NEWELL BRANDS INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of Newell Brands Inc.’s (“Newell Brands,” the “Company,” “we,” “us” or “our”) consolidated financial condition and results of operations. The discussion should be read in conjunction with the accompanying condensed consolidated financial statements and notes thereto. Forward-Looking Statements Forward-looking statements in this Report are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements generally can be identified by the use of words such as “intend,” “anticipate,” “believe,” “estimate,” “project,” “target,” “plan,” “expect,” “setting up,” “beginning to,” “will,” “should,” “would,” “could,” “resume,” “are confident that,” “remain optimistic that,” “seek to,” or similar statements. The Company cautions that forward-looking statements are not guarantees because there are inherent difficulties in predicting future results. Actual results may differ materially from those expressed or implied in the forward-looking statements. Important factors that could cause actual results to differ materially from those suggested by the forward-looking statements include, but are not limited to: • the Company’s ability to optimize costs and cash flow and mitigate the impact of retailer inventory rebalancing through discretionary and overhead spend management, advertising and promotion expense optimization, demand forecast and supply plan adjustments and actions to improve working capital; • the Company’s dependence on the strength of retail and consumer demand and commercial and industrial sectors of the economy in various countries around the world; • the Company’s ability to improve productivity, reduce complexity and streamline operations; • 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 any global military conflicts; • 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; • the cost and outcomes of governmental investigations, inspections, lawsuits, legislative requests or other actions by third parties, including but not limited to, those described in Footnote 17 of the Notes to Unaudited Condensed Consolidated Financial Statements , the potential outcomes of which could exceed policy limits, to the extent insured; • the Company's ability to effectively execute its turnaround plan, including Project Ovid, Project Phoenix and the Network Optimization Project; • the Company’s ability to develop innovative new products, to develop, maintain and strengthen end-user brands and to realize the benefits of increased advertising and promotion spend; • the Company's ability to consistently maintain effective internal control over financial reporting; • the risks inherent to the Company’s foreign operations, including currency fluctuations, exchange controls and pricing restrictions; • future events that could adversely affect the value of the Company’s assets and/or stock price and require additional impairment charges; • unexpected costs or expenses associated with dispositions; • a failure or breach of one of the Company’s key information technology systems, networks, processes or related controls or those of the Company’s service providers; • the impact of United States and foreign regulations on the Company’s operations, including the impact of tariffs, product regulation and legislation and environmental remediation costs and legislation and regulatory actions related to data privacy and climate change; • the potential inability to attract, retain and motivate key employees; • changes in tax laws and the resolution of tax contingencies resulting in additional tax liabilities; • product liability, product recalls or related regulatory actions; • the Company’s ability to protect its intellectual property rights; • 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; • significant increases in the funding obligations related to the Company’s pension plans; and 28 Table of Contents • other factors listed from time to time in our SEC filings, including, but not limited to our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q and other filings. The information contained in this Report is as of the date indicated. The Company assumes no obligation to update any forward-looking statements contained in this Report as a result of new information or future events or developments. In addition, there can be no assurance that the Company has correctly identified and assessed all of the factors affecting the Company or that the publicly available and other information the Company receives with respect to these factors is complete or correct. Overview Newell Brands is a leading global consumer goods company with a strong portfolio of well-known brands, including Rubbermaid, Sharpie, Graco, Coleman, Rubbermaid Commercial Products, Yankee Candle, Paper Mate, FoodSaver, Dymo, EXPO, Elmer’s, Oster, NUK, Spontex and Campingaz. Newell Brands is focused on delighting consumers by lighting up everyday moments. The Company sells its products in nearly 200 countries around the world and has operations on the ground in over 40 of these countries, excluding third-party distributors. New Business Strategy Following a comprehensive assessment of key capabilities, effective the second quarter of 2023, the leadership team began implementing an integrated set of new “where to play” and “how to win” strategies designed to enable the Company to leverage the scale of the portfolio, while further building upon its operational foundation and strengthening its front-end capabilities. As part of its strategy, the Company is focused on: • Driving meaningful improvement in front-end capabilities, including consumer understanding, brand management, brand communications, innovation and go-to-market execution; • Disproportionately investing in the Company's largest and most profitable brands, fastest-growing channels, major retailers and key geographies; • Turning the Company's scale into a competitive advantage, enabling cost savings that provide fuel for reinvestment; and • Transitioning to a high-performance organization as the Company transforms its culture. The Company is implementing this strategy while continuing to address key challenges such as shifting consumer preferences and behaviors; a highly competitive operating environment; a rapidly changing retail and consumer landscape; continued macroeconomic and geopolitical volatility; a softening macro backdrop; significant inflationary pressures, and an evolving regulatory landscape. Execution of these strategic imperatives, in combination with other initiatives aimed to build operational excellence, will better position the Company for long-term sustainable growth. One such initiative is Project Ovid, a multi-year, customer centric supply chain initiative to transform the Company's go-to-market capabilities in the U.S., improve customer service levels and drive operational efficiencies. This initiative, which completed its first phase go-live during the third quarter of 2022 and its second phase go-live during the first quarter of 2023, is expected to leverage technology to further simplify the organization by harmonizing and automating processes. Project Ovid is designed to optimize the Company’s distribution network by creating a single integrated supply chain from 23 business-unit-centric supply chains. The initiative is intended to reduce administrative complexity, improve inventory and invoicing workflow for our customers and enhance product availability for consumers through omni-channel enablement. This new operating model is also expected to drive efficiencies by better utilizing the Company's transportation and distribution network and consolidating the number of overall distribution sites. In May 2023, the Company announced a restructuring and savings initiative that is intended to simplify and streamline its North American distribution network (the “Network Optimization Project”) in order to improve the Company’s cost structure and operating margins while maintaining focus on customer and consumer fulfillment. The Company initiated implementation of the Network Optimization Project during the second quarter of 2023 and expects it to be substantially implemented by the end of fiscal year 2024. The Network Optimization Project incorporates a variety of initiatives, including a reduction in the overall number of distribution centers, an optimization of distribution by location, and completion of select automation investments intended to further streamline the Company’s cost structure and to maximize operating performance. The Company expects to incur $30 million to $40 million in capital expenditures related to the Network Optimization Project. 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 29 Table of Contents efficiencies. Project Phoenix is expected to be substantially implemented by the end of 2023 and incorporates a variety of initiatives designed to simplify the organizational structure, streamline the Company’s real estate portfolio, centralize the Company’s supply chain functions, which include manufacturing, distribution, transportation and customer service, transition to a unified One Newell go-to-market model in key international geographies, and otherwise reduce overhead costs. The Company commenced reducing headcount during the first quarter of 2023, with most of these actions expected to be completed by the end of 2023, subject to local law and consultation requirements. In addition, the Company's ongoing review of its operating footprint and non-core brands will result in future restructuring charges. Organizational Structure 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. Prior period comparable results have been reclassified to conform to the operating segment change. On March 31, 2022, the Company sold its Connected Home & Security (“CH&S”) business to Resideo Technologies, Inc. The results of operations for CH&S 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 the following: 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. See Footnote 16 of the Notes to Unaudited Condensed Consolidated Financial Statements for further information. Recent Developments Current Macroeconomic Conditions The Company continues to be impacted by inflationary pressures, softening global demand, focus by major retailers on the rebalancing of inventory levels, rising interest rates and indirect macroeconomic impacts from the Russia-Ukraine conflict. These collective macroeconomic trends, the duration or severity of which are highly uncertain, are rapidly changing the retail and consumer landscape and are expected to continue to negatively impact the Company’s operating results, cash flows and financial condition during the current year. To help mitigate the negative impact of these conditions to the operating performance of its businesses, the Company has secured selective pricing increases, accelerated productivity initiatives, optimized advertising and promotion expenses, deployed overhead cost containment efforts, adjusted demand forecasts and supply plans, and taken actions designed to improve working capital. The 30 Table of Contents 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. See Footnote 1 of the Notes to Unaudited Condensed Consolidated Financial Statements for further information on use of estimates and risks. Russia-Ukraine Conflict The global economy has been negatively impacted by the military conflict between Russia and Ukraine. While the Company does not expect the conflict to have a material impact on its results of operations, it has experienced shortages in raw materials and increased costs for transportation, energy, and commodities due in part to the negative impact of the Russia-Ukraine military conflict on the global economy. Further escalation of geopolitical tensions related to the conflict, including increased trade barriers and restrictions on global trade, could result in, among other things, supply disruptions, lower consumer demand, and changes to foreign exchange rates and financial markets, any of which may adversely affect our business and supply chain. Additionally, if the military conflict escalates beyond its current scope, the Company could be negatively impacted by economic recessions in certain neighboring European countries or globally. See Footnote 1 of the Notes to Unaudited Condensed Consolidated Financial Statements for further information on use of estimates and risks. Network Optimization 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 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 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 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 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 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). 31 Table of Contents On August 3, 2023, S&P Global Inc. (“S&P”) downgraded the Company's debt rating to “BB”. 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). 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 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. 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. 32 Table of Contents Results of Operations 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 Net sales $ 2,048 $ 2,252 $ (204) (9.1)% Gross profit 621 658 (37) (5.6)% Gross margin 30.3 % 29.2 % Operating income (loss) (159) 40 (199) NM Operating margin (7.8) % 1.8 % Interest expense, net 69 57 12 21.1% 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 (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 goodwill, intangible and other assets (See Footnotes 1 and 7 ) $ 263 $ 148 $ 115 Restructuring (See Footnote 4 ) and restructuring-related costs (a) 41 12 29 Transactions costs and other (b) 3 18 (15) (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. 33 Table of Contents 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 September 30, 2023 and 2022 includes the following items: Three Months Ended September 30, 2023 2022 Foreign exchange losses, net $ 5 $ 26 Gain on disposition of businesses (See Footnote 2 ) — (3) Pension settlement costs (See Footnote 11 ) 61 — Other losses, net 4 1 $ 70 $ 24 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. Business Segment Operating Results Home and Commercial Solutions Three Months Ended September 30, (in millions) 2023 2022 $ Change % Change Net sales $ 1,123 $ 1,212 $ (89) (7.3)% Operating income (loss) 64 (75) 139 NM Operating margin 5.7 % (6.2) % Notable item impacting operating income (loss) comparability: Impairment of goodwill and intangible assets (See Footnotes 1 and 7 ) $ — $ 123 NM - NOT MEANINGFUL 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. 34 Table of Contents Learning and Development Three Months Ended September 30, (in millions) 2023 2022 $ Change % Change Net sales $ 694 $ 751 $ (57) (7.6)% Operating income (loss) (127) 122 (249) NM Operating margin (18.3) % 16.2 % Notable item impacting operating income (loss) comparability: Impairment of goodwill and intangible asset (See Footnotes 1 and 7 ) $ 241 $ 25 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 (loss) (42) 6 (48) NM Operating margin (18.2) % 2.1 % 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. 35 Table of Contents Nine Months Ended September 30, 2023 vs. Nine Months Ended September 30, 2022 Consolidated Operating Results Nine Months Ended September 30, (in millions) 2023 2022 $ Change % Change Net sales $ 6,057 $ 7,174 $ (1,117) (15.6)% Gross profit 1,732 2,234 (502) (22.5)% Gross margin 28.6 % 31.1 % Operating income (loss) (75) 585 (660) NM Operating margin (1.2) % 8.2 % Interest expense, net 213 171 42 24.6% Other (income) expense, net 91 (73) 164 NM Income (loss) before income taxes (379) 487 (866) NM 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 $ (0.73) $ 1.07 NM - NOT MEANINGFUL 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%. Changes in foreign currency unfavorably impacted net sales by $52 million, or 1%. Gross profit decreased 22% compared to prior year. 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 (loss) for the nine months ended September 30, 2023 and 2022 were as follows: Nine Months Ended September 30, 2023 2022 $ Change Impairment of goodwill, intangible and other assets (See Footnotes 1 and 7 ) $ 274 $ 148 $ 126 Restructuring (See Footnote 4 ) and restructuring-related costs (a) 131 29 102 Transactions costs and other (b) 24 30 (6) (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. 36 Table of Contents 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 nine months ended September 30, 2023 and 2022 includes the following items: Nine Months Ended September 30, 2023 2022 Foreign exchange losses, net $ 10 $ 61 Gain on disposition of business (See Footnote 2 ) — (136) Pension settlement costs (See Footnote 11 ) 66 — Other losses, net 15 2 $ 91 $ (73) 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. Treasury Regulations. Business Segment Operating Results Home and Commercial Solutions Nine Months Ended September 30, (in millions) 2023 2022 $ Change % Change Net sales $ 3,152 $ 3,804 $ (652) (17.1)% Operating income 6 88 (82) (93.2)% Operating margin 0.2 % 2.3 % Notable item impacting operating income comparability: Impairment of goodwill, intangible and other assets (See Footnotes 1 and 7 ) $ 10 $ 123 NM - NOT MEANINGFUL 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 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. 37 Table of Contents Learning and Development Nine Months Ended September 30, (in millions) 2023 2022 $ Change % Change Net sales $ 2,071 $ 2,266 $ (195) (8.6)% Operating income 133 505 (372) (73.7)% Operating margin 6.4 % 22.3 % Notable item impacting operating income comparability: Impairment of goodwill and intangible asset (See Footnotes 1 and 7 ) $ 241 $ 25 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 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 Nine Months Ended September 30, (in millions) 2023 2022 $ Change % Change Net sales $ 834 $ 1,104 $ (270) (24.5)% Operating income (loss) (38) 100 (138) NM Operating margin (4.6) % 9.1 % 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 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. 38 Table of Contents Liquidity and Capital Resources Liquidity 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 and entering into the New Receivables Facility. The Company believes these actions and its cash generating capability, together with its borrowing capacity and available cash and cash equivalents, provide adequate liquidity to fund its operations, support its growth platforms, pay down debt and debt maturities as they come due and execute its ongoing business initiatives. The Company regularly assesses its cash requirements and the available sources to fund these needs. For further information, refer to Risk Factors in Part I - Item 1A and Recent Developments in Part II - Item 7. 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 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 nine months ended September 30, 2023 and 2022 (in millions): 2023 2022 Increase (Decrease) Cash provided by (used in) operating activities $ 679 $ (567) $ 1,246 Cash provided by (used in) investing activities (147) 420 (567) Cash provided by (used in) financing activities (405) 344 (749) Exchange rate effect on cash, cash equivalents and restricted cash (8) (13) 5 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. Cash Flows from Operating Activities The change in net cash provided by operating activities reflects a reduction of working capital and lower incentive compensation payments in the current year, partially offset by lower operating income and higher restructuring payments. Cash Flows from Investing Activities The change in cash used in investing activities was primarily due to proceeds from the sale of the CH&S business in the prior year. Cash Flows from Financing Activities The change in net cash 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. 39 Table of Contents Capital Resources The Company has a $1.5 billion Credit Revolver that matures in August 2027. The Credit Revolver requires compliance with certain financial covenants. 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 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. See Footnote 10 of the Notes to Unaudited Condensed Consolidated Financial Statements for further information on the Company's derivative instruments. Significant Accounting Policies and Critical Estimates Goodwill and Indefinite-Lived Intangibles Goodwill and indefinite-lived intangibles are tested and reviewed for impairment annually during the fourth quarter (on December 1), or more frequently if facts and circumstances warrant. Goodwill Goodwill is tested for impairment at a reporting unit level, and all of the Company’s goodwill is assigned to its reporting units. Reporting units are determined based upon the Company’s organizational structure in place at the date of the goodwill impairment testing and generally one level below the operating segment level. The Company’s operations are comprised of six reporting units, within its three primary operating segments. The quantitative goodwill impairment testing requires significant use of judgment and assumptions, such as the identification of reporting units; the assignment of assets and liabilities to reporting units; and the estimation of future cash flows, business growth rates, terminal values, discount rates and total enterprise value. The income approach used is the discounted cash flow methodology and is based on five-year cash flow projections. The cash flows projected are analyzed on a debt-free basis (before cash payments to equity and interest-bearing debt investors) in order to develop an enterprise value from operations for the reporting unit. A provision is made, based on these projections, for the value of the reporting unit at the end of the forecast period, or terminal value. The present value of the finite-period cash flows and the terminal value are determined using a selected discount rate. The Company estimated the fair values of its reporting units based on discounted cash flow methodology reflecting its latest projections which included, among other things, the impact of significant input cost inflation at the time the Company performed its impairment testing. 40 Table of Contents 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. The Company used a quantitative approach, which involves comparing the fair value of the reporting unit to its carrying value. If the carrying value of a reporting unit exceeds its fair value, an impairment loss would be calculated as the differences between these amounts, limited to the amount of reporting unit goodwill allocated to the reporting unit. The Company performed an impairment test and determined that the Baby reporting unit goodwill was not impaired. A hypothetical 10% reduction in forecasted earnings before interest, taxes and amortization used in the discounted cash flows to estimate the fair value to the Baby reporting unit would have resulted in an 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. Further declines in anticipated consumer spending or an inability to achieve expected margin improvements on sales of Baby products could result in declines in the fair value of the business that may result in goodwill impairment charges. See Footnotes 1 and 7 of the Notes to Unaudited Condensed Consolidated Financial Statements for further information. Indefinite-lived intangibles The testing of indefinite-lived intangibles (primarily trademarks and tradenames) under established guidelines for impairment also requires significant use of judgment and assumptions (such as cash flow projections, royalty rates, terminal values and discount rates). An indefinite-lived intangible asset is impaired by the amount its carrying value exceeds its estimated fair value. For impairment testing purposes, the fair value of indefinite-lived intangibles is determined using either the relief from royalty method or the excess earnings method. The relief from royalty method estimates the value of a tradename by discounting the hypothetical avoided royalty payments to their present value over the economic life of the asset. The excess earnings method estimates the value of the intangible asset by quantifying the residual (or excess) cash flows generated by the asset and discounts those cash flows to the present. The excess earnings methodology requires the application of contributory asset charges. Contributory asset charges typically include assumed payments for the use of working capital, tangible assets and other intangible assets. Changes in forecasted operations and other assumptions could materially affect the estimated fair values. Changes in business conditions could potentially require adjustments to these asset valuations. During the 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. 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 41 Table of Contents 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. 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. See Footnotes 1 and 7 of the Notes to Unaudited Condensed Consolidated Financial Statements for further information. Item 3. Quantitative and Qualitative Disclosures about Market Risk There have been no material changes from the information previously reported under Part II, Item 7A. in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.