0 | | | 0 | | | | | 1,402 | |
| Connected Home Security | 0 | | | 377 | | | 0 | | | 0 | | | 0 | | | | | 377 | |
| Food | 0 | | | 0 | | | 842 | | | 0 | | | 0 | | | | | 842 | |
| Home Fragrance | 0 | | | 0 | | | 1,033 | | | 0 | | | 0 | | | | | 1,033 | |
| Baby and Parenting | 0 | | | 0 | | | 0 | | | 1,111 | | | 0 | | | | | 1,111 | |
| Writing | 0 | | | 0 | | | 0 | | | 1,845 | | | 0 | | | | | 1,845 | |
| Outdoor and Recreation | 0 | | | 0 | | | 0 | | | 0 | | | 1,413 | | | | | 1,413 | |
| Total | $ | 1,692 | | | $ | 1,779 | | | $ | 1,875 | | | $ | 2,956 | | | $ | 1,413 | | | | | $ | 9,715 | |
| North America | $ | 1,101 | | | $ | 1,345 | | | $ | 1,469 | | | $ | 2,091 | | | $ | 914 | | | | | $ | 6,920 | |
| International | 591 | | | 434 | | | 406 | | | 865 | | | 499 | | | | | 2,795 | |
| Total | $ | 1,692 | | | $ | 1,779 | | | $ | 1,875 | | | $ | 2,956 | | | $ | 1,413 | | | | | $ | 9,715 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2018 |
| Appliances and Cookware | | Commercial Solutions | | Home
Solutions | | Learning and Development | | Outdoor and Recreation | | Other | | Total |
| Appliances and Cookware | $ | 1,819 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 1,819 | |
| Commercial | 0 | | | 1,523 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1,523 | |
| Connected Home Security | 0 | | | 377 | | | 0 | | | 0 | | | 0 | | | 0 | | | 377 | |
| Food | 0 | | | 0 | | | 881 | | | 0 | | | 0 | | | 0 | | | 881 | |
| Home Fragrance | 0 | | | 0 | | | 1,054 | | | 0 | | | 0 | | | 0 | | | 1,054 | |
| Baby and Parenting | 0 | | | 0 | | | 0 | | | 1,133 | | | 0 | | | 0 | | | 1,133 | |
| Writing | 0 | | | 0 | | | 0 | | | 1,849 | | | 0 | | | 0 | | | 1,849 | |
| Outdoor and Recreation | 0 | | | 0 | | | 0 | | | 0 | | | 1,515 | | | 0 | | | 1,515 | |
| Other | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 3 | | | 3 | |
| Total | $ | 1,819 | | | $ | 1,900 | | | $ | 1,935 | | | $ | 2,982 | | | $ | 1,515 | | | $ | 3 | | | $ | 10,154 | |
| North America | $ | 1,215 | | | $ | 1,429 | | | $ | 1,546 | | | $ | 2,082 | | | $ | 989 | | | $ | 3 | | | $ | 7,264 | |
| International | 604 | | | 471 | | | 389 | | | 900 | | | 526 | | | 0 | | | 2,890 | |
| Total | $ | 1,819 | | | $ | 1,900 | | | $ | 1,935 | | | $ | 2,982 | | | $ | 1,515 | | | $ | 3 | | | $ | 10,154 | |
Beginning January 1, 2021, the Company will report 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 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 Foods business will assume full responsibility for the overall brand strategy, business modeling, marketing and innovation of these product lines. The Company has determined this product line change did not result in a change to either of its Home Solutions or Appliances and Cookware reportable segments. Subsequent to this change, the Appliances and Cookware segment will be referred to as Home Appliances. The Company will recast prior period comparable results for both of these segments in its first quarter 2021 reporting to conform to this product line change.
Footnote
2018 — 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 U.S. Securities and Exchange Commission (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 in providing documents and information to the SEC in connection with its investigation and intends to continue to do so. The Company cannot predict the timing or outcome of this investigation.
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.al., in the United States District Court for the District of Delaware (the
“Streicher“Streicher Derivative Action”), purportedly on behalf of the Company against certain of
ourthe Company's current and former officers and directors. On October 30, 2018, another shareholder filed a putative derivative complaint,
Martindale v. Polk, et al .,al., in the United States District Court for the District of Delaware (the
“ Martindale“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 pending filed in the United States District Court for the District of New Jersey, further described below. The complaints seek unspecified 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(theNewell (the "Newell BrandsDerivative Action”)
,which is pending in the United States District Court for the District of Delaware. On January 31, 2019, the United States District Court for the District of Delaware stayed the Newell Brands Derivative Action pending the
final resolution of the motions to dismiss filed in
In re Newell Brands Inc. Securities Litigation and Oklahoma Firefighters Pension and Retirement System v. Newell Brands Inc., et al.( (described below). On December 30, 2020, 2 shareholders filed another 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, as well as those made in the In re Newell Brands Inc. Securities Litigation filed in the United States District Court for the District of New Jersey (described below), and those made in the securities class action lawsuit filed in the Superior Court of New Jersey, Hudson County, also described
below).below. As in the Newell Brands Derivative Action, the Weber Derivative Action seeks unspecified 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 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, but has not specified the amount of damages being sought. The Company intends to defend the litigation vigorously.
The Company and certain of its officers have been named as defendants in two2 putative securities class action lawsuits, each filed in the United States District Court for the District of New Jersey, on behalf of all persons who purchased or otherwise acquired ourthe Company's common stock between February 6, 2017 and January 24, 2018. The first lawsuit was filed on June 21, 2018 and is captionedBucks County Employees Retirement Fund, Individually and on behalf of All Others Similarly Situated v. Newell Brands Inc., Michael B. Polk, Ralph J. Nicoletti, and James L. Cunningham, III, Civil Action No.2:18-cv-10878 (United States District Court for the District of New Jersey). The second lawsuit was filed on June 27, 2018 and is captionedMatthew Barnett, Individually and on Behalf of All Others Similarly Situated v. Newell Brands Inc., Michael B. Polk, Ralph J. Nicoletti, and James L. Cunningham, III, Civil Action No.2:18-cv-11132 (United States District Court for the District of New Jersey). On September 27,
2018, the court consolidated these two2 cases under Civil Action No.18-cv-10878 (JMV)(JBC) bearing the captionIn re Newell Brands, Inc. Securities Litigation. The court also named Hampshire County Council Pension Fund as the lead plaintiff in the consolidated case. 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 regarding the Company’s business, operations, and prospects between February 6, 2017 and January 24, 2018. The plaintiffs seek compensatory damages and attorneys’ fees and costs, among other relief, but have not specified the amount of damages being sought. The Company intends to defend the litigation vigorously.
Recall of Harness Buckles on Select Car Seats
On January 10, 2020, the court in In re Newell Brands Inc. Securities Litigation entered a dismissal with prejudice after granting the Company’s motion to dismiss. On February 2014, Graco Children’s Products, Inc. (“Graco”), a subsidiary of7, 2020, the Company, announced a voluntary recall in the U.S. of harness buckles used on approximately 4 million toddler car seats manufactured between 2006 and 2013. In July 2014, Graco announced that it had agreed to expand the recall to include certain infant car seats manufactured between July 2010 and May 2013. In December 2014, the National Highway Traffic Safety Administration (the “NHTSA”) announcedplaintiffs filed an investigation into the timeliness of the recall, and in March 2015, the investigation concluded with Graco entering into a consent order with NHTSA pursuant to which Graco committed to spend $7.0 million in total over a five-year period to enhance child passenger safety and make a $3.0 million payment to NHTSA. At December 31 2018, the amount remaining to be paid associated with the consent order was immaterialappeal to the consolidated financial statementsUnited States Court of Appeals for the Company.
Third Circuit. On December 1, 2020, the Court of Appeals affirmed the dismissal.
Under the Delaware General Corporation Law (“DGCL”), any Jarden stockholder who did not vote in favor of adoption of the Merger Agreement and Plan of Merger for the Jarden acquisition, and who otherwise complies with the provisions of Section 262 of the DGCL, iswas entitled to seek an appraisal of his or her shares of Jarden common stock by the Court of Chancery of the State of Delaware as provided under Section 262 of the DGCL. As of December 31, 2018, dissenting stockholders collectively holding approximately 2.9 million shares of Jarden common stock have delivered (and not withdrawn) to Jarden written demands for appraisal. TwoNaN separate appraisal petitions, styled as Dunham Monthly Distribution Fund v. Jarden Corporation, CaseNo. 12454-VCS (Court of Chancery of the State of Delaware), and Merion Capital LP v. Jarden Corporation, CaseNo. 12456-VCS (Court of Chancery of the State of Delaware), respectively, were filed on June 14, 2016 by a total of ten10 purported Jarden stockholders seeking an appraisal of the fair value of their shares of Jarden common stock pursuant to Section 262 of the DGCL. A third appraisal petition, Fir Tree Value Master Fund, LP v. Jarden Corporation, CaseNo. 12546-VCS (Court of Chancery of the State of Delaware), was filed on July 8, 2016 by two2 purported Jarden stockholders seeking an appraisal of the fair value of their shares of Jarden common stock pursuant to Section 262 of the DGCL. A fourth appraisal petition, Veritian Partners Master Fund LTP v. Jarden Corporation, CaseNo. 12650-VCS (Court of Chancery of the State of Delaware), was filed on August 12, 2016 by two2 purported Jarden stockholders seeking an appraisal of the fair value of their shares of Jarden common stock pursuant to Section 262 of the DGCL. On or about October 3, 2016, the foregoing petitions were consolidated for joint prosecution under CaseNo. 12456-VCS, and, except as provided below, the litigation is ongoing.12456-VCS. The holders of a total of approximately 10.6 million former Jarden shares were represented in these actions initially.
On July 5, 2017 and July 6, 2017, Jarden and eleven11 of the dissenting stockholders specifically including Merion Capital ERISA LP, Merion Capital LP, Merion Capital II LP, Dunham Monthly Distribution Fund, WCM Alternatives: Event-Driven Fund, Westchester Merger Arbitrage Strategy sleeve of the JNL Multi-Manager Alternative Fund, JNL/Westchester Capital Event Driven Fund, WCM Master Trust, The Merger Fund, The Merger Fund VL and SCA JP Morgan Westchester (collectively, the “Settling Petitioners”), entered into settlement agreements with respect to approximately 7.7 million former Jarden shares (collectively, the “Settlement Agreements”). Pursuant to the Settlement Agreements, in exchange for withdrawing their respective demands for appraisal of their shares of Jarden common stock and a full and final release of all claims, among other things, the Settling Petitioners received the original merger consideration provided for under the Merger Agreement, specifically (1) 0.862 of a share of Newell common stock, and (2) $21.00 in cash, per share of Jarden common stock (collectively, the “Merger Consideration”), excluding any and all other benefits, including, without limitation, the right to accrued interest, dividends, and/or distributions. Accordingly, pursuant to the terms of the Settlement Agreements, Newell issued 6.6 million shares of Newell common stock to the Settling Petitioners (representing the stock component of the Merger Consideration), and authorized payment to the Settling Petitioners of approximately $162 million (representing the cash component of the Merger Consideration). The
On July 19, 2019, the Court of Chancery ofissued an order in which it determined that the State of Delaware has dismissed with prejudice the appraisal claims for the Settling Petitioners. Following the settlements, claims from the holders of approximately 2.9 million former Jarden shares remain outstanding in the proceedings. The value of the merger consideration attributable to such shares based on the Company’s stock price on the closing date of the Jarden acquisition would have been approximately $171 million in the aggregate. The fair value of the remaining Jarden shares at the date of Jarden common stock held by thesethe Merger was $48.31 per share, reflecting approximately $140 million in value to be paid in cash to the remaining dissenting stockholders, as determinedshareholders. The Court also ordered the payment of accrued interest, compounded quarterly, and accruing from the date of closing to the date of payment. Following an unsuccessful motion for re-argument by the court, would be payable in cash and could be lower or higher thanremaining dissenting shareholders, the Merger Consideration to which such Jarden stockholders would have been entitled underCourt entered judgment on its valuation on October 2, 2019. On October 4, 2019, the Merger Agreement. The evidentiary trial was held from June 26 through June 29, 2018. Post-trial briefing was completedCompany paid the judgment in the fourth quarteramount of 2018approximately $177 million, which terminated the accumulation of interest on the judgment amount. On July 9, 2020, following an appeal by the dissenting shareholders, the Supreme Court of Delaware affirmed the judgment. The Company reflected the amounts of $171 million and oral argument$6 million, respectively, as a financing cash outflow and operating cash outflow in the Company’s Consolidated Statement of Cash Flows for the year ended December 31, 2019.
Gizmo Children’s Cup Recall
In June 2019, a subsidiary of the Company conducted an internal investigation to determine the root cause of an issue related to a product line in the Outdoor and Recreation segment that was
heldreported to the Company by one of its retailers. The Company determined that because of an issue occurring infrequently, but on
November 29, 2018.a random basis, during the manufacturing process, the Gizmo Children’s cup may present users with a potential safety concern because the silicone spout may detach from the nylon base. The Company reported the issue to the Consumer Product Safety Commission and Health Canada, and issued a return authorization notice to retail customers. The Company announced a recall of the product on August 27, 2019 offering consumers a replacement lid if they had an affected product. In late 2019, the Company discovered that some product that had been inspected and subsequently resold or used as replacement lids for the recall was exhibiting the same type of separation of the spout from the lid base. The Company investigated the issue and ultimately determined to extend the recall to include the inspected product. The Company reported this conclusion to the relevant authorities and on February 19, 2020 announced an expansion of the recall. The Company has incurred inception to date charges associated with this matter of $22 million, including $2 million during 2020, net of recoveries from a third-party manufacturer.
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 CERCLAthe 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
as ofat December 31,
2018,2020 was
$49.4$42 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 a17-mile 17 mile stretch of the Lower Passaic River and its tributaries.Seventy-two NaN of the GNL recipients, including the Company on behalf of itself and its subsidiary Berol Corporation (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 four4 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 $0.5approximately $1 million to $1.8$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 $1.6approximately $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 9 miles. The cost estimates for these alternatives rangeranged from approximately $28.0$28 million to $2.7 billion, including related operation, maintenance and monitoring costs. The participating parties have been discussing the draft RI and FS reports with U.S. EPA and are preparing revised reports.U.S. EPA issued its finala 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 (the “ROD”) in March 2016 which, in the language of the document,(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, in March 2016, U.S. EPA issued GNLs for the lower 8.3 miles of the Lower Passaic River (the “2016 GNL”) to numerous entities, apparently including all previous recipients of the initial GNL, including Company Parties, as well as several additional entities. As with the initial GNL, the Company Parties were among the recipients of the 2016 GNL. The 2016 GNL states that U.S. EPA would like to determine whether one entity, Occidental
Chemical Corporation (“OCC”), will voluntarily perform the remedial design for the selected remedy for the lower 8.3 miles, and that following execution of an agreement for the remedial design, U.S. EPA plans to begin negotiation of a remedial action consent decree “under which OCC and the other major PRPs will implement and/or pay for U.S. 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.”
The letter “encourage[s] the major PRPs to meet and discuss a workable approach to sharing responsibility for implementation and funding of the remedy” without indicating who may be the “major PRPs.” Finally, U.S. EPA states that it “believes that some of the parties that have been identified as PRPs under CERCLA, and some parties not yet named as PRPs, may be eligible for a cash out settlement with U.S. EPA for the lower 8.3 miles of the Lower Passaic River.”
In September 2016, OCC and EPA entered into an Administrative Order on Consent for performance of the remedial design. On March 30, 2017, U.S. EPA sent a letter offering a cash settlement in the amount of $0.3 million to
twenty20 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 outcash-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.” Then, by letter dated September 18, 2017, U.S. EPA announced an allocation process involving all GNL recipients except those participating in the first-round
cash-out settlement, and
five5 public entities. The letter affirms that U.S. EPA anticipates eventually offering
cash-out settlements to a number of parties, and that it expects “that the private PRPs responsible for release of dioxin, furans, and/or PCBs will perform the OU2
[lowerlower 8.3
mile]mile remedial action.” At this time, it is unclear how the cost of any cleanup would be allocated among any of the parties, including the Company Parties or any other entities. The site is also subject to a Natural Resource Damage Assessment.
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 “Draft 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 cost estimates for these active alternatives range from approximately $321 million to $468 million. EPA has indicated it aims to have the IR FS finalized and to issue a Record of Decision for the upper 9 miles in 2021.
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 5 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 lower 8.3 miles17- 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 U.S. EPA is still reviewing the draft RI and FS, that no framework for or agreement on allocation for the investigation and ultimate remediation has been developed, and that there exists the potential for further litigation regarding costs and cost sharing, the extent to which the Company Parties may be held liable or responsible is not yet known. 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 U.S. EPA has decided the Newark Bay remedy
.
Based on currently known facts and circumstances, the Company does not believe that this matter is reasonably likely to have a material impact on the 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. 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.
Although management of the Company cannot predict the ultimate outcome of these 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 Consolidated Financial Statements, except as otherwise described above.
In the normal course of business and as part of its acquisition and divestiture strategy, the Company may provide certain representations and indemnifications related to legal, environmental, product liability, tax or other types of issues. Based on the nature of these representations and indemnifications, it is not possible to predict the maximum potential payments under all of these agreements due to the conditional nature of the 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.
As 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.
At December 31, 2018,2020, the Company had approximately $74.6$51 million in standby letters of credit primarily related to the Company’s self-insurance programs, including workers’ compensation, product liability and medical expenses.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to provide reasonable assurance that information, which is required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and that such information is accumulated and communicated to management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As required by Rule13a-15(b) of the Exchange Act, the Company’s management, including theThe Company’s Chief Executive Officer and Chief Financial Officer hashave evaluated the effectiveness of itsthe Company’s disclosure controls and procedures (as required by Rule 13a-15(b) of the Exchange Act) and concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2020, the end of the period covered by this Annual Report on Form10-K. Based on that evaluation, 10-K, due to the Company’smaterial weakness in the internal control over financial reporting described below.
The Chief Executive Officer and Chief Financial Officer have
concluded that its disclosure controls and procedures were not effective as of December 31, 2018 due to the material weakness in internal control over financial reporting described below.Managementalso concluded that notwithstanding the existence of the material weakness, the consolidated financial statements included in this Annual Report on Form10-K, present fairly, in all material respects, the Company’s financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP. Additional corrective actions continueRemediation efforts to address the internal control material weakness asare described below under the section “Remediation Efforts with Respect to Material Weakness.Plan.”
Management’s Annual Report on Internal Control Over Financial Reporting
The Company’s management
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined inby Rule13a-15(f) under of the Exchange Act. The Company’s management, under the oversight of the supervision of Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018, based on the framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal Control — Integrated Framework(2013). The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles. U.S. GAAP. The Company’s internal control over financial reporting includes policies and procedures that:
•pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the Company’s assets;
•provide reasonable assurance that transactions are recorded as necessary to permit preparation of the Company’s financial statements in accordance with U.S. GAAP, and that receipts and expenditures are being made only in accordance with authorizations of the Company’s management; and
•provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on its financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods
areis subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As required by Rule 13a-15 under the Exchange Act, management assessed the effectiveness of its internal control over financial reporting as of December 31, 2020. In making this assessment, management used the criteria set forth in the “Internal Control - Integrated Framework” (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
A material weakness is
defined as a deficiency, or
a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of
the Company’sour annual or interim financial statements will not be prevented or detected on a timely basis.
The Company continues to have a material weakness in internal control over financial reporting as disclosed in Management’s Assessment of the Internal Control over Financial Reporting in Item 9A., Controls and Procedures, of our Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Form 10-K”). The Company did not design and maintain effective controls over the accounting for the impactcertain aspects of the divestitures. Specifically,income taxes. At December 31, 2019, the Company identified that it did not design and maintain effective controls related to ensure deferred taxes were included completelythe completeness and accurately in the carrying valuesaccuracy of assets heldaccounting for salestate income tax and the intraperiodaccuracy of determining uncertain tax allocation between continuingpositions, including but not limited to verifying the accrued interest associated with uncertain tax positions was properly determined and discontinued operations was accurate.recorded. In addition, during the fourth quarter of 2020, management identified that the Company did not design and maintain effective controls to ensure the current and noncurrent classificationaccuracy of assets and liabilities heldaccounting for sale was accurate. non-recurring tax planning transactions.
These deficiencies resulted in
adjustments that were corrected in the assetserrors recorded as of and
liabilities held for sale; loss from discontinued operations, net of tax; net loss and deferred income taxes accounts to the Company’s condensed consolidated financial statements for the quarter ended
September 30, 2018 as well asDecember 31, 2020 impacting the
incomecurrent tax benefit
to continuing operations; loss from continuing operations and loss from discontinued operations, net of tax for the quarter
and year ended December 31,
2018,2020; and deferred tax liabilities and other non-current liabilities as
wellof December 31, 2020 and errors previously recorded as
of and for the quarter ended December 31, 2019 impacting the current tax benefit for the quarter ended December 31, 2019; and goodwill, other assets, deferred tax liabilities, other non-current liabilities and accumulated other comprehensive loss as of December 31, 2019. These control deficiencies, in the
current and noncurrent classification of assets and liabilities held for sale in the prior year balance sheet as presented in the December 31, 2018 financial statements. Additionally, these control deficienciesaggregate, could result in a misstatement of the
Company’s aforementioned accounts and disclosures that would result in a material misstatement of the annual or interim consolidated financial statements that would not be prevented or detected. Accordingly,
the Company’s management has determined that these control deficiencies,
in aggregate, constitute a material weakness.
Because of
thisthe material weakness, management concluded that the
Company did not maintain effectiveCompany’s internal control over financial reporting
was not effective as of December 31,
2018.2020.
The Company’s independent registered public accounting firm, PricewaterhouseCoopers LLP has issued an unqualified opinion on our consolidated financial statements and an adverse opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018. Their2020, has been audited by PricewaterhouseCoopers LLP, as stated in their report, appears inas set forth under Item 8 of this Form10-K.2020 Annual Report.
Remediation Efforts with RespectPlan
As of December 31, 2020, management designed and implemented the following measures to remediate the deficiencies related to the
Material WeaknessManagementcompleteness and accuracy of accounting for state income tax and the accuracy of determining uncertain tax positions, including but not limited to verifying that the accrued interest associated with uncertain tax positions was properly determined and recorded:
•Hired experienced resources with substantive backgrounds in accounting for income taxes as well as U.S. multinational public company experience;
•Engaged a third party to review the Company’s tax provision processes, identify inefficiencies, and recommend process enhancements;
•Implemented a tax reporting software solution that has enhanced our visibility of uncertain tax positions as well as a software solution that has enhanced our state income tax reporting capabilities;
•Implemented enhancements and process improvements to the quarterly and annual provision with respect to the accuracy of uncertain tax positions and completeness and accuracy of state income taxes; and
•Undertook extensive training for key personnel in each reporting jurisdiction on tax reporting requirements and our redesigned processes.
In addition, as summarized below, management is in the process of developing a full remediation plan for and has begun enhancing certain controls to include refinements and improvements to the controls with respect to the deficiencies related to the accuracy of accounting for non-recurring tax planning transactions:
• Enhancing the precision of the control over the inputs usedcalculation and analysis of non-recurring tax planning transactions.
While management believes that the measures already designed and implemented in
divestiture calculations as follows:enhancingboth the level of review of deferredstate tax balances for each business held for sale;
supplementingand uncertain tax positions processes are effective, the review of deferred tax balances by legal entity to ensure proper presentation for financial reporting purposes; and
enhancingmaterial weakness, in the held for sale footnote reconciliation process.
The material weaknessaggregate, will not be considered fully remediated until management designs and implements effectiveall aspects of the controls that operate for a sufficient period of time and management has concluded, through testing, that these controls are effective.operating effectively. The Company will monitor the effectiveness of its remediation plan and will refine its remediation plan as appropriated.
appropriate.
Changes in Internal Control Over Financial Reporting
There has been
During the quarter ended December 31, 2020, there were no
changechanges in the Company’s internal control over financial reporting
as of December 31, 2018,(as defined in Rule 13a-15(f) under the Exchange Act) that
hashave materially affected, or
isare reasonably likely to materially affect, the Company’s internal control over financial reporting.
Report of the Registered Public Accounting Firm
The Report of PricewaterhouseCoopers LLP, the Company’s independent registered public accounting firm, which addresses the effectiveness of the Company’s internal control over financial reporting, is set forth under Item 8 of this Annual report on Form10-K.
ITEM 9B. OTHER INFORMATION
None.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information required under this Item with respect to Directors will be contained in the Company’s Proxy Statement for the Annual Meeting of Stockholders (the “Proxy Statement”) under the captions “Election of Directors” and “Information Regarding Board of Directors and Committees and Corporate Governance,” which information is incorporated by reference herein.
Information required under this Item with respect to Executive Officers of the Company is included as a supplemental item at the end of Part I of this report.
Information
If applicable, information required under this Item with respect to compliance with Section 16(a) of the Exchange Act will be included in the Proxy
Statement under the caption “Section“Delinquent Section 16(a) Beneficial Ownership Compliance Reporting,Reports,” which information is incorporated by reference herein.
reference.
Information required under this Item with respect to the audit committee and audit committee financial experts will be included in the Proxy Statement under the caption “Information Regarding Board of Directors and Committees and Corporate Governance — Committees — Audit Committee,” which information is incorporated by reference herein.
Information required under this Item with respect to communications between security holders and Directors will be included in the Proxy Statement under the caption “Information Regarding Board of Directors and Committees and Corporate Governance — Director Nomination Process,” and “Information Regarding Board of Directors and Committees and Corporate Governance — Communications with the Board of Directors,” which information is incorporated by reference herein.
The Board of Directors has adopted a “Code of Ethics for Senior Financial Officers,” which is applicable to the Company’s senior financial officers, including the Company’s principal executive officer, principal financial officer, principal accounting officer and controller. The Company also has a separate “Code of Conduct” that is applicable to all Company employees, including each of the Company’s directors and officers. Both the Code of Ethics for Senior Financial Officers and the Code of Conduct are available under the “Corporate Governance” link on the Company’s website at www.newellbrands.com. The Company posts any amendments to or waivers of its Code of Ethics for Senior Financial Officers or to the Code of Conduct (to the extent applicable to the Company’s directors or executive officers) at the same location on the Company’s website. In addition, copies of the Code of Ethics for Senior Financial Officers and of the Code of Conduct may be obtained in print without charge upon written request by any stockholder to the office of the Corporate Secretary of the Company at
221 River Street, Hoboken, New Jersey 07030.6655 Peachtree Dunwoody Road, Atlanta, GA 30328.
ITEM 11. EXECUTIVE COMPENSATION
Information required under this Item will be included in the Proxy Statement under the captions “Organizational Development & Compensation Committee Report,” “Executive Compensation,” and “Compensation Committee Interlocks and Insider Participation,” which information is incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information required under this Item will be included in the Proxy Statement under the captions “Certain Beneficial Owners” and “Equity Compensation Plan Information,” which information is incorporated by reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information required under this Item with respect to certain relationships and related transactions will be included in the Proxy Statement under the caption “Certain Relationships and Related Transactions,” which information is incorporated by reference herein.
Information required under this Item with respect to director independence will be included in the Proxy Statement under the caption “Information Regarding Board of Directors and Committees and Corporate Governance — Director Independence,” which information is incorporated by reference herein.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information required under this Item will be included in the Proxy Statement under the caption “Ratification of Appointment of Independent Registered Public Accounting Firm,” which information is incorporated by reference herein.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)(1) The following is a list of the financial statements of Newell Brands Inc. included in this report on Form
10-K, which are filed herewith pursuant to Item 8:
Reports of Independent Registered Public Accounting Firms
Consolidated Statements of Operations — Years Ended December 31,
2018, 20172020, 2019 and
20162018
Consolidated Statements of Comprehensive Income
(Loss) — Years Ended December 31,
2018, 20172020, 2019 and
20162018
Consolidated Balance Sheets — December 31,
20182020 and
20172019
Consolidated Statements of Cash Flows — Years Ended December 31,
2018, 20172020, 2019 and
20162018
Consolidated Statements of Stockholders’ Equity — Years Ended December 31,
2018, 20172020, 2019 and
20162018
Notes to Consolidated Financial Statements — December 31,
2018, 20172020, 2019 and
20162018
(2) The following consolidated financial statement schedule of the Company included in this report on Form
10-K is filed herewith pursuant to Item 15(c) and appears after the signature pages at the end of this Form 10-K:
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS—Years Ended December 31,
2018, 20172020, 2019 and
20162018
All other financial schedules are not required under the related instructions or are inapplicable and, therefore, have been omitted.
(3) The exhibits filed herewith are listed on the Exhibit Index filed as part of this report on Form10-K. Each management contract or compensatory plan or arrangement of the Company listed on the Exhibit Index is separately identified by an asterisk.
| | | | | |
Number | | Description of Exhibit |
|
ITEM 2—2 — PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR SUCCESSION |
| |
| 2.1 | | |
| ITEM 3—ARTICLES OF INCORPORATION AND BY-LAWS |
| |
2.23.1 | | Stock and Asset Purchase Agreement, dated as of October 12, 2016, by and between Newell Brands Inc. and Stanley Black & Decker, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form8-K dated October 12, 2016, FileNo. 001-09608). |
| |
2.3 | | First Amendment to Stock and Asset Purchase Agreement, dated as of March 1, 2017 by and between Newell Brands Inc. and Stanley Black & Decker, Inc. (incorporated by reference to Exhibit 2.2 to the Company’s Current Report on Form8-K dated March 14, 2017, FileNo. 001-09608). |
|
ITEM 3—ARTICLES OF INCORPORATION ANDBY-LAWS
|
| |
3.1 | | |
| 3.2 | |
3.2 | | |
| 3.3 | |
|
ITEM 4—4 — INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES |
| |
4.14.1† | | |
| | | | | |
| |
| 4.2 | | |
| |
| 4.3 | | |
| |
| 4.4 | | |
| |
| 4.5 | | Form of 4.70% Notes due 2020 issued pursuant to an Indenture dated as of November 1, 1995, between Newell Rubbermaid Inc. and The Bank of New York Mellon Trust Company, N.A. (as successor to JPMorgan Chase Bank, formerly known as The Chase Manhattan Bank (National Association)), as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form8-K dated August 2, 2010, FileNo. 001-09608). |
| |
4.6 | | |
| |
4.74.6 | | |
| |
4.84.7 | | |
| |
4.94.8 | | Form of 2.600% note due 2019 issued pursuant to the Indenture, dated as of November 19, 2014, between the Company and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form8-K dated March 18, 2016, FileNo. 001-09608). |
| |
4.10 | | |
| | |
| |
4.114.9 | | |
| |
4.124.10 | | |
| |
4.134.11 | | |
| |
4.144.12 | | |
| |
4.154.13 | | |
| |
4.164.14 | | |
| |
Pursuant to item 601(b)(4)(iii)(A) of RegulationS-K, the Company is not filing certain documents. The Company agrees to furnish a copy of each such document upon the request of the Commission. |
|
ITEM 10—10 — MATERIAL CONTRACTS |
| | |
| |
10.24*10.21* | |
| |
| 10.22* | |
| |
10.25*10.23* | |
| |
| 10.24* | |
| |
| 10.25* | |
| |
| 10.26* | |
| |
10.26*10.27* | | |
| |
10.27*10.28* | | |
| |
10.28*10.29* | | |
| |
10.29*10.30* | | Performance-Based Restricted Stock Unit Award Agreement of Mark Tarchetti dated May 10, 2016 (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form10-Q for the quarterly period ended June 30, 2016, FileNo. 001-09608). |
| |
10.30* | | |
| |
| 10.31* | | Performance-Based Restricted Stock Unit Award Agreement of Fiona Laird, dated May 31, 2016 (incorporated by reference to Exhibit 10.15 to the Company’s Annual Report on Form10-K for the year ended December 31, 2016, FileNo. 001-09608). |
| |
10.32* | | |
| |
10.33*10.32* | | 2014 Restricted Stock Unit Equivalent Award Agreement dated as of December 28, 2015 between Newell Rubbermaid Inc. and Mark S. Tarchetti (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form8-K dated December 22, 2015, FileNo. 001-09608). |
| |
10.34* | | 2015 Restricted Stock Unit Equivalent Award Agreement dated as of December 28, 2015 between Newell Rubbermaid Inc. and Mark S. Tarchetti (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form8-K dated December 22, 2015, FileNo. 001-09608). |
| |
10.35* | | Long-Term Incentive Performance Pay Terms and Conditions under the Newell Rubbermaid Inc. 2013 Incentive Plan for 2014 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form10-Q for the quarterly period ended March 31, 2014, FileNo. 001-09608). |
| |
10.36* | | Long-Term Incentive Performance Pay Terms and Conditions under the Newell Rubbermaid Inc. 2013 Incentive Plan, as updated February 10, 2015 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form8-K dated February 10, 2015, FileNo. 001-09608). |
| | |
| |
10.37* | | Long-Term Incentive Performance Pay Terms and Conditions under the Newell Rubbermaid Inc. 2013 Incentive Plan, as amended May 10, 2016 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form8-K dated May 10, 2016, FileNo. 001-09608). |
| |
10.38* | | Long-Term Incentive Performance Pay Terms and Conditions under the Newell Rubbermaid Inc. 2013 Incentive Plan, as amended on February 8, 2017 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form8-K dated February 8, 2017, FileNo. 001-09608). |
| |
10.39* | | Form of Stock Option Agreement under the Newell Rubbermaid Inc. 2010 Stock Plan (incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form10-Q for the quarterly period ended June 30, 2010, FileNo. 001-09608, FileNo. 001-09608). |
| |
10.40* | | Form of Restricted Stock Unit Award Agreement under the Newell Rubbermaid Inc. 2010 Stock Plan for 2013 Awards (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form10-Q for the quarterly period ended March 31, 2013, FileNo. 001-09608). |
| | |
10.41*10.33* | | |
| |
10.42* | | Form of 2017 Restricted Stock Unit Award Agreement under the Newell Rubbermaid Inc. 2013 Incentive Plan for Employees, as amended May 9, 2017 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form10-Q for the quarterly period ended June 30, 2017, FileNo. 001-09608). |
| |
10.43* | | Form ofNon-Employee Director Restricted Stock Unit AwardOption Agreement under the Newell Rubbermaid Inc. 2013 Incentive Plan, as amended, May 9, 2017for Awards to Employees (Management Committee) (incorporated by reference to Exhibit 10.210.4 to the Company’s Quarterly Report on Form10-Q for the quarterly period ended June 30, 2017,March 31, 2020, FileNo. 001-09608). |
| |
10.44*10.34* | | |
| |
10.45*10.35* | | |
| |
10.46*10.36*† | | |
| |
10.47*10.37* | | Form of 2017 Restricted Stock Unit Award Agreement under the Newell Rubbermaid Inc. 2013 Incentive Plan for Employees, as amended February 8, 2017 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form8-K dated February 8, 2017, FileNo. 001-09608). |
| |
10.48* | | |
| |
10.49*10.38* | | |
| |
| 10.39* | |
| |
| 10.40* | |
| |
| 10.41* | |
10.55* | | Amendment to Written Compensation Arrangement with Michael B. Polk, dated October 1, 2012 (incorporated by reference to Exhibit 10.34 to the Company’s Annual Report on Form10-K for the year ended December 31, 2012, FileNo. 001-09608). |
| | |
10.56*10.47* | | Amendment to Written Compensation Arrangement with Michael B. Polk dated May 11, 2016 (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form10-Q for the quarterly period ended June 30, 2016, FileNo. 001-09608). |
| |
10.57* | | Compensation Arrangement with Mark Tarchetti dated May 12, 2016 (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form10-Q for the quarterly period ended June 30, 2016, FileNo. 001-09608). |
| |
10.58* | | Compensation Arrangement with William A. Burke III, dated May 12, 2016 (incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form10-Q for the quarterly period ended June 30, 2016, FileNo. 001-09608). |
| |
10.59* | | Compensation Arrangement with Ralph Nicoletti dated May 12, 2016 (incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form10-Q for the quarterly period ended June 30, 2016, FileNo. 001-09608). |
| |
10.60* | | Compensation Arrangement with Fiona Laird dated May 25, 2016 (incorporated by reference to Exhibit 10.38 to the Company’s Annual Report on Form10-K for the year ended December 31, 2016, FileNo. 001-09608). |
| |
10.61*† | | Compensation Arrangement with Christopher H. Peterson, dated November 21, 2018. |
| |
10.62* | | |
| | |
| |
10.63*10.48* | | |
| |
10.64*10.49* | | Separation Agreement and General Release, dated as of May 12, 2016, by and between Newell Brands Inc. and John K. Stipancich (incorporated by reference to Exhibit 10.9 to the Company’s Quarterly Report on Form10-Q for the quarterly period ended June 30, 2016, FileNo. 001-09608). |
| |
10.65* | | Separation Agreement and General Release, dated as of July 28, 2016, by and between Newell Brands Inc. and Joseph A. Arcuri (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form8-K dated July 28, 2016, FileNo. 001-09608). |
| |
10.66* | | Separation Agreement and General Release, dated as of August 24, 2017, by and between Newell Brands Inc. and Fiona C. Laird (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form8-K dated August 24, 2017, FileNo. 001-09608). |
| |
10.67* | | Separation Agreement, dated as of December 13, 2015, by and between Jarden Corporation and Martin E. Franklin (incorporated by reference to Exhibit 10.4 of Jarden Corporation’s Current Report on Form8-K dated December 17, 2015, FileNo. 001-13665). |
| |
10.68* | | Separation Agreement, dated as of December 13, 2015, by and between Jarden Corporation and Ian G.H. Ashken (incorporated by reference to Exhibit 10.5 of Jarden Corporation’s Current Report on Form8-K dated December 17, 2015, FileNo. 001-13665). |
| |
10.69* | | Retirement Agreement and General Release, dated as of May 30, 2018, by and between Newell Brands Inc. and Ralph Nicoletti (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form8-K dated June 1, 2018, File No. 001-09608). |
| |
10.70* | | |
| |
10.7110.50* | | AmendedRetirement Agreement and Restated Credit AgreementGeneral Release, dated as of January 26, 2016 amongFebruary 18, 2019, by and between Newell RubbermaidBrands Inc., the subsidiary borrowers party thereto, the guarantors party thereto, the lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative AgentWilliam A. Burke (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form8-K dated January 26, 2016,February 18, 2019, FileNo. 001-09608). |
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10.7210.51* | |
| |
| 10.52* | |
| |
| 10.53* | |
| |
| 10.54* | |
| |
| 10.55* | |
| |
| 10.56* | |
| |
| 10.57* | |
| |
| 10.58* | |
| |
| 10.59* | |
| |
| 10.60* | |
| |
| 10.61* | |
| |
| | | | | |
| 10.62 | Second Amended and Restated Credit Agreement, dated as of December 12, 2018, among Newell Brands Inc., the Subsidiary Borrowers thereto, the Guarantors from time to time borrowers thereto, the lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form8-K dated December 18, 2018, File No. 001-09608). |
| | |
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10.7310.63 | | |
| |
10.74 | | Term Loan Credit Agreement dated as of January 26, 2016 among Newell Rubbermaid Inc., the guarantors party thereto, the lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form8-K dated January 26, 2016, FileNo. 001-09608). |
| |
10.75 | | Restated Loan and Servicing Agreement, dated as of October 3, 2016,2, 2019, among Jarden Receivables, LLC, as Borrower, Newell Brands Inc., as Servicer, the Conduit Lenders, the Committed Lenders and the Managing Agents named therein, Wells FargoPNC Bank, National Association and Royal Bank of Canada, each as an Issuing Lender,lender, PNC Bank, National Association, as Administrative Agent, and PNC Capital Markets LLC, as Structuring Agent (incorporated(Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form8-K dated October 3, 2016,4, 2019, FileNo. 001-09608). |
| |
10.7610.64 | | Third Amendment dated as of July 24, 2017 to the Loan and Servicing Agreement and Waiver, dated October 3, 2016, among Jarden Receivables, LLC, the Originators party thereto, Newell Brands Inc., as Servicer, PNC Bank, National Association, as Administrative Agent and as a Managing Agent, Wells Fargo Bank, National Association, as Issuing Lender and each Managing Agent party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form10-Q for the quarterly period ended September 30, 2017, FileNo. 001-09608). |
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10.77 | | Third Amendment to Receivables Contribution and Sale Agreement, dated as of October 31, 2017 among Jarden Receivables, LLC, the Originators party thereto, Newell Brands Inc., as Servicer, PNC Bank, National Association, as Administrative Agent and as a Managing Agent, Wells Fargo Bank, National Association, as Issuing Lender and each Managing Agent party thereto (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form10-Q for the quarterly period ended September 30, 2017, FileNo. 001-09608). |
| |
10.7810.65 | | Omnibus Amendment, dated as of December 16, 2016 among Jarden Receivables, LLC, Originator parties thereto, Newell Brands Inc., as Servicer, PNC Bank, National Association, as Administrative Agent and as a Managing Agent, Wells Fargo Bank, National Association, as Issuing Lender and each Managing Agent party thereto (incorporated by reference to Exhibit 10.49 to the Company’s Annual Report on Form10-K for the year ended December 31, 2016, FileNo. 001-09608). |
| |
10.7910.66 | | Second Omnibus Amendment, dated as of March 29, 2017 among Jarden Receivables, LLC, the Originators party thereto, Newell Brands Inc., as Servicer, PNC Bank, National Association, as Administrative Agent and as a Managing Agent, Wells Fargo Bank, National Association, as Issuing Lender and each Managing Agent party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form10-Q for the quarterly period ended March 31, 2017, FileNo. 001-09608). |
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10.8010.67 | | Fourth Omnibus Amendment, dated May 31, 2018 among Jarden Receivables, LLC, the Originators party thereto, Newell Brands Inc., as Servicer, PNC Bank, National Association, as Administrative Agent and as a Managing Agent, Wells Fargo Bank, National Association, as Issuing Lender and each Managing Agent Party thereto (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form10-Q for the quarterly period ended June 30, 2018, File No. 001-09608). |
| |
| 10.68 | Sixth Omnibus Amendment, dated as of March 14, 2019, by and among Jarden Receivables, LLC, as Borrower, Newell Brands Inc., as Servicer, the Managing Agents named therein, PNC Bank, National Association, as Administrative Agent, and Wells Fargo Bank, National Association, as Issuing Lender, to Loan and Servicing Agreement, dated as of October 3, 2016, and Receivables Contribution and Sale Agreement, dated as of October 3, 2016 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated March 15, 2019, File No. 001-09608). |
| |
| 10.69 | Seventh Omnibus Amendment, dated as of June 18, 2019, by and among Jarden Receivables, LLC, as Borrower, Newell Brands Inc., as Servicer, the Managing Agents named therein, PNC Bank, National Association, as Administrative Agent, and Wells Fargo Bank, National Association, as Issuing Lender, to Loan and Servicing Agreement, dated as of October 3, 2016, and Receivables Contribution and Sale Agreement, dated as of October 3, 2016 (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2019, File No. 001-09608). |
| |
| 10.70 | Eighth Omnibus Amendment dated as of March 20, 2020, to Amended and Restated Loan and Servicing Agreement, dated as of October 2, 2019, among Jarden Receivables, as Borrower, Newell Brands Inc., as Servicer, the Conduit Lenders, the Committed Lenders and the Managing Agents named therein, PNC Bank, National Association and Royal Bank of Canada, each as an Issuing lender, PNC Bank, National Association, as Administrative Agent, and PNC Capital Markets LLC, as Structuring Agent, (incorporated by reference to Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, File No. 001-09608). |
| | | | | |
| |
ITEM 21- SUBSIDIARIES OF THE REGISTRANT
18.1 | |
| |
21.1† | | Significant Subsidiaries of the Company. |
|
ITEM 23—CONSENT21 — SUBSIDIARIES OF EXPERTS AND COUNSEL THE REGISTRANT |
| |
23.1†21.1† | | |
|
ITEM 31—RULE13a-14(a)/15d-14(a) CERTIFICATIONS
|
| |
31.1†ITEM 23 — CONSENT OF EXPERTS AND COUNSEL |
| |
| 23.1† | |
| |
| ITEM 31 — RULE 13a-14(a)/15d-14(a) CERTIFICATIONS |
| 31.1† | |
| 31.2† | |
31.2† | | |
|
ITEM 32—32 — SECTION 1350 CERTIFICATIONS |
| 32.1† | |
32.1† | | |
| 32.2† | |
32.2† | | |
| |
ITEM 101 — INTERACTIVE DATA FILE |
| |
| 101.INS | | Inline XBRL Instance Document |
| |
| 101.SCH | | Inline XBRL Taxonomy Extension Schema Document |
| |
| 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| |
| 101.DEF | | Inline XBRL Taxonomy Definition Linkbase Document |
| |
| 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document |
| |
| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
† | Filed herewith
|
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
| |
* | | | | | |
| † | Filed herewith |
| * | Represents management contracts and compensatory plans and arrangements. |
ITEM 16. FORM 10-K SUMMARY
None
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | |
NEWELL BRANDS INC.
Registrant |
| | |
NEWELL BRANDS INC.
Registrant
By |
| |
By | | /s/ Christopher H. Peterson |
| | Christopher H. Peterson |
| Title | | Executive Vice President, Chief Financial Officer & President, Business Operations
(Principal Financial Officer and Principal Accounting Officer) |
| Date | | March 4, 2019February 18, 2021 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 4, 2019,February 18, 2021, by the following persons on behalf of the Registrant and in the capacities indicated.
| | | | | | | | |
Signature | | Title |
| |
/s/ Michael B. Polk Michael B. Polk
Ravichandra K. Saligram | | President, Chief Executive Officer and Director
(Principal Executive Officer) |
| Ravichandra K. Saligram | | |
| |
/s/ Christopher H. Peterson | | Chief Financial Officer & President, Business Operations
(Principal Financial Officer and Principal Accounting Officer) |
| Christopher H. Peterson | | Executive Vice President, Chief Financial Officer
|
| |
/s/ James L. Cunningham, III James L. Cunningham, III
Patrick D. Campbell | | Senior Vice President, Chief Accounting Officer
Chairman of the Board |
| Patrick D. Campbell | | |
| |
/s/ Patrick D. Campbell Patrick D. Campbell
Bridget Ryan Berman | | Chairman of the Board and Director
|
| Bridget Ryan Berman | | |
| |
/s/ Bridget Ryan Berman Bridget Ryan Berman
James R. Craigie | | Director |
| James R. Craigie | | |
| |
/s/ James R. Craigie James R. Craigie
Brett Icahn | | Director |
| Brett Icahn | | |
| |
/s/ Debra A. Crew Debra A. Crew
Jay L. Johnson | | Director |
| Jay L. Johnson | | |
| |
/s/ Brett Icahn Brett Icahn
Gerardo I. Lopez | | Director |
| Gerardo I. Lopez | | |
| |
/s/ Gerardo I. Lopez Gerardo I. Lopez
Courtney R. Mather | | Director |
| Courtney R. Mather | | |
| |
/s/ Courtney R. Mather Courtney R. Mather
Judith A. Sprieser | | Director |
| Judith A. Sprieser | | |
| |
/s/ JudithRobert A. Sprieser JudithSteele
| | Director |
Robert A. SprieserSteele | | Director
|
| |
/s/ Robert A. Steele
Robert A. Steele
| | Director
|
| |
/s/ Steven J. Strobel | | Director |
| Steven J. Strobel | | Director
|
| |
/s/ Michael A. Todman
Michael A. Todman
| | Director
|
Schedule II
Newell Brands Inc. and subsidiaries
NEWELL BRANDS INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
| | | | | | | | | | | | | | | | | | | | |
| (in millions) | | Balance at
Beginning
of Period (1) | | | Provision | | | Other | | | Write-
offs | | | Balance at
End of
Period | |
Reserve for Doubtful Accounts: | | | | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2018 | | $ | 28.5 | | | $ | 30.2 | | | $ | (1.3 | ) | | $ | (35.7 | ) | | $ | 21.7 | |
Year Ended December 31, 2017 | | | 27.9 | | | | 91.9 | | | | 1.9 | | | | (84.7 | ) | | | 37.0 | |
Year Ended December 31, 2016 | | | 21.7 | | | | 83.3 | | | | (1.7 | ) | | | (75.4 | ) | | | 27.9 | |
| | | | | | | | | | | | | | | | | | | | |
| (in millions) | | Balance at
Beginning
of Period | | | Provision | | | Other | | | Write-offs/
Dispositions | | | Balance at
End of
Period | |
Inventory Reserves (including excess, obsolescence and shrink reserves): | | | | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2018 | | $ | 37.3 | | | $ | 48.3 | | | $ | (2.2 | ) | | $ | (10.5 | ) | | $ | 72.9 | |
Year Ended December 31, 2017 | | | 38.1 | | | | 10.1 | | | | 3.7 | | | | (14.6 | ) | | | 37.3 | |
Year Ended December 31, 2016 | | | 24.7 | | | | 24.6 | | | | (0.2 | ) | | | (11.0 | ) | | | 38.1 | |
(1) | Effective January 1, 2018, the Company adopted ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” and as a result reclassified its allowance for cash discounts to other accrued liabilities as of January 1, 2018. Prior periods were not reclassified.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at Beginning of Period | | Provision | | Other | | Write-offs/
Disposition | | Balance at End of Period |
| (in millions) | | | | | | | | | |
| Reserve for Expected Credit Losses: | | | | | | | | | |
| Year Ended December 31, 2020 | $ | 29 | | | $ | 17 | | | $ | 0 | | | $ | (10) | | | $ | 36 | |
| Year Ended December 31, 2019 | 27 | | | 11 | | | 0 | | | (9) | | | 29 | |
| Year Ended December 31, 2018 | 33 | | | 37 | | | (2) | | | (41) | | | 27 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at Beginning of Period | | Provision | | Other | | Write-offs/
Disposition | | Balance at End of Period |
| (in millions) | | | | | | | | | |
Inventory Reserves:
(including excess, obsolescence and shrink reserves) | | | | | | | | | |
| Year Ended December 31, 2020 | $ | 78 | | | $ | 68 | | | $ | 2 | | | $ | (66) | | | $ | 82 | |
| Year Ended December 31, 2019 | 84 | | | 56 | | | 0 | | | (62) | | | 78 | |
| Year Ended December 31, 2018 | 75 | | 54 | | (2) | | | (43) | | | 84 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at Beginning of Period | | Provision | | Other | | Write-offs/
Recoveries | | Balance at End of Period |
| (in millions) | | | | | | | | | |
| Income Tax Valuation Allowance | | | | | | | | | |
| Year Ended December 31, 2020 | $ | 271 | | | $ | 30 | | | $ | 5 | | | $ | (93) | | | $ | 213 | |
| Year Ended December 31, 2019 | 195 | | | 122 | | | (1) | | | (45) | | | 271 | |
| Year Ended December 31, 2018 | 293�� | | | 14 | | | (27) | | | (85) | | | 195 | |
