10-Q 1 nwl-10qx2015xq2.htm 10-Q NWL-10Q-2015-Q2
 
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 June 30, 2015
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 June 30, 2015: 267.8 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
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Net sales
$
1,560.9

 
$
1,502.2

 
$
2,824.9

 
$
2,716.5

Cost of products sold
939.9

 
906.6

 
1,716.4

 
1,663.9

GROSS MARGIN
621.0

 
595.6

 
1,108.5

 
1,052.6

Selling, general and administrative expenses
393.0

 
370.8

 
755.0

 
711.1

Restructuring costs
13.3

 
11.5

 
40.6

 
23.5

OPERATING INCOME
214.7

 
213.3

 
312.9

 
318.0

Nonoperating expenses:
 
 
 
 
 
 
 
Interest expense, net
18.1

 
15.0

 
37.3

 
29.4

Other expense (income), net
5.0

 
(2.6
)
 
5.1

 
37.4

Net nonoperating expenses
23.1

 
12.4

 
42.4

 
66.8

INCOME BEFORE INCOME TAXES
191.6

 
200.9

 
270.5

 
251.2

Income tax expense
43.5

 
51.9

 
65.5

 
50.4

INCOME FROM CONTINUING OPERATIONS
148.1

 
149.0

 
205.0

 
200.8

Income (loss) from discontinued operations, net of tax
0.4

 
1.6

 
(2.4
)
 
2.7

NET INCOME
$
148.5

 
$
150.6

 
$
202.6

 
$
203.5

Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
269.7

 
277.4

 
270.1

 
279.1

Diluted
271.7

 
279.7

 
272.2

 
281.7

Earnings per share:
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Income from continuing operations
$
0.55

 
$
0.54

 
$
0.76

 
$
0.72

Income (loss) from discontinued operations
$

 
$
0.01

 
$
(0.01
)
 
$
0.01

Net income
$
0.55

 
$
0.54

 
$
0.75

 
$
0.73

Diluted:
 
 
 
 
 
 
 
Income from continuing operations
$
0.55

 
$
0.53

 
$
0.75

 
$
0.71

Income (loss) from discontinued operations
$

 
$
0.01

 
$
(0.01
)
 
$
0.01

Net income
$
0.55

 
$
0.54

 
$
0.74

 
$
0.72

Dividends per share
$
0.19

 
$
0.17

 
$
0.38

 
$
0.32

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
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
NET INCOME
$
148.5

 
$
150.6

 
$
202.6

 
$
203.5

 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments
37.2

 
18.3

 
(68.3
)
 
24.2

Change in unrecognized pension and other postretirement costs
(3.4
)
 
0.8

 
7.8

 
3.6

Derivative hedging loss
(6.4
)
 
(4.1
)
 
(5.3
)
 
(3.3
)
Total other comprehensive income (loss), net of tax
27.4

 
15.0

 
(65.8
)
 
24.5

 
 
 
 
 
 
 
 
COMPREHENSIVE INCOME (1)
$
175.9

 
$
165.6

 
$
136.8

 
$
228.0

 

(1) Comprehensive income attributable to noncontrolling interests was not material.


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)
 
June 30,
2015
 
December 31,
2014
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
238.7

 
$
199.4

Accounts receivable, net
1,304.4

 
1,248.2

Inventories, net
935.6

 
708.5

Deferred income taxes
129.4

 
134.4

Prepaid expenses and other
144.9

 
136.1

TOTAL CURRENT ASSETS
2,753.0

 
2,426.6

PROPERTY, PLANT AND EQUIPMENT, NET
572.0

 
559.1

GOODWILL
2,491.9

 
2,546.0

OTHER INTANGIBLE ASSETS, NET
870.6

 
887.2

OTHER ASSETS
271.3

 
262.2

TOTAL ASSETS
$
6,958.8

 
$
6,681.1

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable
$
756.7

 
$
674.1

Accrued compensation
132.3

 
159.9

Other accrued liabilities
634.9

 
659.3

Short-term debt
776.6

 
390.7

Current portion of long-term debt
6.0

 
6.7

TOTAL CURRENT LIABILITIES
2,306.5

 
1,890.7

LONG-TERM DEBT
2,080.9

 
2,084.5

DEFERRED INCOME TAXES
235.3

 
220.4

OTHER NONCURRENT LIABILITIES
553.0

 
630.6

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
288.0

 
288.7

Outstanding shares, before treasury:
 
 
 
2015 – 288.0
 
 
 
2014 – 288.7
 
 
 
Treasury stock, at cost:
(520.8
)
 
(493.1
)
Shares held:
 
 
 
2015 – 20.2
 
 
 
2014 – 19.5
 
 
 
Additional paid-in capital
774.9

 
739.0

Retained earnings
2,097.7

 
2,111.2

Accumulated other comprehensive loss
(860.2
)
 
(794.4
)
STOCKHOLDERS’ EQUITY ATTRIBUTABLE TO PARENT
1,779.6

 
1,851.4

STOCKHOLDERS’ EQUITY ATTRIBUTABLE TO NONCONTROLLING INTERESTS
3.5

 
3.5

TOTAL STOCKHOLDERS’ EQUITY
1,783.1

 
1,854.9

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
6,958.8

 
$
6,681.1


See Notes to Condensed Consolidated Financial Statements (Unaudited).

5


NEWELL RUBBERMAID INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Amounts in millions)
 
Six Months Ended
 
June 30,
 
2015
 
2014
OPERATING ACTIVITIES:
 
 
 
Net income
$
202.6

 
$
203.5

Adjustments to reconcile net income to net cash (used in) provided by operating activities:
 
 
 
Depreciation and amortization
85.5

 
75.7

Net gain from sale of discontinued operations

 
(4.8
)
Non-cash restructuring costs
(0.5
)
 
3.7

Deferred income taxes
11.5

 
6.0

Stock-based compensation expense
14.1

 
14.5

Other, net
15.4

 
50.8

Changes in operating assets and liabilities, excluding the effects of acquisitions and divestitures:
 
 
 
Accounts receivable
(77.4
)
 
(122.4
)
Inventories
(245.9
)
 
(123.2
)
Accounts payable
91.6

 
33.2

Accrued liabilities and other
(148.7
)
 
(132.9
)
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
(51.8
)
 
4.1

INVESTING ACTIVITIES:
 
 
 
Proceeds from sales of discontinued operations and noncurrent assets
5.1

 
3.4

Capital expenditures
(85.8
)
 
(67.0
)
Acquisitions and acquisition-related activity
(2.0
)
 

Other
5.7

 
(0.3
)
NET CASH USED IN INVESTING ACTIVITIES
(77.0
)
 
(63.9
)
FINANCING ACTIVITIES:
 
 
 
Short-term borrowings, net
386.0

 
215.4

Repurchase and retirement of shares of common stock
(124.0
)
 
(158.7
)
Cash dividends
(104.4
)
 
(89.8
)
Excess tax benefits related to stock-based compensation
17.5

 
6.8

Other stock-based compensation activity, net
(12.5
)
 
29.6

NET CASH PROVIDED BY FINANCING ACTIVITIES
162.6

 
3.3

Currency rate effect on cash and cash equivalents
5.5

 
(27.1
)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
39.3

 
(83.6
)
Cash and cash equivalents at beginning of period
199.4

 
226.3

CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
238.7

 
$
142.7

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 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.
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 approximately 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 90% 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, customer program payments, working capital requirements and credit terms provided to customers. Accordingly, the Company’s results for the six months ended June 30, 2015 may not necessarily be indicative of the results that may be expected for the full year ending December 31, 2015.
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 April 2014, the FASB issued ASU No. 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” Under ASU 2014-08, only disposals representing a strategic shift in operations that have a major effect on the Company’s operations and financial results are presented as discontinued operations. This guidance requires expanded disclosure that provides information about the assets, liabilities, income and expenses of discontinued operations. Additionally, the guidance requires additional disclosure for a disposal of a significant part of an entity that does not qualify for discontinued operations reporting. The Company adopted ASU 2014-08 on January 1, 2015, and the adoption did not impact the Company’s financial statements and disclosures. As required by ASU 2014-08, the businesses classified as discontinued operations as of December 31, 2014 continued to be classified as such after January 1, 2015.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers. Accounting Standard Codification 605 — Revenue Recognition.” ASU 2014-09 supersedes the revenue recognition requirements in “Accounting Standard Codification 605 — Revenue Recognition” and most industry-specific guidance. ASU 2014-09 requires that entities recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. ASU 2014-09 is effective for fiscal years beginning after December 15, 2017. ASU 2014-09 permits the use of either the retrospective or cumulative effect transition method. The Company is currently assessing the impact ASU 2014-09 will have on its financial position and results of operations.
In January 2015, the FASB issued ASU No. 2015-01, “Income Statement—Extraordinary and Unusual Items (Subtopic 225-20), Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items,” which simplifies income statement presentation by eliminating the concept of extraordinary items. Previously, events or transactions that were both unusual in nature and infrequent in occurrence for a business entity were considered to be extraordinary items and required separate presentation, net of tax, after income from continuing operations. The presentation and disclosure guidance for items that are unusual in nature or occur infrequently will be retained and will be expanded to include items that are both unusual and infrequently occurring. The guidance is effective for fiscal years beginning after December 15, 2015, with early adoption permitted. The Company has not adopted ASU 2015-01, but the adoption of ASU 2015-01 is not expected to have a material impact on the Company’s results of operations, cash flows or financial position.
In April 2015, the FASB issued ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs,” which changes the presentation of debt issuance costs in financial statements. ASU 2015-03 requires an entity to present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs will continue to be

7


reported as interest expense. The guidance is effective for fiscal years beginning after December 15, 2015, with early adoption permitted. The Company has not adopted ASU 2015-03, but the adoption of ASU 2015-03 is expected to reduce the Company’s long-term assets and long-term debt by approximately $17.0 million upon adoption.
In July 2015, the FASB issued ASU No. 2015-11, “Simplifying the Measurement of Inventory,” which modifies existing requirements regarding measuring first-in, first-out and average cost inventory at the lower of cost or market. Under existing standards, the market amount requires consideration of replacement cost, net realizable value (“NRV”), and NRV less an approximately normal profit margin. ASU 2015-11 replaces market with NRV, defined as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This eliminates the need to determine and consider replacement cost or NRV less an approximately normal profit margin when measuring inventory. This guidance is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. The Company is currently assessing the impact ASU 2015-11 will have on its financial position and results of operations.
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
The Company accounts for its Venezuelan operations using highly inflationary accounting, and therefore, the Company remeasures assets, liabilities, sales and expenses denominated in Bolivar Fuertes (“Bolivars”) into U.S. Dollars using the applicable exchange rate, and the resulting translation adjustments are included in earnings.
Beginning in July 2013, the Venezuelan government authorized certain companies that operate in designated industry sectors to exchange a limited volume of Bolivars for U.S. Dollars at a bid rate established via weekly auctions under a system referred to as “SICAD I.” During the first quarter of 2014, the government expanded the types of transactions that may be subject to the weekly SICAD I auction process while retaining the official rate of 6.3 Bolivars per U.S. Dollar and introduced another currency exchange mechanism (“SICAD II”). The SICAD II rate was intended to more closely resemble a market-driven exchange rate than the official rate and SICAD I. The SICAD I and SICAD II rates were in addition to the official rate of 6.3 Bolivars to U.S. Dollar used to settle certain transactions, including the import of essential goods, through the National Center of Foreign Trade (“CENCOEX”). As a result of these changes, an entity could have converted Bolivars to U.S. Dollars at one or more of three legal exchange rates, which as of March 31, 2014, were 6.3 (official rate), 10.7 (SICAD I) and 49.8 (SICAD II). The Company analyzed the multiple rates available and the Company's estimates of the applicable rate at which future transactions could be settled and dividends could be paid. Based on this analysis, as of March 31, 2014, the Company determined that the SICAD I rate was the most appropriate rate to use for remeasurement. Therefore, as of March 31, 2014, the Company remeasured the net monetary assets of its Venezuelan operations using an exchange rate of 10.7 Bolivars per U.S. Dollar and recorded a foreign exchange loss of $38.7 million during the six months ended June 30, 2014 associated with remeasuring the Venezuelan operation’s net monetary assets denominated in Bolivars.
In February 2015, the Venezuelan government announced changes in its foreign currency exchange system. The official rate of 6.3 Bolivars per U.S. Dollar is expected to continue to be made available for purchases of essential goods. The SICAD I exchange mechanism became known as SICAD. There was a SICAD auction conducted during the six months ended June 30 2015, and the exchange rate in that SICAD auction was 12.8 Bolivars per U.S. Dollar.  The Company last participated in a SICAD auction in the fourth quarter of 2014. The SICAD II market has been eliminated, and a new alternative currency market, the Foreign Exchange Marginal System (“SIMADI”) has been created. The SIMADI market is intended to have a floating exchange rate determined by market participants, and as of June 30, 2015, the SIMADI exchange rate was 197.3 Bolivars per U.S. Dollar. The Company remeasures its Venezuelan operation’s financial results at the rate at which it expects to settle future transactions and remit future dividends which, based on the advice of legal counsel, is currently the SICAD rate. As a result, the Company used the exchange rate applicable in the last SICAD auction of 12.8 Bolivars per U.S. Dollar to remeasure the balance sheet of its Venezuelan operations as of June 30, 2015. As a result, the Company recorded a foreign exchange loss of $4.7 million during the three months ended June 30, 2015 based on the change in the applicable exchange rate for remeasuring the net monetary assets of the Company’s Venezuelan operations that are denominated in Bolivars.

The results of the Company’s Venezuelan operations have been included in the Company’s consolidated financial statements for all periods presented, as the Company has been able to exchange Bolivars for a sufficient amount of U.S. Dollars in the SICAD auctions to fund its Venezuelan operations. While the Company will continue to assess the impact, if any, of the changes to the Venezuela foreign currency exchange system, if the Company is unable to obtain sufficient U.S. Dollars from CENCOEX or the SICAD market to fund its requirements for imported goods and instead needs to access the SIMADI market, it would significantly impact the Company’s Venezuelan operations which would adversely impact the Company’s results of operations. Despite the additional currency conversion mechanisms, the Company’s ability to pay dividends from Venezuela is still restricted due to the low volume of U.S. Dollars available for conversion.

8


As of June 30, 2015, the Company’s Venezuelan operations had approximately $72.5 million in Bolivar-denominated net monetary assets, including $61.9 million of cash and cash equivalents. In future periods, foreign exchange gains (losses) arising due to the appreciation (depreciation) of the Bolivar versus the U.S. Dollar will result in benefits (charges) based on the change in value of the Bolivar-denominated net monetary assets. During the six months ended June 30, 2015 and 2014, the Company’s Venezuelan operations generated 2.4% or less of consolidated net sales using the applicable exchange rate for each period (CENCOEX for the three months ended March 31, 2014 and SICAD for the three months ended June 30, 2014 and six months ended June 30, 2015).
The Company is unable to predict with certainty whether future devaluations will occur because of economic and political uncertainty in Venezuela. If the Bolivar devalues further or if the Company is able to access currency at different rates that are reasonable to the Company, it could result in additional foreign currency exchange losses, and such devaluations could adversely affect the Company’s future financial results.
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, including the reversal of valuation allowances, which may cause significant variations in the customary relationship between income tax expense (benefit) and pretax income (loss) in quarterly periods. The income tax expense (benefit) for such unusual and/or infrequent items is recorded in the quarterly period such items are incurred.
The Company routinely reviews valuation allowances recorded against deferred tax assets on a more likely than not basis in evaluating whether the Company has the ability to realize the deferred tax assets. In making such a determination, the Company takes into consideration all available and appropriate positive and negative evidence, including projected future taxable income, future reversals of existing taxable temporary differences, available tax planning strategies and taxable income in prior carryback years, if available. Considering these factors, a possibility exists that the Company may record or release a portion of a valuation allowance against some deferred tax assets each quarterly period, which could create volatility in the Company’s future effective tax rate.
Reclassifications
Certain 2014 amounts have been reclassified to conform to the 2015 presentation.

Footnote 2 — Acquisitions
Ignite
On September 4, 2014, the Company acquired 100% of Ignite Holdings, LLC (“Ignite”) for $313.1 million, which is net of $7.2 million of cash acquired. The Ignite acquisition was accounted for using the purchase method of accounting. The Company has allocated $18.1 million of the purchase price to identified tangible and monetary net assets and $151.6 million to identified intangible assets. The Company has recorded the excess of the purchase price over the aggregate fair values of identifiable assets of $143.4 million as goodwill. Approximately $105.5 million of the goodwill is expected to be tax deductible. The final purchase price is subject to post-closing adjustments for certain contractual obligations and other matters. Ignite’s results of operations are included in the Company’s Condensed Consolidated Statements of Operations since the acquisition date, including net sales of $46.5 million and $79.5 million for the three and six months ended June 30, 2015, respectively. Pro forma results of operations of the Company would not be materially different as a result of the acquisition and therefore are not presented.
bubba
On October 22, 2014, the Company acquired substantially all of the assets of bubba brands, inc. (“bubba”) for $82.4 million. The bubba acquisition was accounted for using the purchase method of accounting. The Company has allocated $10.1 million of the purchase price to identified tangible and monetary net assets and $41.0 million to identified intangible assets. The Company has recorded the excess of the purchase price over the aggregate fair values of identifiable assets of $31.3 million as goodwill. All of the goodwill is expected to be tax deductible. The final purchase price is subject to post-closing adjustments for certain contractual obligations and other matters. bubba’s results of operations are included in the Company’s Condensed Consolidated Statements of Operations since the acquisition date, including net sales of $8.7 million and $24.1 million for the three and six months ended June 30, 2015, respectively. Pro forma results of operations of the Company would not be materially different as a result of the acquisition and therefore are not presented.

9


Baby Jogger
On December 15, 2014, the Company acquired 100% of Baby Jogger Holdings, Inc. (“Baby Jogger”) for net cash consideration of $208.5 million. The Baby Jogger acquisition was accounted for using the purchase method of accounting. Based on the preliminary purchase price allocation, which is subject to change while the Company finalizes a final third-party valuation, the Company allocated $13.0 million of the purchase price to identified tangible and monetary net assets, $25.8 million to deferred tax liabilities and $136.0 million to identified intangible assets. Approximately $112.0 million was allocated to an indefinite-lived intangible asset, and approximately $24.0 million was allocated to definite-lived intangible assets with a weighted-average life of 5 years. The indefinite-lived intangible asset represents the acquired Baby Jogger trade name and the acquired City Mini® and City Select® sub-brands. The Company recorded the excess of the purchase price over the aggregate fair values of identifiable assets of $85.3 million as goodwill. Approximately $27.9 million of the goodwill is expected to be tax deductible. The final purchase price is subject to post-closing adjustments for certain contractual obligations and other matters. Baby Jogger’s results of operations are included in the Company’s Condensed Consolidated Statements of Operations since the acquisition date, including net sales of $25.5 million and $43.7 million for the three and six months ended June 30, 2015, respectively. Pro forma results of operations of the Company would not be materially different as a result of the acquisition and therefore are not presented.
The Company incurred $2.9 million and $4.6 million of acquisition and integration costs associated with the Ignite, bubba and Baby Jogger acquisitions during the three and six months ended June 30, 2015, respectively. For the three months ended June 30, 2015, $0.1 million of the acquisition and integration costs is included in cost of products sold, $1.0 million is included in selling, general and administrative expenses and $1.8 million is included in restructuring costs in the Company’s Condensed Consolidated Statement of Operations. For the six months ended June 30, 2015, $1.6 million of the acquisition and integration costs is included in cost of products sold, $1.2 million is included in selling, general and administrative expenses and $1.8 million is included in restructuring costs in the Company’s Condensed Consolidated Statement of Operations.
The pro forma net sales for the three and six months ended June 30, 2014 as if the Ignite, bubba and Baby Jogger acquisitions occurred on January 1, 2014 are $1.58 billion and $2.85 billion, respectively. The pro forma net income and earnings per share for the three and six months ended June 30, 2014 reflecting the inclusion of the acquisitions, individually and in the aggregate, as if such acquisitions occurred on January 1, 2014 would not be materially different than reported results for the three and six months ended June 30, 2014 and therefore are not presented.
 
Footnote 3 — Discontinued Operations and Divestitures
During 2014, the Company’s Endicia® and Culinary electrics and retail businesses were classified as discontinued operations based on the Company’s commitment to sell the businesses. The Endicia business was included in the Writing segment, and the Culinary electrics and retail businesses were included in the Home Solutions segment. During the three months ended March 31, 2015, the Company announced it entered into an agreement to sell Endicia for an estimated purchase price of $215.0 million, subject to customary working capital adjustments. The closing of the transaction is subject to customary conditions, including regulatory approvals. During the three months ended March 31, 2015, the Company ceased operations in its Culinary electrics and retail businesses. The net assets of the Endicia business at June 30, 2015 were $44.9 million, primarily representing goodwill of Endicia.
The following table provides a summary of amounts included in discontinued operations (in millions):
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Net sales
$
15.0

 
$
20.8

 
$
32.3

 
$
40.8

Income (loss) from discontinued operations before income taxes
$
0.5

 
$
0.6

 
$
(3.9
)
 
$

Income tax expense (benefit)
0.1

 
0.6

 
(1.5
)
 
0.4

Income (loss) from discontinued operations
0.4

 

 
(2.4
)
 
(0.4
)
Net gain from sale of discontinued operations, net of tax (1)

 
1.6

 

 
3.1

Income (loss) from discontinued operations, net of tax
$
0.4

 
$
1.6

 
$
(2.4
)
 
$
2.7

(1) Includes a pretax gain of $2.6 million (related tax expense of $1.0 million) and $4.8 million (related tax expense of $1.7 million) for the three and six months ended June 30, 2014, respectively, related to the transfer of the international operations of the Hardware business.
In May 2015, the Company announced its intention to divest the Rubbermaid medical cart business, which is focused on optimizing nurse work flow and medical records processing in hospitals. The Company sold substantially all of the assets of the Rubbermaid medical cart business in August 2015. The Rubbermaid medical cart business does not qualify as discontinued operations pursuant to the guidance in ASU 2014-08, so the Company has continued to include the Rubbermaid medical cart business in continuing

10


operations until the business is sold. The Rubbermaid medical cart business generated approximately 1% of the Company’s consolidated net sales for the year ended December 31, 2014, and the Rubbermaid medical cart business generated net sales of $12.8 million and $22.6 million for the three and six months ended June 30, 2015, respectively.

Footnote 4 — Stockholders’ Equity and Accumulated Other Comprehensive Loss
In August 2011, the Company announced a 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 market purchases or in privately negotiated transactions. As expanded and extended in November 2014, the Company may repurchase a total of up to $1.1 billion of its own stock through the end of 2017 pursuant to the SRP. During the six months ended June 30, 2015, the Company repurchased 3.2 million shares pursuant to the SRP for $124.0 million, and such shares were immediately retired. Since the commencement of the SRP through June 30, 2015, the Company has repurchased and retired 27.5 million shares at an aggregate cost of $744.3 million. As of June 30, 2015, the Company had $312.3 million available under the SRP for future repurchases.

The following table displays the changes in accumulated other comprehensive loss by component for the six months ended June 30, 2015 and 2014 (in millions):
 
Foreign Currency Translation Loss (1)
 
Unrecognized
Pension & Other
Postretirement
Costs, Net of Tax
 
Derivative Hedging Gain (Loss), Net of Tax
 
Accumulated Other    
Comprehensive Loss    
Balance at December 31, 2014
$
(287.8
)
 
$
(511.7
)
 
$
5.1

 
$
(794.4
)
Other comprehensive (loss) income before reclassifications
(68.3
)
 
(0.1
)
 
0.5

 
(67.9
)
Amounts reclassified to earnings

 
7.9

 
(5.8
)
 
2.1

Net current period other comprehensive (loss) income
(68.3
)
 
7.8

 
(5.3
)
 
(65.8
)
Balance at June 30, 2015
$
(356.1
)
 
$
(503.9
)
 
$
(0.2
)
 
$
(860.2
)
(1)
Includes foreign exchange losses of $15.2 million arising during the six months ended June 30, 2015 associated with intercompany loans designated as long-term.
 
Foreign Currency Translation Loss (2)
 
Unrecognized
Pension & Other
Postretirement
Costs, Net of Tax
 
Derivative Hedging (Loss) Gain, Net of Tax
 
Accumulated Other    
Comprehensive Loss    
Balance at December 31, 2013
$
(161.5
)
 
$
(483.3
)
 
$
(0.4
)
 
$
(645.2
)
Other comprehensive income (loss) before reclassifications
24.2

 
(3.9
)
 
(2.4
)
 
17.9

Amounts reclassified to earnings

 
7.5

 
(0.9
)
 
6.6

Net current period other comprehensive income
24.2

 
3.6

 
(3.3
)
 
24.5

Balance at June 30, 2014
$
(137.3
)
 
$
(479.7
)
 
$
(3.7
)
 
$
(620.7
)
(2)
Includes foreign exchange gains of $1.2 million arising during the six months ended June 30, 2014 associated with intercompany loans designated as long-term.

11



The following table depicts reclassifications out of accumulated other comprehensive loss to earnings for the three and six months ended June 30, 2015 and 2014 (in millions):
 
 
Amount Reclassified to Earnings as Expense (Benefit) in the Statements of Operations
 
Affected Line Item in the Condensed Consolidated Statements of Operations
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
 
2015
 
2014
 
2015
 
2014
 
Unrecognized pension and other postretirement costs:
 
 
 
 
 
 
 
 
 
 
Prior service benefit
 
$
(1.7
)
 
$
(1.6
)
 
$
(3.4
)
 
$
(3.2
)
 
(1) 
Actuarial loss
 
7.4

 
6.9

 
14.8

 
13.9

 
(1) 
Total before tax
 
5.7

 
5.3

 
11.4

 
10.7

 
 
Tax effect
 
(1.8
)
 
(1.6
)
 
(3.5
)
 
(3.2
)
 
 
Net of tax
 
$
3.9

 
$
3.7

 
$
7.9

 
$
7.5

 
 
Derivatives:
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts on inventory-related purchases
 
$
(4.0
)
 
$
(0.5
)
 
$
(8.3
)
 
$
(2.4
)
 
Cost of products sold
Forward interest rate swaps
 
0.2

 
0.2

 
0.4

 
0.4

 
Interest expense, net
Total before tax
 
(3.8
)
 
(0.3
)
 
(7.9
)
 
(2.0
)
 
 
Tax effect
 
1.1

 
0.4

 
2.1

 
1.1

 
 
Net of tax
 
$
(2.7
)
 
$
0.1

 
$
(5.8
)
 
$
(0.9
)
 
 
(1) 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 six months ended June 30, 2015 and 2014. See Footnote 9 for further details.


12


Footnote 5 — Restructuring Costs
Project Renewal
On April 29, 2015, the Company committed to a further expansion of Project Renewal (the “April 2015 Expansion”), a program initially launched in October 2011 to reduce the complexity of the organization and increase investment in growth platforms within the business. Under Project Renewal, the Company is simplifying and aligning its businesses around two key activities - Brand & Category Development and Market Execution & Delivery. Pursuant to the program, the Company eliminated its operating groups and consolidated 13 global business units into five business segments. Pursuant to an expansion of Project Renewal in October 2014, the Company is: (i) further streamlining its supply chain function, including reducing overhead and realigning the supply chain management structure; (ii) investing in value analysis and value engineering efforts to reduce product and packaging costs; (iii) reducing operational and manufacturing complexity in its Writing segment; and (iv) further streamlining its distribution and transportation functions.  Under the April 2015 Expansion, the Company plans to implement additional activities designed to further streamline business partnering functions (e.g., Finance/IT, Legal and Human Resources), optimize global selling and trade marketing functions, and rationalize the Company’s real estate portfolio.
In connection with the April 2015 Expansion, the Company expects to incur $150.0 million of additional costs, including cash costs of $135.0 million. The additional costs include pretax restructuring charges in the range of $125.0 million to $135.0 million, a majority of which are expected to be facility exit costs and employee-related cash costs, including severance, retirement and other termination benefits, including costs associated with relocating the Company’s headquarters within Atlanta, Georgia.

Cumulative costs of the expanded Project Renewal are now expected to be $690.0 million to $725.0 million pretax, with cash costs of $645.0 million to $675.0 million. Approximately 60% to 70% of the total costs are expected to be restructuring costs, a majority of which 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 the end of 2017.
The following table depicts the restructuring charges incurred in connection with Project Renewal (in millions):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
Since Inception Through
 
2015
 
2014
 
2015
 
2014
 
June 30, 2015
Facility and other exit costs, including impairments
$
(0.6
)
 
$
1.6

 
$
(0.3
)
 
$
2.8

 
$
20.6

Employee severance, termination benefits and relocation costs
9.3

 
6.2

 
28.2

 
17.1

 
194.3

Exited contractual commitments and other
2.8

 
3.5

 
10.9

 
4.9

 
59.9

 
$
11.5

 
$
11.3

 
$
38.8

 
$
24.8

 
$
274.8

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. The following table depicts the activity in accrued restructuring reserves for Project Renewal for the six months ended June 30, 2015 (in millions):
 
 
December 31, 2014
 
 
 
 
 
June 30, 2015
 
 
Balance
 
Provision
 
Costs Incurred  
 
Balance
Facility and other exit costs, including impairments
 
$

 
$
(0.3
)
 
$
0.3

 
$

Employee severance, termination benefits and relocation costs
 
22.8

 
28.2

 
(12.1
)
 
38.9

Exited contractual commitments and other
 
17.5

 
10.9

 
(13.7
)
 
14.7

 
 
$
40.3

 
$
38.8

 
$
(25.5
)
 
$
53.6


13


The following table depicts the activity in accrued restructuring reserves for Project Renewal for the six months ended June 30, 2015 aggregated by reportable business segment (in millions):
 
 
December 31, 2014
 
 
 
 
 
June 30, 2015
Segment
 
Balance
 
Provision
 
Costs Incurred
 
Balance
Writing
 
$
9.7

 
$
3.6

 
$
(3.3
)
 
$
10.0

Home Solutions
 
1.0

 
4.9

 
(1.0
)
 
4.9

Tools
 
0.5

 
0.8

 
0.5

 
1.8

Commercial Products
 
5.1

 
1.1

 
(1.4
)
 
4.8

Baby & Parenting
 
2.2

 
0.5

 
(0.9
)
 
1.8

Corporate
 
21.8

 
27.9

 
(19.4
)
 
30.3

 
 
$
40.3

 
$
38.8

 
$
(25.5
)
 
$
53.6

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
 
Six Months Ended
 
 
June 30,
 
June 30,
Segment
 
2015
 
2014
 
2015
 
2014
Writing
 
$
0.8

 
$
0.9

 
$
3.6

 
$
1.8

Home Solutions(1)
 
0.3

 
0.6

 
5.1

 
1.0

Tools
 
0.8

 
0.7

 
0.8

 
1.6

Commercial Products
 
0.6

 
(0.4
)
 
1.1

 
2.7

Baby & Parenting (1)
 
2.1

 
(0.1
)
 
2.1

 
0.2

Corporate(2)
 
8.7

 
9.8

 
27.9

 
16.2

 
 
$
13.3

 
$
11.5

 
$
40.6

 
$
23.5

(1)
Includes $0.2 million of restructuring costs in the Home Solutions segment associated with the integration of Ignite and bubba and $1.6 million of restructuring costs in the Baby & Parenting segment associated with the integration of Baby Jogger for the three and six months ended June 30, 2015.
(2)
Includes adjustments of $0.2 million and $(1.3) million in Corporate for the three and six months ended June 30, 2014, respectively, relating to previous restructuring projects that had the impact of increasing (decreasing) restructuring costs.
Cash paid for all restructuring activities was $15.5 million and $30.2 million for the three and six months ended June 30, 2015, respectively, and $18.7 million and $49.5 million for the three and six months ended June 30, 2014, respectively.

Footnote 6 — Inventories, Net
Inventories are stated at the lower of cost or market value. The components of net inventories were as follows (in millions):
 
June 30, 2015
 
December 31, 2014
Materials and supplies
$
141.4

 
$
117.9

Work in process
132.5

 
104.5

Finished products
661.7

 
486.1

 
$
935.6

 
$
708.5



14


Footnote 7 — Debt
The following is a summary of outstanding debt (in millions):
 
June 30, 2015
 
December 31, 2014
Medium-term notes
$
2,085.8

 
$
2,089.5

Commercial paper
419.8

 
28.0

Receivables facility
350.0

 
350.0

Other debt
7.9

 
14.4

Total debt
2,863.5

 
2,481.9

Short-term debt
(776.6
)
 
(390.7
)
Current portion of long-term debt
(6.0
)
 
(6.7
)
Long-term debt
$
2,080.9

 
$
2,084.5

Interest Rate Swaps
As of June 30, 2015, the Company was party to fixed-for-floating interest rate swaps designated as fair value hedges. The interest rate swaps relate to an aggregate $596.0 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 June 30, 2015 and December 31, 2014 include mark-to-market adjustments of $12.7 million and $11.8 million, respectively, to record the fair value of the hedges of the fixed-rate debt, and the mark-to-market adjustments had the effect of decreasing the reported values 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 $3.3 million and $3.5 million during the three months ended June 30, 2015 and 2014, respectively, and by $6.7 million and $7.1 million for the six months ended June 30, 2015 and 2014, 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”). In August 2015, the Company extended the expiration date of the Receivables Facility to September 2016 and expanded the available borrowings to up to $400.0 million. 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 Condensed 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 requirements under the Receivables Facility as of June 30, 2015. The financing subsidiary owned $841.8 million of outstanding accounts receivable as of June 30, 2015, and these amounts are included in accounts receivable, net in the Company’s Condensed Consolidated Balance Sheet at June 30, 2015. The Company had $350.0 million of outstanding borrowings under the Receivables Facility as of June 30, 2015.
Revolving Credit Facility and Commercial Paper
On December 2, 2011, the Company entered into a credit agreement (the “Credit Agreement”) with a syndicate of banks. As extended, the Credit Agreement provides for an unsecured syndicated revolving credit facility with a maturity date of December 2019, and an aggregate commitment at any time outstanding of up 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 June 30, 2015, there were no borrowings outstanding or standby letters of credit issued under the Facility, and the Company was in compliance with the covenants under 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

15


amount available for borrowing under the Facility. As of June 30, 2015 and December 31, 2014, the Company had outstanding commercial paper obligations of $419.8 million and $28.0 million, respectively.
Footnote 8 — 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 enters into interest rate swaps related to existing debt obligations with initial maturities ranging from five to ten years. The Company uses interest rate swap agreements to manage its interest rate exposure and to achieve a desired proportion of variable and fixed-rate debt. These derivatives are designated as fair value hedges based on the nature of the risk being hedged. The Company also uses derivatives to hedge interest rates on anticipated issuances of debt securities occurring within one year or less of the inception date of the derivative, and the Company uses these instruments to reduce the volatility in future interest payments that would be made pursuant to the anticipated debt issuances. These derivatives are designated as cash flow hedges.
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 three years or less. The Company uses derivative instruments to hedge various foreign exchange exposures, including the following: (i) variability in foreign currency-denominated cash flows, such as the hedges of inventory purchases for products produced in one currency and sold in another currency and (ii) currency risk associated with foreign currency-denominated assets and liabilities, such as forward contracts and other instruments that hedge cash flows associated with intercompany financing activities. Hedging instruments are not available for certain currencies in countries in which the Company has operations. In these cases, the Company uses alternative means in an effort to achieve an economic offset to the local currency exposure such as invoicing and/or paying intercompany and third party transactions in U.S. Dollars.
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 six months ended June 30, 2015 and 2014.
The following table summarizes the Company’s outstanding derivative instruments and their effects on the Condensed Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014 (in millions):
 
 
 
 
Assets
 
 
 
Liabilities
Derivatives designated as hedging instruments
 
Balance Sheet Location
 
June 30, 2015
 
December 31, 2014
 
Balance Sheet Location
 
June 30, 2015
 
December 31, 2014
Interest rate swaps
 
Other assets
 
$

 
$

 
Other noncurrent liabilities
 
$
12.7

 
$
11.8

Cross currency interest rate swaps
 
Other assets
 
7.8

 

 
Other noncurrent liabilities
 
4.7

 

Foreign exchange contracts on inventory-related purchases
 
Prepaid expenses and other and other assets
 
5.7

 
7.7

 
Other accrued liabilities
 
2.8

 
0.4

Foreign exchange contracts on intercompany borrowings
 
Prepaid expenses and other
 
0.1

 

 
Other accrued liabilities
 
0.4

 

Total assets
 
 
 
$
13.6

 
$
7.7

 
Total liabilities
 
$
20.6

 
$
12.2

The fair values of outstanding derivatives that are not designated as hedges for accounting purposes were not material as of June 30, 2015 and December 31, 2014.
The Company is not a party to any derivatives that require collateral to be posted prior to settlement.


16


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
 
Six Months Ended
June 30,
 
June 30,
2015
 
2014
 
2015
 
2014
Interest rate swaps
 
Interest expense, net
 
$
(12.1
)
 
$
8.2

 
$
(0.9
)
 
$
13.5

Fixed-rate debt
 
Interest expense, net
 
$
12.1

 
$
(8.2
)
 
$
0.9

 
$
(13.5
)
The Company did not realize any ineffectiveness related to fair value hedges during the three and six months ended June 30, 2015 and 2014.

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
 
Six Months Ended
June 30,
 
June 30,
2015
 
2014
 
2015
 
2014
Foreign exchange contracts on inventory-related purchases
 
Cost of products sold
 
$
4.0

 
$
0.5

 
$
8.3

 
$
2.4

Forward interest rate swaps
 
Interest expense, net
 
(0.2
)
 
(0.2
)
 
(0.4
)
 
(0.4
)
 
 
 
 
$
3.8

 
$
0.3

 
$
7.9

 
$
2.0


Derivatives in cash flow hedging relationships
 
Amount of gain (loss) recognized in AOCI
Three Months Ended
 
Six Months Ended
June 30,
 
June 30,
2015
 
2014
 
2015
 
2014
Cross currency interest rate swaps on intercompany borrowings
 
$
3.1

 
$

 
$
3.1

 
$

Foreign exchange contracts on inventory-related purchases
 
(1.9
)
 
(5.1
)
 
3.9

 
(2.4
)
Foreign exchange contracts on intercompany borrowings
 
(0.7
)
 
0.1

 
1.9

 
0.1

 
 
$
0.5

 
$
(5.0
)
 
$
8.9

 
$
(2.3
)

During April 2015, the Company entered into two 3-year cross currency interest rate swaps designated as cash flow hedges of intercompany financing arrangements of approximately $193 million. The swaps mature in April 2018, and the Company expects the cash flow hedges to be highly effective such that changes in fair value of the cash flow hedges will be recognized in AOCI during the term of the cross currency interest rate swaps.

The Company did not realize any ineffectiveness related to cash flow hedges during the six months ended June 30, 2015 and 2014. As of June 30, 2015, the Company expects to reclassify net pretax gains of $2.2 million from AOCI into earnings during the next 12 months.


17


Footnote 9 — 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 June 30, (in millions):
 
U.S.
 
International    
 
2015
 
2014
 
2015
 
2014
Service cost-benefits earned during the period
$
0.8

 
$
1.0

 
$
1.5

 
$
1.5

Interest cost on projected benefit obligation
10.3

 
11.3

 
5.0

 
6.4

Expected return on plan assets
(14.4
)
 
(14.4
)
 
(5.7
)
 
(6.7
)
Amortization of prior service cost, actuarial loss and other
6.8

 
6.1

 
0.9

 
0.8

Net periodic pension cost
$
3.5

 
$
4.0

 
$
1.7

 
$
2.0


The following table presents the components of the Company’s pension cost including supplemental retirement plans, for the six months end June 30, (in millions):
 
U.S.
 
International    
 
2015
 
2014
 
2015
 
2014
Service cost-benefits earned during the period
$
1.6

 
$
2.0

 
$
3.0

 
$
3.0

Interest cost on projected benefit obligation
20.6

 
22.6

 
10.0

 
12.8

Expected return on plan assets
(28.8
)
 
(28.8
)
 
(11.4
)
 
(13.4
)
Amortization of prior service cost, actuarial loss and other
13.6

 
12.2

 
1.8

 
1.6

Net periodic pension cost
$
7.0

 
$
8.0

 
$
3.4

 
$
4.0


The following table presents the components of the Company’s other postretirement benefit costs for the three and six months ended June 30, (in millions):
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Service cost-benefits earned during the period
$
0.1

 
$
0.3

 
$
0.2

 
$
0.6

Interest cost on projected benefit obligation
0.8

 
1.2

 
1.6

 
2.4

Amortization of prior service benefit and actuarial gains
(1.9
)
 
(1.6
)
 
(3.8
)
 
(3.2
)
Net other postretirement benefit cost (benefit)
$
(1.0
)
 
$
(0.1
)
 
$
(2.0
)
 
$
(0.2
)
The Company made cash contributions to the Company-sponsored profit sharing plan of $16.4 million and $16.1 million during the six months ended June 30, 2015 and 2014, respectively. The Company made a voluntary cash contribution of $70.0 million to its U.S. defined benefit plan in January 2015.

Footnote 10 — Income Taxes

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 six months ended June 30, 2015 is impacted by the geographical mix of earnings and the strengthening of the U.S. Dollar against foreign currencies offset by increased tax benefit from the impact of foreign tax credits. The Company’s effective tax rate for the six months ended June 30, 2014 included tax benefits related to the resolution of certain tax contingencies of $11.3 million and tax benefits of $15.1 million related to the $42.3 million pretax charge associated with the change in exchange rates used to remeasure the Company’s Venezuelan net monetary assets, which includes a $38.7 million charge upon adoption of the SICAD rate and $4.0 million charge associated with the first turn of Venezuelan inventory after the devaluation.

18


Footnote 11 — Earnings per Share
The calculation of basic and diluted earnings per share is as follows (in millions, except per share data):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Numerator for basic and diluted earnings per share:
 
 
 
 
 
 
 
Income from continuing operations
$
148.1

 
$
149.0

 
$
205.0

 
$
200.8

Income (loss) from discontinued operations
0.4

 
1.6

 
(2.4
)
 
2.7

Net income
$
148.5

 
$
150.6

 
$
202.6

 
$
203.5

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

 

 

 

Net income for basic and diluted earnings per share
$
148.5

 
$
150.6

 
$
202.6

 
$
203.5

Denominator for basic and diluted earnings per share:
 
 
 
 
 
 
 
Weighted-average shares outstanding
268.3

 
275.4

 
268.6

 
277.1

Share-based payment awards classified as participating securities
1.4

 
2.0

 
1.5

 
2.0

Denominator for basic earnings per share
269.7

 
277.4

 
270.1

 
279.1

Dilutive securities (1)
2.0

 
2.3

 
2.1

 
2.6

Denominator for diluted earnings per share
271.7

 
279.7

 
272.2

 
281.7

Basic earnings per share:
 
 
 
 
 
 
 
Income from continuing operations
$
0.55

 
$
0.54

 
$
0.76

 
$
0.72

Income (loss) from discontinued operations
$

 
$
0.01

 
$
(0.01
)
 
$
0.01

Net income
$
0.55

 
$
0.54

 
$
0.75

 
$
0.73

Diluted earnings per share:
 
 
 
 
 
 
 
Income from continuing operations
$
0.55

 
$
0.53

 
$
0.75

 
$
0.71

Income (loss) from discontinued operations
$

 
$
0.01

 
$
(0.01
)
 
$
0.01

Net income
$
0.55

 
$
0.54

 
$
0.74

 
$
0.72

(1)
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 0.8 million and 0.5 million stock options for the three and six months ended June 30, 2014, respectively, because such options were anti-dilutive. The weighted-average shares outstanding for the six months ended June 30, 2015 exclude the weighted average effect of 0.3 million performance stock units outstanding because the securities were anti-dilutive. The weighted-average shares outstanding for the three and six months ended June 30, 2014 exclude the weighted average effect of 0.6 million performance stock units outstanding because the securities were anti-dilutive.


19


Footnote 12 — Stock-Based Compensation
The Company measures compensation cost for all stock awards at fair value on the date of grant and recognizes compensation cost, net of estimated forfeitures, over the requisite service period for awards expected to vest. The Company recognized $7.3 million and $7.5 million of pretax stock-based compensation expense during the three months ended June 30, 2015 and 2014, respectively, and $14.1 million and $14.5 million during the six months ended June 30, 2015 and 2014, respectively.
The following table summarizes the changes in the number of shares of common stock underlying outstanding stock options for the six months ended June 30, 2015 (in millions, except weighted-average exercise prices):
 
Options Outstanding and Exercisable
 
Weighted-Average Exercise Price
 
Aggregate    
Intrinsic    
Value    
Exercisable    
Outstanding at December 31, 2014
2.6

 
$
19

 
$
49.1

Exercised
(0.7
)
 
22

 
 
Outstanding at June 30, 2015
1.9

 
$
18

 
$
43.4

The following table summarizes the changes in the number of outstanding restricted stock units for the six months ended June 30, 2015 (shares in millions):
 
Restricted Stock Units
 
Weighted-    
Average Grant     
Date Fair Value    
Outstanding at December 31, 2014
3.7

 
$
26

Granted
1.0

 
40

Vested
(1.3
)
 
20

Forfeited
(0.3
)
 
30

Outstanding at June 30, 2015
3.1

 
$
32


During the six months ended June 30, 2015, the Company awarded 0.6 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 performance or 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 performance, market and service conditions. As of June 30, 2015, 1.7 million PSUs were outstanding, and based on performance through June 30, 2015, recipients of PSUs would be entitled to approximately 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.

20



Footnote 13 — 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 June 30, 2015
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)
$
26.7

 
$
4.6

 
$
22.1

 
$

Cross currency interest rate swaps
7.8

 

 
7.8

 

Foreign currency derivatives
5.8

 

 
5.8

 

Total
$
40.3

 
$
4.6

 
$
35.7

 
$

Liabilities
 
 
 
 
 
 
 
Interest rate swaps
$
12.7

 
$

 
$
12.7

 
$

Cross currency interest rate swaps
4.7

 

 
4.7

 

Foreign currency derivatives
3.2

 

 
3.2

 

Total
$
20.6

 
$

 
$
20.6

 
$

 
 
 
 
 
 
 
 
Fair Value as of December 31, 2014
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
Investment securities, including mutual funds (1)
$
21.5

 
$
4.6

 
$
16.9

 
$

Foreign currency derivatives
7.7

 

 
7.7

 

Total
$
29.2

 
$
4.6

 
$
24.6

 
$

Liabilities
 
 
 
 
 
 
 
Interest rate swaps
$
11.8

 
$

 
$
11.8

 
$

Foreign currency derivatives
0.4

 

 
0.4

 

Total
$
12.2

 
$

 
$
12.2

 
$

 
(1) The values of investment securities, including mutual funds, are classified as cash and cash equivalents ($15.5 million and $8.4 million as of June 30, 2015 and December 31, 2014, respectively) and other assets ($11.2 million and $13.1 million as of June 30, 2015 and December 31, 2014, 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.
Nonrecurring Fair Value Measurements
The Company’s nonfinancial assets which are measured at fair value on a nonrecurring basis include property, plant and equipment, goodwill, intangible assets and certain other assets. During the six months ended June 30, 2015, impairments associated with plans to dispose of certain property, plant and equipment were not material. 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 using key inputs such as 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 Level 3 of the fair value hierarchy. These assets and certain liabilities are measured at fair value on a nonrecurring basis as part of the Company’s impairment assessments and as circumstances require. During the six months ended June 30, 2015, no material nonrecurring fair value measurements were required for testing goodwill and other indefinite-lived intangible assets for impairment.

21


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 8.

The fair values of the Company’s medium-term notes are based on quoted market prices (Level 1) and are as follows (in millions):
 
June 30, 2015
 
December 31, 2014
 
Fair Value
 
Book Value
 
Fair Value
 
Book Value    
Medium-term notes
$
2,169.7

 
$
2,085.8

 
$
2,154.4

 
$
2,089.5


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

Footnote 14 — Segment Information
The Company’s reportable segments are as follows:
Segment
  
Key Brands
  
Description of Primary Products
Writing
 
Sharpie®, Paper Mate®, Expo®, Parker®, Waterman®, Dymo® Office
 
Writing instruments, including markers and highlighters, pens and pencils; art products; fine writing instruments; labeling solutions
Home Solutions
 
Rubbermaid®, Contigo®, bubba®, Calphalon®, Levolor®, Goody®
 
Indoor/outdoor organization, food storage and home storage products; durable beverage containers; gourmet cookware, bakeware and cutlery; window treatments; hair care accessories
Tools
 
Irwin®, Lenox®, hilmor, Dymo® Industrial

 
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®, Baby Jogger®, Aprica®, Teutonia®
  
Infant and juvenile products such as car seats, strollers, highchairs and playards

During 2014, the Company’s Endicia®and Culinary electrics and retail businesses were classified as discontinued operations based on the Company’s commitment to sell the businesses. Accordingly, the results of operations of these businesses have been classified as discontinued operations for all periods presented. The Endicia business was included in the Writing segment, and the Culinary businesses were included in the Home Solutions segment. As a result of these changes, the segment information in this footnote and Footnote 5 pertaining to restructuring have been presented to reflect the impacts of classifying the Endicia and Culinary electrics and retail businesses as discontinued operations.


22


The Company’s segment and geographic results are as follows for the periods indicated (in millions):
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Net Sales (1)
 
 
 
 
 
 
 
Writing
$
495.9

 
$
489.3

 
$
837.7

 
$
837.5

Home Solutions
438.5

 
383.4

 
803.0

 
699.8

Tools
205.2

 
222.3

 
385.6

 
410.1

Commercial Products
210.6

 
223.5

 
395.8

 
406.1

Baby & Parenting
210.7

 
183.7

 
402.8

 
363.0

 
$
1,560.9

 
$
1,502.2

 
$
2,824.9

 
$
2,716.5

Operating Income (Loss) (2)
 
 
 
 
 
 
 
Writing
$
132.5

 
$
129.1

 
$
214.9

 
$
205.2

Home Solutions
68.7

 
48.7

 
107.2

 
75.5

Tools
23.4

 
29.9

 
45.6

 
51.3

Commercial Products
28.9

 
36.2

 
45.9

 
50.0

Baby & Parenting
16.7

 
12.2

 
17.2

 
17.6

Restructuring costs
(13.3
)
 
(11.5
)
 
(40.6
)
 
(23.5
)
Corporate
(42.2
)
 
(31.3
)
 
(77.3
)
 
(58.1
)
 
$
214.7

 
$
213.3

 
$
312.9

 
$
318.0

 
June 30, 2015
 
December 31, 2014
Identifiable Assets
 
 
 
Writing
$
1,181.5

 
$
981.9

Home Solutions
862.0

 
806.4

Tools
622.9

 
605.0

Commercial Products
369.2

 
375.1

Baby & Parenting
511.8

 
481.0

Corporate (3)
3,411.4

 
3,431.7

 
$
6,958.8

 
$
6,681.1


23


Geographic Area Information
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
(in millions)
2015
 
2014
 
2015
 
2014
Net Sales (1), (4)
 
 
 
 
 
 
 
United States
$
1,117.5

 
$
1,036.1

 
$
2,034.7

 
$
1,849.8

Canada
68.4

 
76.9

 
114.6

 
129.9

Total North America
1,185.9

 
1,113.0

 
2,149.3

 
1,979.7

Europe, Middle East and Africa
167.0

 
188.4

 
294.6

 
352.2

Latin America
114.6

 
102.8

 
204.0

 
194.8

Asia Pacific
93.4

 
98.0

 
177.0

 
189.8

Total International
375.0

 
389.2

 
675.6

 
736.8

 
$
1,560.9

 
$
1,502.2

 
$
2,824.9

 
$
2,716.5

Operating Income (Loss) (2), (5)
 
 
 
 
 
 
 
United States
$
153.5

 
$
157.8

 
$
230.0

 
$
223.5

Canada
15.2

 
18.9

 
20.5

 
29.3

Total North America
168.7

 
176.7

 
250.5

 
252.8

Europe, Middle East and Africa
26.3

 
22.5

 
34.9

 
37.3

Latin America
19.6

 
9.2

 
24.3

 
20.0

Asia Pacific
0.1

 
4.9

 
3.2

 
7.9

Total International
46.0

 
36.6

 
62.4

 
65.2

 
$
214.7

 
$
213.3

 
$
312.9

 
$
318.0

 
(1)
All intercompany transactions have been eliminated. Sales to Wal-Mart Stores, Inc. and subsidiaries amounted to approximately 10.3% and 10.1% of consolidated net sales in the three months ended June 30, 2015 and 2014, respectively, and approximately 10.0% and 10.1% of consolidated net sales in the six months ended June 30, 2015 and 2014, 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, benefit plan assets and deferred tax assets.

(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
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Restructuring Costs
 
 
 
 
 
 
 
United States
$
7.3

 
$
4.9

 
$
17.7

 
$
12.8

Canada
1.5

 

 
4.5

 
0.1

Total North America
8.8

 
4.9

 
22.2

 
12.9

Europe, Middle East and Africa
3.0

 
5.9

 
14.7

 
8.7

Latin America

 
0.2

 
0.6

 
0.3

Asia Pacific
1.5

 
0.5

 
3.1

 
1.6

Total International
4.5

 
6.6

 
18.4

 
10.6

 
$
13.3

 
$
11.5

 
$
40.6

 
$
23.5



24


Footnote 15 — Other Accrued Liabilities
Other accrued liabilities included the following (in millions):
 
June 30, 2015
 
December 31, 2014
Customer accruals
$
267.1

 
$
316.0

Accruals for manufacturing, marketing and freight expenses
93.4

 
86.1

Accrued self-insurance liabilities
54.7

 
55.8

Accrued pension, defined contribution and other postretirement benefits
29.1

 
36.6

Accrued contingencies, primarily legal, environmental and warranty
28.7

 
27.8