What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-07-26 compared with 2024-04-26 · 151 added, 54 removed, 201 unchanged (50% of the section changed)

3 unchanged sentences

Forward-Looking Statements

This report contains forward-looking statements within the meaning of the federal securities law.

This report contains forward-looking statements within the meaning of the federal securities laws.

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.

63 unchanged sentences

The Company estimates that it will incur approximately $75 million to $90 million in restructuring and restructuring-related charges in connection with the Realignment Plan.

In addition, the Company continues to review its operating footprint and non-core brands, which will result in future restructuring charges.

In addition, the Company continues to review its operating footprint and non-core brands, which will result in future restructuring and restructuring-related charges.

Organizational Structure

39 unchanged sentences

In January 2024, the Company announced the Realignment Plan, which is expected to strengthen the Company’s front-end commercial capabilities, as further described in the preceding section.

The Company initiated the Realignment Plan during the three months ended March 31, 2024 and recorded restructuring charges of $22 million.

The Company initiated the Realignment Plan during the first quarter of 2024.

For the three and six months ended June 30, 2024 the Company recorded restructuring charges of $9 million and $31 million, respectively.

The Company also recorded restructuring-related costs of $8 million for the three and six months ended June 30, 2024.

See Footnote 3 of the Notes to Unaudited Condensed Consolidated Financial Statements for further information.

In June 2024, as part of optimizing the Company’s real estate footprint, the Company entered into a lease agreement for a new location of its Corporate headquarters in Atlanta, Georgia, which will allow it to consolidate five different facilities and bring together employees in the area into a single location.

Also in June 2024, the Company entered into an agreement with an unrelated third party to sell and leaseback its current headquarters facility, which is expected to close during the third quarter of fiscal year 2024.

The Company intends to occupy the current facility while conducting the build-out of the new facility, which is anticipated to be completed during the first half of fiscal year 2025.

Reclassification of Indefinite-Lived Tradenames

12 unchanged sentences

During February 2024, Moody’s Corporation and S&P Global Inc.

downgraded the Company’s debt rating to “Ba3” and “BB-”, respectively, which resulted in an interest rate increase of 25 basis points from each rating downgrade.

downgraded the Company’s senior unsecured debt rating to “Ba3” and “BB-”, respectively, which resulted in an interest rate increase of 25 basis points from each rating downgrade.

The change to the interest rates as a result of both downgrades will increase the Company’s interest expense by $16 million on an annualized basis (approximately $12 million in 2024).

See Footnote 8 of the Notes to Unaudited Condensed Consolidated Financial Statements for further information.

Three Months Ended March 31, 2024 vs.

Three Months Ended March 31, 2023

Results of Operations

Three Months Ended June 30, 2024 vs.

Three Months Ended June 30, 2023

Consolidated Operating Results

Three Months Ended

(in millions) 2024 2023 $ Change % Change

Net sales $ 2,033 $ 2,204 $ (171) (7.8)%

Gross profit 699 629 70 11.1%

Gross margin 34.4 % 28.5 %

Operating income 163 120 43 35.8%

Operating margin 8.0 % 5.4 %

Interest expense, net 78 76 2 2.6%

Other expense, net 1 9 (8) (88.9)%

Income before income taxes 84 35 49 NM

Income tax provision 39 17 22 NM

Income tax rate 46.4 % 48.6 %

Net income $ 45 $ 18 $ 27 NM

Diluted earnings per share $ 0.11 $ 0.04

Net sales for the three months ended June 30, 2024 decreased 8%.

Net sales were unfavorably impacted by soft global demand, net distribution losses and product line exits, partially offset by pricing, mainly in international markets to offset inflation and currency movement.

Changes in foreign currency unfavorably impacted net sales by $66 million, or 3%.

Gross profit increased 11% and gross margin improved to 34.4% as compared with 28.5% in the prior year period.

The increase in gross profit was driven by productivity and lower restructuring-related charges, partially offset by lower sales volume and inflation.

Changes in foreign currency exchange rates unfavorably impacted gross profit by $38 million, or 6%.

Notable items other than changes in net sales and benefits from productivity initiatives impacting operating income for the three months ended June 30, 2024 and 2023 are as follows:

Three Months Ended

2024 2023 $ Change

Restructuring and restructuring-related costs (See Footnote 3 ) (a) (b)

$ 26 $ 39 $ (13)

Transaction costs and other (c)

Impairment of intangible asset (See Footnote 6 )

Amortization of acquired intangibles (See Footnote 6 )

(a) Restructuring-related costs reported in cost of products sold, selling, general and administrative expenses (“SG&A”) and impairment of other goodwill, intangibles and other assets for the three months ended June 30, 2024 were $7 million, $3 million and $6 million, respectively, and primarily relate to

facility closures.

For the three months ended June 30, 2023, restructuring-related costs reported in cost of products sold and SG&A were $26 million and net recovery of $9 million, respectively, primarily related to facility closures.

Restructuring costs were $10 million and $22 million for the three months ended June 30, 2024 and 2023, respectively.

(b) Restructuring-related costs during the three months ended June 30, 2024 related to Project Phoenix, Network Optimization Project and Realignment Plan were $2 million, $6 million and $8 million.

(c) Transaction costs and other for the three months ended June 30, 2024 primarily related to accelerated amortization and write-off of other assets associated with integration projects.

For the six months ended June 30, 2023 transaction and other costs primarily related to expenses associated with certain legal proceedings.

Operating income was $163 million as compared to $120 million in the prior year period.

The increase reflects the impact of higher gross profit, savings from restructuring actions, primarily from Project Phoenix and the Realignment Plan, lower non-cash impairment and restructuring charges, partially offset by higher incentive compensation expense, higher advertising and promotion costs and additional amortization of certain tradenames.

Interest expense, net increased primarily due to higher interest rates and lower interest income.

The weighted average interest rates for the three months ended June 30, 2024 and 2023 were approximately 6.0% and 5.3%, respectively.

See Footnote 8 of the Notes to the Unaudited Condensed Consolidated Financial Statements for further information.

Other expense, net for three months ended June 30, 2024 and 2023 includes the following items:

Three Months Ended

Foreign exchange (gains) losses, net $ (1) $ 3

Gain on disposition of business (3) —

Pension settlement costs — 5

Discount on factored receivables and other, net 5 1

Income tax provision for the three months ended June 30, 2024 was $39 million as compared to $17 million for the three months ended June 30, 2023.

The effective tax rate for the three months ended June 30, 2024 was 46.4%, due to increased tax expense related to increased income before tax, partially offset by the impact of certain discrete items.

For the three months ended June 30, 2023 the effective tax rate was 48.6%.

See Footnote 11 of the Notes to the Unaudited Condensed Consolidated Financial Statements for further information.

Business Segment Operating Results

Home and Commercial Solutions

Three Months Ended

(in millions) 2024 2023 $ Change % Change

Net sales $ 962 $ 1,058 $ (96) (9.1)%

Operating income (loss) 48 (21) 69 NM

Operating margin 5.0 % (2.0) %

NM - NOT MEANINGFUL

Home and Commercial Solutions net sales for the three months ended June 30, 2024 decreased 9%, which reflected soft global demand across all businesses, as well as product line exits and distribution losses, partially offset by pricing actions.

Changes in foreign currency unfavorably impacted net sales by $42 million, or 4%.

Operating income for the three months ended June 30, 2024 was $48 million as compared to operating loss of $21 million in the prior year period.

indefinite-lived tradenames, partially offset by higher advertising and promotion costs and additional amortization of certain tradenames.

Learning and Development

Three Months Ended

(in millions) 2024 2023 $ Change % Change

Net sales $ 813 $ 813 $ — —%

Operating income 205 188 17 9.0%

Operating margin 25.2 % 23.1 %

Learning and Development net sales for the three months ended June 30, 2024 remained essentially flat in both the Baby and Writing businesses.

Improved orders from major retailers in the Baby business, as well as contribution from product innovation and favorable order timing in the Writing business, were offset by changes in foreign currency which unfavorably impacted net sales by $12 million, or 1%.

Operating income for the three months ended June 30, 2024 was $205 million as compared to $188 million in the prior-year period.

The improvement in operating results is primarily due to gross productivity and savings from restructuring actions, partially offset by higher advertising and promotion costs.

Outdoor and Recreation

Three Months Ended

(in millions) 2024 2023 $ Change % Change

Net sales $ 258 $ 333 $ (75) (22.5)%

Operating income (loss) (11) 5 (16) NM

Operating margin (4.3) % 1.5 %

NM - NOT MEANINGFUL

Outdoor and Recreation net sales for the three months ended June 30, 2024 decreased 23%, reflecting soft global demand, distribution losses and product line exits.

Changes in foreign currency unfavorably impacted net sales by $12 million, or 4%.

Operating loss for the three months ended June 30, 2024 was $11 million as compared to operating income of $5 million in the prior-year period.

The decline was due to lower gross profit resulting from lower sales partially offset by savings from restructuring actions.

Six Months Ended June 30, 2024 vs.

Six Months Ended June 30, 2023

Consolidated Operating Results

Six Months Ended

(in millions) 2024

3 unchanged sentences

Gross margin 32.6 % 27.7 %

Operating income (loss) 16 (36) 52 NM

Operating income 179 84 95 NM

Operating margin 4.9 % 2.1 %

1 unchanged sentence

Other expense, net 6 21 (15) (71.4)%

Loss before income taxes (60) (116) 56 48.3%

Income tax benefit (51) (14) (37) NM

Income (loss) before income taxes 24 (81) 105 NM

Income tax provision (benefit) (12) 3 (15) NM

Income tax rate (50.0) % (3.7) %

Net loss $ (9) $ (102) $ 93 91.2%

Diluted loss per share $ (0.02) $ (0.25)

Net income (loss) $ 36 $ (84) $ 120 NM

Diluted earnings (loss) per share $ 0.09 $ (0.20)

NM - NOT MEANINGFUL

Net sales for the three months ended March 31, 2024 decreased 8%.

Net sales were unfavorably impacted by soft global demand, net distribution losses and category exits, partially offset by pricing, mainly in international markets to offset inflation and currency movement.

Net sales for the six months ended June 30, 2024 decreased 8%.

Changes in foreign currency unfavorably impacted net sales by $122 million, or 3%.

Gross profit increased compared to prior year.

Gross margin also improved to 30.5% as compared with 26.7% in the prior year.

The increase in gross profit was driven by productivity, mix and favorable pricing, partially offset by lower sales volume and inflation.

Gross margin improved to 32.6% as compared with 27.7% in the prior year.

The increase in gross profit was driven by productivity and lower restructuring-related charges, partially offset by lower sales volume and inflation.

Changes in foreign currency exchange rates unfavorably impacted gross profit by $83 million, or 7%.

Notable items other than changes in net sales impacting operating income (loss) for the three months ended March 31, 2024 and 2023 were as follows:

Three Months Ended

Notable items other than changes in net sales and benefits from productivity initiatives impacting operating income for the six months ended June 30, 2024 and 2023 were as follows:

Six Months Ended

2024 2023 $ Change

1 unchanged sentence

$ 65 $ 90 $ (25)

Transactions costs and other (c)

Transaction costs and other (c)

Impairment of intangible asset (See Footnote 6 )

Amortization of acquired intangibles (See Footnote 6 )

(a) For the three months ended March 31, 2024 restructuring-related costs reported in cost of products sold and in SG&A was $8 million and $5 million, respectively, primarily related to facility closures.

For the three months ended March 31, 2023, restructuring-related costs reported in cost of products sold and SG&A was $5 million and $8 million, respectively, primarily related to facility closures.

Restructuring costs were $26 million and $38 million for the three months ended March 31, 2024 and 2023, respectively.

(b) Restructuring-related costs during the three months ended March 31, 2024 related to Project Phoenix and Network Optimization Project were $3 million and $2 million, respectively and $8 million related to other discrete programs.

(c) Transaction and other costs for the three months ended March 31, 2024 primarily related to a release of a bad debt reserve due to a recovery of a receivable from an international customer.

For the three months ended March 31, 2023 transaction and other costs primarily related to expenses associated with certain legal proceedings.

Operating income was $16 million as compared to operating loss of $36 million in the prior year period.

The improvement reflects gross productivity, savings from restructuring actions and lower restructuring and restructuring-related charges, partially offset by higher incentive compensation expense, advertising and promotion costs and additional amortization of certain tradenames.

Interest expense, net increased due to higher interest rates.

The weighted average interest rates for the three months ended March 31, 2024 and 2023 were approximately 5.6% and 4.8%, respectively.

(a) For the six months ended June 30, 2024 restructuring-related costs reported in cost of products sold, SG&A and in impairment of goodwill, intangibles and other assets was $15 million, $8 million and $6 million, respectively, primarily related to facility closures.

For the six months ended June 30, 2023, restructuring-related costs reported in cost of products sold and SG&A was $31 million and net recovery of $1 million, respectively, primarily related to facility closures.

Restructuring costs were $36 million and $60 million for the six months ended June 30, 2024 and 2023, respectively.

(b) Restructuring-related costs during the six months ended June 30, 2024 related to Project Phoenix were $5 million and related to each of the Network Optimization Project, Realignment Plan and other discrete programs were $8 million.

(c) Transaction costs and other for the six months ended June 30, 2024 primarily related to a release of a bad debt reserve due to a recovery of a receivable from an international customer and accelerated amortization and write-off of other assets associated with integration projects.

For the six months ended June 30, 2023 transaction and other costs primarily related to expenses associated with certain legal proceedings.

Operating income was $179 million as compared to operating income of $84 million in the prior year period.

The improvement reflects higher gross profit, savings from restructuring actions, primarily from Project Phoenix and the Realignment Plan, lower restructuring and restructuring-related charges as well as transaction costs and other, partially offset by higher incentive compensation expense, advertising and promotion costs and additional amortization of certain tradenames.

Interest expense, net increased due to higher interest rates and lower interest income.

The weighted average interest rates for the six months ended June 30, 2024 and 2023 were approximately 5.8% and 5.1%, respectively.

See Footnote 8 of the Notes to Unaudited Condensed Consolidated Financial Statements for further information.

Other expense, net for three months ended March 31, 2024 and 2023 includes the following items:

Three Months Ended

Other expense, net for six months ended June 30, 2024 and 2023 includes the following items:

Six Months Ended

Foreign exchange losses, net $ 2 $ 5

Gain on disposition of business (3) —

Pension settlement costs — 5

Discount on factored receivables and other, net 7 11

The income tax benefit for the three months ended March 31, 2024 was $51 million as compared to $14 million for the three months ended March 31, 2023.

The effective tax rate for the three months ended March 31, 2024 was a benefit of 85.0%, due to an increase in the forecasted annual tax rate driven primarily by lower forecasted pretax book income, as compared to 12.1% for the three months ended March 31, 2023.

The income tax benefit for the six months ended June 30, 2024 was $12 million as compared to provision of $3 million for the six months ended June 30, 2023.

The effective tax rate for the six months ended June 30, 2024 was a benefit of 50.0%, due to the impact of certain discrete items as compared to provision of 3.7% for the six months ended June 30, 2023.

See Footnote 11 of the Notes to Unaudited Condensed Consolidated Financial Statements for further information.

1 unchanged sentence

Home and Commercial Solutions

Three Months Ended

Six Months Ended

(in millions) 2024 2023 $ Change % Change

3 unchanged sentences

NM - NOT MEANINGFUL

Home and Commercial Solutions net sales for the three months ended March 31, 2024 decreased 8%, which reflected soft demand across all businesses, certain category exits as well as net distribution losses, primarily in the Kitchen business, partially offset by pricing.

Home and Commercial Solutions net sales for the six months ended June 30, 2024 decreased 9%, which reflected soft demand across all businesses, product line exits as well as net distribution losses, partially offset by pricing actions.

Changes in foreign currency unfavorably impacted net sales by $71 million, or 3%.

Operating income for the three months ended March 31, 2024 was $16 million as compared to operating loss of $37 million in the prior year.

The improvement in operating results is primarily due to gross productivity, mix, savings from restructuring actions, lower restructuring and restructuring-related charges and release of a bad debt reserve due to a recovery of a receivable from an international customer, partially offset by higher advertising and promotion costs and additional amortization of certain tradenames.

Operating income for the six months ended June 30, 2024 was $64 million as compared to operating loss of $58 million in the prior year.

The improvement in operating results is primarily due to gross productivity, pricing, savings from restructuring actions, lower restructuring and restructuring-related charges, release of a bad debt reserve due to a recovery of a receivable from an international customer and the absence of non-cash impairment charges primarily related to indefinite-lived tradenames, partially offset by higher advertising and promotion costs and additional amortization of certain tradenames.

Learning and Development

Three Months Ended

Six Months Ended

(in millions) 2024 2023 $ Change % Change

2 unchanged sentences

Operating margin 21.8 % 18.9 %

Learning and Development net sales for the three months ended March 31, 2024 decreased 1%, as slight growth in the Baby business was offset by a slight decline in the Writing business.

For the segment, pricing actions were more than offset by changes in foreign currency, which unfavorably impacted net sales by $15 million, or 3%.

Operating income for the three months ended March 31, 2024 increased to $94 million as compared to $72 million in the prior-year period.

Learning and Development net sales for the six months ended June 30, 2024 was almost flat, as slight growth in the Baby business was offset by decline in the Writing business.

Improved orders from major retailers in the Baby business, as well as contribution from product innovation in the Writing business, were offset by changes in foreign currency which unfavorably impacted net sales by $27 million, or 2%.

Operating income for the six months ended June 30, 2024 increased to $299 million as compared to $260 million in the prior-year period.

The increase in operating income is primarily due to gross productivity and savings from restructuring actions, partially offset by higher advertising and promotion costs.

Outdoor and Recreation

Three Months Ended

Six Months Ended

(in millions) 2024 2023 $ Change % Change

Net sales $ 459 $ 603 $ (144) (23.9)%

Operating loss (18) (1) (17) NM

Operating income (loss) (29) 4 (33) NM

Operating margin (6.3) % 0.7 %

NM - NOT MEANINGFUL

Outdoor and Recreation net sales for the three months ended March 31, 2024 decreased 26% primarily reflecting soft global demand, distribution losses and category exits.

Outdoor and Recreation net sales for the six months ended June 30, 2024 decreased 24% primarily reflecting soft global demand, distribution losses and product line exits.

Changes in foreign currency unfavorably impacted net sales by $24 million or 4%.

Operating loss for the three months ended March 31, 2024 was $18 million as compared to operating loss of $1 million in the prior-year period.

The decline was primarily due to lower gross profit leverage, partially offset by gross productivity and savings from restructuring actions.

Operating loss for the six months ended June 30, 2024 was $29 million as compared to operating income of $4 million in the prior-year period.

The decline was primarily due to lower gross profit resulting from lower sales, partially offset by savings from restructuring actions.

Liquidity and Capital Resources

5 unchanged sentences

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 21, 2024.

At March 31, 2024, the Company had cash and cash equivalents of approximately $372 million, of which approximately $317 million was held by the Company’s non-U.S.

At June 30, 2024, the Company had cash and cash equivalents of approximately $382 million, of which approximately $309 million was held by the Company’s non-U.S.

subsidiaries.

Cash, cash equivalents and restricted cash increased (decreased) as follows for the three months ended March 31, 2024 and 2023 (in millions):

During the second quarter, the Company recorded $7 million of additional tax related to withholding taxes associated with certain previously taxed foreign earnings that are no longer indefinitely reinvested, which the Company intends to repatriate such cash during the remainder of 2024.

Cash, cash equivalents and restricted cash increased (decreased) as follows for the six months ended June 30, 2024 and 2023 (in millions):

2024 2023 Increase (Decrease)

Cash provided by (used in) operating activities $ 32 $ (77) $ 109

Cash provided by operating activities $ 64 $ 277 $ (213)

Cash used in investing activities (84) (94) 10

Cash provided by financing activities 60 128 (68)

Cash provided by (used in) financing activities 78 (158) 236

Exchange rate effect on cash, cash equivalents and restricted cash (14) 2 (16)

Increase (decrease) in cash, cash equivalents and restricted cash $ 39 $ (18) $ 57

Increase in cash, cash equivalents and restricted cash $ 44 $ 27 $ 17

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 improvement in operating results, partially offset by higher incentive compensation and restructuring payments in the current year.

The change in net cash provided by operating activities reflects an improvement in operating results as well as a decrease in accounts receivable and an increase in accounts payable in the current year, more than offset by an increase in inventory in the current period compared to a significant decrease in 2023, as well as higher incentive compensation payments in the current year.

Cash Flows from Investing Activities

1 unchanged sentence

Cash Flows from Financing Activities

The change in net cash used in financing activities was primarily due to a lower quarterly dividend payment in the current year, offset by the period-over-period net change in short-term debt.

The change in net cash provided by financing activities was primarily due to a lower quarterly dividend payment in the current year and the period-over-period net change in short-term debt.

See Footnote 8 of the Notes to the Unaudited Condensed Consolidated Financial Statements for further information.

3 unchanged sentences

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 March 31, 2024.

At March 31, 2024, the Company had $231 million of outstanding borrowings under the Credit Revolver and approximately $20 million of outstanding standby letters of credit issued against the Credit Revolver, with a net availability of approximately $749 million.

The Company was in compliance with all of its debt covenants at June 30, 2024.

At June 30, 2024, the Company had $285 million of outstanding borrowings under the Credit Revolver and approximately $20 million of outstanding standby letters of credit issued against the Credit Revolver, with a net availability of approximately $695 million.

See Footnote 8 of the Notes to the Unaudited Condensed Consolidated Financial Statements for further information.

9 unchanged sentences

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