Item 1. Financial Statements
Item 1. Financial Statements
NEWELL BRANDS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (Unaudited)
(Amounts in millions, except per share amounts)
Three Months Ended
June 30, Six Months Ended
June 30,
2023 2022 2023 2022
Net sales $ 2,204 $ 2,534 $ 4,009 $ 4,922
Cost of products sold 1,575 1,698 2,898 3,346
Gross profit 629 836 1,111 1,576
Selling, general and administrative expenses 476 504 956 1,022
Restructuring costs, net 22 4 60 9
Impairment of goodwill, intangibles and other assets 11 — 11 —
Operating income 120 328 84 545
Non-operating expenses:
Interest expense, net 76 55 144 114
Other (income) expense, net 9 21 21 ( 97 )
Income (loss) before income taxes 35 252 ( 81 ) 528
Income tax provision 17 53 3 101
Net income (loss) $ 18 $ 199 $ ( 84 ) $ 427
Weighted average common shares outstanding:
Basic 414.2 413.8 414.0 417.9
Diluted 415.3 415.7 414.0 420.2
Earnings (loss) per share:
Basic $ 0.04 $ 0.48 $ ( 0.20 ) $ 1.02
Diluted $ 0.04 $ 0.48 $ ( 0.20 ) $ 1.02
Comprehensive income (loss):
Net income (loss) $ 18 $ 199 $ ( 84 ) $ 427
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments ( 10 ) ( 107 ) 8 ( 78 )
Pension and postretirement costs — 7 ( 1 ) 12
Derivative financial instruments ( 7 ) 11 ( 17 ) 11
Total other comprehensive loss, net of tax ( 17 ) ( 89 ) ( 10 ) ( 55 )
Total comprehensive income (loss) $ 1 $ 110 $ ( 94 ) $ 372
See Notes to Condensed Consolidated Financial Statements (Unaudited).
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NEWELL BRANDS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Amounts in millions, except par values)
June 30,
2023 December 31,
2022
Assets:
Cash and cash equivalents $ 317 $ 287
Accounts receivable, net 1,285 1,250
Inventories 1,937 2,203
Prepaid expenses and other current assets 300 312
Total current assets 3,839 4,052
Property, plant and equipment, net 1,207 1,184
Operating lease assets 550 578
Goodwill 3,310 3,298
Other intangible assets, net 2,612 2,649
Deferred income taxes 794 810
Other assets 708 691
Total assets $ 13,020 $ 13,262
Liabilities:
Accounts payable $ 1,013 $ 1,062
Accrued compensation 128 123
Other accrued liabilities 1,322 1,272
Short-term debt and current portion of long-term debt 597 621
Total current liabilities 3,060 3,078
Long-term debt 4,753 4,756
Deferred income taxes 479 520
Operating lease liabilities 482 512
Other noncurrent liabilities 931 877
Total liabilities 9,705 9,743
Commitments and contingencies ( Footnote 17 )
Stockholders’ equity:
Preferred stock ( 10.0 authorized shares, $ 1.00 par value, no shares issued at June 30, 2023 and December 31, 2022)
— —
Common stock ( 800.0 authorized shares, $ 1.00 par value, 439.5 shares and 438.6 shares issued at June 30, 2023 and December 31, 2022, respectively)
440 439
Treasury stock, at cost ( 25.3 shares and 25.0 shares at June 30, 2023 and December 31, 2022, respectively)
( 627 ) ( 623 )
Additional paid-in capital 6,945 7,052
Retained deficit ( 2,422 ) ( 2,338 )
Accumulated other comprehensive loss ( 1,021 ) ( 1,011 )
Total stockholders’ equity 3,315 3,519
Total liabilities and stockholders’ equity $ 13,020 $ 13,262
See Notes to Condensed Consolidated Financial Statements (Unaudited).
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NEWELL BRANDS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Amounts in millions)
Six Months Ended
June 30,
2023 2022
Cash flows from operating activities:
Net income (loss) $ ( 84 ) $ 427
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization 159 147
Impairment of goodwill, intangibles and other assets 11 —
Gain from sale of business — ( 133 )
Deferred income taxes 4 312
Stock based compensation expense 20 23
Pension settlement charge 5 —
Other, net ( 7 ) ( 1 )
Changes in operating accounts excluding the effects of divestiture:
Accounts receivable ( 14 ) ( 177 )
Inventories 282 ( 692 )
Accounts payable ( 54 ) 106
Accrued liabilities and other ( 45 ) ( 462 )
Net cash provided by (used in) operating activities 277 ( 450 )
Cash flows from investing activities:
Proceeds from sale of divested business — 620
Capital expenditures ( 142 ) ( 140 )
Other investing activities, net 48 19
Net cash provided by (used in) investing activities ( 94 ) 499
Cash flows from financing activities:
Short-term debt, net ( 23 ) 372
Payments on current portion of long-term debt ( 1 ) ( 2 )
Repurchase of shares of common stock — ( 325 )
Cash dividends ( 126 ) ( 195 )
Equity compensation activity and other, net ( 8 ) ( 35 )
Net cash used in financing activities ( 158 ) ( 185 )
Exchange rate effect on cash, cash equivalents and restricted cash 2 ( 3 )
Increase (decrease) in cash, cash equivalents and restricted cash 27 ( 139 )
Cash, cash equivalents and restricted cash at beginning of period 303 477
Cash, cash equivalents and restricted cash at end of period $ 330 $ 338
Supplemental disclosures:
Restricted cash at beginning of period $ 16 $ 37
Restricted cash at end of period 13 15
See Notes to Condensed Consolidated Financial Statements (Unaudited).
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NEWELL BRANDS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)
(Amounts in millions, except per share amounts)
Common
Stock Treasury
Stock Additional Paid-In Capital Retained Earnings (Deficit) Accumulated Other Comprehensive Loss Total Stockholders' Equity
Balance at March 31, 2023 $ 439 $ ( 627 ) $ 6,965 $ ( 2,440 ) $ ( 1,004 ) $ 3,333
Comprehensive income (loss) — — — 18 ( 17 ) 1
Dividends declared on common stock - $ 0.07 per share
— — ( 30 ) — — ( 30 )
Equity compensation, net of tax 1 — 10 — — 11
Balance at June 30, 2023 $ 440 $ ( 627 ) $ 6,945 $ ( 2,422 ) $ ( 1,021 ) $ 3,315
Balance at December 31, 2022 $ 439 $ ( 623 ) $ 7,052 $ ( 2,338 ) $ ( 1,011 ) $ 3,519
Comprehensive loss — — — ( 84 ) ( 10 ) ( 94 )
Dividends declared on common stock - $ 0.30 per share
— — ( 126 ) — — ( 126 )
Equity compensation, net of tax 1 ( 4 ) 19 — — 16
Balance at June 30, 2023 $ 440 $ ( 627 ) $ 6,945 $ ( 2,422 ) $ ( 1,021 ) $ 3,315
Common
Stock Treasury
Stock Additional Paid-In Capital Retained Earnings (Deficit) Accumulated Other Comprehensive Loss Total Stockholders' Equity
Balance at March 31, 2022 $ 441 $ ( 623 ) $ 7,384 $ ( 2,307 ) $ ( 848 ) $ 4,047
Comprehensive income (loss) — — — 199 ( 89 ) 110
Dividends declared on common stock - $ 0.23 per share
— — ( 95 ) — — ( 95 )
Equity compensation, net of tax — — 10 — — 10
Common stock purchased and retired ( 2 ) — ( 48 ) — — ( 50 )
Balance at June 30, 2022 $ 439 $ ( 623 ) $ 7,251 $ ( 2,108 ) $ ( 937 ) $ 4,022
Balance at December 31, 2021 $ 450 $ ( 609 ) $ 7,734 $ ( 2,535 ) $ ( 882 ) $ 4,158
Comprehensive income (loss) — — — 427 ( 55 ) 372
Dividends declared on common stock - $ 0.46 per share
— — ( 192 ) — — ( 192 )
Equity compensation, net of tax 2 ( 14 ) 22 — — 10
Common stock purchased and retired ( 13 ) — ( 312 ) — — ( 325 )
Other — — ( 1 ) — — ( 1 )
Balance at June 30, 2022 $ 439 $ ( 623 ) $ 7,251 $ ( 2,108 ) $ ( 937 ) $ 4,022
See Notes to Condensed Consolidated Financial Statements (Unaudited).
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NEWELL BRANDS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Footnote 1 — Basis of Presentation and Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements of Newell Brands Inc. (collectively with its subsidiaries, the “Company”) have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) and do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments (including normal recurring accruals) considered necessary for a fair statement of the financial position and the results of operations of the Company. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements, and the footnotes thereto, included in the Company’s most recent Annual Report on Form 10-K. The Condensed Consolidated Balance Sheet at December 31, 2022 has been derived from the audited financial statements as of that date, but it does not include all the information and footnotes required by U.S. GAAP for a complete financial statement.
The condensed consolidated financial statements for all comparable prior periods presented have been retrospectively adjusted to reflect the following:
• Effective January 1, 2023, as a result of the implementation of a new operating model intended to drive further simplification and unlock additional efficiencies and synergies within the Company, the chief operating decision maker (“CODM”) now reviews the businesses as three operating segments: Home and Commercial Solutions, Learning and Development and Outdoor and Recreation. The Home and Commercial Solutions operating segment represents the combination of the previously reported Commercial Solutions, Home Appliances and Home Solutions operating segments. See Footnote 16 for further information;
• A prior-year change in method of accounting for certain inventory in the U.S. from the last-in, first-out method to the first-in, first-out method resulted in an $ 11 million reduction of cost of products sold and increase to income before income taxes, additional income tax provision of $ 3 million and increase of $ 8 million to net income in the Company's previously issued unaudited Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2022;
• A revision associated with an incorrect change in functional currency designation in the prior year resulted in additional expense to record mark to market adjustments of $ 13 million and $ 19 million in other (income) expense, net in the Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2022, respectively and a reclassification between Accumulated Other Comprehensive Loss and Retained Deficit in the Condensed Consolidated Statement of Stockholder’s Equity of $ 19 million at June 30, 2022. Refer to Footnote 19 of the Company's most recent Annual Report on Form 10-K, filed on February 15, 2023.
On March 31, 2022, the Company sold its Connected Home & Security (“CH&S”) business to Resideo Technologies, Inc. See Footnotes 2 and 16 for further information.
Use of Estimates and Risks
Management’s application of U.S. GAAP in preparing the Company's condensed consolidated financial statements requires the pervasive use of estimates and assumptions. 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. As consumers continue to face widespread increases in prices and interest rates, their discretionary spending and purchase patterns may continue to be unfavorably impacted. The high level of uncertainty of these factors has resulted in estimates and assumptions that have the potential for more variability and are more subjective. In addition, some of the other inherent estimates and assumptions used in the Company’s forecasted results of operations and cash flows that form the basis of the determination of the fair value of the reporting units for goodwill and indefinite-lived intangible asset impairment testing are outside the control of management, including interest rates, cost of capital, tax rates, industry growth, credit ratings, foreign exchange rates and labor inflation. 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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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 Footnote 7 for further information.
Seasonal Variations
Sales of the Company’s products tend to be seasonal, with sales, operating income and operating cash flow in the first quarter generally lower than any other quarter during the year, driven principally by reduced volume and the mix of products sold in the first quarter. The seasonality of the Company’s sales volume combined with the accounting for fixed costs, such as depreciation, amortization, rent, personnel costs and interest expense, impacts the Company’s results on a quarterly basis. Also, the Company typically tends to generate the majority of its operating cash flow in the third and fourth quarters of the year due to seasonal variations in operating results, the timing of annual performance-based compensation payments, customer program payments, working capital requirements and credit terms provided to customers. In addition, uncertainty still remains over the volatility and direction of future consumer and customer demand patterns, as well as inflationary and supply chain pressures. Accordingly, the Company’s results of operations and cash flows for the three and six months ended June 30, 2023 may not necessarily be indicative of the results that may be expected for the year ending December 31, 2023.
Adoption of New Accounting Guidance
Changes to U.S. GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates (“ASUs”) to the FASB’s Accounting Standards Codification. The Company considers the applicability and impact of all ASUs.
In March 2020, the FASB issued ASU 2020-04, “ Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ” In January 2021, the FASB clarified the scope of this guidance with the issuance of ASU 2021-01, Reference Rate Reform: Scope. ASU 2020-04 provides optional expedients and exceptions to account for contracts, hedging relationships and other transactions that reference London Interbank Offered Rate (“LIBOR”) or another reference rate if certain criteria are met. This ASU was further updated with the issuance of ASU 2022-06, Reference Rate Reform: Deferral of the Sunset Date of Topic 848 , which extends the sunset date of the guidance. ASU 2020-04 may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2024. The Company adopted ASU 2020-04 and it did not have a material impact on its Consolidated Financial Statements.
In October 2022, the FASB issued ASU 2022-04, “ Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. ” This ASU requires that a buyer in a supplier finance program disclose sufficient information about the program to allow a user of financial statements to better consider the effect of the programs on an entity’s working capital, liquidity, and cash flows. This ASU is effective for fiscal years beginning after December 15, 2022, except for the amendment on roll forward information which is effective for fiscal years beginning after December 15, 2023. See disclosures hereafter for further information.
Sales of Accounts Receivables
Factored receivables at June 30, 2023 associated with the Company's existing factoring agreement (the “Customer Receivables Purchase Agreement”) were approximately $ 465 million, an increase of approximately $ 45 million from December 31, 2022. Transactions under this agreement are accounted for as sales of accounts receivable, and the receivables sold are removed from the Condensed Consolidated Balance Sheet at the time of the sales transaction. The Company classifies the proceeds received from the sales of accounts receivable as an operating cash flow and collections of accounts receivables not yet submitted to the financial institution as a financing cash flow in the Condensed Consolidated Statement of Cash Flows. The Company records the discount as other (income) expense, net in the Condensed Consolidated Statement of Operations.
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Supplier Finance Program Obligations
The Company has worked with its suppliers of goods and services over the past several years to revisit terms and conditions, including the extension of payment terms. Additionally, a global financial institution offers a voluntary supply chain finance program (the “SCF Program”) which enables suppliers, at their sole discretion, to sell their receivables from the Company to the financial institution on a non-recourse basis.
The Company and its suppliers agree on contractual terms for the goods and services procured, including prices, quantities and payment terms, regardless of whether the supplier elects to participate in the SCF Program. Payments terms average approximately 125 days. The suppliers sell goods or services, as applicable, to the Company and issue the associated invoices to the Company based on the agreed-upon contractual terms. Suppliers that participate in the SCF Program, at their sole discretion, determine which invoices, if any, they want to sell to the financial institution. The suppliers’ voluntary inclusion of invoices in the SCF Program does not change the Company’s existing contractual terms with its suppliers. The Company does not provide any guarantees under the SCF Program, nor does it have any economic interest in a supplier’s decision to participate in the SCF Program.
Amounts due under the SCF Program are included in accounts payable in the Condensed Consolidated Balance Sheets and as operating cash flows in the Condensed Consolidated Statement of Cash Flows. At June 30, 2023 and December 31, 2022, outstanding payment obligations under the SCF Program were approximately $ 92 million and $ 100 million, respectively .
Footnote 2 — Divestiture Activity
On March 31, 2022, the Company sold its CH&S business to Resideo Technologies, Inc., for approximately $ 593 million, subject to customary working capital and other post-closing adjustments. As a result, during the six months ended June 30, 2022, the Company recorded a pretax gain of $ 133 million, which was included in other (income) expense, net in its Condensed Consolidated Statements of Operations.
Footnote 3 — Accumulated Other Comprehensive Income (Loss)
The following table displays the changes in Accumulated Other Comprehensive Income (Loss) (“AOCL”) by component, net of tax, for the six months ended June 30, 2023 (in millions):
Cumulative
Translation
Adjustment Pension and
Postretirement
Costs
Derivative
Financial
Instruments AOCL
Balance at December 31, 2022 $ ( 688 ) $ ( 309 ) $ ( 14 ) $ ( 1,011 )
Other comprehensive income (loss) before reclassifications 8 ( 6 ) ( 11 ) ( 9 )
Amounts reclassified to earnings — 5 ( 6 ) ( 1 )
Net current period other comprehensive income (loss) 8 ( 1 ) ( 17 ) ( 10 )
Balance at June 30, 2023 $ ( 680 ) $ ( 310 ) $ ( 31 ) $ ( 1,021 )
Reclassifications from AOCL to the results of operations for the three and six months ended June 30, 2023 and 2022 were pretax (income) expense of (in millions):
Three Months Ended
June 30, Six Months Ended
June 30,
2023 2022 2023 2022
Cumulative translation adjustment (1)
$ — $ — $ — $ 6
Pension and postretirement benefit plans (2)
5 3 5 7
Derivative financial instruments (3)
1 ( 4 ) ( 8 ) ( 3 )
(1) See Footnote 2 for further information.
(2) See Footnote 11 for further information.
(3) See Footnote 10 for further information.
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The income tax provision (benefit) allocated to the components of AOCL for the periods indicated are as follows (in millions):
Three Months Ended
June 30, Six Months Ended
June 30,
2023 2022 2023 2022
Foreign currency translation adjustments $ ( 12 ) $ 19 $ ( 18 ) $ 20
Pension and postretirement benefit costs 1 1 1 1
Derivative financial instruments ( 2 ) 4 ( 5 ) 3
Income tax provision (benefit) related to AOCL $ ( 13 ) $ 24 $ ( 22 ) $ 24
Footnote 4 — Restructuring
Restructuring costs, net incurred by reportable business segments for all restructuring activities for the periods indicated are as follows (in millions):
Three Months Ended
June 30, Six Months Ended
June 30,
2023 2022 2023 2022
Home and Commercial Solutions $ 11 $ — $ 27 $ 3
Learning and Development 6 — 11 2
Outdoor and Recreation 2 2 8 2
Corporate 3 2 14 2
$ 22 $ 4 $ 60 $ 9
Accrued restructuring costs activity for the six months ended June 30, 2023 was as follows (in millions):
Balance at December 31, 2022 Restructuring
Costs, Net Payments Foreign
Currency
and Other Balance at
June 30, 2023
Severance and termination costs $ 7 $ 57 $ ( 48 ) $ — $ 16
Contract termination and other costs — 3 ( 1 ) ( 1 ) 1
$ 7 $ 60 $ ( 49 ) $ ( 1 ) $ 17
Project Phoenix
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. 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 in 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. The Company currently estimates that it will incur approximately $ 100 million to $ 130 million in restructuring and restructuring-related charges in connection with Project Phoenix, substantially all of which are expected to be incurred by the end of 2023. These charges consist primarily of $ 80 million to $ 105 million in charges related to severance payments and other termination benefits; $ 15 million to $ 20 million in charges associated with office space reductions; and approximately $ 5 million of other charges, including those associated with employee transition and legal costs. The Company expects approximately $ 95 million to $ 120 million of the total aggregate charges will be cash expenditures. All cash payments are expected to be paid within one year of charges incurred.
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 Project Phoenix.
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Network Optimization Project
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 currently estimates that it will incur approximately $ 37 million to $ 49 million in restructuring and restructuring-related charges associated with execution of the Network Optimization Project and expects that the costs incurred will be substantially complete by the end of 2024. This estimate of charges consists primarily of $ 8 million to $ 11 million related to cash severance payments and other termination benefits and approximately $ 29 million to $ 38 million associated with industrial site reductions. The Company expects approximately $ 35 million to $ 44 million of the total aggregate charges will be cash expenditures.
During the three and six months June 30, 2023, the Company recorded restructuring charges of $ 2 million in connection with the project.
Other Restructuring and Restructuring-Related Charges
The Company regularly incurs other restructuring and restructuring-related costs in connection with various discrete initiatives, including certain costs associated with Project Ovid, the 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. Restructuring-related costs are recorded in cost of products sold and selling, general and administrative expenses (“SG&A”) in the Condensed Consolidated Statements of Operations based on the nature of the underlying costs incurred.
During the three months ended June 30, 2023 and 2022, the Company recorded other restructuring charges of $ 3 million and $ 4 million, respectively and $ 5 million and $ 9 million for the six months ended June 30, 2023 and 2022, respectively.
Footnote 5 — Inventories
Inventories are comprised of the following (in millions):
June 30, 2023 December 31, 2022
Raw materials and supplies $ 254 $ 285
Work-in-process 195 218
Finished products 1,488 1,700
$ 1,937 $ 2,203
Footnote 6 — Property, Plant and Equipment, Net
Property, plant and equipment, net, is comprised of the following (in millions):
June 30, 2023 December 31, 2022
Land $ 74 $ 76
Buildings and improvements 659 648
Machinery and equipment 2,437 2,349
3,170 3,073
Less: Accumulated depreciation ( 1,963 ) ( 1,889 )
$ 1,207 $ 1,184
Depreciation expense was $ 51 million and $ 47 million for the three months ended June 30, 2023 and 2022, respectively, and $ 105 million and $ 96 million for the six months ended June 30, 2023 and 2022, respectively.
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Footnote 7 — Goodwill and Other Intangible Assets, Net
Goodwill activity for the six months ended June 30, 2023 is as follows (in millions):
Segments Net Book Value at December 31, 2022
Foreign
Exchange
Gross
Carrying
Amount
Accumulated
Impairment
Charges
Net Book Value at
June 30, 2023
Home and Commercial Solutions $ 747 $ — $ 4,052 $ ( 3,305 ) $ 747
Learning and Development 2,551 12 3,409 ( 846 ) 2,563
Outdoor and Recreation — — 788 ( 788 ) —
$ 3,298 $ 12 $ 8,249 $ ( 4,939 ) $ 3,310
Other intangible assets, net, are comprised of the following (in millions):
June 30, 2023 December 31, 2022
Gross
Carrying
Amount
Accumulated Amortization
Net Book
Value
Gross
Carrying
Amount
Accumulated
Amortization
Net Book
Value
Tradenames — indefinite life (1)
$ 1,620 $ — $ 1,620 $ 1,689 $ — $ 1,689
Tradenames — other (1)
232 ( 93 ) 139 160 ( 79 ) 81
Capitalized software 614 ( 497 ) 117 602 ( 481 ) 121
Patents and intellectual property 22 ( 18 ) 4 22 ( 17 ) 5
Customer relationships and distributor channels 1,077 ( 345 ) 732 1,072 ( 319 ) 753
$ 3,565 $ ( 953 ) $ 2,612 $ 3,545 $ ( 896 ) $ 2,649
(1) In connection with the operating model changes associated with Project Phoenix, the Company determined that six tradenames with aggregate carrying values of $ 70 million no longer met indefinite-lived criteria and were reclassified during the first quarter as finite-lived tradenames, with useful lives ranging from five to ten years .
Amortization expense for intangible assets was $ 27 million and $ 24 million for the three months ended June 30, 2023 and 2022, respectively and $ 54 million and $ 51 million for the six months ended June 30, 2023 and 2022, respectively.
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.
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Footnote 8 — Other Accrued Liabilities
Other accrued liabilities are comprised of the following (in millions):
June 30, 2023 December 31, 2022
Customer accruals $ 695 $ 636
Operating lease liabilities 125 121
Accrued self-insurance liabilities, contingencies and warranty 105 99
Accrued marketing and freight expenses 72 73
Accrued interest expense 70 63
Accrued income taxes 14 53
Other 241 227
$ 1,322 $ 1,272
Footnote 9 — Debt
Debt is comprised of the following at the dates indicated (in millions):
June 30, 2023 December 31, 2022
4.00 % senior notes due 2024
$ 196 $ 196
4.875 % senior notes due 2025
497 496
3.90 % senior notes due 2025
47 47
4.20 % senior notes due 2026
1,979 1,978
6.375 % senior notes due 2027
479 483
6.625 % senior notes due 2029
479 481
5.375 % senior notes due 2036
417 417
5.50 % senior notes due 2046
658 658
Revolving credit facility 530 225
Commercial paper — 359
Receivables facility 66 35
Other debt 2 2
Total debt
5,350 5,377
Short-term debt and current portion of long-term debt ( 597 ) ( 621 )
Long-term debt $ 4,753 $ 4,756
Senior Notes
On March 20, 2023, S&P Global Inc. (“S&P”) downgraded the Company’s debt rating to “BB+”. As a result of the S&P downgrade, certain of the Company’s outstanding senior notes currently aggregating to approximately $ 3.1 billion are subject to an interest rate adjustment of 25 basis points. The change to the interest rate due to the downgrade will increase the Company’s interest expense by approximately $ 8 million on an annualized basis (approximately $ 6 million in 2023). 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.
On February 14, 2023, Fitch Ratings downgraded the Company's debt rating to “BB”. This downgrade did not impact the interest rates on any of the Company's senior notes.
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Receivables Facility
The Company maintains an Accounts Receivable Securitization Facility (the “Securitization Facility”). The aggregate commitment under the Securitization Facility is $ 375 million. The Securitization Facility matures in October 2023 and bears interest at a margin over a variable interest rate. The maximum availability under the Securitization Facility fluctuates based on eligible accounts receivable balances. At June 30, 2023, the Company had $ 66 million outstanding under the Securitization Facility.
Revolving Credit Facility and Commercial Paper
The Company has a $ 1.5 billion senior unsecured revolving credit facility (the “Credit Revolver”) that matures in August 2027. On March 27, 2023, the Company entered into an amendment to its Credit Revolver (the “Amendment”) to (i) include non-cash expenses resulting from grants of stock awards among the items that may be added to Consolidated Net Income when calculating Consolidated Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”), as defined in the Amendment, and (ii) lower the Interest Coverage Ratio, as defined in the Amendment, for the fiscal quarters ending on June 30, 2023, September 30, 2023, December 31, 2023 and March 31, 2024.
The Credit Revolver provides for the issuance of up to $ 150 million of letters of credit, so long as there is sufficient availability for borrowing under the Credit Revolver. 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.
Other
The indentures governing the Company’s senior notes contain usual and customary nonfinancial covenants. The Company’s borrowing arrangements other than the senior notes contain usual and customary nonfinancial covenants and certain financial covenants, including minimum interest coverage and maximum debt-to-total-capitalization ratios.
Weighted average interest rates are as follows:
Three Months Ended
June 30, Six Months Ended
June 30,
2023 2022 2023 2022
Total debt 5.3 % 4.2 % 5.1 % 4.3 %
Short-term debt 6.8 % 2.9 % 6.5 % 2.6 %
The fair value of the Company’s senior notes are based upon prices of similar instruments in the marketplace and are as follows (in millions):
June 30, 2023 December 31, 2022
Fair Value Book Value Fair Value Book Value
Senior notes $ 4,437 $ 4,752 $ 4,511 $ 4,756
The carrying amounts of all other significant debt approximates fair value.
Footnote 10 — Derivatives
From time to time, the Company enters into derivative transactions to hedge its exposures to interest rate, foreign currency rate and commodity price fluctuations. The Company does not enter into derivative transactions for trading purposes.
Interest Rate Contracts
The Company manages its fixed and floating rate debt mix using interest rate swaps. The Company may use fixed and floating rate swaps to alter its exposure to the impact of changing interest rates on its consolidated results of operations and future cash outflows for interest. Floating rate swaps would be used, depending on market conditions, to convert the fixed rates of long-term debt into short-term variable rates. Fixed rate swaps would be used to reduce the Company’s risk of the possibility of increased interest costs. The settlement of interest rate swaps is included in interest expense.
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Fair Value Hedges
At June 30, 2023, the Company had approximately $ 1.1 billion notional amount of interest rate swaps that exchange a fixed rate of interest for a variable rate of interest plus a weighted average spread. These floating rate swaps are designated as fair value hedges against $ 500 million of principal on the 6.375 % senior notes due 2027, $ 500 million of principal on the 6.625 % senior notes due 2029 and $ 100 million of principal on the 4.00 % senior notes due 2024 for the remaining life of the notes. The benchmark interest rate for the $ 100 million floating swap and associated fair value hedge was amended for a change in benchmark interest rate from LIBOR to Secured Overnight Funding Rate (“SOFR”), effective June 1, 2023, in accordance with ASC 848 (see Footnote 1 for further information). The effective portion of the fair value gains or losses on these swaps is offset by fair value adjustments in the underlying debt.
Cross-Currency Contracts
The Company uses cross-currency swaps to hedge foreign currency risk on certain financing arrangements. The Company previously entered into three cross-currency swaps, maturing in January 2025, February 2025 and September 2027, respectively, with an aggregate notional amount of $ 1.3 billion. Each of these cross-currency swaps was designated as a net investment hedge of the Company's foreign currency exposure of its net investment in certain Euro-functional currency subsidiaries with Euro-denominated net assets, and the Company pays a fixed rate of Euro-based interest and receives a fixed rate of U.S. dollar interest. During the third quarter of 2022, the Company entered into additional cross-currency swaps with notional amounts of $ 500 million, with one maturing in September 2027 and one in September 2029. These swaps were also designated as net investment hedges of the Company's foreign currency exposure of its net investment in certain Euro-functional currency subsidiaries with Euro-denominated net assets, and the Company pays a floating rate of Euro-based interest and receives a floating rate of U.S. dollar interest. The Company has elected the spot method for assessing the effectiveness of these contracts. During the three months ended June 30, 2023 and 2022, the Company recognized income of $ 10 million and $ 6 million, respectively, and income of $ 21 million and $ 11 million for the six months ended June 30, 2023 and 2022, respectively, in interest expense, net, related to the portion of cross-currency swaps excluded from hedge effectiveness testing.
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 with maturity dates through June 2024. The derivatives used to hedge these forecasted transactions that meet the criteria for hedge accounting are accounted for as cash flow hedges. The effective portion of the gains or losses on these derivatives is deferred as a component of AOCL until it 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 June 30, 2023, the Company had approximately $ 388 million notional amount outstanding of forward foreign currency contracts that are designated as cash flow hedges of forecasted inventory purchases and sales.
The Company also uses foreign currency contracts, primarily forward foreign currency contracts, to mitigate the foreign currency exposure of certain other foreign currency transactions. At June 30, 2023, the Company had approximately $ 1.2 billion notional amount outstanding of these foreign currency contracts that are not designated as effective hedges for accounting purposes and have maturity dates through May 2024. Fair market value gains or losses are included in the results of operations and are classified in other (income) expense, net in the Company's Condensed Consolidated Statement of Operations.
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The following table presents the fair value of derivative financial instruments at the dates indicated (in millions):
Fair Value of Derivatives
Assets (Liabilities)
Balance Sheet Location June 30, 2023 December 31, 2022
Derivatives designated as effective hedges:
Cash Flow Hedges
Foreign currency contracts Prepaid expenses and other current assets $ 2 $ 5
Foreign currency contracts Other accrued liabilities ( 16 ) ( 9 )
Fair Value Hedges
Interest rate swaps Other accrued liabilities ( 18 ) ( 14 )
Interest rate swaps Other noncurrent liabilities ( 18 ) ( 16 )
Net Investment Hedges
Cross-currency swaps Prepaid expenses and other current assets 23 28
Cross-currency swaps Other assets 26 45
Cross-currency swaps Other noncurrent liabilities ( 121 ) ( 75 )
Derivatives not designated as effective hedges:
Foreign currency contracts Prepaid expenses and other current assets 7 19
Foreign currency contracts Other accrued liabilities ( 9 ) ( 10 )
Total $ ( 124 ) $ ( 27 )
The following table presents gain and (loss) activity (on a pretax basis) related to derivative financial instruments designated or previously designated, as effective hedges (in millions):
Three Months
Ended
June 30, 2023 Three Months
Ended
June 30, 2022
Gain/(Loss) Gain/(Loss)
Location of gain /(loss) recognized in income Recognized
in OCI
(effective portion)
Reclassified
from AOCL
to Income
Recognized
in OCI
(effective portion)
Reclassified
from AOCL
to Income
Interest rate swaps Interest expense, net $ — $ ( 1 ) $ — $ ( 1 )
Foreign currency contracts Net sales and cost of products sold ( 9 ) — 20 5
Cross-currency swaps Other (income) expense, net ( 49 ) — 78 —
Total $ ( 58 ) $ ( 1 ) $ 98 $ 4
Six Months
Ended
June 30, 2023 Six Months
Ended
June 30, 2022
Gain/(Loss) Gain/(Loss)
Location of gain (loss) recognized in income Recognized
in OCI
(effective portion)
Reclassified
from AOCL
to Income
Recognized
in OCI
(effective portion)
Reclassified
from AOCL
to Income
Interest rate swaps
Interest expense, net $ — $ ( 2 ) $ — $ ( 3 )
Foreign currency contracts
Net sales and cost of products sold ( 14 ) 10 19 6
Cross-currency swaps
Other (income) expense, net ( 70 ) — 82 —
Total $ ( 84 ) $ 8 $ 101 $ 3
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At June 30, 2023, net deferred losses of approximately $ 17 million within AOCL are expected to be reclassified to earnings over the next twelve months.
During the three months ended June 30, 2023 and 2022, the Company recognized in other (income) expense, net, expense of $ 8 million and income of $ 2 million, respectively, and expense of $ 18 million and $ 1 million during the six months ended June 30, 2023 and 2022, respectively, related to derivatives that are not designated as hedging instruments. Gains and losses on these derivatives are mostly offset by foreign currency movement in the underlying exposure.
The Company is not a party to any derivatives that require collateral to be posted prior to settlement.
Footnote 11 — Employee Benefit and Retirement Plans
The components of pension and postretirement benefit (income) expense for the periods indicated, are as follows (in millions):
Pension Benefits
U.S. International U.S. International
Three Months Ended June 30, Six Months Ended June 30,
2023 2022 2023 2022 2023 2022 2023 2022
Service cost $ — $ — $ 1 $ 1 $ — $ — $ 2 $ 2
Interest cost 12 7 4 3 23 13 8 5
Expected return on plan assets ( 14 ) ( 12 ) ( 3 ) ( 1 ) ( 28 ) ( 24 ) ( 6 ) ( 3 )
Amortization 1 4 — — 2 8 1 1
Settlements — — 5 — — — 5 —
Total (income) expense $ ( 1 ) $ ( 1 ) $ 7 $ 3 $ ( 3 ) $ ( 3 ) $ 10 $ 5
Postretirement Benefits
Three Months Ended
June 30, Six Months Ended
June 30,
2023 2022 2023 2022
Amortization $ ( 1 ) $ ( 1 ) $ ( 3 ) $ ( 2 )
Total income $ ( 1 ) $ ( 1 ) $ ( 3 ) $ ( 2 )
U.K. Defined Benefit Plan
In February 2022, the Company entered into an agreement with an insurance company for a bulk annuity purchase or “buy-in” for one of its U.K. defined benefit pension plans (“U.K. Plan”), resulting in an exchange of plan assets for an annuity that matches the plan’s future projected benefit obligations (“PBO”) to covered participants.
In April 2023, the Company also completed a “buy-out” of approximately 7 % of the U.K. Plan's PBO. The “buy-out” was completed by the execution of a Deed Poll Agreement and a Deed of Assignment with an insurance company. In connection with this transaction, during the second quarter, the Company recorded a pretax loss of $ 5 million in other (income) expense, net, in the Company's Condensed Consolidated Statement of Operations, related to the prorated recognition of previously unrecognized actuarial losses reclassified from AOCL to earnings.
The Company anticipates the “buy-out” for the remaining PBO of the U.K. plan to be completed in 2023. The non-cash settlement charge associated with this transaction is expected to be approximately £ 50 million to £ 70 million.
Footnote 12 — Income Taxes
The Company’s effective income tax rates for the three months ended June 30, 2023 and 2022 was a provision of 48.6 % as compared to 21.0 %, respectively, resulting from increased discrete tax expense, and provision of 3.7 % and of 19.1 % for the six months ended June 30, 2023 and 2022, respectively, resulting from more discrete tax expense combined with year to date pretax losses.
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The differences between the U.S. federal statutory income tax rate of 21.0 % and the Company’s effective income tax rate for the three and six months ended June 30, 2023 and 2022 were impacted by a variety of factors, primarily resulting from the geographic mix of where the income was earned, as well as certain taxable income inclusion items in the U.S. based on foreign earnings.
The three and six months ended June 30, 2023 were impacted by certain discrete items. Income tax expense for the three months ended June 30, 2023 included a discrete expense of $ 6 million associated with a tax basis adjustment on a prior disposition. The six months ended June 30, 2023 also included certain discrete items totaling $ 4 million of additional income tax expense.
The three and six months ended June 30, 2022 were also impacted by certain discrete items. Income tax expense for the three months ended June 30, 2022 included a discrete benefit of $ 11 million associated with the reduction in valuation allowance related to the integration of certain Brazilian operations. The six months ended June 30, 2022 also included a discrete benefit of $ 4 million associated with the approval of certain state tax credits, offset by $ 15 million of tax expense related to the divestiture of the CH&S business.
The Company’s U.S. federal income tax returns for 2011 to 2015 and 2017 to 2020, as well as certain state and non-U.S. income tax returns for various years, are under examination.
Footnote 13 — Weighted Average Shares Outstanding
The computations of the weighted average shares outstanding for the periods indicated are as follows (in millions):
Three Months Ended
June 30, Six Months Ended
June 30,
2023 2022 2023 2022
Basic weighted average shares outstanding 414.2 413.8 414.0 417.9
Dilutive securities (1)
1.1 1.9 — 2.3
Diluted weighted average shares outstanding 415.3 415.7 414.0 420.2
(1) The six months ended June 30, 2023 excludes 1.2 million of potentially dilutive share-based awards as their effect would be anti-dilutive.
Footnote 14 — Stockholders' Equity and Share-Based Compensation
During the six months ended June 30, 2023, the Company granted 1.6 million performance-based restricted stock units (“RSUs”), which had an aggregate grant date fair value of $ 23 million and entitle the recipients to shares of the Company’s common stock primarily at the end of a three-year vesting period. The actual number of shares that will ultimately vest is dependent on the level of achievement of the specified performance conditions.
During the six months ended June 30, 2023, the Company also granted 2.9 million time-based RSUs with an aggregate grant date fair value of $ 41 million. These time-based RSUs entitle recipients to shares of the Company’s common stock and primarily vest in equal installments over a three-year period.
During the six months ended June 30, 2023, the Company also granted 0.5 million time-based stock options with an aggregate grant date fair value of $ 2 million. These stock options entitle the recipients to purchase shares of the Company’s common stock at an exercise price equal to the fair market value of the underlying shares as of the grant dates and vest on the specified anniversaries of the grant dates.
The weighted average assumptions used to determine the fair value of stock options granted for the six months ended June 30, 2023, were as follows:
Risk-free interest rates 3.6 %
Expected volatility 42.1 %
Expected dividend yield 4.4 %
Expected life (in years) 6.9
Exercise price $ 12.86
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Special Incentive Program
As disclosed in our Current Report on Form 8-K filed with the SEC on May 19, 2023, the Company adopted the 2023 Special Incentive Program Terms and Conditions (the “SIP”) to incentivize performance against multi-year financial goals and to aid in the retention of certain Company executives.
On July 5, 2023, pursuant to the SIP, the Company granted 2.6 million performance-based RSUs, which had an aggregate grant date fair value of $ 22 million, to the Company’s President and Chief Executive Officer (“CEO”) and the Company’s Chief Financial Officer (“CFO”). These performance-based RSUs granted pursuant to the SIP, entitle the recipients to shares of the Company’s common stock and vest on February 27, 2026, subject to the achievement of the applicable performance goals.
The Company granted on July 5, 2023 an additional 1.9 million performance-based RSUs, which had an aggregate grant date fair value of $ 16 million, to certain key executives other than the CEO and CFO. These performance-based RSUs granted pursuant to the SIP entitle the recipients to shares of the Company’s common stock and vest as follows: 70 % of the total grant will vest on the two-year anniversary of the grant date, and the remaining 30 % of the total grant will vest on the three-year anniversary of the grant date, subject to the achievement of applicable performance measures.
The Company granted on July 5, 2023 an additional 1.3 million time-based RSUs, which had an aggregate grant date fair value of $ 11 million, to certain key executives other than the CEO and CFO. These time-based RSUs granted pursuant to the SIP entitle the recipients to shares of the Company’s common stock and will fully vest on the one-year anniversary of the date of grant.
The vesting of all grants pursuant to the SIP are subject to continued employment with the Company.
Share Repurchase Program
On February 6, 2022, the Company's Board of Directors authorized a $ 375 million Share Repurchase Program (“SRP”), effective through its expiration date of December 31, 2022. Under the SRP, the Company was permitted to purchase its common shares in the open market, in negotiated transactions or in other manners, as permitted by federal securities laws and other legal requirements. On February 25, 2022, the Company repurchased $ 275 million of its shares of common stock beneficially owned by Carl C. Icahn and certain of his affiliates, at a purchase price of $ 25.86 per share, the closing price of the Company's common shares on February 18, 2022. During the three months ended June 30, 2022, the Company repurchased approximately $ 50 million of its shares of common stock at an average price of $ 22.01 per share.
Footnote 15 — Fair Value Disclosures
Recurring Fair Value Measurement s
The following table presents the Company’s non-pension financial assets and liabilities, which are measured at fair value on a recurring basis (in millions):
June 30, 2023 December 31, 2022
Fair value Asset (Liability) Fair value Asset (Liability)
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Derivatives:
Assets $ — $ 58 $ — $ 58 $ — $ 97 $ — $ 97
Liabilities — ( 182 ) — ( 182 ) — ( 124 ) — ( 124 )
Investment securities, including mutual funds
16 — — 16 14 — — 14
For publicly traded investment securities, including mutual funds, fair value is determined on the basis of quoted market prices and, accordingly, such investments are classified as Level 1. The Company determines the fair value of its derivative instruments using standard pricing models and market-based assumptions for all significant inputs, such as yield curves and quoted spot and forward exchange rates. Accordingly, the Company’s derivative instruments are classified as Level 2.
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Financial Instruments
The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable, derivative instruments, notes payable and short and long-term debt. The carrying values for current financial assets and liabilities, including cash and cash equivalents, accounts receivable, accounts payable and short-term debt approximate fair value due to the short maturity of such instruments. The fair values of the Company’s debt and derivative instruments are disclosed in Footnote 9 and Footnote 10 , respectively.
Nonrecurring Fair Value Measurements
The Company’s nonfinancial assets, which are measured at fair value on a nonrecurring basis, include property, plant and equipment, goodwill, intangible assets and certain other assets.
The Company’s goodwill and indefinite-lived intangibles are fair valued using discounted cash flows. Goodwill impairment testing requires significant use of judgment and assumptions including 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 and discount rates. The testing of indefinite-lived intangibles under established guidelines for impairment also requires significant use of judgment and assumptions, such as the estimation of cash flow projections, terminal values, royalty rates, contributory cross charges, where applicable, and discount rates. Accordingly, these fair value measurements fall in Level 3 of the fair value hierarchy. These assets and certain liabilities are measured at fair value on a nonrecurring basis as part of the Company’s annual impairment testing and as circumstances require.
During the second quarter of 2023, one tradename in the Home and Commercial Solutions segment was measured at fair value of $ 60 million. See Footnote 7 for further information.
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Footnote 16 — Segment Information
Effective January 1, 2023, as a result of the implementation of a new operating model intended to drive further simplification and unlock additional efficiencies and synergies within the Company, the CODM now reviews the businesses as three operating segments: Home and Commercial Solutions, Learning and Development and Outdoor and Recreation. The Home and Commercial Solutions operating segment represents the combination of the previously reported Commercial Solutions, Home Appliances and Home Solutions operating segments. Prior period comparable results have been reclassified to conform to the operating segment change.
On March 31, 2022, the Company sold its CH&S business to Resideo Technologies, Inc. The results of operations for the CH&S business continued to be reported in the Condensed Consolidated Statements of Operations as part of the Home and Commercial Solutions segment through March 31, 2022.
The Company's three primary reportable segments are:
Segment Key Brands Description of Primary Products
Home and Commercial Solutions Ball (1) , Calphalon, Chesapeake Bay Candle, Crockpot, FoodSaver, Mapa, Mr. Coffee, Oster, Quickie, Rubbermaid, Rubbermaid Commercial Products, Sistema, Spontex, Sunbeam, WoodWick and Yankee Candle
Commercial cleaning and maintenance solutions; closet and garage organization; hygiene systems and material handling solutions; household products, including kitchen appliances; food and home storage products; fresh preserving products; vacuum sealing products; gourmet cookware, bakeware and cutlery and home fragrance products
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; writing instruments, including markers and highlighters, pens and pencils; art products; activity-based products and labeling solutions
Outdoor and Recreation Campingaz, Coleman, Contigo, ExOfficio and Marmot Products for outdoor and outdoor-related activities
(1) and Ball® TM of Ball Corporation, used under license.
This structure reflects the manner in which the CODM regularly assesses information for decision-making purposes, including the allocation of resources. The Company also provides general corporate services to its segments which is reported as a non-operating segment, Corporate.
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Selected information by segment is presented in the following tables (in millions):
Three Months Ended
June 30, Six Months Ended
June 30,
2023 2022 2023 2022
Net sales (1)
Home and Commercial Solutions (3)
$ 1,058 $ 1,242 $ 2,029 $ 2,592
Learning and Development 813 865 1,377 1,515
Outdoor and Recreation 333 427 603 815
$ 2,204 $ 2,534 $ 4,009 $ 4,922
Operating income (loss) (2)
Home and Commercial Solutions (3)
$ ( 21 ) $ 74 $ ( 58 ) $ 163
Learning and Development 188 245 260 383
Outdoor and Recreation 5 48 4 94
Corporate ( 52 ) ( 39 ) ( 122 ) ( 95 )
$ 120 $ 328 $ 84 $ 545
June 30, 2023 December 31, 2022
Segment assets
Home and Commercial Solutions $ 5,045 $ 5,243
Learning and Development 4,465 4,494
Outdoor and Recreation 881 920
Corporate 2,629 2,605
$ 13,020 $ 13,262
(1) All intercompany transactions have been eliminated.
(2) Operating income (loss) by segment is net sales less cost of products sold, SG&A, restructuring and impairment of goodwill, intangibles and other assets. Certain Corporate expenses of an operational nature are allocated to business segments primarily on a net sales basis. Corporate depreciation and amortization is allocated to the segments on a percentage of net sales basis and included in segment operating income (loss).
(3) Home and Commercial Solutions net sales and operating income for the first quarter of 2022 include the CH&S business prior to its sale.
The following table disaggregates revenue by major product grouping source for the periods indicated (in millions):
Three Months Ended
June 30, Six Months Ended
June 30,
2023 2022 2023 2022
Commercial $ 378 $ 429 $ 726 $ 830
Kitchen 549 650 1,008 1,292
Home Fragrance 131 163 295 361
Connected Home and Security — — — 109
Home and Commercial Solutions 1,058 1,242 2,029 2,592
Baby 251 313 468 604
Writing 562 552 909 911
Learning and Development 813 865 1,377 1,515
Outdoor and Recreation 333 427 603 815
TOTAL $ 2,204 $ 2,534 $ 4,009 $ 4,922
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The following table disaggregates revenue by geography for the periods indicated (in millions):
Three months ended June 30,
2023 2022
North
America International TOTAL North
America International TOTAL
Home and Commercial Solutions $ 698 $ 360 $ 1,058 $ 863 $ 379 $ 1,242
Learning and Development 609 204 813 656 209 865
Outdoor and Recreation 188 145 333 237 190 427
$ 1,495 $ 709 $ 2,204 $ 1,756 $ 778 $ 2,534
Six months ended June 30,
2023 2022
North
America International TOTAL North
America International TOTAL
Home and Commercial Solutions $ 1,341 $ 688 $ 2,029 $ 1,838 $ 754 $ 2,592
Learning and Development 1,004 373 1,377 1,124 391 1,515
Outdoor and Recreation 334 269 603 447 368 815
$ 2,679 $ 1,330 $ 4,009 $ 3,409 $ 1,513 $ 4,922
Footnote 17 — Litigation and Contingencies
The Company is subject to various claims and lawsuits in the ordinary course of business, including from time to time, contractual disputes, employment and environmental matters, product and general liability claims, claims that the Company has infringed on the intellectual property rights of others, and consumer and employment class actions. Some of the legal proceedings include claims for punitive as well as compensatory damages. In the ordinary course of business, the Company is also subject to legislative requests, regulatory and governmental examinations, information requests and subpoenas, inquiries, investigations, and threatened legal actions and proceedings. In connection with such formal and informal inquiries, the Company receives numerous requests, subpoenas, and orders for documents, testimony and information in connection with various aspects of its activities. The Company previously disclosed that it had received a subpoena and related informal document requests from the SEC primarily relating to its sales practices and certain accounting matters for the time period beginning from January 1, 2016. The Company cooperated with the SEC in connection with its investigation and requests for documents, testimony and information. Since January 2023, the Company has been discussing with the SEC the possibility of reaching a settlement to resolve the investigation, which now relates to certain time periods within the Company's 2016 and 2017 fiscal years. Although the Company cannot predict the ultimate outcome of the SEC investigation with certainty, it believes that the resolution of the SEC investigation will not have a material effect on the Company’s Condensed Consolidated Financial Statements. Further, on June 30, 2021, the Company received a subpoena from the SEC requesting the production of documents related to its disclosure of the potential impact of the U.S. Treasury regulations described in Footnote 12 - Income Ta xes in the Company’s 2022 Annual Report on Form 10-K filed with the SEC on February 15, 2023.
Securities Litigation
The Company and certain of its current and former officers and directors were named as defendants in a securities class action lawsuit filed in the Superior Court of New Jersey, Hudson County, on behalf of all persons who acquired Company common stock pursuant to the S-4 registration statement and prospectus issued in connection with the April 2016 acquisition of Jarden Corporation (the “Registration Statement”). The action was filed on September 6, 2018 and was captioned Oklahoma Firefighters Pension and Retirement System v. Newell Brands Inc., et al., Civil Action No. HUD-L-003492-18 (“Oklahoma Firefighters”). In October 2022, the Company entered into a settlement agreement to resolve the claims asserted in this lawsuit. Under the settlement, the Company agreed to create a settlement fund of approximately $ 103 million for the benefit of the class, subject to certain exclusions, which was predominantly funded by insurance proceeds. Both the settlement and the insurance receivable were recorded during the third quarter of 2022. The amount not funded by available insurance proceeds, which is not material to the Company, was expensed during the third quarter of 2022. In the fourth quarter of 2022, the Court granted the plaintiff's motion for preliminary approval of the settlement, and the Company and its insurers paid the required amount into the settlement fund. On February 10, 2023, the Court granted the plaintiff's motion for final approval of settlement. The deadline to appeal the order granting final approval of the settlement has expired and the settlement is final.
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Certain of the Company’s current and former officers and directors have been named in shareholder derivative lawsuits. On October 29, 2018, a shareholder filed a putative derivative complaint, Streicher v. Polk, et al., in the United States District Court for the District of Delaware (the “Streicher Derivative Action”), purportedly on behalf of the Company against certain of the Company's current and former officers and directors. On October 30, 2018, another shareholder filed a putative derivative complaint, Martindale v. Polk, et al., in the United States District Court for the District of Delaware (the “Martindale Derivative Action”), asserting substantially similar claims purportedly on behalf of the Company against the same defendants. The complaints allege, among other things, violations of the federal securities laws, breaches of fiduciary duties, unjust enrichment, and waste of corporate assets. The factual allegations underlying these claims are similar to the factual allegations made in the In re Newell Brands, Inc. Securities Litigation that was previously pending in the United States District Court for the District of New Jersey. That matter was dismissed by the District Court on January 10, 2020, and the dismissal was affirmed by the United States District Court of Appeals for the Third Circuit on December 1, 2020. The Streicher Derivative Action and the Martindale Derivative Action have been consolidated and the case is now known as In re Newell Brands Inc. Derivative Litigation (the “Newell Brands Derivative Action”), which is pending in the United States District Court for the District of Delaware. On December 30, 2020, two shareholders filed a putative derivative complaint, Weber, et al. v. Polk, et al., in the United States District Court for the District of Delaware (the “Weber Derivative Action”), purportedly on behalf of the Company against certain of the Company’s current and former officers and directors. The complaint in the Weber Derivative Action alleges, among other things, breaches of fiduciary duty and waste of corporate assets. The factual allegations underlying these claims are similar to the factual allegations made in the Newell Brands Derivative Action. These derivative complaints seek damages and restitution for the Company from the individual defendants, the payment of costs and attorneys’ fees, and that the Company be directed to reform certain governance and internal procedures.
In March 2021, the United States District Court for the District of Delaware stayed the Newell Brands Derivative Action pending the resolution of any motions for summary judgment filed in Oklahoma Firefighters, referenced above, and stayed the Weber Derivative Action pending final disposition of Oklahoma Firefighters. On January 31, 2023, Plaintiff Streicher voluntarily dismissed herself from the Newell Brands Derivative Action without prejudice. On May 30, 2023, the United States District Court for the District of Delaware continued the stays of the Newell Brands Derivative Action and the Weber Derivative Action for an additional ninety days.
On May 26, 2023, Plaintiff Streicher filed a new putative derivative complaint, Streicher v. Polk, et al., in the Superior Court of New Jersey, Law Division: Hudson County (the “New Jersey Derivative Action” and, collectively with the Newell Brands Derivative Action and the Weber Derivative Action, the “Derivative Actions”), purportedly on behalf of the Company against certain of the Company’s current and former officers and directors. The complaint in the New Jersey Derivative Action alleges breaches of fiduciary duty. The factual allegations underlying these claims are similar to the factual allegations made in the Newell Brands Derivative Action and the Weber Derivative Action. On June 7, 2023, Plaintiff Streicher filed a Stipulation of Settlement (the “Stipulation”) and Motion for Preliminary Approval of Settlement in the New Jersey Derivative Action. The proposed settlement as set forth in the Stipulation provides for, among other things, a full release of the claims that the plaintiffs or any other Company stockholder asserted or could have asserted in the Derivative Actions against any of the defendants named in those actions, in exchange for the Company’s agreement to implement and/or maintain certain corporate governance measures, as more fully described in the Stipulation and Notice of Proposed Derivative Settlement as filed by the Company with the SEC on a Current Report on Form 8-K dated June 29, 2023 (the “Settlement”). On June 27, 2023, the Superior Court of Hudson County, New Jersey issued an order preliminarily approving the proposed Settlement as set forth in the Stipulation. The Settlement is subject to final consideration at a hearing to be held on August 25, 2023. The Settlement, if finally approved, will cause the dismissal with prejudice of each of the Derivative Actions.
Environmental Matters
The Company is involved in various matters concerning federal and state environmental laws and regulations, including matters in which the Company has been identified by the U.S. Environmental Protection Agency (“U.S. EPA”) and certain state environmental agencies as a potentially responsible party (“PRP”) at contaminated sites under the Comprehensive Environmental Response Compensation and Liability Act (“CERCLA”) and equivalent state laws. In assessing its environmental response costs, the Company has considered several factors, including the extent of the Company’s volumetric contribution at each site relative to that of other PRPs; the kind of waste; the terms of existing cost sharing and other applicable agreements; the financial ability of other PRPs to share in the payment of requisite costs; the Company’s prior experience with similar sites; environmental studies and cost estimates available to the Company; the effects of inflation on cost estimates; and the extent to which the Company’s, and other parties’ status as PRPs is disputed.
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The Company’s estimate of environmental remediation costs associated with these matters at June 30, 2023 was $ 37 million which is included in other accrued liabilities and other noncurrent liabilities in the Condensed Consolidated Balance Sheets. No insurance recovery was taken into account in determining the Company’s cost estimates or reserves, nor do the Company’s cost estimates or reserves reflect any discounting for present value purposes, except with respect to certain long-term operations and maintenance CERCLA matters. Because of the uncertainties associated with environmental investigations and response activities, the possibility that the Company could be identified as a PRP at sites identified in the future that require the incurrence of environmental response costs and the possibility that sites acquired in business combinations may require environmental response costs, actual costs to be incurred by the Company may vary from the Company’s estimates.
Lower Passaic River Matter
The U.S. EPA has issued General Notice Letters to over 100 entities, including the Company and its subsidiary, Berol Corporation (together, the “Company Parties”), alleging that they are PRPs at the Diamond Alkali Superfund Site (the “Site”) pursuant to CERCLA. The Site is the subject of investigation and remedial activities and related settlement negotiations with the U.S. EPA. The Site is divided into four “operable units,” and the Company Parties have received General Notice Letters in connection with operable Unit 2, which comprises the lower 8.3 miles of the Lower Passaic River and its tributaries (“Unit 2”), and operable Unit 4, which comprises a 17 -mile stretch of the Lower Passaic River and its tributaries (“Unit 4”). Unit 2 is geographically subsumed within Unit 4. In October 2021, the U.S. EPA issued a Record of Decision for an interim remedy for the upper 9 miles of Unit 4, selecting a combination of dredging and capping as the remedial alternative, which the U.S. EPA estimates will cost $ 441 million in the aggregate. The U.S. EPA also performed a Source Control Early Action Focused Feasibility Study for Unit 2, which culminated in a Record of Decision in 2016. The U.S. EPA estimates that the selected remedy for Unit 2 set forth in its Record of Decision will cost $ 1.4 billion in the aggregate.
In September 2017, the U.S. EPA announced an allocation process involving roughly 80 Unit 2 General Notice Letter recipients, with the intent of offering cash-out settlements to a number of parties (the “U.S. EPA Settlement”). The allocation process has concluded, and the Company Parties were placed in the lowest tier of relative responsibility among allocation parties. On December 16, 2022, the U.S. EPA simultaneously filed a complaint and lodged a Consent Decree to resolve the liability of the Company Parties and other settlement parties for past and future CERCLA response costs at Unit 2 and Unit 4. The proposed Consent Decree is undergoing public notice and comment, and it remains subject to court entry. As of the date of this filing, the Company does not expect that its allocation in the U.S. EPA Settlement relating to Unit 2 and Unit 4, if the settlement is finalized, will be material to the Company.
In June 2018, Occidental Chemical Corporation (“OCC”) sued over 100 parties, including the Company Parties, in the U.S. District Court in New Jersey pursuant to CERCLA, requesting cost recovery, contribution, and a declaratory judgement. The defendants, in turn, filed claims against 42 third-party defendants, and filed counterclaims against OCC (collectively, the “OCC Litigation”). The primary focus of the OCC Litigation has been certain past and future costs for investigation, design and remediation of Units 2 and 4. However, OCC has stated that it anticipates asserting claims against defendants regarding Newark Bay, which is also part of the Site, after the U.S. EPA has selected the Newark Bay remedy. OCC has also stated that it may broaden its claims in the future after completion of the Natural Resource Damage Assessment described below. In March 2023, the Court granted an unopposed motion to stay the OCC Litigation. At this time, the Company cannot predict the eventual outcome.
In 2007, the National Oceanic and Atmospheric Administration (“NOAA”), acting as the lead administrative trustee on behalf of itself and the U.S. Department of the Interior, issued a Notice of Intent to Perform a Natural Resource Damage Assessment to the Company Parties, along with numerous other entities, identifying the recipients as PRPs. The federal trustees (who now include the United States Department of Commerce, represented by NOAA, and the Department of the Interior, represented by the United States Fish and Wildlife Service) are presently undertaking the Natural Resource Damage Assessment with respect to the Site.
Based on currently known facts and circumstances, the Company does not believe that the Lower Passaic River matter is reasonably likely to have a material impact on the Company’s results of operations. However, in the event of one or more adverse determinations related to this matter, including the OCC Litigation and Natural Resource Damage Assessment noted above (for which the Company cannot currently estimate the range of possible losses), it is possible that the ultimate liability resulting from this matter and the impact on the Company’s results of operations could be material.
Because of the uncertainties associated with environmental investigations and response activities, the possibility that the Company could be identified as a PRP at sites identified in the future that require the incurrence of environmental response costs and the possibility that sites acquired in business combinations may require environmental response costs, actual costs to be incurred by the Company may vary from the Company’s estimates.
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Other Matters
In the normal course of business and as part of its acquisition and divestiture strategy, the Company may provide certain representations and indemnifications related to legal, environmental, product liability, tax or other types of issues. Based on the nature of these representations and indemnifications, it is not possible to predict the maximum potential payments under all of these agreements due to the conditional nature of the Company’s obligations and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under these agreements did not have a material effect on the Company’s business, financial condition or results of operations. In connection with the 2018 sale of The Waddington Group, Novolex Holdings, Inc. (the “Buyer”) filed suit against the Company in October 2019 in the Superior Court of Delaware. The Buyer generally alleged that the Company fraudulently breached certain representations in the Equity Purchase Agreement between the Company and Buyer, dated May 2, 2018, resulting in an inflated purchase price for The Waddington Group. In the year ended December 31, 2021, the Company recorded an immaterial reserve to continuing operations in its Consolidated Financial Statements based on its best estimate of probable loss associated with this matter. Further, in connection with the Company’s sale of The United States Playing Card Company (“USPC”), Cartamundi, Inc. and Cartamundi España, S.L. (the “Buyers”) have notified the Company of their contention that certain representations and warranties in the Stock Purchase Agreement, dated June 4, 2019, were inaccurate and/or breached, and have sought indemnification to the extent that the Buyers are required to pay related damages arising out of a third party lawsuit that was recently filed against USPC.
During the fourth quarter of 2022, the Company recorded an immaterial reserve based on the outcome of a judicial ruling relating to indirect taxes in an international entity. During the three months ended March 31, 2023, the Company paid the estimated liability to the relevant taxing authorities. Although the Company cannot predict the ultimate outcome of this contingency with certainty, it believes that any additional amounts it may be required to pay will not have a material effect on the Company’s future Condensed Consolidated Financial Statements.
Although management of the Company cannot predict the ultimate outcome of other proceedings with certainty, it believes that the ultimate resolution of the Company’s proceedings, including any amounts it may be required to pay in excess of amounts reserved, will not have a material effect on the Company’s Condensed Consolidated Financial Statements, except as otherwise described in this Footnote 17 .
At June 30, 2023, the Company had approximately $ 40 million in standby letters of credit primarily related to the Company’s self-insurance programs, including workers’ compensation, product liability and medical expenses.
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