UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

for the Quarterly Period Ended March 31, 2019

Commission File Number 1-9608

 

 

NEWELL BRANDS INC.

(Exact name of registrant as specified in its charter)

 

 

 

DELAWARE		36-3514169
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

221 River Street

Hoboken, New Jersey 07030

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (201) 610-6600

Securities registered pursuant to Section 12(b) of the Act:

 

TITLE OF EACH CLASS		TRADING SYMBOL		NAME OF EXCHANGE ON WHICH REGISTERED
Common stock, $1 par value per share		NWL		Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer		☒		Accelerated filer		☐
Non-accelerated filer		☐		Smaller reporting company		☐
Emerging growth company		☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

Number of shares of common stock outstanding (net of treasury shares) as April 30, 2019: 423.1 million.

 

 

 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION			3
Item 1. Financial Statements			3
Item  2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			28
Item  3. Quantitative and Qualitative Disclosures about Market Risk			35
Item 4. Controls and Procedures			35
PART II. OTHER INFORMATION			37
Item 1. Legal Proceedings			37
Item 1A. Risk Factors			37
Item  2. Unregistered Sales of Equity Securities and Use of Proceeds			37
Item 6. Exhibits			38
SIGNATURES

 

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

NEWELL BRANDS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(Amounts in millions, except per share data)

 

		Three Months Ended March 31,
		2019				2018
Net sales		$	1,712.1			$	1,811.5
Cost of products sold			1,168.3				1,206.2
Gross profit			543.8				605.3
Selling, general and administrative expenses			517.9				626.3
Restructuring costs, net			10.9				5.4
Operating income (loss)			15.0				(26.4	)
Non-operating expenses:
Interest expense, net			80.2				116.1
Other expense (income), net			23.3				(1.4	)
Loss before income taxes			(88.5	)			(141.1	)
Income tax benefit			(16.7	)			(86.4	)
Loss from continuing operations			(71.8	)			(54.7	)
Income (loss) from discontinued operations, net of tax			(79.4	)			108.0
Net income (loss)		$	(151.2	)		$	53.3
Weighted average shares outstanding:
Basic			423.0				486.0
Diluted			423.0				486.0
Earnings (loss) per share:
Basic:
Loss from continuing operations		$	(0.17	)		$	(0.11	)
Income (loss) from discontinued operations			(0.19	)			0.22
Net income (loss)		$	(0.36	)		$	0.11
Diluted:
Loss from continuing operations		$	(0.17	)		$	(0.11	)
Income (loss) from discontinued operations			(0.19	)			0.22
Net income (loss)		$	(0.36	)		$	0.11

See Notes to Condensed Consolidated Financial Statements (Unaudited).

 

3

NEWELL BRANDS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)

(Amounts in millions)

 

		Three Months Ended March 31,
		2019				2018
Comprehensive income (loss):
Net income (loss)		$	(151.2	)		$	53.3
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments			(2.1	)			64.1
Unrecognized pension and postretirement costs			(13.2	)			(16.3	)
Derivative financial instruments			(8.4	)			3.6
Total other comprehensive income (loss), net of tax			(23.7	)			51.4
Comprehensive income (loss)		$	(174.9	)		$	104.7

See Notes to Condensed Consolidated Financial Statements (Unaudited).

 

4

NEWELL BRANDS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(Amounts in millions, except par values)

 

		March 31, 2019				December 31, 2018
Assets:
Cash and cash equivalents		$	364.1			$	495.7
Accounts receivable, net			1,606.1				1,850.7
Inventories			1,799.0				1,583.1
Prepaid expenses and other			290.8				275.6
Current assets held for sale			3,456.1				3,535.2
Total current assets			7,516.1				7,740.3
Property, plant and equipment, net			930.7				925.6
Operating lease assets, net			619.3				—
Goodwill			2,958.3				2,970.2
Other intangible assets, net			5,536.4				5,579.6
Deferred income taxes			216.0				179.7
Other assets			329.3				327.0
Total assets		$	18,106.1			$	17,722.4
Liabilities:
Accounts payable		$	934.9			$	1,019.5
Accrued compensation			121.6				159.1
Other accrued liabilities			1,174.4				1,180.6
Short-term debt and current portion of long-term debt			573.6				318.7
Current liabilities held for sale			747.1				734.1
Total current liabilities			3,551.6				3,412.0
Long-term debt			6,694.6				6,696.3
Deferred income taxes			1,000.7				992.7
Long-term operating lease liabilities			547.6				—
Other noncurrent liabilities			1,328.5				1,368.2
Total liabilities			13,123.0				12,469.2
Commitments and contingencies (Footnote 18)
Stockholders’ equity:
Preferred stock (10.0 authorized shares, $1.00 par value, no shares issued at March 31, 2019 and December 31, 2018)			—				—
Common stock (800 authorized shares, $1.00 par value 446.5 shares and 446.1 shares issued at March 31, 2019 and December 31, 2018, respectively)			446.5				446.1
Treasury stock, at cost (23.4 and 23.3 shares at March 31, 2019 and December 31, 2018, respectively)			(587.7	)			(584.7	)
Additional paid-in capital			8,688.1				8,781.1
Retained deficit			(2,662.0	)			(2,511.3	)
Accumulated other comprehensive loss			(936.5	)			(912.8	)
Stockholders’ equity attributable to parent			4,948.4				5,218.4
Stockholders’ equity attributable to noncontrolling interests			34.7				34.8
Total stockholders’ equity			4,983.1				5,253.2
Total liabilities and stockholders’ equity		$	18,106.1			$	17,722.4

See Notes to Condensed Consolidated Financial Statements (Unaudited).

 

5

NEWELL BRANDS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Amounts in millions)

 

		Three Months Ended March 31,
		2019				2018
Cash flows from operating activities:
Net income (loss)		$	(151.2	)		$	53.3
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization			86.9				149.8
Impairment of goodwill, intangibles and other assets			174.7				—
Net gain from sale of businesses			(5.2	)			(0.6	)
Deferred income taxes			(46.9	)			(94.4	)
Stock-based compensation expense			4.9				10.1
Loss on change in fair value of investments			16.7				—
Other, net			1.6				0.8
Changes in operating assets and liabilities, excluding the effects of acquisitions and divestitures:
Accounts receivable			245.7				255.9
Inventories			(258.7	)			(308.8	)
Accounts payable			(106.9	)			(285.8	)
Accrued liabilities and other			(162.0	)			(182.0	)
Net cash used in operating activities			(200.4	)			(401.7	)
Cash flows from investing activities:
Capital expenditures			(58.2	)			(95.1	)
Other investing activities			(17.5	)			(10.2	)
Net cash used in investing activities			(75.7	)			(105.3	)
Cash flows from financing activities:
Net short-term debt			521.4				602.8
Payments on current portion long-term debt			(268.2	)			—
Payments on long-term debt			(4.6	)			(0.7	)
Cash dividends			(97.7	)			(112.6	)
Debt issuance and extinguishment costs			(2.7	)			—
Equity compensation activity and other, net			(2.6	)			(14.8	)
Net cash provided by financing activities			145.6				474.7
Exchange rate effect on cash and cash equivalents			(1.1	)			5.6
Decrease in cash and cash equivalents			(131.6	)			(26.7	)
Cash and cash equivalents at beginning of period			495.7				485.7
Cash and cash equivalents at end of period		$	364.1			$	459.0
Supplemental disclosures:
Net cash provided by discontinued operating activities		$	11.9			$	35.9
Net cash used in discontinued investing activities			(11.9	)			(35.7	)
Capital expenditures for discontinued operations			(12.5	)			(35.9	)

See Notes to Condensed Consolidated Financial Statements (Unaudited).

 

6

NEWELL BRANDS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)

(Amounts in millions)

 

		Common Stock				Treasury Stock				Additional Paid-In Capital				Retained Deficit				Accumulated Other Comprehensive Loss				Stockholders’ Equity Attributable to Parent				Non-controlling Interests				Total Stockholders’ Equity
Balance at December 31, 2018		$	446.1			$	(584.7	)		$	8,781.1			$	(2,511.3	)		$	(912.8	)		$	5,218.4			$	34.8			$	5,253.2
Comprehensive income (loss)			—				—				—				(151.2	)			(23.7	)			(174.9	)			—				(174.9	)
Dividends declared on common stock			—				—				(97.7	)			—				—				(97.7	)			—				(97.7	)
Equity compensation, net of tax			0.4				(3.0	)			4.7				—				—				2.1				—				2.1
Impact of adoption due to change in accounting standard (see Footnote 1)			—				—				—				0.5				—				0.5				—				0.5
Portion of net (income) loss attributable to non-controlling interests			—				—				—				—				—				—				(0.1	)			(0.1	)
Balance at March 31, 2019		$	446.5			$	(587.7	)		$	8,688.1			$	(2,662.0	)		$	(936.5	)		$	4,948.4			$	34.7			$	4,983.1
		Common Stock				Treasury Stock				Additional Paid-In Capital				Retained Earnings				Accumulated Other Comprehensive Loss				Stockholders’ Equity Attributable to Parent				Non-controlling Interests				Total Stockholders’ Equity
Balance at December 31, 2017		$	508.1			$	(573.5	)		$	10,362.0			$	4,611.2			$	(763.1	)		$	14,144.7			$	36.6			$	14,181.3
Comprehensive income			—				—				—				53.3				51.4				104.7				—				104.7
Dividends declared on common stock			—				—				—				(112.5	)			—				(112.5	)			—				(112.5	)
Equity compensation, net of tax			0.7				(6.7	)			9.5				—				—				3.5				—				3.5
Impact of adoption due to change in accounting standard			—				—				—				(9.5	)			—				(9.5	)			—				(9.5	)
Portion of net (income) loss attributable to non-controlling interests			—				—				—				—				—				—				(0.2	)			(0.2	)
Balance at March 31, 2018		$	508.8			$	(580.2	)		$	10,371.5			$	4,542.5			$	(711.7	)		$	14,130.9			$	36.4			$	14,167.3

See Notes to Condensed Consolidated Financial Statements (Unaudited).

 

7

NEWELL BRANDS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Footnote 1 — Basis of Presentation and Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements of Newell Brands Inc. (formerly, Newell Rubbermaid Inc., and collectively with its subsidiaries, the “Company”) have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) and do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments (including normal recurring accruals) considered necessary for a fair presentation of the financial position and the results of operations of the Company. It is recommended that these unaudited condensed consolidated financial statements 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 as of December 31, 2018, 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 complete financial statements. Certain reclassifications have been made in the Company’s financial statements of the prior year to conform to the current year presentation.

Discontinued Operations

During 2018, the Company implemented the Accelerated Transformation Plan, which was designed in part, to rationalize the organization and its portfolio of products. Pursuant to the Accelerated Transformation Plan, a number of the Company’s businesses were designated for disposal. These businesses have been classified as discontinued operations as these businesses together represent a strategic shift that has a major effect on the Company’s operations and financial results (see Footnote 2). Prior periods have been reclassified to conform with the current presentation.

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 tends to generate the majority of its operating cash flow in the third and fourth quarters of the year due to seasonal variations in operating results, the timing of annual performance-based compensation payments, customer program payments, working capital requirements and credit terms provided to customers. Accordingly, the Company’s results of operations for the three months ended March 31, 2019 may not necessarily be indicative of the results that may be expected for the year ending December 31, 2019.

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 2018-15, “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 fiscal years, and interim periods within those years, beginning after December 15, 2019, with early adoption permitted. ASU 2018-15 may be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently assessing the impact that adoption of ASU 2018-15 will have on the consolidated financial statements.

In August 2018, the FASB issued ASU 2018-14, “Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans.” ASU 2018-14 modifies disclosure requirements for defined benefit pension and other postretirement plans. ASU 2018-14 is effective for fiscal years ending after December 15, 2020, and early adoption is permitted. 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.

 

8

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 2018 Annual Report on Form 10-K. Such significant accounting policies are applicable for periods prior to the adoption of the following new accounting standards.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which requires lessees to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. The Company adopted ASU 2016-02 prospectively starting on January 1, 2019. As part of the adoption, the Company elected the package of practical expedients permitted under the transaction guidance that includes not to reassess historical lease classification, not to recognize short-term leases on our balance sheet, nor separate lease and non-lease components for all its leases. In addition, the Company used hindsight to determine the lease term and applied its incremental borrowing rate based on the remaining term of the lease as of the adoption date. The impact upon adoption, as of January 1, 2019, related to operating leases in continuing operations resulted in the recognition of right-of-use assets of approximately $629 million, lease liabilities of approximately $687 million and a cumulative-effect adjustment on retained deficit of approximately $0.5 million on its condensed consolidated balance sheet.

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” ASU 2017-12 amends existing guidance to better align an entity’s risk management activities and financial reporting for hedging relationships. ASU 2017-12 also expands and refines hedge accounting for both nonfinancial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. ASU 2017-12 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within those annual periods. The adoption of ASU 2017-12 did not have a material impact on the Company’s consolidated financial statements.

Revisions of Previously Issued Financial Statements

During the first quarter of 2019, the Company identified that it did not utilize an accurate estimate of fair value and expected form of sale in its fourth quarter 2018 impairment assessment for one of its five disposal groups classified as held for sale. The Company did not appropriately account for the disposal group as a stock sale. Consequently, certain income tax account balances (primarily related to deferred tax liabilities) were not classified as assets and liabilities held for sale in the Company’s Consolidated Balance Sheet as of December 31, 2018. As a result, the Company determined its book-over-tax outside basis differences and measured the tax effects of such difference, which resulted in an income tax expense of approximately $12.6 million. In addition, the Company did not use an accurate estimate of fair value in its 2018 impairment assessment. Collectively, the estimate of fair value and expected form of sale resulted in adjustments to the estimated fair value and carrying value of the held for sale business utilized in the Company’s 2018 impairment assessment. These changes resulted in an additional impairment charge of approximately $12.0 million to write-down the carrying value of the net assets of the held for sale business to its estimated fair value at December 31, 2018. In addition, as part of the presentation of discontinued operations, the Company periodically has to reclassify the prior period presentation to conform to the current year presentation. These adjustments are reflected in the Reclassification column below. The following table presents the effect to the Company’s previously reported Consolidated Balance Sheet at December 31, 2018 and Consolidated Statement of Operations for the year ended December 31, 2018:

 

		As of December 31, 2018
		As Previously Reported				Revision				Reclassification				As Revised
Prepaid expenses and other		$	278.0			$	(2.4	)		$	—			$	275.6
Current assets held for sale			3,541.3				(6.1	)			—				3,535.2
Total current assets			7,748.8				(8.5	)			—				7,740.3
Deferred income taxes (noncurrent assets)			165.2				14.5				—				179.7
Total assets			17,716.4				6.0				—				17,722.4
Other accrued liabilities			1,182.3				(0.8	)			(0.9	)			1,180.6
Current liabilities held for sale			650.4				100.4				(16.7	)			734.1
Total current liabilities			3,330.0				99.6				(17.6	)			3,412.0
Deferred income taxes (liabilities)			1,041.8				(66.7	)			17.6				992.7
Other noncurrent liabilities			1,370.5				(2.3	)			—				1,368.2
Total liabilities			12,438.6				30.6				—				12,469.2
Retained deficit			(2,486.7	)			(24.6	)			—				(2,511.3	)
Stockholders’ equity attributable to parent			5,243.0				(24.6	)			—				5,218.4
Total stockholders’ equity			5,277.8				(24.6	)			—				5,253.2
Total liabilities and stockholders’ equity			17,716.4				6.0				—				17,722.4

 

9

		For the year ended December 31, 2018
Income Statement Classification		As Previously Reported				Revision				As Revised
Income (loss) from discontinued operations, net of tax		$	(128.3	)		$	(24.6	)		$	(152.9	)
Net income (loss)			(6,917.9	)			(24.6	)			(6,942.5	)
Earnings per share:
Basic:
Income (loss) from continuing operations		$	(14.33	)		$	—			$	(14.33	)
Income (loss) from discontinued operations			(0.27	)			(0.05	)			(0.32	)
Net income (loss)		$	(14.60	)		$	(0.05	)		$	(14.65	)
Diluted:
Income (loss) from continuing operations		$	(14.33	)		$	—			$	(14.33	)
Income (loss) from discontinued operations			(0.27	)			(0.05	)			(0.32	)
Net income (loss)		$	(14.60	)		$	(0.05	)		$	(14.65	)

The Company concluded the above referenced effects were not material to its previously issued Consolidated Statement of Operations for the year ended December 31, 2018 and Consolidated Balance Sheet as of December 31, 2018 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 4, 2019. As such, the Company will revise its Consolidated Statement of Operations, Consolidated Statement of Comprehensive Income (Loss), Consolidated Statement of Cash Flows and Consolidated Statement of Stockholders’ Equity for the year ended December 31, 2018 and Consolidated Balance Sheet at December 31, 2018 in the Company’s 2019 Annual Report on Form 10-K. The adjustments will not result in a change to net cash provided by operating activities in the Company’s Consolidated Statement of Cash Flows for the year ending December 31, 2018. In addition, the Company has revised the Condensed Consolidated Balance Sheet at December 31, 2018 for the above adjustments including the effects to the Company’s retained deficit and total stockholders’ equity within this Quarterly Report on Form 10-Q.

Other Items

At March 31, 2019, the Company held a 23.4% investment in FireAngel Safety Technology Group PLC (formerly known as Sprue Aegis PLC) (“FireAngel”), which the Company accounts for under the equity method of accounting. During the three months ended March 31, 2019, the Company recorded an other-than-temporary-impairment of approximately $11.7 million which reduced the carrying value of its investment in FireAngel to $2.9 million. FireAngel has experienced a decline in its share price. In addition, during March of 2019, FireAngel publicly disclosed its intentions to raise capital through a public offering at a price per share below our investment’s basis. The Company concluded these facts were indicative of an other-than-temporary-impairment and recorded the charge within other expense (income), net in the Condensed Consolidated Statement of Operations for the three-months ending March 31, 2019.

During the three months ended March 31, 2018, the Company’s related party sales to FireAngel were $7.5 million. On March 31, 2018, the Company terminated its distribution agreement with FireAngel.

Footnote 2 — Divestitures and Held for Sale

Discontinued Operations

As part of the Company’s Accelerated Transformation Plan, during 2018, the Company announced it was exploring strategic options for its industrial and commercial product assets, including The Waddington Group, Process Solutions, Rubbermaid Commercial Products, Rexair and Mapa/Spontex businesses, as well as non-core consumer businesses, including Jostens, Pure Fishing, Rawlings, Rubbermaid Outdoor, Closet, Refuse and Garage, Goody Products and U.S. Playing Cards businesses. These businesses are classified as discontinued operations. Prior periods have been reclassified to conform with the current presentation. During 2018, the Company sold Goody Products, Inc. (“Goody”), Jostens, Inc. (“Jostens”), Pure Fishing, Inc. (“Pure Fishing”), the Rawlings Sporting Goods Company, Inc. (“Rawlings”) and Waddington Group, Inc. (“Waddington”) and other related subsidiaries as part of the Accelerated Transformation Plan. The Company currently expects to complete the remaining divestitures by the end of 2019.

 

10

The following table provides a summary of amounts included in discontinued operations for the periods indicated (in millions):

 

		Three Months Ended March 31,
		2019				2018
Net sales		$	540.9			$	1,205.9
Cost of products sold			378.8				805.8
Selling, general and administrative expenses			76.7				254.1
Restructuring costs, net			—				2.5
Impairment of goodwill, intangibles and other assets			174.7				—
Operating income (loss)			(89.3	)			143.5
Non-operating expense (income)			(3.2	)			0.4
Income (loss) before income taxes			(86.1	)			143.1
Income tax expense (benefit)			(6.7	)			35.1
Net income (loss)		$	(79.4	)		$	108.0

Held for Sale

The following table presents information related to the major classes of assets and liabilities that were classified as assets and liabilities held for sale in the condensed consolidated balance sheets as of the dates indicated (in millions):

 

		March 31, 2019				December 31, 2018(1)
Accounts receivable, net		$	413.8			$	411.7
Inventories			378.2				338.7
Prepaid expenses and other			37.4				42.8
Property, plant and equipment, net			510.8				515.9
Operating lease assets			74.3				—
Goodwill			877.4				942.4
Other intangible assets, net			1,150.6				1,270.8
Other assets			13.6				12.9
Current assets held for sale		$	3,456.1			$	3,535.2
Accounts payable		$	240.7			$	256.7
Accrued compensation			49.3				57.0
Other accrued liabilities			146.5				154.4
Deferred income taxes			219.6				250.0
Operating lease liabilities			78.9				—
Other liabilities			12.1				16.0
Current liabilities held for sale		$	747.1			$	734.1

(1)	See Footnote 1.

Divestitures

2019 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.

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.

During the three months ended March 31, 2019, the Company recorded an impairment charge primarily related to goodwill and intangible assets totaling approximately $175 million, which is included in the income (loss) from discontinued operations, primarily related to the write-down of the carrying value of the net assets of certain held for sale businesses based on their estimated fair value.

2018 Activity

On June 29, 2018, the Company sold Rawlings, its Team Sports business, to a fund managed by Seidler Equity Partners with a co-investment of Major League Baseball for approximately $400 million, subject to customary working capital and other post-closing adjustments.

 

11

On June 29, 2018, the Company sold Waddington to Novolex Holdings LLC for approximately $2.3 billion, subject to customary working capital and other post-closing adjustments

On August 31, 2018, the Company sold its Goody business, to a fund managed by ACON Investments, L.L.C. for approximately $109 million, subject to customary working capital and other post-closing adjustments.

On December 21, 2018, the Company sold Jostens to a fund managed by Platinum Equity, LLC for approximately $1.3 billion, subject to customary working capital and other post-closing adjustments.

On December 21, 2018, the Company sold Pure Fishing to a fund managed by Sycamore Partners L.P for approximately $1.3 billion, subject to customary working capital and other post-closing adjustments.

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 three months ended March 31, 2019 (in millions):

 

		Cumulative Translation Adjustment				Pension and Postretirement Costs				Derivative Financial Instruments				AOCL
Balance at December 31, 2018		$	(492.6	)		$	(398.1	)		$	(22.1	)		$	(912.8	)
Other comprehensive loss income before reclassifications			(2.1	)			(14.8	)			(5.1	)			(22.0	)
Amounts reclassified to earnings			—				1.6				(3.3	)			(1.7	)
Net current period other comprehensive loss			(2.1	)			(13.2	)			(8.4	)			(23.7	)
Balance at March 31, 2019		$	(494.7	)		$	(411.3	)		$	(30.5	)		$	(936.5	)

For the three months ended March 31, 2019 and 2018, reclassifications from AOCL to the results of operations for the Company’s pension and postretirement benefit plans were a pre-tax expense of $2.1 million and $3.6 million, respectively, and primarily represent the amortization of net actuarial losses (see Footnote 11). These costs are recorded in other expense (income), net. For the three months ended March 31, 2019 and 2018, reclassifications from AOCL to the results of operations for the Company’s derivative financial instruments for effective cash flow hedges were pre-tax (income) expense of ($4.2) million and $13.1 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 March, 31,
		2019				2018
Foreign currency translation adjustments		$	(0.2	)		$	7.9
Unrecognized pension and postretirement costs			3.8				4.0
Derivative financial instruments			2.3				(0.2	)
Income tax benefit related to AOCL		$	5.9			$	11.7

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.

Accelerated Transformation Plan

The Company’s Accelerated Transformation Plan, which was initiated during the first quarter of 2018, was designed in part, to divest the Company’s industrial and commercial product assets and non-core consumer businesses. The Accelerated Transformation Plan also focuses on the realignment of the Company’s management structure and overall cost structure as a result of the completed and planned divestitures. Restructuring costs associated with the transformation plan include employee-related costs, including severance, retirement and other termination benefits, contract termination costs and other costs.

 

12

Other Restructuring

In addition to the Accelerated Transformation Plan, the Company has incurred restructuring costs for various other restructuring activities.

Restructuring Costs

Restructuring costs incurred by reportable business segments for all restructuring activities in continuing operations for the periods indicated are as follows (in millions):

 

		Three Months Ended March 31,
		2019				2018
Food and Appliances		$	1.8			$	0.6
Home and Outdoor Living			2.5				0.8
Learning and Development			3.8				2.1
Corporate			2.8				1.9
		$	10.9			$	5.4

Restructuring costs incurred during the three months ended March 31, 2019 and 2018 primarily relate to the Accelerated Transformation Plan.

Accrued restructuring costs activity for the three months ended March 31, 2019 are as follows (in millions):

 

		Balance at December 31, 2018				Restructuring Costs, Net				Payments				Reclassification (1)				Foreign Currency and Other				Balance at March 31, 2019
Employee severance, termination benefits and relocation costs		$	20.6			$	7.0			$	(11.3	)		$	—			$	(0.5	)		$	15.8
Exited contractual commitments and other			46.6				3.9				(7.9	)			(12.9	)			(0.8	)			28.9
		$	67.2			$	10.9			$	(19.2	)		$	(12.9	)		$	(1.3	)		$	44.7

 

(1)	Reclassification due to the adoption of ASU 2016-02 (see Footnote 1)

Footnote 5 — Inventories

Inventories are stated at the lower of cost or market value and are comprised of the following as of the dates indicated (in millions):

 

		March 31, 2019				December 31, 2018
Raw materials and supplies		$	224.1			$	215.5
Work-in-process			152.8				130.7
Finished products			1,422.1				1,236.9
		$	1,799.0			$	1,583.1

Footnote 6 — Property, Plant and Equipment, Net

Property, plant and equipment, net, is comprised of the following as of the dates indicated (in millions):

 

		March 31, 2019				December 31, 2018
Land		$	69.2			$	69.9
Buildings and improvements			478.5				479.1
Machinery and equipment			1,604.6				1,575.1
			2,152.3				2,124.1
Less: Accumulated depreciation			(1,221.6	)			(1,198.5	)
		$	930.7			$	925.6

Depreciation expense for continuing operations was $39.8 million and $42.3 million for the three months ended March 31, 2019 and 2018, respectively. Depreciation expense for discontinued operations was nil and $25.7 million for the three months ended March 31, 2019 and 2018, respectively. Depreciation expense was nil for 2019 as the Company ceased depreciating property, plant and equipment relating to businesses which satisfied the criteria to be classified as held for sale during the second quarter of 2018.

 

13

Footnote 7 — Goodwill and Other Intangible Assets, Net

Goodwill activity for the three months ended March 31, 2019 is as follows (in millions):

 

										March 31, 2019
Segment		Net Book Value at December 31, 2018				Foreign Exchange				Gross Carrying Amount				Accumulated Impairment Charges				Net Book Value
Food and Appliances		$	211.2			$	0.1			$	2,097.5			$	(1,886.2	)		$	211.3
Home and Outdoor Living			163.8				—				2,148.8				(1,985.0	)			163.8
Learning and Development			2,595.2				(12.0	)			3,429.2				(846.0	)			2,583.2
		$	2,970.2			$	(11.9	)		$	7,675.5			$	(4,717.2	)		$	2,958.3

Other intangible assets, net are comprised of the following as of the dates indicated (in millions):

 

		March 31, 2019												December 31, 2018
		Gross Carrying Amount				Accumulated Amortization				Net Book Value				Gross Carrying Amount				Accumulated Amortization				Net Book Value				Amortization Periods (in years)
Trade names — indefinite life		$	4,089.4			$	—			$	4,089.4			$	4,093.0			$	—			$	4,093.0			N/A
Trade names — other			170.3				(39.9	)			130.4				170.5				(36.5	)			134.0			2-15
Capitalized software			529.0				(363.7	)			165.3				520.0				(348.1	)			171.9			3–12
Patents and intellectual property			134.1				(83.4	)			50.7				136.4				(79.2	)			57.2			3–14
Customer relationships and distributor channels			1,269.8				(196.9	)			1,072.9				1,269.7				(180.9	)			1,088.8			3–30
Other			109.0				(81.3	)			27.7				109.0				(74.3	)			34.7			3–5
		$	6,301.6			$	(765.2	)		$	5,536.4			$	6,298.6			$	(719.0	)		$	5,579.6

Amortization expense for intangible assets for continuing operations was $47.1 million and $49.8 million for the three months ended March 31, 2019 and 2018, respectively. Amortization expense for intangible assets for discontinued operations was nil and $32.0 million for the three months ended March 31, 2019 and 2018. Amortization expense was nil for 2019 as the Company ceased amortizing other finite-lived intangible assets relating to businesses which satisfied the criteria to be classified as held for sale during the second quarter of 2018.

Footnote 8 — Other Accrued Liabilities

Other accrued liabilities are comprised of the following as of the dates indicated (in millions):

 

		March 31, 2019				December 31, 2018
Customer accruals		$	437.7			$	535.8
Accruals for manufacturing, marketing and freight expenses			37.0				34.3
Accrued self-insurance liabilities, contingencies and warranty			132.4				123.3
Operating lease liability			137.8				—
Derivative liabilities			13.0				4.9
Accrued income taxes			92.9				165.2
Accrued interest expense			128.9				72.9
Other			194.7				244.2
		$	1,174.4			$	1,180.6

 

14

Footnote 9 — Debt

Debt comprised of the following as of the dates indicated (in millions):

 

		March 31, 2019				December 31, 2018
2.60% senior notes due 2019		$	—			$	267.3
4.70% senior notes due 2020			304.7				304.6
3.15% senior notes due 2021			93.5				97.5
3.75% senior notes due 2021			344.6				353.2
4.00% senior notes due 2022			249.1				249.0
3.85% senior notes due 2023			1,741.3				1,740.8
5.00% senior notes due 2023			309.5				310.0
4.00% senior notes due 2024			496.6				496.4
3.90% senior notes due 2025			90.4				90.3
4.20% senior notes due 2026			1,984.9				1,984.5
5.375% senior notes due 2036			415.9				415.8
5.50% senior notes due 2046			657.2				657.2
Commercial paper			258.9				—
Receivables facility			269.0				—
Other debt			52.6				48.4
Total debt			7,268.2				7,015.0
Short-term debt and current portion of long-term debt			(573.6	)			(318.7	)
Long-term debt		$	6,694.6			$	6,696.3

Senior Notes

During the three months ended March 31, 2019, the Company repaid approximately $268 million of debt upon maturity of its 2.60% senior notes due March 2019.

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 March 31, 2019, $3.9 million of deferred gains have been recorded in AOCL. See Footnote 10 for disclosures regarding the Company’s derivative financial instruments.

Revolving Credit Facility and Commercial Paper

The Company maintains a $1.25 billion revolving credit facility that matures in December 2023 (the “Facility”). Under the Facility, the Company may borrow funds on a variety of interest rate terms. Since the Facility provides the committed backup liquidity required to issue commercial paper, the Company may issue commercial paper up to a maximum of $800 million provided there is a sufficient amount available for borrowing under the Facility. The Facility also provides for the issuance of up to $100 million of letters of credit, so long as there is a sufficient amount available for borrowing under the Facility.

Receivables Facility

The Company maintains a $950 million receivables purchase agreement that matures in October 2019 (the “Securitization Facility”) and bears interest at a margin over a variable interest rate. At March 31, 2019, the borrowing rate margin and the unused line fee on the Securitization Facility were 0.80% and 0.40% per annum, respectively.

Other

The fair values of the Company’s senior notes are based on quoted market prices and are as follows (in millions):

 

		March 31, 2019								December 31, 2018
		Fair Value				Book Value				Fair Value				Book Value
Senior notes		$	6,518.2			$	6,687.7			$	6,911.2			$	6,966.6

The carrying amounts of all other significant debt approximates fair value.

 

15

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 management from the debt funding decision. The cash paid and received from the settlement of interest rate swaps is included in interest expense.

Fair Value Hedges

At March 31, 2019, the Company had approximately $527 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 2020 and $250 million of principal on the 4.0% senior notes due 2024 for the remaining life of these notes. The effective portion of the fair value gains or losses on these swaps is offset by fair value adjustments in the underlying debt.

Cross-Currency Contracts

The Company uses cross-currency swaps to hedge foreign currency risk on certain intercompany financing arrangements with foreign subsidiaries. During 2018, all the Company’s cross-currency interest rate swaps matured. As such, there were no cross-currency swaps outstanding at March 31, 2019 and December 31, 2018. The cross-currency interest rate swaps were intended to eliminate uncertainty in cash flows in U.S. Dollars and British Pounds in connection with the intercompany financing arrangements.

Foreign Currency Contracts

The Company uses forward foreign currency contracts to mitigate the foreign currency exchange rate exposure on the cash flows related to forecasted inventory purchases and sales and have maturity dates through December 2019. 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 March 31, 2019, the Company had approximately $383 million notional amount outstanding of forward foreign currency contracts that are designated as cash flow hedges of forecasted inventory purchases and sales.

The Company also uses foreign currency contracts, primarily forward foreign currency contracts, to mitigate the foreign currency exposure of certain other foreign currency transactions. At March 31, 2019, the Company had approximately $925 million notional amount outstanding of these foreign currency contracts that are not designated as effective hedges for accounting purposes and have maturity dates through October 2020. Fair market value gains or losses are included in the results of operations and are classified in other (income) expense, net.

Commodity Contracts

To a lesser extent, the Company also enters into commodity-based derivatives in order to mitigate the risk that the rising price of these commodities could have on the cost of certain of the Company’s raw materials. These commodity-based derivatives provide the Company with cost certainty. At March 31, 2019, the Company had approximately $10 million notional amount outstanding of commodity-based derivatives that are designated as effective hedges for accounting purposes and approximately $3 million notional amount outstanding of commodity-based derivatives that are not designated as effective hedges for accounting purposes. These commodity-based derivatives have expiration dates through January 2020.

 

16

The following table presents the fair value of derivative financial instruments as of the dates indicated (in millions):

 

		March 31, 2019								December 31, 2018
		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		$	7.9			$	3.6			$	13.3			$	0.7
Fair value hedges:
Interest rate swaps			—				6.0				—				11.5
Derivatives not designated as effective hedges:
Foreign currency contracts			8.6				8.2				12.9				4.2
Commodity contracts			—				1.3				—				0.9
Total		$	16.5			$	19.1			$	26.2			$	17.3
(a) Consolidated balance sheet location:
Asset: Prepaid expenses and other, and other non-current assets
Liability: Other accrued liabilities, and current and non-current liabilities

The following tables presents gain and loss activity (on a pretax basis) for the three months ended March 31, 2019 and 2018 related to derivative financial instruments designated or previously designated, as effective hedges (in millions):

 

		Location of gain/ (loss) recognized in income		Three Months Ended March 31, 2019								Three Months Ended March 31, 2018
				Gain/(Loss)								Gain/(Loss)
				Recognized in OCI (a) (effective portion)				Reclassified from AOCL to Income				Recognized in OCI (a) (effective portion)				Reclassified from AOCL to Income
Interest rate swaps		Interest expense, net		$	—			$	(1.5	)		$	—			$	(1.9	)
Foreign currency contracts		Net sales and cost of products sold			(6.1	)			5.7				(5.3	)			(6.4	)
Commodity contracts		Cost of products sold			(0.6	)			—				—				—
Cross-currency swaps		Other expense (income), net			—				—				(3.4	)			(4.8	)
Total				$	(6.7	)		$	4.2			$	(8.7	)		$	(13.1	)

 

(a)	Represents effective portion recognized in Other Comprehensive Income (Loss) (“OCI”).

At March 31, 2019, deferred net gains of approximately $8.2 million within AOCL are expected to be reclassified to earnings over the next twelve months.

During the three months ended March 31, 2019 and 2018, the Company recognized expense of $5.6 million and $9.5 million, respectively, in other expense (income), net, related to derivatives that are not designated as hedging instruments, which was mostly offset by foreign currency movement in the underlying exposure.

 

17

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 March 31,
		U.S.								International
		2019				2018				2019				2018
Service cost		$	0.1			$	0.2			$	1.5			$	1.4
Interest cost			12.3				11.6				3.2				3.3
Expected return on plan assets			(14.8	)			(16.9	)			(3.3	)			(4.0	)
Amortization, net			3.8				5.4				0.6				0.6
Net periodic pension cost		$	1.4			$	0.3			$	2.0			$	1.3

 

		Postretirement Benefits
		Three Months Ended March 31,
		2019				2018
Service cost		$	—			$	0.1
Interest cost			0.5				0.5
Amortization, net			(2.4	)			(2.6	)
Net periodic postretirement cost		$	(1.9	)		$	(2.0	)

Footnote 12 — Income Taxes

The Company’s income tax expense and resulting effective tax rate are based upon an estimated annual effective tax rate applicable for the period adjusted for the effects of items required to be treated as discrete to the period, including changes in tax laws, changes in estimated exposures for uncertain tax positions and other items.

The Company’s reported tax rate for the three months ended March 31, 2019 and 2018 was a benefit of 18.9% and 61.2%, respectively. The difference from the statutory tax rate to the reported tax rate for the three months ended March 31, 2019 is primarily due to the geographical mix of earnings in the Company’s analyzed effective tax rate and one-time benefits related to state and local income taxes. The difference from the statutory tax rate to the reported tax rate for the three months ended March 31, 2018 is primarily due to the geographical mix of earnings in the Company’s analyzed effective tax rate and one-time benefits related to the recognition of deferred taxes on our operations in France that were previously determined to be unrealizable.

Footnote 13 — Leases

The Company’s lease portfolio mainly consists of retail stores, warehouses, distribution centers, office space, and, to a lesser extent, equipment. The Company’s accounting for finance leases (previously called capital leases) remains substantially unchanged. Finance leases are generally those leases that allow the Company to substantially utilize or pay for the entire asset over its estimated life. Assets acquired under finance leases are recorded in property, plant and equipment, net. All other leases are categorized as operating leases. Operating lease assets represent the Company’s right to use an underlying asset for the lease term whereas lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. These rates are assessed on a quarterly basis. The operating lease assets also include any lease payments made less lease incentives. Leases with an initial term of 12 months or less are not recorded on the balance sheet. For operating leases, expense is recognized on a straight-line basis over the lease term. For finance leases, the Company recognizes a front-loaded pattern of total lease expense recognition due to the accretion of the lease liability and the straight-line amortization of the leased asset.

Many leases include one or more options to renew, with renewal terms that can extend the lease term for three years or more. The exercise of lease renewal options is at the Company’s sole discretion. Certain leases also include options to purchase the leased assets. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

The Company also has lease agreements with lease and non-lease components, which are accounted as a single lease component. Additionally, for certain non-real estate leases, the portfolio approach is used to effectively account for the operating lease assets and liabilities.

 

18

Supplemental condensed consolidated balance sheet information related to leases for the period indicated, is as follows (in millions):

 

		Classification		March 31, 2019
Assets
Operating leases		Operating lease assets, net		$	619.3
Finance leases		Property, plant and equipment, net (1)			18.6
Total lease assets				$	637.9
Liabilities
Current
Operating leases		Other accrued liabilities		$	137.8
Finance leases		Short-term debt and current portion of long-term debt			3.4
Noncurrent
Operating leases		Long-term operating lease liabilities			547.6
Finance leases		Long-term debt			11.9
Total lease liabilities				$	700.7

 

(1)	Net of accumulated depreciation of $4.6 million.

Components of lease expense as of the date indicated, are as follows (in millions):

 

		Three Months Ended March 31, 2019
Operating lease cost:
Operating lease cost (1)		$	48.2
Variable lease costs (2)			6.0
Finance lease cost:
Amortization of leased assets			1.1
Interest on lease liabilities			0.2

 

(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 as of the date indicated, are as follows:

 

		March 31, 2019
Weighted-average remaining lease term (years):
Operating leases			7
Finance leases			4
Weighted-average discount rate:
Operating leases			4.3	%
Finance leases			3.9	%

Supplemental cash flow information related to leases for the period indicated is as follows:

 

		Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases		$	39.5
Operating cash flows from finance leases			0.2
Financing cash flows from finance leases			0.7
Right of use assets obtained in exchange for lease liabilities:
Operating leases			26.5
Finance leases			6.7

 

19