10-Q 1 nwl-10qx2013xq3.htm 10-Q NWL-10Q-2013-Q3
 
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 September 30, 2013
Commission File Number 1-9608
NEWELL RUBBERMAID 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.)
Three Glenlake Parkway
Atlanta, Georgia 30328
(Address of principal executive offices)
(Zip Code)
(770) 418-7000
(Registrant’s telephone number, including area code)
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 R No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 R No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
 
Large accelerated filer R
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
 
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No R
Number of shares of common stock outstanding (net of treasury shares) as of September 30, 2013: 287.2 million.
 




TABLE OF CONTENTS 

2


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

NEWELL RUBBERMAID INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Amounts in millions, except per share data)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Net sales
$
1,487.2

 
$
1,456.9

 
$
4,202.7

 
$
4,132.7

Cost of products sold
922.3

 
897.9

 
2,581.5

 
2,533.0

GROSS MARGIN
564.9

 
559.0

 
1,621.2

 
1,599.7

Selling, general and administrative expenses
355.0

 
359.7

 
1,061.7

 
1,077.7

Restructuring costs
31.3

 
12.3

 
97.7

 
34.4

OPERATING INCOME
178.6

 
187.0

 
461.8

 
487.6

Nonoperating expenses:
 
 
 
 
 
 
 
Interest expense, net
15.7

 
18.0

 
45.3

 
58.7

Losses related to extinguishments of debt

 
6.8

 

 
6.8

Other expense (income), net
0.7

 
(1.3
)
 
17.9

 
(1.0
)
Net nonoperating expenses
16.4

 
23.5

 
63.2

 
64.5

INCOME BEFORE INCOME TAXES
162.2

 
163.5

 
398.6

 
423.1

Income tax expense
39.9

 
57.3

 
95.9

 
132.3

INCOME FROM CONTINUING OPERATIONS
122.3

 
106.2

 
302.7

 
290.8

Income from discontinued operations, net of tax
71.0

 
2.1

 
54.6

 
8.6

NET INCOME
$
193.3

 
$
108.3

 
$
357.3

 
$
299.4

Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
290.1

 
290.7

 
290.3

 
291.7

Diluted
292.9

 
292.7

 
293.4

 
293.8

Earnings per share:
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Income from continuing operations
$
0.42

 
$
0.37

 
$
1.04

 
$
1.00

Income from discontinued operations
$
0.24

 
$
0.01

 
$
0.19

 
$
0.03

Net income
$
0.67

 
$
0.37

 
$
1.23

 
$
1.03

Diluted:
 
 
 
 
 
 
 
Income from continuing operations
$
0.42

 
$
0.36

 
$
1.03

 
$
0.99

Income from discontinued operations
$
0.24

 
$
0.01

 
$
0.19

 
$
0.03

Net income
$
0.66

 
$
0.37

 
$
1.22

 
$
1.02

Dividends per share
$
0.15

 
$
0.10

 
$
0.45

 
$
0.28

See Notes to Condensed Consolidated Financial Statements (Unaudited).


3


NEWELL RUBBERMAID INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(Amounts in millions)

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
NET INCOME
$
193.3

 
$
108.3

 
$
357.3

 
$
299.4

 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments
43.8

 
30.7

 
(5.2
)
 
26.2

Change in unrecognized pension and other postretirement costs (1)
(1.4
)
 
0.7

 
16.3

 
7.6

Derivative hedging gain (loss) (2)
(1.3
)
 
(1.2
)
 
0.4

 
(2.9
)
Total other comprehensive income, net of tax
41.1

 
30.2

 
11.5

 
30.9

 
 
 
 
 
 
 
 
COMPREHENSIVE INCOME
$
234.4

 
$
138.5

 
$
368.8

 
$
330.3

 

(1) Net of income tax expense of $2.7 million and $2.0 million for the three months ended September 30, 2013 and 2012, respectively, and $8.1 million and $6.2 million for the nine months ended September 30, 2013 and 2012, respectively.
(2) Net of income tax expense (benefit) of $(0.4) million and $(0.3) million for the three months ended September 30, 2013 and 2012, respectively, and $(0.1) million and $(1.2) million for the nine months ended September 30, 2013 and 2012, respectively.




See Notes to Condensed Consolidated Financial Statements (Unaudited).


4


NEWELL RUBBERMAID INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Amounts in millions, except par values)
 
September 30,
2013
 
December 31,
2012
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
197.4

 
$
183.8

Accounts receivable, net
1,056.9

 
1,112.4

Inventories, net
822.6

 
696.4

Deferred income taxes
152.9

 
135.8

Prepaid expenses and other
154.4

 
142.7

TOTAL CURRENT ASSETS
2,384.2

 
2,271.1

PROPERTY, PLANT AND EQUIPMENT, NET
523.1

 
560.2

GOODWILL
2,351.4

 
2,370.2

OTHER INTANGIBLE ASSETS, NET
619.2

 
654.1

OTHER ASSETS
275.0

 
366.4

TOTAL ASSETS
$
6,152.9

 
$
6,222.0

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable
$
575.1

 
$
527.4

Accrued compensation
145.3

 
173.5

Other accrued liabilities
692.3

 
658.0

Short-term debt
29.2

 
210.7

Current portion of long-term debt
0.9

 
1.2

TOTAL CURRENT LIABILITIES
1,442.8

 
1,570.8

LONG-TERM DEBT
1,671.1

 
1,706.5

OTHER NONCURRENT LIABILITIES
845.9

 
944.5

STOCKHOLDERS’ EQUITY:
 
 
 
Preferred stock, authorized shares, 10.0 at $1.00 par value

 

None issued and outstanding
 
 
 
Common stock, authorized shares, 800.0 at $1.00 par value
306.0

 
304.7

Outstanding shares, before treasury:
 
 
 
2013 – 306.0
 
 
 
2012 – 304.7
 
 
 
Treasury stock, at cost:
(475.8
)
 
(448.0
)
Shares held:
 
 
 
2013 – 18.8
 
 
 
2012 – 17.8
 
 
 
Additional paid-in capital
720.7

 
634.1

Retained earnings
2,416.2

 
2,294.9

Accumulated other comprehensive loss
(777.5
)
 
(789.0
)
STOCKHOLDERS’ EQUITY ATTRIBUTABLE TO PARENT
2,189.6

 
1,996.7

STOCKHOLDERS’ EQUITY ATTRIBUTABLE TO NONCONTROLLING INTERESTS
3.5

 
3.5

TOTAL STOCKHOLDERS’ EQUITY
2,193.1

 
2,000.2

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
6,152.9

 
$
6,222.0


See Notes to Condensed Consolidated Financial Statements (Unaudited).

5


NEWELL RUBBERMAID INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Amounts in millions)
 
Nine Months Ended
 
September 30,
 
2013
 
2012
OPERATING ACTIVITIES:
 
 
 
Net income
$
357.3

 
$
299.4

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
119.4

 
122.1

Net gain from sale of discontinued operations
(86.1
)
 
(5.2
)
Losses related to extinguishments of debt

 
6.8

Deferred income taxes
76.3

 
72.7

Non-cash restructuring costs
3.9

 
1.3

Stock-based compensation expense
27.7

 
26.3

Other, net
27.3

 
8.9

Changes in operating assets and liabilities, excluding the effects of acquisitions and divestitures:
 
 
 
Accounts receivable
35.6

 
(61.5
)
Inventories
(195.7
)
 
(119.9
)
Accounts payable
74.7

 
59.4

Accrued liabilities and other
(139.4
)
 
(53.1
)
NET CASH PROVIDED BY OPERATING ACTIVITIES
301.0

 
357.2

INVESTING ACTIVITIES:
 
 
 
Acquisitions and acquisition-related activity

 
(26.5
)
Capital expenditures
(85.7
)
 
(130.2
)
Proceeds from sales of discontinued operations and noncurrent assets
180.9

 
20.9

Other
1.8

 
(3.2
)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
97.0

 
(139.0
)
FINANCING ACTIVITIES:
 
 
 
Short-term borrowings, net
(180.9
)
 
186.4

Payments on debt

 
(696.3
)
Proceeds from issuance of debt, net of debt issuance costs

 
495.1

Repurchase and retirement of shares of common stock
(119.2
)
 
(67.2
)
Cash dividends
(132.1
)
 
(82.4
)
Excess tax benefits related to stock-based compensation
14.1

 
11.6

Other stock-based compensation activity, net
35.9

 
11.1

NET CASH USED IN FINANCING ACTIVITIES
(382.2
)
 
(141.7
)
Currency rate effect on cash and cash equivalents
(2.2
)
 
3.4

INCREASE IN CASH AND CASH EQUIVALENTS
13.6

 
79.9

Cash and cash equivalents at beginning of period
183.8

 
170.2

CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
197.4

 
$
250.1

See Notes to Condensed Consolidated Financial Statements (Unaudited).

6


NEWELL RUBBERMAID 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 Rubbermaid Inc. (collectively with its subsidiaries, the “Company”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and do not include all 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 (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position and the results of operations. 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.
Seasonal Variations
Sales of the Company’s products tend to be seasonal, with sales and operating income 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. Historically, the Company has earned more than 60% of its annual operating income during the second and third quarters of the year. 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 has historically generated more than 65% of its operating cash flow in the second half of the year due to seasonal variations in operating results, the timing of annual performance-based compensation payments, and credit terms provided to customers. Accordingly, the Company’s results for the three and nine months ended September 30, 2013 may not necessarily be indicative of the results that may be expected for the full year ending December 31, 2013.
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 January 2013, the FASB issued ASU 2013-01, “Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities.” ASU 2013-01 clarifies that ordinary trade receivables are not in the scope of ASU 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities.” Specifically, ASU 2011-11 applies only to certain derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with specific criteria contained in the accounting standards or subject to a master netting arrangement or similar agreement. Other types of financial assets and financial liabilities subject to a master netting arrangement or similar agreement are no longer subject to the disclosure requirements in ASU 2011-11. The Company adopted the provisions of ASU 2011-11 addressed by ASU 2013-01 beginning January 1, 2013, and the adoption did not have a material impact on the Company’s financial statements or disclosures.
In February 2013, the FASB issued ASU 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” ASU 2013-02 requires an entity to present, either on the face of the statement of operations or in the notes, the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income, but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional detail about those amounts. The Company adopted ASU 2013-02 effective January 1, 2013, and the required disclosures are included in Footnote 3.
In July 2013, the FASB issued ASU 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” ASU 2013-11 requires an entity to net its liability for unrecognized tax positions against a net operating loss carryforward, a similar tax loss or a tax credit carryforward when settlement in this manner is available under the tax law. The guidance is effective for interim and annual reporting periods beginning on or after December 15, 2013. The Company is currently evaluating the impact of this guidance on its financial statements.
Other recently issued ASUs were assessed and determined to be either not applicable or are expected to have a minimal impact on the Company’s consolidated financial position and results of operations.
Venezuelan Operations
In February 2013, the Venezuelan government announced a devaluation of the Bolivar Fuerte (“Bolivar”), resulting in the exchange rate declining from 5.3 to 6.3 Bolivars to U.S. Dollar. Because the Company considers Venezuela a highly inflationary economy,

7


the change in the exchange rate resulted in foreign exchange losses of $11.1 million during the nine months ended September 30, 2013. These foreign exchange losses represent the impact of the devaluation on the Bolivar-denominated net monetary assets of the Company’s Venezuelan operations. As of September 30, 2013, the Company’s Venezuelan operations had approximately $76.6 million in Bolivar-denominated net monetary assets. In future periods, foreign exchange gains (losses) arising due to the appreciation (depreciation) of the Bolivar versus the U.S. Dollar will result in one-time benefits (charges) based on the value of the Bolivar-denominated net monetary assets at the time when such exchange rate changes become effective. During the nine months ended September 30, 2013 and 2012, the Company’s Venezuelan operations generated 1.5% or less of consolidated net sales.
Income Taxes
At the end of each interim period, the Company makes its best estimate of the effective tax rate expected to be applicable for the full fiscal year. This estimate reflects, among other items, the Company’s best estimate of operating results and foreign currency exchange rates. The Company’s quarterly income tax rate may differ from its estimated annual effective tax rate because accounting standards require the Company to exclude the actual results of certain entities expected to generate a pretax loss when applying the estimated annual effective tax rate to the Company’s consolidated pretax results in interim periods. In estimating the annual effective tax rate, the Company does not include the estimated impact of unusual and/or infrequent items, which may cause significant variations in the customary relationship between income tax expense (benefit) and pretax income (loss) in quarterly periods.
Reclassifications
Certain 2012 amounts have been reclassified to conform to the 2013 presentation.

Footnote 2 — Discontinued Operations
On September 10, 2013, the Company sold its Hardware business (Bulldog®, Ashland and Amerock® as well as the Levolor® and private label drapery hardware business) for net cash consideration of $180.4 million. The proceeds are net of $3.9 million of transaction expenses and $2.6 million of cash included in the assets sold. The net assets of the Hardware business were $72.0 million, including $21.2 million of goodwill, resulting in a pretax gain of $108.4 million. In addition, the Company retained approximately $27.0 million of accounts receivable, net of customer-related liabilities, associated with the Hardware business. The cash consideration is subject to adjustment based on a final determination of net working capital transferred to the purchaser.
On July 12, 2013, the Company completed the sale of its Teach platform business, including the mimio® and Headsprout® interactive teaching technology brands. The Company recorded $22.7 million of pretax losses during the nine months ended September 30, 2013 relating to the impairments of goodwill, intangibles and other long-lived assets and write-downs of working capital associated with the Teach platform business. The cash consideration received from the sale is subject to adjustment based on a final determination of net working capital transferred to the purchaser.
The following table provides a summary of amounts included in discontinued operations (in millions):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Net sales
$
48.6

 
$
78.4

 
$
193.4

 
$
251.1

(Loss) income from discontinued operations before income taxes
$
(4.9
)
 
$
1.6

 
$
(3.8
)
 
$
10.8

Income tax expense (benefit)
0.7

 
1.2

 
(0.5
)
 
3.9

(Loss) income from discontinued operations
(5.6
)
 
0.4

 
(3.3
)
 
6.9

Net gain on disposal (1)
76.6

 
1.7

 
57.9

 
1.7

Income from discontinued operations, net of tax
$
71.0

 
$
2.1

 
$
54.6

 
$
8.6

(1) Includes pretax gains of $108.8 million (related tax expense of $32.2 million) and $86.1 million (related tax expense of $28.2 million) for the three and nine months ended September 30, 2013, respectively, relating to net gains from sale; impairments and write-offs of goodwill, intangibles and other long-lived assets; and write-downs and write-offs of net working capital. For the three and nine months ended September 30, 2012, net gain on disposal includes pretax gains of $5.1 million (related tax expense of $3.4 million) relating to the sale of the hand torch and solder business.


Footnote 3 — Stockholders’ Equity and Accumulated Other Comprehensive Loss
In August 2011, the Company announced a $300.0 million three-year share repurchase program (the “SRP”). Under the SRP, the Company may repurchase its own shares of common stock through a combination of a 10b5-1 automatic trading plan, discretionary

8


market purchases or in privately negotiated transactions. The SRP is authorized to run for a period of three years ending in August 2014. During the nine months ended September 30, 2013, the Company repurchased 4.7 million shares pursuant to the SRP for $119.2 million, and such shares were immediately retired. Since the commencement of the SRP through September 30, 2013, the Company has repurchased and retired 12.9 million shares at an aggregate cost of $256.8 million.

The following table displays the changes in accumulated other comprehensive loss by component for the nine months ended September 30, 2013 (in millions):
 
Foreign Currency Translation Loss (1)
 
Unrecognized
Pension & Other
Postretirement
Costs, Net of Tax
 
Derivative Hedging (Loss) Gain, Net of Tax
 
Accumulated Other    
Comprehensive Loss    
Balance at December 31, 2012
$
(166.5
)
 
$
(621.1
)
 
$
(1.4
)
 
$
(789.0
)
Other comprehensive (loss) income before reclassifications
(5.9
)
 
(0.4
)
 
2.0

 
(4.3
)
Amounts reclassified to earnings
0.7

 
16.7

 
(1.6
)
 
15.8

Net current period other comprehensive (loss) income
(5.2
)
 
16.3

 
0.4

 
11.5

Balance at September 30, 2013
$
(171.7
)
 
$
(604.8
)
 
$
(1.0
)
 
$
(777.5
)
(1) Includes foreign exchange gains of $4.8 million arising during the nine months ended September 30, 2013, associated with intercompany loans designated as long-term.

The following table depicts reclassifications out of accumulated other comprehensive loss to earnings for the three and nine months ended September 30, 2013 (in millions):
 
 
Amount Reclassified to Earnings as Expense (Benefit) in the Statement of Operations
 
Affected Line Item in the Condensed Consolidated Statements of Operations
 
 
Three Months Ended September 30, 2013
 
Nine Months Ended September 30, 2013
 
Foreign currency translation loss:
 
 
 
 
 
 
Total before tax
 
$
0.7

 
$
0.7

 
Discontinued operations
Tax effect
 

 

 
 
Net of tax
 
$
0.7

 
$
0.7

 
 
Unrecognized pension and other postretirement costs:
 
 
 
 
 
 
Prior service benefit
 
$
(0.2
)
 
$
(0.6
)
 
(2) 
Actuarial loss
 
8.5

 
25.4

 
(2) 
Total before tax
 
8.3

 
24.8

 
 
Tax effect
 
(2.7
)
 
(8.1
)
 
 
Net of tax
 
$
5.6

 
$
16.7

 
 
Derivatives:
 
 
 
 
 
 
Foreign exchange contracts on inventory-related purchases
 
$
(0.7
)
 
$
(2.9
)
 
Cost of products sold
Forward interest rate swaps
 
0.2

 
0.6

 
Interest expense, net
Total before tax
 
(0.5
)
 
(2.3
)
 
 
Tax effect
 
0.2

 
0.7

 
 
Net of tax
 
$
(0.3
)
 
$
(1.6
)
 
 
(2) These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension and other postretirement benefit costs, which are recorded in the cost of products sold and selling, general and administrative expenses line-items in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2013. See Footnote 8 for further details.

Footnote 4 — Restructuring Costs
Project Renewal
In October 2011, the Company announced Project Renewal, a program designed to reduce the complexity of the organization and increase investment in growth platforms within the business. Project Renewal is designed to simplify and align the business around two key activities – Brand & Category Development and Market Execution & Delivery. In connection with the program, the Company eliminated its operating groups and consolidated its 13 global business units into five business segments. In addition,

9


the Company is consolidating certain manufacturing facilities and distribution centers as part of the program, with the goal of increasing operational efficiency, reducing costs and improving gross margin. Cumulative pretax costs of Project Renewal are expected to be $340 to $375 million, of which $300 to $340 million are cash costs. Approximately 75% of the total cash costs are expected to be employee-related cash costs, including severance, retirement, and other termination benefits and costs. Project Renewal is expected to be complete by mid-2015.
The following table depicts the restructuring charges incurred in connection with Project Renewal (in millions):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
Since Inception Through
 
2013 (1)
 
2012 (1)
 
2013 (1)
 
2012 (1)
 
September 30, 2013 (1)
Facility and other exit costs, including impairments
$
1.7

 
$
(0.6
)
 
$
4.0

 
$
(0.6
)
 
$
11.0

Employee severance, termination benefits and relocation costs
25.9

 
4.6

 
80.5

 
15.6

 
123.4

Exited contractual commitments and other
3.7

 
1.7

 
14.3

 
7.2

 
27.6

 
$
31.3

 
$
5.7

 
$
98.8

 
$
22.2

 
$
162.0

(1) Restructuring costs included in discontinued operations were $(0.2) million and $1.4 million for the three months ended September 30, 2013 and 2012, respectively, and $0.9 million and $3.1 million for the nine months ended September 30, 2013 and 2012, respectively. Since inception through September 30, 2013, restructuring costs included in discontinued operations were $6.2 million.
Restructuring provisions were determined based on estimates prepared at the time the restructuring actions were approved by management, are periodically updated for changes and also include amounts recognized as incurred. The following table depicts the activity in accrued restructuring reserves for Project Renewal for the nine months ended September 30, 2013 (in millions):
 
 
December 31, 2012
 
 
 
 
 
September 30, 2013
 
 
Balance
 
Provision
 
Costs Incurred  
 
Balance
Facility and other exit costs, including impairments
 
$

 
$
4.0

 
$
(4.0
)
 
$

Employee severance, termination benefits and relocation costs
 
19.0

 
80.5

 
(32.3
)
 
67.2

Exited contractual commitments and other
 
4.3

 
14.3

 
(10.5
)
 
8.1

 
 
$
23.3

 
$
98.8

 
$
(46.8
)
 
$
75.3

The following table depicts the activity in accrued restructuring reserves for Project Renewal for the nine months ended September 30, 2013 aggregated by reportable business segment (in millions):
 
 
December 31, 2012
 
 
 
 
 
September 30, 2013
Segment
 
Balance
 
Provision
 
Costs Incurred
 
Balance
Writing
 
$
3.4

 
$
34.8

 
$
(5.1
)
 
$
33.1

Home Solutions
 
8.5

 
3.6

 
(10.8
)
 
1.3

Tools
 
0.2

 
3.3

 
(2.3
)
 
1.2

Commercial Products
 
1.4

 
4.3

 
(1.8
)
 
3.9

Baby & Parenting
 
0.9

 
2.2

 
(1.2
)
 
1.9

Corporate
 
8.9

 
50.6

 
(25.6
)
 
33.9

 
 
$
23.3

 
$
98.8

 
$
(46.8
)
 
$
75.3

European Transformation Plan
In June 2010, the Company announced a program to centralize its European business (the “European Transformation Plan”). The European Transformation Plan includes initiatives designed to transform the European organizational structure and processes to centralize certain operating activities, improve performance, leverage the benefits of scale, and to contribute to a more efficient and cost-effective implementation of an enterprise resource planning program in Europe, all with the aim of increasing operating margin in the European region to approximately 10%. The implementation of the European Transformation Plan was complete as of December 31, 2012. Cumulative restructuring costs over the life of the initiative were $35.9 million.
Restructuring charges (adjustments) in connection with the European Transformation Plan were $6.6 million for the three months ended September 30, 2012 and $(1.8) million and $12.2 million for the nine months ended September 30, 2013 and 2012, respectively, and are reported in the Corporate segment.


10


Restructuring provisions were determined based on estimates prepared at the time the restructuring actions were approved by management, are periodically updated for changes and also include amounts recognized as incurred. The following table depicts the activity in accrued restructuring reserves for the European Transformation Plan for the nine months ended September 30, 2013 (in millions):
 
December 31, 2012
 
Provision
 
 
 
September 30, 2013
 
Balance
 
(Adjustment)
 
Costs Incurred
 
Balance
Employee severance, termination benefits and relocation costs
$
10.9

 
$
(3.4
)
 
$
(4.7
)
 
$
2.8

Exited contractual commitments and other
2.0

 
1.6

 
(2.8
)
 
0.8

 
$
12.9

 
$
(1.8
)
 
$
(7.5
)
 
$
3.6

The table below shows restructuring costs recognized for all restructuring activities in continuing operations for the periods indicated, aggregated by reportable business segment (in millions):
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
Segment
 
2013
 
2012
 
2013 (2)
 
2012
Writing
 
$
14.1

 
$
1.3

 
$
34.8

 
$
2.7

Home Solutions
 
1.6

 
0.2

 
3.6

 
10.1

Tools
 
2.1

 
0.2

 
4.8

 
0.8

Commercial Products
 
1.8

 
2.5

 
4.3

 
4.6

Baby & Parenting
 
2.2

 
0.5

 
2.2

 
0.7

Corporate
 
9.5

 
7.6

 
48.0

 
15.5

 
 
$
31.3

 
$
12.3

 
$
97.7

 
$
34.4

(2) Includes adjustments of $0.7 million relating to Project Acceleration that had the impact of increasing restructuring costs for the nine months ended September 30, 2013.
Cash paid for all restructuring activities was $11.4 million and $50.9 million for the three and nine month periods ended September 30, 2013, respectively, and $9.5 million and $31.9 million for the three and nine month periods ended September 30, 2012.

Footnote 5 — Inventories, Net
Inventories are stated at the lower of cost or market value. The components of net inventories were as follows (in millions):
 
September 30, 2013
 
December 31, 2012
Materials and supplies
$
143.9

 
$
126.6

Work in process
129.3

 
109.3

Finished products
549.4

 
460.5

 
$
822.6

 
$
696.4


Footnote 6 — Debt
The following is a summary of outstanding debt (in millions):
 
September 30, 2013
 
December 31, 2012
Medium-term notes
$
1,669.2

 
$
1,703.9

Commercial paper
14.4

 

Receivables facility

 
200.0

Other debt
17.6

 
14.5

Total debt
1,701.2

 
1,918.4

Short-term debt
(29.2
)
 
(210.7
)
Current portion of long-term debt
(0.9
)
 
(1.2
)
Long-term debt
$
1,671.1

 
$
1,706.5

Interest Rate Swaps
As of September 30, 2013, the Company was party to fixed-for-floating interest rate swaps designated as fair value hedges. The interest rate swaps relate to an aggregate $750.0 million principal amount of the medium-term notes and result in the Company effectively paying a floating rate of interest on the medium-term notes hedged by the interest rate swaps.
The medium-term note balances at September 30, 2013 and December 31, 2012 include mark-to-market adjustments of $(3.0) million and $31.7 million, respectively, to record the fair value of the hedges of the fixed-rate debt, and the mark-to-market adjustment had the effect of (decreasing) increasing the reported value of the medium-term notes. Compared to the stated rates of the underlying medium-term notes, interest rate swaps, including amortization of settled interest rate swaps, had the effect of reducing interest expense by $3.4 million and $4.9 million for the three months ended September 30, 2013 and 2012, respectively, and by $10.3 million and $16.7 million for the nine months ended September 30, 2013 and 2012, respectively.
Receivables-Related Borrowings
In September 2013, the Company amended its receivables facility to increase available borrowings to up to $350.0 million and extend the expiration date to September 2015 (the “Receivables Facility”). Under the Receivables Facility, the Company and certain operating subsidiaries (collectively, “the Originators”) sell their receivables to a financing subsidiary as the receivables are originated. The financing subsidiary is wholly owned by the Company and is the owner of the purchased receivables and the borrower under the Receivables Facility. The assets of the financing subsidiary are restricted as collateral for the payment of debt or other obligations arising under the Receivables Facility, and the financing subsidiary’s assets and credit are not available to satisfy the debts and obligations owed to the Company’s or any other Originator’s creditors. The Company includes the financing subsidiary’s assets, liabilities and results of operations in its consolidated financial statements. The Receivables Facility requires, among other things, that the Company maintain a certain interest coverage ratio, and the Company was in compliance with such requirement as of September 30, 2013. The financing subsidiary owned $648.2 million of outstanding accounts receivable as of September 30, 2013, and these amounts are included in accounts receivable, net in the Company’s Condensed Consolidated Balance Sheet at September 30, 2013. The Company had no outstanding borrowings under the Receivables Facility as of September 30, 2013.
Revolving Credit Facility and Commercial Paper
On December 2, 2011, the Company entered into a five-year credit agreement (the “Credit Agreement”) with a syndicate of banks. The Credit Agreement, which was extended for an additional year in December 2012, provides for an unsecured syndicated revolving credit facility with a maturity date of December 1, 2017, and an aggregate commitment at any time outstanding of up

11


to $800.0 million (the “Facility”). The Facility also provides for the issuance of up to $100.0 million of letters of credit, so long as there is a sufficient amount available for borrowing under the Facility. The Credit Agreement contains customary representations and warranties, covenants and events of default. As of September 30, 2013, there were no borrowings or standby letters of credit issued or outstanding under the Facility, and the Company was in compliance with the provisions of the Credit Agreement.
In addition to the committed portion of the Facility, the Credit Agreement provides for extensions of competitive bid loans from one or more lenders (at the lenders’ discretion) of up to $500.0 million, which are not a utilization of the amount available for borrowing under the Facility.
In lieu of borrowings under the Facility, the Company may issue up to $800.0 million of commercial paper. The Facility provides the committed backup liquidity required to issue commercial paper. Accordingly, commercial paper may be issued only up to the amount available for borrowing under the Facility. As of September 30, 2013, the Company had outstanding commercial paper obligations of $14.4 million, while no commercial paper was outstanding as of December 31, 2012.

Footnote 7 — Derivatives
The use of financial instruments, including derivatives, exposes the Company to market risk related to changes in interest rates, foreign currency exchange rates and commodity prices. The Company primarily uses derivatives to manage its interest rate exposure, to achieve a desired proportion of variable and fixed-rate debt, to manage the risk associated with the volatility of future cash flows denominated in foreign currencies and to manage changes in fair value resulting from changes in foreign currency exchange rates. The Company’s foreign exchange risk management policy generally emphasizes hedging transaction exposures of one-year duration or less and hedging foreign currency intercompany financing activities with derivatives with maturity dates of one year or less. The Company reports its derivative positions in the Condensed Consolidated Balance Sheets on a gross basis and does not net asset and liability derivative positions with the same counterparty. The Company monitors its positions with, and the credit quality of, the financial institutions that are parties to its financial transactions. Gains and losses from changes in fair values of derivatives that are not designated as hedges for accounting purposes are recognized currently in earnings, and such amounts were not material for the three and nine months ended September 30, 2013 and 2012.
The following table summarizes the Company’s outstanding derivative instruments and their effects on the Condensed Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012 (in millions):
 
 
 
 
Assets
 
 
 
Liabilities
Derivatives designated as hedging instruments
 
Balance Sheet Location
 
September 30, 2013
 
December 31, 2012
 
Balance Sheet Location
 
September 30, 2013
 
December 31, 2012
Interest rate swaps
 
Other assets
 
$
26.2

 
$
38.9

 
Other noncurrent liabilities
 
$
29.2

 
$
7.2

Foreign exchange contracts on inventory-related purchases
 
Prepaid expenses and other
 
0.8

 
0.5

 
Other accrued liabilities
 
0.1

 
0.2

Foreign exchange contracts on intercompany borrowings
 
Prepaid expenses and other
 
0.1

 

 
Other accrued liabilities
 
0.1

 
1.1

Total assets
 
 
 
$
27.1

 
$
39.4

 
Total liabilities
 
$
29.4

 
$
8.5

The fair values of outstanding derivatives that are not designated as hedges for accounting purposes were not material as of September 30, 2013 and December 31, 2012.
The Company is not a party to any derivatives that require collateral to be posted prior to settlement.

Fair Value Hedges

The following table presents the pretax effects of derivative instruments designated as fair value hedges on the Company’s Condensed Consolidated Statements of Operations (in millions):
Derivatives in fair value hedging relationships
 
Location of gain (loss)
recognized in income
 
Amount of gain (loss) recognized in income
Three Months Ended
 
Nine Months Ended
September 30,
 
September 30,
2013
 
2012
 
2013
 
2012
Interest rate swaps
 
Interest expense, net
 
$
2.3

 
$
2.3

 
$
(34.7
)
 
$
5.5

Fixed-rate debt
 
Interest expense, net
 
$
(2.3
)
 
$
(2.3
)
 
$
34.7

 
$
(5.5
)
The Company did not realize any ineffectiveness related to fair value hedges during the three and nine months ended September 30, 2013 and 2012.


12


Cash Flow Hedges

The following table presents the pretax effects of derivative instruments designated as cash flow hedges on the Company’s Condensed Consolidated Statements of Operations and accumulated other comprehensive income (loss) (“AOCI”) (in millions):
Derivatives in cash flow hedging relationships
 
Location of gain (loss)
recognized in income
 
Amount of gain (loss) reclassified from AOCI into income
Three Months Ended
 
Nine Months Ended
September 30,
 
September 30,
2013
 
2012
 
2013
 
2012
Foreign exchange contracts on inventory-related purchases
 
Cost of products sold
 
$
0.7

 
$
(0.3
)
 
$
2.9

 
$
0.5

Foreign exchange contracts on intercompany borrowings
 
Interest expense, net
 

 

 

 
(0.1
)
Forward interest rate swaps
 
Interest expense, net
 
(0.2
)
 

 
(0.6
)
 

Commodity swap
 
Cost of products sold
 

 
(1.4
)
 

 
(1.9
)
 
 
 
 
$
0.5

 
$
(1.7
)
 
$
2.3

 
$
(1.5
)
Derivatives in cash flow hedging relationships
 
Amount of gain (loss) recognized in AOCI
Three Months Ended
 
Nine Months Ended
September 30,
 
September 30,
2013
 
2012
 
2013
 
2012
Foreign exchange contracts on inventory-related purchases
 
$
(1.0
)
 
$
(2.0
)
 
$
3.3

 
$
(2.1
)
Foreign exchange contracts on intercompany borrowings
 
(1.9
)
 
(2.0
)
 
(0.1
)
 
(0.4
)
Forward interest rate swaps
 

 
(0.8
)
 

 
0.3

Commodity swap
 

 
(0.4
)
 

 
(3.6
)
 
 
$
(2.9
)
 
$
(5.2
)
 
$
3.2

 
$
(5.8
)
The Company did not realize any ineffectiveness related to cash flow hedges during the three and nine months ended September 30, 2013 and 2012. As of September 30, 2013, the Company expects to reclassify net losses of $0.1 million into earnings during the next 12 months.

Footnote 8 — Employee Benefit and Retirement Plans
The following table presents the components of the Company’s pension cost, including supplemental retirement plans, for the three months ended September 30, (in millions):
 
U.S.
 
International    
 
2013
 
2012
 
2013
 
2012
Service cost-benefits earned during the period
$
0.7

 
$
0.8

 
$
1.9

 
$
1.6

Interest cost on projected benefit obligation
10.0

 
11.5

 
6.0

 
6.2

Expected return on plan assets
(14.7
)
 
(14.9
)
 
(5.8
)
 
(6.2
)
Amortization of prior service cost, actuarial loss and other
7.8

 
5.6

 
0.8

 
0.5

Net periodic pension costs
$
3.8

 
$
3.0

 
$
2.9

 
$
2.1


13


The following table presents the components of the Company’s pension cost, including supplemental retirement plans, for the nine months ended September 30, (in millions):
 
U.S.
 
International    
 
2013
 
2012
 
2013
 
2012
Service cost-benefits earned during the period
$
2.1

 
$
2.4

 
$
5.7

 
$
4.8

Interest cost on projected benefit obligation
30.0

 
34.5

 
18.0

 
18.6

Expected return on plan assets
(44.1
)
 
(44.7
)
 
(17.4
)
 
(18.6
)
Amortization of prior service cost, actuarial loss and other
23.4

 
16.9

 
3.9

 
1.5

Net periodic pension cost
$
11.4

 
$
9.1

 
$
10.2

 
$
6.3

The Company made a $100.0 million voluntary contribution to its primary U.S. pension plan during the nine months ended September 30, 2013.
The following table presents the components of the Company’s other postretirement benefit costs for the three and nine months ended September 30, (in millions):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Service cost-benefits earned during the period
$
0.3

 
$
0.3

 
$
0.9

 
$
0.9

Interest cost on projected benefit obligation
1.4

 
1.8

 
4.2

 
5.4

Amortization of prior service benefit and actuarial loss, net
(0.4
)
 
(0.3
)
 
(1.2
)
 
(0.9
)
Net other postretirement benefit costs
$
1.3

 
$
1.8

 
$
3.9

 
$
5.4

The Company made a cash contribution to the Company-sponsored profit sharing plan of $17.6 million and $18.8 million during the nine months ended September 30, 2013 and 2012, respectively.

Footnote 9 — Income Taxes

As of September 30, 2013, there were no significant changes to the Company’s unrecognized tax benefits as reported in its Form 10-K for the year ended December 31, 2012.

The Company’s income tax expense and resulting effective tax rate are based upon the respective estimated annual effective tax rates applicable for the respective periods 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 effective tax rate for the nine months ended September 30, 2013 included $13.1 million of net tax benefits that are discrete to the first quarter of 2013, including $8.3 million of net tax benefits associated with the recognition of incremental deferred taxes and $4.8 million associated with the resolution of certain tax contingencies. Included in the $8.3 million of net tax benefits is the reversal of a valuation allowance on a deferred tax asset of $14.6 million. The Company’s effective tax rates for the three and nine months ended September 30, 2013 and 2012 were impacted by the geographical mix in earnings and discrete items recorded in the periods.


14


Footnote 10 — Earnings per Share
The calculation of basic and diluted earnings per share is as follows (in millions, except per share data):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Numerator for basic and diluted earnings per share:
 
 
 
 
 
 
 
Income from continuing operations
$
122.3

 
$
106.2

 
$
302.7

 
$
290.8

Income from discontinued operations
71.0

 
2.1

 
54.6

 
8.6

Net income
$
193.3

 
$
108.3

 
$
357.3

 
$
299.4

Dividends and equivalents for share-based awards expected to be forfeited

 

 
0.1

 

Net income for basic earnings per share
$
193.3

 
$
108.3

 
$
357.4

 
$
299.4

Effect of Preferred Securities (1)

 

 

 

Net income for diluted earnings per share
$
193.3

 
$
108.3

 
$
357.4

 
$
299.4

Denominator for basic and diluted earnings per share:
 
 
 
 
 
 
 
Weighted-average shares outstanding
287.7

 
288.0

 
287.8

 
288.9

Share-based payment awards classified as participating securities
2.4

 
2.7

 
2.5

 
2.8

Denominator for basic earnings per share
290.1

 
290.7

 
290.3

 
291.7

Dilutive securities (2)
2.8

 
2.0

 
3.1

 
2.1

Preferred Securities (1)

 

 

 

Denominator for diluted earnings per share
292.9

 
292.7

 
293.4

 
293.8

Basic earnings per share:
 
 
 
 
 
 
 
Income from continuing operations
$
0.42

 
$
0.37

 
$
1.04

 
$
1.00

Income from discontinued operations
$
0.24

 
$
0.01

 
$
0.19

 
$
0.03

Net income
$
0.67

 
$
0.37

 
$
1.23

 
$
1.03

Diluted earnings per share:
 
 
 
 
 
 
 
Income from continuing operations
$
0.42

 
$
0.36

 
$
1.03

 
$
0.99

Income from discontinued operations
$
0.24

 
$
0.01

 
$
0.19

 
$
0.03

Net income
$
0.66

 
$
0.37

 
$
1.22

 
$
1.02

(1)
The Preferred Securities were anti-dilutive during 2012 through their redemption on July 16, 2012, and therefore, have been excluded from diluted earnings per share. Had the Preferred Securities been included in the diluted earnings per share calculation, net income for the three and nine months ended September 30, 2012 would be increased by $0.6 million and $7.6 million, respectively. Weighted-average shares outstanding would be increased by 1.4 million and 6.0 million shares for the three and nine months ended September 30, 2012, respectively.
(2)
Dilutive securities include “in the money” options, non-participating restricted stock units and performance stock units. The weighted-average shares outstanding exclude the effect of 1.9 million and 9.4 million stock options for the three months ended September 30, 2013 and 2012, respectively, and 2.5 million and 9.9 million stock options for the nine months ended September 30, 2013 and 2012, respectively, because such securities were anti-dilutive. The weighted-average shares outstanding for the three and nine months ended September 30, 2012 also exclude the weighted-average effect of 0.9 million performance stock units outstanding because the securities were anti-dilutive.

Footnote 11 — Stock-Based Compensation
The Company measures compensation cost for all stock awards at fair value on the date of grant and recognition of compensation, net of estimated forfeitures, over the requisite service period for awards expected to vest. The Company recognized $8.0 million and $8.1 million of pretax stock-based compensation expense during the three months ended September 30, 2013 and 2012, respectively, and $27.7 million and $26.3 million during the nine months ended September 30, 2013 and 2012, respectively.

15


The following table summarizes the changes in the number of shares of common stock under option for the nine months ended September 30, 2013 (in millions, except per share value):
 
Shares
 
Weighted-Average Exercise Price
 
Exercisable
at Period
End
 
Aggregate    
Intrinsic    
Value    
Exercisable    
Outstanding at December 31, 2012
11.1

 
$
22

 
9.0

 
$
27.8

Exercised
(3.2
)
 
20

 
 
 
 
Forfeited / expired
(1.1
)
 
29

 
 
 
 
Outstanding at September 30, 2013
6.8

 
$
22

 
6.2

 
$
35.4

The following table summarizes the changes in the number of restricted stock units for the nine months ended September 30, 2013 (shares in millions):
 
Restricted Stock Units
 
Weighted-    
Average Grant     
Date Fair Value    
Outstanding at December 31, 2012
5.5

 
$
17

Granted
2.2

 
25

Vested
(2.5
)
 
15

Forfeited
(0.8
)
 
21

Outstanding at September 30, 2013
4.4

 
$
22


During the nine months ended September 30, 2013, the Company awarded 0.9 million performance stock units which entitle recipients to shares of the Company’s stock at the end of a three-year vesting period, if specified market conditions are achieved (“PSUs”). The PSUs entitle recipients to shares of common stock equal to 0% up to 200% of the number of units granted at the vesting date depending on the level of achievement of the specified market and service conditions. As of September 30, 2013, 1.8 million PSUs were outstanding, and based on performance through September 30, 2013, recipients of PSUs would be entitled to 2.5 million shares at the vesting date. The PSUs are included in the preceding table as if the participants earn shares equal to 100% of the units granted.

During the nine months ended September 30, 2013, the Company granted 0.2 million performance-based restricted stock units which entitle the recipient to shares of the Company’s stock if specified market and service conditions are achieved, and the awards vest no earlier than one year to two years from the grant date. During 2012, the Company granted 0.1 million performance-based restricted stock units with similar terms. The 0.3 million of outstanding performance-based restricted stock units vest no earlier than one year from the date of grant and no later than seven years from the date of grant. Based on performance through September 30, 2013, the market conditions have been achieved for substantially all of the 0.3 million of outstanding performance-based restricted stock units. Accordingly, these performance-based restricted stock units will vest when the service conditions are achieved. The 0.3 million performance-based restricted stock units are included in the preceding table as outstanding as of September 30, 2013.

During the nine months ended September 30, 2013, 0.7 million performance-based restricted stock units granted to the Company’s Chief Executive Officer vested as the specified market and service conditions were achieved.


16


Footnote 12 — Fair Value Disclosures
Recurring Fair Value Measurements
The following tables present the Company’s non-pension financial assets and liabilities which are measured at fair value on a recurring basis (in millions):
Fair Value as of September 30, 2013
Total
 
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
 
Significant Other
Observable
Inputs (Level 2)
 
Significant    
Unobservable    
Inputs (Level 3)    
Assets
 
 
 
 
 
 
 
Investment securities, including mutual funds (1)
$
18.8

 
$
8.4

 
$
10.4

 
$

Interest rate swaps
26.2

 

 
26.2

 

Foreign currency derivatives
0.9

 

 
0.9

 

Total
$
45.9

 
$
8.4

 
$
37.5

 
$

Liabilities
 
 
 
 
 
 
 
Interest rate swaps
$
29.2

 
$

 
$
29.2

 
$

Foreign currency derivatives
0.2

 

 
0.2

 

Total
$
29.4

 
$

 
$
29.4

 
$

 
 
 
 
 
 
 
 
Fair Value as of December 31, 2012
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
Investment securities, including mutual funds (1)
$
11.5

 
$
8.2

 
$
3.3

 
$

Interest rate swaps
38.9

 

 
38.9

 

Foreign currency derivatives
0.5

 

 
0.5

 

Total
$
50.9

 
$
8.2

 
$
42.7

 
$

Liabilities
 
 
 
 
 
 
 
Interest rate swaps
$
7.2

 
$

 
$
7.2

 
$

Foreign currency derivatives
1.3

 

 
1.3

 

Total
$
8.5

 
$

 
$
8.5

 
$

 
(1) The values of investment securities, including mutual funds, are classified as cash and cash equivalents ($8.8 million and $2.3 million as of September 30, 2013 and December 31, 2012, respectively) and other assets ($10.0 million and $9.2 million as of September 30, 2013 and December 31, 2012, respectively).

For publicly-traded mutual funds, fair value is determined on the basis of quoted market prices and, accordingly, such investments have been classified as Level 1. Other investment securities are valued at the net asset value per share or unit multiplied by the number of shares or units held as of the measurement date and have been 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.
Non-recurring 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.
During the three months ended September 30, 2013, the Company performed the annual impairment tests of goodwill and indefinite-lived intangible assets and concluded that no impairment charges were necessary. In testing goodwill and indefinite-lived intangible assets for impairment, management relies on a number of factors including operating results, business plans, economic projections, anticipated future cash flows, transactions, and market place data. Accordingly, these fair value measurements fall in the Level 3 category of the fair value hierarchy. The factors used by management in the impairment analysis are inherently subject to uncertainty. While the Company believes it has made reasonable estimates and assumptions to determine the fair value of its reporting units, if actual results are not consistent with management's estimates and assumptions, goodwill and other intangible assets may be overstated and could potentially trigger impairment charges.

17


During the nine months ended September 30, 2013, impairments associated with plans to dispose of certain property, plant and equipment were not material, other than those associated with the divestiture of the Teach platform business. During the nine months ended September 30, 2013, the Company recorded non-cash pretax charges of $22.7 million associated with impairments of goodwill, intangibles and other long-lived assets of the Teach platform business. The impairments were estimated based on the proceeds expected to be realized upon disposition of the assets. In the absence of a definitive sales price for these and similar types of assets, the Company generally uses projected cash flows, discounted as necessary, or market multiples to estimate the fair values of the impaired assets. Key inputs into the projected cash flows include management’s projections of cash flows on a held-and-used basis (if applicable), management’s projections of cash flows upon disposition and discount rates. Key inputs into the market multiple approach include identifying companies comparable to the Company’s business and estimated control premiums. Accordingly, these fair value measurements fall in the Level 3 category 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 impairment assessments and as circumstances require.
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 derivative instruments are recorded in the Condensed Consolidated Balance Sheets and are disclosed in Footnote 7.

The fair values of the Company’s medium-term notes are based on quoted market prices (Level 1) and are as follows (in millions):
 
September 30, 2013
 
December 31, 2012
 
Fair Value
 
Book Value
 
Fair Value
 
Book Value    
Medium-term notes
$
1,752.2

 
$
1,669.2

 
$
1,803.6

 
$
1,703.9


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

Footnote 13 — Segment Information
During the first nine months of 2013, the Company divested its Hardware and Teach platform businesses, which were primarily included in the former Specialty segment. Accordingly, the results of operations of these businesses were classified as discontinued operations. During the nine months ended September 30, 2013, the remaining businesses in the former Specialty segment, specifically Dymo® Office and Endicia®, were combined with the Writing segment given the significant channel and operating synergies.
As a result of these changes, the 2012 segment information in this footnote and Footnote 4 pertaining to restructuring have been presented to reflect five business segments, including the impacts of classifying the Hardware and Teach platform businesses as discontinued operations.
The Company’s reportable segments are as follows:
Segment
  
Key Brands
  
Description of Primary Products
Writing
 
Sharpie®, Paper Mate®, Expo®, Parker®, Waterman®, Dymo® Office, Endicia®
 
Writing instruments, including markers and highlighters, pens and pencils; art products; fine writing instruments; office technology solutions, including labeling and on-line postage solutions
Home Solutions
 
Rubbermaid®, Calphalon®, Levolor®, Goody®
 
Indoor/outdoor organization, food storage and home storage products; gourmet cookware, bakeware, cutlery and small kitchen electrics; window treatments; hair care accessories
Tools
 
Irwin®, Lenox®, Dymo® Industrial, hilmor
 
Hand tools and power tool accessories; industrial bandsaw blades; tools for HVAC systems; label makers and printers for industrial use
Commercial Products
  
Rubbermaid Commercial Products®, Rubbermaid® Healthcare
  
Cleaning and refuse products, hygiene systems, material handling solutions; medical and computer carts and wall-mounted workstations
Baby & Parenting
  
Graco®, Aprica®, Teutonia®
  
Infant and juvenile products such as car seats, strollers, highchairs and playards


18


The comparative information for segment results and identifiable assets has been restated to conform to the 2013 presentation and is as follows (in millions):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Net Sales (1)
 
 
 
 
 
 
 
Writing
$
454.7

 
$
458.6

 
$
1,273.1

 
$
1,293.3

Home Solutions
431.4

 
403.8

 
1,169.4

 
1,121.8

Tools
210.6

 
203.6

 
597.2

 
596.6

Commercial Products
196.3

 
205.6

 
583.0

 
571.1

Baby & Parenting
194.2

 
185.3

 
580.0

 
549.9

 
$
1,487.2

 
$
1,456.9

 
$
4,202.7

 
$
4,132.7

Operating Income (Loss) (2)
 
 
 
 
 
 
 
Writing
$
108.8

 
$
83.6

 
$
295.6

 
$
255.7

Home Solutions
66.3

 
64.0

 
154.1

 
137.5

Tools
12.3

 
26.8

 
49.3

 
86.0

Commercial Products
23.5

 
31.2

 
67.0

 
70.9

Baby & Parenting
23.9

 
18.3

 
71.6

 
59.9

Restructuring costs
(31.3
)
 
(12.3
)
 
(97.7
)
 
(34.4
)
Corporate
(24.9
)
 
(24.6
)
 
(78.1
)
 
(88.0
)
 
$
178.6

 
$
187.0

 
$
461.8

 
$
487.6

 
September 30, 2013
 
December 31, 2012
Identifiable Assets
 
 
 
Writing
$
1,012.7

 
$
1,145.2

Home Solutions
592.7

 
573.2

Tools
615.0

 
562.8

Commercial Products
342.7

 
348.8

Baby & Parenting
310.6

 
312.7

Corporate (3)
3,279.2

 
3,279.3

 
$
6,152.9

 
$
6,222.0


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Geographic Area Information
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(in millions)
2013
 
2012
 
2013
 
2012
Net Sales (1), (4)
 
 
 
 
 
 
 
United States
$
1,035.9

 
$
994.6

 
$
2,870.9

 
$
2,775.5

Canada
84.8

 
84.7

 
230.0

 
236.0

Total North America
1,120.7

 
1,079.3

 
3,100.9

 
3,011.5

Europe, Middle East and Africa
162.9

 
172.4

 
511.4

 
529.3

Latin America
104.3

 
85.5

 
281.7

 
243.0

Asia Pacific
99.3

 
119.7

 
308.7

 
348.9

Total International
366.5

 
377.6

 
1,101.8

 
1,121.2

 
$
1,487.2

 
$
1,456.9

 
$
4,202.7

 
$
4,132.7

Operating Income (Loss) (2), (5)
 
 
 
 
 
 
 
United States
$
142.0

 
$
137.9

 
$
379.5

 
$
352.1

Canada
19.3

 
18.2

 
50.8

 
47.8

Total North America
161.3

 
156.1

 
430.3

 
399.9

Europe, Middle East and Africa
(5.9
)
 
2.6

 
(29.3
)
 
16.5

Latin America
11.9

 
6.0

 
20.0

 
4.9

Asia Pacific
11.3

 
22.3

 
40.8

 
66.3

Total International
17.3

 
30.9

 
31.5

 
87.7

 
$
178.6

 
$
187.0

 
$
461.8

 
$
487.6

 
(1)
All intercompany transactions have been eliminated. Sales to Wal-Mart Stores, Inc. and subsidiaries amounted to approximately 13.8% and 11.8% of consolidated net sales in the three months ended September 30, 2013 and 2012, respectively, and approximately 11.2% and 10.4% of consolidated net sales in the nine months ended September 30, 2013 and 2012, respectively.

(2)
Operating income (loss) by segment is net sales less cost of products sold and selling, general & administrative (“SG&A”) expenses for continuing operations. Operating income by geographic area is net sales less cost of products sold, SG&A expenses, restructuring costs and impairment charges, if any, for continuing operations. Certain headquarters expenses of an operational nature are allocated to business segments and geographic areas primarily on a net sales basis. Depreciation and amortization is allocated to the segments on a percentage of sales basis, and the allocated depreciation and amortization is included in segment operating income.

(3)
Corporate assets primarily include goodwill, capitalized software, cash, deferred tax assets and assets held for sale.

(4)
Geographic sales information is based on the region from which the products are shipped and invoiced.

(5)
The following table summarizes the restructuring costs by region included in operating income (loss) above (in millions):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Restructuring Costs
 
 
 
 
 
 
 
United States
$
9.1

 
$
3.9

 
$
21.9

 
$
18.3

Canada
0.1

 
0.3

 
0.1

 
0.8

Total North America
9.2

 
4.2

 
22.0

 
19.1

Europe, Middle East and Africa
19.3

 
6.1

 
67.6

 
11.7

Latin America
0.6

 
1.7

 
4.2

 
2.6

Asia Pacific
2.2

 
0.3

 
3.9

 
1.0

Total International
22.1

 
8.1

 
75.7

 
15.3

 
$
31.3

 
$
12.3

 
$
97.7

 
$
34.4



20


Footnote 14 — Other Accrued Liabilities
Other accrued liabilities included the following (in millions):
 
September 30, 2013
 
December 31, 2012
Customer accruals
$
280.7

 
$
269.8

Accruals for manufacturing, marketing and freight expenses
79.7

 
91.6

Accrued self-insurance liabilities
56.4

 
56.9

Accrued pension, defined contribution and other postretirement benefits
40.5

 
45.8

Accrued contingencies, primarily legal, environmental and warranty
35.1

 
38.3

Accrued restructuring (See Footnote 4)
84.8

 
41.3

Other
115.1

 
114.3

Other accrued liabilities
$
692.3

 
$
658.0

Customer accruals are promotional allowances and rebates, including cooperative advertising, given to customers in exchange for their selling efforts and volume purchased. The self-insurance accrual is primarily casualty liabilities such as workers’ compensation, general and product liability and auto liability and is estimated based upon historical loss experience combined with actuarial evaluation methods, review of significant individual files and the application of risk transfer programs.

Footnote 15 — Litigation and Contingencies
The Company is involved in legal proceedings in the ordinary course of its business. These proceedings include claims for damages arising out of use of the Company’s products, allegations of infringement of intellectual property, commercial disputes and employment matters, as well as environmental matters. Some of the legal proceedings include claims for punitive as well as compensatory damages, and certain proceedings may purport to be class actions.
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.
The Company, using current product sales data and historical trends, actuarially calculates the estimate of its exposure for product liability. The Company has product liability reserves of $34.5 million and $33.0 million as of September 30, 2013 and December 31, 2012, respectively. The Company is insured for product liability claims for amounts in excess of established deductibles and accrues for the estimated liability as described up to the limits of the deductibles. All other claims and lawsuits are handled on a case-by-case basis.
Legal Matters
The Company was previously a party to two purported state class actions and one purported national Canadian class action alleging that a certain model car seat sold by an affiliate of the Company did not satisfy all requisite government safety standards. Each of these actions was resolved in the third quarter on terms favorable to the Company.
The City of Sao Paulo’s Green and Environmental Office (the “Sao Paulo G&E Office”) is seeking fines of up to approximately $4.0 million related to alleged improper storage of hazardous materials at the Company’s tool manufacturing facility located in Sao Paulo, Brazil. The Company has obtained a stay of enforcement of a notice of fine due October 1, 2009 issued by the Sao Paulo G&E Office. The Company plans to continue to contest the fines.
Environmental Matters
As of September 30, 2013, the Company was 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 Federal 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

21