What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-10-27 compared with 2023-07-28 · 170 added, 136 removed, 269 unchanged (53% of the section changed)

11 unchanged sentences

• the Company’s ability to improve productivity, reduce complexity and streamline operations;

• the Company's ability to manage any actual or perceived ongoing effects of the COVID-19 pandemic, including as a result of any additional variants of the virus or the efficacy and distribution of vaccines;

• risks related to the Company’s substantial indebtedness, potential increases in interest rates and changes in the Company’s credit ratings, including the failure to maintain financial covenants, which if breached could subject the Company to cross-default and acceleration provisions in its debt documents;

• competition with other manufacturers and distributors of consumer products;

• major retailers’ strong bargaining power and consolidation of the Company’s customers;

• supply chain and operational disruptions in the markets in which we operate, whether as a result of the actual or perceived effects of the COVID-19 pandemic or broader geopolitical and macroeconomic conditions, including the military conflict between Russia and Ukraine;

• changes in the prices and availability of labor, transportation, raw materials and sourced products, including significant inflation, and the Company's ability to offset cost increases through pricing and productivity in a timely manner;

6 unchanged sentences

• unexpected costs or expenses associated with dispositions;

• 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;

4 unchanged sentences

• the Company’s ability to protect its intellectual property rights;

• significant increases in the funding obligations related to the Company’s pension plans;

68 unchanged sentences

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 strategic initiatives described in the preceding section.

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.

7 unchanged sentences

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.

During the three and nine months ended September 30, 2023, the Company recorded restructuring charges of $3 million and $5 million, respectively, in connection with the Network Optimization 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.

During the three and nine months ended September 30, 2023, the Company recorded restructuring-related charges of $5 million and $12 million, respectively, in connection with the project.

Project Phoenix

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.

During the three and nine months ended September 30, 2023, the Company recorded restructuring charges of $10 million and $63 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.

During the three and nine months ended September 30, 2023, the Company recorded restructuring-related charges of $5 million and $15 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.

During the third quarter of 2023, the Company concluded that a triggering event had occurred for the goodwill associated with the Baby reporting unit in the Learning and Development segment, and for an indefinite-lived tradename in the Outdoor and Recreation segment, as a result of a downward revision of forecasted cash flows due to market conditions, as well as rising interest rates.

The Company performed a quantitative impairment test and determined that the Baby reporting unit goodwill and the indefinite-lived tradename in the Outdoor and Recreation segment were impaired.

During the third quarter of 2023, the Company recorded a non-cash impairment charge of $241 million for the Baby reporting unit goodwill and $22 million for the indefinite-lived tradename in the Outdoor and Recreation segment, as the carrying values exceeded their fair values.

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

On March 20, 2023, S&P Global Inc.

Debt Rating Downgrades

On August 21, 2023, Moody's Corporation (“Moody's”) downgraded the Company's debt rating to “Ba2”.

As a result of Moody's 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 $2 million in 2023).

On August 3, 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.

In March 2023, S&P had also downgraded the Company’s debt rating to “BB+”.

As a result of the S&P downgrades, certain of the Company’s outstanding senior notes currently aggregating to approximately $3.1 billion are subject to an aggregated interest rate adjustment of 50 basis points.

The change to the interest rate due to the downgrade will increase the Company’s interest expense by approximately $15 million on an annualized basis (approximately $8 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.

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

Furthermore, as a result of the March 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.

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

Amendment to Credit Revolver

2 unchanged sentences

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

New Accounts Receivables Facility

On October 2, 2023, the Company entered into a new three-year revolving accounts receivable facility (the “New Receivables Facility”) pursuant to which the accounts receivable of certain of the Company’s subsidiaries will be sold or pledged.

The New Receivables Facility provides liquidity in an amount of up to $225 million between February and April of each year and up to $275 million at all other times.

See Footnote 18 of the Notes to Unaudited Condensed Consolidated Financial Statements for further information.

Results of Operations

Three Months Ended June 30, 2023 vs.

Three Months Ended June 30, 2022

Three Months Ended September 30, 2023 vs.

Three Months Ended September 30, 2022

Consolidated Operating Results

Three Months Ended

September 30,

(in millions) 2023 2022 $ Change % Change

2 unchanged sentences

Gross margin 30.3 % 29.2 %

Operating income 120 328 (208) (63.4)%

Operating income (loss) (159) 40 (199) NM

Operating margin (7.8) % 1.8 %

Interest expense, net 69 57 12 21.1%

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)%

Other expense, net 70 24 46 NM

Loss before income taxes (298) (41) (257) NM

Income tax benefit (80) (60) (20) (33.3)%

Income tax rate 26.8 % 146.3 %

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:

Net income (loss) $ (218) $ 19 $ (237) NM

Diluted earnings (loss) per share $ (0.53) $ 0.05

NM - NOT MEANINGFUL

Net sales for the three months ended September 30, 2023 decreased 9%.

Net sales were unfavorably impacted by softening global demand, shift in the timing of orders into the second quarter for certain product lines, distribution losses and category exits, primarily in the Home and Commercial Solutions segment, partially offset by pricing actions by the Company.

Changes in foreign currency favorably impacted net sales by $14 million, or 1%.

Gross profit decreased 6% and gross margin improved to 30.3% as compared with 29.2% in the prior year period.

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

Changes in foreign currency exchange rates unfavorably impacted gross profit by $3 million.

Notable items impacting operating income (loss) for the three months ended September 30, 2023 and 2022 are as follows:

Three Months Ended

September 30,

2023 2022 $ Change

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

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

$ 263 $ 148 $ 115

1 unchanged sentence

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.

(a) Restructuring-related costs reported in cost of products sold and selling, general and administrative expenses (“SG&A”) for the three months ended September 30, 2023 were $18 million and $7 million, respectively, and primarily relate to facility closures.

For the three months ended September 30, 2022, restructuring-related costs reported in cost of products sold and SG&A were $7 million and $2 million, respectively, primarily related to facility closures.

Restructuring costs were $16 million and $3 million for the three months ended September 30, 2023 and 2022, respectively.

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

Operating loss was $159 million as compared to operating income of $40 million in the prior year period.

The decrease reflects the impact of lower gross profit, higher restructuring and restructuring-related charges, primarily in connection with Project Phoenix and the Network Optimization Project, higher incentive compensation expense and higher non-cash impairment charges relating to goodwill and indefinite-lived tradenames, partially offset by gross productivity and savings from restructuring actions.

Interest expense, net increased due to higher interest rates, partially offset by higher interest income.

The weighted average interest rates for the three months ended September 30, 2023 and 2022 were approximately 5.1% and 4.1%, 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:

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

Three Months Ended

September 30,

Foreign exchange losses, net $ 5 $ 26

2 unchanged sentences

Other losses, net 4 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.

Income tax benefit for the three months ended September 30, 2023 was $80 million as compared to $60 million for the three months ended September 30, 2022.

The effective tax rate for the three months ended September 30, 2023 was 26.8%, resulting from higher pretax loss and more discrete tax benefits, as compared to 146.3% for the three months ended September 30, 2022.

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

2 unchanged sentences

Three Months Ended

September 30,

(in millions) 2023 2022 $ Change % Change

2 unchanged sentences

Operating margin 5.7 % (6.2) %

Notable items impacting operating income (loss) comparability:

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

Notable item impacting operating income (loss) comparability:

Impairment of goodwill and intangible 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.

Home and Commercial Solutions net sales for the three months ended September 30, 2023 decreased 7%, which reflected softening global demand across all businesses and the shift in order timing for certain product lines to the second quarter, ahead of a price increase that took effect in the third quarter of 2023, as well as category exits and distribution losses, primarily in the Kitchen business, partially offset by pricing actions.

Changes in foreign currency favorably impacted net sales by $9 million, or 1%.

Operating income for the three months ended September 30, 2023 was $64 million as compared to operating loss of $75 million in the prior year period.

The improvement in operating results is due to prior year non-cash impairment charges primarily related to goodwill and indefinite-lived tradenames, savings from restructuring actions and gross productivity, partially offset by higher restructuring and restructuring-related charges in connection with Project Phoenix.

Learning and Development

Three Months Ended

September 30,

(in millions) 2023 2022 $ Change % Change

Net sales $ 694 $ 751 $ (57) (7.6)%

Operating income 188 245 (57) (23.3)%

Operating income (loss) (127) 122 (249) NM

Operating margin (18.3) % 16.2 %

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.

Notable item impacting operating income (loss) comparability:

Impairment of goodwill and intangible asset (See Footnotes 1 and 7 )

NM - NOT MEANINGFUL

Learning and Development net sales for the three months ended September 30, 2023 decreased 8%, primarily due to a decline in the Baby business.

The Writing business declined slightly as compared to the prior year.

The Writing business performance reflected a shift in order timing for the back to school season to the second quarter and softening demand in certain categories, partially offset by pricing actions.

The Baby business reflects softening demand in certain categories and the impact of lost sales to a customer that declared bankruptcy.

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

Operating loss for the three months ended September 30, 2023 was $127 million as compared to operating income of $122 million in the prior-year period.

The decline in operating results is primarily due to higher goodwill impairment charge and lower gross profit, partially offset by gross productivity and savings from Project Phoenix.

Outdoor and Recreation

Three Months Ended

September 30,

(in millions) 2023 2022 $ Change % Change

Net sales $ 231 $ 289 $ (58) (20.1)%

Operating income 5 48 (43) (89.6)%

Operating income (loss) (42) 6 (48) NM

Operating margin (18.2) % 2.1 %

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

Notable item impacting operating income (loss) comparability:

Impairment of intangible asset (See Footnote 7) $ 22 $ —

NM - NOT MEANINGFUL

Outdoor and Recreation net sales for the three months ended September 30, 2023 decreased 20%, reflecting softening global demand and distribution losses, partially offset by pricing actions.

Changes in foreign currency favorably impacted net sales by $1 million.

Operating loss for the three months ended September 30, 2023 was $42 million as compared to operating income of $6 million in the prior-year period.

The decline was due to lower gross profit, higher restructuring-related charges and a non-cash impairment charge related to an indefinite-lived tradename, partially offset by gross productivity and savings from restructuring actions.

Nine Months Ended September 30, 2023 vs.

Nine Months Ended September 30, 2022

Consolidated Operating Results

Six Months Ended

Nine Months Ended

September 30,

(in millions) 2023

3 unchanged sentences

Gross margin 28.6 % 31.1 %

Operating income 84 545 (461) (84.6)%

Operating income (loss) (75) 585 (660) NM

Operating margin (1.2) % 8.2 %

2 unchanged sentences

Income (loss) before income taxes (379) 487 (866) NM

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

Income tax provision (benefit) (77) 41 (118) NM

Income tax rate 20.3 % 8.4 %

Net income (loss) $ (302) $ 446 $ (748) NM

Diluted earnings (loss) per share attributable to common shareholders $ (0.20) $ 1.02

Diluted earnings (loss) per share $ (0.73) $ 1.07

NM - NOT MEANINGFUL

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.

Net sales for the nine months ended September 30, 2023 decreased 16%.

Net sales were unfavorably impacted by softening global demand, distribution losses and category exits, primarily in the Home and Commercial Solutions segment, partially offset by 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%.

1 unchanged sentence

Gross profit decreased 22% compared to prior year.

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, higher restructuring-related charges and input

cost inflation.

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

Gross margin declined to 28.6% as compared with 31.1% in the prior year.

The decrease in gross profit was driven by lower sales, inflation and higher restructuring-related charges, partially offset by favorable pricing and 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 $37 million, or 2%.

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

Six Months Ended

Notable items impacting operating income (loss) for the nine months ended September 30, 2023 and 2022 were as follows:

Nine Months Ended

September 30,

2023 2022 $ Change

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

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

$ 274 $ 148 $ 126

1 unchanged sentence

Transactions costs and other (b)

(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 six months ended June 30, 2023 and 2022 were approximately 5.1% and 4.3%, respectively.

(a) Restructuring-related costs reported in cost of products sold and SG&A for the nine months ended September 30, 2023 was $49 million and $6 million, respectively, and primarily relate to facility closures.

For the nine months ended September 30, 2022, restructuring-related costs reported in cost of products sold and SG&A was $15 million and $2 million, respectively, primarily related to facility closures.

Restructuring costs were $76 million and $12 million for the nine months ended September 30, 2023 and 2022, respectively.

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

Operating loss was $75 million as compared to operating income of $585 million in the prior year period.

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

Interest expense, net increased due to higher interest rates, partially offset by higher interest income.

The weighted average interest rates for the nine months ended September 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 six months ended June 30, 2023 and 2022 includes the following items:

Six Months Ended

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

Nine Months Ended

September 30,

Foreign exchange losses, net $ 10 $ 61

2 unchanged sentences

Other losses, net 15 2

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.

The income tax benefit for the nine months ended September 30, 2023 was $77 million as compared to provision of $41 million for the nine months ended September 30, 2022.

The effective tax rate for the nine months ended September 30, 2023 was a benefit of 20.3%, resulting from more discrete tax benefits combined with year to date pretax losses, as compared to provision of 8.4% for the nine months ended September 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

Six Months Ended

Nine Months Ended

September 30,

(in millions) 2023 2022 $ Change % Change

Net sales $ 3,152 $ 3,804 $ (652) (17.1)%

Operating income (loss) (58) 163 (221) NM

Operating income 6 88 (82) (93.2)%

Operating margin 0.2 % 2.3 %

Notable items impacting operating income (loss) comparability:

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

Notable item impacting operating income comparability:

Impairment of goodwill, 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.

Home and Commercial Solutions net sales for the nine months ended September 30, 2023 decreased 17%, 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 3%, as well as certain category exits and distribution losses, primarily in the Kitchen business, partially offset by pricing actions.

Changes in foreign currency unfavorably impacted net sales by $24 million, or 1%.

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.

Operating income for the nine months ended September 30, 2023 was $6 million as compared to $88 million in the prior year.

The decrease in operating income is primarily due to lower gross profit, input cost inflation, higher restructuring and restructuring-related 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, lower non-cash impairment charges and advertising and promotion costs, as well as savings from restructuring actions.

Learning and Development

Six Months Ended

Nine Months Ended

September 30,

(in millions) 2023 2022 $ Change % Change

2 unchanged sentences

Operating margin 6.4 % 22.3 %

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.

Notable item impacting operating income comparability:

Impairment of goodwill and intangible asset (See Footnotes 1 and 7 )

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

The Writing business performance reflected pricing actions and innovation, 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 declared bankruptcy.

Changes in foreign currency unfavorably impacted net sales by $13 million, or 1%.

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.

Operating income for the nine months ended September 30, 2023 decreased to $133 million as compared to $505 million in the prior-year period.

The decrease in operating income is primarily due to higher non-cash goodwill impairment charges, lower gross profit and higher restructuring and restructuring-related charges primarily related to Project Phoenix, partially offset by gross productivity and savings from restructuring actions.

Outdoor and Recreation

Six Months Ended

Nine Months Ended

September 30,

(in millions) 2023 2022 $ Change % Change

Net sales $ 834 $ 1,104 $ (270) (24.5)%

Operating income 4 94 (90) (95.7)%

Operating income (loss) (38) 100 (138) NM

Operating margin (4.6) % 9.1 %

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.

Notable item impacting operating income (loss) comparability:

Impairment of intangible asset (See Footnote 7) $ 22 $ —

NM - NOT MEANINGFUL

Outdoor and Recreation net sales for the nine months ended September 30, 2023 decreased 24% primarily reflecting softening global demand and distribution losses, partially offset by pricing actions.

Changes in foreign currency unfavorably impacted net sales by $15 million or 1%.

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.

Operating loss for the nine months ended September 30, 2023 was $38 million as compared to operating income of $100 million in the prior-year period.

The decline was primarily due to lower gross profit, higher restructuring and restructuring-related charges in connection with Project Phoenix and a non-cash impairment charge related to an indefinite-lived tradename, 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, 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.

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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 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.

At September 30, 2023, the Company had cash and cash equivalents of approximately $396 million, of which approximately $346 million was held by the Company’s non-U.S.

subsidiaries.

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

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

2023 2022 Increase (Decrease)

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Cash provided by (used in) investing activities (147) 420 (567)

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

Cash provided by (used in) financing activities (405) 344 (749)

Exchange rate effect on cash, cash equivalents and restricted cash (8) (13) 5

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

Increase in cash, cash equivalents and restricted cash $ 119 $ 184 $ (65)

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.

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Cash Flows from Financing Activities

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.

The change in net cash used in financing activities was primarily due to the period-over-period change in debt, a reduction of the quarterly dividend payment in the current year, that commenced 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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The Credit Revolver requires compliance with certain financial covenants.

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 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”).

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.

A failure to maintain the Company's financial covenants and to subsequently remedy a default would impair its 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 September 30, 2023.

At September 30, 2023, the Company had $375 million of outstanding borrowings under the Credit Revolver and approximately $21 million of outstanding standby letters of credit issued against the Credit Revolver, with a net availability of approximately $1.1 billion.

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

The aggregate commitment under the Securitization Facility was $375 million.

The Securitization Facility matured on October 2, 2023 and was terminated thereafter.

At September 30, 2023, the Company had no outstanding borrowing under the Securitization Facility.

As disclosed in the Company's Current Report on Form 8-K filed with the SEC on October 5, 2023, the Company entered into a new three-year revolving accounts receivable facility.

The New Receivables Facility provides for liquidity in an amount of up to $225 million between February and April of each year and up to $275 million at all other times.

Risk Management

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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.

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.

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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 third 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 lower volume and profitability expectations, 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 a quantitative impairment test and determined that the Baby reporting unit goodwill was impaired.

During the third quarter of 2023, the Company recorded a non-cash impairment charge of $241 million as the carrying value of the reporting unit exceeded its fair value.

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.

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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.

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 incremental impairment charge of approximately $115 million against its goodwill carrying value of $415 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.

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

During the third quarter of 2023, the Company concluded that a triggering event had occurred for an indefinite-lived tradename in the Outdoor and Recreation segment.

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

As a result, the Company recorded a non-cash impairment charge of $22 million during the third quarter of 2023, as the carrying value exceeded its fair value.

A hypothetical 10% reduction in the forecasted revenue used in the relief from royalty method in determining the fair value of this indefinite-lived intangible would have resulted in an incremental impairment charge on the Outdoor and Recreation segment of $4 million.

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.

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.

As a result, the Company recorded an aggregate non-cash impairment charge of $8 million, during the second quarter of 2023, as the carrying value exceeded its fair value .

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.

For this tradename, the Company expects that current market contraction is reflective of a reset of demand levels.

If the demand continues to contract or the business fails to regain lost distribution, additional declines in the fair value of this tradename may occur resulting in an impairment charge.

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.

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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