What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-07-28 compared with 2023-04-28 · 230 added, 82 removed, 175 unchanged (64% of the section changed)

17 unchanged sentences

• the cost and outcomes of governmental investigations, inspections, lawsuits, legislative requests or other actions by third parties, including but not limited to, those described in Footnote 17 of the Notes to Unaudited Condensed Consolidated Financial Statements , the potential outcomes of which could exceed policy limits, to the extent insured;

• the Company's ability to effectively execute its turnaround plan, including Project Ovid, Project Phoenix and the Network Optimization Project;

• the Company’s ability to develop innovative new products, to develop, maintain and strengthen end-user brands and to realize the benefits of increased advertising and promotion spend;

3 unchanged sentences

• unexpected costs or expenses associated with dispositions;

• the Company's ability to effectively execute its turnaround plan, including Project Ovid and Project Phoenix;

• risks related to the Company’s substantial indebtedness, potential increases in interest rates or changes in the Company’s credit ratings;

• a failure or breach of one of the Company’s key information technology systems, networks, processes or related controls or those of the Company’s service providers;

• the impact of United States and foreign regulations on the Company’s operations, including the impact of tariffs and environmental remediation costs and legislation and regulatory actions related to data privacy and climate change;

• the impact of United States and foreign regulations on the Company’s operations, including the impact of tariffs, product regulation and legislation and environmental remediation costs and legislation and regulatory actions related to data privacy and climate change;

• the potential inability to attract, retain and motivate key employees;

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Newell Brands is a leading global consumer goods company with a strong portfolio of well-known brands, including Rubbermaid, Sharpie, Graco, Coleman, Rubbermaid Commercial Products, Yankee Candle, Paper Mate, FoodSaver, Dymo, EXPO, Elmer’s, Oster, NUK, Spontex and Campingaz.

Newell Brands’ beloved brands enhance and brighten consumers lives at home and outside by creating moments of joy, building confidence and providing peace of mind.

Newell Brands is focused on delighting consumers by lighting up everyday moments.

The Company sells its products in nearly 200 countries around the world and has operations on the ground in over 40 of these countries, excluding third-party distributors.

Business Strategy

The Company continues to execute on its turnaround strategy of building a global, next generation consumer products company that can unleash the full potential of its brands in a fast-moving omni-channel environment.

The strategy, developed in 2019, is designed to:

• Drive sustainable top line growth by focusing on innovation, sharpening brand positioning, strengthening the international businesses, enhancing digital marketing and omni-channel capabilities, and building customer relationships;

• Improve operating margins by driving productivity and overhead savings, while reinvesting in the business;

• Accelerate the cash conversion cycle by focusing on cash efficiency and improving key working capital metrics;

• Strengthen the portfolio by investing in attractive categories that are aligned with its capabilities and strategy and optimizing product mix;

• Strengthen organizational capabilities and employee engagement by building a winning team and focusing the best people on the right things.

The Company is implementing this strategy while addressing key challenges such as shifting consumer preferences and behaviors;

New Business Strategy

Following a comprehensive assessment of key capabilities, effective the second quarter of 2023, the leadership team began implementing an integrated set of new “where to play” and “how to win” strategies designed to enable the Company to leverage the scale of the portfolio, while further building upon its operational foundation and strengthening its front-end capabilities.

As part of its strategy, the Company is focused on:

• Driving meaningful improvement in front-end capabilities, including consumer understanding, brand management, brand communications, innovation and go-to-market execution;

• Disproportionately investing in the Company's largest and most profitable brands, fastest-growing channels, major retailers and key geographies;

• Turning the Company's scale into a competitive advantage, enabling cost savings that provide fuel for reinvestment;

• Transitioning to a high-performance organization as the Company transforms its culture.

The Company is implementing this strategy while continuing to address key challenges such as shifting consumer preferences and behaviors;

a highly competitive operating environment;

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a softening macro backdrop;

significant inflationary and supply chain pressures, and an evolving regulatory landscape.

Continued execution of these strategic imperatives, in combination with new initiatives aimed to build operational excellence, will better position the Company for long-term sustainable growth.

significant inflationary pressures, and an evolving regulatory landscape.

Execution of these strategic imperatives, in combination with other initiatives aimed to build operational excellence, will better position the Company for long-term sustainable growth.

One such initiative is Project Ovid, a multi-year, customer centric supply chain initiative to transform the Company's go-to-market capabilities in the U.S., improve customer service levels and drive operational efficiencies.

This initiative, which commenced its first phase go-live during the third quarter of 2022 and its second phase go-live during the first quarter of 2023, is expected to leverage technology to further simplify the organization by harmonizing and automating processes.

This initiative, which completed its first phase go-live during the third quarter of 2022 and its second phase go-live during the first quarter of 2023, is expected to leverage technology to further simplify the organization by harmonizing and automating processes.

Project Ovid is designed to optimize the Company’s distribution network by creating a single integrated supply chain from 23 business-unit-centric supply chains.

The initiative is intended to reduce administrative complexity, improve inventory and invoicing workflow for our customers and enhance product availability for consumers through omni-channel enablement.

This new operating model is also expected to drive efficiencies by consolidating the number of overall distribution sites and better utilizing the Company's transportation and distribution network.

In January 2023, the Company announced a restructuring and savings initiative (“Project Phoenix”) that is intended to strengthen the Company by leveraging its scale to further reduce complexity, streamlining its operating model and driving operational efficiencies.

This new operating model is also expected to drive efficiencies by better utilizing the Company's transportation and distribution network and consolidating the number of overall distribution sites.

In May 2023, the Company announced a restructuring and savings initiative that is intended to simplify and streamline its North American distribution network (the “Network Optimization Project”) in order to improve the Company’s cost structure and operating margins while maintaining focus on customer and consumer fulfillment.

The Company initiated implementation of the Network Optimization Project during the second quarter of 2023 and expects it to be substantially implemented by the end of fiscal year 2024.

The Network Optimization Project incorporates a variety of initiatives, including a reduction in the overall number of distribution centers, an optimization of distribution by location, and completion of select automation investments intended to further streamline the Company’s cost structure and to maximize operating performance.

The Company expects to incur $30 million to $40 million in capital expenditures related to the Network Optimization Project.

efficiencies.

Project Phoenix is expected to be substantially implemented by the end of 2023 and incorporates a variety of initiatives designed to simplify the organizational structure, streamline the Company’s real estate portfolio, centralize the Company’s supply chain functions, which include manufacturing, distribution, transportation and customer service, transition to a unified One Newell go-to-market model in key international geographies, and otherwise reduce overhead costs.

The Company commenced reducing headcount during the first quarter of 2023, with most of these actions expected to be completed by the end of 2023, subject to local law and consultation requirements.

In addition, the Company's ongoing review of its operating footprint and non-core brands will result in future restructuring charges.

Organizational Structure

17 unchanged sentences

gourmet cookware, bakeware and cutlery and home fragrance products

Development Aprica, Baby Jogger, Dymo, Elmer’s, EXPO, Graco, Mr.

Learning and Development Aprica, Baby Jogger, Dymo, Elmer’s, EXPO, Graco, Mr.

Sketch, NUK, Paper Mate, Parker, Prismacolor, Sharpie, Tigex, Waterman and X-Acto Baby gear and infant care products;

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Current Macroeconomic Conditions

The Company, which has been impacted in recent years by inflationary and supply chain pressures, labor shortages, and logistical challenges across its businesses, and more recently by indirect macroeconomic impacts from the Russia-Ukraine conflict, continues to experience additional headwinds due to softening global demand and an increased focus by retailers to rebalance inventory levels.

These collective macroeconomic trends, the duration or severity of which are highly uncertain, are rapidly changing the retail and consumer landscape are expected to negatively impact the Company’s operating results, cash flows and financial condition during the current year.

The Company continues to be impacted by inflationary pressures, softening global demand, focus by major retailers on the rebalancing of inventory levels, rising interest rates and indirect macroeconomic impacts from the Russia-Ukraine conflict.

These collective macroeconomic trends, the duration or severity of which are highly uncertain, are rapidly changing the retail and consumer landscape and are expected to continue to negatively impact the Company’s operating results, cash flows and financial condition during the current year.

To help mitigate the negative impact of these conditions to the operating performance of its businesses, the Company has secured selective pricing increases, accelerated productivity initiatives, optimized advertising and promotion expenses, deployed overhead cost containment efforts, adjusted demand forecasts and supply plans, and taken actions designed to improve working capital.

The Company will continue to evaluate other opportunities to improve its financial performance both in the short and long term, including the consolidation of its distribution sites.

The Company will continue to evaluate other opportunities to improve its financial performance both in the short and long term, including the strategic initiatives described in the preceding section.

Although management has made its best estimates and assumptions based upon current information, actual results could materially differ given the uncertainty of these factors and may require future changes to such estimates and assumptions, including reserves, which may result in future expense or impairment charges.

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See Footnote 1 of the Notes to Unaudited Condensed Consolidated Financial Statements for further information on use of estimates and risks.

Network Optimization Project

The Company initiated implementation of the Network Optimization Project during the second quarter of 2023 and expects it to be substantially implemented by the end of fiscal year 2024.

During the three and six months ended June 30, 2023, the Company recorded restructuring charges of $2 million in connection with the project.

See Footnote 4 of the Notes to Unaudited Condensed Consolidated Financial Statements for further information.

During the three and six months ended June 30, 2023, the Company recorded restructuring-related charges of $7 million in connection with the project.

Project Phoenix

In January 2023, the Company announced Project Phoenix, a restructuring and savings initiative described above that aims to strengthen the Company by leveraging its scale to further reduce complexity by streamlining its operating model and driving operational efficiencies.

During the three months ended March 31, 2023, the Company recorded restructuring charges of $36 million in connection with the program.

During the three and six months ended June 30, 2023, the Company recorded restructuring charges of $17 million and $53 million, respectively, in connection with the Project Phoenix.

See Footnote 4 of the Notes to Unaudited Condensed Consolidated Financial Statements for further information.

During the three and six months ended June 30, 2023, the Company recorded restructuring-related charges of $4 million and $10 million, respectively, in connection with the project.

Goodwill and Other Indefinite-Lived Intangible Asset Impairment

During the second quarter of 2023, the Company concluded that a triggering event had occurred for an indefinite-lived tradename in the Home Fragrance reporting unit in the Home and Commercial Solutions segment and for the goodwill associated with the Baby reporting unit in the Learning and Development segment, as a result of a downward revision of forecasted cash flows due to softening global demand, primarily caused by continued inflationary pressure that is impacting discretionary spending behavior of consumers, as well as rising interest rates.

The Company performed a quantitative impairment test and determined that the indefinite-lived tradename in the Home and Commercial Solutions segment was impaired.

During the three and six months ended June 30, 2023, the Company recorded an aggregate non-cash impairment charge of $8 million, as the carrying value of the tradename exceeded its fair value.

The Company concluded that the Baby reporting unit goodwill was not impaired during the second quarter of 2023.

See Footnotes 1 and 7 of the Notes to the Unaudited Condensed Consolidated Financial Statements and Significant Accounting Policies and Critical Estimates for further information.

Debt Rating Downgrade

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In addition, the Company is still subject to the interest rate adjustment of 25 basis points in connection with the Moody’s Corporation (“Moody’s”) downgrade of the Company's debt rating in 2020.

Furthermore, as a result of the S&P downgrade, the Company's ability to borrow from the commercial paper market on terms it deems acceptable or favorable was eliminated.

Furthermore, as a result of the S&P downgrade, the Company's

ability to borrow from the commercial paper market on terms it deems acceptable or favorable was eliminated.

See Footnote 9 of the Notes to Unaudited Condensed Consolidated Financial Statements for further information.

On February 14, 2023, Fitch Ratings downgraded the Company's debt rating to “BB”.

This downgrade does not impact the interest rates on any of the Company's senior notes.

This downgrade did not impact the interest rates on any of the Company's senior notes.

Amendment to Credit Revolver

2 unchanged sentences

See Footnote 9 of the Notes to Unaudited Condensed Consolidated Financial Statements for further information.

Three Months Ended March 31, 2023 vs.

Three Months Ended March 31, 2022

Results of Operations

Three Months Ended June 30, 2023 vs.

Three Months Ended June 30, 2022

Consolidated Operating Results

Three Months Ended

(in millions) 2023 2022 $ Change % Change

Net sales $ 2,204 $ 2,534 $ (330) (13.0)%

Gross profit 629 836 (207) (24.8)%

Gross margin 28.5 % 33.0 %

Operating income 120 328 (208) (63.4)%

Operating margin 5.4 % 12.9 %

Interest expense, net 76 55 21 38.2%

Other expense, net 9 21 (12) (57.1)%

Income before income taxes 35 252 (217) (86.1)%

Income tax provision 17 53 (36) (67.9)%

Income tax rate 48.6 % 21.0 %

Net income $ 18 $ 199 $ (181) (91.0)%

Diluted earnings per share attributable to common shareholders $ 0.04 $ 0.48

Net sales for the three months ended June 30, 2023 decreased 13%.

Net sales were unfavorably impacted by softening global demand, as major retailers significantly pulled back on orders to rebalance inventory levels and the impact of inflation continued to pressure consumer spending, partially offset by early order timing ahead of a price increase taking effect in the third quarter of 2023 for certain product lines and ahead of the back to school season, as well as pricing actions by the Company.

Changes in foreign currency unfavorably impacted net sales by $17 million, or 1%.

Gross profit decreased 25% and gross margin decreased to 28.5% as compared with 33.0% in the prior year period.

The decrease in gross margin was driven by lower gross profit leverage, higher restructuring-related charges and input cost inflation, partially offset by favorable pricing and gross productivity.

Changes in foreign currency exchange rates unfavorably impacted gross profit by $9 million or 1%.

Notable items impacting operating income for the three months ended June 30, 2023 and 2022 are as follows:

Three Months Ended

2023 2022 $ Change

Impairment of intangible and other assets (See Footnotes 1 and 7 )

$ 11 $ — $ 11

Restructuring (See Footnote 4 ) and restructuring-related costs (a)

Transactions costs and other (b)

(a) Restructuring-related costs reported in cost of goods sold and selling, general and administrative expenses (“SG&A”) for the three months ended June 30, 2023 were $26 million and net recovery of $9 million, respectively, and primarily relate to facility closures.

For the three months ended June 30, 2022, restructuring-related costs reported in cost of sales and SG&A were $2 million, net and primarily relate to facility closures.

Restructuring costs were $22 million and $4 million for the three months ended June 30, 2023 and 2022, respectively.

(b) Transactions and other costs for the three months ended June 30, 2023 and 2022 primarily related to costs for certain legal proceedings and completed divestitures.

Operating income decreased to $120 million as compared to $328 million in the prior year period.

The decrease in operating income reflects impact of lower gross profit, higher restructuring and restructuring-related charges, primarily in connection with Project Phoenix and the Network Optimization Project, and non-cash impairment charges primarily related to an indefinite-lived tradename, partially offset by lower advertising and promotion costs and savings from restructuring actions.

Interest expense, net increased primarily due to higher interest rates and debt levels, partially offset by higher interest income.

The weighted average interest rates for the three months ended June 30, 2023 and 2022 were approximately 5.3% and 4.2%, respectively.

See Footnote 9 of the Notes to the Unaudited Condensed Consolidated Financial Statements for further information.

Other expense, net for three months ended June 30, 2023 and 2022 includes the following items:

Three Months Ended

Foreign exchange losses, net $ 3 $ 23

Gain on disposition of businesses (See Footnote 2 )

Pension settlement costs (See Footnote 11 )

Other losses, net 1 1

Income tax provision for the three months ended June 30, 2023 was $17 million as compared to $53 million for the three months ended June 30, 2022.

The effective tax rate for the three months ended June 30, 2023 was 48.6%, resulting from increased discrete tax expense, as compared to 21.0% for the three months ended June 30, 2022.

See Footnote 12 of the Notes to the Unaudited Condensed Consolidated Financial Statements for further information.

Business Segment Operating Results

Home and Commercial Solutions

Three Months Ended

(in millions) 2023 2022 $ Change % Change

Net sales $ 1,058 $ 1,242 $ (184) (14.8)%

Operating income (loss) (21) 74 (95) NM

Operating margin (2.0) % 6.0 %

Notable items impacting operating income (loss) comparability:

Impairment of intangible and other assets (See Footnotes 1 and 7 )

NM - NOT MEANINGFUL

Home and Commercial Solutions net sales for the three months ended June 30, 2023 decreased 15%, which reflected softening global demand across all businesses, slightly offset by early order timing ahead of a price increase taking effect in the third quarter of 2023 for certain product lines and by pricing actions.

Changes in foreign currency unfavorably impacted net sales by $10 million, or 1%.

Operating loss for the three months ended June 30, 2023 was $21 million as compared to operating income of $74 million in the prior year period.

This decrease in operating results is primarily due to lower gross profit leverage, product mix and input cost inflation, higher restructuring and restructuring-related charges in connection with Project Phoenix and non-cash impairment charges primarily related to an indefinite-lived tradename, partially offset by gross productivity, lower advertising and promotion costs and savings from restructuring actions.

Learning and Development

Three Months Ended

(in millions) 2023 2022 $ Change % Change

Net sales $ 813 $ 865 $ (52) (6.0)%

Operating income 188 245 (57) (23.3)%

Operating margin 23.1 % 28.3 %

Learning and Development net sales for the three months ended June 30, 2023 decreased 6%.

Growth in the Writing business was offset by a decline in the Baby business.

The Writing business performance reflected pricing actions, innovation and early order timing ahead of the back to school season, partially offset by softening demand in certain categories.

The Baby business reflects softening demand in certain categories and lower sales to a customer that recently declared bankruptcy, partially offset by pricing actions.

Changes in foreign currency unfavorably impacted net sales by $3 million.

Operating income for the three months ended June 30, 2023 decreased to $188 million as compared to $245 million in the prior-year period.

The decrease in operating income is primarily due to lower gross profit leverage and input cost inflation, as well as higher restructuring and restructuring-related charges primarily related to Project Phoenix, partially offset by gross productivity and savings from restructuring actions.

Outdoor and Recreation

Three Months Ended

(in millions) 2023 2022 $ Change % Change

Net sales $ 333 $ 427 $ (94) (22.0)%

Operating income 5 48 (43) (89.6)%

Operating margin 1.5 % 11.2 %

Outdoor and Recreation net sales for the three months ended June 30, 2023 decreased 22%, reflecting softening global demand and distribution losses, partially offset by pricing actions.

Changes in foreign currency unfavorably impacted net sales by $4 million or 1%.

Operating income for the three months ended June 30, 2023 was $5 million as compared to $48 million in the prior-year period.

The decline was due to lower gross profit leverage, product mix and higher restructuring-related charges, partially offset by gross productivity and savings from restructuring actions.

Six Months Ended June 30, 2023 vs.

Six Months Ended June 30, 2022

Consolidated Operating Results

Six Months Ended

(in millions) 2023

3 unchanged sentences

Gross margin 27.7 % 32.0 %

Operating income (loss) (36) 217 (253) NM

Operating income 84 545 (461) (84.6)%

Operating margin 2.1 % 11.1 %

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Income (loss) before income taxes (81) 528 (609) NM

Income tax provision (benefit) (14) 48 (62) NM

Income tax provision 3 101 (98) (97.0)%

Income tax rate (3.7) % 19.1 %

2 unchanged sentences

NM - NOT MEANINGFUL

Net sales decreased 24%, as pricing actions by the Company were more than offset by softening global demand, as retailers significantly pulled back on orders, the impact of the sale of the CH&S business at the end of the first quarter of 2022, which negatively impacted net sales by approximately 5%, and category exits, primarily in the Home and Commercial Solutions segment.

The net sales performance also reflected the lapping of elevated levels of demand in certain categories during the prior year.

In addition, prior year net sales benefited from a shift in customer orders normally placed in the second quarter of the year.

Net sales for the six months ended June 30, 2023 decreased 19%.

Net sales were unfavorably impacted by softening global demand, as major retailers significantly pulled back on orders to rebalance inventory levels and the impact of inflation continued to pressure consumer spending, and category exits, primarily in the Home and Commercial Solutions segment, partially offset by early order timing ahead of a price increase taking effect in the third quarter of 2023 for certain product lines and ahead of the back to school season, as well as pricing actions by the Company.

The sale of the CH&S business at the end of the first quarter of 2022, negatively impacted net sales by approximately 2%.

Changes in foreign currency unfavorably impacted net sales by $66 million, or 1%.

1 unchanged sentence

Gross margin declined to 27.7% as compared with 32.0% in the prior year period.

The decrease in gross margin was driven by lower gross profit leverage and input cost inflation.

The gross margin decline was partially offset by favorable net pricing and gross productivity.

The decrease in gross margin was driven by lower gross profit leverage, higher restructuring-related charges and input

cost inflation.

The gross margin decline was partially offset by favorable pricing and gross productivity.

The gross profit decline also reflected the unfavorable impact of the sale of the CH&S business in the prior year.

Changes in foreign currency exchange rates unfavorably impacted gross profit by $34 million, or 2%.

In addition to the change in gross profit noted above, notable items impacting operating income (loss) for the three months ended March 31, 2023 and 2022 were as follows:

Three Months Ended

Notable items impacting operating income for the six months ended June 30, 2023 and 2022 were as follows:

Six Months Ended

2023 2022 $ Change

Restructuring (See Footnote 4 ) and restructuring-related costs (a)

Impairment of intangible and other assets (See Footnotes 1 and 7 )

$ 11 $ — $ 11

Restructuring (See Footnote 4 ) and restructuring-related costs (a)

Transactions costs and other (b)

(a) Restructuring-related costs reported in cost of goods sold and SG&A for the three months ended March 31, 2023 was $5 million and $8 million, respectively, and primarily relate to facility closures.

For the three months ended March 31, 2022, restructuring-related costs reported in cost of sales and SG&A were $5 million and $1 million, respectively, and primarily relate to facility closures.

Restructuring costs were $38 million and $5 million for the three months ended March 31, 2023 and 2022, respectively.

(b) Transaction and other costs for the three months ended March 31, 2023 primarily related to expenses associated with certain legal proceedings.

Transaction and other costs for the three months ended March 31, 2022 primarily related to completed divestitures and expenses associated with certain legal proceedings.

Operating loss was $36 million as compared to operating income of $217 million in the prior year period.

The decline reflects lower gross profit, higher restructuring charges, in connection with Project Phoenix, partially offset by lower compensation and overhead expense, advertising and promotion costs and an employee retention credit in connection with the CARES Act.

(a) Restructuring-related costs reported in cost of goods sold and SG&A for the six months ended June 30, 2023 was $31 million and recovery of $1 million, respectively, and primarily relate to facility closures.

For the six months ended June 30, 2022, restructuring-related costs reported in cost of sales was $8 million, and primarily relate to facility closures.

Restructuring costs were $60 million and $9 million for the six months ended June 30, 2023 and 2022, respectively.

(b) Transaction and other costs for the six months ended June 30, 2023 and 2022 primarily relate to expenses associated with certain legal proceedings.

and completed divestitures.

Operating income was $84 million as compared to $545 million in the prior year period.

The decline reflects lower gross profit, higher restructuring and restructuring-related charges, primarily in connection with Project Phoenix and the Network Optimization Project, and non-cash impairment charges primarily related to an indefinite-lived tradename, partially offset by lower advertising and promotion costs, savings from restructuring actions and an employee retention credit in connection with the CARES Act.

Interest expense, net increased primarily due to higher interest rates and debt levels, partially offset by higher interest income.

The weighted average interest rates for the three months ended March 31, 2023 and 2022 were approximately 4.8% and 4.5%, respectively.

The weighted average interest rates for the six months ended June 30, 2023 and 2022 were approximately 5.1% and 4.3%, respectively.

See Footnote 9 of the Notes to Unaudited Condensed Consolidated Financial Statements for further information.

Other (income) expense, net for three months ended March 31, 2023 and 2022 includes the following items:

Three Months Ended

Other (income) expense, net for six months ended June 30, 2023 and 2022 includes the following items:

Six Months Ended

Foreign exchange losses, net $ 5 $ 35

Gain on disposition of business (See Footnote 2 )

Pension settlement costs (See Footnote 11 )

Other losses, net 11 1

The income tax benefit for the three months ended March 31, 2023 was $14 million as compared to a provision of $48 million for the three months ended March 31, 2022.

The effective tax rate for the three months ended March 31, 2023 was a benefit of 12.1%, resulting from lower discrete tax expense combined with pretax losses during the period, as compared to provision of 17.4% for the three months ended March 31, 2022.

The income tax provision for the six months ended June 30, 2023 was $3 million as compared to $101 million for the six months ended June 30, 2022.

The effective tax rate for the six months ended June 30, 2023 was 3.7%, resulting from more discrete tax expense combined with year to date pretax losses, as compared to 19.1% for the six months ended June 30, 2022.

See Footnote 12 of the Notes to Consolidated Financial Statements in the Company’s 2022 Annual Report on Form 10-K for information regarding the inherent uncertainty associated with the Company's position on certain U.S.

2 unchanged sentences

Home and Commercial Solutions

Three Months Ended

Six Months Ended

(in millions) 2023 2022 $ Change % Change

2 unchanged sentences

Operating margin (2.9) % 6.3 %

Home and Commercial Solutions net sales for the three months ended March 31, 2023 decreased 28%, which reflected softening demand across most channels, the sale of the CH&S business at the end of the first quarter of 2022, which unfavorably impacted net sales by approximately 8% and certain category exits in the Kitchen business.

The net sales decline was partially offset by pricing actions and improved order fulfillment resulting from the easing of supply chain constraints.

Notable items impacting operating income (loss) comparability:

Impairment of intangible and other assets (See Footnotes 1 and 7 )

NM - NOT MEANINGFUL

Home and Commercial Solutions net sales for the six months ended June 30, 2023 decreased 22%, which reflected softening demand across all businesses, the sale of the CH&S business at the end of the first quarter of 2022, which unfavorably impacted net sales by approximately 4%, and certain category exits in the Kitchen business.

The net sales decline was partially offset by pricing actions and early order timing ahead of a price increase taking effect in the third quarter of 2023 for certain product lines.

Changes in foreign currency unfavorably impacted net sales by $33 million, or 1%.

Operating loss for the three months ended March 31, 2023 was $37 million as compared to operating income of $89 million in the prior year.

The decrease in operating results is primarily due to lower gross profit leverage, product mix and input cost inflation, higher restructuring charges, in connection with Project Phoenix, as well as the unfavorable impact from the sale of the CH&S business in the prior year, partially offset by gross productivity and lower compensation expense and advertising and promotion costs.

Operating loss for the six months ended June 30, 2023 was $58 million as compared to operating income of $163 million in the prior year.

The decrease in operating results is primarily due to lower gross profit leverage, product mix and input cost inflation, higher restructuring and restructuring-related charges in connection with Project Phoenix, non-cash impairment charges primarily related to an indefinite-lived tradename, as well as the unfavorable impact from the sale of the CH&S business in the prior year, partially offset by gross productivity, lower advertising and promotion costs and savings from restructuring actions.

Learning and Development

Three Months Ended

Six Months Ended

(in millions) 2023 2022 $ Change % Change

2 unchanged sentences

Operating margin 18.9 % 25.3 %

Learning and Development net sales for the three months ended March 31, 2023 decreased 13%, reflecting declines in both the Writing and Baby businesses.

The Writing business performance reflected pricing actions and improvement in replenishment orders in certain areas, which were more than offset by logistical constraints and supply chain shortages, as well as softening demand in certain categories in the U.S.

Pricing actions in the Baby business were more than offset by softening demand in certain categories in the U.S., an increased focus by retailers to rebalance inventory levels, a shift in the timing of orders by a retailer into the second quarter of 2023 and lower sales to a customer that recently declared bankruptcy.

Learning and Development net sales for the six months ended June 30, 2023 decreased 9%, reflecting declines, mostly in the Baby business.

The Writing business performance reflected pricing actions, innovation and early order timing ahead of the back to school season, partially offset by softening demand in certain categories.

Pricing actions in the Baby business were more than offset by softening demand in certain categories and lower sales to a customer that recently declared bankruptcy.

Changes in foreign currency unfavorably impacted net sales by $17 million, or 1%.

Operating income for the three months ended March 31, 2023 decreased to $72 million as compared to $138 million in the prior-year period.

The decrease in operating income is primarily due to lower gross profit leverage and input cost inflation, as well as higher restructuring charges primarily associated with Project Phoenix, partially offset by gross productivity.

Operating income for the six months ended June 30, 2023 decreased to $260 million as compared to $383 million in the prior-year period.

The decrease in operating income is primarily due to lower gross profit leverage, input cost inflation, as well as higher restructuring and restructuring-related charges primarily related to Project Phoenix, partially offset by gross productivity and savings from restructuring actions.

Outdoor and Recreation

Three Months Ended

Six Months Ended

(in millions) 2023 2022 $ Change % Change

Net sales $ 603 $ 815 $ (212) (26.0)%

Operating income (loss) (1) 46 (47) NM

Operating income 4 94 (90) (95.7)%

Operating margin 0.7 % 11.5 %

Outdoor and Recreation net sales for the three months ended March 31, 2023 decreased 30% primarily reflecting softening global demand and the lapping of customer inventory replenishment in the prior year, partially offset by pricing actions.

Outdoor and Recreation net sales for the six months ended June 30, 2023 decreased 26% primarily reflecting softening global demand and distribution losses, partially offset by pricing actions.

Changes in foreign currency unfavorably impacted net sales by $16 million or 2%.

Operating loss for the three months ended March 31, 2023 was $1 million as compared to operating income of $46 million in the prior-year period.

The decline was primarily due to lower gross profit leverage, product mix and higher restructuring charges in connection with Project Phoenix, partially offset by gross productivity and lower compensation expense.

Operating income for the six months ended June 30, 2023 was $4 million as compared to $94 million in the prior-year period.

The decline was primarily due to lower gross profit leverage, product mix and higher restructuring and restructuring-related charges in connection with Project Phoenix, partially offset by gross productivity and savings from restructuring actions.

Liquidity and Capital Resources

The Company believes the extent of the impact of this rapidly changing retail and consumer landscape, which reflects an increased focus by retailers to rebalance inventory levels, the supply chain disruptions, inflationary pressures and uncertainty over the volatility and direction of future demand patterns on the Company's future sales, operating results, cash flows, liquidity and financial condition will continue to be driven by numerous evolving factors the Company cannot accurately predict and which will vary.

As noted in the Business Strategy and Recent Developments , the Company has taken actions to further strengthen its financial position and balance sheet, and maintain financial liquidity and flexibility, including amending certain terms of its Credit Revolver.

The Company believes the extent of the impact of this rapidly changing retail and consumer landscape, which reflects an increased focus by retailers to rebalance inventory levels, inflationary pressures and uncertainty over the volatility and direction of future demand patterns on the Company's future sales, operating results, cash flows, liquidity and financial condition will continue to be driven by numerous evolving factors the Company cannot accurately predict and which will vary.

As noted in New Business Strategy and Recent Developments , the Company has taken actions to further strengthen its financial position and balance sheet, and maintain financial liquidity and flexibility, including amending certain terms of its Credit Revolver.

The Company believes these actions and its cash generating capability, together with its borrowing capacity and available cash and cash equivalents, provide adequate liquidity to fund its operations, support its growth platforms, pay down debt and debt maturities as they come due and execute its ongoing business initiatives.

The Company regularly assesses its cash requirements and the available sources to fund these needs.

For further information, refer to Risk Factors in Part I - Item 1A and Recent

Developments in Part II - Item 7.

For further information, refer to Risk Factors in Part I - Item 1A and Recent Developments in Part II - Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operation s of the Company's most recent Annual Report on Form 10-K, filed on February 15, 2023.

At March 31, 2023, the Company had cash and cash equivalents of approximately $271 million, of which approximately $237 million was held by the Company’s non-U.S.

At June 30, 2023, the Company had cash and cash equivalents of approximately $317 million, of which approximately $266 million was held by the Company’s non-U.S.

subsidiaries.

Cash, cash equivalents and restricted cash increased (decreased) as follows for the three months ended March 31, 2023 and 2022 (in millions):

Cash, cash equivalents and restricted cash increased (decreased) as follows for the six months ended June 30, 2023 and 2022 (in millions):

2023 2022 Increase (Decrease)

Cash used in operating activities $ (77) $ (272) $ 195

Cash provided by (used in) operating activities $ 277 $ (450) $ 727

Cash provided by (used in) investing activities (94) 499 (593)

Cash provided by (used in) financing activities 128 (393) 521

Cash used in financing activities (158) (185) 27

Exchange rate effect on cash, cash equivalents and restricted cash 2 (3) 5

Decrease in cash, cash equivalents and restricted cash $ (18) $ (98) $ 80

Increase (decrease) in cash, cash equivalents and restricted cash $ 27 $ (139) $ 166

The Company has historically generated the majority of its operating cash flow in the third and fourth quarters of the year due to seasonal variations in operating results, the timing of annual performance-based compensation payments, customer program payments, working capital requirements and credit terms provided to customers.

See below for further information on the Company's recent operating cash flow performance.

Cash Flows from Operating Activities

The change in net cash used in operating activities reflects the lapping of unfavorable working capital associated with inventory build in the prior year and lower incentive compensation payments in the current year, partially offset by lower operating income and higher restructuring payments.

The change in net cash provided by operating activities reflects a reduction of working capital and lower incentive compensation payments in the current year, partially offset by lower operating income and higher restructuring payments.

Cash Flows from Investing Activities

The change in cash provided by investing activities was primarily due to proceeds from the sale of the CH&S business in the prior year and higher capital expenditures in the current year associated with Project Ovid.

The change in cash used in investing activities was primarily due to proceeds from the sale of the CH&S business in the prior year.

Cash Flows from Financing Activities

The change in net cash provided by financing activities was primarily due to the period-over-period change in short-term debt, and repurchase of shares of the Company's common stock in the prior year.

The change in net cash used in financing activities was primarily due to the period-over-period change in short-term debt, a reduction of the quarterly dividend payment in the current year, commencing with the second quarter payment, and repurchase of shares of the Company's common stock in the prior year.

See Footnotes 1, 9 and 14 of the Notes to the Unaudited Condensed Consolidated Financial Statements for further information.

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A failure to maintain our financial covenants and to subsequently remedy a default would impair our ability to borrow under the Credit Revolver and potentially subject the Company to cross-default and acceleration provisions in its debt documents.

The Company was in compliance with all of its debt covenants at March 31, 2023.

At March 31, 2023, the Company had $760 million of outstanding borrowings under the Credit Revolver and approximately $22 million of outstanding standby letters of credit issued against the Credit Revolver, with a net availability of approximately $720 million.

The Company was in compliance with all of its debt covenants at June 30, 2023.

At June 30, 2023, the Company had $530 million of outstanding borrowings under the Credit Revolver and approximately $22 million of outstanding standby letters of credit issued against the Credit Revolver, with a net availability of approximately $950 million.

The Company maintains an Accounts Receivable Securitization Facility (the “Securitization Facility”).

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The maximum availability under the Securitization Facility fluctuates based on eligible accounts receivable balances.

At March 31, 2023, the Company had $90 million outstanding under the Securitization Facility.

At June 30, 2023, the Company had $66 million outstanding under the Securitization Facility.

Risk Management

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Significant Accounting Policies and Critical Estimates

For further information on significant accounting policies and critical estimates, refer to the Company's most recent Annual Report on Form 10-K, filed on February 15, 2023.

Goodwill and Indefinite-Lived Intangibles

Goodwill and indefinite-lived intangibles are tested and reviewed for impairment annually during the fourth quarter (on December 1), or more frequently if facts and circumstances warrant.

Goodwill is tested for impairment at a reporting unit level, and all of the Company’s goodwill is assigned to its reporting units.

Reporting units are determined based upon the Company’s organizational structure in place at the date of the goodwill impairment testing and generally one level below the operating segment level.

The Company’s operations are comprised of six reporting units, within its three primary operating segments.

The quantitative goodwill impairment testing requires significant use of judgment and assumptions, such as the identification of reporting units;

the assignment of assets and liabilities to reporting units;

and the estimation of future cash flows, business growth

rates, terminal values, discount rates and total enterprise value.

The income approach used is the discounted cash flow methodology and is based on five-year cash flow projections.

The cash flows projected are analyzed on a debt-free basis (before cash payments to equity and interest-bearing debt investors) in order to develop an enterprise value from operations for the reporting unit.

A provision is made, based on these projections, for the value of the reporting unit at the end of the forecast period, or terminal value.

The present value of the finite-period cash flows and the terminal value are determined using a selected discount rate.

The Company estimated the fair values of its reporting units based on discounted cash flow methodology reflecting its latest projections which included, among other things, the impact of significant input cost inflation at the time the Company performed its impairment testing.

During the second quarter of 2023, the Company concluded that a triggering event had occurred for the Baby reporting unit in the Learning and Development segment, as a result of a downward revision of forecasted cash flows due to softening global demand, primarily caused by continued inflationary pressure that is impacting discretionary spending behavior of consumers, as well as rising interest rates.

The Company used a quantitative approach, which involves comparing the fair value of the reporting unit to its carrying value.

If the carrying value of a reporting unit exceeds its fair value, an impairment loss would be calculated as the differences between these amounts, limited to the amount of reporting unit goodwill allocated to the reporting unit.

The Company performed an impairment test and determined that the Baby reporting unit goodwill was not impaired.

A hypothetical 10% reduction in forecasted earnings before interest, taxes and amortization used in the discounted cash flows to estimate the fair value to the Baby reporting unit would have resulted in an impairment charge of approximately $10 million against its goodwill carrying value of $660 million.

The Company has experienced headwinds due to softening global demand and an increased focus by retailers to rebalance inventory levels in light of continued inflationary pressures on consumers that impacted the Baby business within the Learning and Development segment.

Further declines in anticipated consumer spending or an inability to achieve expected margin improvements on sales of Baby products could result in declines in the fair value of the business that may result in goodwill impairment charges.

See Footnotes 1 and 7 of the Notes to Unaudited Condensed Consolidated Financial Statements for further information.

Indefinite-lived intangibles

The testing of indefinite-lived intangibles (primarily trademarks and tradenames) under established guidelines for impairment also requires significant use of judgment and assumptions (such as cash flow projections, royalty rates, terminal values and discount rates).

An indefinite-lived intangible asset is impaired by the amount its carrying value exceeds its estimated fair value.

For impairment testing purposes, the fair value of indefinite-lived intangibles is determined using either the relief from royalty method or the excess earnings method.

The relief from royalty method estimates the value of a tradename by discounting the hypothetical avoided royalty payments to their present value over the economic life of the asset.

The excess earnings method estimates the value of the intangible asset by quantifying the residual (or excess) cash flows generated by the asset and discounts those cash flows to the present.

The excess earnings methodology requires the application of contributory asset charges.

Contributory asset charges typically include assumed payments for the use of working capital, tangible assets and other intangible assets.

Changes in forecasted operations and other assumptions could materially affect the estimated fair values.

Changes in business conditions could potentially require adjustments to these asset valuations.

During the second quarter of 2023, the Company concluded that a triggering event had occurred for an indefinite-lived tradename in the Home Fragrance reporting unit, in the Home and Commercial Solutions segment.

The Company performed a quantitative impairment test and determined that an indefinite-lived tradename in the Home Fragrance reporting unit noted above was impaired.

During the three and six months ended June 30, 2023, the Company recorded an aggregate non-cash impairment charge of $8 million, as the carrying value exceeded its fair value.

A hypothetical 10% reduction in the forecasted revenue used in the relief from royalty method to determining the fair value of this indefinite-lived intangible would have resulted in an incremental impairment charge on the Home and Commercial Solutions segment of $6 million.

The Company has experienced headwinds due to softening global demand and an increased focus by retailers to rebalance inventory levels in light of continued inflationary pressures on consumers, most notably in the Home and Commercial Solutions and Outdoor and Recreation segments.

As a result, the Company may identify future triggering events for these segments, other segments or other indefinite-lived tradenames, including an indefinite-lived tradename in the Home and Commercial Solutions segment which has a carrying value of $553 million, and an indefinite-lived tradename in the Outdoor and Recreation segment which has a carrying value of $58 million.

Additional impairment testing may be required based on further deterioration of global demand and/or the macroeconomic environment, continued disruptions to the Company’s business, further declines in operating

results of the Company’s reporting units and/or tradenames, further sustained deterioration of the Company’s market capitalization, and other factors, which may necessitate changes to estimates or valuation assumptions used in the fair value of the reporting units for goodwill and indefinite-lived intangible tradenames.

Although management cannot predict when improvements in macroeconomic conditions will occur, if consumer confidence and consumer spending continue to decline significantly in the future or if commercial and industrial economic activity experiences a sustained deterioration from current levels, the Company may be required to record further impairment charges in the future.

See Footnotes 1 and 7 of the Notes to Unaudited Condensed Consolidated Financial Statements for further information.

Quantitative and Qualitative Disclosures about Market Risk

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis