NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Footnote 1 — Basis of Presentation and Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements of Newell Brands Inc. (collectively with its subsidiaries, the “Company”) have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) and do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments (including normal recurring accruals) considered necessary for a fair statement of the financial position and the results of operations of the Company. It is recommended that these unaudited condensed consolidated financial statements be read in conjunction with the financial statements, and the footnotes thereto, included in the Company’s most recent Annual Report on Form 10-K. The Condensed Consolidated Balance Sheet at December 31, 2019, has been derived from the audited financial statements as of that date, but it does not include all the information and footnotes required by U.S. GAAP for a complete financial statement. Certain reclassifications have been made in the Company’s financial statements of the prior year to conform to the current year presentation.
In connection with the Company’s previous decision to retain the Rubbermaid Commercial Products, Rubbermaid Outdoor, Closet, Refuse, Garage and Cleaning businesses, and the Mapa/Spontex and Quickie businesses, the Company realigned its management reporting structure in the third and fourth quarters of 2019. Additional changes to the Company's management reporting structure were made by the chief operating decision maker during the second quarter of 2020 which resulted in a further realignment of its reportable segments. As a result, the Company now operates and reports financial information in the following five 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). All prior periods have been reclassified to conform to the current reporting structure.
Use of Estimates and Risks & Uncertainty of Coronavirus (COVID-19)
Beginning late in the fourth quarter 2019 and into 2020, a novel strain of the coronavirus, or COVID-19, initially resulted in travel disruption and impacted portions of the Company’s and its suppliers’ operations in China. Since then, the spread of COVID-19 has developed into a global pandemic, impacting the economies of most countries around the world. The Company’s global operations, similar to those of many large, multi-national corporations, have been 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.
As the COVID-19 pandemic continues to evolve, the Company believes the extent of the impact to its businesses, operating results, cash flows, liquidity and financial condition will be primarily driven by the severity and duration of the pandemic, the pandemic’s impact on the U.S. and global economies and the timing, scope and effectiveness of federal, state and local governmental responses to the pandemic, especially in areas where conditions have recently worsened. Those primary drivers are beyond the Company's knowledge and control, and as a result, at this time the Company is unable to predict the cumulative impact, both in terms of severity and duration, COVID-19 will have on its businesses, 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 current circumstances continue to exist for a prolonged period of time. While the effects that the Company has experienced in the first and second quarters have been material to its operating results, the Company has seen positive momentum and remains optimistic for sequential improvement in its financial results over the remainder of 2020, subject to improved conditions.
The consolidated condensed financial statements are prepared in conformity with U.S. GAAP. Management’s application of U.S. GAAP requires the pervasive use of estimates and assumptions in preparing the unaudited condensed consolidated financial
statements. As discussed above, the world is currently experiencing the global COVID-19 pandemic which has required greater use of estimates and assumptions in the preparation of our condensed 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. We continue to experience disruptions and anticipate this to extend into the foreseeable future, but anticipate an eventual return to normal demand. Although we have made our best estimates based upon current information, the effects of the COVID-19 pandemic on our business may result in future changes to management’s estimates and assumptions, especially if the severity worsens or duration lengthens. 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.
Discontinued Operations
On December 31, 2019, the Company completed the sale of The United States Playing Card Company and other related subsidiaries (“Playing Cards business") to Cartamundi Inc. and Cartamundi España S.L., which completed its previously announced Accelerated Transformation Plan (“ATP”).
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”), The Waddington Group, Inc. (“Waddington”) and other related subsidiaries. In 2019, the Company sold: the Process Solutions business, Rexair Holdings Inc. (“Rexair”) and the Playing Cards business. These businesses were classified as discontinued operations in periods prior to January 1, 2020.
Seasonal Variations
Sales of the Company’s products tend to be seasonal, with sales, operating income and operating cash flow in the first quarter generally lower than any other quarter during the year, driven principally by reduced volume and the mix of products sold in the first quarter. The seasonality of the Company’s sales volume combined with the accounting for fixed costs, such as depreciation, amortization, rent, personnel costs and interest expense, impacts the Company’s results on a quarterly basis. In addition, the Company typically tends to generate the majority of its operating cash flow in the third and fourth quarters of the year due to seasonal variations in operating results, the timing of annual performance-based compensation payments, customer program payments, working capital requirements and credit terms provided to customers. Accordingly, the Company’s results of operations for the three and six months ended June 30, 2020 may not necessarily be indicative of the results that may be expected for the year ending December 31, 2020.
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 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 will not have a material impact on the Company’s consolidated financial statements.
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. The Company is currently evaluating the potential effects of the adoption of ASU 2019-12.
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU 2020-04 provides optional expedients and exceptions to account for contracts, hedging relationships and other transactions that reference LIBOR or another reference rate if certain criteria are met. ASU 2020-04 may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company is currently evaluating the potential effects of the adoption of ASU 2020-04.
Adoption of New Accounting Guidance
The Company’s accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements included in our 2019 Annual Report on Form 10-K. Such significant accounting policies are applicable for periods prior to the adoption of the following new accounting standards and updated accounting policies.
In 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 June 30, 2020 and December 31, 2019 were $37 million and $29 million respectively.
In August 2018, the FASB issued ASU 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation 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 the date of adoption, or January 1, 2020. The adoption of ASU 2018-15 did not have a material impact on the Company’s consolidated financial statements.
Sales of Accounts Receivables
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. Subsequent to the amendment, the balance of factored receivables at the end of the first and second quarters of 2020 were approximately $300 million, an increase of approximately $100 million from the balance at December 31, 2019. Transactions under this agreement continue to be accounted for as sales of accounts receivable, and the receivables are removed from the Condensed Consolidated Balance Sheet at the time of the sales transaction. The Company classifies the proceeds received from the sales of accounts receivable as an operating cash flow in the unaudited Condensed Consolidated Statement of Cash Flows. The Company records the discount as other (income) expense, net in the Condensed Consolidated Statement of Operations and collections of accounts receivables not yet submitted to the financial institution as a financing cash flow.
Footnote 2 — Divestitures and Held for Sale
Discontinued Operations
The Company completed its previously announced ATP on December 31, 2019. As such, there were no businesses held for sale at June 30, 2020, nor income or loss from discontinued operations for the three and six months ended June 30, 2020. The following table provides a summary of amounts included in discontinued operations for the 2019 periods indicated (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
June 30, 2019
|
|
Six Months
Ended
June 30, 2019
|
Net sales
|
|
$
|
92
|
|
|
$
|
303
|
|
Cost of products sold
|
|
67
|
|
|
227
|
|
Gross profit
|
|
25
|
|
|
76
|
|
Selling, general and administrative expenses
|
|
13
|
|
|
38
|
|
|
|
|
|
|
Impairment of goodwill, intangibles and other assets
|
|
—
|
|
|
112
|
|
Operating income (loss)
|
|
12
|
|
|
(74)
|
|
Non-operating (income) expense, net
|
|
5
|
|
|
—
|
|
Income (loss) before income taxes
|
|
7
|
|
|
(74)
|
|
Income tax provision
|
|
40
|
|
|
36
|
|
Net loss
|
|
$
|
(33)
|
|
|
$
|
(110)
|
|
2019 Divestiture Activity
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 the three and six months ended June 30, 2019, the company recorded a pre-tax gain of $6 million, which is included in the net 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 the three and six months ended June 30, 2019, the company recorded a pre-tax loss of $22 million, which is included in the net loss from discontinued operations.
On December 31, 2019, the Company sold its Playing Cards business to Cartamundi Inc. and Cartamundi España S.L. for approximately $220 million, subject to customary working capital and other post-closing adjustments.
During the six months ended June 30, 2019, the Company recorded impairment charges totaling $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.
Footnote 3 — Accumulated Other Comprehensive Loss
The following tables display the changes in Accumulated Other Comprehensive Loss (“AOCL”) by component, net of tax, for the six months ended June 30, 2020 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
Translation
Adjustment
|
|
Pension and
Postretirement
Costs
|
|
Derivative
Financial
Instruments
|
|
AOCL
|
Balance at December 31, 2019
|
$
|
(479)
|
|
|
$
|
(399)
|
|
|
$
|
(42)
|
|
|
$
|
(920)
|
|
Other comprehensive income (loss) before reclassifications
|
(121)
|
|
|
2
|
|
|
23
|
|
|
(96)
|
|
Amounts reclassified to earnings
|
—
|
|
|
9
|
|
|
1
|
|
|
10
|
|
Net current period other comprehensive income (loss)
|
(121)
|
|
|
11
|
|
|
24
|
|
|
(86)
|
|
Balance at June 30, 2020
|
$
|
(600)
|
|
|
$
|
(388)
|
|
|
$
|
(18)
|
|
|
$
|
(1,006)
|
|
|
|
|
|
|
|
|
|
For the three and six months ended June 30, 2020 and 2019, reclassifications from AOCL to the results of operations for the Company’s pension and postretirement benefit plans were a pretax expense of $5 million and $2 million, respectively, pretax expense of $11 million and $4 million, respectively, and primarily represent the amortization of net actuarial losses (see Footnote 11). These costs are recorded in other (income) expense, net. For the three and six months ended June 30, 2020 and 2019, reclassifications from AOCL to the results of operations for the Company’s derivative financial instruments for effective cash flow hedges were nil and pre-tax income of $1 million, respectively, and pre-tax expense of $1 million and pre-tax income of $5 million, respectively (see Footnote 10).
The income tax (expense) benefit allocated to the components of AOCL for the periods indicated are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Foreign currency translation adjustments
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
(1)
|
|
|
$
|
—
|
|
Unrecognized pension and postretirement costs
|
(5)
|
|
|
4
|
|
|
(2)
|
|
|
8
|
|
Derivative financial instruments
|
2
|
|
|
—
|
|
|
(7)
|
|
|
2
|
|
Income tax (expense) benefit related to AOCL
|
$
|
3
|
|
|
$
|
4
|
|
|
$
|
(10)
|
|
|
$
|
10
|
|
Footnote 4 — Restructuring Costs
Restructuring provisions were determined based on estimates prepared at the time the restructuring actions were approved by management and are periodically updated for changes. Restructuring amounts also include amounts recognized as incurred.
Restructuring costs, net incurred by reportable business segments for all restructuring activities in continuing operations for the periods indicated are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Appliances and Cookware
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
2
|
|
Commercial Solutions
|
2
|
|
|
1
|
|
|
2
|
|
|
1
|
|
Home Solutions
|
4
|
|
|
1
|
|
|
5
|
|
|
6
|
|
Learning and Development
|
—
|
|
|
1
|
|
|
1
|
|
|
5
|
|
Outdoor and Recreation
|
1
|
|
|
1
|
|
|
1
|
|
|
1
|
|
Corporate
|
1
|
|
|
2
|
|
|
1
|
|
|
4
|
|
|
$
|
8
|
|
|
$
|
8
|
|
|
$
|
10
|
|
|
$
|
19
|
|
Accrued restructuring costs activity for the six months ended June 30, 2020 are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
|
Restructuring
Costs, Net
|
|
Payments
|
|
|
|
|
|
Balance at
June 30, 2020
|
Employee severance and termination benefits
|
$
|
10
|
|
|
$
|
9
|
|
|
$
|
(6)
|
|
|
|
|
|
|
$
|
13
|
|
Exited contractual commitments and other
|
12
|
|
|
1
|
|
|
(7)
|
|
|
|
|
|
|
6
|
|
|
$
|
22
|
|
|
$
|
10
|
|
|
$
|
(13)
|
|
|
|
|
|
|
$
|
19
|
|
2020 Restructuring Plan
The Company’s 2020 restructuring program, which was initiated during the second quarter of 2020 in response to the impact of the COVID-19 pandemic, was designed to reduce overhead costs, streamline certain underperforming operations and improve future profitability. Restructuring costs associated with this program, which primarily relate to the Home Solutions and Commercial Solutions segments, include employee-related costs, including severance and other termination benefits. During the three and six months ended June 30, 2020, the Company recorded charges of $8 million in connection with the program. The Company currently estimates aggregate restructuring charges of approximately $10 million associated with this program to be incurred over the entirety of 2020. 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.
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 selling, general and administrative expense (“SG&A”) in the Condensed Consolidated Statements of Operations based on the nature of the underlying costs incurred.
Footnote 5 — Inventories
Inventories are comprised of the following at the dates indicated (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
Raw materials and supplies
|
$
|
301
|
|
|
$
|
231
|
|
Work-in-process
|
157
|
|
|
135
|
|
Finished products
|
1,256
|
|
|
1,240
|
|
|
$
|
1,714
|
|
|
$
|
1,606
|
|
Footnote 6 — Property, Plant and Equipment, Net
Property, plant and equipment, net, is comprised of the following at the dates indicated (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
Land
|
$
|
82
|
|
|
$
|
86
|
|
Buildings and improvements
|
644
|
|
|
641
|
|
Machinery and equipment
|
2,176
|
|
|
2,151
|
|
|
2,902
|
|
|
2,878
|
|
Less: Accumulated depreciation
|
(1,784)
|
|
|
(1,723)
|
|
|
$
|
1,118
|
|
|
$
|
1,155
|
|
Depreciation expense for continuing operations was $46 million and $41 million for the three months ended June 30, 2020 and 2019, respectively, and $94 million and $81 million for the six months ended June 30, 2020 and 2019, respectively. Depreciation expense for discontinued operations was nil for the three and six months ended June 30, 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 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 the six months ended June 30, 2020, in the Home Solutions segment associated with its Yankee Candle retail store business. The impairment charge was calculated by subtracting the estimated fair value of the asset group from its carrying value. See Footnote 1 for further information.
Footnote 7 — Goodwill and Other Intangible Assets, Net
Goodwill activity for the six months ended June 30, 2020 is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
|
Segments
|
Net Book Value at December 31,
2019
|
|
|
|
Impairment Charges
|
|
Foreign
Exchange and Other
|
|
Gross
Carrying
Amount
|
|
Accumulated
Impairment
Charges
|
|
Net Book
Value
|
Appliances and Cookware
|
$
|
212
|
|
|
|
|
$
|
(212)
|
|
|
$
|
—
|
|
|
$
|
744
|
|
|
$
|
(744)
|
|
|
$
|
—
|
|
Commercial Solutions
|
747
|
|
|
|
|
—
|
|
|
—
|
|
|
1,241
|
|
|
(494)
|
|
|
747
|
|
Home Solutions
|
164
|
|
|
|
|
—
|
|
|
—
|
|
|
2,392
|
|
|
(2,228)
|
|
|
164
|
|
Learning and Development
|
2,586
|
|
|
|
|
—
|
|
|
(1)
|
|
|
3,431
|
|
|
(846)
|
|
|
2,585
|
|
Outdoor and Recreation
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
788
|
|
|
(788)
|
|
|
—
|
|
|
$
|
3,709
|
|
|
|
|
$
|
(212)
|
|
|
$
|
(1)
|
|
|
$
|
8,596
|
|
|
$
|
(5,100)
|
|
|
$
|
3,496
|
|
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. During the six months ended June 30, 2020, the Company recorded an impairment charge of $212 million to reflect the impairment of its goodwill. See Footnote 1 for further information.
During the three and six months ended June 30, 2019, the Company recorded an impairment charge of $11 million and $74 million, respectively, to reflect a decrease in the carrying values of Mapa/Spontex and Quickie while these businesses were classified as held for sale.
Other intangible assets, net are comprised of the following at the dates indicated (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
Gross
Carrying
Amount
|
|
Accumulated Amortization
|
|
Net Book
Value
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Book
Value
|
|
Amortization
Periods
(in years)
|
Trade names — indefinite life
|
$
|
2,292
|
|
|
$
|
—
|
|
|
$
|
2,292
|
|
|
$
|
3,560
|
|
|
$
|
—
|
|
|
$
|
3,560
|
|
|
N/A
|
Trade names — other
|
158
|
|
|
(52)
|
|
|
106
|
|
|
169
|
|
|
(50)
|
|
|
119
|
|
|
2-15
|
Capitalized software
|
602
|
|
|
(460)
|
|
|
142
|
|
|
587
|
|
|
(435)
|
|
|
152
|
|
|
3-12
|
Patents and intellectual property
|
123
|
|
|
(100)
|
|
|
23
|
|
|
135
|
|
|
(102)
|
|
|
33
|
|
|
3-14
|
Customer relationships and distributor channels
|
1,248
|
|
|
(250)
|
|
|
998
|
|
|
1,328
|
|
|
(283)
|
|
|
1,045
|
|
|
3-30
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
109
|
|
|
(102)
|
|
|
7
|
|
|
3-5
|
|
$
|
4,423
|
|
|
$
|
(862)
|
|
|
$
|
3,561
|
|
|
$
|
5,888
|
|
|
$
|
(972)
|
|
|
$
|
4,916
|
|
|
|
Amortization expense for intangible assets for continuing operations was $39 million and $46 million for the three months ended June 30, 2020 and 2019, respectively, and $82 million and $93 million for the six months ended June 30, 2020 and 2019, respectively. Amortization expense for intangible assets for discontinued operations was nil for the three and six months ended June 30, 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.
As a result of the impairment testing performed in connection with the COVID-19 pandemic triggering event during the first quarter of 2020, the Company determined that certain of its indefinite-lived intangible assets in the Appliances and Cookware, Commercial Solutions, Home Solutions, Learning and Development and Outdoor and Recreation segments were impaired. During the six months ended June 30, 2020, the Company recorded impairment charges of $1.3 billion to reflect impairment of these indefinite-lived trade names because their carrying values exceeded their fair values as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020
|
|
Impairment of indefinite-lived intangibles assets
|
|
|
|
|
Appliances and Cookware
|
|
|
$
|
87
|
|
|
Commercial Solutions
|
|
|
320
|
|
|
Home Solutions
|
|
|
290
|
|
|
Learning and Development
|
|
|
78
|
|
|
Outdoor and Recreation
|
|
|
482
|
|
|
|
|
|
$
|
1,257
|
|
|
There were no impairments of indefinite-lived tradenames recorded during the six months ended June 30, 2019.
The Company believes the circumstances and global disruption caused by COVID-19 will continue to affect its businesses, operating results, cash flows and financial condition and that the scope and duration of the pandemic is highly uncertain. In addition, some of the other inherent estimates and assumptions used in determining fair value of the reporting units are outside the control of management, including interest rates, cost of capital, tax rates, industry growth, credit ratings, foreign exchange rates, labor inflation and tariffs, including the current trade negotiations with China. 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 first quarter of 2020 will prove to be accurate predictions of the future.
In addition, as a result of several impairment charges recorded over the past three years and most recently at March 31, 2020, some of the Company's reporting units and several of the Company's indefinite-lived tradenames were either recorded at fair value or with fair values within 10% of the associated carrying values. While 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 which were based on facts and circumstances known at this time, it is possible that 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. For each of the Company’s reporting units, particularly if the global pandemic caused by COVID-19 continues to persist for an extended period of time, the reporting unit’s actual results could be materially different from the Company’s estimates and assumptions used to calculate fair value. If so, the Company may be required to recognize material impairments to goodwill and/or indefinite-lived intangible assets. The Company will continue to monitor its reporting units for any triggering events or other signs of impairment. The Company may be required to perform additional impairment testing based on further deterioration of the global economic environment, continued disruptions to the Company’s business, further declines in operating results of the 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 experiences a sustained deterioration from current levels, it is reasonably likely the Company will be required to record impairment charges in the future.
At March 31, 2020, there were no reporting units and nine indefinite-lived trade names with fair values within 10% of the associated carrying values. A hypothetical 10% reduction in forecasted earnings before interest, taxes and amortization used in the discounted cash flows to estimate the fair value of the reporting unit would not have resulted in an incremental goodwill impairment charge. A hypothetical 10% reduction in the forecasted debt-free cash flows used in the excess earnings method to determine the fair value of certain indefinite-lived intangibles in the Company’s Home Solutions and Learning and Development segments would have resulted in incremental impairment charges of $39 million and $13 million, respectively. A hypothetical 10% reduction in forecasted revenue used in the relief from royalty method to determine the fair value of certain indefinite-lived
intangibles would have resulted in incremental impairment charges in the Company's following segments: Appliances and Cookware, Home Solutions and Learning and Development of $6 million, $6 million and $16 million, respectively. There were no additional impairments during the three months ended June 30, 2020.
Footnote 8 — Other Accrued Liabilities
Other accrued liabilities are comprised of the following at the dates indicated (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
Customer accruals
|
$
|
516
|
|
|
$
|
605
|
|
Operating lease liabilities
|
136
|
|
|
132
|
|
Accrued self-insurance liabilities, contingencies and warranty
|
108
|
|
|
124
|
|
Accrued income taxes
|
107
|
|
|
114
|
|
Accrued interest expense
|
69
|
|
|
63
|
|
Accruals for manufacturing, marketing and freight expenses
|
42
|
|
|
50
|
|
Other
|
221
|
|
|
252
|
|
|
$
|
1,199
|
|
|
$
|
1,340
|
|
Footnote 9 — Debt
Debt is comprised of the following at the dates indicated (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
4.70% senior notes due 2020
|
$
|
305
|
|
|
$
|
305
|
|
3.15% senior notes due 2021
|
94
|
|
|
94
|
|
3.75% senior notes due 2021
|
341
|
|
|
342
|
|
4.00% senior notes due 2022
|
249
|
|
|
249
|
|
3.85% senior notes due 2023
|
1,388
|
|
|
1,388
|
|
4.00% senior notes due 2024
|
200
|
|
|
199
|
|
4.875% senior notes due 2025
|
492
|
|
|
—
|
|
3.90% senior notes due 2025
|
47
|
|
|
47
|
|
4.20% senior notes due 2026
|
1,972
|
|
|
1,986
|
|
|
|
|
|
5.375% senior notes due 2036
|
416
|
|
|
416
|
|
5.50% senior notes due 2046
|
657
|
|
|
657
|
|
Commercial paper
|
—
|
|
|
25
|
|
|
|
|
|
Other debt
|
22
|
|
|
15
|
|
Total debt
|
6,183
|
|
|
5,723
|
|
Short-term debt and current portion of long-term debt
|
(402)
|
|
|
(332)
|
|
Long-term debt
|
$
|
5,781
|
|
|
$
|
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’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 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 June 30, 2020, the Company did not 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 $493 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 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 intends to use a portion of the proceeds for the repayment or redemption of the 4.70% Senior Notes due 2020.
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.
As a result of the aforementioned debt rating downgrades of Moody's and S&P, certain of the Company’s Senior Notes aggregating to approximately $4.5 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 is expected to increase the Company’s interest expense for 2020 by approximately $17 million and approximately $23 million 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 June 30, 2020, the Company did not have any amounts outstanding under the Securitization Facility.
Other
The fair value of the Company’s senior notes are based upon prices of similar instruments in the marketplace and are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
December 31, 2019
|
|
|
|
Fair Value
|
|
Book Value
|
|
Fair Value
|
|
Book Value
|
Senior notes
|
$
|
6,466
|
|
|
$
|
6,161
|
|
|
$
|
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 June 30, 2020, $3 million of deferred gains have been recorded in AOCL. See Footnote 10 for disclosures regarding the Company’s derivative financial instruments.
Footnote 10—Derivatives
From time to time, the Company enters into derivative transactions to hedge its exposures to interest rate, foreign currency rate and commodity price fluctuations. The Company does not enter into derivative transactions for trading purposes.
Interest Rate Contracts
The Company manages its fixed and floating rate debt mix using interest rate swaps. The Company may use fixed and floating rate swaps to alter its exposure to the impact of changing interest rates on its consolidated results of operations and future cash outflows for interest. Floating rate swaps would be used, depending on market conditions, to convert the fixed rates of long-term debt into short-term variable rates. Fixed rate swaps would be used to reduce the Company’s risk of the possibility of increased interest costs. Interest rate swap contracts are therefore used by the Company to separate interest rate risk from the debt funding decision. The cash paid and received from the settlement of interest rate swaps is included in interest expense.
Fair Value Hedges
At June 30, 2020, the Company had approximately $377 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 million of principal on the 4.7% senior notes due in August 2020 and $100 million of principal on the 4.0% senior notes due 2024 for the remaining life of these notes. The effective portion of the fair value gains or losses on these swaps is offset by fair value adjustments in the underlying debt.
Cross-Currency Contracts
The Company uses cross-currency swaps to hedge foreign currency risk on certain financing arrangements. During the first quarter of 2020, the Company entered into two 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. These cross-currency swaps, which mature in January and February 2025, pay a fixed rate of Euro-based interest and receive a fixed rate of U.S. dollar interest. The Company has elected the spot method for assessing the effectiveness of these contracts. During the three and six months ended June 30, 2020, the Company recognized income of $4 million and $7 million in interest expense, net, related to the portion of cross-currency swaps excluded from hedge effectiveness testing. The Company had no 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 2020. The derivatives used to hedge these forecasted transactions that meet the criteria for hedge accounting are accounted for as cash flow hedges. The effective portion of the gains or losses on these derivatives is deferred as a component of AOCL 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 June 30, 2020, the Company had approximately $212 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 June 30, 2020, the Company had approximately $767 million notional amount outstanding of these foreign currency contracts that are not designated as effective hedges for accounting purposes and have maturity dates through January 2021. Fair market value gains or losses are included in the results of operations and are classified in other (income) expense, net.
The following table presents the fair value of derivative financial instruments at the dates indicated (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
December 31, 2019
|
|
|
|
Fair Value of Derivatives
|
|
|
|
Fair Value of Derivatives
|
|
|
|
Asset (a)
|
|
Liability (a)
|
|
Asset (a)
|
|
Liability (a)
|
Derivatives designated as effective hedges:
|
|
|
|
|
|
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
Foreign currency contracts
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
13
|
|
|
|
|
|
|
|
|
|
Fair value hedges:
|
|
|
|
|
|
|
|
Interest rate swaps
|
8
|
|
|
—
|
|
|
2
|
|
|
1
|
|
Net investment hedges:
|
|
|
|
|
|
|
|
Cross-currency swaps
|
10
|
|
|
6
|
|
|
—
|
|
|
—
|
|
Derivatives not designated as effective hedges:
|
|
|
|
|
|
|
|
Foreign currency contracts
|
13
|
|
|
11
|
|
|
10
|
|
|
4
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
39
|
|
|
$
|
17
|
|
|
$
|
13
|
|
|
$
|
18
|
|
|
|
|
|
|
|
|
|
(a) Consolidated balance sheet location:
|
|
|
|
|
|
|
|
Asset: Prepaid expenses and other, and other noncurrent assets
|
|
|
|
|
|
|
|
Liability: Other accrued liabilities, and current and noncurrent liabilities
|
|
|
|
|
|
|
|
The following tables present gain and loss activity (on a pretax basis) for the three months ended June 30, 2020 and 2019 related to derivative financial instruments designated or previously designated, as effective hedges (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
June 30, 2020
|
|
|
|
Three Months
Ended
June 30, 2019
|
|
|
|
|
|
Gain/(Loss)
|
|
|
|
Gain/(Loss)
|
|
|
|
Location of gain/(loss) recognized in income
|
|
Recognized
in OCI
(effective portion)
|
|
Reclassified
from AOCL
to Income
|
|
Recognized
in OCI
(effective portion)
|
|
Reclassified
from AOCL
to Income
|
Interest rate swaps
|
Interest expense, net
|
|
$
|
—
|
|
|
$
|
(1)
|
|
|
$
|
—
|
|
|
$
|
(1)
|
|
Foreign currency contracts
|
Net sales and cost of products sold
|
|
(5)
|
|
|
1
|
|
|
1
|
|
|
2
|
|
Commodity contracts
|
Cost of products sold
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
Cross-currency swaps
|
Other (income) expense, net
|
|
(17)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
|
$
|
(22)
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
Ended
June 30, 2020
|
|
|
|
Six Months
Ended
June 30, 2019
|
|
|
|
|
|
Gain/(Loss)
|
|
|
|
Gain/(Loss)
|
|
|
|
Location of gain/(loss) recognized in income
|
|
Recognized
in OCI
(effective portion)
|
|
Reclassified
from AOCL
to Income
|
|
Recognized
in OCI
(effective portion)
|
|
Reclassified
from AOCL
to Income
|
Interest rate swaps
|
Interest expense, net
|
|
$
|
—
|
|
|
$
|
(3)
|
|
|
$
|
—
|
|
|
$
|
(3)
|
|
Foreign currency contracts
|
Net sales and cost of products sold
|
|
30
|
|
|
2
|
|
|
(5)
|
|
|
8
|
|
Commodity contracts
|
Cost of products sold
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Cross-currency swaps
|
Other (income) expense, net
|
|
4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
|
$
|
34
|
|
|
$
|
(1)
|
|
|
$
|
(5)
|
|
|
$
|
5
|
|
At June 30, 2020, deferred net gains of approximately $16 million within AOCL are expected to be reclassified to earnings over the next twelve months.
During the three and six months ended June 30, 2020, the Company recognized expense of $3 million and income of $9 million, respectively, in other (income) expense, net, related to derivatives that are not designated as hedging instruments. During the three
and six months ended June 30, 2019, the Company recognized expense of $4 million and $10 million, respectively, in other (income) expense, net, related to derivatives that are not designated as hedging instruments. Gains and losses on these derivatives are mostly offset by foreign currency movement in the underlying exposure.
Footnote 11 — Employee Benefit and Retirement Plans
The components of pension and postretirement benefit expense for continuing operations for the periods indicated, are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
|
U.S.
|
|
|
|
International
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Service cost
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Interest cost
|
9
|
|
|
13
|
|
|
3
|
|
|
3
|
|
Expected return on plan assets
|
(15)
|
|
|
(15)
|
|
|
(1)
|
|
|
(3)
|
|
Amortization, net
|
6
|
|
|
4
|
|
|
—
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Total expense
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
3
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
U.S.
|
|
|
|
International
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Service cost
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
3
|
|
Interest cost
|
18
|
|
|
25
|
|
|
5
|
|
|
6
|
|
Expected return on plan assets
|
(30)
|
|
|
(30)
|
|
|
(3)
|
|
|
(6)
|
|
Amortization, net
|
12
|
|
|
8
|
|
|
1
|
|
|
1
|
|
Settlements
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total expense
|
$
|
1
|
|
|
$
|
3
|
|
|
$
|
5
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement Benefits
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
Interest cost
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Amortization, net
|
(2)
|
|
|
(3)
|
|
|
(3)
|
|
|
(5)
|
|
Total income
|
$
|
(1)
|
|
|
$
|
(2)
|
|
|
$
|
(2)
|
|
|
$
|
(4)
|
|
The components of net periodic pension and postretirement costs other than the service cost component are included in other (income) expense, net in the Condensed Consolidated Statements of Operations.
Footnote 12 — Income Taxes
The Company’s effective income tax rate for the three months ended June 30, 2020 and 2019 was 16.1% and 19.6%, respectively, and for the six months ended June 30, 2020 and 2019 was 13.6% and 16.9%, respectively. The Company’s effective income tax rate fluctuates based on, among other factors, the geographic mix of income.
The difference between the U.S. federal statutory income tax rate of 21.0% and the Company’s effective income tax rate for the six months ended June 30, 2020 and 2019 was impacted by a variety of factors, primarily resulting from the geographic mix of where the income was earned as well as certain taxable income inclusion items in the U.S. based on foreign earnings.
The three and six months ended June 30, 2020 were also impacted by certain discrete tax items. Income tax expense for three months ended June 30, 2020 included a discrete tax benefit of $23 million associated with the execution of certain tax planning strategies, partially offset by $4 million of additional interest related to uncertain tax positions. Income tax expense for the six months ended June 30, 2020 also included a discrete tax benefit of $15 million related to statute of limitations expirations and $8 million of prior period adjustments identified during the first quarter of 2020 offset by tax expense of $27 million related to a change in the tax status of certain entities upon Internal Revenue Service approval during the first quarter, $8 million of excess book deductions related to equity-based compensation, $4 million for additional interest related to uncertain tax positions, and $5 million for effects of adopting the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The Company concluded the effects of such prior period adjustments were not material to the current period or previously issued financial statements.
Income tax expense for the three months ended June 30, 2019 included discrete tax benefits of $13 million for a withholding tax refund received from Switzerland by the Company and $11 million related to changes in the tax status of certain entities in various non-U.S. jurisdictions, offset by discrete tax expense of $14 million for excess book deductions for equity-based compensation, $5 million for the accrual of interest related to the Company's uncertain tax liabilities. Income tax expense for the six months ended June 30, 2019 included a discrete tax benefit of $10 million for certain state tax return to provision adjustments offset by tax expense of $4 million for additional interest related to uncertain tax liabilities.
On June 18, 2019, the U.S. Treasury and the Internal Revenue Service 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. The Temporary 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 Temporary 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 Temporary Regulations and concluded the relevant Temporary Regulations were not validly issued. Therefore, the Company has not accounted for the effects of the Temporary Regulations in its Condensed Consolidated Financial Statements for the period ending June 30, 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 Temporary Regulations will be invalidated or that a court of law will rule in favor of the Company. If the Company’s position on the Temporary 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 13 — Leases
Supplemental Condensed Consolidated Balance Sheet information related to leases for the periods indicated, are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification
|
|
June 30, 2020
|
|
December 31, 2019
|
Assets
|
|
|
|
|
|
Operating leases
|
Operating lease assets, net (1)
|
|
$
|
553
|
|
|
$
|
615
|
|
Finance leases
|
Property, plant and equipment, net (2)
|
|
12
|
|
|
15
|
|
Total lease assets
|
|
|
$
|
565
|
|
|
$
|
630
|
|
Liabilities
|
|
|
|
|
|
Current
|
|
|
|
|
|
Operating leases
|
Other accrued liabilities
|
|
$
|
136
|
|
|
$
|
132
|
|
Finance leases
|
Short-term debt and current portion of long-term debt
|
|
3
|
|
|
3
|
|
Noncurrent
|
|
|
|
|
|
Operating leases
|
Long-term operating lease liabilities
|
|
494
|
|
|
541
|
|
Finance leases
|
Long-term debt
|
|
7
|
|
|
10
|
|
Total lease liabilities
|
|
|
$
|
640
|
|
|
$
|
686
|
|
(1) 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 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 $3 million during the three months ended March 31, 2020 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 during the first quarter of 2020. The impairment charges were calculated by subtracting the estimated fair value of the asset group from its carrying value.
During the second quarter of 2020, the Company also concluded that a triggering event had occurred for its Home Fragrance right of use assets as a result of further deterioration of the business' financial performance, 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 $5 million during the three months ended June 30, 2020 in the Home Solutions segment related to the operating leases of its Yankee Candle retail store business. The impairment charge was calculated by subtracting the estimated fair value of the asset group from its carrying value.
(2) Net of accumulated depreciation of $10 million and $8 million at June 30, 2020 and December 31, 2019.
Components of lease expense as of the date indicated, are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
2019
|
2020
|
|
2019
|
Operating lease cost:
|
|
|
|
|
|
|
Operating lease cost (1)
|
$
|
44
|
|
|
$
|
54
|
|
$
|
92
|
|
|
$
|
107
|
|
Variable lease costs (2)
|
5
|
|
|
7
|
|
11
|
|
|
13
|
|
Finance lease cost:
|
|
|
|
|
|
|
Amortization of leased assets
|
1
|
|
|
1
|
|
2
|
|
|
2
|
|
|
|
|
|
|
|
|
(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.
Remaining lease term and discount rates as of the date indicated, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
Weighted average remaining lease term (years):
|
|
|
|
Operating leases
|
7
|
|
|
Finance leases
|
3
|
|
|
Weighted average discount rate:
|
|
|
|
Operating leases
|
4.3%
|
|
|
Finance leases
|
3.4%
|
|
|
Supplemental cash flow information related to leases for the periods indicated are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
2019
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
Operating cash flows from operating leases
|
$
|
89
|
|
|
$
|
99
|
|
|
|
|
|
Financing cash flows from finance leases
|
2
|
|
|
2
|
|
Right of use assets obtained in exchange for lease liabilities:
|
|
|
|
Operating leases
|
29
|
|
|
101
|
|
Finance leases
|
—
|
|
|
7
|
|
Maturities of lease liabilities for continuing operations at June 30, 2020, are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Leases
|
|
Finance
Leases
|
2020 (Excludes six months ended June 30, 2020)
|
$
|
87
|
|
|
$
|
2
|
|
2021
|
145
|
|
|
4
|
|
2022
|
121
|
|
|
3
|
|
2023
|
92
|
|
|
1
|
|
2024
|
74
|
|
|
—
|
|
Thereafter
|
216
|
|
|
—
|
|
Total lease payments
|
735
|
|
|
10
|
|
Less: imputed interest
|
(105)
|
|
|
—
|
|
Present value of lease liabilities
|
$
|
630
|
|
|
$
|
10
|
|
Footnote 14 — Earnings Per Share
The computations of the weighted average shares outstanding for the periods indicated are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Weighted average shares outstanding
|
424.2
|
|
|
423.2
|
|
|
424.0
|
|
|
423.1
|
|
Share-based payment awards classified as participating securities (1)
|
—
|
|
|
0.1
|
|
|
—
|
|
|
0.2
|
|
Basic weighted average shares outstanding
|
424.2
|
|
|
423.3
|
|
|
424.0
|
|
|
423.3
|
|
Dilutive securities (2)
|
0.5
|
|
|
0.2
|
|
|
—
|
|
|
0.3
|
|
Diluted weighted average shares outstanding
|
424.7
|
|
|
423.5
|
|
|
424.0
|
|
|
423.6
|
|
(1)For the three months ended June 30, 2020 and 2019, dividends and equivalents for share-based awards that are expected to be forfeited do not have a material effect on net income for basic and diluted earnings per share.
(2)The six months ended June 30, 2020 excludes 0.8 million of potentially dilutive share-based awards as their effect would be anti-dilutive.
At June 30, 2020, there were 0.7 million potentially dilutive restricted stock awards with performance-based vesting targets that were not met and as such, have been excluded from the computation of diluted earnings per share.
Footnote 15 — Share-Based Compensation
During the six months ended June 30, 2020, the Company awarded 1.3 million performance-based restricted stock units (RSUs), which had an aggregate grant date fair value of $28 million and entitle the recipients to shares of the Company’s common stock primarily at the end of a three-year vesting period. The actual number of shares that will ultimately vest is dependent on the level of achievement of the specified performance conditions.
During the six months ended June 30, 2020, the Company also awarded 0.7 million time-based RSUs with an aggregate grant date fair value of $13 million. These time-based RSUs entitle recipients to shares of the Company’s common stock and primarily vest in equal installments over a three-year period.
During the six months ended June 30, 2020, the Company also awarded 1.1 million time-based stock options with an aggregate grant date fair value of $6 million. These stock options entitle recipients to purchase shares of the Company’s common stock at an exercise price equal to the fair market value of the underlying shares as of the grant date and primarily vest in equal installments over a three-year period.
The weighted average assumptions used to determine the fair value of stock options granted for the six months ended June 30, 2020, is as follows:
|
|
|
|
|
|
Risk-free interest rates
|
1.4
|
%
|
Expected volatility
|
41.3
|
%
|
Expected dividend yield
|
3.9
|
%
|
Expected life (in years)
|
6.2
|
Exercise price
|
$
|
19.67
|
|
Intrinsic value
|
$
|
—
|
|
Dividends per share for both the three and six months ended June 30, 2020 and 2019 were $0.23 and $0.46, respectively.
Footnote 16 — Fair Value Disclosures
Recurring Fair Value Measurements
The following table presents the Company’s non-pension financial assets and liabilities which are measured at fair value on a recurring basis (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
Fair value Asset (Liability)
|
|
|
|
|
|
|
|
Fair value Asset (Liability)
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
$
|
—
|
|
|
$
|
39
|
|
|
$
|
—
|
|
|
$
|
39
|
|
|
$
|
—
|
|
|
$
|
13
|
|
|
$
|
—
|
|
|
$
|
13
|
|
Liabilities
|
—
|
|
|
(17)
|
|
|
—
|
|
|
(17)
|
|
|
—
|
|
|
(18)
|
|
|
—
|
|
|
(18)
|
|
Investment securities, including mutual funds
|
8
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
10
|
|
|
1
|
|
|
—
|
|
|
11
|
|
For publicly traded investment securities, including mutual funds, fair value is determined on the basis of quoted market prices and, accordingly, such investments are classified as Level 1. 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 the first quarter of 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 June 30, 2020, the fair value of the equity investment was $8 million. For equity investments with readily determinable fair values held at June 30, 2020, the Company recorded $2 million of unrealized gains and $1 million of unrealized losses within other (income) expense, net in the Condensed Consolidated Statement
of Operations for the three months period ended June 30, 2020 and 2019, respectively, and $1 million and $6 million of unrealized losses for the six months period June 30, 2020 and 2019, respectively.
Financial Instruments
The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable, derivative instruments, notes payable and short and long-term debt. The carrying values for current financial assets and liabilities, including cash and cash equivalents, accounts receivable, accounts payable and short-term debt approximate fair value due to the short maturity of such instruments. The fair values of the Company’s debt and derivative instruments are disclosed in Footnote 9 and Footnote 10, respectively.
Nonrecurring Fair Value Measurements
The Company’s nonfinancial assets, which are measured at fair value on a nonrecurring basis, include property, plant and equipment, goodwill, intangible assets and certain other assets.
The Company’s goodwill and indefinite-lived intangibles are fair valued using discounted cash flows. Goodwill impairment testing requires significant use of judgment and assumptions including the identification of reporting units; the assignment of assets and liabilities to reporting units; and the estimation of future cash flows, business growth rates, terminal values and discount rates. The testing of indefinite-lived intangibles under established guidelines for impairment also requires significant use of judgment and assumptions, such as the estimation of cash flow projections, terminal values, royalty rates, contributory cross charges, where applicable, and discount rates. Accordingly, these fair value measurements fall in Level 3 of the fair value hierarchy. These assets and certain liabilities are measured at fair value on a nonrecurring basis as part of the Company’s annual impairment testing and as circumstances require.
The following table summarizes the assets that are measured at Level 3 fair value on a non-recurring basis at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
|
|
|
|
Indefinite-lived intangible assets
|
$
|
796
|
|
|
$
|
1,365
|
|
|
|
|
|
At March 31, 2020, certain intangible assets are recorded at fair value based upon the Company's impairment testing as circumstances require, while only certain intangible assets are recorded at fair value at March 31, 2020 (See Footnote 7).
The Company reviews property, plant and equipment and operating lease assets for impairment whenever events or circumstances indicate that carrying amounts may not be recoverable through future undiscounted cash flows. If the Company concludes that impairment exists, the carrying amount is reduced to fair value. See Footnotes 6 and 13, respectively, for further information.
Footnote 17 — Segment Information
During the first quarter of 2020, the Company appointed separate Chief Executive Officers for its Food and Commercial business units, each reporting directly to the chief operating decision maker (CODM). The Company determined these appointments required a reassessment of its operating and reportable segments. As a result of its assessment, the Company concluded that the Food and Commercial business units were two separate operating segments but met the requirements to be aggregated into a single reportable segment, pursuant to authoritative accounting literature, as 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 five primary reportable segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Commercial Products®, and Spontex®
|
|
Commercial cleaning and maintenance solutions, 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 storage 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®
|
|
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
|
Outdoor and Recreation
|
|
Coleman®, Contigo®, ExOfficio®, Marmot®
|
|
Products for outdoor and outdoor-related activities
|
(1) Ball® TM of 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. The Company also provides general corporate services to its segments which is reported as a non-operating segment, Corporate. As a result of these changes, net sales, operating income (loss) and impairment of goodwill and indefinite-lived intangible assets for the three and six months ended June 30, 2019 and segment assets as of December 31, 2019 have been recast for the new segment structure. Selected information by segment is presented in the following tables (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Net sales (1)
|
|
|
|
|
|
|
|
|
Appliances and Cookware
|
|
$
|
359
|
|
|
$
|
362
|
|
|
$
|
650
|
|
|
$
|
692
|
|
Commercial Solutions
|
|
413
|
|
|
454
|
|
|
826
|
|
|
868
|
|
Home Solutions
|
|
355
|
|
|
372
|
|
|
702
|
|
|
743
|
|
Learning and Development
|
|
631
|
|
|
849
|
|
|
1,159
|
|
|
1,430
|
|
Outdoor and Recreation
|
|
353
|
|
|
443
|
|
|
660
|
|
|
789
|
|
|
|
$
|
2,111
|
|
|
$
|
2,480
|
|
|
$
|
3,997
|
|
|
$
|
4,522
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) (2)
|
|
|
|
|
|
|
|
|
Appliances and Cookware
|
|
$
|
10
|
|
|
$
|
6
|
|
|
$
|
(298)
|
|
|
$
|
2
|
|
Commercial Solutions
|
|
40
|
|
|
53
|
|
|
(232)
|
|
|
45
|
|
Home Solutions
|
|
29
|
|
|
4
|
|
|
(262)
|
|
|
(1)
|
|
Learning and Development
|
|
126
|
|
|
217
|
|
|
131
|
|
|
306
|
|
Outdoor and Recreation
|
|
25
|
|
|
40
|
|
|
(449)
|
|
|
52
|
|
Corporate
|
|
(59)
|
|
|
(81)
|
|
|
(125)
|
|
|
(142)
|
|
Restructuring
|
|
(8)
|
|
|
(8)
|
|
|
(10)
|
|
|
(19)
|
|
|
|
$
|
163
|
|
|
$
|
231
|
|
|
$
|
(1,245)
|
|
|
$
|
243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
Segment assets
|
|
|
|
|
|
|
|
|
Appliances and Cookware
|
|
|
|
|
|
$
|
1,097
|
|
|
$
|
1,468
|
|
Commercial Solutions
|
|
|
|
|
|
2,394
|
|
|
2,731
|
|
Home Solutions
|
|
|
|
|
|
3,027
|
|
|
3,327
|
|
Learning and Development
|
|
|
|
|
|
5,170
|
|
|
4,800
|
|
Outdoor and Recreation
|
|
|
|
|
|
1,217
|
|
|
1,570
|
|
Corporate
|
|
|
|
|
|
1,352
|
|
|
1,746
|
|
|
|
|
|
|
|
$
|
14,257
|
|
|
$
|
15,642
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Impairment of goodwill and indefinite-lived intangibles assets (3)
|
|
|
|
|
|
|
|
|
Appliances and Cookware
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
299
|
|
|
$
|
—
|
|
Commercial Solutions
|
|
—
|
|
|
11
|
|
|
320
|
|
|
74
|
|
Home Solutions
|
|
—
|
|
|
—
|
|
|
290
|
|
|
—
|
|
Learning and Development
|
|
—
|
|
|
—
|
|
|
78
|
|
|
—
|
|
Outdoor and Recreation
|
|
—
|
|
|
—
|
|
|
482
|
|
|
—
|
|
|
|
$
|
—
|
|
|
$
|
11
|
|
|
$
|
1,469
|
|
|
$
|
74
|
|
(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 Corporate expenses of an operational nature are allocated to business segments primarily on a net sales basis. Corporate depreciation and amortization is allocated to the segments on a percentage of sales basis, and included in segment operating income.
(3)During the six months ended June 30, 2020, the Company recorded impairment charges to reflect impairment of intangible assets related to certain of the Company’s indefinite-lived trade names and goodwill. During the six months
ended June 30, 2019, the Company recorded an impairment charge to reflect a decrease in the carrying values of Mapa/Spontex and Quickie while these businesses were classified as held for sale. See Footnote 7 for further information.
The following tables disaggregates revenue by major product grouping source and geography for the periods indicated (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
Appliances and Cookware
|
|
Commercial Solutions
|
|
Home
Solutions
|
|
Learning and Development
|
|
Outdoor and Recreation
|
|
Total
|
Appliances and Cookware
|
$
|
359
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
359
|
|
Commercial
|
—
|
|
|
357
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
357
|
|
Connected Home Security
|
—
|
|
|
56
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
56
|
|
Food
|
—
|
|
|
—
|
|
|
253
|
|
|
—
|
|
|
—
|
|
|
253
|
|
Home Fragrance
|
—
|
|
|
—
|
|
|
102
|
|
|
—
|
|
|
—
|
|
|
102
|
|
Baby and Parenting
|
—
|
|
|
—
|
|
|
—
|
|
|
239
|
|
|
—
|
|
|
239
|
|
Writing
|
—
|
|
|
—
|
|
|
—
|
|
|
392
|
|
|
—
|
|
|
392
|
|
Outdoor and Recreation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
353
|
|
|
353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
359
|
|
|
$
|
413
|
|
|
$
|
355
|
|
|
$
|
631
|
|
|
$
|
353
|
|
|
$
|
2,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
223
|
|
|
$
|
304
|
|
|
$
|
300
|
|
|
$
|
490
|
|
|
$
|
218
|
|
|
$
|
1,535
|
|
International
|
136
|
|
|
109
|
|
|
55
|
|
|
141
|
|
|
135
|
|
|
576
|
|
Total
|
$
|
359
|
|
|
$
|
413
|
|
|
$
|
355
|
|
|
$
|
631
|
|
|
$
|
353
|
|
|
$
|
2,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
Appliances and Cookware
|
|
Commercial Solutions
|
|
Home
Solutions
|
|
Learning and Development
|
|
Outdoor and Recreation
|
|
Total
|
Appliances and Cookware
|
$
|
362
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
362
|
|
Commercial
|
—
|
|
|
364
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
364
|
|
Connected Home Security
|
—
|
|
|
90
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
90
|
|
Food
|
—
|
|
|
—
|
|
|
200
|
|
|
—
|
|
|
—
|
|
|
200
|
|
Home Fragrance
|
—
|
|
|
—
|
|
|
172
|
|
|
—
|
|
|
—
|
|
|
172
|
|
Baby and Parenting
|
—
|
|
|
—
|
|
|
—
|
|
|
290
|
|
|
—
|
|
|
290
|
|
Writing
|
—
|
|
|
—
|
|
|
—
|
|
|
559
|
|
|
—
|
|
|
559
|
|
Outdoor and Recreation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
443
|
|
|
443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
362
|
|
|
$
|
454
|
|
|
$
|
372
|
|
|
$
|
849
|
|
|
$
|
443
|
|
|
$
|
2,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
220
|
|
|
$
|
345
|
|
|
$
|
296
|
|
|
$
|
630
|
|
|
$
|
277
|
|
|
$
|
1,768
|
|
International
|
142
|
|
|
109
|
|
|
76
|
|
|
219
|
|
|
166
|
|
|
712
|
|
Total
|
$
|
362
|
|
|
$
|
454
|
|
|
$
|
372
|
|
|
$
|
849
|
|
|
$
|
443
|
|
|
$
|
2,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
Appliances and Cookware
|
|
Commercial Solutions
|
|
Home
Solutions
|
|
Learning and Development
|
|
Outdoor and Recreation
|
|
Total
|
Appliances and Cookware
|
$
|
650
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
650
|
|
Commercial
|
—
|
|
|
693
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
693
|
|
Connected Home Security
|
—
|
|
|
133
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
133
|
|
Food
|
—
|
|
|
—
|
|
|
437
|
|
|
—
|
|
|
—
|
|
|
437
|
|
Home Fragrance
|
—
|
|
|
—
|
|
|
265
|
|
|
—
|
|
|
—
|
|
|
265
|
|
Baby and Parenting
|
—
|
|
|
—
|
|
|
—
|
|
|
483
|
|
|
—
|
|
|
483
|
|
Writing
|
—
|
|
|
—
|
|
|
—
|
|
|
676
|
|
|
—
|
|
|
676
|
|
Outdoor and Recreation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
660
|
|
|
660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
650
|
|
|
$
|
826
|
|
|
$
|
702
|
|
|
$
|
1,159
|
|
|
$
|
660
|
|
|
$
|
3,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
407
|
|
|
$
|
606
|
|
|
$
|
567
|
|
|
$
|
864
|
|
|
$
|
410
|
|
|
$
|
2,854
|
|
International
|
243
|
|
|
220
|
|
|
135
|
|
|
295
|
|
|
250
|
|
|
1,143
|
|
Total
|
$
|
650
|
|
|
$
|
826
|
|
|
$
|
702
|
|
|
$
|
1,159
|
|
|
$
|
660
|
|
|
$
|
3,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
Appliances and Cookware
|
|
Commercial Solutions
|
|
Home
Solutions
|
|
Learning and Development
|
|
Outdoor and Recreation
|
|
Total
|
Appliances and Cookware
|
$
|
692
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
692
|
|
Commercial
|
—
|
|
|
694
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
694
|
|
Connected Home Security
|
—
|
|
|
174
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
174
|
|
Food
|
—
|
|
|
—
|
|
|
375
|
|
|
—
|
|
|
—
|
|
|
375
|
|
Home Fragrance
|
—
|
|
|
—
|
|
|
368
|
|
|
—
|
|
|
—
|
|
|
368
|
|
Baby and Parenting
|
—
|
|
|
—
|
|
|
—
|
|
|
526
|
|
|
—
|
|
|
526
|
|
Writing
|
—
|
|
|
—
|
|
|
—
|
|
|
904
|
|
|
—
|
|
|
904
|
|
Outdoor and Recreation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
789
|
|
|
789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
692
|
|
|
$
|
868
|
|
|
$
|
743
|
|
|
$
|
1,430
|
|
|
$
|
789
|
|
|
$
|
4,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
434
|
|
|
$
|
652
|
|
|
$
|
579
|
|
|
$
|
1,021
|
|
|
$
|
490
|
|
|
$
|
3,176
|
|
International
|
258
|
|
|
216
|
|
|
164
|
|
|
409
|
|
|
299
|
|
|
1,346
|
|
Total
|
$
|
692
|
|
|
$
|
868
|
|
|
$
|
743
|
|
|
$
|
1,430
|
|
|
$
|
789
|
|
|
$
|
4,522
|
|
|
|
|
|
|
|
|
|
|
|
|
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Footnote 18 — 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. On January 31, 2020, the Company received a subpoena from the U.S. Securities and Exchange Commission (the “SEC”) primarily relating to its sales practices and certain accounting matters during the period from January 1, 2016 to the date of the subpoena. The subpoena followed various informal document requests from the SEC staff, including several requests primarily related to the impairment of goodwill and other intangible assets. The Company has cooperated in providing documents and information to the SEC in connection with its requests and intends to continue to do so in connection with the subpoena. The Company cannot predict the timing or outcome of this investigation.
Securities Litigation
Certain of the Company’s current and former officers and directors have been named in shareholder derivative lawsuits. On October 29, 2018, a shareholder filed a putative derivative complaint, Streicher v. Polk, et al., in the United States District Court for the District of Delaware (the “Streicher Derivative Action”), purportedly on behalf of the Company against certain of the Company's current and former officers and directors. On October 30, 2018, another shareholder filed a putative derivative complaint, Martindale v. Polk, et al., in the United States District Court for the District of Delaware (the “Martindale Derivative Action”), asserting substantially similar claims purportedly on behalf of the Company against the same defendants. The complaints allege, among other things, violations of the federal securities laws, breaches of fiduciary duties, unjust enrichment, and waste of corporate assets. The factual allegations underlying these claims are similar to the factual allegations made in the In re Newell Brands, Inc. Securities Litigation pending 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 (the "Newell Brands Derivative 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 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).
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 two 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 the Company's common stock between February 6, 2017 and January 24, 2018. The first lawsuit was filed on June 21, 2018 and is captioned Bucks 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 captioned Matthew 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 two cases under Civil Action No. 18-cv-10878 (JMV)(JBC) bearing the caption In 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. 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 7, 2020, the plaintiffs filed an appeal to the United States Court of Appeals for the Third Circuit.
Jarden Acquisition
Under the Delaware General Corporation Law (“DGCL”), any Jarden stockholder who did not vote in favor of adoption of the Merger Agreement, and otherwise complies with the provisions of Section 262 of the DGCL, was 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. Two separate appraisal petitions, styled as Dunham Monthly Distribution Fund v. Jarden Corporation, Case No. 12454-VCS (Court of Chancery of the State of Delaware), and Merion Capital LP v. Jarden Corporation, Case No. 12456-VCS (Court of Chancery of the State of Delaware), respectively, were filed on June 14, 2016 by a total of ten purported Jarden stockholders seeking an appraisal of the fair value of their shares of Jarden common stock pursuant to Section 262 of the DGCL. A third appraisal petition, Fir Tree Value Master Fund, LP v. Jarden Corporation, Case No. 12546-VCS (Court of Chancery of the State of Delaware), was filed on July 8, 2016 by two purported Jarden stockholders seeking an appraisal of the fair value of their shares of Jarden common stock pursuant to Section 262 of the DGCL. A fourth appraisal petition, Veritian Partners Master Fund LTP v. Jarden Corporation, Case No. 12650-VCS (Court of Chancery of the State of Delaware), was filed on August 12, 2016 by two purported Jarden stockholders seeking an appraisal of the fair value of their shares of Jarden common stock pursuant to Section 262 of the DGCL. On or about October 3, 2016, the foregoing petitions were consolidated for joint prosecution under Case No. 12456-VCS, and, except as provided below, the litigation is ongoing. The holders of a total of approximately 10.6 million former Jarden shares were represented in these actions initially.
On July 5, 2017 and July 6, 2017, Jarden and 11 of the dissenting stockholders, specifically including Merion Capital ERISA LP, Merion Capital LP, Merion Capital II LP, Dunham Monthly Distribution Fund, WCM Alternatives: Event-Driven Fund, Westchester Merger Arbitrage Strategy sleeve of the JNL Multi-Manager Alternative Fund, JNL/Westchester Capital Event Driven Fund, WCM Master Trust, The Merger Fund, The Merger Fund VL and SCA JP Morgan Westchester (collectively, the “Settling Petitioners”), entered into settlement agreements with respect to approximately 7.7 million former Jarden shares (collectively, the “Settlement Agreements”). Pursuant to the Settlement Agreements, in exchange for withdrawing their respective demands for appraisal of their shares of Jarden common stock and a full and final release of all claims, among other things, the Settling Petitioners received the original merger consideration provided for under the Merger Agreement, specifically (1) 0.862 of a share of Newell common stock, and (2) $21.00 in cash, per share of Jarden common stock (collectively, the “Merger Consideration”), excluding any and all other benefits, including, without limitation, the right to accrued interest, dividends, and/or distributions. Accordingly, pursuant to the terms of the Settlement Agreements, Newell issued 6.6 million shares of Newell common stock to the Settling Petitioners (representing the stock component of the Merger Consideration), and authorized payment to the Settling Petitioners of approximately $162 million (representing the cash component of the Merger Consideration). The Court of Chancery of the State of Delaware has dismissed with prejudice the appraisal claims for the Settling Petitioners.
Following the settlements, claims from the holders of approximately 2.9 million former Jarden shares remained 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 shares of Jarden common stock held by these dissenting stockholders, as determined by the court, is payable in cash and could be lower or higher than the Merger Consideration to which such Jarden stockholders would have been entitled under the Merger Agreement.
On July 19, 2019, the Court issued an order in which it determined that the fair value of the remaining Jarden shares at the date of the Merger was $48.31 per share, reflecting approximately $140 million in value to be paid to the remaining dissenting shareholders. The Court also ordered the payment of accrued interest, compounded quarterly, and accruing from the date of closing to the date of payment. On July 26, 2019, the remaining dissenting shareholders filed a Motion for Reargument asking the Court to amend its valuation to no less than the deal price of $59.21 per share. On September 16, 2019, the Court denied the Motion for Reargument and affirmed its $48.31 per share valuation. The Court entered judgment on October 2, 2019. On October 4, 2019, the Company paid the judgment in the amount of approximately $177 million, which cut off interest accumulation on the judgment amount. The Company reflected $171 million and $6 million as a financing cash outflow and operating cash outflow, respectively, within the Company’s Consolidated Statement of Cash Flows for the year ended December 31, 2019. On November 1, 2019, the dissenting shareholders filed an appeal to the Supreme Court of Delaware. On July 9, 2020, the Supreme Court of Delaware affirmed the judgment.
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 reported to the Company by one of its retailers. The Company determined that because of an issue occurring infrequently, but on 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 has 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 the six months ended June 30, 2020, net of recoveries from a third-party manufacturer.
Environmental Matters
The Company is involved in various matters concerning federal and state environmental laws and regulations, including matters in which the Company has been identified by the U.S. Environmental Protection Agency (“U.S. EPA”) and certain state environmental agencies as a potentially responsible party (“PRP”) at contaminated sites under the Comprehensive Environmental Response Compensation and Liability Act (“CERCLA”) and equivalent state laws. In assessing its environmental response costs, the Company has considered several factors, including the extent of the Company’s volumetric contribution at each site relative to that of other PRPs; the kind of waste; the terms of existing cost sharing and other applicable agreements; the financial ability of other PRPs to share in the payment of requisite costs; the Company’s prior experience with similar sites; environmental studies and cost estimates available to the Company; the effects of inflation on cost estimates; and the extent to which the Company’s, and other parties’, status as PRPs is disputed.
The Company’s estimate of environmental remediation costs associated with these matters at June 30, 2020 was $43 million which is included in other accrued liabilities and other noncurrent liabilities in the Condensed Consolidated Balance Sheets. No insurance recovery was taken into account in determining the Company’s cost estimates or reserves, nor do the Company’s cost estimates or reserves reflect any discounting for present value purposes, except with respect to certain long-term operations and maintenance CERCLA matters. Because of the uncertainties associated with environmental investigations and response activities, the possibility that the Company could be identified as a PRP at sites identified in the future that require the incurrence of environmental response costs and the possibility that sites acquired in business combinations may require environmental response costs, actual costs to be incurred by the Company may vary from the Company’s estimates.
Lower Passaic River Matter
U.S. EPA has issued General Notice Letters (“GNLs”) to over 100 entities, including the Company and Berol Corporation, a subsidiary of the Company (“Berol”), alleging that they are PRPs at the Diamond Alkali Superfund Site, which includes a 17-mile stretch of the Lower Passaic River and its tributaries. Seventy-two of the GNL recipients, including the Company on behalf of itself and Berol (the “Company Parties”), have taken over the performance of the remedial investigation (“RI”) and feasibility study (“FS”) for the Lower Passaic River. On April 11, 2014, while work on the RI/FS remained underway, U.S. EPA issued a Source Control Early Action Focused Feasibility Study (“FFS”), which proposed four alternatives for remediation of the lower 8.3 miles of the Lower Passaic River. U.S. EPA’s cost estimates for its cleanup alternatives ranged from approximately $315 million to approximately $3.2 billion in capital costs plus from approximately $1 million to $2 million in annual maintenance costs for 30 years, with its preferred alternative carrying an estimated cost of approximately $1.7 billion plus an additional approximately $2 million in annual maintenance costs for 30 years. In February 2015, the participating parties submitted to the U.S. EPA a draft RI, followed by submission of a draft FS in April 2015. The draft FS sets forth various alternatives for remediating the lower 17 miles of the Passaic River, ranging from a “no action” alternative, to targeted remediation of locations along the entire lower 17 mile stretch of the river, to remedial actions consistent with U.S. EPA’s preferred alternative as set forth in the FFS for the lower 8.3 miles coupled with monitored natural recovery and targeted remediation in the upper nine miles. The cost estimates for these alternatives ranged from approximately $28 million to $2.7 billion, including related operation, maintenance and monitoring costs. U.S. EPA issued a conditional approval of the RI report in June 2019.
U.S. EPA issued a Record of Decision for the lower 8.3 miles of the Lower Passaic River in March 2016 (the “2016 ROD”). The 2016 ROD finalizes as the selected remedy the preferred alternative set forth in the FFS, which U.S. EPA estimates will cost $1.4 billion. Subsequent to the release of the 2016 ROD, U.S. EPA issued GNLs for the lower 8.3 miles of the Lower Passaic River
(the “2016 GNL”) to numerous entities, apparently including all previous recipients of the initial GNL, including Company Parties, as well as several additional entities. The 2016 GNL states that U.S. EPA would like to determine whether one entity, Occidental Chemical Corporation (“OCC”), will voluntarily perform the remedial design for the selected remedy for the lower 8.3 miles, and that following execution of an agreement for the remedial design, U.S. EPA plans to begin negotiation of a remedial action consent decree “under which OCC and the other major PRPs will implement and/or pay for U.S. EPA’s selected remedy for the lower 8.3 miles of the Lower Passaic River and reimburse U.S. EPA’s costs incurred for the Lower Passaic River.”
In September 2016, OCC and EPA entered into an Administrative Order on Consent for performance of the remedial design. On March 30, 2017, U.S. EPA sent a letter offering a cash settlement in the amount of $0.3 million to 20 PRPs, not including the Company Parties, for CERCLA Liability (with reservations, such as for Natural Resource Damages) in the lower 8.3 miles of the Lower Passaic River. U.S. EPA further indicated in related correspondence that a cash-out settlement might be appropriate for additional parties that are “not associated with the release of dioxins, furans, or PCBs to the Lower Passaic River.” 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 five 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 lower 8.3 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 draft Interim Remedy FS (the “Draft IR FS”) on August 12, 2019, 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 alternatives range from approximately $6 million to $460 million. EPA has indicated it aims to have the IR FS finalized and to issue a Record of Decision for the upper nine miles in 2020.
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 17- mile stretch of the Lower Passaic River and its tributaries, other than those subject to the Passaic Release. The complaint notes, however, that OCC may broaden its claims in the future if and when EPA selects remedial actions for other portions of the Site or completes a Natural Resource Damage Assessment. Given the uncertainties pertaining to this matter, including that U.S. EPA is still reviewing the 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.
Other Matters
Although management of the Company cannot predict the ultimate outcome of these proceedings with certainty, it believes that the ultimate resolution of the 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. 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 June 30, 2020, the Company had approximately $50 million in standby letters of credit primarily related to the Company’s self-insurance programs, including workers’ compensation, product liability and medical expenses.