UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2013March 31, 2014
or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-13665
Jarden Corporation
(Exact name of registrant as specified in its charter)
Delaware | 35-1828377 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices) | (Zip code) |
(914) 967-9400(561) 447-2520
(Registrant’s telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
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 x No ¨
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 ST (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | x | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | 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 ¨ No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class | Outstanding at | |
Common Stock, par value $0.01 per share |
Quarterly Report on Form 10-Q
For the three and nine months ended September 30, 2013March 31, 2014
Page Number | |||||||
PART I. | 3 | ||||||
Item 1. | 3 | ||||||
3 | |||||||
4 | |||||||
Condensed Consolidated Balance Sheets at | 5 | ||||||
6 | |||||||
7 | |||||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||||||
Item 3. | |||||||
Item 4. | |||||||
PART II. | |||||||
Item 1. | |||||||
Item 1A. | |||||||
Item 2. | |||||||
Item 6. | |||||||
Item 1. | Financial Statements |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In millions, except per share amounts)
Three months ended September 30, | Nine months ended September 30, | Three months ended March 31, | ||||||||||||||||||||||
2013 | 2012 | 2013 | 2012 | 2014 | 2013 | |||||||||||||||||||
Net sales | $ | 1,800.8 | $ | 1,705.9 | $ | 5,140.3 | $ | 4,876.9 | $ | 1,731.8 | $ | 1,580.7 | ||||||||||||
Cost of sales | 1,277.6 | 1,204.9 | 3,660.1 | 3,459.9 | 1,217.4 | 1,137.2 | ||||||||||||||||||
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Gross profit | 523.2 | 501.0 | 1,480.2 | 1,417.0 | 514.4 | 443.5 | ||||||||||||||||||
Selling, general and administrative | 325.9 | 322.9 | 1,045.4 | 961.0 | ||||||||||||||||||||
Reorganization costs, net | 3.0 | 9.3 | 4.4 | 9.3 | ||||||||||||||||||||
Selling, general and administrative expenses | 450.9 | 386.6 | ||||||||||||||||||||||
Restructuring costs, net | 0.3 | — | ||||||||||||||||||||||
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Operating earnings | 194.3 | 168.8 | 430.4 | 446.7 | 63.2 | 56.9 | ||||||||||||||||||
Interest expense, net | 47.5 | 46.1 | 143.3 | 135.8 | 54.0 | 49.6 | ||||||||||||||||||
Loss on early extinguishment of debt | — | — | 25.9 | — | — | 17.1 | ||||||||||||||||||
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Income before taxes | 146.8 | 122.7 | 261.2 | 310.9 | ||||||||||||||||||||
Income tax provision | 51.9 | 45.8 | 94.3 | 115.7 | ||||||||||||||||||||
Income (loss) before taxes | 9.2 | (9.8 | ) | |||||||||||||||||||||
Income tax provision (benefit) | 5.5 | (5.4 | ) | |||||||||||||||||||||
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Net income | $ | 94.9 | $ | 76.9 | $ | 166.9 | $ | 195.2 | ||||||||||||||||
Net income (loss) | $ | 3.7 | $ | (4.4 | ) | |||||||||||||||||||
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Earnings per share: | ||||||||||||||||||||||||
Earnings (loss) per share: | ||||||||||||||||||||||||
Basic | $ | 0.85 | $ | 0.67 | $ | 1.52 | $ | 1.64 | $ | 0.03 | $ | (0.04 | ) | |||||||||||
Diluted | $ | 0.85 | $ | 0.66 | $ | 1.51 | $ | 1.63 | $ | 0.03 | $ | (0.04 | ) | |||||||||||
Weighted average shares outstanding: | ||||||||||||||||||||||||
Basic | 111.5 | 114.9 | 110.1 | 119.0 | 125.2 | 111.1 | ||||||||||||||||||
Diluted | 112.0 | 115.7 | 110.7 | 119.7 | 128.8 | 111.1 |
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In millions)
Three months ended September 30, | Nine months ended September 30, | Three months ended March 31, | ||||||||||||||||||||||
2013 | 2012 | 2013 | 2012 | 2014 | 2013 | |||||||||||||||||||
Comprehensive income (loss): | ||||||||||||||||||||||||
Net income | $ | 94.9 | $ | 76.9 | $ | 166.9 | $ | 195.2 | ||||||||||||||||
Net income (loss) | $ | 3.7 | $ | (4.4 | ) | |||||||||||||||||||
Other comprehensive income (loss), before tax: | ||||||||||||||||||||||||
Cumulative translation adjustment | 27.3 | 25.6 | (21.9 | ) | 9.5 | (7.8 | ) | (20.2 | ) | |||||||||||||||
Derivative financial instruments | (13.0 | ) | (7.6 | ) | 3.3 | (10.6 | ) | (2.1 | ) | 8.5 | ||||||||||||||
Accrued benefit cost | 1.9 | 1.5 | 5.6 | 4.8 | 1.2 | 1.9 | ||||||||||||||||||
Unrealized gain on investment | 0.1 | 1.0 | 0.3 | 1.0 | — | 0.2 | ||||||||||||||||||
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Total other comprehensive income (loss), before tax | 16.3 | 20.5 | (12.7 | ) | 4.7 | (8.7 | ) | (9.6 | ) | |||||||||||||||
Income tax (provision) benefit related to other comprehensive income (loss) | 3.5 | 1.5 | (3.4 | ) | 1.1 | 0.4 | (3.5 | ) | ||||||||||||||||
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Comprehensive income | $ | 114.7 | $ | 98.9 | $ | 150.8 | $ | 201.0 | ||||||||||||||||
Comprehensive income (loss) | $ | (4.6 | ) | $ | (17.5 | ) | ||||||||||||||||||
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See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions, except per share amounts)
September 30, 2013 | December 31, 2012 | March 31, 2014 | December 31, 2013 | |||||||||||||
Assets | ||||||||||||||||
Assets: | ||||||||||||||||
Cash and cash equivalents | $ | 1,560.3 | $ | 1,034.1 | $ | 1,306.2 | $ | 1,128.5 | ||||||||
Accounts receivable, net of allowances of $84.6 and $79.7 at September 30, 2013 and December 31, 2012, respectively | 1,240.5 | 1,137.7 | ||||||||||||||
Accounts receivable, net of allowances of $86.9 and $97.0 at March 31, 2014 and December 31, 2013, respectively | 1,251.0 | 1,196.1 | ||||||||||||||
Inventories | 1,599.9 | 1,310.3 | 1,585.4 | 1,411.9 | ||||||||||||
Deferred taxes on income | 179.7 | 174.5 | 194.4 | 185.7 | ||||||||||||
Prepaid expenses and other current assets | 147.2 | 153.8 | 157.5 | 161.3 | ||||||||||||
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Total current assets | 4,727.6 | 3,810.4 | 4,494.5 | 4,083.5 | ||||||||||||
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Property, plant and equipment, net | 669.7 | 678.6 | 854.8 | 852.6 | ||||||||||||
Goodwill | 1,822.5 | 1,824.0 | 2,632.4 | 2,620.3 | ||||||||||||
Intangibles, net | 1,246.1 | 1,256.7 | 2,387.9 | 2,393.0 | ||||||||||||
Other assets | 156.6 | 140.9 | 158.6 | 146.7 | ||||||||||||
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Total assets | $ | 8,622.5 | $ | 7,710.6 | $ | 10,528.2 | $ | 10,096.1 | ||||||||
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Liabilities | ||||||||||||||||
Liabilities: | ||||||||||||||||
Short-term debt and current portion of long-term debt | $ | 524.3 | $ | 504.7 | $ | 660.4 | $ | 655.1 | ||||||||
Accounts payable | 664.5 | 615.4 | 685.9 | 664.2 | ||||||||||||
Accrued salaries, wages and employee benefits | 186.2 | 187.6 | 168.8 | 192.6 | ||||||||||||
Other current liabilities | 434.3 | 421.0 | 457.1 | 527.5 | ||||||||||||
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Total current liabilities | 1,809.3 | 1,728.7 | 1,972.2 | 2,039.4 | ||||||||||||
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Long-term debt | 3,379.8 | 3,293.4 | 4,521.9 | 4,087.3 | ||||||||||||
Deferred taxes on income | 593.3 | 566.8 | 1,155.3 | 1,065.3 | ||||||||||||
Other non-current liabilities | 366.7 | 362.1 | 354.8 | 354.4 | ||||||||||||
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Total liabilities | 6,149.1 | 5,951.0 | 8,004.2 | 7,546.4 | ||||||||||||
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Commitments and contingencies (see Note 10) | — | — | — | — | ||||||||||||
Stockholders’ equity: | ||||||||||||||||
Preferred stock ($0.01 par value, 5.0 shares authorized, no shares issued at September 30, 2013 and December 31, 2012) | — | — | ||||||||||||||
Common stock ($0.01 par value, 300 shares authorized, 155.6 and 139.0 shares issued at September 30, 2013 and December 31, 2012, respectively) | 1.6 | 1.4 | ||||||||||||||
Preferred stock ($0.01 par value, 5.0 shares authorized, no shares issued at March 31, 2014 and December 31, 2013) | — | — | ||||||||||||||
Common stock ($0.01 par value, 300 shares authorized, 155.6 shares issued at March 31, 2014 and December 31, 2013) | 1.6 | 1.6 | ||||||||||||||
Additional paid-in capital | 2,351.4 | 1,535.7 | 2,495.9 | 2,381.6 | ||||||||||||
Retained earnings | 1,005.2 | 838.3 | 1,045.9 | 1,042.2 | ||||||||||||
Accumulated other comprehensive income (loss) | (69.5 | ) | (53.4 | ) | (66.9 | ) | (58.6 | ) | ||||||||
Less: Treasury stock (26.9 and 21.7 shares, at cost, at September 30, 2013 and December 31, 2012, respectively) | (815.3 | ) | (562.4 | ) | ||||||||||||
Less: Treasury stock (26.5 and 26.6 shares, at cost, at March 31, 2014 and December 31, 2013, respectively) | (952.5 | ) | (817.1 | ) | ||||||||||||
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Total stockholders’ equity | 2,473.4 | 1,759.6 | 2,524.0 | 2,549.7 | ||||||||||||
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Total liabilities and stockholders’ equity | $ | 8,622.5 | $ | 7,710.6 | $ | 10,528.2 | $ | 10,096.1 | ||||||||
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See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
Nine months ended September 30, | Three months ended March 31, | |||||||||||||||
2013 | 2012 | 2014 | 2013 | |||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net income | $ | 166.9 | $ | 195.2 | ||||||||||||
Reconciliation of net income to net cash provided by operating activities: | ||||||||||||||||
Net income (loss) | $ | 3.7 | $ | (4.4 | ) | |||||||||||
Reconciliation of net income (loss) to net cash used in operating activities: | ||||||||||||||||
Depreciation and amortization | 115.8 | 109.9 | 45.6 | 37.7 | ||||||||||||
Venezuela devaluation-related charges | 27.4 | — | — | 27.4 | ||||||||||||
Stock-based compensation | 49.9 | 30.2 | 34.9 | 37.2 | ||||||||||||
Excess tax benefits from stock-based compensation | (11.4 | ) | (42.7 | ) | (33.3 | ) | (2.2 | ) | ||||||||
Other non-cash items | 19.0 | (3.7 | ) | (7.0 | ) | 7.6 | ||||||||||
Changes in operating assets and liabilities, net of the effects from acquisitions: | ||||||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Accounts receivable | (112.8 | ) | (96.9 | ) | (57.4 | ) | (109.9 | ) | ||||||||
Inventory | (286.9 | ) | (235.0 | ) | (175.6 | ) | (140.6 | ) | ||||||||
Accounts payable | 53.3 | 81.1 | 23.0 | 22.2 | ||||||||||||
Other assets and liabilities | 42.0 | 43.3 | (92.0 | ) | (81.2 | ) | ||||||||||
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Net cash provided by operating activities | 63.2 | 81.4 | ||||||||||||||
Net cash used in operating activities | (258.1 | ) | (206.2 | ) | ||||||||||||
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Cash flows from financing activities: | ||||||||||||||||
Net change in short-term debt | (11.3 | ) | 83.6 | (5.5 | ) | 4.2 | ||||||||||
Proceeds from issuance of long-term debt | 527.1 | 800.6 | 690.2 | 253.0 | ||||||||||||
Payments on long-term debt | (376.0 | ) | (153.2 | ) | (30.1 | ) | (188.5 | ) | ||||||||
Issuance (repurchase) of common stock, net | 469.7 | (536.6 | ) | (193.9 | ) | (264.8 | ) | |||||||||
Excess tax benefits from stock-based compensation | 11.4 | 42.7 | 33.3 | 2.2 | ||||||||||||
Debt issuance costs | (12.4 | ) | (17.4 | ) | (16.0 | ) | (5.1 | ) | ||||||||
Other | (4.4 | ) | (7.5 | ) | (1.6 | ) | — | |||||||||
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Net cash provided by financing activities | 604.1 | 212.2 | ||||||||||||||
Net cash provided by (used in) financing activities | 476.4 | (199.0 | ) | |||||||||||||
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Cash flows from investing activities: | ||||||||||||||||
Additions to property, plant and equipment | (115.6 | ) | (76.9 | ) | (41.1 | ) | (24.7 | ) | ||||||||
Acquisition of businesses, net of cash acquired | (12.7 | ) | (155.2 | ) | ||||||||||||
Other | 7.8 | 9.8 | 3.3 | (1.9 | ) | |||||||||||
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Net cash used in investing activities | (120.5 | ) | (222.3 | ) | (37.8 | ) | (26.6 | ) | ||||||||
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Effect of exchange rate changes on cash and cash equivalents | (20.6 | ) | 7.1 | (2.8 | ) | (22.3 | ) | |||||||||
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Net increase in cash and cash equivalents | 526.2 | 78.4 | ||||||||||||||
Net increase (decrease) in cash and cash equivalents | 177.7 | (454.1 | ) | |||||||||||||
Cash and cash equivalents at beginning of period | 1,034.1 | 808.3 | 1,128.5 | 1,034.1 | ||||||||||||
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Cash and cash equivalents at end of period | $ | 1,560.3 | $ | 886.7 | $ | 1,306.2 | $ | 580.0 | ||||||||
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See accompanying notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share data and unless otherwise indicated)
(Unaudited)
1. Basis of Presentation and Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated interim financial statements of Jarden Corporation and its subsidiaries (hereinafter referred to as the “Company” or “Jarden”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These unaudited condensed consolidated interim financial statements reflect all adjustments that are, in the opinion of management, normal, and recurring and necessary for a fair presentation of the results for the interim period. The Condensed Consolidated Balance Sheet at December 31, 20122013 has been derived from the audited financial statements as of that date, but does not include all of the information and footnotes required by GAAP for complete financial statements. These unaudited condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements and the related notes thereto included in the Company’s Currentlatest Annual Report on Form 8-K, filed on August 16,10-K for the fiscal year ended December 31, 2013. Certain reclassifications have been made in the Company’s financial statements of the prior year to conform to the current year presentation. These reclassifications have no impact on previously reported net income.
Stock Split
On March 18, 2013, the Company consummated a 3-for-2 stock split in the form of a stock dividend of one additional share of common stock for every two shares of common stock. The Company retained the current par value of $0.01 per share for all common shares. All references to the number of shares outstanding, issued shares, per share amounts and restricted stock and stock option data of the Company’s common shares have been restated to reflect the effect of the stock split for all periods presented in the Company’s accompanying condensed consolidated financial statements and footnotes thereto. Stockholders’ equity has been retroactively restated to reflect the effect of the stock split by reclassifying from additional paid-in capital to common stock, an amount equal to the par value of the additional shares resulting from the stock split.
Supplemental Information
Stock-based compensation costs, which are included in selling, general and administrative expenses (“SG&A”), were $5.4$34.9 and $5.6$37.2 for the three months ended September 30,March 31, 2014 and 2013, and 2012, respectively, and $49.9 and $30.2 for the nine months ended September 30, 2013 and 2012, respectively.
Interest expense is net of interest income of $1.3$1.4 and $1.7$1.5 for the three months ended September 30, 2013March 31, 2014 and 2012, respectively, and $4.2 and $4.8, for the nine months ended September 30, 2013 and 2012, respectively.2013.
Venezuela Operations
The Company’s subsidiaries operating in Venezuela are considered under GAAP to be operating in a highly inflationary economy. As such, the Company’s financial statements of its subsidiaries operating in Venezuela are remeasured as if their functional currency were the U.S. dollar and gains and losses resulting from the remeasurement of monetary assets and liabilities are reflected in current earnings. The financial statements of the Company’s subsidiaries operating in Venezuela are remeasured at and are reflected in the Company’s consolidated financial statements at the CENCOEX exchange rate (“official exchange raterate”) of 6.30 Bolivars per U.S. dollar, which is currently the Company’s expected settlement rate.
In 2013, the Venezuelan government established a new auction-based exchange rate market program, the Complementary System for Foreign Currency Administration (“SICAD”). In 2014, the Venezuelan government mandated that dividends and royalties be executed under the SICAD program and also introduced an additional currency exchange program, commonly referred to as SICAD-II. While the Company currently expects to continue to use the official exchange rate for essentially all transactions except dividends and royalties, it is assessing the impact of changes to the currency exchange programs and recently imposed pricing restrictions. If in the future, the Company’s subsidiaries operating in Venezuela are economically or legally required to convert an increasing amount of the Bolivar cash balances into U.S. dollars using the more unfavorable exchange rates available under SICAD or SICAD-II, it could result in currency exchange losses that may be material to the Company’s results of operations. At March 31, 2014, the exchange rates for SICAD and SICAD-II were 10.70 and 50.85 Bolivars per U.S. dollar, respectively. At March 31, 2014, the Company’s Bolivar-denominated net assets were approximately $130.
On February 8, 2013, the Venezuelan government announced its intention to further devalue its currency (Bolivar)the Bolivar relative to the U.S. dollar. As a result of the devaluation, the official exchange rate changed to 6.30 Bolivars per U.S. dollar for imported goods. As such, beginning in February 2013, the financial statements of the Company’s subsidiaries operating in Venezuela have been remeasured at and are reflected in the Company’s consolidated financial statements at the new official exchange rate. During the ninethree months ended September 30,March 31, 2013, the Company recorded $29.0 of devaluation-related charges related to its Venezuela operations, which are almost entirely comprised of a non-cash charge related to the write-down of monetary assets due to the change in the official exchange rate. These charges are included in SG&A.
Adoption of New Accounting Guidance
In July 2013, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 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”). ASU No. 2013-11 provides explicit guidance on the financial statement 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 is effective for fiscal years and interim periods within those years, beginning after December 15, 2013. The Company does not expect the provisionsadoption of ASU 2013-11 todid not have a material effect on the consolidated financial position, results of operations or cash flows of the Company.
In March 2013, the FASB issued ASU No. 2013-05, “Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity” (“ASU 2013-05”). The objective of ASU 2013-05 is to resolve the diversity in practice as it relates to the release of the cumulative translation adjustment into net income upon derecognition of a subsidiary or group of assets within a foreign entity. ASU 2013-05 is effective prospectively for fiscal years and interim reporting periods within those years, beginning after December 15, 2013. Accordingly, the provisions of ASU 2013-05 will be applied prospectively to derecognition events occurring after the effective date.
In February 2013, the FASB issued ASU No. 2013-04, “Obligations Resulting From Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date” (“ASU 2013-04”). ASU 2013-04 requires an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. ASU 2013-04 also requires an entity to disclose the nature and amount of the obligation, as well as other information about those obligations. ASU 2013-04 is effective for fiscal years and interim periods within those years, beginning after December 15, 2013. The Company does not expect the provisions of ASU 2013-04 to have a material effect on the consolidated financial position, results of operations or cash flows of the Company.
Adoption of New Accounting Guidance
In February 2013, the FASB issued ASU No. 2013-02, “Comprehensive Income” (“ASU 2013-02”). ASU 2013-02 requires new disclosures related to amounts reclassified out of accumulated other comprehensive income (“AOCI”) by component, as well as disclosures related to reclassifications from AOCI to net income. These disclosures may be presented on the face of the consolidated financial statements or in the notes thereto. ASU 2013-02 is effective for reporting periods beginning after December 15, 2012. The adoption of ASU 2013-02 had no effect on the consolidated financial position, results of operations or cash flows of the Company.
In December 2011, the FASB issued ASU No. 2011-11, “Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”). ASU 2011-11 enhances disclosures regarding financial instruments and derivative instruments and requires companies to provide both net information and gross information for these assets and liabilities in order to enhance comparability between those companies that prepare their financial statements in accordance with GAAP and those companies that prepare their financial statements in accordance with International Financial Reporting Standards. ASU 2011-11 is effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods. The adoption of ASU 2011-11 had no effect on the consolidated financial position, results of operations or cash flows of the Company.
2. Acquisitions
On October 3, 2013, the Company acquired Yankee Candle Investments LLC (“Yankee Candle”), a leading specialty-branded premium scented candle company (the “YCC Acquisition”). The total value of the YCC Acquisition, including debt assumed and/or repaid, was approximately $1.8 billion, subject to adjustment. The initial cash purchase price was approximately $523. In addition to the initial cash purchase price payment, contingent purchase price payments of up to $55 may be paid based on the future financial performance of the acquired business. The estimated fair value of this contingent consideration will be included in the purchase price allocation. The YCC Acquisition is expected to extend the Company’s portfolio of market-leading, consumer brands in niche, seasonal staple categories, while creating opportunities in cross-selling and broadening the global distribution platform.billion. Yankee Candle will beis reported in the Company’s Branded Consumables segment and will bewas included in the Company’s results of operations from October 3, 2013. Supplemental
Pro forma financial information (unaudited)
The following unaudited pro forma financial information andpresents the preliminary purchase price allocation have not been provided as estimatescombined results of operations of the fair valueCompany and Yankee Candle as if the YCC Acquisition had occurred on January 1, 2012. The pro forma results presented below for the three months ended March 31, 2013 combine the historical results of the assets acquiredCompany and liabilities assumedYankee Candle for the period presented. The unaudited pro forma financial information is not intended to represent or be indicative of the Company’s consolidated results of operations or financial condition that would have been reported had the YCC Acquisition been completed as of January 1, 2012 and should not been completed.
(in millions, except per share data) | Three months ended March 31, 2013 | |||
Net sales | $ | 1,744.1 | ||
Net income | 0.1 | |||
Earnings per share: | ||||
Basic | $ | — | ||
Diluted | $ | — |
The unaudited pro forma financial information for the three months ended March 31, 2013 includes $1.1 for the amortization of purchased intangibles from the YCC Acquisition.
3. Inventories
Inventories are comprised of the following at September 30, 2013March 31, 2014 and December 31, 2012:2013:
(in millions) | September 30, 2013 | December 31, 2012 | March 31, 2014 | December 31, 2013 | ||||||||||||
Raw materials and supplies | $ | 252.7 | $ | 222.4 | $ | 248.3 | $ | 227.6 | ||||||||
Work-in-process | 85.8 | 83.3 | 79.0 | 79.6 | ||||||||||||
Finished goods | 1,261.4 | 1,004.6 | 1,258.1 | 1,104.7 | ||||||||||||
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Total inventories | $ | 1,599.9 | $ | 1,310.3 | $ | 1,585.4 | $ | 1,411.9 | ||||||||
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4. Property, Plant and Equipment
Property, plant and equipment, net, consistis comprised of the following at September 30, 2013March 31, 2014 and December 31, 2012:2013:
(in millions) | September 30, 2013 | December 31, 2012 | March 31, 2014 | December 31, 2013 | ||||||||||||
Land | $ | 57.2 | $ | 55.6 | $ | 65.1 | $ | 62.7 | ||||||||
Buildings | 384.2 | 354.1 | 462.6 | 427.3 | ||||||||||||
Machinery and equipment | 1,202.0 | 1,137.2 | 1,277.0 | 1,229.8 | ||||||||||||
Construction-in-progress | 88.1 | 144.6 | ||||||||||||||
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1,643.4 | 1,546.9 | 1,892.8 | 1,864.4 | |||||||||||||
Less: Accumulated depreciation | (973.7 | ) | (868.3 | ) | (1,038.0 | ) | (1,011.8 | ) | ||||||||
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Total property, plant and equipment, net | $ | 669.7 | $ | 678.6 | $ | 854.8 | $ | 852.6 | ||||||||
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Depreciation of property, plant and equipment was $34.4$39.7 and $34.6$32.6 for the three months ended September 30,March 31, 2014 and 2013, and 2012, respectively, and $100 and $97.2 for the nine months ended September 30, 2013 and 2012, respectively.
5. Goodwill and Intangibles
Goodwill activity for the ninethree months ended September 30, 2013March 31, 2014 is as follows:
September 30, 2013 | March 31, 2014 | |||||||||||||||||||||||||||||||||||||||||||
(in millions) | Net Book Value at December 31, 2012 | Additions | Foreign Exchange and Other Adjustments | Gross Carrying Amount | Accumulated Impairment Charges | Net Book Value | Net Book Value at December 31, 2013 | Foreign Exchange and Other Adjustments | Gross Carrying Amount | Accumulated Impairment Charges | Net Book Value | |||||||||||||||||||||||||||||||||
Goodwill | ||||||||||||||||||||||||||||||||||||||||||||
Branded Consumables | $ | 1,353.8 | $ | 12.5 | $ | 1,589.5 | $ | (223.2 | ) | $ | 1,366.3 | |||||||||||||||||||||||||||||||||
Consumer Solutions | 526.3 | (0.9 | ) | 525.4 | — | 525.4 | ||||||||||||||||||||||||||||||||||||||
Outdoor Solutions | $ | 723.1 | $ | — | $ | (3.1 | ) | $ | 738.5 | $ | (18.5 | ) | $ | 720.0 | 718.5 | 0.5 | 737.5 | (18.5 | ) | 719.0 | ||||||||||||||||||||||||
Consumer Solutions | 527.1 | — | (1.2 | ) | 525.9 | — | 525.9 | |||||||||||||||||||||||||||||||||||||
Branded Consumables | 552.1 | 3.4 | (0.6 | ) | 778.1 | (223.2 | ) | 554.9 | ||||||||||||||||||||||||||||||||||||
Process Solutions | 21.7 | — | — | 21.7 | — | 21.7 | 21.7 | — | 21.7 | — | 21.7 | |||||||||||||||||||||||||||||||||
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$ | 1,824.0 | $ | 3.4 | $ | (4.9 | ) | $ | 2,064.2 | $ | (241.7 | ) | $ | 1,822.5 | $ | 2,620.3 | $ | 12.1 | $ | 2,874.1 | $ | (241.7 | ) | $ | 2,632.4 | ||||||||||||||||||||
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Intangibles activity for the nine months ended September 30, 2013 is as follows:
(in millions) | Gross Carrying Amount at December 31, 2012 | Additions | Accumulated Amortization and Foreign Exchange | Net Book Value at September 30, 2013 | Amortization Periods (years) | |||||||||||||
Intangibles | ||||||||||||||||||
Patents | $ | 9.3 | $ | — | $ | (3.5 | ) | $ | 5.8 | 12-30 | ||||||||
Manufacturing process and expertise | 44.2 | — | (41.1 | ) | 3.1 | 3-7 | ||||||||||||
Brand names | 18.3 | — | (7.4 | ) | 10.9 | 4-20 | ||||||||||||
Customer relationships and distributor channels | 307.8 | 0.9 | (66.2 | ) | 242.5 | 10-35 | ||||||||||||
Trademarks and tradenames | 980.9 | 4.2 | (1.3 | ) | 983.8 | indefinite | ||||||||||||
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$ | 1,360.5 | $ | 5.1 | $ | (119.5 | ) | $ | 1,246.1 | ||||||||||
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Amortization of intangibles was $5.2 and $4.1 for the three months ended September 30, 2013 and 2012, respectively, and $15.4 and $12.7 for the nine months ended September 30, 2013 and 2012, respectively.
6. Warranty Reserve
The warranty reserve activity for the nine months ended September 30, 2013March 31, 2014 is as follows:
(in millions) | 2013 | |||
Warranty reserve at January 1, | $ | 97.1 | ||
Provision for warranties issued | 106.2 | |||
Warranty claims paid | (114.8 | ) | ||
Acquisitions and other adjustments | (0.5 | ) | ||
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Warranty reserve at September 30, | $ | 88.0 | ||
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(in millions) | Gross Carrying Amount at December 31, 2013 | Accumulated Amortization and Foreign Exchange | Net Book Value at March 31, 2014 | Amortization Periods (years) | ||||||||||
Intangibles | ||||||||||||||
Patents | $ | 9.3 | $ | (3.9 | ) | $ | 5.4 | 12-30 | ||||||
Manufacturing process and expertise | 56.2 | (43.2 | ) | 13.0 | 3-7 | |||||||||
Brand names | 23.3 | (8.4 | ) | 14.9 | 4-20 | |||||||||
Customer relationships and distributor channels | 347.4 | (73.9 | ) | 273.5 | 10-35 | |||||||||
Trademarks and tradenames | 2,080.9 | 0.2 | 2,081.1 | indefinite | ||||||||||
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$ | 2,517.1 | $ | (129.2 | ) | $ | 2,387.9 | ||||||||
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Amortization of intangibles was $5.9 and $5.1 for the three months ended March 31, 2014 and 2013, respectively.
6. Warranty Reserve
Warranty reserve activity for the three months ended March 31, 2014 is as follows:
(in millions) | 2014 | |||
Warranty reserve at January 1, | $ | 98.0 | ||
Provision for warranties issued | 28.6 | |||
Warranty claims paid | (37.5 | ) | ||
Acquisitions and other adjustments | (0.3 | ) | ||
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Warranty reserve at March 31, | $ | 88.8 | ||
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7. Debt
Debt is comprised of the following at September 30, 2013March 31, 2014 and December 31, 2012:2013:
(in millions) | September 30, 2013 | December 31, 2012 | March 31, 2014 | December 31, 2013 | ||||||||||||
Senior Secured Credit Facility Term Loans | $ | 1,410.6 | $ | 1,235.5 | $ | 2,098.0 | $ | 2,127.4 | ||||||||
8% Senior Notes due 2016 | — | 295.7 | ||||||||||||||
6 1⁄8% Senior Notes due 2022 (a) | 300.0 | 300.0 | 300.0 | 300.0 | ||||||||||||
7 1⁄2% Senior Subordinated Notes due 2017 (b) | 654.4 | 655.3 | 653.8 | 654.1 | ||||||||||||
7 1⁄2% Senior Subordinated Notes due 2020 (b) | 473.7 | 468.4 | 477.9 | 477.1 | ||||||||||||
17/8% Senior Subordinated Convertible Notes due 2018 (c) | 429.9 | 420.9 | ||||||||||||||
1 7⁄8% Senior Subordinated Convertible Notes due 2018 (c) | 436.1 | 433.0 | ||||||||||||||
1 1⁄2% Senior Subordinated Convertible Notes due 2019 (c) | 216.6 | — | 220.3 | 218.5 | ||||||||||||
1 1⁄8% Senior Subordinated Convertible Notes due 2034 (c) | 471.5 | — | ||||||||||||||
Securitization Facility | 377.9 | 383.8 | 457.7 | 477.9 | ||||||||||||
Revolving Credit Facility | — | — | ||||||||||||||
Non-U.S. borrowings | 35.4 | 31.8 | 58.7 | 45.6 | ||||||||||||
Other | 5.6 | 6.7 | 8.3 | 8.8 | ||||||||||||
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Total debt | 3,904.1 | 3,798.1 | 5,182.3 | 4,742.4 | ||||||||||||
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Less: current portion | (524.3 | ) | (504.7 | ) | (660.4 | ) | (655.1 | ) | ||||||||
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Total long-term debt | $ | 3,379.8 | $ | 3,293.4 | $ | 4,521.9 | $ | 4,087.3 | ||||||||
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(a) | The “Senior Notes.” |
(b) | Collectively, the “Senior Subordinated Notes.” |
(c) | Collectively, the “Senior Subordinated Convertible Notes.” |
Senior Secured Credit Facility
In October 2013, the Company entered into an amendment to its senior secured credit facility (the “Facility”), which resulted in, among other things, the Company borrowing an additional $750 under a new senior secured term loan B1 facility that matures in September 2020 and bears interest at LIBOR plus a spread of 275 basis points. The proceeds were used to fund a portion of the YCC Acquisition.
In March 2013, the Company entered into an amendment to the Facility, which resulted in, among other things, lowering the spread on the term loan A and term loan B facilities and the Company borrowing an additional $250 under the existing senior secured term loan A portion of the Facility that matures in March 2016 and bears interest at LIBOR plus a spread of 200 basis points. Additionally, following the amendment, the existing senior secured term loan B portion of the Facility, which matures in March 2018, bears interest at LIBOR plus a spread of 250 basis points. The proceeds were used to fund the repurchase of all of the outstanding principal amount of the Company’s 8% Senior Notes due 2016 (the “Notes”).
SeniorSubordinated Notes
On March 14, 2013,During April 2014, the Company commenced a cash tender offer (the “Tender Offer”) to purchase anyredeemed the entire principal amount outstanding for both the U.S. dollar tranche and allthe Euro dollar tranche of the outstanding principal amount of the Notes. In March 2013, pursuant to the Tender Offer, the Company repurchased approximately $168 aggregate principal amount of the7 1⁄2% Senior Subordinated Notes due 2020 for total consideration, excluding accrued interest, of $176. The remaining $132 aggregate principal amount of the Notes was repurchased in May 2013 for total consideration, excluding accrued interest, of $137$523 (the “Redemption”). As a result of these debt extinguishments, the Company expects to record an estimated loss on the extinguishment of debt of approximately $54 during the second quarter of 2014, primarily comprised of prepayment premiums and a non-cash charge due to the write-off of deferred debt issuance costs.
Senior Subordinated Convertible Notes
In June 2013,March 2014, the Company completed a private offering for the sale of $265$690 aggregate principal amount of 1 1⁄28% senior subordinated convertible notesConvertible Notes due 20192034 (the “Convertible“2034 Convertible Notes”) to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended, and received net proceeds of approximately $259,$674, after deducting fees and expenses. The proceeds were used to repurchase shares of the Company’s common stock (see Note 11) and for the Redemption, and the remainder will be used for general corporate purposes. The initial conversion rate is approximately 17.113.36 shares of the Company’s common stock (subject to customary adjustments, including in connection with a fundamental change transaction) per $1 thousand principal amount of the 2034 Convertible Notes, which is equivalent to aan initial conversion price of approximately $58.46$74.86 per share. TheOn or after March 18, 2024, the Company may redeem any or all of the 2034 Convertible Notes, are not subject to certain exceptions and conditions, in cash at a redemption at the Company’s option priorprice equal to the maturity date. Ifprincipal amount of 2034 Convertible Notes to be redeemed, plus accrued and unpaid interest. The holders of the 2034 Convertible Notes may require the Company to repurchase for cash all or a portion of the 2034 Convertible Notes on March 15, 2024 at a repurchase price equal to the principal amount of the 2034 Convertible Notes to be repurchased, plus accrued and unpaid interest. Additionally, if the Company undergoes a fundamental change (as defined in the indenture governing the 2034 Convertible Notes) prior to maturity, holders of the 2034 Convertible Notes will have the right, at their option, tomay require the Company to repurchase for cash some or all of their 2034 Convertible Notes at a repurchase price equal to 100% of the principal amount of the 2034 Convertible Notes being repurchased, plus accrued and unpaid interest.
The 2034 Convertible Notes will beare convertible only under the following circumstances:
Upon conversion, holders will receive, at the Company’s discretion, cash, shares of the Company’s common stock or a combination thereof. It is the Company’s intent to settle the principal amount and accrued interest on the 2034 Convertible Notes with cash. At the date of issuance, the estimated fair valuevalues of the liability and equity components of the 2034 Convertible Notes was approximately $214$470.8 and $51,$219.2, respectively, resulting in an effective annual interest rate, considering debt issuance costs, of approximately 5.6%5.5%. The amount allocated to the equity component is recorded as a discount to the original aggregate principal amount of the 2034 Convertible Notes.
Securitization Facility
In October 2013, the Company entered into an amendment to its securitization facility that, in part, increased maximum borrowings from $400 to $500 and extended the maturity date until October 2016. Following the amendment, the borrowing rate margin is 0.80% and the unused line fee is 0.40% per annum.
Other
During the nine months ended September 30, 2013, the Company recorded a loss on the early extinguishment of debt of $25.9 related to the Tender Offer, the Redemption and the Facility amendment inAt March 2013. This loss is primarily comprised of the tender and redemption premiums, the write-off of deferred debt issuance costs and debt discounts and other transaction costs.
At September 30, 201331, 2014 and December 31, 2012,2013, the carrying value of total debt approximates fair market value. The fair market value (Level 1 measurement) of the Senior Notes and the Senior Subordinated Notes is based upon quoted market prices. The fair market value (Level 2 measurement) for all other debt instruments is estimated using interest rates currently available to the Company for debt with similar terms and maturities.
8. Derivative and Other Hedging Financial Instruments
Interest Rate Contracts
The Company manages its fixed and floating rate debt mix using interest rate swaps. The Company uses fixed and floating rate swaps to alter its exposure to the impact of changing interest rates on its consolidated results of operations and future cash outflows for interest. Floating rate swaps are used, depending on market conditions, to convert the fixed rates of long-term debt into short-term variable rates. Fixed rate swaps are used to reduce the Company’s risk of the possibility of increased interest costs. Interest rate swap contracts are therefore used by the Company to separate interest rate risk management from the debt funding decision.
Cash Flow Hedges
During 2013, the Company entered into an aggregate $250 notional amount of interest rate swaps that exchange a variable rate of interest (LIBOR) for an average fixed rate of interest of approximately 1.6% over the term of the agreements, which mature on DecemberAt March 31, 2017. These swaps are forward-starting and are effective commencing December 31, 2015. The Company has designated these swaps as cash flow hedges of the interest rate risk attributable to forecasted variable interest (LIBOR) payments.
At September 30, 2013,2014, the Company had $1.2 billion$850 notional amount outstanding in swap agreements, which include $500 and $250includes $350 notional amount of forward-starting swaps that become effective commencing December 31, 2013 and 2015, respectively, that exchange a variable rate of interest (LIBOR) for fixed interest rates over the terms of the agreements and are designated as cash flow hedges of the interest rate risk attributable to forecasted variable interest payments and have maturity dates through December 2017.June 2020. At September 30, 2013,March 31, 2014, the weighted average fixed rate of interest on these swaps, excluding the forward-starting swaps, was approximately 1.6%1.3%. The effective portion of the after-tax fair value gains or losses on these swaps is included as a component of AOCI.accumulated other comprehensive income (“AOCI”).
Foreign Currency Contracts
The Company uses forward foreign currency contracts to mitigate the foreign currency exchange rate exposure on the cash flows related to forecasted inventory purchases and sales and have maturity dates through June 2015.January 2016. The derivatives used to hedge these forecasted transactions that meet the criteria for hedge accounting are accounted for as cash flow hedges. The effective portion of the gains or losses on these derivatives is deferred as a component of AOCI and is recognized in earnings at the same time that the hedged item affects earnings and is included in the same caption in the statements of operations as the underlying hedged item. At September 30, 2013,March 31, 2014, the Company had approximately $500$510 notional amount outstanding of forward foreign currency contracts that are designated as cash flow hedges of forecasted inventory purchases and sales.
The Company also uses foreign currency contracts, which include forward foreign currency contracts and foreign currency options, to mitigate the foreign currency exposure of certain other foreign currency transactions. At September 30, 2013,March 31, 2014, the Company had approximately $290$287 notional amount outstanding of these foreign currency contracts that are not designated as effective hedges for accounting purposes and have maturity dates through December 2014.January 2015. Fair market value gains or losses are included in the results of operations and are classified in SG&A.
Commodity Contracts
The Company enters into commodity-based derivatives in order to mitigate the risk that the rising price of these commodities could have on the cost of certain of the Company’s raw materials. These commodity-based derivatives provide the Company with cost certainty, and in certain instances, allow the Company to benefit should the cost of the commodity fall below certain dollar thresholds. At September 30, 2013,March 31, 2014, the Company had approximately $4$7 notional amount outstanding of commodity-based derivatives that are not designated as effective hedges for accounting purposes and have maturity dates through MarchDecember 2014. Fair market value gains or losses are included in the results of operations and are classified in cost of sales.
The following table presents the fair value of derivative financial instruments as of September 30, 2013March 31, 2014 and December 31, 2012:2013:
September 30, 2013 | December 31, 2012 | March 31, 2014 | December 31, 2013 | |||||||||||||||||||||||||||||
Fair Value of Derivatives | Fair Value of Derivatives | Fair Value of Derivatives | Fair Value of Derivatives | |||||||||||||||||||||||||||||
(in millions) | Asset (a) | Liability (a) | Asset (a) | Liability (a) | Asset (a) | Liability (a) | Asset (a) | Liability (a) | ||||||||||||||||||||||||
Derivatives designated as effective hedges: | ||||||||||||||||||||||||||||||||
Cash flow hedges: | ||||||||||||||||||||||||||||||||
Interest rate swaps | $ | 2.5 | $ | 8.7 | $ | — | $ | 12.4 | $ | 3.0 | $ | 7.2 | $ | 4.5 | $ | 8.0 | ||||||||||||||||
Foreign currency contracts | 8.2 | 5.8 | 9.0 | 4.2 | 8.0 | 7.7 | 11.3 | 9.1 | ||||||||||||||||||||||||
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Subtotal | 10.7 | 14.5 | 9.0 | 16.6 | 11.0 | 14.9 | 15.8 | 17.1 | ||||||||||||||||||||||||
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Derivatives not designated as effective hedges: | ||||||||||||||||||||||||||||||||
Foreign currency contracts | 6.2 | 6.4 | 1.2 | 2.0 | 0.7 | 4.3 | 3.5 | 2.4 | ||||||||||||||||||||||||
Commodity contracts | 0.5 | 0.2 | 0.1 | 0.2 | 0.5 | — | 0.2 | 0.2 | ||||||||||||||||||||||||
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Subtotal | 6.7 | 6.6 | 1.3 | 2.2 | 1.2 | 4.3 | 3.7 | 2.6 | ||||||||||||||||||||||||
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Total | $ | 17.4 | $ | 21.1 | $ | 10.3 | $ | 18.8 | $ | 12.2 | $ | 19.2 | $ | 19.5 | $ | 19.7 | ||||||||||||||||
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(a) | Consolidated balance sheet location: |
Asset:
Asset: | Other current and non-current assets | |
Liability: | Other current and non-current liabilities |
The following table presents gain and non-current assets
Liability: Other currentloss activity (on a pretax basis) for the three months ended March 31, 2014 and non-current liabilities2013 related to derivative financial instruments designated as effective hedges:
Three months ended March 31, 2014 | Three months ended March 31, 2013 | |||||||||||||||||||||||
Gain/(Loss) | Gain/(Loss) | |||||||||||||||||||||||
(in millions) | Recognized in OCI (a) (effective portion) | Reclassified from AOCI to Income | Recognized in Income (b) | Recognized in OCI (a) (effective portion) | Reclassified from AOCI to Income | Recognized in Income (b) | ||||||||||||||||||
Derivatives designated as effective hedges: | ||||||||||||||||||||||||
Cash flow hedges: | ||||||||||||||||||||||||
Interest rate swaps | $ | (0.7 | ) | $ | — | $ | — | $ | 0.7 | $ | — | $ | — | |||||||||||
Foreign currency contracts | 0.6 | 2.0 | (1.6 | ) | 13.9 | 6.1 | (0.9 | ) | ||||||||||||||||
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Total | $ | (0.1 | ) | $ | 2.0 | $ | (1.6 | ) | $ | 14.6 | $ | 6.1 | $ | (0.9 | ) | |||||||||
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Location of gain/(loss) in the consolidated results of operations: | ||||||||||||||||||||||||
Sales | $ | 0.8 | $ | — | $ | (0.2 | ) | $ | — | |||||||||||||||
Cost of sales | 1.2 | — | 6.3 | — | ||||||||||||||||||||
SG&A | — | (1.6 | ) | — | (0.9 | ) | ||||||||||||||||||
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Total | $ | 2.0 | $ | (1.6 | ) | $ | 6.1 | $ | (0.9 | ) | ||||||||||||||
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(a) | Represents effective portion recognized in Other Comprehensive Income (“OCI”). |
(b) | Represents portion excluded from effectiveness testing. |
At March 31, 2014, deferred net gains of approximately $3.8 within AOCI are expected to be reclassified to earnings over the next twelve months.
The following table presents gain and loss activity (on a pretax basis) for the three and nine months ended September 30,March 31, 2014 and 2013 and 2012 related to derivative financial instruments designated as effective hedges:
Three months ended September 30, 2013 | Three months ended September 30, 2012 | |||||||||||||||||||||||
Gain/(Loss) | Gain/(Loss) | |||||||||||||||||||||||
(in millions) | Recognized in OCI (a) (effective portion) | Reclassified from AOCI to Income | Recognized in Income (b) | Recognized in OCI (a) (effective portion) | Reclassified from AOCI to Income | Recognized in Income (b) | ||||||||||||||||||
Derivatives designated as effective hedges: | ||||||||||||||||||||||||
Cash flow hedges: | ||||||||||||||||||||||||
Interest rate swaps | $ | (1.5 | ) | $ | — | $ | — | $ | (2.4 | ) | $ | — | $ | — | ||||||||||
Foreign currency contracts | (8.9 | ) | 2.6 | 0.3 | (5.1 | ) | 0.1 | (5.5 | ) | |||||||||||||||
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Total | $ | (10.4 | ) | $ | 2.6 | $ | 0.3 | $ | (7.5 | ) | $ | 0.1 | $ | (5.5 | ) | |||||||||
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Location of gain/(loss) in the consolidated results of operations: | ||||||||||||||||||||||||
Sales | $ | 2.0 | $ | — | $ | (0.9 | ) | $ | — | |||||||||||||||
Cost of sales | 0.6 | — | 1.0 | — | ||||||||||||||||||||
SG&A | — | 0.3 | — | (5.5 | ) | |||||||||||||||||||
Interest expense | — | — | — | — | ||||||||||||||||||||
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Total | $ | 2.6 | $ | 0.3 | $ | 0.1 | $ | (5.5 | ) | |||||||||||||||
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Nine months ended September 30, 2013 | Nine months ended September 30, 2012 | |||||||||||||||||||||||
Gain/(Loss) | Gain/(Loss) | |||||||||||||||||||||||
(in millions) | Recognized in OCI (a) (effective portion) | Reclassified from AOCI to Income | Recognized in Income (b) | Recognized in OCI (a) (effective portion) | Reclassified from AOCI to Income | Recognized in Income (b) | ||||||||||||||||||
Derivatives designated as effective hedges: | ||||||||||||||||||||||||
Cash flow hedges: | ||||||||||||||||||||||||
Interest rate swaps | $ | 6.2 | $ | — | $ | — | $ | (5.2 | ) | $ | — | $ | — | |||||||||||
Foreign currency contracts | 12.0 | 14.9 | (3.8 | ) | (2.8 | ) | 2.6 | (6.3 | ) | |||||||||||||||
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Total | $ | 18.2 | $ | 14.9 | $ | (3.8 | ) | $ | (8.0 | ) | $ | 2.6 | $ | (6.3 | ) | |||||||||
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Location of gain/(loss) in the consolidated results of operations: | ||||||||||||||||||||||||
Sales | $ | (0.3 | ) | $ | — | $ | (0.9 | ) | $ | — | ||||||||||||||
Cost of sales | 15.2 | — | 3.5 | — | ||||||||||||||||||||
SG&A | — | (3.8 | ) | — | (6.3 | ) | ||||||||||||||||||
Interest expense | — | — | — | — | ||||||||||||||||||||
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Total | $ | 14.9 | $ | (3.8 | ) | $ | 2.6 | $ | (6.3 | ) | ||||||||||||||
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At September 30, 2013, deferred net gains of approximately $6.7 within AOCI are expected to be reclassified to earnings over the next twelve months.
The following table presents gain and loss activity (on a pretax basis) for the three and nine months ended September 30, 2013 and 2012 related to derivative financial instruments not designated as effective hedges:
Gain/(Loss) Recognized in Income (a) | Gain/(Loss) Recognized in Income (a) | |||||||||||||||||||||||
Three months ended September 30, | Nine months ended September 30, | Three Months Ended March 31, | ||||||||||||||||||||||
(in millions) | 2013 | 2012 | 2013 | 2012 | 2014 | 2013 | ||||||||||||||||||
Derivatives not designated as effective hedges: | ||||||||||||||||||||||||
Cash flow hedges: | ||||||||||||||||||||||||
Cash flow derivatives: | ||||||||||||||||||||||||
Foreign currency contracts | $ | (3.3 | ) | $ | (4.5 | ) | $ | 2.3 | $ | (7.7 | ) | $ | (5.0 | ) | $ | 6.4 | ||||||||
Commodity contracts | 0.4 | 0.7 | 0.8 | (0.2 | ) | 0.4 | 0.1 | |||||||||||||||||
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Total | $ | (2.9 | ) | $ | (3.8 | ) | $ | 3.1 | $ | (7.9 | ) | $ | (4.6 | ) | $ | 6.5 | ||||||||
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(a) | Classified in SG&A. |
Net Investment Hedge
The Company has designated approximately €109€148 of the principal balance of its Euro-denominated 7 1⁄2% senior subordinated notes due 2020, with an aggregate principal balance of €150, as a net investment hedge (the “Hedging Instrument”) of the foreign currency exposure of its net investment in certain Euro-denominated subsidiaries. Foreign currency gains and losses on the Hedging Instrument are included as a component of AOCI. At September 30, 2013, $8.4March 31, 2014, $12.3 of deferred losses have been recorded in AOCI. This hedging relationship was terminated in April 2014 as a result of the Redemption.
9. Fair Value Measurements
The following table summarizes assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2013March 31, 2014 and December 31, 2012:2013:
September 30, 2013 | December 31, 2012 | March 31, 2014 | December 31, 2013 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Asset (Liability) | Fair Value Asset (Liability) | Fair Value Asset (Liability) | Fair Value Asset (Liability) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
(in millions) | Level 1 | Level 2 | Total | Level 1 | Level 2 | Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||||||||||||||||||
Derivatives: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets | $ | — | $ | 17.4 | $ | 17.4 | $ | — | $ | 10.3 | $ | 10.3 | $ | — | $ | 12.2 | $ | — | $ | 12.2 | $ | — | $ | 19.5 | $ | — | $ | 19.5 | ||||||||||||||||||||||||||||
Liabilities | — | (21.1 | ) | (21.1 | ) | — | (18.8 | ) | (18.8 | ) | — | (19.2 | ) | — | (19.2 | ) | — | (19.7 | ) | — | (19.7 | ) | ||||||||||||||||||||||||||||||||||
Available for sale securities | — | 20.3 | 20.3 | — | 20.0 | 20.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Available-for-sale securities | — | 11.7 | — | 11.7 | — | 12.0 | — | 12.0 | ||||||||||||||||||||||||||||||||||||||||||||||||
Contingent consideration | — | — | 41.5 | 41.5 | — | — | 43.0 | 43.0 |
Derivative assets and liabilities relate to interest rate swaps, foreign currency contracts and commodity contracts. Fair values are determined by the Company using market prices obtained from independent brokers or determined using valuation models that use as their basis readily observable market data that is actively quoted and can be validated through external sources, including independent pricing services, brokers and market transactions. Available-for-sale securities include inflation protected bonds and are valued based on quoted market prices.
The fair value measurement of the contingent consideration obligations arising from acquisitions is based upon Level 3 inputs including, in part, the estimate of future cash flows based upon the likelihood of achieving the various earn-out criteria. Changes in the fair value of the contingent consideration obligations are recorded in SG&A.
Changes in the fair value of the contingent consideration obligations for the three months ended March 31, 2014 were as follows:
(in millions) | 2014 | |||
Contingent consideration at January 1, | $ | 43.0 | ||
Payments | (1.6 | ) | ||
Adjustments and foreign exchange | 0.1 | |||
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Contingent consideration at March 31, | $ | 41.5 | ||
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10. Contingencies
The Company is involved in various legal disputes and other legal proceedings that arise from time to time in the ordinary course of business. In addition, the Company and/or certain of its subsidiaries have been identified by the United States Environmental Protection Agency (“EPA”) or a state environmental agency as a Potentially Responsible Party (“PRP”) pursuant to the federal Superfund Act and/or state Superfund laws comparable to the federal law at various sites. Based on currently available information, the Company does not believe that the disposition of any of the legal or environmental disputes the Company or its subsidiaries are currently involved in will have a material adverse effect upon the consolidated financial condition, results of operations or cash flows of the Company. It is possible that, as additional information becomes available, the impact on the Company of an adverse determination could have a different effect.
Environmental
The Company’s operations are subject to certain federal, state, local and foreign environmental laws and regulations in addition to laws and regulations regarding labeling and packaging of products and the sales of products containing certain environmentally sensitive materials. In addition to ongoing environmental compliance at its operations, the Company also is actively engaged in environmental remediation activities, the majority of which relates to divested operations and sites. Various of the Company’s subsidiaries have been identified by the EPA or a state environmental agency as a PRP pursuant to the federal Superfund Act and/or state Superfund laws comparable to the federal law at various sites (collectively, the “Environmental Sites”). The Company has established reserves to cover the anticipated probable costs of investigation and remediation based upon periodic reviews of all sites for which they have, or may have, remediation responsibility. The Company accrues environmental investigation and remediation costs when it is probable that a liability has been incurred, the amount of the liability can be reasonably estimated and their responsibility for the liability is established. Generally, the timing of these accruals coincides with the earlier of a formal commitment to an investigation plan, completion of a feasibility study or a commitment to a formal plan of action. The Company accrues its best estimate of investigation and remediation costs based upon facts known at such dates, and because of the inherent difficulties in estimating the ultimate amount of environmental costs, which are further described below, these estimates may materially change in the future as a result of the uncertainties described below. Estimated costs, which are based upon experience with similar sites and technical evaluations, are judgmental in nature and are recorded at discounted amounts without considering the impact of inflation and are adjusted periodically to reflect changes in applicable laws or regulations, changes in available technologies and receipt by the Company of new information. It is difficult to estimate the ultimate level of future environmental expenditures due to a number of uncertainties surrounding environmental liabilities. These uncertainties include the applicability of laws and regulations, changes in environmental remediation requirements, the enactment of additional regulations, uncertainties surrounding remediation procedures including the development of new technology, the identification of new sites for which various of the Company’s subsidiaries could be a PRP, information relating to the exact nature and extent of the contamination at each Environmental Site and the extent of required cleanup efforts, the uncertainties with respect to the ultimate outcome of issues which may be actively contested and the varying costs of alternative remediation strategies.
Due to the uncertainties described above, the Company’s ultimate future liability with respect to sites at which remediation has not been completed may vary from the amounts reserved as of September 30, 2013.March 31, 2014.
The Company believes that the costs of completing environmental remediation of all sites for which the Company has a remediation responsibility have been adequately reserved and that the ultimate resolution of these matters will not have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company.
Litigation
The Company and/or its subsidiaries are involved in various lawsuits arising from time to time that the Company considers ordinary routine litigation incidental to its business. Amounts accrued for litigation matters represent the anticipated costs (damages and/or settlement amounts) in connection with pending litigation and claims and related anticipated legal fees for defending such actions. The costs are accrued when it is both probable that a liability has been incurred and the amount can be reasonably estimated. The accruals are based upon the Company’s assessment, after consultation with counsel (if deemed appropriate), of probable loss based on the facts and circumstances of each case, the legal issues involved, the nature of the claim made, the nature of the damages sought and any relevant information about the plaintiffs and other significant factors that vary by case. When it is not possible to estimate a specific expected cost to be incurred, the Company evaluates the range of probable loss and records the minimum end of the range. The Company believes that anticipated probable costs of litigation matters have been adequately reserved to the extent determinable. Based on current information, the Company believes that the ultimate conclusion of the various pending litigation of the Company, in the aggregate, will not have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company.
Product Liability
As a consumer goods manufacturer and distributor, the Company and/or its subsidiaries face the risk of product liability and related lawsuits involving claims for substantial money damages, product recall actions and higher than anticipated rates of warranty returns or other returns of goods.
The Company and/or its subsidiaries are therefore party to various personal injury and property damage lawsuits relating to their products and incidental to their business. Annually, the Company sets its product liability insurance program, which is an occurrence- basedoccurrence-based program based on the Company and its subsidiaries’ current and historical claims experience and the availability and cost of insurance. The Company’s product liability insurance program generally includes a self-insurance retention per occurrence.
Cumulative amounts estimated to be payable by the Company with respect to pending and potential claims for all years in which the Company is liable under its self-insurance retention have been accrued as liabilities. Such accrued liabilities are based on estimates (which include actuarial determinations made by an independent actuarial consultant as to liability exposure, taking into account prior experience, number of claims and other relevant factors); thus, the Company’s ultimate liability may exceed or be less than the amounts accrued. The methods of making such estimates and establishing the resulting liability are reviewed on a regular basis and any adjustments resulting therefrom are reflected in current operating results.
Based on current information, the Company believes that the ultimate conclusion of the various pending product liability claims and lawsuits of the Company, in the aggregate, will not have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company.
11. Stockholders’ Equity
In September 2013, pursuant to a public offering of its common stock, the Company completed an equity offering of 16.5 million newly-issued shares of common stock at $47.00 per share. The net proceeds to the Company, after the payment of underwriting discounts and other expenses of the offering, were approximately $745. The proceeds were used to fund a portion of the YCC Acquisition.
In February 2013,2014, the Company’s Board of Directors (the “Board”) authorized an increase in the then available amount under the Company’s existing stock repurchase program (the “Stock Repurchase Program”) to allow for the repurchase of up to $500 in the aggregate of the Company’s common stock.
On February 28, 2013, in conjunction with such increase andIn March 2014, pursuant to the Stock Repurchase Program, the Company entered into accelerated stock repurchase agreements (collectively,used proceeds from the “ASR Agreement”)2034 Convertible Notes offering to repurchase an aggregate of $250approximately 2.7 million shares of its common stock. Pursuant to the ASR Agreement, the Company paid $250stock for the repurchaseapproximately $163 at a per share price of its common stock. During the three months ended September 30, 2013, the ASR was finalized in accordance with its settlement provisions and an additional 0.1 million shares were delivered to the Company. During the nine months ended September 30, 2013, approximately 5.6 million shares valued at $250 have been delivered under the ASR Agreement and are included in treasury stock.$60.65 through privately negotiated transactions.
12. Earnings Per Share
The computations of the weighted average shares outstanding for the three and nine months ended September 30,March 31, 2014 and 2013 and 2012 are as follows:
Three months ended September 30, | Nine months ended September 30, | Three months ended March 31, | ||||||||||||||||||||||
(in millions) | 2013 | 2012 | 2013 | 2012 | 2014 | 2013 | ||||||||||||||||||
Weighted average shares outstanding: | ||||||||||||||||||||||||
Basic | 111.5 | 114.9 | 110.1 | 119.0 | 125.2 | 111.1 | ||||||||||||||||||
Dilutive share-based awards | 0.5 | 0.8 | 0.6 | 0.7 | 1.0 | — | ||||||||||||||||||
Convertible debt | 2.6 | — | ||||||||||||||||||||||
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Diluted | 112.0 | 115.7 | 110.7 | 119.7 | 128.8 | 111.1 | ||||||||||||||||||
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(1) | The three months ended March 31, 2013 excludes 0.8 million potentially dilutive share-based awards as their effect would be anti-dilutive. |
Because it is the Company’s intention to redeem the principal amount of the Senior Subordinated Convertible Notes in cash, the treasury stock method is used for determining potential dilution in the diluted earnings per share computation. For the three months ended September 30, 2013,March 31, 2014, the Senior Subordinated2034 Convertible Notes have been excluded from the computation of diluted earnings per share as the effect would be antidilutive, as the respective initial conversion prices of the Senior Subordinated Convertible Notesprice exceeded the average market price of the Company’s common stock during the three months ended September 30, 2013.March 31, 2014. As of September 30, 2013,March 31, 2014, there were 4.15.3 million restricted share awards with performance-based vesting targets that were not met and as such, have been excluded from the computation of diluted earnings per share.
13. Employee Benefit Plans
The components of pension and postretirement benefit expense for the three and nine months ended September 30,March 31, 2014 and 2013 and 2012 are as follows:
Pension Benefits | Pension Benefits | |||||||||||||||||||||||||||||||||||||||||||||||
Three months ended September 30, | Three months ended March 31, | |||||||||||||||||||||||||||||||||||||||||||||||
2013 | 2012 | 2014 | 2013 | |||||||||||||||||||||||||||||||||||||||||||||
(in millions) | Domestic | Foreign | Total | Domestic | Foreign | Total | Domestic | Foreign | Total | Domestic | Foreign | Total | ||||||||||||||||||||||||||||||||||||
Service cost | $ | — | $ | 0.5 | $ | 0.5 | $ | — | $ | 0.5 | $ | 0.5 | $ | — | $ | 0.5 | $ | 0.5 | $ | — | $ | 0.5 | $ | 0.5 | ||||||||||||||||||||||||
Interest cost | 3.4 | 0.5 | 3.9 | 3.6 | 0.6 | 4.2 | 3.7 | 0.6 | 4.3 | 3.3 | 0.6 | 3.9 | ||||||||||||||||||||||||||||||||||||
Expected return on plan assets | (4.3 | ) | (0.2 | ) | (4.5 | ) | (4.1 | ) | (0.3 | ) | (4.4 | ) | (4.4 | ) | (0.3 | ) | (4.7 | ) | (4.2 | ) | (0.3 | ) | (4.5 | ) | ||||||||||||||||||||||||
Amortization, net | 1.9 | 0.1 | 2.0 | 1.8 | 0.1 | 1.9 | 1.2 | 0.1 | 1.3 | 1.9 | 0.1 | 2.0 | ||||||||||||||||||||||||||||||||||||
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Net periodic expense | $ | 1.0 | $ | 0.9 | $ | 1.9 | $ | 1.3 | $ | 0.9 | $ | 2.2 | $ | 0.5 | $ | 0.9 | $ | 1.4 | $ | 1.0 | $ | 0.9 | $ | 1.9 | ||||||||||||||||||||||||
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(in millions) | Domestic | Foreign | Total | Domestic | Foreign | Total | ||||||||||||||||||||||||||||||||||||||||||
Service cost | $ | — | $ | 1.6 | $ | 1.6 | $ | 0.1 | $ | 1.4 | $ | 1.5 | ||||||||||||||||||||||||||||||||||||
Interest cost | 10.0 | 1.7 | 11.7 | 10.9 | 1.9 | 12.8 | ||||||||||||||||||||||||||||||||||||||||||
Expected return on plan assets | (12.7 | ) | (0.8 | ) | (13.5 | ) | (12.2 | ) | (1.0 | ) | (13.2 | ) | ||||||||||||||||||||||||||||||||||||
Amortization, net | 5.6 | 0.3 | 5.9 | 5.3 | 0.2 | 5.5 | ||||||||||||||||||||||||||||||||||||||||||
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Net periodic expense | $ | 2.9 | $ | 2.8 | $ | 5.7 | $ | 4.1 | $ | 2.5 | $ | 6.6 | ||||||||||||||||||||||||||||||||||||
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Postretirement Benefits | ||||||||||||||||
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
(in millions) | 2013 | 2012 | 2013 | 2012 | ||||||||||||
Service cost | $ | — | $ | — | $ | — | $ | — | ||||||||
Interest cost | 0.1 | 0.1 | 0.3 | 0.3 | ||||||||||||
Amortization, net | (0.1 | ) | (0.1 | ) | (0.3 | ) | (0.4 | ) | ||||||||
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Net periodic expense | $ | — | $ | — | $ | — | $ | (0.1 | ) | |||||||
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(in millions) Service cost Interest cost Amortization, net Net periodic cost Postretirement Benefits Three months ended
March 31, 2014 2013 $ — $ — 0.1 0.1 (0.1 ) (0.1 ) $ — $ —
14. ReorganizationRestructuring Costs
Reorganization costs for the three and nine months ended September 30, 2013 and 2012 are as follows:
Three months ended September 30, 2013 | ||||||||||||
(in millions) | Employee Terminations | Other Charges | Total | |||||||||
Outdoor Solutions | 0.6 | 0.8 | 1.4 | |||||||||
Consumer Solutions | 1.6 | — | 1.6 | |||||||||
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Total | $ | 2.2 | $ | 0.8 | $ | 3.0 | ||||||
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Three months ended September 30, 2012 | ||||||||||||
(in millions) | Employee Terminations | Other Charges | Total | |||||||||
Outdoor Solutions | $ | — | $ | 9.3 | $ | 9.3 | ||||||
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Total | $ | — | $ | 9.3 | $ | 9.3 | ||||||
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Nine months ended September 30, 2013 | ||||||||||||
(in millions) | Employee Terminations | Other Charges | Total | |||||||||
Outdoor Solutions | 0.6 | 0.8 | 1.4 | |||||||||
Consumer Solutions | 2.8 | 0.2 | 3.0 | |||||||||
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Total | $ | 3.4 | $ | 1.0 | $ | 4.4 | ||||||
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Nine months ended September 30, 2012 | ||||||||||||
(in millions) | Employee Terminations | Other Charges | Total | |||||||||
Outdoor Solutions | $ | — | $ | 9.3 | $ | 9.3 | ||||||
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Total | $ | — | $ | 9.3 | $ | 9.3 | ||||||
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Outdoor Solutions Segment ReorganizationAccrued Restructuring Costs
During 2012, the Company initiated a plan to reorganize a manufacturing operation in the Far East within the winter sports business. Reorganization costs for the three and nine months ended September 30, 2012 relate to this plan.
For the three and nine months ended September 30, 2012, other charges are primarily comprised of contract termination fees.
Details and the activity related to accrued reorganizationrestructuring costs as of and for the ninethree months ended September 30, 2013March 31, 2014 are as follows:
(in millions) | Accrual Balance at December 31, 2012 | Reorganization Costs, net | Payments | Foreign Currency and Other | Accrual Balance at September 30, 2013 | Accrual Balance at December 31, 2013 | Restructuring Costs, net | Payments | Foreign Currency and Other | Accrual Balance at March 31, 2014 | ||||||||||||||||||||||||||||||
Severance and other employee-related | $ | 12.9 | $ | 3.4 | $ | (5.3 | ) | $ | — | $ | 11.0 | $ | 16.6 | $ | 0.3 | $ | (9.8 | ) | $ | (0.3 | ) | $ | 6.8 | |||||||||||||||||
Other costs | 12.8 | 1.0 | (2.9 | ) | — | 10.9 | 13.4 | — | (1.2 | ) | 0.3 | 12.5 | ||||||||||||||||||||||||||||
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Total | $ | 25.7 | $ | 4.4 | $ | (8.2 | ) | $ | — | $ | 21.9 | $ | 30.0 | $ | 0.3 | $ | (11.0 | ) | $ | — | $ | 19.3 | ||||||||||||||||||
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15. Segment Information
The Company reports four business segments: Outdoor Solutions,Branded Consumables, Consumer Solutions, Branded ConsumablesOutdoor Solutions and Process Solutions. The majority of the Company’s sales are principally within the United States. The Company’s international operations are mainly based in Asia, Canada, Europe and Latin America. The Company and its chief operating decision maker use “segment earnings” to measure segment operating performance.
The Branded Consumables segment manufactures or sources, markets and distributes a broad line of branded consumer products, many of which are affordable, consumable and fundamental household staples, including arts and crafts paint brushes, air fresheners, brooms, brushes, buckets, children’s card games, clothespins, collectible tins, condoms, cord, rope and twine, dusters, dust pans, feeding bottles, fencing, fire extinguishing products, firelogs and firestarters, foam coolers, fresh preserving jars and accessories, home décor accessories, home fragrance products, kitchen matches, mops, other craft items, pacifiers, plastic cutlery, playing cards and accessories, rubber gloves and related cleaning products, safes, premium scented candles and accessories, security cameras, security doors, smoke and carbon monoxide alarms, soothers, sponges, storage organizers and workshop accessories, teats, toothpicks, travel sprays, window guards and other accessories. This segment markets our products under the Aviator®, Ball®, Bee®, Bernardin®, Bicycle®, Billy Boy®, BRK®, Crawford®, Diamond®, Dicon®, Fiona®, First Alert®, First Essentials®, Hoyle®, Java-Log®, KEM®, Kerr®, Lehigh®, Lifoam® Lillo®, Loew-Cornell®, Mapa®, NUK®, Pine Mountain®, ProPak®, Quickie Green Cleaning®, Quickie Home-Pro®, Quickie Microban®, Quickie Original®, Quickie Professional®, Spontex®, Tigex®, Wellington® and Yankee Candle® brand names, among others.
The Consumer Solutions segment manufactures or sources, markets, and distributes a diverse line of household products, including kitchen appliances and home environment products. This segment maintains a strong portfolio of globally-recognized brands including Bionaire®, Crock-Pot®, FoodSaver®, Health o meter®, Holmes®, Mr. Coffee®, Oster®, Patton®, Rival®, Seal-a-Meal®, Sunbeam® and Villaware®. The principal products in this segment include: household kitchen appliances, such as blenders, coffeemakers, irons, mixers, slow cookers, tea kettles, toasters, toaster ovens and vacuum packaging machines; home environmental products, such as air purifiers, fans, heaters and humidifiers; clippers, trimmers and other hair care products for professional use in the beauty and barber and animal categories; electric blankets, mattress pads and throws; products for the hospitality industry; and scales for consumer use. The Consumer Solutions segment also has rights to sell various small appliance products, in substantially all of Europe under the Breville® brand name.
The Outdoor Solutions segment manufactures or sources, markets and distributes global consumer active lifestyle products for outdoor and outdoor-related activities. For general outdoor activities, Coleman® is a leading brand for active lifestyle products, offering an array of products that include camping and outdoor equipment such as air beds, camping stoves, coolers, foldable furniture, gas grills, lanterns and flashlights, propane fuel, sleeping bags, tents and water recreation products such as inflatable boats, kayaks and tow-behinds. The Outdoor Solutions segment is also a leading provider of fishing equipment under brand names such as Abu Garcia®, All Star®, Berkley®, Fenwick®, Gulp!®, JRC™, Mitchell®, PennPENN®, Pflueger®, Sebile®, Sevenstrand®, Shakespeare®, Spiderwire®, Stren®, Trilene®, Ugly Stik® and Xtools®. Team sports equipment for baseball, softball, football, basketball field hockey and lacrosse products are sold under brand names such as deBeer®, Gait®, Miken®, Rawlings® and Worth®. Alpine and nordic skiing,
snowboarding, snowshoeing and in-line skating products are sold under brand names such as Atlas®, Full Tilt®, K2®, Line®, Little Bear®, Madshus®, Marker®, Morrow®, Ride®, Tubbs®, Völkl® and 5150 Snowboards®. Water sports equipment, personal flotation devices and all-terrain vehicle gear are sold under brand names such as Helium®, Hodgman®, Mad Dog Gear®, Sevylor®, Sospenders® and Stearns®. The Company also sells high performance technical and outdoor apparel and equipment under brand names such as CAPP3L®, Ex Officio®, K2®, Marker®, Marmot®, Planet Earth®, Ride®, Völkl® and Zoot®, and premium air beds under brand names including Aero®, Aerobedthe AeroBed® and Aero Sport®.brand. The Outdoor Solutions Segment also sells a variety of products sold internationally under brand names such as Campingaz®, Esky®, Greys®, Hardy® and Invicta®.
The Consumer Solutions segment manufactures or sources, markets, and distributes a diverse line of household products, including kitchen appliances and home environment products. This segment maintains a strong portfolio of globally-recognized brands including Bionaire®, Crock-Pot®, FoodSaver®, Health o meter®, Holmes®, Mr. Coffee®, Oster®, Patton®, Rival®, Seal-a-Meal®, Sunbeam®, skybar® and Villaware®. The principal products in this segment include: clippers and trimmers for professional use in the beauty and barber and animal categories; electric blankets, mattress pads and throws; household kitchen appliances, such as blenders, coffeemakers, irons, mixers, slow cookers, toasters, toaster ovens and vacuum packaging machines; home environment products, such as air purifiers, fans, heaters and humidifiers; products for the hospitality industry; and scales for consumer use. The Consumer Solutions segment also has rights to sell various small appliance products in substantially all of Europe under the Breville® brand name.
The Branded Consumables segment manufactures or sources, markets and distributes a broad line of branded consumer products, many of which are affordable, consumable and fundamental household staples, including arts and crafts paint brushes, brooms, brushes, buckets, children’s card games, clothespins, collectible tins, condoms, cord, rope and twine, dusters, dust pans, feeding bottles, fencing, fire extinguishing products, firelogs and firestarters, home canning jars and accessories, kitchen matches, mops, other craft items, pacifiers, plastic cutlery, playing cards and accessories, rubber gloves and related cleaning products, safes, security cameras, security doors, smoke and carbon monoxide alarms, soothers, sponges, storage organizers and workshop accessories, teats, toothpicks, window guards and other accessories. This segment markets products under the Aviator®, Ball®, Bee®, Bernardin®, Bicycle®, Billy Boy®, BRK®, Crawford®, Diamond®, Dicon®, Fiona®, First Alert®, First Essentials®, Hoyle®, Java-Log®, KEM®, Kerr®, Lehigh®, Lifoam®, Lillo®, Loew Cornell®, Mapa®, NUK®, Pine Mountain®, Quickie Green Cleaning®, Quickie Home-Pro®, Quickie Microban®, Quickie Original®, Quickie Professional®, Spontex®, Tigex® and Wellington® brand names, among others.
The Process Solutions segment manufactures, markets and distributes a wide variety of plastic products including closures, contact lens packaging, medical disposables, plastic cutlery and rigid packaging. Many of these products are consumable in nature or represent components of consumer products. This segment’s materials business produces specialty nylon polymers, conductive fibers and monofilament used in various products, including woven mats used by paper producers and weed trimmer cutting line, as well as fiberglass radio antennas for marine, citizen band and military applications. This segment is also the largesta leading North American producer of niche products fabricated from solid zinc strip and is the sole source supplier of copper-plated zinc penny blanks to the United States Mint and a major supplier to the Royal Canadian Mint, as well as a supplier of brass, bronze and nickel-plated finishes on steel and zinc for coinage to other international markets. In addition, the Company manufactures a line of industrial zinc products marketed globally for use in the architectural, automotive, construction, electrical component and plumbing markets.
Segment information as of and for the three and nine months ended September 30,March 31, 2014 and 2013 and 2012 is as follows:
Three months ended September 30, 2013 | Three months ended March 31, 2014 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(in millions) | Outdoor Solutions | Consumer Solutions | Branded Consumables | Process Solutions | Intercompany Eliminations | Total Operating Segments | Corporate/ Unallocated | Consolidated | Branded Consumables | Consumer Solutions | Outdoor Solutions | Process Solutions | Intercompany Eliminations | Total Operating Segments | Corporate/ Unallocated | Consolidated | ||||||||||||||||||||||||||||||||||||||||||||||||
Net sales | $ | 670.6 | $ | 537.4 | $ | 511.1 | $ | 102.4 | $ | (20.7 | ) | $ | 1,800.8 | $ | — | $ | 1,800.8 | $ | 621.8 | $ | 344.0 | $ | 684.1 | $ | 102.3 | $ | (20.4 | ) | $ | 1,731.8 | $ | — | $ | 1,731.8 | ||||||||||||||||||||||||||||||
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Segment earnings (loss) | 89.7 | 81.2 | 88.4 | 11.5 | — | 270.8 | (21.2 | ) | 249.6 | 75.0 | 36.5 | 55.3 | 12.3 | — | 179.1 | (52.8 | ) | 126.3 | ||||||||||||||||||||||||||||||||||||||||||||||
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Fair value adjustment to inventory | (5.9 | ) | — | — | — | — | (5.9 | ) | — | (5.9 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Reorganization costs | (1.4 | ) | (1.6 | ) | — | — | — | (3.0 | ) | — | (3.0 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring costs | — | (0.3 | ) | — | — | — | (0.3 | ) | — | (0.3 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition-related and other costs | (0.8 | ) | — | (0.9 | ) | — | — | (1.7 | ) | (5.1 | ) | (6.8 | ) | (5.0 | ) | (3.0 | ) | (5.2 | ) | — | — | (13.2 | ) | — | (13.2 | ) | ||||||||||||||||||||||||||||||||||||||
Venezuela foreign exchange-related charges | — | — | — | — | — | — | (4.0 | ) | (4.0 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization | (14.7 | ) | (8.4 | ) | (12.6 | ) | (2.8 | ) | — | (38.5 | ) | (1.1 | ) | (39.6 | ) | (20.0 | ) | (7.7 | ) | (13.8 | ) | (2.8 | ) | — | (44.3 | ) | (1.3 | ) | (45.6 | ) | ||||||||||||||||||||||||||||||||||
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Operating earnings (loss) | $ | 66.9 | $ | 71.2 | $ | 74.9 | $ | 8.7 | $ | — | $ | 221.7 | $ | (27.4 | ) | $ | 194.3 | $ | 50.0 | $ | 25.5 | $ | 36.3 | $ | 9.5 | $ | — | $ | 121.3 | $ | (58.1 | ) | $ | 63.2 | ||||||||||||||||||||||||||||||
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Total assets | $ | 2,919.7 | $ | 2,170.9 | $ | 1,952.2 | $ | 192.7 | $ | — | $ | 7,235.5 | $ | 1,387.0 | $ | 8,622.5 | $ | 4,194.3 | $ | 1,978.7 | $ | 3,103.2 | $ | 192.3 | $ | — | $ | 9,468.5 | $ | 1,059.7 | $ | 10,528.2 | ||||||||||||||||||||||||||||||||
Three months ended September 30, 2012 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(in millions) | Outdoor Solutions | Consumer Solutions | Branded Consumables | Process Solutions | Intercompany Eliminations | Total Operating Segments | Corporate/ Unallocated | Consolidated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net sales | $ | 657.6 | $ | 509.6 | $ | 459.0 | $ | 97.6 | $ | (17.9 | ) | $ | 1,705.9 | $ | — | $ | 1,705.9 | |||||||||||||||||||||||||||||||||||||||||||||||
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Segment earnings (loss) | 96.2 | 79.0 | 72.3 | 12.9 | — | 260.4 | (25.1 | ) | 235.3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Adjustments to reconcile to reported operating earnings (loss): | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair value adjustment to inventory | (2.8 | ) | (3.2 | ) | — | — | — | (6.0 | ) | — | (6.0 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Reorganization costs | (9.3 | ) | — | — | — | — | (9.3 | ) | — | (9.3 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition-related and other costs | (3.9 | ) | (1.6 | ) | (1.4 | ) | — | — | (6.9 | ) | (5.6 | ) | (12.5 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization | (13.8 | ) | (10.2 | ) | (10.8 | ) | (3.0 | ) | — | (37.8 | ) | (0.9 | ) | (38.7 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
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Operating earnings (loss) | $ | 66.4 | 64.0 | 60.1 | 9.9 | — | 200.4 | (31.6 | ) | 168.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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(in millions) | Outdoor Solutions | Consumer Solutions | Branded Consumables | Process Solutions | Intercompany Eliminations | Total Operating Segments | Corporate/ Unallocated | Consolidated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net sales | $ | 2,106.6 | $ | 1,343.2 | $ | 1,443.1 | $ | 307.2 | $ | (59.8 | ) | $ | 5,140.3 | $ | — | $ | 5,140.3 | |||||||||||||||||||||||||||||||||||||||||||||||
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Segment earnings (loss) | 249.7 | 188.0 | 222.4 | 43.1 | — | 703.2 | (105.9 | ) | 597.3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Adjustments to reconcile to reported operating earnings (loss): | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair value adjustment to inventory | (7.4 | ) | — | (3.5 | ) | — | — | (10.9 | ) | — | (10.9 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Reorganization costs | (1.4 | ) | (3.0 | ) | — | — | — | (4.4 | ) | — | (4.4 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition-related and other costs | (0.8 | ) | — | (0.9 | ) | — | — | (1.7 | ) | (5.1 | ) | (6.8 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Venezuela devaluation-related charges | — | — | — | — | — | — | (29.0 | ) | (29.0 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization | (42.1 | ) | (23.7 | ) | (38.5 | ) | (8.4 | ) | — | (112.7 | ) | (3.1 | ) | (115.8 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
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Operating earnings (loss) | $ | 198.0 | $ | 161.3 | $ | 179.5 | $ | 34.7 | $ | — | $ | 573.5 | $ | (143.1 | ) | $ | 430.4 | |||||||||||||||||||||||||||||||||||||||||||||||
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(in millions) | Outdoor Solutions | Consumer Solutions | Branded Consumables | Process Solutions | Intercompany Eliminations | Total Operating Segments | Corporate/ Unallocated | Consolidated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net sales | $ | 2,075.0 | $ | 1,260.5 | $ | 1,300.7 | $ | 292.7 | $ | (52.0 | ) | $ | 4,876.9 | $ | — | $ | 4,876.9 | |||||||||||||||||||||||||||||||||||||||||||||||
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Segment earnings (loss) | 263.5 | 176.0 | 193.0 | 39.3 | — | 671.8 | (87.4 | ) | 584.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Adjustments to reconcile to reported operating earnings (loss): | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair value adjustment to inventory | (2.8 | ) | (3.2 | ) | — | — | — | (6.0 | ) | — | (6.0 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Reorganization costs | (9.3 | ) | — | — | — | — | (9.3 | ) | — | (9.3 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition-related and other costs | (3.9 | ) | (1.6 | ) | (1.4 | ) | — | — | (6.9 | ) | (5.6 | ) | (12.5 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization | (38.0 | ) | (25.9 | ) | (33.8 | ) | (9.7 | ) | — | (107.4 | ) | (2.5 | ) | (109.9 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
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Operating earnings (loss) | $ | 209.5 | $ | 145.3 | $ | 157.8 | $ | 29.6 | $ | — | $ | 542.2 | $ | (95.5 | ) | $ | 446.7 | |||||||||||||||||||||||||||||||||||||||||||||||
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(in millions) Net sales Segment earnings (loss) Adjustments to reconcile to reported operating earnings (loss): Fair market value adjustment to inventory Venezuela foreign exchange-related charges Depreciation and amortization Operating earnings (loss) Three months ended March 31, 2013 Branded
Consumables Consumer
Solutions Outdoor
Solutions Process
Solutions Intercompany
Eliminations Total
Operating
Segments Corporate/
Unallocated Consolidated $ 443.7 $ 363.3 $ 694.9 $ 97.6 $ (18.8 ) $ 1,580.7 $ — $ 1,580.7 56.1 45.1 71.2 14.9 — 187.3 (58.7 ) 128.6 (3.5 ) — (1.5 ) — — (5.0 ) — (5.0 ) — — — — — — (29.0 ) (29.0 ) (12.8 ) (7.6 ) (13.5 ) (2.8 ) — (36.7 ) (1.0 ) (37.7 ) $ 39.8 $ 37.5 $ 56.2 $ 12.1 $ — $ 145.6 $ (88.7 ) $ 56.9
16. Accumulated Other Comprehensive Income (Loss)
AOCI activity for the ninethree months ended September 30, 2013March 31, 2014 is as follows:
(in millions) | Cumulative Translation Adjustment | Derivative Financial Instruments | Accrued Benefit Cost | Unrealized Gain On Investment | AOCI | Cumulative Translation Adjustment | Derivative Financial Instruments | Accrued Benefit Cost | Unrealized Gain On Investment | AOCI | ||||||||||||||||||||||||||||||
AOCI at December 31, 2012 | $ | 17.7 | $ | (1.3 | ) | $ | (70.1 | ) | $ | 0.3 | $ | (53.4 | ) | |||||||||||||||||||||||||||
AOCI at December 31, 2013 | $ | (13.6 | ) | $ | 1.0 | $ | (46.3 | ) | $ | 0.3 | $ | (58.6 | ) | |||||||||||||||||||||||||||
AOCI activity, net of tax: | ||||||||||||||||||||||||||||||||||||||||
OCI excluding reclassifications | (21.9 | ) | 11.6 | — | 0.2 | (10.1 | ) | (7.8 | ) | (0.1 | ) | — | — | (7.9 | ) | |||||||||||||||||||||||||
Reclassifications to earnings | — | (9.5 | ) | 3.5 | — | (6.0 | ) | — | (1.2 | ) | 0.8 | — | (0.4 | ) | ||||||||||||||||||||||||||
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OCI, net of tax | (21.9 | ) | 2.1 | 3.5 | 0.2 | (16.1 | ) | (7.8 | ) | (1.3 | ) | 0.8 | — | (8.3 | ) | |||||||||||||||||||||||||
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AOCI at September 30, 2013 | $ | (4.2 | ) | $ | 0.8 | $ | (66.6 | ) | $ | 0.5 | $ | (69.5 | ) | |||||||||||||||||||||||||||
AOCI at March 31, 2014 | $ | (21.4 | ) | $ | (0.3 | ) | $ | (45.5 | ) | $ | 0.3 | $ | (66.9 | ) | ||||||||||||||||||||||||||
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For the three and nine months ended September 30,March 31, 2014 and 2013, and 2012, reclassifications from AOCI to the results of operations for the Company’s pension and postretirement benefit plans were an expense of $1.2 and $1.9, and $1.8, respectively and $5.6 and $5.1, respectively, and primarily represent the amortization of net actuarial losses (see Note 13). For the three and nine months ended September 30,March 31, 2014 and 2013, and 2012, reclassifications from AOCI to the results of operations for the Company’s derivative financial instruments for effective cash flow hedges were income of $2.6$2.0 and $0.1, respectively, and $14.9 and $2.6,$6.1, respectively (see Note 8).
The income tax (provision) benefit allocated to the components of OCI for the three and nine months ended September 30,March 31, 2014 and 2013 and 2012 is as follows:
Three months ended September 30, | Nine months ended September 30, | Three months ended March 31, | ||||||||||||||||||||||
(in millions) | 2013 | 2012 | 2013 | 2012 | 2014 | 2013 | ||||||||||||||||||
Cumulative translation adjustment | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Derivative financial instruments | 4.2 | 2.5 | (1.2 | ) | 3.3 | 0.8 | (2.8 | ) | ||||||||||||||||
Accrued benefit cost | (0.7 | ) | (0.6 | ) | (2.1 | ) | (1.8 | ) | (0.4 | ) | (0.6 | ) | ||||||||||||
Unrealized gain on investment | — | (0.4 | ) | (0.1 | ) | (0.4 | ) | — | (0.1 | ) | ||||||||||||||
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Income tax (provision) benefit related to OCI | $ | 3.5 | $ | 1.5 | $ | (3.4 | ) | $ | 1.1 | $ | 0.4 | $ | (3.5 | ) | ||||||||||
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17. Condensed Consolidating Financial Data
The Company’s Senior Notes and Senior Subordinated Notes (see Note 7) are fully guaranteed, jointly and severally, by certain of the Company’s domestic subsidiaries (“Guarantor Subsidiaries”). The guarantees of the Guarantor Subsidiaries are subject to release only in certain limited circumstances. The Company’s non-United States subsidiaries and those domestic subsidiaries who are not guarantors (“Non-Guarantor Subsidiaries”) are not guaranteeing these notes. Presented below is the condensed consolidating financial data of the Company (“Parent”), the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries on a consolidated basis, using the equity method of accounting for subsidiaries as of September 30, 2013March 31, 2014 and December 31, 20122013 and for the three and nine months ended September 30, 2013March 31, 2014 and 2012. During 2013, certain subsidiaries that were Non-Guarantor Subsidiaries in 2012 became Guarantor Subsidiaries. For comparative purposes, the condensed consolidating financial data as of December 31, 2012 and for the three and nine months ended September 30, 2012 has been retrospectively adjusted to reflect the aforementioned activity.2013.
Condensed Consolidating Results of Operations
Three months ended September 30, 2013 | ||||||||||||||||||||
(in millions) | Parent | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Net sales | $ | — | $ | 1,225.6 | $ | 815.4 | $ | (240.2 | ) | $ | 1,800.8 | |||||||||
Cost of sales | — | 928.9 | 588.9 | (240.2 | ) | 1,277.6 | ||||||||||||||
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Gross profit | — | 296.7 | 226.5 | — | 523.2 | |||||||||||||||
Selling, general and administrative expenses | 31.6 | 164.9 | 129.4 | — | 325.9 | |||||||||||||||
Reorganization costs, net | — | 1.6 | 1.4 | — | 3.0 | |||||||||||||||
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Operating earnings | (31.6 | ) | 130.2 | 95.7 | — | 194.3 | ||||||||||||||
Interest expense, net | 45.3 | 0.3 | 1.9 | — | 47.5 | |||||||||||||||
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Income (loss) before taxes and equity earnings of subsidiaries | (76.9 | ) | 129.9 | 93.8 | — | 146.8 | ||||||||||||||
Income tax provision (benefit) | (26.7 | ) | 49.0 | 29.6 | — | 51.9 | ||||||||||||||
Equity earnings of subsidiaries | 145.1 | 55.8 | — | (200.9 | ) | — | ||||||||||||||
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Net income (loss) | 94.9 | 136.7 | 64.2 | (200.9 | ) | 94.9 | ||||||||||||||
Other comprehensive income (loss), net of tax | 19.8 | 18.9 | 25.6 | (44.5 | ) | 19.8 | ||||||||||||||
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Comprehensive income (loss) | $ | 114.7 | $ | 155.6 | $ | 89.8 | $ | (245.4 | ) | $ | 114.7 | |||||||||
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Three months ended September 30, 2012 | ||||||||||||||||||||
(in millions) | Parent | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Net sales | $ | — | $ | 1,132.5 | $ | 776.6 | $ | (203.2 | ) | $ | 1,705.9 | |||||||||
Cost of sales | — | 857.5 | 550.6 | (203.2 | ) | 1,204.9 | ||||||||||||||
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| |||||||||||
Gross profit | — | 275.0 | 226.0 | — | 501.0 | |||||||||||||||
Selling, general and administrative expenses | 33.1 | 156.7 | 133.1 | — | 322.9 | |||||||||||||||
Reorganization costs, net | 7.7 | (0.8 | ) | 2.4 | — | 9.3 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Operating earnings | (40.8 | ) | 119.1 | 90.5 | — | 168.8 | ||||||||||||||
Interest expense, net | 44.7 | (13.0 | ) | 14.4 | — | 46.1 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Income (loss) before taxes and equity earnings of subsidiaries | (85.5 | ) | 132.1 | 76.1 | — | 122.7 | ||||||||||||||
Income tax provision (benefit) | (30.8 | ) | 50.9 | 25.7 | — | 45.8 | ||||||||||||||
Equity earnings of subsidiaries | 131.6 | 42.1 | — | (173.7 | ) | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income (loss) | 76.9 | 123.3 | 50.4 | (173.7 | ) | 76.9 | ||||||||||||||
Other comprehensive income (loss), net of tax | 22.0 | 27.4 | 29.5 | (56.9 | ) | 22.0 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Comprehensive income (loss) | $ | 98.9 | $ | 150.7 | $ | 79.9 | $ | (230.6 | ) | $ | 98.9 | |||||||||
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|
|
|
|
|
|
|
Nine months ended September 30, 2013 | Three months ended March 31, 2014 | |||||||||||||||||||||||||||||||||||||||
(in millions) | Parent | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Consolidated | Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||||||||||||||
Net sales | $ | — | $ | 3,449.0 | $ | 2,271.9 | $ | (580.6 | ) | $ | 5,140.3 | $ | — | $ | 1,183.1 | $ | 740.1 | $ | (191.4 | ) | $ | 1,731.8 | ||||||||||||||||||
Cost of sales | — | 2,611.8 | 1,628.9 | (580.6 | ) | 3,660.1 | — | 866.4 | 542.4 | (191.4 | ) | 1,217.4 | ||||||||||||||||||||||||||||
|
|
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|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Gross profit | — | 837.2 | 643.0 | — | 1,480.2 | — | 316.7 | 197.7 | — | 514.4 | ||||||||||||||||||||||||||||||
Selling, general and administrative expenses | 110.0 | 479.2 | 456.2 | — | 1,045.4 | 53.8 | 248.9 | 148.2 | — | 450.9 | ||||||||||||||||||||||||||||||
Reorganization costs, net | — | 2.3 | 2.1 | — | 4.4 | |||||||||||||||||||||||||||||||||||
Restructuring costs, net | — | — | 0.3 | — | 0.3 | |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
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| |||||||||||||||||||||||||||||||
Operating earnings | (110.0 | ) | 355.7 | 184.7 | — | 430.4 | ||||||||||||||||||||||||||||||||||
Operating earnings (loss) | (53.8 | ) | 67.8 | 49.2 | — | 63.2 | ||||||||||||||||||||||||||||||||||
Interest expense, net | 134.9 | 0.8 | 7.6 | — | 143.3 | 36.2 | 16.2 | 1.6 | — | 54.0 | ||||||||||||||||||||||||||||||
Loss on early extinguishment of debt | 25.9 | — | — | — | 25.9 | |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Income (loss) before taxes and equity earnings of subsidiaries | (270.8 | ) | 354.9 | 177.1 | — | 261.2 | (90.0 | ) | 51.6 | 47.6 | — | 9.2 | ||||||||||||||||||||||||||||
Income tax provision (benefit) | (99.3 | ) | 125.3 | 68.3 | — | 94.3 | (34.3 | ) | 19.6 | 20.2 | — | 5.5 | ||||||||||||||||||||||||||||
Equity earnings of subsidiaries | 338.4 | 87.7 | — | (426.1 | ) | — | 59.4 | 18.8 | — | (78.2 | ) | — | ||||||||||||||||||||||||||||
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|
|
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| |||||||||||||||||||||||||||||||
Net income (loss) | 166.9 | 317.3 | 108.8 | (426.1 | ) | 166.9 | 3.7 | 50.8 | 27.4 | (78.2 | ) | 3.7 | ||||||||||||||||||||||||||||
Other comprehensive income (loss), net of tax | (16.1 | ) | (17.7 | ) | (19.8 | ) | 37.5 | (16.1 | ) | (8.3 | ) | (6.0 | ) | (7.1 | ) | 13.1 | (8.3 | ) | ||||||||||||||||||||||
|
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|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Comprehensive income (loss) | $ | 150.8 | $ | 299.6 | $ | 89.0 | $ | (388.6 | ) | $ | 150.8 | $ | (4.6 | ) | $ | 44.8 | $ | 20.3 | $ | (65.1 | ) | $ | (4.6 | ) | ||||||||||||||||
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| |||||||||||||||||||||||||||||||
Nine months ended September 30, 2012 | Three months ended March 31, 2013 | |||||||||||||||||||||||||||||||||||||||
(in millions) | Parent | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Consolidated | Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||||||||||||||
Net sales | $ | — | $ | 3,275.8 | $ | 2,141.6 | $ | (540.5 | ) | $ | 4,876.9 | $ | — | $ | 1,035.5 | $ | 696.3 | $ | (151.1 | ) | $ | 1,580.7 | ||||||||||||||||||
Cost of sales | — | 2,474.5 | 1,525.9 | (540.5 | ) | 3,459.9 | — | 785.3 | 503.0 | (151.1 | ) | 1,137.2 | ||||||||||||||||||||||||||||
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|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Gross profit | — | 801.3 | 615.7 | — | 1,417.0 | — | 250.2 | 193.3 | — | 443.5 | ||||||||||||||||||||||||||||||
Selling, general and administrative expenses | 93.8 | 482.8 | 384.4 | — | 961.0 | 57.7 | 163.5 | 165.4 | — | 386.6 | ||||||||||||||||||||||||||||||
Reorganization costs, net | 7.7 | (0.8 | ) | 2.4 | — | 9.3 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Operating earnings | (101.5 | ) | 319.3 | 228.9 | — | 446.7 | ||||||||||||||||||||||||||||||||||
Operating earnings (loss) | (57.7 | ) | 86.7 | 27.9 | — | 56.9 | ||||||||||||||||||||||||||||||||||
Interest expense, net | 132.8 | (12.4 | ) | 15.4 | — | 135.8 | 46.7 | 0.3 | 2.6 | — | 49.6 | |||||||||||||||||||||||||||||
Loss on early extinguishment of debt | 17.1 | — | — | — | 17.1 | |||||||||||||||||||||||||||||||||||
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|
|
|
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|
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| |||||||||||||||||||||||||||||||
Income (loss) before taxes and equity earnings of subsidiaries | (234.3 | ) | 331.7 | 213.5 | — | 310.9 | (121.5 | ) | 86.4 | 25.3 | — | (9.8 | ) | |||||||||||||||||||||||||||
Income tax provision (benefit) | (83.5 | ) | 129.4 | 69.8 | — | 115.7 | (45.4 | ) | 21.3 | 18.7 | — | (5.4 | ) | |||||||||||||||||||||||||||
Equity earnings of subsidiaries | 346.0 | 124.9 | — | (470.9 | ) | — | 71.7 | 3.8 | — | (75.5 | ) | — | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Net income (loss) | 195.2 | 327.2 | 143.7 | (470.9 | ) | 195.2 | (4.4 | ) | 68.9 | 6.6 | (75.5 | ) | (4.4 | ) | ||||||||||||||||||||||||||
Other comprehensive income (loss), net of tax | 5.8 | 14.7 | 6.2 | (20.9 | ) | 5.8 | (13.1 | ) | (13.5 | ) | (18.3 | ) | 31.8 | (13.1 | ) | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Comprehensive income (loss) | $ | 201.0 | $ | 341.9 | $ | 149.9 | $ | (491.8 | ) | $ | 201.0 | $ | (17.5 | ) | $ | 55.4 | $ | (11.7 | ) | $ | (43.7 | ) | $ | (17.5 | ) | |||||||||||||||
|
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|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheets
As of September 30, 2013 | As of March 31, 2014 | |||||||||||||||||||||||||||||||||||||||
(in millions) | Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 1,162.4 | $ | 1.8 | $ | 396.1 | $ | — | $ | 1,560.3 | $ | 850.7 | $ | 8.7 | $ | 446.8 | $ | — | $ | 1,306.2 | ||||||||||||||||||||
Accounts receivable | — | 18.0 | 1,222.5 | — | 1,240.5 | — | 4.3 | 1,246.7 | — | 1,251.0 | ||||||||||||||||||||||||||||||
Inventories | — | 940.9 | 659.0 | — | 1,599.9 | — | 964.2 | 621.2 | — | 1,585.4 | ||||||||||||||||||||||||||||||
Other current assets | 32.6 | 137.5 | 156.8 | — | 326.9 | 20.3 | 180.9 | 150.7 | — | 351.9 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total current assets | 1,195.0 | 1,098.2 | 2,434.4 | — | 4,727.6 | 871.0 | 1,158.1 | 2,465.4 | — | 4,494.5 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Property, plant and equipment, net | 14.4 | 282.8 | 372.5 | — | 669.7 | 47.5 | 408.7 | 398.6 | — | 854.8 | ||||||||||||||||||||||||||||||
Goodwill | — | 1,566.7 | 255.8 | — | 1,822.5 | — | 2,378.5 | 253.9 | — | 2,632.4 | ||||||||||||||||||||||||||||||
Intangibles, net | — | 1,044.4 | 201.7 | — | 1,246.1 | — | 2,186.6 | 201.3 | — | 2,387.9 | ||||||||||||||||||||||||||||||
Intercompany receivables | 1,960.4 | 3,074.9 | 2,649.1 | (7,684.4 | ) | — | 2,465.6 | 2,088.7 | 868.5 | (5,422.8 | ) | — | ||||||||||||||||||||||||||||
Investment in subsidiaries | 6,218.8 | 2,026.2 | — | (8,245.0 | ) | — | 6,880.9 | 1,976.9 | — | (8,857.8 | ) | — | ||||||||||||||||||||||||||||
Other non-current assets | 82.0 | 5.9 | 68.7 | — | 156.6 | 76.9 | 19.4 | 62.3 | — | 158.6 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total assets | $ | 9,470.6 | $ | 9,099.1 | $ | 5,982.2 | $ | (15,929.4 | ) | $ | 8,622.5 | $ | 10,341.9 | $ | 10,216.9 | $ | 4,250.0 | $ | (14,280.6 | ) | $ | 10,528.2 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Liabilities and stockholders’ equity | ||||||||||||||||||||||||||||||||||||||||
Liabilities and stockholders’ equity: | ||||||||||||||||||||||||||||||||||||||||
Short-term debt and current portion of long-term debt | $ | 128.1 | $ | 0.5 | $ | 395.7 | $ | — | $ | 524.3 | $ | 152.7 | $ | 1.3 | $ | 506.4 | $ | — | $ | 660.4 | ||||||||||||||||||||
Accounts payable | 2.0 | 389.2 | 273.3 | — | 664.5 | 7.4 | 421.7 | 256.8 | — | 685.9 | ||||||||||||||||||||||||||||||
Other current liabilities | 133.2 | 216.5 | 270.8 | — | 620.5 | 89.7 | 259.1 | 277.1 | — | 625.9 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total current liabilities | 263.3 | 606.2 | 939.8 | — | 1,809.3 | 249.8 | 682.1 | 1,040.3 | — | 1,972.2 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Long-term debt | 3,357.1 | 3.8 | 18.9 | — | 3,379.8 | 4,504.9 | 4.2 | 12.8 | — | 4,521.9 | ||||||||||||||||||||||||||||||
Intercompany payables | 3,291.7 | 1,464.4 | 2,928.3 | (7,684.4 | ) | — | 2,859.4 | 1,409.1 | 1,154.3 | (5,422.8 | ) | — | ||||||||||||||||||||||||||||
Deferred taxes on income | 99.5 | 984.0 | 71.8 | — | 1,155.3 | |||||||||||||||||||||||||||||||||||
Other non-current liabilities | 85.1 | 689.9 | 185.0 | — | 960.0 | 104.3 | 156.7 | 93.8 | — | 354.8 | ||||||||||||||||||||||||||||||
Total stockholders’ equity | 2,473.4 | 6,334.8 | 1,910.2 | (8,245.0 | ) | 2,473.4 | 2,524.0 | 6,980.8 | 1,877.0 | (8,857.8 | ) | 2,524.0 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 9,470.6 | $ | 9,099.1 | $ | 5,982.2 | $ | (15,929.4 | ) | $ | 8,622.5 | $ | 10,341.9 | $ | 10,216.9 | $ | 4,250.0 | $ | (14,280.6 | ) | $ | 10,528.2 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
As of December 31, 2012 | As of December 31, 2013 | |||||||||||||||||||||||||||||||||||||||
(in millions) | Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 560.2 | $ | 5.0 | $ | 468.9 | $ | — | $ | 1,034.1 | $ | 630.8 | $ | 13.5 | $ | 484.2 | $ | — | $ | 1,128.5 | ||||||||||||||||||||
Accounts receivable | — | 17.8 | 1,119.9 | — | 1,137.7 | — | 1.4 | 1,194.7 | — | 1,196.1 | ||||||||||||||||||||||||||||||
Inventories | — | 760.3 | 550.0 | — | 1,310.3 | — | 839.7 | 572.2 | — | 1,411.9 | ||||||||||||||||||||||||||||||
Other current assets | 16.5 | 143.4 | 168.4 | — | 328.3 | 23.0 | 174.3 | 149.7 | — | 347.0 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total current assets | 576.7 | 926.5 | 2,307.2 | — | 3,810.4 | 653.8 | 1,028.9 | 2,400.8 | — | 4,083.5 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Property, plant and equipment, net | 34.1 | 296.8 | 347.7 | — | 678.6 | 46.7 | 404.1 | 401.8 | — | 852.6 | ||||||||||||||||||||||||||||||
Goodwill | — | 1,564.7 | 259.3 | — | 1,824.0 | — | 2,365.5 | 254.8 | — | 2,620.3 | ||||||||||||||||||||||||||||||
Intangibles, net | — | 1,055.5 | 201.2 | — | 1,256.7 | — | 2,190.8 | 202.2 | — | 2,393.0 | ||||||||||||||||||||||||||||||
Intercompany receivables | 2,961.3 | 3,939.6 | 3,629.4 | (10,530.3 | ) | — | 3,850.2 | 4,211.0 | 3,838.6 | (11,899.8 | ) | — | ||||||||||||||||||||||||||||
Investment in subsidiaries | 5,895.6 | 1,844.2 | — | (7,739.8 | ) | — | 6,812.4 | 2,031.8 | — | (8,844.2 | ) | — | ||||||||||||||||||||||||||||
Other non-current assets | 73.4 | 4.7 | 62.8 | — | 140.9 | 68.7 | 18.1 | 59.9 | — | 146.7 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total assets | $ | 9,541.1 | $ | 9,632.0 | $ | 6,807.6 | $ | (18,270.1 | ) | $ | 7,710.6 | $ | 11,431.8 | $ | 12,250.2 | $ | 7,158.1 | $ | (20,744.0 | ) | $ | 10,096.1 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Liabilities and stockholders’ equity | ||||||||||||||||||||||||||||||||||||||||
Liabilities and stockholders’ equity: | ||||||||||||||||||||||||||||||||||||||||
Short-term debt and current portion of long-term debt | $ | 100.1 | $ | 0.5 | $ | 404.1 | �� | $ | — | $ | 504.7 | $ | 144.2 | $ | 1.4 | $ | 509.5 | $ | — | $ | 655.1 | |||||||||||||||||||
Accounts payable | 5.3 | 354.6 | 255.5 | — | 615.4 | 11.4 | 390.0 | 262.8 | — | 664.2 | ||||||||||||||||||||||||||||||
Other current liabilities | 83.7 | 259.0 | 265.9 | — | 608.6 | 121.6 | 299.0 | 299.5 | — | 720.1 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total current liabilities | 189.1 | 614.1 | 925.5 | — | 1,728.7 | 277.2 | 690.4 | 1,071.8 | — | 2,039.4 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Long-term debt | 3,275.7 | 4.2 | 13.5 | — | 3,293.4 | 4,065.9 | 4.3 | 17.1 | — | 4,087.3 | ||||||||||||||||||||||||||||||
Intercompany payables | 4,251.9 | 2,336.5 | 3,941.9 | (10,530.3 | ) | — | 4,415.0 | 3,494.9 | 3,989.9 | (11,899.8 | ) | — | ||||||||||||||||||||||||||||
Deferred taxes on income | 19.0 | 974.4 | 71.9 | — | 1,065.3 | |||||||||||||||||||||||||||||||||||
Other non-current liabilities | 64.8 | 697.8 | 166.3 | — | 928.9 | 105.0 | 156.9 | 92.5 | — | 354.4 | ||||||||||||||||||||||||||||||
Total stockholders’ equity | 1,759.6 | 5,979.4 | 1,760.4 | (7,739.8 | ) | 1,759.6 | 2,549.7 | 6,929.3 | 1,914.9 | (8,844.2 | ) | 2,549.7 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 9,541.1 | $ | 9,632.0 | $ | 6,807.6 | $ | (18,270.1 | ) | $ | 7,710.6 | $ | 11,431.8 | $ | 12,250.2 | $ | 7,158.1 | $ | (20,744.0 | ) | $ | 10,096.1 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statements of Cash Flows
Nine months ended September 30, 2013 | Three months ended March 31, 2014 | |||||||||||||||||||||||||||||||||||||||
(in millions) | Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||||||||||||||
Net cash provided by (used in) operating activities, net | $ | (53.2 | ) | $ | 122.0 | $ | 2.7 | $ | (8.3 | ) | $ | 63.2 | ||||||||||||||||||||||||||||
Net cash used in operating activities, net | $ | (97.0 | ) | $ | (52.7 | ) | $ | (103.3 | ) | $ | (5.1 | ) | $ | (258.1 | ) | |||||||||||||||||||||||||
Financing activities: | ||||||||||||||||||||||||||||||||||||||||
Net change in short-term debt | — | (0.1 | ) | (11.2 | ) | — | (11.3 | ) | — | — | (5.5 | ) | — | (5.5 | ) | |||||||||||||||||||||||||
(Payments on) proceeds from intercompany transactions | 44.9 | (55.8 | ) | 18.9 | (8.0 | ) | — | (164.5 | ) | 75.8 | 83.6 | 5.1 | — | |||||||||||||||||||||||||||
Proceeds from issuance of long-term debt | 515.2 | — | 11.9 | — | 527.1 | 690.0 | 0.2 | — | — | 690.2 | ||||||||||||||||||||||||||||||
Payments on long-term debt | (374.8 | ) | (0.3 | ) | (0.9 | ) | — | (376.0 | ) | (29.7 | ) | (0.4 | ) | — | — | (30.1 | ) | |||||||||||||||||||||||
Issuance (repurchase) of common stock, net | 469.7 | — | — | — | 469.7 | (193.9 | ) | — | — | — | (193.9 | ) | ||||||||||||||||||||||||||||
Excess tax benefits from stock-based compensation | 11.4 | — | — | — | 11.4 | 33.3 | — | — | — | 33.3 | ||||||||||||||||||||||||||||||
Other | (12.4 | ) | (4.4 | ) | — | — | (16.8 | ) | (16.0 | ) | (1.0 | ) | (0.6 | ) | — | (17.6 | ) | |||||||||||||||||||||||
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Net cash provided by (used in) financing activities | 654.0 | (60.6 | ) | 18.7 | (8.0 | ) | 604.1 | |||||||||||||||||||||||||||||||||
Net cash provided by financing activities | 319.2 | 74.6 | 77.5 | 5.1 | 476.4 | |||||||||||||||||||||||||||||||||||
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Additions to property, plant and equipment | (4.7 | ) | (48.9 | ) | (62.0 | ) | — | (115.6 | ) | (2.3 | ) | (24.8 | ) | (14.0 | ) | — | (41.1 | ) | ||||||||||||||||||||||
Acquisition of businesses, net of cash acquired | (1.0 | ) | — | (11.7 | ) | — | (12.7 | ) | ||||||||||||||||||||||||||||||||
Intercompany investing activities, net | — | (16.3 | ) | — | 16.3 | — | ||||||||||||||||||||||||||||||||||
Other | 7.1 | 0.6 | 0.1 | — | 7.8 | — | (1.9 | ) | 5.2 | — | 3.3 | |||||||||||||||||||||||||||||
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Net cash provided by (used in) investing activities | 1.4 | (64.6 | ) | (73.6 | ) | 16.3 | (120.5 | ) | ||||||||||||||||||||||||||||||||
Net cash used in investing activities | (2.3 | ) | (26.7 | ) | (8.8 | ) | — | (37.8 | ) | |||||||||||||||||||||||||||||||
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Effect of exchange rate changes on cash | — | — | (20.6 | ) | — | (20.6 | ) | — | — | (2.8 | ) | — | (2.8 | ) | ||||||||||||||||||||||||||
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Net increase (decrease) in cash and cash equivalents | 602.2 | (3.2 | ) | (72.8 | ) | — | 526.2 | 219.9 | (4.8 | ) | (37.4 | ) | — | 177.7 | ||||||||||||||||||||||||||
Cash and cash equivalents at beginning of year | 560.2 | 5.0 | 468.9 | — | 1,034.1 | 630.8 | 13.5 | 484.2 | — | 1,128.5 | ||||||||||||||||||||||||||||||
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Cash and cash equivalents at end ofperiod | $ | 1,162.4 | $ | 1.8 | $ | 396.1 | $ | — | $ | 1,560.3 | $ | 850.7 | $ | 8.7 | $ | 446.8 | $ | — | $ | 1,306.2 | ||||||||||||||||||||
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(in millions) | Parent | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Consolidated | Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||||||||||||||
Net cash provided by (used in) operating activities, net | $ | (225.8 | ) | $ | 330.7 | $ | (13.0 | ) | $ | (10.5 | ) | $ | 81.4 | $ | (56.4 | ) | $ | 23.7 | $ | (172.8 | ) | $ | (0.7 | ) | $ | (206.2 | ) | |||||||||||||
Financing activities: | ||||||||||||||||||||||||||||||||||||||||
Net change in short-term debt | — | — | 83.6 | — | 83.6 | — | — | 4.2 | — | 4.2 | ||||||||||||||||||||||||||||||
(Payments on) proceeds from intercompany transactions | 245.8 | (314.4 | ) | 58.1 | 10.5 | — | (146.2 | ) | (11.5 | ) | 157.0 | 0.7 | — | |||||||||||||||||||||||||||
Proceeds from issuance of long-term debt | 800.0 | 0.5 | 0.1 | — | 800.6 | 250.0 | — | 3.0 | — | 253.0 | ||||||||||||||||||||||||||||||
Payments on long-term debt | (147.4 | ) | (0.4 | ) | (5.4 | ) | — | (153.2 | ) | (187.7 | ) | (0.1 | ) | (0.7 | ) | — | (188.5 | ) | ||||||||||||||||||||||
Issuance (repurchase) of common stock, net | (536.6 | ) | — | — | — | (536.6 | ) | (264.8 | ) | — | — | — | (264.8 | ) | ||||||||||||||||||||||||||
Excess tax benefits from stock-based compensation | 42.7 | — | — | — | 42.7 | 2.2 | — | — | — | 2.2 | ||||||||||||||||||||||||||||||
Other | (24.4 | ) | — | (0.5 | ) | (24.9 | ) | (5.1 | ) | — | — | — | (5.1 | ) | ||||||||||||||||||||||||||
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Net cash provided by (used in) financing activities | 380.1 | (314.3 | ) | 135.9 | 10.5 | 212.2 | (351.6 | ) | (11.6 | ) | 163.5 | 0.7 | (199.0 | ) | ||||||||||||||||||||||||||
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Additions to property, plant and equipment | (4.2 | ) | (41.2 | ) | (31.5 | ) | — | (76.9 | ) | (0.1 | ) | (13.8 | ) | (10.8 | ) | — | (24.7 | ) | ||||||||||||||||||||||
Acquisition of businesses, net of cash acquired | (0.9 | ) | (5.4 | ) | (148.9 | ) | — | (155.2 | ) | |||||||||||||||||||||||||||||||
Other | 2.3 | 4.0 | 3.5 | — | 9.8 | (0.5 | ) | 0.6 | (2.0 | ) | — | (1.9 | ) | |||||||||||||||||||||||||||
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Net cash used in investing activities | (2.8 | ) | (42.6 | ) | (176.9 | ) | — | (222.3 | ) | (0.6 | ) | (13.2 | ) | (12.8 | ) | — | (26.6 | ) | ||||||||||||||||||||||
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Effect of exchange rate changes on cash | — | — | 7.1 | — | 7.1 | — | — | (22.3 | ) | — | (22.3 | ) | ||||||||||||||||||||||||||||
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Net increase (decrease) in cash and cash equivalents | 151.5 | (26.2 | ) | (46.9 | ) | — | 78.4 | |||||||||||||||||||||||||||||||||
Net decrease in cash and cash equivalents | (408.6 | ) | (1.1 | ) | (44.4 | ) | — | (454.1 | ) | |||||||||||||||||||||||||||||||
Cash and cash equivalents at beginning of year | 335.4 | 28.4 | 444.5 | — | 808.3 | 560.2 | 5.0 | 468.9 | — | 1,034.1 | ||||||||||||||||||||||||||||||
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Cash and cash equivalents at end of period | $ | 486.9 | $ | 2.2 | $ | 397.6 | $ | — | $ | 886.7 | $ | 151.6 | $ | 3.9 | $ | 424.5 | $ | — | $ | 580.0 | ||||||||||||||||||||
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The amounts reflected as proceeds (payments) from (to) intercompany transactions represent cash flows originating from transactions conducted between Guarantor Subsidiaries, Non-Guarantor Subsidiaries and Parent in the normal course of business operations.
The income tax provision (benefit), equity earnings of subsidiaries, net income (loss) and comprehensive income (loss) presented in the condensed consolidating results of operations for the quarterly period ended March 31, 2012 and for the quarterly and year-to-date periods ended June 30, 2012 and September 30, 2012, were revised to correct the allocation of the income tax provision (benefit) among the Parent, Guarantor Subsidiaries and Non-Guarantor Subsidiaries. The revisions also had no impact on the condensed consolidated balance sheets, condensed consolidated statements of operations, condensed consolidated statements of comprehensive income or condensed consolidated statements of cash flows for any of those periods. The revision had no impact on the condensed consolidating financial data as of and for the year ended December 31, 2012, the three and nine months ended September 30, 2013 and will have no impact on the consolidated financial statements as of and for the year ended December 31, 2013. The effect of the revisions, which the Company determined were not material to the related financial statements, on the previously reported amounts are as follows:
Three months ended March 31, 2012 | ||||||||||||||||||||
Parent | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
(in millions) | Increase/(Decrease) | |||||||||||||||||||
Condensed Consolidating Results of Operations | ||||||||||||||||||||
Income tax provision (benefit) | $ | (38.6 | ) | $ | 30.9 | $ | 7.7 | $ | — | $ | — | |||||||||
Equity earnings of subsidiaries | (38.6 | ) | (7.7 | ) | — | 46.3 | — | |||||||||||||
Net income (loss) | — | (38.6 | ) | (7.7 | ) | 46.3 | — | |||||||||||||
Comprehensive income (loss) | — | (38.6 | ) | (7.7 | ) | 46.3 | — | |||||||||||||
Three months ended June 30, 2012 | ||||||||||||||||||||
Parent | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
(in millions) | Increase/(Decrease) | |||||||||||||||||||
Condensed Consolidating Results of Operations | ||||||||||||||||||||
Income tax provision (benefit) | $ | (58.3 | ) | $ | 46.9 | $ | 11.4 | $ | — | $ | — | |||||||||
Equity earnings of subsidiaries | (58.3 | ) | (11.4 | ) | — | 69.7 | — | |||||||||||||
Net income (loss) | — | (58.3 | ) | (11.4 | ) | 69.7 | — | |||||||||||||
Comprehensive income (loss) | — | (58.3 | ) | (11.4 | ) | 69.7 | — | |||||||||||||
Six months ended June 30, 2012 | ||||||||||||||||||||
Parent | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
(in millions) | Increase/(Decrease) | |||||||||||||||||||
Condensed Consolidating Results of Operations | ||||||||||||||||||||
Income tax provision (benefit) | $ | (96.9 | ) | $ | 77.8 | $ | 19.1 | $ | — | $ | — | |||||||||
Equity earnings of subsidiaries | (96.9 | ) | (19.1 | ) | — | 116.0 | — | |||||||||||||
Net income (loss) | — | (96.9 | ) | (19.1 | ) | 116.0 | — | |||||||||||||
Comprehensive income (loss) | — | (96.9 | ) | (19.1 | ) | 116.0 | — | |||||||||||||
Three months ended September 30, 2012 | ||||||||||||||||||||
Parent | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
(in millions) | Increase/(Decrease) | |||||||||||||||||||
Condensed Consolidating Results of Operations | ||||||||||||||||||||
Income tax provision (benefit) | $ | (70.1 | ) | $ | 50.3 | $ | 19.8 | $ | — | $ | — | |||||||||
Equity earnings of subsidiaries | (70.1 | ) | (19.8 | ) | — | 89.9 | — | |||||||||||||
Net income (loss) | — | (70.1 | ) | (19.8 | ) | 89.9 | — | |||||||||||||
Comprehensive income (loss) | — | (70.1 | ) | (19.8 | ) | 89.9 | — | |||||||||||||
Nine months ended September 30, 2012 | ||||||||||||||||||||
Parent | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
(in millions) | Increase/(Decrease) | |||||||||||||||||||
Condensed Consolidating Results of Operations | ||||||||||||||||||||
Income tax provision (benefit) | $ | (167.0 | ) | $ | 128.1 | $ | 38.9 | $ | — | $ | — | |||||||||
Equity earnings of subsidiaries | (167.0 | ) | (38.9 | ) | — | 205.9 | — | |||||||||||||
Net income (loss) | — | (167.0 | ) | (38.9 | ) | 205.9 | — | |||||||||||||
Comprehensive income (loss) | — | (167.0 | ) | (38.9 | ) | 205.9 | — |
The condensed consolidating statement of cash flows in the condensed consolidating financial data for the nine months ended September 30, 2012, was revised to correct the classification of intercompany financing activities. The effect of the revisions, which the Company determined were not material to the related financial statements, on the previously reported amounts are as follows:
Nine months ended September 30, 2012 | ||||||||||||||||||||
Parent | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
(in millions) | Increase/(Decrease) | |||||||||||||||||||
Condensed Consolidating Statements of Cash Flows | ||||||||||||||||||||
Net cash provided by (used in) operating activities, net | $ | — | $ | 10.5 | $ | — | $ | (10.5 | ) | $ | — | |||||||||
Net cash provided by (used in) financing activities | — | (10.5 | ) | — | 10.5 | — |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Forward-Looking Information
From time to time, the Company may make or publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products and similar matters. Such statements are necessarily estimates reflecting management’s best judgment based on current information. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. Such statements are usually identified by the use of words or phrases such as “believes”, “anticipates”, “expects”, “estimates”, “planned”, “outlook” and “goal”. Because forward-looking statements involve risks and uncertainties, the Company’s actual results could differ materially. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company’s actual results and experience to differ materially from the anticipated results or other expectations expressed in forward-looking statements. All statements addressing trends, events, developments, operating performance, potential acquisitions or liquidity that the Company anticipates or expects will occur in the future are forward-looking statements.
Achievement of future results is subject to risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from past results and those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements.
The Company undertakes no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures the Company makeswe make on related subjects in itsthe Company’s Forms 10-K, 10-Q and 8-K reports tofiled with the United States Securities and Exchange Commission (“SEC”). Please see the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 20122013 for a list of factors which could cause the Company’s actual results to differ materially from those projected in the Company’s forward-looking statements and certain risks and uncertainties that may affect the operations, performance and results of the Company’s businesses. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.
The following “Overview” section is a brief summary of the significant items addressed in Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”). Investors should read the relevant sections of this MD&A for a complete discussion of the items summarized below.
Overview
The Company is a leading provider of a broad range of consumer products. The Company reports four business segments: Outdoor Solutions,Branded Consumables, Consumer Solutions, Branded ConsumablesOutdoor Solutions and Process Solutions. The Company’s sales are principally within the United States. The Company’s international operations are mainly based in Asia, Canada, Europe and Latin America.
The Company distributes its products globally, primarily through club stores; craft stores; direct-to-consumer channels, primarily consisting of infomercials; department stores; drugstores; grocery retailers; home improvement stores; mass merchandisers; on-line; specialty retailers and wholesalers.wholesalers, as well as through the Company’s Yankee Candle retail stores. The markets in which the Company’s businesses operate are generally highly competitive, based primarily on product quality, product innovation, price and customer service and support, although the degree and nature of such competition vary by location and product line. Since the Company operates primarily in the consumer products markets, it is generally affected, by among other factors, overall economic conditions and the related impact on consumer confidence.
The Branded Consumables segment manufactures or sources, markets and distributes a broad line of branded consumer products, many of which are affordable, consumable and fundamental household staples, including arts and crafts paint brushes, air fresheners, brooms, brushes, buckets, children’s card games, clothespins, collectible tins, condoms, cord, rope and twine, dusters, dust pans, feeding bottles, fencing, fire extinguishing products, firelogs and firestarters, foam coolers, fresh preserving jars and accessories, home décor accessories, home fragrance products, kitchen matches, mops, other craft items, pacifiers, plastic cutlery, playing cards and accessories, rubber gloves and related cleaning products, safes, premium scented candles and accessories, security cameras, security doors, smoke and carbon monoxide alarms, soothers, sponges, storage organizers and workshop accessories, teats, toothpicks, travel sprays, window guards and other accessories. This segment markets our products under the Aviator®, Ball®, Bee®, Bernardin®, Bicycle®, Billy Boy®, BRK®, Crawford®, Diamond®, Dicon®, Fiona®, First Alert®, First Essentials®, Hoyle®, Java-Log®, KEM®, Kerr®, Lehigh®, Lifoam® Lillo®, Loew-Cornell®, Mapa®, NUK®, Pine Mountain®, ProPak®, Quickie Green Cleaning®, Quickie Home-Pro®, Quickie Microban®, Quickie Original®, Quickie Professional®, Spontex®, Tigex®, Wellington® and Yankee Candle® brand names, among others.
The Consumer Solutions segment manufactures or sources, markets, and distributes a diverse line of household products, including kitchen appliances and home environment products. This segment maintains a strong portfolio of globally-recognized brands including Bionaire®, Crock-Pot®, FoodSaver®, Health o meter®, Holmes®, Mr. Coffee®, Oster®, Patton®, Rival®, Seal-a-Meal®, Sunbeam® and Villaware®. The principal products in this segment include: household kitchen appliances, such as blenders, coffeemakers, irons, mixers, slow cookers, tea kettles, toasters, toaster ovens and vacuum packaging machines; home environmental products, such as air purifiers, fans, heaters and humidifiers; clippers, trimmers and other hair care products for professional use in the beauty and barber and animal categories; electric blankets, mattress pads and throws; products for the hospitality industry; and scales for consumer use. The Consumer Solutions segment also has rights to sell various small appliance products, in substantially all of Europe under the Breville® brand name.
The Outdoor Solutions segment manufactures or sources, markets and distributes global consumer active lifestyle products for outdoor and outdoor-related activities. For general outdoor activities, Coleman® is a leading brand for active lifestyle products, offering an array of products that include camping and outdoor equipment such as air beds, camping stoves, coolers, foldable furniture, gas grills, lanterns and flashlights, propane fuel, sleeping bags, tents and water recreation products such as inflatable boats, kayaks and tow-behinds. The Outdoor Solutions segment is also a leading provider of fishing equipment under brand names such as Abu Garcia®, All Star®, Berkley®, Fenwick®, Gulp!®, JRC™, Mitchell®, PennPENN®, Pflueger®, Sebile®, Sevenstrand®, Shakespeare®, Spiderwire®, Stren®, Trilene®, Ugly Stik® and Xtools®. Team sports equipment for baseball, softball, football, basketball field hockey and lacrosse products are sold under brand names such as deBeer®, Gait®, Miken®, Rawlings® and Worth®. Alpine and nordic skiing, snowboarding, snowshoeing and in-line skating products are sold under brand names such as Atlas®, Full Tilt®, K2®, Line®, Little Bear®, Madshus®, Marker®, Morrow®, Ride®, Tubbs®, Völkl® and 5150 Snowboards®. Water sports equipment, personal flotation devices and all-terrain vehicle gear are sold under brand names such as Helium®, Hodgman®, Mad Dog Gear®, Sevylor®, Sospenders® and Stearns®. The Company also sells high performance technical and outdoor apparel and equipment under brand names such as CAPP3L®, Ex Officio®, K2®, Marker®, Marmot®, Planet Earth®, Ride®, Völkl® and Zoot®, and premium air beds under brand names including Aero®, Aerobedthe AeroBed® and Aero Sport®.brand. The Outdoor Solutions Segment also sells a variety of products sold internationally under brand names such as Campingaz®, Esky®, Greys®, Hardy® and Invicta®.
The Consumer Solutions segment manufactures or sources, markets, and distributes a diverse line of household products, including kitchen appliances and home environment products. This segment maintains a strong portfolio of globally-recognized brands including Bionaire®, Crock-Pot®, FoodSaver®, Health o meter®, Holmes®, Mr. Coffee®, Oster®, Patton®, Rival®, Seal-a-Meal®, Sunbeam®, skybar® and Villaware®. The principal products in this segment include: clippers and trimmers for professional use in the beauty and barber and animal categories; electric blankets, mattress pads and throws; household kitchen appliances, such as blenders, coffeemakers, irons, mixers, slow cookers, toasters, toaster ovens and vacuum packaging machines; home environment products, such as air purifiers, fans, heaters and humidifiers; products for the hospitality industry; and scales for consumer use. The Consumer Solutions segment also has rights to sell various small appliance products in substantially all of Europe under the Breville® brand name.
The Branded Consumables segment manufactures or sources, markets and distributes a broad line of branded consumer products, many of which are affordable, consumable and fundamental household staples, including arts and crafts paint brushes, brooms, brushes, buckets, children’s card games, clothespins, collectible tins, condoms, cord, rope and twine, dusters, dust pans, feeding bottles, fencing, fire extinguishing products, firelogs and firestarters, home canning jars and accessories, kitchen matches, mops, other craft items, pacifiers, plastic cutlery, playing cards and accessories, rubber gloves and related cleaning products, safes, security cameras, security doors, smoke and carbon monoxide alarms, soothers, sponges, storage organizers and workshop accessories, teats, toothpicks, window guards and other accessories. This segment markets products under the Aviator®, Ball®, Bee®, Bernardin®, Bicycle®, Billy Boy®, BRK®, Crawford®, Diamond®, Dicon®, Fiona®, First Alert®, First Essentials®, Hoyle®, Java-Log®, KEM®, Kerr®, Lehigh®, Lifoam®, Lillo®, Loew Cornell®, Mapa®, NUK®, Pine Mountain®, Quickie Green Cleaning®, Quickie Home-Pro®, Quickie Microban®, Quickie Original®, Quickie Professional®, Spontex®, Tigex® and Wellington® brand names, among others.
The Process Solutions segment manufactures, markets and distributes a wide variety of plastic products including closures, contact lens packaging, medical disposables, plastic cutlery and rigid packaging. Many of these products are consumable in nature or represent components of consumer products. This segment’s materials business produces specialty nylon polymers, conductive fibers and monofilament used in various products, including woven mats used by paper producers and weed trimmer cutting line, as well as fiberglass radio antennas for marine, citizen band and military applications. This segment is also the largesta leading North American producer of niche products fabricated from solid zinc strip and is the sole source supplier of copper-plated zinc penny blanks to the United States Mint and a major supplier to the Royal Canadian Mint, as well as a supplier of brass, bronze and nickel-plated finishes on steel and zinc for coinage to other international markets. In addition, the Company manufactures a line of industrial zinc products marketed globally for use in the architectural, automotive, construction, electrical component and plumbing markets.
Summary of Significant 20132014 Activities
• | During April 2014, the Company redeemed the entire principal amount outstanding for both the U.S. dollar tranche and the Euro dollar tranche of the 7 1⁄2% Senior Subordinated Notes due 2020 for total consideration, excluding accrued interest, of $523 million (the “Redemption”). As a result of these debt extinguishments, the Company expects to record an estimated loss on the extinguishment of debt of approximately $54 million during the second quarter of 2014, primarily comprised of prepayment premiums and a non-cash charge due to the write-off of deferred debt issuance costs. |
• | In |
Acquisitions
Consistent with the Company’s historical acquisition strategy, to the extent the Company pursues future acquisitions, the Company intends to focus on businesses with product offerings that provide geographic or product diversification, or expansion into related categories that can be marketed through the Company’s existing distribution channels or provide the Company with new distribution channels for its existing products, thereby increasing marketing and distribution efficiencies. Furthermore, the Company expects that
acquisition candidates would demonstrate a combination of attractive margins, strong cash flow characteristics, category leading positions and products that generate recurring revenue. The Company anticipates that the fragmented nature of the consumer products market will continue to provide opportunities for growth through strategic acquisitions of complementary businesses. However, there can be no assurance that the Company will complete an acquisition in any given year or that any such acquisition will be significant or successful. The Company will only pursue a candidate when it is deemed to be fiscally prudent and meets the Company’s acquisition criteria. The Company anticipates that any future acquisitions would be financed through any combination of cash on hand, operating cash flow, availability under its existing credit facilities and new capital market offerings.
2014 Activity
During 2014, the Company did not complete any significant acquisitions.
2013 Activity
On October 3, 2013, the Company acquired Yankee Candle Investments LLC (“Yankee Candle”), a leading specialty-branded premium scented candle company (the “YCC Acquisition”). The total value of the YCC Acquisition, including debt assumed and/or repaid, was approximately $1.8 billion, subject to adjustment. The YCC Acquisition is expected to extend the Company’s portfolio of market-leading, consumer brands in niche, seasonal staple categories, while creating opportunities in cross-selling and broadening the global distribution platform. The YCC Acquisition, which is expected to enhance the Company’s overall margin profile, is consistent with the Company’s disciplined acquisition criteria of purchasing leading, niche consumer-oriented brands with attractive cash flows and strong management.billion. Yankee Candle will beis reported in the Company’s Branded Consumables segment and will bewas included in the Company’s results of operations from October 3, 2013.
DuringVenezuela Operations
Through December 31, 2013, the Venezuelan government had established one official exchange rate for qualifying dividends and imported goods and services. Transactions at the official exchange rate are subject to approval by the Venezuelan government. Historically, the majority of the Company’s purchases have qualified for the official exchange rate and the Company completed one tuck-in acquisitionhas been able to convert Bolivars at the official exchange rate. While the timing of government approval for settlement of payables at the official exchange rate varies, the Company believes these payables will ultimately be approved and settled at the official exchange rate. As such, the financial statements of the Company’s subsidiaries operating in Venezuela are remeasured at and are reflected in the Company’s consolidated financial statements at the CENCOEX exchange rate (“official exchange rate”) of 6.30 Bolivars per U.S. dollar, which is currently the Company’s expected settlement rate.
In 2013, the Venezuelan government established a new auction-based exchange rate market program, the Complementary System for Foreign Currency Administration (“SICAD”). In 2014, the Venezuelan government mandated that by nature was complementarydividends and royalties be executed under the SICAD program and also introduced an additional currency exchange program, commonly referred to as SICAD-II. While the Company currently expects to continue to use the official exchange rate for essentially all transactions except dividends and royalties, it is assessing the impact of changes to the currency exchange programs and recently imposed pricing restrictions. If in the future, the Company’s subsidiaries operating in Venezuela are economically or legally required to convert an increasing amount of the Bolivar cash balances into U.S. dollars using the more unfavorable exchange rates available under SICAD or SICAD-II, it could result in currency exchange losses that may be material to the Company’s core businessesresults of operations. As of March 31, 2014, the exchange rates for SICAD and from an accounting standpoint was not significant.
2012 Activity
During 2012, the Company completed three tuck-in acquisitions that by natureSICAD-II were complementary to10.70 and 50.85 Bolivars per U.S. dollar, respectively. At March 31, 2014, the Company’s core businesses and from an accounting standpointBolivar-denominated net assets were not significant.
Venezuela Operationsapproximately $130 million.
On February 8, 2013, the Venezuelan government announced its intention to further devalue the Bolivar relative to the U.S. dollar. As a result of the devaluation, the official exchange rate changed to 6.30 Bolivars per U.S. dollar for imported goods. As such, beginning in February 2013, the financial statements of the Company’s subsidiaries operating in Venezuela will beare remeasured, and will beare reflected in the Company’s consolidated financial statements, at the official exchange rate of 6.30 Bolivars per U.S. dollar. The higher official exchange rate will negatively impact the ongoing revenue and operating profit for the Company’s Venezuela operations.rate. During the ninethree months ended September 30,end March 31, 2013, the Company recorded $29.0 million of devaluation-related charges related to its Venezuela operations, which are almost entirely comprised of a non-cash charge related to the write-down of monetary assets due to the change in the official exchange rate. These charges are included in selling, general and administrative expenses (“SG&A”).
Translating the results of operations for the Venezuela subsidiaries in 2012 using the 6.30 Bolivars per U.S. dollar official exchange rate versus the actual official exchange rate in effect during 2012 of 4.30 Bolivars per U.S. dollar, would have reduced the Company’s 2012 consolidated net sales by less than 1%. At September 30, 2013,March 31, 2014, the Company’s subsidiaries operating in Venezuela have approximately $15$1 million in cash denominated in U.S. dollars and cash denominated in Bolivars that is the equivalent of approximately $59$103 million held in Bolivarswhen converted at the official exchange rate. The Bolivar-denominated cash in Venezuela comprises substantially all of the net monetary assets of the Company’s Venezuela operations. There are currency exchange controls in Venezuela which limit the ability of the Company’s subsidiaries in Venezuelan to distribute or transfer U.S. dollars outside Venezuela.
Results of Operations—Comparing 20132014 to 20122013
Net Sales | Operating Earnings (Loss) | Net Sales | Operating Earnings (Loss) | |||||||||||||||||||||||||||||
Three months ended September 30, | Three months ended September 30, | Three months ended March 31, | Three months ended March 31, | |||||||||||||||||||||||||||||
(in millions) | 2013 | 2012 | 2013 | 2012 | 2014 | 2013 | 2014 | 2013 | ||||||||||||||||||||||||
Branded Consumables | $ | 621.8 | $ | 443.7 | $ | 50.0 | $ | 39.8 | ||||||||||||||||||||||||
Consumer Solutions | 344.0 | 363.3 | 25.5 | 37.5 | ||||||||||||||||||||||||||||
Outdoor Solutions | $ | 670.6 | $ | 657.6 | $ | 66.9 | $ | 66.4 | 684.1 | 694.9 | 36.3 | 56.2 | ||||||||||||||||||||
Consumer Solutions | 537.4 | 509.6 | 71.2 | 64.0 | ||||||||||||||||||||||||||||
Branded Consumables | 511.1 | 459.0 | 74.9 | 60.1 | ||||||||||||||||||||||||||||
Process Solutions | 102.4 | 97.6 | 8.7 | 9.9 | 102.3 | 97.6 | 9.5 | 12.1 | ||||||||||||||||||||||||
Corporate | — | — | (27.4 | ) | (31.6 | ) | — | — | (58.1 | ) | (88.7 | ) | ||||||||||||||||||||
Intercompany eliminations | (20.7 | ) | (17.9 | ) | — | — | (20.4 | ) | (18.8 | ) | — | — | ||||||||||||||||||||
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$ | 1,800.8 | $ | 1,705.9 | $ | 194.3 | $ | 168.8 | $ | 1,731.8 | $ | 1,580.7 | $ | 63.2 | $ | 56.9 | |||||||||||||||||
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Note: Changes in net sales on a currency neutral basis that are presented hereafter are provided to enhance visibility of the underlying operations by excluding the impact of foreign currency translation.
Three Months Ended September 30, 2013March 31, 2014 versus the Three Months Ended September 30, 2012March 31, 2013
Net sales for the three months ended September 30, 2013March 31, 2014 increased $94.9$151 million, or 5.6%9.6%, to $1.8$1.7 billion versus the same period in the prior year.year period. Excluding the impact of acquisitionsthe YCC Acquisition (approximately 2%10%), net sales on a currency-neutral basis increased approximately 6%1%, primarily due to increased sell-through in certain product categories, expanded product offerings and increased demand internationally in certain product categories, partially offset by weakness in certain product categories.categories, as well as the impact of inventory management at a certain major customer. Unfavorable foreign currency translation accounted for a decrease in net sales of approximately 2%1%.
Net sales in the Outdoor SolutionsBranded Consumables segment increased $13.0$178 million, or 2.0%40.1%. NetExcluding the impact the YCC Acquisition (approximately 37%), net sales on a currency-neutral basis increased approximately 4%, primarily due to increased sales in the camping and outdoor, fishing and team sports businesses, which provided an increase in net sales of approximately 6%, largely related to expanded product offerings, increased point of sale and distribution for certain products, increased demand internationally in certain product categories primarily in Europe and Latin America and increased inventory reorders at certain mass market retailers, partially offset by decreased sales in certain other businesses, primarily the winter sports business, largely due to lower seasonal demand. Unfavorable foreign currency translation accounted for a decrease in net sales of approximately 2%.
Net sales in the Consumer Solutions segment increased $27.8 million, or 5.5%. Excluding the impact of acquisitions (approximately 1%), net sales on a currency-neutral basis increased approximately 7%. The increase is primarily due to increased demand internationally, primarily in Latin America, which contributed to an increase in net sales of approximately 5%, primarily due to increased point of sale, improved product distribution and successful pricing strategies and an increase of approximately 2% in domestic net sales, primarily due to an increase in sales in certain personal care and wellness categories. Unfavorable foreign currency translation accounted for a decrease in net sales of approximately 3%.
Net sales in the Branded Consumables segment increased $52.1 million, or 11.4%. Excluding the impact of acquisitions (approximately 5%), net sales on a currency-neutral basis increased approximately 6%, primarily due to increased sales in the baby care, home care, leisure and entertainment and safety and security businesses, largely related to increased sales inincluding the food preservation category, primarily due to increased point of sale,sale; the firebuilding category whose sales were positively affected by favorable weather conditions, as well as increased sales in certain products in the safety and security category in part due to increased demand at certain mass market retailers. Unfavorable foreign currency translation accounted for a decrease in net sales of approximately 1%.
Net sales in the Consumer Solutions segment decreased $19.3 million, or 5.3%. Net sales on a currency-neutral basis decreased approximately 2%. The decrease is due to a decrease in domestic net sales of approximately 8%, largely due to decreased orders in certain small appliance and home environment product categories at certain mass market retailers; partially offset by increased demand internationally, primarily in Europe and Latin America which contributed to an increase in net sales of approximately 5%, primarily due to increased point of sale, expanded distribution and new product offerings. Unfavorable foreign currency translation accounted for a decrease in net sales of approximately 3%.
Net sales in the Outdoor Solutions segment decreased $10.8 million, or 1.6%. Net sales on a currency-neutral basis were essentially flat on a period-over-period basis. Net sales in the apparel, fishing and team sports businesses provided an increase in net sales of approximately 3%, primarily due to increased sales domestically, largely due to increased demand at certain mass market retailers; the timing of sales in certain product categories and an increase seasonal demand in certain team sports product categories, in part due to more favorable weather conditions in the first quarter of 2014. This increase was mostly offset by decreased sales in the camping and outdoor and winter sports businesses, largely due to inventory management at certain major customers across many product categories and lower seasonal demand in certain winter sports categories. Unfavorable foreign currency translation accounted for a decrease in net sales of approximately 1%.
Net sales in the Process Solutions segment increased 4.9%4.8% on a period-over-period basis, primarily due to increased coinage sales.
Cost of Sales
Cost of sales increased $72.7 million, or 6.0%, to $1.3 billion for three months ended September 30, 2013March 31, 2014 increased $80.2 million, or 7.1%, to $1.2 billion versus the same prior year period. The increase iswas primarily due to the cost of sales impact of higher net sales (approximately $87 million), partially offset byYCC Acquisition. Favorable foreign currency translation (approximately $19$16 million). was essentially offset by other items. Cost of sales as a percentage of net sales for the three months ended September 30,March 31, 2014 and 2013 was 70.3% and 2012 was 70.9% and 70.6%71.9%, respectively. The improvement is in part due to product mix, which is largely due to the impact of the YCC Acquisition.
Selling, General And Administrative Costs
SG&A increased $3.0 million, or 0.9%, to $326 million for the three months ended September 30, 2013March 31, 2014 increased $64.3 million, or 16.6%, to $451 million versus the same prior year period. The impact of an increase in marketing and product development costs (approximately $10 million) relatedchange is primarily due to the Company’s investment in brand equity and the impact of acquisitionsthe YCC acquisition, partially offset by the Venezuela devaluation-related charges (approximately $8$29 million) that were recorded during the three months ended March 31, 2013. Favorable foreign currency translation (approximately $5 million) was mostlyessentially offset by other items, including favorable foreign currency translation of approximately $5 million.items.
Operating Earnings
Operating earnings for the three months ended September 30, 2013March 31, 2014 in the OutdoorBranded Consumables segment increased $10.2 million, or 25.6%, versus the same prior year period, primarily due to the YCC Acquisition, an increase in gross profit (approximately $7 million), mostly due to the gross margin impact of higher sales and slightly improved gross margins, partially offset by an increase in SG&A (approximately $6 million). Operating earnings for the three months ended March 31, 2014 in the Consumer Solutions segment increased $0.5decreased $12.0 million, or 0.8%32.0%, versus the same prior year period, primarily due to a decrease in reorganization costs (approximately $8 million), partially offset by an increase in SG&A (approximately $3 million) and a decrease in gross margin (approximately $4$9 million), primarily due to slightly lower gross margins, net ofdriven by the gross margin impact of higher sales.lower sales and slightly lower gross margins. Operating earnings for the three months ended September 30, 2013March 31, 2014 in the ConsumerOutdoor Solutions segment increased $7.2decreased $19.9 million, or 11.3%35.4%, versus the same prior year period, primarily due to a decrease in gross profit increasemargin (approximately $10$14 million), driven byprimarily due to the gross margin impact of higherlower sales partially offset byand slightly lower gross margins, and an increase in reorganization costsSG&A (approximately $2$6 million). Operating earnings for the three months ended September 30, 2013 in the Branded Consumables segment increased $14.8 million, or 24.6%, versus the same prior year period, primarily due to an increase in gross profit (approximately $18 million), mostly due to the gross margin impact of higher sales, partially offset by an increase in SG&A (approximately $3 million). Operating earningsMarch 31, 2014 in the Process Solutions segment for the three months ended September 30, 2013 decreased $1.2$2.6 million, or 12.1%21.5%, versus the same prior year period, primarily due to a decrease in gross profit, in part due to slightly lower gross margins.
Interest Expense
Net interest increased $1.4$4.4 million to $47.5$54.0 million for the three months ended September 30, 2013March 31, 2014 versus the same prior year period, primarily due to higher average debt levels, partially offset by a decrease in the weighted average interest rate for 20132014 to 4.3%4.0% from 5.1%5.0% in 2012.2013.
Income Taxes
The Company’s reported tax rate for the three months ended September 30,March 31, 2014 was 59.8%. The Company’s reported tax rate for the three months ended March 31, 2013 and 2012 was 35.4% and 37.3%, respectively.a benefit of 55.1%. The difference from the statutory tax rate to the reported tax rate for the three months ended September 30, 2013March 31, 2014 results principally from the U.S. tax expense recognized on transaction-related costs ($1.3 million).related to the taxation of foreign income. The increasedifference from the statutory tax rate to the reported tax rate (benefit) for the three months ended September 30, 2012March 31, 2013 results principally from the tax benefit ($10.4 million) related to the reversal of a deferred tax liability attributable to the reduction of Venezuelan earnings considered as not permanently reinvested and a tax benefit resulting from the passage of The American Taxpayer Relief Act of 2012 ($2.6 million), partially offset by the tax expense due to non-deductible charges primarily related to certain foreign tax audit adjustments.the devaluation of the Bolivar and from the translation of U.S. dollar denominated net assets in Venezuela ($9.3 million).
Net Income
Net income for the three months ended September 30, 2013March 31, 2014 increased $18.0$8.1 million to $94.9$3.7 million versus a loss for the same prior year period. For the three months ended September 30,March 31, 2014 and 2013, and 2012, earnings (loss) per diluted share were $0.85$0.03 and $0.66,($0.04), respectively. The increase in net income (loss) was primarily due to the gross margin impact of higher salesdevaluation and a decrease in reorganization costs ($6.3 million).
Nine Months Ended September 30, 2013 versus the Nine Months Ended September 30, 2012
Net Sales | Operating Earnings (Loss) | |||||||||||||||
Nine months ended September 30, | Nine months ended September 30, | |||||||||||||||
(in millions) | 2013 | 2012 | 2013 | 2012 | ||||||||||||
Outdoor Solutions | $ | 2,106.6 | $ | 2,075.0 | $ | 198.0 | $ | 209.5 | ||||||||
Consumer Solutions | 1,343.2 | 1,260.5 | 161.3 | 145.3 | ||||||||||||
Branded Consumables | 1,443.1 | 1,300.7 | 179.5 | 157.8 | ||||||||||||
Process Solutions | 307.2 | 292.7 | 34.7 | 29.6 | ||||||||||||
Corporate | — | — | (143.1 | ) | (95.5 | ) | ||||||||||
Intercompany eliminations | (59.8 | ) | (52.0 | ) | — | — | ||||||||||
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$ | 5,140.3 | $ | 4,876.9 | $ | 430.4 | $ | 446.7 | |||||||||
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Note: Changes in net sales on a currency neutral basis that are presented hereafter are provided to enhance visibility of the underlying operations by excluding the impact of foreign currency translation.
Net sales for the nine months ended September 30, 2013 increased $263 million, or 5.4%, to $5.1 billion versus the same period in the prior year. Excluding the impact of acquisitions (approximately 2%), net sales on a currency-neutral basis increased approximately 5%, primarily due to increased sell-through in certain product categories, expanded product offerings and increased demand internationally in certain product categories, partially offset by weakness in certain product categories and decreased demand in Europe due to unfavorable economic conditions. Unfavorable foreign currency translation accounted for a decrease in net sales of approximately 2%.
Net sales in the Outdoor Solutions segment increased $31.6 million, or 1.5%. Net sales on a currency-neutral basis increased approximately 3%, primarily due to increased sales in the camping and outdoor, fishing and technical apparel businesses, which provided an increase in net sales of approximately 4%, largelyother charges related to expanded product offerings, increased point of sale and distribution for certain products, partially offset by decreased sales in certain other businesses, primarily the winter sports business, due to lower seasonal demand. Unfavorable foreign currency translation accounted for a decrease in net sales of approximately 2%.
Net sales in the Consumer Solutions segment increased $82.7 million, or 6.6%. Excluding the impact of acquisitions (approximately 3%), net sales on a currency-neutral basis increased approximately 6%. The increase is primarily due to increased demand internationally, primarily in Latin America, which contributed to an increase in net sales of approximately 5%, primarily due to increased point of sale, improved product distribution and successful pricing strategies and an increase of approximately 1% in domestic net sales, primarily due to an increase in sales in certain personal care and wellness categories offset in part by a decline in sales in certain small appliance categories. Unfavorable foreign currency translation accounted for a decrease in net sales of approximately 3%.
Net sales in the Branded Consumables segment increased $142.4 million, or 11.0%. Excluding the impact of acquisitions (approximately 5%), net sales on a currency-neutral basis increased approximately 5%, primarily due to increased sales in the baby care, home care and leisure and entertainment businesses largely related to increased sales in certain product categories, including the food preservation category, primarily due to increased point of sale; certain products in the safety and security category in part due to increased demand at certain mass market retailers; and the firelog category whose sales were negatively affected in 2012 due to unfavorable weather conditions.
Net sales in the Process Solutions segment increased 5% on a period-over-period basis, primarily due to increased sales within each of its business units.
Cost of Sales
Cost of sales increased $200 million, or 5.8%, to $3.7 billion for nine months ended September 30, 2013 versus the same prior year period. The increase was primarily due to the cost of sales impact of higher net sales (approximately $240 million), partially offset by foreign currency translation (approximately $53 million). Cost of sales as a percentage of net sales for the nine months ended September 30, 2013 and 2012 was 71.2% and 70.9%, respectively.
Selling, General And Administrative Costs
SG&A increased $84.4 million, or 8.8%, to $1.0 billion for the nine months ended September 30, 2013 versus the same prior year period. The change is primarily due to the Venezuela devaluation-related charges (approximately $29 million), an increase in stock-based compensation (approximately $20 million) and the impact of acquisitions (approximately $26 million). Favorable foreign currency translation (approximately $16 million) was essentially offset by other items.
Operating Earnings
Operating earnings for the nine months ended September 30, 2013 in the Outdoor Solutions segment decreased $11.5 million, or 5.5%, versus the same prior year period, primarily due to an increase in SG&A (approximately $12 million), a decrease in gross profit (approximately $7 million), primarily due to slightly lower gross margins, net of the gross margin impact of higher sales, partially offset by a decrease in reorganization costs (approximately $8 million). Operating earnings for the nine months ended September 30, 2013 in the Consumer Solutions segment increased $16.0 million, or 11.0%, versus the same prior year period, primarily due to a gross profit increase (approximately $30 million), primarily due to the gross margin impact of higher sales and improved gross margins, partially offset by an increase in SG&A ($11 million) and an increase in reorganization costs (approximately $3 million). Operating earnings for the nine months ended September 30, 2013 in the Branded Consumables segment increased $21.7 million, or 13.8%, versus the same prior year period, primarily due to an increase in gross profit (approximately $35 million), in part due to the gross margin impact of higher sales, partially offset by an increase in SG&A (approximately $13 million). Operating earnings in the Process Solutions segment for the nine months ended September 30, 2013 increased $5.1 million, or 17.2%, versus the same prior year period, primarily due to an increase in gross profit, due to higher sales and improved gross margins.
Interest Expense
Net interest increased $7.5 million to $143 million for the nine months ended September 30, 2013 versus the same prior year period, primarily due to higher average debt levels, partially offset by a decrease in the weighted average interest rate for 2013 to 4.5% from 5.2% in 2012.
Income Taxes
The Company’s reported tax rate for the nine months ended September 30, 2013 and 2012 was 36.1% and 37.2 %, respectively. The difference from the statutory tax rate to the reported tax rate for the nine months ended September 30, 2013 results principally from an addition to the tax contingency reserve attributable to a foreign tax audit ($2.5 million). The increase from the statutory tax rate to the reported tax rate for the nine months ended September 30, 2012 results principally from U.S. tax expense related to the taxation of foreign income and tax expense related to foreign tax audit adjustments.
Net Income
Net income for the nine months ended September 30, 2013 decreased $28.3 million to $166.9 million versus the same prior year period. For the nine months ended September 30, 2013 and 2012, earnings per diluted share were $1.51 and $1.63, respectively. The decrease in net income was primarily due to the Venezuela devaluation-related chargesoperations ($29.0 million) and the loss on the extinguishment of debt related to($17.1 million) recorded during the Tender Offer and the Facility amendment inthree months ended March 2013 ($25.9 million), partially offset by the gross margin impact of higher sales. On a period-over-period basis, the diluted weighted average shares outstanding decreased approximately 8%, primarily due a reduction in the Company’s common shares outstanding due to the common shares repurchased pursuant to the Stock Repurchase Program.31, 2013.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
At September 30, 2013,March 31, 2014, the Company had cash and cash equivalents of $1.6$1.3 billion, of which approximately $394$445 million was held by the Company’s non-U.S. subsidiaries. Approximately $1.1 billion$523 million of the cash on hand at September 30, 2013March 31, 2014 was used to fund the YCC Acquisition.Redemption. The Company believes that its cash and cash equivalents, cash generated from operations and the availability under the Facility,Company’s senior secured credit facility, the securitization facility and the credit facilities of certain foreign subsidiaries as of September 30, 2013March 31, 2014 provide sufficient liquidity to support working capital requirements, planned capital expenditures, debt obligations, completion of current and future reorganization programs and pension plan contribution requirements for the foreseeable future.future, as well as fund the potential repurchase of shares of the Company’s common stock under the Company’s Stock Repurchase Program.
Cash Flows from Operating Activities
Net cash provided byused in operating activities was $63.2$258 million and $81.4$206 million for the ninethree months ended September 30,March 31, 2014 and 2013, and 2012, respectively. The change is primarily due to unfavorablea period-over-period increase in cash paid for taxes (approximately $26 million) and
investments in working capital, changes, in part duerelated to comparatively higher seasonal inventory levels in certain businesses, and the corresponding effect on accounts payablein part due to the timing of purchases and sales for both comparable period-ends,periods, as inventory levels at September 30, 2013March 31, 2014, excluding the impact of the YCC Acquisition, were approximately 3.5%3% higher than the comparable prior period-end, partially offset by a period-over-period decrease in cash paid for taxes (approximately $25 million).period-end.
Cash Flows from Financing Activities
Net cash provided by (used in) financing activities was $604$476 million and $212($199) million for the ninethree months ended September 30,March 31, 2014 and 2013, and 2012, respectively. The change is primarily due to the period-over-period change in the issuance/repurchase of common stock, net ($1.0 billion), partially offset by decreaseincrease in the proceeds from the issuance of long-term debt in excess of payments on long-term debt ($496596 million) and thea period-over-period decreasechange in the issuance/repurchase of common stock, net change in short-term debt ($94.971 million).
Cash Flows from Investing Activities
Net cash used in investing activities was $121$37.8 million and $222$26.6 million for the ninethree months ended September 30,March 31, 2014 and 2013, and 2012, respectively. Cash used forFor the acquisition of businesses, net of cash acquired for the ninethree months ended September 30, 2013 decreased $143 million versus the same prior year period. For the nine months ended September 30, 2013,March 31, 2014, capital expenditures were $116$41.1 million versus $76.9$24.7 million for the same prior year period. The Company expects to maintain capital expenditures at an annualized run-rate in the range of approximately 2.0% to 2.5% of net sales.
CAPITAL RESOURCES
In October 2013, the Company entered into an amendment to the Facility, which resulted in, among other things, the Company borrowing an additional $750 million under a new senior secured term loan B1 facility that matures in September 2020 and bears interest at LIBOR plus a spread of 275 basis points. The proceeds were used to fund a portion of the YCC Acquisition.
In June 2013,March 2014, the Company completed a private offering for the sale of $265$690 million aggregate principal amount of 1 1⁄2% senior subordinated convertible notes due 2019 (the “Convertible Notes”)its 2034 Convertible Notes to qualified institutional buyers pursuant to Rule 144A under the
Securities Act, as amended, and received net proceeds of approximately $259$674 million, after deducting fees and expenses. The proceeds were used to repurchase shares of the Company’s common stock (see Note 11) and for the Redemption, and the remainder will be used for general corporate purposes. The initial conversion rate is approximately 17.113.36 shares of the Company’s common stock (subject to customary adjustments, including in connection with a fundamental change transaction) per $1 thousand principal amount of the 2034 Convertible Notes, which is equivalent to aan initial conversion price of approximately $58.46$74.86 per share. TheOn or after March 18, 2024, the Company may redeem any or all of the 2034 Convertible Notes, are not subject to certain exceptions and conditions, in cash, at a redemption at the Company’s option priorprice equal to the maturity date.principal amount of 2034 Convertible Notes to be redeemed, plus accrued and unpaid interest. The holders of the 2034 Convertible Notes may require the Company to repurchase for cash all or a portion of the 2034 Convertible Notes on March 15, 2024 at a repurchase price equal to the principal amount of the 2034 Convertible Notes to be repurchased, plus accrued and unpaid interest. Prior to March 1, 2019,December 15, 2033, the Convertible Notes will be convertible only upon the occurrence of certain events and during certain periods, and thereafter, at any time until the second scheduled trading day immediately preceding the maturity date. IfAdditionally, if the Company undergoes a fundamental change (as defined in the Indenture)indenture governing the 2034 Convertible Notes) prior to maturity, holders of the 2034 Convertible Notes will have the right, at their option, tomay require the Company to repurchase for cash some or all of their 2034 Convertible Notes at a repurchase price equal to 100% of the principal amount of the 2034 Convertible Notes being repurchased, plus accrued and unpaid interest.
InAt March 2013, the Company entered into an amendment to the Facility, which resulted in, among other things, lowering the spread on the term loan A and term loan B facilities and the Company borrowing an additional $250 million under the existing senior secured term loan A portion of the Facility that matures in March 2016 and bears interest at LIBOR plus a spread of 200 basis points. Additionally, following the amendment, the existing senior secured term loan B portion of the Facility, which matures in March 2018, bears interest at LIBOR plus a spread of 250 basis points. The proceeds were used, in part, to fund the Tender Offer and the Redemption.
At September 30, 2013,31, 2014, there was no amount outstanding under the Company’s $250 million senior secured revolving credit facility (the “Revolver”) that matures in 2016. The Revolver bears interest at certain selected rates, including LIBOR plus a spread of 200 basis points.point spread. At September 30, 2013,March 31, 2014, commitment feesfee on unused balances werewas 0.38% per annum.
In October 2013, theThe Company entered into an amendment to its securitization facility that, in part, increased maximum borrowings from $400 million tomaintains a $500 million and extended the maturity untilreceivables purchase agreement (the “Securitization Facility”) that matures in October 2016. Following the amendment,At March 31, 2014, the borrowing rate margin is 0.80% and the unused line fee ison the Securitization Facility were 0.80% and 0.40% per annum.annum, respectively. At September 30, 2013,March 31, 2014, the securitization facilitySecuritization Facility had outstanding borrowings totaling $378$458 million.
At September 30, 2013,March 31, 2014, net availability under the Revolver and the Securitization Facility was approximately $232$233 million, after deducting approximately $40$35 million of outstanding standby and commercial letters of credit.
Certain foreign subsidiaries of the Company maintain working capital lines of credits with their respective local financial institutions for use in operating activities. At September 30, 2013,March 31, 2014, the aggregate amount available under these lines of credit totaled approximately $107$92 million.
The Company was not in default of any of its debt covenants at September 30, 2013.
In September 2013, pursuant to a public offering of its common stock, the Company completed an equity offering of 16.5 million newly-issued shares of common stock at $47.00 per share. The net proceeds to the Company, after the payment of underwriting discounts and other expenses of the offering, were approximately $745 million. The proceeds were used to fund a portion of the YCC Acquisition.
On February 28, 2013, in conjunction with such increase and pursuant to the Stock Repurchase Program, the Company entered into the ASR Agreement to repurchase an aggregate of $250 million of its common stock. Pursuant to the ASR Agreement, the Company paid $250 million for the repurchase of its common stock. During the three months ended September 30, 2013, the ASR was finalized in accordance with its settlement provisions and an additional 0.1 million shares were delivered to the Company. During the nine months ended September 30, 2013, approximately 5.6 million shares valued at $250 million or $44.45 per share, have been delivered under the ASR Agreement and are included in treasury stock. At September 30, 2013, approximately $250 million remains available under the Stock Repurchase Program.March 31, 2014.
Risk Management
Interest Rate Contracts
The Company manages its fixed and floating rate debt mix using interest rate swaps. The Company uses fixed and floating rate swaps to alter its exposure to the impact of changing interest rates on its consolidated results of operations and future cash outflows for interest. Floating rate swaps are used, depending on market conditions, to convert the fixed rates of long-term debt into short-term variable rates. Fixed rate swaps are used to reduce the Company’s risk of the possibility of increased interest costs. Interest rate swap contracts are therefore used by the Company to separate interest rate risk management from the debt funding decision.
Cash Flow Hedges
During 2013, the Company entered into an aggregate $250 million notional amount of interest rate swaps that exchange a variable rate of interest (LIBOR) for an average fixed rate of interest of approximately 1.6% over the term of the agreements, which mature on DecemberAt March 31, 2017. These swaps are forward-starting and are effective commencing December 31, 2015. The Company has designated these swaps as cash flow hedges of the interest rate risk attributable to forecasted variable interest (LIBOR) payments.
At September 30, 2013,2014, the Company had $1.2 billion$850 million notional amount outstanding in swap agreements, which include $500 million and $250includes $350 million notional amount of forward-starting swaps that will become effective commencing December 31, 2013 and 2015, respectively, that exchange a variable rate of interest (LIBOR) for fixed interest rates over the terms of the agreements and are designated as cash flow hedges of the interest rate risk attributable to forecasted variable interest payments and have maturity dates through December 2017.June 2020. At September 30, 2013,March 31, 2014, the weighted average fixed rate of interest on these swaps, excluding the forward-starting swaps, was approximately 1.6%1.3%. The effective portion of the after-tax fair value gains or losses on these swaps is included as a component of AOCI.accumulated other comprehensive income (“AOCI”).
Foreign Currency Contracts
The Company uses forward foreign currency contracts to mitigate the foreign currency exchange rate exposure on the cash flows related to forecasted inventory purchases and sales and have maturity dates through June 2015.January 2016. The derivatives used to hedge these forecasted transactions that meet the criteria for hedge accounting are accounted for as cash flow hedges. The effective portion of the gains or losses on these derivatives is deferred as a component of AOCI and is recognized in earnings at the same time that the hedged item affects earnings and is included in the same caption in the statements of operations as the underlying hedged item. At September 30, 2013,March 31, 2014, the Company had approximately $500$510 million notional amount outstanding of forward foreign currency contracts that are designated as cash flow hedges of forecasted inventory purchases and sales.
The Company also uses foreign currency contracts, which include forward foreign currency contracts and foreign currency options, to mitigate the foreign currency exposure of certain other foreign currency transactions. At September 30, 2013,March 31, 2014, the Company had approximately $290$287 million notional amount outstanding of these foreign currency contracts that are not designated as effective hedges for accounting purposes and have maturity dates through December 2014.January 2015. Fair market value gains or losses are included in the results of operations and are classified in SG&A.
Commodity Contracts
The Company enters into commodity-based derivatives in order to mitigate the risk that the rising price of these commodities could have on the cost of certain of the Company’s raw materials. These commodity-based derivatives provide the Company with cost certainty, and in certain instances, allow the Company to benefit should the cost of the commodity fall below certain dollar thresholds. At September 30, 2013,March 31, 2014, the Company had approximately $4$7 million notional amount outstanding of commodity-based derivatives that are not designated as effective hedges for accounting purposes and have maturity dates through MarchDecember 2014. Fair market value gains or losses are included in the results of operations and are classified in cost of sales.
The following table presents the fair value of derivative financial instruments as of September 30, 2013:March 31, 2014:
September 30, 2013 | March 31, 2014 | |||||||
(in millions) | Asset (Liability) | Asset (Liability) | ||||||
Derivatives designated as effective hedges: | ||||||||
Cash flow hedges: | ||||||||
Interest rate swaps | $ | (6.2 | ) | $ | (4.2 | ) | ||
Foreign currency contracts | 2.4 | 0.3 | ||||||
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Subtotal | (3.8 | ) | (3.9 | ) | ||||
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Derivatives not designated as effective hedges: | ||||||||
Foreign currency contracts | (0.2 | ) | (3.6 | ) | ||||
Commodity contracts | 0.3 | 0.5 | ||||||
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Subtotal | 0.1 | (3.1 | ) | |||||
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Total | $ | (3.7 | ) | $ | (7.0 | ) | ||
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Net Investment Hedge
The Company has designated approximately €109€148 million of the principal balance of its Euro-denominated 7 1⁄2% senior subordinated notes due 2020, with an aggregate principal balance of €150 million, as a net investment hedge (the “Hedging Instrument”) of the foreign currency exposure of its net investment in certain Euro-denominated subsidiaries. Foreign currency gains and losses on the Hedging Instrument are included as a component of AOCI.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Other than as discussed above, there have been no material changes from the information previously reported under Part II, Item 7A. in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012.2013.
Item 4. | Controls and Procedures |
As required by Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of its disclosure controls and procedures as of the end of the period covered by this Quarterly Report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective as of the end of the period covered by this Quarterly Report.
As required by Rule 13a-15(d) under the Exchange Act, the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the Company’s internal control over financial reporting to determine whether any changes occurred during the quarter covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, there have been no such changes during the quarter covered by this Quarterly Report.
Item 1. | Legal Proceedings |
The Company is involved in various legal disputes and other legal proceedings that arise from time to time in the ordinary course of business. In addition, the Company and/or certain of its subsidiaries have been identified by the United States Environmental Protection Agency (“EPA”) or a state environmental agency as a Potentially Responsible Party pursuant to the federal Superfund Act and/or state Superfund laws comparable to the federal law at various sites. Based on currently available information, the Company does not believe that the disposition of any of the legal or environmental disputes the Company or its subsidiaries are currently involved in will have a material adverse effect upon the consolidated financial condition, results of operations or cash flows of the Company. It is possible that, as additional information becomes available, the impact on the Company of an adverse determination could have a different effect.
Litigation
The Company and/or its subsidiaries are involved in various lawsuits arising from time to time that the Company considers ordinary routine litigation incidental to its business. Amounts accrued for litigation matters represent the anticipated costs (damages and/or settlement amounts) in connection with pending litigation and claims and related anticipated legal fees for defending such actions. The costs are accrued when it is both probable that a liability has been incurred and the amount can be reasonably estimated. The accruals are based upon the Company’s assessment, after consultation with counsel (if deemed appropriate), of probable loss based on the facts and circumstances of each case, the legal issues involved, the nature of the claim made, the nature of the damages sought and any relevant information about the plaintiffs and other significant factors that vary by case. When it is not possible to estimate a specific expected cost to be incurred, the Company evaluates the range of probable loss and records the minimum end of the range. The Company believes that anticipated probable costs of litigation matters have been adequately reserved to the extent determinable. Based on current information, the Company believes that the ultimate conclusion of the various pending litigation of the Company, in the aggregate, will not have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company.
Product Liability
As a consumer goods manufacturer and distributor, the Company and/or its subsidiaries face the risk of product liability and related lawsuits involving claims for substantial money damages, product recall actions and higher than anticipated rates of warranty returns or other returns of goods.
The Company and/or its subsidiaries are therefore party to various personal injury and property damage lawsuits relating to their products and incidental to their business. Annually, the Company sets its product liability insurance program, which is an occurrence- based program based on the Company and its subsidiaries’ current and historical claims experience and the availability and cost of insurance. The Company’s product liability insurance program generally includes a self-insurance retention per occurrence.
Cumulative amounts estimated to be payable by the Company with respect to pending and potential claims for all years in which the Company is liable under its self-insurance retention have been accrued as liabilities. Such accrued liabilities are based on estimates (which include actuarial determinations made by an independent actuarial consultant as to liability exposure, taking into account prior experience, number of claims and other relevant factors); thus, the Company’s ultimate liability may exceed or be less than the amounts accrued. The methods of making such estimates and establishing the resulting liability are reviewed on a regular basis and any adjustments resulting therefrom are reflected in current operating results.
Based on current information, the Company believes that the ultimate conclusion of the various pending product liability claims and lawsuits of the Company, in the aggregate, will not have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company.
Item 1A. | Risk Factors |
There have been no material changes in our risk factors from those disclosed in Part I, Item 1A. of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012.2013.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
On February 28, 2013, in conjunction with such increase and pursuant to the Company’s existing stock repurchase program (the “Stock Repurchase Program”),The following table provides information about purchases by the Company entered into accelerated stock repurchase agreements (collectively, the “ASR
Agreement”) to repurchase an aggregate of $250 million of its common stock. Pursuant to the ASR Agreement, the Company paid $250 million for the repurchase of its common stock. Duringduring the three months ended September 30, 2013,March 31, 2014, of equity securities of the ASR was finalized in accordance with its settlement provisions and an additional 0.1 million shares were delivered to the Company. During the nine months ended September 30, 2013, approximately 5.6 million shares valued at $250 million or $44.45 per share, have been delivered under the ASR Agreement and are included in treasury stock. At September 30, 2013, approximately $250 million remains available under the Stock Repurchase Program.
Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased As Part of a Publicly Announced Repurchase Program (1) | Approximate Dollar Value of Shares that May Yet be Purchased Under the Repurchase Program (1) | ||||||||||||
January 1 – January 31 | — | $ | — | — | $ | 250,000,000 | ||||||||||
February 1 – February 28 | 1,015,141 | (2) | 61.56 | — | $ | 500,000,000 | ||||||||||
March 1 – March 31 | 2,685,806 | 60.65 | 2,685,806 | $ | 337,114,000 | |||||||||||
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Total | 3,700,947 | |||||||||||||||
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(1) | In February 2014, the Company’s Board of Directors authorized an increase in the then available amount under the Company’s existing stock repurchase program to allow for the repurchase of up to $500 in aggregate of the Company’s common stock. |
(2) | Represents shares tendered for the satisfaction of employee withholding taxes in connection with the vesting of certainshare-based awards. |
Item 6. | Exhibits |
The following exhibits are filed as part of this Quarterly Report on Form 10-Q:
Exhibit | Description | |
3.1 | Restated Certificate of Incorporation of the Company (filed as Exhibit 3.1 to the Company’s Annual Report on Form 10-K, filed on March 27, 2002, and incorporated herein by reference). | |
3.2 | Certificate of Amendment of the Restated Certificate of Incorporation of the Company (filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed on June 4, 2002, and incorporated herein by reference). | |
3.3 | Certificate of Amendment of the Restated Certificate of Incorporation of the Company (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on June 15, 2005, and incorporated herein by reference). | |
3.4 | Certificate of Amendment of the Restated Certificate of Incorporation of the Company (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on June 17, 2011, and incorporated herein by reference). | |
3.5 | Second Amended and Restated Bylaws of the Company (filed as Exhibit 3.2 to the Company’s Current Report onForm 8-K, filed on June 17, 2011, and incorporated herein by reference). | |
4.1 | Indenture related to Jarden Corporation’s 1 1⁄8% Senior Subordinated Convertible Notes due 2034, dated as of March 17, 2014, among Jarden Corporation, the subsidiary guarantors party thereto and Wells Fargo Bank, National Association, as trustee (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on March 21, 2014, and incorporated herein by reference). | |
4.2 | Form of 1 1⁄8% Senior Subordinated Convertible Notes due 2034 (filed as Exhibit A to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on March 21, 2014, and incorporated herein by reference). | |
†10.1 | ||
†10.2 | ||
†10.3 | ||
†10.4 | ||
†10.5 | Restricted Stock Agreement, dated February 12, 2014, between the Company and Ian G.H. Ashken (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed on February 14, 2014, and incorporated herein by reference). | |
†10.6 | Restricted Stock Agreement, dated February 12, 2014, between the Company and James E. Lillie (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed on February 14, 2014, and incorporated herein by reference). | |
10.7 | Purchase Agreement, dated as of March 11, 2014, by and among Jarden Corporation, and Barclays Capital Inc., Credit Suisse Securities (USA) LLC and J.P. Morgan Securities LLC, as representatives of the initial purchasers (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on March 14, 2014, and incorporated herein by reference). |
Exhibit | Description | |
*31.1 | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) as Adopted Pursuant to Section 302 of theSarbanes-Oxley Act of 2002. | |
*31.2 | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) as Adopted Pursuant to Section 302 of theSarbanes-Oxley Act of 2002. | |
*32.1 | Certifications Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101 | The following materials from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2014, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Statements of Operations for the three ended March 31, 2014 and 2013, (ii) the Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2014 and 2013, (iii) the Condensed Consolidated Balance Sheets at March 31, 2014 and December 31, 2013, (iv) the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and 2013, and (v) and Notes to Condensed Consolidated Financial Statements. |
* | Filed herewith. |
† | This Exhibit represents a management contract or compensatory plan. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: May 2, 2014 | ||
JARDEN CORPORATION | ||
(Registrant) | ||
By: | /s/ James L. Cunningham III | |
Name: | James L. Cunningham III | |
Title: | Senior Vice President and Chief Accounting Officer (Principal Accounting Officer) |
*31.1 | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
*31.2 | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) as Adopted Pursuant to Section 302 of theSarbanes-Oxley Act of 2002. | |
*32.1 | Certifications Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101 | The following materials from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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* | Filed herewith |
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