What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-10-25 compared with 2024-07-26 · 151 added, 95 removed, 257 unchanged (49% of the section changed)

112 unchanged sentences

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.

For the three and nine months ended September 30, 2024 the Company recorded restructuring charges of $1 million and $32 million, respectively.

The Company also recorded restructuring-related costs of $2 million and $10 million for the three and nine months ended September 30, 2024, respectively.

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.

3 unchanged sentences

See Footnote 6 of the Notes to Unaudited Condensed Consolidated Financial Statements for further information.

Intangible Asset Impairment

During the third quarter of 2024, the Company concluded that triggering events had occurred for indefinite-lived tradenames in the Home and Commercial Solutions (“H&CS”) and Learning and Development (“L&D”) segments, as a result of downward revision of forecasted cash flows primarily due to lower volume and profitability expectations.

The Company performed quantitative impairment tests and determined that indefinite-lived tradenames in the H&CS and L&D segments were impaired.

During the third quarter of 2024, the Company recorded an aggregate non-cash impairment charge of $260 million for the indefinite-lived tradenames, as the carrying values exceeded their fair values.

See Footnotes 1 and 6 of the Notes to the Unaudited Condensed Consolidated Financial Statements and Significant Accounting Policies and Critical Estimates for further information.

Amendment to Credit Revolver

12 unchanged sentences

Results of Operations

Three Months Ended June 30, 2024 vs.

Three Months Ended June 30, 2023

Three Months Ended September 30, 2024 vs.

Three Months Ended September 30, 2023

Consolidated Operating Results

Three Months Ended

September 30,

(in millions) 2024 2023 $ Change % Change

2 unchanged sentences

Gross margin 34.9 % 30.3 %

Operating income 163 120 43 35.8%

Operating loss (121) (159) 38 23.9%

Operating margin (6.2) % (7.8) %

1 unchanged sentence

Other expense, net 9 70 (61) (87.1)%

Income before income taxes 84 35 49 NM

Income tax provision 39 17 22 NM

Loss before income taxes (205) (298) 93 31.2%

Income tax benefit (7) (80) 73 91.3%

Income tax rate 3.4 % 26.8 %

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.

Net loss $ (198) $ (218) $ 20 9.2%

Diluted loss per share $ (0.48) $ (0.53)

Net sales for the three months ended September 30, 2024 decreased 5%.

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

Changes in foreign currency unfavorably impacted net sales by $57 million, or 3%.

Gross profit increased 9% and gross margin improved to 34.9% as compared with 30.3% 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.

The increase in gross profit was driven by productivity and lower restructuring-related charges of $5 million, partially offset by lower net sales, as discussed above and inflation.

Changes in foreign currency exchange rates unfavorably impacted gross profit by $21 million, or 3%.

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:

Notable items, other than those noted above, impacting operating loss for the three months ended September 30, 2024 and 2023 are as follows:

Three Months Ended

September 30,

2024 2023 $ Change

2 unchanged sentences

Transaction costs and other (c)

Impairment of intangible asset (See Footnote 6 )

Impairment of goodwill and intangible assets (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.

(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, 2024 were $13 million and $5 million, respectively, and primarily relate to facility closures.

For the three months ended September 30, 2023, restructuring-related costs reported in cost of products sold and SG&A were $18 million and $7 million, respectively, primarily related to facility closures.

Restructuring costs were $4 million and $16 million for the three months ended September 30, 2024 and 2023, respectively.

(b) Restructuring-related costs during the three months ended September 30, 2024 related to Project Phoenix, Network Optimization Project, Realignment Plan and other discrete programs were $2 million, $5 million, $2 million and $9 million, respectively.

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

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

Operating loss was $121 million as compared to $159 million in the prior year period.

The improvement reflects the impact of higher gross profit of $58 million discussed above, savings from restructuring actions primarily from Project Phoenix and the Realignment Plan, and lower restructuring and restructuring-related charges of $19 million.

These increases were partially offset by higher incentive compensation expense of $22 million, higher advertising and promotion costs of $3 million, and additional amortization of certain tradenames of $6 million.

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.

The weighted average interest rates for the three months ended September 30, 2024 and 2023 were approximately 5.8% and 5.1%, 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:

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

Three Months Ended

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

Gain on disposition of business (3) —

September 30,

Foreign exchange losses, net $ 6 $ 5

Loss on disposition of investment 2 —

Pension settlement costs — 61

Discount on factored receivables and other, net 1 4

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%.

Income tax benefit for the three months ended September 30, 2024 was $7 million as compared to benefit of $80 million for the three months ended September 30, 2023.

The effective tax rate for the three months ended September 30, 2024 was 3.4%, due to decreased tax discrete benefits.

For the three months ended September 30, 2023 the effective tax rate was 26.8%.

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

2 unchanged sentences

Three Months Ended

September 30,

(in millions) 2024 2023 $ Change % Change

3 unchanged sentences

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.

H&CS net sales for the three months ended September 30, 2024 decreased 7%, 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 $41 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.

Operating loss for the three months ended September 30, 2024 was $94 million as compared to operating income of $64 million in the prior year period.

The decline in operating results is primarily due to a non-cash impairment charge related to an indefinite-lived tradename of $190 million recorded during the third quarter of 2024, higher advertising and promotion costs of $4 million, additional amortization of certain tradenames of $3 million, and inflation.

These declines were partially offset by increased gross profit primarily due to gross productivity and savings from restructuring actions.

There were no non-cash impairment charges during the third quarter of 2023.

See Footnote 6 of the Notes to the Unaudited Condensed Consolidated Financial Statements for further information.

Learning and Development

Three Months Ended

September 30,

(in millions) 2024 2023 $ Change % Change

Net sales $ 717 $ 694 $ 23 3.3%

Operating income 205 188 17 9.0%

Operating income (loss) 75 (127) 202 NM

Operating margin 10.5 % (18.3) %

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.

NM - NOT MEANINGFUL

L&D net sales for the three months ended September 30, 2024 increased 3%, as an increase in the Baby business was partially offset by decrease in the Writing business.

Improved orders and favorable order timing from major retailers in the Baby business, as well as contribution from product innovation in both businesses, were partially offset by a shift in order timing to the second quarter of 2024 in the Writing business.

Changes in foreign currency unfavorably impacted net sales by $8 million, or 1%.

Operating income for the three months ended September 30, 2024 was $75 million as compared to operating loss of $127 million in the prior-year period.

The improvement in operating results is primarily due gross productivity, savings from restructuring actions, and lower non-cash impairment charges.

The Company recorded non-cash impairment charges of $70 million and $241 million in the third quarter of 2024 and 2023, respectively.

See Footnote 6 of the Notes to the Unaudited Condensed Consolidated Financial Statements for further information.

Outdoor and Recreation

Three Months Ended

September 30,

(in millions) 2024 2023 $ Change % Change

Net sales $ 183 $ 231 $ (48) (20.8)%

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

Operating loss (23) (42) 19 45.2%

Operating margin (12.6) % (18.2) %

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.

Outdoor and Recreation net sales for the three months ended September 30, 2024 decreased 21%, reflecting soft global demand and distribution losses.

Changes in foreign currency unfavorably impacted net sales by $8 million, or 3%.

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

Operating loss for the three months ended September 30, 2024 was $23 million as compared to $42 million in the prior-year period.

The improvement was primarily due to the absence of a non-cash impairment charge of $22 million recorded in the third quarter of the prior year.

There were no non-cash impairment charges during the third quarter of 2024.

See Footnote 6 of the Notes to the Unaudited Condensed Consolidated Financial Statements for further information.

Nine Months Ended September 30, 2024 vs.

Nine Months Ended September 30, 2023

Consolidated Operating Results

Six Months Ended

Nine Months Ended

September 30,

(in millions) 2024

3 unchanged sentences

Gross margin 33.4 % 28.6 %

Operating income 179 84 95 NM

Operating income (loss) 58 (75) 133 NM

Operating margin 1.0 % (1.2) %

1 unchanged sentence

Other expense, net 15 91 (76) (83.5)%

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

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

Loss before income taxes (181) (379) 198 52.2%

Income tax benefit (19) (77) 58 75.3%

Income tax rate 10.5 % 20.3 %

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

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

Net loss $ (162) $ (302) $ 140 46.4%

Diluted loss per share $ (0.39) $ (0.73)

NM - NOT MEANINGFUL

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

Net sales for the nine months ended September 30, 2024 decreased 7%.

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

Changes in foreign currency unfavorably impacted net sales by $179 million, or 3%.

1 unchanged sentence

Gross margin improved to 33.4% as compared with 28.6% 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.

The increase in gross profit was driven by productivity and lower restructuring-related charges of $21 million, partially offset by lower sales as described above, and inflation.

Changes in foreign currency exchange rates unfavorably impacted gross profit by $104 million, or 6%.

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

Notable items, other than those noted above, impacting operating income (loss) for the nine months ended September 30, 2024 and 2023 were as follows:

Nine Months Ended

September 30,

2024 2023 $ Change

2 unchanged sentences

Transaction costs and other (c)

Impairment of intangible asset (See Footnote 6 )

Impairment of goodwill and intangible assets (See Footnote 6 )

Amortization of acquired intangibles (See Footnote 6 )

(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.

(a) For the nine months ended September 30, 2024 restructuring-related costs reported in cost of products sold, SG&A and in impairment of goodwill, intangibles and other assets was $28 million, $13 million and $6 million, respectively, primarily related to facility closures.

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

Restructuring costs were $40 million and $76 million for the nine months ended September 30, 2024 and 2023, respectively.

(b) Restructuring-related costs during the nine months ended September 30, 2024 related to Project Phoenix, Network Optimization Project, Realignment Plan and other discrete programs were $7 million, $13 million, $10 million and $17 million, respectively.

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

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

Operating income was $58 million as compared to operating loss of $75 million in the prior year period.

The improvement reflects higher gross profit of $150 million as discussed above, savings from restructuring actions primarily from Project Phoenix and the Realignment Plan, lower restructuring and restructuring-related charges of $44 million, lower transaction costs and other of $20 million and lower non-cash impairment charges.

The Company recorded non-cash impairment charges of $260 million and $271 million in the third quarter of 2024 and 2023, respectively.

See Footnote 6 of the Notes to the Unaudited Condensed Consolidated Financial Statements for further information.

These improvements were partially offset by higher incentive compensation expense of $69 million, higher advertising and promotion costs of $26 million, and additional amortization of certain tradenames of $18 million.

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.

The weighted average interest rates for the nine months ended September 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 six months ended June 30, 2024 and 2023 includes the following items:

Six Months Ended

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

Nine Months Ended

September 30,

Foreign exchange losses, net $ 8 $ 10

Gain on disposition of business (3) —

Net gain on disposition of businesses and investment (1) —

Pension settlement costs — 66

Discount on factored receivables and other, net 8 15

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.

The income tax benefit for the nine months ended September 30, 2024 was $19 million as compared to $77 million for the nine months ended September 30, 2023.

The effective tax rate for the nine months ended September 30, 2024 was a benefit of 10.5%, due to the impact of certain discrete items as compared to 20.3% for the nine months ended September 30, 2023.

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

1 unchanged sentence

Home and Commercial Solutions

Six Months Ended

Nine Months Ended

September 30,

(in millions) 2024 2023 $ Change % Change

3 unchanged sentences

NM - NOT MEANINGFUL

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.

H&CS net sales for the nine months ended September 30, 2024 decreased 8%, 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 $112 million, or 4%.

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.

Operating loss for the nine months ended September 30, 2024 was $30 million as compared to operating income of $6 million in the prior year.

The decrease in operating results is primarily due to higher non-cash impairment charge of $190 million, compared to a charge of $8 million during the prior year, higher advertising and promotion costs of $12 million, additional amortization of certain tradenames of $12 million, and inflation.

The decrease in operating income was partially offset by increased gross profit primarily due to gross productivity, savings from restructuring actions, lower restructuring and restructuring-related charges of $27 million, and release of a bad debt reserve due to a recovery of a receivable from an international customer of $9 million.

See Footnote 6 of the Notes to the Unaudited Condensed Consolidated Financial Statements for further information.

Learning and Development

Six Months Ended

Nine Months Ended

September 30,

(in millions) 2024 2023 $ Change % Change

Net sales $ 2,089 $ 2,071 $ 18 0.9%

Operating income 299 260 39 15.0%

Operating income 374 133 241 NM

Operating margin 17.9 % 6.4 %

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.

NM - NOT MEANINGFUL

L&D net sales for the nine months ended September 30, 2024 increased 1%, as growth in the Baby business was offset by decline in the Writing business.

Improved orders and favorable order timing from major retailers in the Baby business, as well as contribution from product innovation in the Writing business were partially offset by changes in foreign currency which unfavorably impacted net sales by $35 million, or 2%.

Operating income for the nine months ended September 30, 2024 increased to $374 million as compared to $133 million in the prior-year period.

The increase in operating income is primarily due to gross productivity, savings from restructuring actions as well as lower non-cash impairment charges, partially offset by higher advertising and promotion costs of $13 million.

The Company recorded non-cash impairment charges of $70 million and $241 million in the third quarter of 2024 and 2023, respectively.

See Footnote 6 of the Notes to the Unaudited Condensed Consolidated Financial Statements for further information.

Outdoor and Recreation

Six Months Ended

Nine Months Ended

September 30,

(in millions) 2024 2023 $ Change % Change

Net sales $ 642 $ 834 $ (192) (23.0)%

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

Operating loss (52) (38) (14) (36.8)%

Operating margin (8.1) % (4.6) %

NM - NOT MEANINGFUL

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.

Outdoor and Recreation net sales for the nine months ended September 30, 2024 decreased 23% primarily reflecting soft global demand and distribution losses.

Changes in foreign currency unfavorably impacted net sales by $32 million or 4%.

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.

Operating loss for the nine months ended September 30, 2024 was $52 million as compared to $38 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 and the absence of a non-cash impairment charge of $22 million recorded in the third quarter of the prior year.

There were no non-cash impairment charges during the third quarter of 2024.

See Footnote 6 of the Notes to the Unaudited Condensed Consolidated Financial Statements for further information.

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 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.

At September 30, 2024, the Company had cash and cash equivalents of approximately $494 million, of which approximately $403 million was held by the Company’s non-U.S.

subsidiaries.

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):

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

2024 2023 Increase (Decrease)

1 unchanged sentence

Cash used in investing activities (107) (147) 40

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

Cash used in financing activities (64) (405) 341

Exchange rate effect on cash, cash equivalents and restricted cash (15) (8) (7)

6 unchanged sentences

Cash Flows from Financing Activities

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.

The change in net cash used in 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 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.

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

At September 30, 2024, the Company had $170 million of outstanding borrowings under the Credit Revolver and approximately $29 million of outstanding standby letters of credit issued against the Credit Revolver, with a net availability of approximately $801 million.

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

5 unchanged sentences

For further information on significant accounting policies and critical estimates, refer to the Company's most recent Annual Report on Form 10-K, filed on February 21, 2024 and Footnote 1 of the Notes to Unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

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.

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 2024, the Company concluded that triggering events had occurred for indefinite-lived tradenames in the H&CS and L&D segments, as a result of downward revisions in forecasted cash flows primarily due to lower volume and profitability expectations.

The Company performed quantitative impairment tests and determined that the indefinite-lived tradenames in the H&CS and L&D segments were impaired.

As a result, the Company recorded non-cash impairment charges of $190 million and $70 million to the H&CS and L&D segments, respectively, during the third quarter of 2024, as the carrying value of the individual assets exceeded their fair value.

A hypothetical 10% reduction in the forecasted revenue and earnings before interest, taxes and amortization used in the excess earnings method in determining the fair value of these indefinite-lived intangibles would have resulted in an incremental impairment charge to the H&CS and L&D segments of $30 million and $7 million, respectively.

In addition, the Company has experienced headwinds due to soft global demand and an increased focus by retailers to rebalance inventory levels in light of continued inflationary pressures on consumers across all of our segments.

As a result, the Company may identify future triggering events for its reporting units or indefinite-lived tradenames, including the aforementioned indefinite-lived tradenames in the H&CS and L&D segments.

If the demand continues to contract or the business fails to regain lost distribution, additional declines in the fair value of these tradenames 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 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 6 of the Notes to Unaudited Condensed Consolidated Financial Statements for further information.

Quantitative and Qualitative Disclosures about Market Risk

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Item 2. Management’s Discussion and Analysis