NEWELL BRANDS INC.
10-Qs and 10-Ks
PROXIES
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
of the Securities Exchange Act of 1934
For the Quarterly Period Ended
June 30, 2024
Commission File Number
1-9608
(Exact name of registrant as specified in its charter)
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| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (
770
)
418-7000
Securities registered pursuant to Section 12(b) of the Act:
| TITLE OF EACH CLASS | TRADING SYMBOL | NAME OF EXCHANGE ON WHICH REGISTERED | ||||||||||||
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
☒
No
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes
☒
No
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
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☒ | Accelerated filer | ☐ | ||||||||
| Non-accelerated filer | ☐ | Smaller reporting company |
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| Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
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No
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Number of shares of common stock outstanding (net of treasury shares) as of July 22, 2024:
416.0
million.
| TABLE OF CONTENTS | |||||
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NEWELL BRANDS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (Unaudited)
(Amounts in millions, except per share amounts)
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Three Months Ended
June 30, |
Six Months Ended
June 30, |
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| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Net sales | $ |
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$ |
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$ |
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$ |
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| Cost of products sold |
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| Gross profit |
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| Selling, general and administrative expenses |
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| Restructuring costs, net |
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| Impairment of goodwill, intangibles and other assets |
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| Operating income |
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| Non-operating expenses: | |||||||||||||||||||||||
| Interest expense, net |
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| Loss on extinguishment and modification of debt |
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| Other expense, net |
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| Income (loss) before income taxes |
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(
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| Income tax provision (benefit) |
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(
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| Net income (loss) | $ |
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$ |
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$ |
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$ |
(
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| Weighted average common shares outstanding: | |||||||||||||||||||||||
| Basic |
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| Diluted |
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| Earnings (loss) per share: | |||||||||||||||||||||||
| Basic | $ |
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$ |
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$ |
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$ |
(
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| Diluted | $ |
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$ |
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$ |
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$ |
(
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| COMPREHENSIVE INCOME (LOSS): | |||||||||||||||||||||||
| Net income (loss) | $ |
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$ |
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$ |
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$ |
(
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| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Foreign currency translation adjustments |
(
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(
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(
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| Pension and postretirement costs |
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(
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| Derivative financial instruments |
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(
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(
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| Total other comprehensive loss, net of tax |
(
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(
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(
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(
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| Total comprehensive income (loss) | $ |
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$ |
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$ |
(
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$ |
(
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See Notes to Condensed Consolidated Financial Statements (Unaudited).
2
NEWELL BRANDS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Amounts in millions, except par values)
|
June 30,
2024 |
December 31,
2023 |
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| Assets: | |||||||||||
| Cash and cash equivalents | $ |
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$ |
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| Accounts receivable, net |
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| Inventories |
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| Prepaid expenses and other current assets |
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| Total current assets |
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| Property, plant and equipment, net |
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| Operating lease assets |
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| Goodwill |
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| Other intangible assets, net |
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| Deferred income taxes |
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| Other assets |
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| Total assets | $ |
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$ |
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| Liabilities: | |||||||||||
| Accounts payable | $ |
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$ |
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| Other accrued liabilities |
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| Short-term debt and current portion of long-term debt |
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| Total current liabilities |
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| Long-term debt |
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| Deferred income taxes |
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| Operating lease liabilities |
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| Other noncurrent liabilities |
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| Total liabilities |
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Commitments and contingencies (
Footnote 16
)
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| Stockholders’ equity: | |||||||||||
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Preferred stock (
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Common stock (
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Treasury stock, at cost (
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(
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(
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| Additional paid-in capital |
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| Retained deficit |
(
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(
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| Accumulated other comprehensive loss |
(
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(
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| Total stockholders’ equity |
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| Total liabilities and stockholders’ equity | $ |
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$ |
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See Notes to Condensed Consolidated Financial Statements (Unaudited).
3
NEWELL BRANDS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Amounts in millions)
|
Six Months Ended
June 30, |
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| 2024 | 2023 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income (loss) | $ |
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$ |
(
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| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization |
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| Impairment of goodwill, intangibles and other assets |
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| Deferred income taxes |
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| Stock based compensation expense |
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| Pension settlement charge |
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| Other, net |
(
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(
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| Changes in operating accounts: | |||||||||||
| Accounts receivable |
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(
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| Inventories |
(
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| Accounts payable |
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(
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| Accrued liabilities and other, net |
(
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(
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| Net cash provided by operating activities |
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| Cash flows from investing activities: | |||||||||||
| Capital expenditures |
(
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(
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| Swap proceeds |
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| Other investing activities, net |
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| Net cash used in investing activities |
(
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(
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| Cash flows from financing activities: | |||||||||||
| Payments on short-term debt, net |
(
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(
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| Proceeds from short-term debt with original maturities greater than 90 days |
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| Payments on short-term debt with original maturities greater than 90 days |
(
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| Payments on current portion of long-term debt |
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(
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| Cash dividends |
(
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(
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| Equity compensation activity and other, net |
(
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(
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| Net cash provided by (used in) financing activities |
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(
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| Exchange rate effect on cash, cash equivalents and restricted cash |
(
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| Increase in cash, cash equivalents and restricted cash |
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| Cash, cash equivalents and restricted cash at beginning of period |
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| Cash, cash equivalents and restricted cash at end of period | $ |
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$ |
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| Supplemental disclosures: | |||||||||||
| Restricted cash at beginning of period | $ |
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$ |
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| Restricted cash at end of period |
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See Notes to Condensed Consolidated Financial Statements (Unaudited).
4
NEWELL BRANDS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)
(Amounts in millions, except per share amounts)
|
Common
Stock |
Treasury
Stock |
Additional Paid-In Capital | Retained Earnings (Deficit) | Accumulated Other Comprehensive Loss | Total Stockholders' Equity | ||||||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ |
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$ |
(
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$ |
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$ |
(
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$ |
(
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$ |
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| Comprehensive income (loss) | — | — | — |
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(
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Dividends declared on common stock - $
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— | — |
(
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— | — |
(
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| Equity compensation, net of tax | — | — |
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— | — |
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| Balance at June 30, 2024 | $ |
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$ |
(
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$ |
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$ |
(
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$ |
(
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$ |
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| Balance at December 31, 2023 | $ |
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$ |
(
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$ |
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$ |
(
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$ |
(
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$ |
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| Comprehensive income (loss) | — | — | — |
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(
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(
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Dividends declared on common stock - $
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— | — |
(
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— | — |
(
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| Equity compensation, net of tax |
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(
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— | — |
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| Balance at June 30, 2024 | $ |
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$ |
(
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$ |
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$ |
(
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$ |
(
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$ |
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Common
Stock |
Treasury
Stock |
Additional Paid-In Capital | Retained Earnings (Deficit) | Accumulated Other Comprehensive Loss | Total Stockholders' Equity | ||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ |
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$ |
(
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$ |
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$ |
(
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$ |
(
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$ |
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| Comprehensive income (loss) | — | — | — |
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(
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Dividends declared on common stock - $
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— | — |
(
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— | — |
(
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| Equity compensation, net of tax |
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— |
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— | — |
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| Balance at June 30, 2023 | $ |
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$ |
(
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$ |
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$ |
(
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$ |
(
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$ |
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| Balance at December 31, 2022 | $ |
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$ |
(
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$ |
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$ |
(
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$ |
(
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$ |
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| Comprehensive loss | — | — | — |
(
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(
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(
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Dividends declared on common stock - $
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— | — |
(
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— | — |
(
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| Equity compensation, net of tax |
|
(
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— | — |
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| Balance at June 30, 2023 | $ |
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$ |
(
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$ |
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$ |
(
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$ |
(
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$ |
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See Notes to Condensed Consolidated Financial Statements (Unaudited).
5
NEWELL BRANDS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Footnote 1 —
Basis of Presentation and Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements of Newell Brands Inc. (collectively with its subsidiaries, the “Company”) have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) and do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments (including normal recurring accruals) considered necessary for a fair statement of the financial position and the results of operations of the Company. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements, and the footnotes thereto, included in the Company’s most recent Annual Report on Form 10-K. The Condensed Consolidated Balance Sheet at December 31, 2023 has been derived from the audited financial statements as of that date, but it does not include all the information and footnotes required by U.S. GAAP for a complete financial statement. Certain prior year amounts have been reclassified to conform to the current year presentation.
Use of Estimates and Risks
Seasonal Variations
Recent Accounting Pronouncements
Changes to U.S. GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates (“ASUs”) to the FASB’s Accounting Standards Codification (“ASC”). The Company considers the applicability and impact of recently issued and proposed ASUs.
In November 2023, the FASB issued ASU 2023-07,
“Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.”
The amendments in this update require that a public entity disclose on an annual and interim basis significant segment expenses that are regularly provided to the entity’s chief operating decision maker (the “CODM”), nature and amount of other financial information by reportable segment and any additional measures of a segment’s profit or loss used by the CODM in assessing segment performance and deciding allocation of resources. The amendments in ASU 2023-07 are effective for fiscal
6
years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company does not expect the adoption of ASU 2023-07 to have a material impact on its consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09,
“Income Taxes (Topic 740): Improvements to Income Tax Disclosures.”
The standard requires all entities subject to income taxes to disclose disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. The new requirement will be effective for annual periods beginning after December 15, 2024. The guidance will be applied on a prospective basis with the option to apply the standard retrospectively. Early adoption is permitted. The Company does not expect the adoption of ASU 2023-09 to have a material impact on the consolidated financial statements.
Adoption of New Accounting Guidance
In March 2020, the FASB issued ASU 2020-04,
“Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.”
In January 2021, the FASB clarified the scope of this guidance with the issuance of ASU 2021-01,
Reference Rate Reform: Scope
. ASU 2020-04 provides optional expedients and exceptions to account for contracts, hedging relationships and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate if certain criteria are met. This ASU was further updated with the issuance of ASU 2022-06,
Reference Rate Reform: Deferral of the Sunset Date of Topic 848
, which extends the sunset date of the guidance. The Company adopted ASU 2020-04 and it did not have a material impact on its consolidated financial statements.
In October 2022, the FASB issued ASU 2022-04,
“Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations.”
This ASU requires that a buyer in a supplier finance program disclose sufficient information about the program to allow a user of financial statements to better consider the effect of the programs on an entity’s working capital, liquidity and cash flows. This ASU is effective for fiscal years beginning after December 15, 2022, except for the amendment on roll forward information which is effective for fiscal years beginning after December 15, 2023. The Company adopted ASU 2022-04 which did not have a material impact on its consolidated financial statements. See disclosure hereafter for further information.
Sales of Accounts Receivables
Factored receivables at June 30, 2024 associated with the Company’s existing factoring agreement for certain customer receivables (the “Customer Receivables Purchase Agreement”) were approximately $
360
million, an increase of approximately $
120
million from December 31, 2023. Transactions under this agreement are accounted for as sales of accounts receivable, and the receivables sold are removed from the Condensed Consolidated Balance Sheet at the time of the sales transaction. The Company classifies the proceeds received from the sales of accounts receivable as an operating cash flow and collections of accounts receivables not yet submitted to the financial institution as a financing cash flow in the Condensed Consolidated Statement of Cash Flows. The Company records the discount as other expense, net in the Condensed Consolidated Statement of Operations.
7
Supplier Finance Program Obligations
In June 2024, the Company entered into an arrangement with a third-party vendor which provides a service for the Company’s suppliers, at their sole discretion, to sell their receivables due from the Company with various financial institutions, who at their sole discretion, contract with the third-party vendor to participate in the supplier finance program (the “New SCF Program”).
The Company and its suppliers agree on contractual terms for the goods and services procured, including prices, quantities and payment terms, regardless of whether the supplier elects to participate in the New SCF Program. The suppliers sell goods or services, as applicable, to the Company and issue the associated invoices to the Company based on the agreed-upon contractual terms. Suppliers that participate in the New SCF Program, at their sole discretion, determine which invoices, if any, they want to sell to the third-party vendor. The suppliers’ voluntary inclusion of invoices in the New SCF Program does not change the Company’s existing contractual terms with its suppliers. The Company does not provide any guarantees or collateral under the New SCF Program, nor does it have any economic interest in a supplier’s decision to participate in the New SCF Program. Amounts due under the New SCF Program will be included in accounts payable in the Condensed Consolidated Balance Sheets and as operating cash flows in the Condensed Consolidated Statement of Cash Flows.
Prior to the New SCF Program, a global financial institution offered a voluntary supply chain finance program (the “Former SCF Program”) which similarly enabled suppliers, at their sole discretion, to sell their receivables due from the Company to the financial institution on a non-recourse basis. Pursuant to the Second Amendment (defined hereafter), a lender under the Credit Revolver (defined hereafter) that also participated in the Former SCF Program secured its related financing pursuant to the terms of the Credit Revolver. See
Footnote 8
for further information. In April 2024, the Company exercised its right to terminate the Former SCF Program with the financial institution.
While the Company has entered into the New SCF Program to offer its vendors another supply chain financing option after the termination of the Former SCF program, there has been no activity under the New SCF Program at and during the period ending June 30, 2024.
As such, the following table sets forth the outstanding payment obligations due to the financial institution and activities related to the suppliers who participated in the Former SCF Program:
|
Balance at December 31, 2023
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$ |
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| Invoices participating in the Former SCF Program |
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| Invoices paid to the financial institution |
(
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Balance at June 30, 2024
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$ |
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Footnote 2 —
Accumulated Other Comprehensive Income (Loss)
The following table displays the changes in Accumulated Other Comprehensive Income (Loss) (“AOCL”) by component, net of tax, for the six months ended June 30, 2024 (in millions):
|
Cumulative
Translation Adjustment |
Pension and
Postretirement
Costs
|
Derivative
Financial Instruments |
AOCL | ||||||||||||||||||||
| Balance at December 31, 2023 | $ |
(
|
$ |
(
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$ |
(
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$ |
(
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| Other comprehensive income (loss) before reclassifications |
(
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(
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| Amounts reclassified to earnings |
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(
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| Net current period other comprehensive income (loss) |
(
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(
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| Balance at June 30, 2024 | $ |
(
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$ |
(
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$ |
(
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$ |
(
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8
Reclassifications from AOCL to the results of operations for the three and six months ended June 30, 2024 and 2023 were pretax (income) expense of (in millions):
|
Three Months Ended
June 30, |
Six Months Ended
June 30, |
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| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
|
Pension and postretirement benefit plans
(1)
|
$ |
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$ |
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$ |
(
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$ |
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Derivative financial instruments
(2)
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(
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(1)
See
Footnote 10
for further information.
(2)
See
Footnote 9
for further information.
The income tax provision (benefit) allocated to the components of AOCL for the periods indicated are as follows (in millions):
|
Three Months Ended
June 30, |
Six Months Ended
June 30, |
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| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Foreign currency translation adjustments | $ |
|
$ |
(
|
$ |
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$ |
(
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| Pension and postretirement benefit costs |
(
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| Derivative financial instruments |
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(
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(
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| Income tax provision (benefit) related to AOCL | $ |
|
$ |
(
|
$ |
|
$ |
(
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Footnote 3 —
Restructuring
To better align its resources with its strategy and operating model and to reduce the cost structure of its global operations, the Company commits to restructuring plans as necessary and as follows:
Organizational Realignment Plan
In January 2024, the Company announced an organizational realignment, which is expected to strengthen the Company’s front-end commercial capabilities, such as consumer understanding and brand communication, in support of the “where to play” and “how to win” strategy choices the Company unveiled in June of 2023 (the “Realignment Plan”). In addition to improving accountability, the Realignment Plan is designed to unlock operational efficiencies and cost savings, reduce complexity and free up funds for reinvestment. As part of the Realignment Plan, the Company is making several operating model changes, which entail: standing up a cross-functional brand management organization, realigning business unit finance to fully support the new global brand management model, further simplifying and standardizing regional go-to-market organizations, and centralizing domestic retail sales teams, the digital technology team, business-aligned accounting personnel, the Manufacturing Quality team, and the Human Resources functions into the appropriate center-led teams to drive standardization, efficiency and scale with a One Newell approach. The Company will also further optimize the Company’s real estate footprint and pursue other cost reduction initiatives. These actions are expected to be substantially implemented by the end of 2024, subject to local law and consultation requirements. Restructuring and restructuring-related charges associated with these actions are estimated to be in the range of $
75
million to $
90
million and are expected to be substantially incurred by the end of 2024. This estimate of charges consists primarily of $
60
million to $
70
million related to cash severance payments and other termination benefits, $
11
million to $
16
million associated with office space reduction and consolidation and approximately $
4
million of other charges. The Company expects the majority of the aggregate charges will be cash expenditures.
The Company commenced organizational realignment activities during the first quarter of 2024. During the three and six months ended June 30, 2024, the Company recorded restructuring charges of $
9
million and $
31
million, respectively. During the three and six months ended June 30, 2024, the Company also recorded restructuring-related charges of $
8
million in connection with the Realignment Plan. The Company has incurred aggregate charges of $
39
million since inception in connection with the Realignment Plan.
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. See
Footnote 5
for further information. 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 waiting to build-out
9
the new facility, which is anticipated to be completed during the first half of fiscal year 2025. Management concluded the sale of the current headquarters facility satisfied the criteria to be classified as held for sale at June 30, 2024. As such, the Company wrote down the carrying value of the assets held for sale to their fair value less cost to sell. During the second quarter of 2024, the Company recorded a net charge of $
6
million inclusive of a fair market value adjustment related to the below market rental payments associated with the sale leaseback transaction, which was recorded within impairment of goodwill, intangibles and other assets in the Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2024. The underlying assets held for sale were classified within prepaid expenses and other current assets in the Condensed Consolidated Balance Sheet as of June 30, 2024.
Network Optimization Project
In May 2023, the Company announced a restructuring and cost savings initiative that is intended to simplify and streamline its North American distribution network (the “Network Optimization Project”) in order to improve the Company’s cost structure and operating margins while maintaining focus on customer and consumer fulfillment. The Company initiated implementation of the Network Optimization Project during the second quarter of 2023 and expects it to be substantially implemented by the end of fiscal year 2024. The Network Optimization Project incorporates a variety of initiatives, including a reduction in the overall number of distribution centers, an optimization of distribution by location, and completion of select automation investments intended to further streamline the Company’s cost structure and to maximize operating performance. The Company currently estimates that it will incur approximately $
37
million to $
49
million in restructuring and restructuring-related charges associated with execution of the Network Optimization Project and expects that the charges incurred will be substantially complete by the end of 2024. This estimate of charges consists primarily of $
8
million to $
11
million related to cash severance payments and other termination benefits and approximately $
29
million to $
38
million associated with industrial site reductions. The Company expects approximately $
35
million to $
44
million of the aggregate charges will be cash expenditures.
In connection with the Network Optimization Project, the Company recorded restructuring and restructuring-related charges for the periods indicated as follows (in millions):
|
Three Months Ended
June 30, |
Six Months Ended
June 30, |
Incurred since inception | |||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||||||
| Restructuring charges | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Restructuring-related charges |
|
|
|
|
|
||||||||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
Project Phoenix
In January 2023, the Company announced a restructuring and savings initiative (“Project Phoenix”) that was intended to strengthen the Company by leveraging its scale to further reduce complexity, streamline its operating model and drive operational efficiencies. Project Phoenix was substantially implemented by the end of 2023 and incorporated 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 included manufacturing, distribution, transportation and customer service, transition to a unified One Newell go-to-market model in key international geographies, and reduce overhead costs. The Company estimates that it will incur approximately $
100
million to $
130
million in restructuring and restructuring-related charges in connection with Project Phoenix. These charges consist primarily of $
80
million to $
105
million in charges related to severance payments and other termination benefits; $
15
million to $
20
million in charges associated with office space reductions; and approximately $
5
million of other charges, including those associated with employee transition and legal costs. The Company expects approximately $
95
million to $
120
million of the aggregate charges will be cash expenditures. While the program was mostly complete by the end of 2023, charges will continue to be recognized as the Company completes remaining actions in accordance with local regulations and consultation requirements. All cash payments are expected to be paid within one year of charges incurred.
10
In connection with Project Phoenix, the Company recorded restructuring and restructuring-related charges for the periods indicated as follows (in millions):
|
Three Months Ended
June 30, |
Six Months Ended
June 30, |
Incurred since inception | |||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||||||
| Restructuring costs | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Restructuring-related costs |
|
|
|
|
|
||||||||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
Restructuring charges, net and restructuring-related charges incurred from inception for the Realignment Plan, Network Optimization Project and Project Phoenix (collectively, the “Plans”) were as follows (in millions):
| Severance and termination costs | Contract termination and other costs |
Total restructuring
costs |
Restructuring-related
costs |
Total costs | |||||||||||||||||||
| Realignment Plan | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||
| Network Optimization Project |
|
|
|
|
|
||||||||||||||||||
| Project Phoenix |
|
|
|
|
|
||||||||||||||||||
| $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||
Other Restructuring and Restructuring-Related Charges
The Company also incurs other restructuring and restructuring-related charges in connection with various discrete initiatives. The Company recorded $
1
million of other restructuring costs for both the three and six months ended June 30, 2024 and $
3
million and $
5
million, during the three and six months ended June 30, 2023, respectively.
Restructuring-related charges are recorded in cost of products sold, selling, general and administrative expenses (“SG&A”) and impairment of other assets in the Condensed Consolidated Statements of Operations based on the nature of the underlying charges incurred. During the three months ended June 30, 2024 and 2023, the Company recorded
immaterial
and $
5
million, respectively of other restructuring-related charges. During the six months ended June 30, 2024 and 2023, the Company recorded other restructuring-related charges of $
8
million and $
12
million, respectively.
Restructuring charges, net incurred by reportable business segments for all restructuring activities for the periods indicated and the total charges since inception for the Plans are as follows (in millions):
|
Three Months Ended
June 30, |
Six Months Ended
June 30, |
Total incurred since inception of Plans | |||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||||||
| Home and Commercial Solutions | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Learning and Development |
|
|
|
|
|
||||||||||||||||||||||||
| Outdoor and Recreation |
|
|
|
|
|
||||||||||||||||||||||||
| Corporate |
|
|
|
|
|
||||||||||||||||||||||||
| $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||
11
Accrued restructuring costs for the six months ended June 30, 2024 were as follows (in millions):
| Balance at December 31, 2023 |
Restructuring
Costs, Net |
Payments |
Balance at
June 30, 2024 |
||||||||||||||||||||
| Severance and termination costs | $ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||
| Contract termination and other costs |
|
|
(
|
|
|||||||||||||||||||
| $ |
|
$ |
|
$ |
(
|
$ |
|
||||||||||||||||
Accrued restructuring costs for the six months ended June 30, 2023 were as follows (in millions):
| Balance at December 31, 2022 |
Restructuring
Costs, Net |
Payments |
Foreign
Currency and Other |
Balance at
June 30, 2023 |
|||||||||||||||||||||||||
| Severance and termination costs | $ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
|||||||||||||||||||
| Contract termination and other costs |
|
|
(
|
(
|
|
||||||||||||||||||||||||
| $ |
|
$ |
|
$ |
(
|
$ |
(
|
$ |
|
||||||||||||||||||||
Footnote 4 —
Inventories
Inventories are comprised of the following (in millions):
| June 30, 2024 | December 31, 2023 | ||||||||||
| Raw materials and supplies | $ |
|
$ |
|
|||||||
| Work-in-process |
|
|
|||||||||
| Finished products |
|
|
|||||||||
| $ |
|
$ |
|
||||||||
Footnote 5 —
Property, Plant and Equipment, Net
Property, plant and equipment, net, is comprised of the following (in millions):
| June 30, 2024 | December 31, 2023 | ||||||||||
| Land | $ |
|
$ |
|
|||||||
| Buildings and improvements |
|
|
|||||||||
| Machinery and equipment |
|
|
|||||||||
|
|
|
||||||||||
| Less: Accumulated depreciation |
(
|
(
|
|||||||||
| $ |
|
$ |
|
||||||||
Depreciation expense was $
44
million and $
51
million for the three months ended June 30, 2024 and 2023, respectively, and $
95
million and $
105
million for the six months ended June 30, 2024 and 2023, respectively.
In June 2024, the Company entered into an agreement for a right of use operating lease, for its Corporate headquarters in Atlanta, Georgia, with an initial lease term of
14.5
years. The Company has not yet taken possession of the facility; therefore it has not reflected the right of use asset and lease liability in the Condensed Consolidated Balance Sheet at June 30, 2024. The gross minimum contractual aggregate lease payments are approximately $
106
million. See
Footnote 3
for additional information.
12
Footnote 6 —
Goodwill and Other Intangible Assets, Net
Goodwill activity for the six months ended June 30, 2024 is as follows (in millions):
|
June 30, 2024
|
|||||||||||||||||||||||||||||
| Segments |
Net Book Value at December 31, 2023
|
Foreign
Exchange
|
Gross
Carrying
Amount
|
Accumulated
Impairment
Charges
|
Net Book Value
|
||||||||||||||||||||||||
| Home and Commercial Solutions | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||
| Learning and Development |
|
(
|
|
(
|
|
||||||||||||||||||||||||
| Outdoor and Recreation |
|
|
|
(
|
|
||||||||||||||||||||||||
| $ |
|
$ |
(
|
$ |
|
$ |
(
|
$ |
|
||||||||||||||||||||
Other intangible assets, net, are comprised of the following (in millions):
| June 30, 2024 | December 31, 2023 | ||||||||||||||||||||||||||||||||||
|
Gross
Carrying
Amount
|
Accumulated Amortization
|
Net Book
Value
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net Book
Value
|
||||||||||||||||||||||||||||||
|
Tradenames — indefinite life
(1)
|
$ |
|
$ | — | $ |
|
$ |
|
$ | — | $ |
|
|||||||||||||||||||||||
|
Tradenames — other
(1)
|
|
(
|
|
|
(
|
|
|||||||||||||||||||||||||||||
| Capitalized software |
|
(
|
|
|
(
|
|
|||||||||||||||||||||||||||||
| Patents and intellectual property |
|
(
|
|
|
(
|
|
|||||||||||||||||||||||||||||
| Customer relationships and distributor channels |
|
(
|
|
|
(
|
|
|||||||||||||||||||||||||||||
| $ |
|
$ |
(
|
$ |
|
$ |
|
$ |
(
|
$ |
|
||||||||||||||||||||||||
(1)
In alignment with the Company’s strategy, the Company determined that certain tradenames with aggregate carrying values of $
322
million no longer met the criteria to be classified as indefinite-lived tradenames effective January 1, 2024. The estimated useful lives range from
10
to
15
years, which will increase the Company’s annual amortization expense by $
25
million, approximately $
6
million quarterly (approximately $
0.01
net loss per share per quarter).
Amortization expense for intangible assets was $
35
million and $
27
million for the three months ended June 30, 2024 and 2023, respectively, and $
69
million and $
54
million for the six months ended June 30, 2024 and 2023, respectively.
During the second quarter of 2023, the Company concluded that a triggering event had occurred for an indefinite-lived tradename in the Home Fragrance reporting unit in the Home and Commercial Solutions segment and for the goodwill associated with the Baby reporting unit in the Learning and Development segment, as a result of a downward revision of forecasted cash flows due to softening global demand, primarily caused by continued inflationary pressure that is impacting discretionary spending behavior of consumers, as well as rising interest rates. The Company performed a quantitative impairment test and determined that the indefinite-lived tradename in the Home and Commercial Solutions segment was impaired. During the three and six months ended June 30, 2023, the Company recorded an aggregate non-cash impairment charge of $
8
million, as the carrying value of the tradename exceeded its fair value. The Company concluded that the Baby reporting unit goodwill was not impaired during the second quarter of 2023.
13
Footnote 7 —
Other Accrued Liabilities
Other accrued liabilities are comprised of the following (in millions):
| June 30, 2024 | December 31, 2023 | ||||||||||
| Customer accruals | $ |
|
$ |
|
|||||||
| Accrued compensation |
|
|
|||||||||
| Operating lease liabilities |
|
|
|||||||||
| Accrued self-insurance liabilities, contingencies and warranty |
|
|
|||||||||
| Accrued interest expense |
|
|
|||||||||
| Accrued marketing and freight expenses |
|
|
|||||||||
| Accrued income taxes |
|
|
|||||||||
| Other |
|
|
|||||||||
| $ |
|
$ |
|
||||||||
Footnote 8 —
Debt
Debt is comprised of the following at the dates indicated (in millions):
| June 30, 2024 | December 31, 2023 | ||||||||||
|
|
$ |
|
$ |
|
|||||||
|
|
|
|
|||||||||
|
|
|
|
|||||||||
|
|
|
|
|||||||||
|
|
|
|
|||||||||
|
|
|
|
|||||||||
|
|
|
|
|||||||||
|
|
|
|
|||||||||
|
Revolving credit facility
(1)
|
|
|
|||||||||
| Other debt |
|
|
|||||||||
|
Total debt
|
|
|
|||||||||
| Short-term debt and current portion of long-term debt |
(
|
(
|
|||||||||
| Long-term debt | $ |
|
$ |
|
|||||||
(1)
Included in short-term debt and current portion of long-term debt at June 30, 2024.
(2)
Included in short-term debt and current portion of long-term debt at December 31, 2023.
Senior Notes
On February 9, 2024, Moody’s Corporation (“Moody’s”) downgraded the Company’s senior unsecured debt rating to “Ba3”. As a result of Moody’s downgrade, certain of the Company’s outstanding senior notes currently aggregating to approximately $
3.1
billion (the “Coupon-Step Notes”) were subject to an interest rate increase of
25
basis points. The change to the interest rate due to the downgrade will increase the Company’s interest expense by approximately $
8
million on an annualized basis (approximately $
6
million in 2024).
On February 14, 2024, S&P Global Inc. (“S&P”) downgraded the Company’s debt rating to “BB-”. As a result of the S&P downgrade, the Coupon-Step Notes were subject to an additional interest rate increase of
25
basis points. The change to the interest rate due to the downgrade will increase the Company’s interest expense by approximately $
8
million on an annualized basis (approximately $
6
million in 2024).
The S&P and Moody’s downgrades will collectively increase the Company’s interest expense by approximately $
16
million in the aggregate on an annualized basis (approximately $
12
million in 2024).
14
Revolving Credit Facility
The Company had a $
1.5
billion senior unsecured revolving credit facility (the “Credit Revolver”) maturing in August 2027. On March 27, 2023, the Company entered into an amendment (the “First 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 First Amendment, and (ii) lower the Interest Coverage Ratio, as defined in the First Amendment, for the fiscal quarters ending on June 30, 2023, September 30, 2023, December 31, 2023 and March 31, 2024.
On February 7, 2024, the Company, certain of its subsidiaries, as subsidiary borrowers, and certain of its subsidiaries, as subsidiary guarantors, entered into a second amendment to the Credit Revolver agreement (the “Second Amendment”). The Second Amendment, among other things, (i) reduced the commitments of the lenders from $
1.5
billion to $
1.0
billion, (ii) replaced the Company’s existing financial covenants with new financial covenants testing the Company’s Collateral Coverage Ratio and Total Net Leverage Ratio (each further defined in the Second Amendment), (iii) required the Company and certain of the Company’s domestic and foreign subsidiaries (collectively the “Guarantors”) to guarantee all obligations under the Credit Revolver including, without limitation, obligations in respect of extensions of credit to any of the borrowers, certain hedging obligations, certain cash management obligations, and certain supply chain financing obligations, and (iv) required the Company and the other Guarantors to grant a lien and security interest in certain of its assets consisting of eligible accounts receivable, eligible inventory, eligible equipment and eligible intellectual property, and all products and proceeds of the foregoing, subject to certain limitations. See
Footnote 1
for further information with respect to the Company’s SCF Programs.
The Credit Revolver provides for the issuance of up to $
150
million of letters of credit, so long as there is sufficient availability for borrowing under the Credit Revolver. At June 30, 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.
Other
The indentures governing the Company’s senior notes contain usual and customary nonfinancial covenants. The Company’s borrowing arrangements other than the senior notes contain usual and customary nonfinancial covenants and certain financial covenants, including minimum collateral coverage and net leverage ratios.
Weighted average interest rates are as follows:
|
Three Months Ended
June 30, |
Six Months Ended
June 30, |
||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Total debt |
|
% |
|
% |
|
% |
|
% | |||||||||||||||
| Short-term debt |
|
% |
|
% |
|
% |
|
% | |||||||||||||||
The fair value of the Company’s senior notes are based upon prices of similar instruments in the marketplace and are as follows (in millions):
| June 30, 2024 | December 31, 2023 | ||||||||||||||||||||||
| Fair Value | Book Value | Fair Value | Book Value | ||||||||||||||||||||
| Senior notes | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
The carrying amounts of all other debt approximates fair value.
15
Footnote 9 —
Derivatives
From time to time, the Company enters into derivative transactions to hedge its exposures to interest rate, foreign currency rate and commodity price fluctuations. The Company does not enter into derivative transactions for trading purposes.
Interest Rate Contracts
Fair Value Hedges
At June 30, 2024, the Company had approximately $
1.1
billion notional amount of interest rate swaps that exchange a fixed rate of interest for a variable rate of interest plus a weighted average spread. These floating rate swaps are designated as fair value hedges against $
500
million of principal on the
6.375
% senior notes due 2027, $
500
million of principal on the
6.625
% senior notes due 2029 and $
100
million of principal on the
4.000
% senior notes due 2024 for the remaining life of the notes. The benchmark interest rate for the $
100
million floating swap and associated fair value hedge was amended for a change in benchmark interest rate from LIBOR to Secured Overnight Financing Rate (“SOFR”), effective June 1, 2023, accounted for in accordance with ASC 848. See
Footnote 1
for further information. The effective portion of the fair value gains or losses on these swaps is offset by fair value adjustments in the underlying debt.
Cross-Currency Contracts
The Company uses cross-currency swaps to hedge foreign currency risk on certain financing arrangements. The Company has
three
cross-currency swaps, maturing in January 2025, February 2025 and September 2027, with an aggregate notional amount of $
1.3
billion. Each of these cross-currency swaps was designated as a net investment hedge of the Company’s foreign currency exposure of its net investment in certain Euro-functional currency subsidiaries with Euro-denominated net assets, and the Company pays a fixed rate of Euro-based interest and receives a fixed rate of U.S. dollar interest. The Company has
two
additional cross-currency swaps, maturing in September 2027 and September 2029, with an aggregate notional amount of $
1.0
billion. These swaps were also designated as net investment hedges of the Company’s foreign currency exposure of its net investment in certain Euro-functional currency subsidiaries with Euro-denominated net assets, and the Company pays a floating rate of Euro-based interest and receives a floating rate of U.S. dollar interest. The Company has elected the spot method for assessing the effectiveness of these contracts. During the three months ended June 30, 2024 and 2023, the Company recognized income of $
9
million and $
10
million, respectively and income of $
18
million and $
21
million for the six months ended June 30, 2024 and 2023, respectively, in interest expense, net, related to the portion of cross-currency swaps excluded from hedge effectiveness testing.
Foreign Currency Contracts
The Company uses forward foreign currency contracts to mitigate the foreign currency exchange rate exposure on the cash flows related to forecasted inventory purchases and sales with maturity dates through December 2024. The derivatives used to hedge these forecasted transactions that meet the criteria for hedge accounting are accounted for as cash flow hedges. The effective portion of the gains or losses on these derivatives is deferred as a component of AOCL until it is recognized in earnings at the same time that the hedged item affects earnings and is included in the same caption in the Company’s Condensed Consolidated Statement of Operations as the underlying hedged item. At June 30, 2024, the Company had approximately $
256
million notional amount outstanding of forward foreign currency contracts that are designated as cash flow hedges of forecasted inventory purchases and sales.
The Company also uses foreign currency contracts, primarily forward foreign currency contracts, to mitigate the foreign currency exposure of certain other foreign currency transactions. At June 30, 2024, the Company had approximately $
886
million notional amount outstanding of these foreign currency contracts that are not designated as effective hedges for accounting purposes and have maturity dates through June 2025. Fair market value gains or losses are included in the results of operations and are classified in other expense, net in the Company’s Condensed Consolidated Statement of Operations.
16
The following table presents the fair value of derivative financial instruments at the dates indicated (in millions):
| Fair Value of Derivatives | |||||||||||||||||
| Assets (Liabilities) | |||||||||||||||||
| Balance Sheet Location | June 30, 2024 | December 31, 2023 | |||||||||||||||
| Derivatives designated as effective hedges: | |||||||||||||||||
| Cash Flow Hedges | |||||||||||||||||
| Foreign currency contracts | Prepaid expenses and other current assets | $ |
|
$ |
|
||||||||||||
| Foreign currency contracts | Other accrued liabilities |
(
|
(
|
||||||||||||||
| Fair Value Hedges | |||||||||||||||||
| Interest rate swaps | Other accrued liabilities |
(
|
(
|
||||||||||||||
| Interest rate swaps | Other noncurrent liabilities |
(
|
(
|
||||||||||||||
| Net Investment Hedges | |||||||||||||||||
| Cross-currency swaps | Prepaid expenses and other current assets |
|
|
||||||||||||||
| Cross-currency swaps | Other assets |
|
|
||||||||||||||
| Cross-currency swaps | Other noncurrent liabilities |
(
|
(
|
||||||||||||||
| Derivatives not designated as effective hedges: | |||||||||||||||||
| Foreign currency contracts | Prepaid expenses and other current assets |
|
|
||||||||||||||
| Foreign currency contracts | Other accrued liabilities |
(
|
(
|
||||||||||||||
| Total | $ |
(
|
$ |
(
|
|||||||||||||
The following table presents gain and (loss) activity (on a pretax basis) related to derivative financial instruments designated or previously designated, as effective hedges (in millions):
|
Three Months
Ended June 30, 2024 |
Three Months
Ended June 30, 2023 |
||||||||||||||||||||||||||||
| Gain/(Loss) | Gain/(Loss) | ||||||||||||||||||||||||||||
| Location of gain /(loss) recognized in income |
Recognized
in OCI
(effective portion)
|
Reclassified
from AOCL
to Income
|
Recognized
in OCI
(effective portion)
|
Reclassified
from AOCL
to Income
|
|||||||||||||||||||||||||
| Interest rate swaps | Interest expense, net | $ |
|
$ |
(
|
$ |
|
$ |
(
|
||||||||||||||||||||
| Foreign currency contracts | Net sales and cost of products sold |
|
(
|
(
|
|
||||||||||||||||||||||||
| Cross-currency swaps | Other expense, net |
|
|
(
|
|
||||||||||||||||||||||||
| Total | $ |
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||||||||
|
Six Months
Ended June 30, 2024 |
Six Months
Ended June 30, 2023 |
||||||||||||||||||||||||||||
| Gain/(Loss) | Gain/(Loss) | ||||||||||||||||||||||||||||
| Location of gain (loss) recognized in income |
Recognized
in OCI
(effective portion)
|
Reclassified
from AOCL
to Income
|
Recognized
in OCI
(effective portion)
|
Reclassified
from AOCL
to Income
|
|||||||||||||||||||||||||
|
Interest rate swaps
|
Interest expense, net | $ |
|
$ |
(
|
$ |
|
$ |
(
|
||||||||||||||||||||
|
Foreign currency contracts
|
Net sales and cost of products sold |
|
(
|
(
|
|
||||||||||||||||||||||||
|
Cross-currency swaps
|
Other expense, net |
|
|
(
|
|
||||||||||||||||||||||||
| Total | $ |
|
$ |
(
|
$ |
(
|
$ |
|
|||||||||||||||||||||
17
At June 30, 2024, net deferred gains of approximately $
2
million within AOCL are expected to be reclassified to earnings over the next twelve months.
During the three months ended June 30, 2024 and 2023, the Company recognized in other expense, net, income of $
10
million and $
8
million, respectively and income of $
9
million and $
18
million during the six months ended June 30, 2024 and 2023, respectively, related to derivatives that are not designated as hedging instruments. Gains and losses on these derivatives are mostly
offset by foreign currency movement in the underlying exposure.
The Company is not a party to any derivative agreements that require collateral to be posted prior to settlement. See
Footnote 8
for further information describing the guarantee of certain hedging obligations granted pursuant to the Second Amendment of the Credit Revolver.
Footnote 10 —
Employee Benefit and Retirement Plans
The components of pension and postretirement benefit (income) expense for the periods indicated, are as follows (in millions):
| Pension Benefits | |||||||||||||||||||||||||||||||||||||||||||||||
| U.S. | International | U.S. | International | ||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||||||||||||||||||||
| Service cost | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||
| Interest cost |
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||
| Expected return on plan assets |
(
|
(
|
(
|
(
|
(
|
(
|
(
|
(
|
|||||||||||||||||||||||||||||||||||||||
| Amortization |
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||
| Settlements |
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||
| Total (income) expense | $ |
(
|
$ |
(
|
$ |
|
$ |
|
$ |
(
|
$ |
(
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||
| Postretirement Benefits | |||||||||||||||||||||||
|
Three Months Ended
June 30, |
Six Months Ended
June 30, |
||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Amortization |
(
|
(
|
$ |
(
|
$ |
(
|
|||||||||||||||||
| Total income | $ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||
Other
In January 2024, the Company received a court ruling with respect to determining the benefits certain pensioners related to an international subsidiary were entitled to receive upon converting their defined benefit to a defined contribution. As the legal proceeding is concluded, the Company reduced its underlying pension obligation by approximately $
11
million, with a corresponding offset to AOCL.
18
Footnote 11 —
Income Taxes
The Company’s effective income tax rates for the three months ended June 30, 2024 and 2023 were a provision of
46.4
% and
48.6
%, respectively, and benefit of
50.0
% and provision of
3.7
% for the six months ended June 30, 2024 and 2023, respectively.
The differences between the U.S. federal statutory income tax rate of
21.0
% and the Company’s effective income tax rate for the three and six months ended June 30, 2024 and 2023 were impacted by a variety of factors, primarily resulting from the geographic mix of where the income was earned, as well as certain taxable income inclusion items in the U.S. based on foreign earnings. For the three and six months ended June 30, 2024 these items increased the tax rate more than the prior period due to the lower forecasted pretax book income. In periods where forecasted pretax income is low, the proportional impact of these items on the effective tax rate may be significant.
The three and six months ended June 30, 2024 were impacted by certain discrete items. Income tax expense for the three months ended June 30, 2024 included a discrete benefit of $
64
million
associated with a reduction in liabilities for unrecognized tax benefits, as the tax authorities’ examination of its U.S. tax returns for the years 2011 to 2015, as further described hereafter, and its Brazil tax returns for the years 2015 to 2017 have been completed, offset by
$
7
million of additional tax related to withholding taxes associated with certain previously taxed earnings that are no longer indefinitely reinvested. The six months ended June 30, 2024 also included certain discrete items totaling $
4
million of additional income tax expense.
The three and six months ended June 30, 2023 were also impacted by certain discrete items. Income tax expense for the three months ended June 30, 2023 included a discrete expense of $
6
million associated with a tax basis adjustment on a prior disposition. The six months ended June 30, 2023 also included certain discrete items totaling $
4
million of additional income tax expense.
On May 14, 2024, the Company received a Statutory Notice of Deficiency (“Notice”) from the Internal Revenue Service (“IRS”) for the tax years 2011 to 2015.
T
he Company agreed to certain adjustments raised by the IRS through the Notice. Accordingly, the Company has concluded that various income tax positions taken by the Company have been effectively settled, with the exception of the matter the Company intends to dispute as further described hereafter. The Company will pay the IRS approximately
$
22
million
for additional income taxes and interest. As a result, the Company has reduced its liability for unrecognized tax benefits for this amount, recorded in other noncurrent liabilities in the Condensed Consolidated Balance Sheets, with a corresponding increase to its current income tax liability.
On July 19, 2024, the Company filed a petition in the U.S. Tax Court disputing the proposed assessment of
$
80
million
in additional taxes plus
$
34
million
in penalties plus the additional interest calculated upon final settlement related to the transfer pricing of services performed by certain of the Company’s foreign affiliates for the tax years 2011 to 2015. The Company believes that adequate amounts have been reserved for any adjustments that may ultimately result.
If the IRS prevails in the assessment of additional tax, interest and penalties in excess of the Company’s current reserves, such outcome could have a material adverse effect on the Company’s financial position and results.
19
Footnote 12 —
Weighted Average Shares Outstanding
The computations of the weighted average shares outstanding for the periods indicated are as follows (in millions):
|
Three Months Ended
June 30, |
Six Months Ended
June 30, |
||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Basic weighted average shares outstanding |
|
|
|
|
|||||||||||||||||||
|
Dilutive securities
(1)
|
|
|
|
|
|||||||||||||||||||
| Diluted weighted average shares outstanding |
|
|
|
|
|||||||||||||||||||
(1)
The six months ended June 30, 2023 excludes
1.2
million of potentially dilutive share-based awards as their effect would be anti-dilutive.
At June 30, 2024, there were
0.7
million potentially dilutive stock awards with performance-based targets that were not met and as such, have been excluded from the computation of diluted earnings per share.
Footnote 13 —
Share-Based Compensation
During the six months ended June 30, 2024, primarily in connection with its annual grant, the Company granted
1.7
million performance-based restricted stock units (“RSUs”), with an aggregate grant date fair value of $
13
million. These performance-based RSUs entitle the recipients to shares of the Company’s common stock and vest primarily at the end of a
three
-year
period, subject to continued employment. The actual number of shares that will ultimately be paid upon vesting is dependent on the level of achievement of the specified performance conditions.
During the
six months ended
June 30, 2024, primarily in connection with its annual grant, the Company also granted
5.6
million time-based RSUs with an aggregate grant date fair value of $
43
million. These time-based RSUs entitle recipients to shares of the Company’s common stock and primarily vest in annual installments over a
to
three-year
period,
subject to continued employment.
Footnote 14 —
Fair Value Disclosures
Recurring Fair Value Measurement
s
The following table presents the Company’s non-pension financial assets and liabilities, which are measured at fair value on a recurring basis (in millions):
| June 30, 2024 | December 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||
| Fair value Asset (Liability) | Fair value Asset (Liability) | ||||||||||||||||||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||||||||||||||||
| Derivatives: | |||||||||||||||||||||||||||||||||||||||||||||||
| Assets | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||
| Liabilities |
|
(
|
|
(
|
|
(
|
|
(
|
|||||||||||||||||||||||||||||||||||||||
|
Investment securities, including mutual funds
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||
For publicly traded investment securities, including mutual funds, fair value is determined on the basis of quoted market prices and, accordingly, such investments are classified as Level 1. The Company determines the fair value of its derivative instruments using standard pricing models and market-based assumptions for all significant inputs, such as yield curves and quoted spot and forward exchange rates. Accordingly, the Company’s derivative instruments are classified as Level 2.
Financial Instruments
The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable, derivative instruments, notes payable and short and long-term debt. The carrying values for current financial assets and liabilities, including cash and cash equivalents, accounts receivable, accounts payable and short-term debt approximate fair value due to the short
20
maturity of such instruments. The fair values of the Company’s debt and derivative instruments are disclosed in
Footnote 8
and
Footnote 9
, respectively.
Nonrecurring Fair Value Measurements
The Company’s nonfinancial assets, which are measured at fair value on a nonrecurring basis, include property, plant and equipment, goodwill, intangible assets and certain other assets.
The Company’s goodwill and indefinite-lived intangibles are fair valued using discounted cash flows. Goodwill impairment testing requires significant use of judgment and assumptions including the identification of reporting units; the assignment of assets and liabilities to reporting units; and the estimation of future cash flows, business growth rates, terminal values and discount rates. The testing of indefinite-lived intangibles under established guidelines for impairment also requires significant use of judgment and assumptions, such as the estimation of cash flow projections, terminal values, royalty rates, contributory cross charges, where applicable, and discount rates. Accordingly, these fair value measurements fall in Level 3 of the fair value hierarchy. These assets and certain liabilities are measured at fair value on a nonrecurring basis as part of the Company’s annual impairment testing and as circumstances require.
In connection with the Company’s annual impairment testing at December 1, 2023,
two
tradenames in the Home and Commercial Solutions segment were measured at fair values of $
491
million and $
53
million. Effective January 1, 2024, the tradename with the fair value of $
53
million, no longer met the criteria to be classified as an indefinite-lived tradename and was reclassified to a definite-lived tradename with a useful life of
10
years.
Footnote 15 —
Segment Information
The Company’s
three
reportable segments are:
| Segment | Key Brands | Description of Primary Products | ||||||||||||
| Home and Commercial Solutions |
Ball
(1)
, Calphalon, Crockpot, FoodSaver, Mapa, Mr. Coffee, Oster, 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 | Dymo, Elmer’s, EXPO, Graco, NUK, Paper Mate, Parker and Sharpie | 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 and Marmot | Active lifestyle products for outdoor and outdoor-related activities; technical apparel and on-the-go beverageware | ||||||||||||
(1)
and Ball® TM of Ball Corporation, used under license.
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.
21
Selected information by segment is presented in the following tables (in millions):
|
Three Months Ended
June 30, |
Six Months Ended
June 30, |
|||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
|
Net sales
(1)
|
||||||||||||||||||||||||||
| Home and Commercial Solutions | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
| Learning and Development |
|
|
|
|
||||||||||||||||||||||
| Outdoor and Recreation |
|
|
|
|
||||||||||||||||||||||
| $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
|
Operating income (loss)
(2)
|
||||||||||||||||||||||||||
| Home and Commercial Solutions | $ |
|
$ |
(
|
$ |
|
$ |
(
|
||||||||||||||||||
| Learning and Development |
|
|
|
|
||||||||||||||||||||||
| Outdoor and Recreation |
(
|
|
(
|
|
||||||||||||||||||||||
| Corporate |
(
|
(
|
(
|
(
|
||||||||||||||||||||||
| $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| June 30, 2024 | December 31, 2023 | |||||||||||||||||||||||||
| Segment assets | ||||||||||||||||||||||||||
| Home and Commercial Solutions | $ |
|
$ |
|
||||||||||||||||||||||
| Learning and Development |
|
|
||||||||||||||||||||||||
| Outdoor and Recreation |
|
|
||||||||||||||||||||||||
| Corporate |
|
|
||||||||||||||||||||||||
| $ |
|
$ |
|
|||||||||||||||||||||||
(1)
All intercompany transactions have been eliminated.
(2)
Operating income (loss) by segment is net sales less cost of products sold, SG&A, restructuring and impairment of goodwill, intangibles and other assets. Certain Corporate expenses of an operational nature are allocated to
business segments primarily on a net sales basis. Corporate depreciation and amortization is allocated to the segments on a percentage of net sales basis and included in segment operating income (loss).
The following table disaggregates revenue by major product grouping source for the periods indicated (in millions):
|
Three Months Ended
June 30, |
Six Months Ended
June 30, |
|||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
| Commercial | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
| Kitchen |
|
|
|
|
||||||||||||||||||||||
| Home Fragrance |
|
|
|
|
||||||||||||||||||||||
| Home and Commercial Solutions |
|
|
|
|
||||||||||||||||||||||
| Baby |
|
|
|
|
||||||||||||||||||||||
| Writing |
|
|
|
|
||||||||||||||||||||||
| Learning and Development |
|
|
|
|
||||||||||||||||||||||
| Outdoor and Recreation |
|
|
|
|
||||||||||||||||||||||
| $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
22
The following table disaggregates revenue by geography for the periods indicated (in millions):
| Three Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||||||||||||||
|
North
America |
International | TOTAL |
North
America |
International | TOTAL | |||||||||||||||||||||||||||||||||
| Home and Commercial Solutions | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||
| Learning and Development |
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| Outdoor and Recreation |
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||
| Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||||||||||||||
|
North
America |
International | TOTAL |
North
America |
International | TOTAL | |||||||||||||||||||||||||||||||||
| Home and Commercial Solutions | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||
| Learning and Development |
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| Outdoor and Recreation |
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||
Footnote 16 —
Litigation and Contingencies
The Company is subject to various claims and lawsuits in the ordinary course of business, including from time to time, contractual disputes, employment and environmental matters, product and general liability claims, claims that the Company has infringed on the intellectual property rights of others, and consumer and employment class actions. Some of the legal proceedings include claims for punitive as well as compensatory damages. In the ordinary course of business, the Company is also subject to legislative requests, regulatory and governmental examinations, information requests and subpoenas, inquiries, investigations, and threatened legal actions and proceedings. In connection with such formal and informal inquiries, the Company receives numerous requests, subpoenas, and orders for documents, testimony and information in connection with various aspects of its activities. The Company previously disclosed that it had received a subpoena and related informal document requests from the SEC primarily relating to its sales practices and certain accounting matters, which related to the time period between third quarter of fiscal year 2016 and second quarter of fiscal year 2017. On September 29, 2023, the Company entered into a settlement with the SEC, which concluded the investigation of the Company. Under the terms of the settlement, the Company neither admitted nor denied the SEC’s findings and agreed to pay a civil penalty of approximately $
13
million, which did not have a material effect on the Company’s Condensed Consolidated Financial Statements. Further, on June 30, 2021, the Company received a subpoena from the SEC requesting the production of documents related to its disclosure of the potential impact of the U.S. Treasury and the IRS’s temporary regulations under IRC Section 245A, as enacted by the 2017 U.S. Tax Reform Legislation and IRC Section 954(c)(6) (the “Temporary Regulations”), as well as the August 21, 2020 finalized versions of the Temporary Regulations
.
Environmental Matters
The Company is involved in various matters concerning federal and state environmental laws and regulations, including matters in which the Company has been identified by the U.S. Environmental Protection Agency (“U.S. EPA”) and certain state environmental agencies as a potentially responsible party (“PRP”) at contaminated sites under the Comprehensive Environmental Response Compensation and Liability Act (“CERCLA”) and equivalent state laws. In assessing its environmental response costs, the Company has considered several factors, including the extent of the Company’s volumetric contribution at each site relative to that of other PRPs; the kind of waste; the terms of existing cost sharing and other applicable agreements; the financial ability of other PRPs to share in the payment of requisite costs; the Company’s prior experience with similar sites; environmental studies and cost estimates available to the Company; the effects of inflation on cost estimates; and the extent to which the Company’s, and other parties’ status as PRPs is disputed.
The Company’s estimate of environmental remediation costs associated with these matters at June 30, 2024 was $
37
million which is included in other accrued liabilities and other noncurrent liabilities in the Condensed Consolidated Balance Sheets. No insurance recovery was taken into account in determining the Company’s cost estimates or reserves, nor do the Company’s cost estimates or reserves reflect any discounting for present value purposes, except with respect to certain long-term operations and
23
maintenance CERCLA matters. Because of the uncertainties associated with environmental investigations and response activities, the possibility that the Company could be identified as a PRP at sites identified in the future that require the incurrence of environmental response costs and the possibility that sites acquired in business combinations may require environmental response costs, actual costs to be incurred by the Company may vary from the Company’s estimates.
Lower Passaic River Matter
The U.S. EPA has issued General Notice Letters to over
100
entities, including the Company and its subsidiary, Berol Corporation (together, the “Company Parties”), alleging that they are PRPs at the Diamond Alkali Superfund Site (the “Site”) pursuant to CERCLA. The Site is the subject of investigation and remedial activities and related settlement negotiations with the U.S. EPA. The Site is divided into
four
“operable units,” and the Company Parties have received General Notice Letters in connection with operable Unit 2, which comprises the lower
8.3
miles of the Lower Passaic River and its tributaries (“Unit 2”), and operable Unit 4, which comprises a
17
-mile stretch of the Lower Passaic River and its tributaries (“Unit 4”). Unit 2 is geographically subsumed within Unit 4. In October 2021, the U.S. EPA issued a Record of Decision for an interim remedy for the upper
9
miles of Unit 4, selecting a combination of dredging and capping as the remedial alternative, which the U.S. EPA estimates will cost $
441
million in the aggregate. The U.S. EPA also performed a Source Control Early Action Focused Feasibility Study for Unit 2, which culminated in a Record of Decision in 2016. The U.S. EPA estimates that the selected remedy for Unit 2 set forth in its Record of Decision will cost $
1.4
billion in the aggregate.
In September 2017, the U.S. EPA announced an allocation process involving roughly
80
Unit 2 General Notice Letter recipients, with the intent of offering cash-out settlements to a number of parties (the “U.S. EPA Settlement”). The allocation process has concluded, and the Company Parties were placed in the lowest tier of relative responsibility among allocation parties. On December 16, 2022, the U.S. EPA simultaneously filed a complaint and lodged a Consent Decree to resolve the liability of the Company Parties and other settlement parties for past and future CERCLA response costs at Unit 2 and Unit 4. On January 17, 2024, following review of public comments, the U.S. EPA filed an amended complaint and lodged a modified Consent Decree. U.S. EPA filed a motion to enter the modified Consent Decree on January 31, 2024. As of the date of this filing, the Company does not expect that its allocation in the U.S. EPA Settlement relating to Unit 2 and Unit 4, if the settlement is finalized, will be material to the Company.
In June 2018, Occidental Chemical Corporation (“OCC”) sued over
100
parties, including the Company Parties, in the U.S. District Court in New Jersey pursuant to CERCLA, requesting cost recovery, contribution, and a declaratory judgement. The defendants, in turn, filed claims against
42
third-party defendants, and filed counterclaims against OCC (collectively, the “OCC Litigation”). The primary focus of the OCC Litigation has been certain past and future costs for investigation, design and remediation of Units 2 and 4. However, OCC has stated that it anticipates asserting claims against defendants regarding Newark Bay, which is also part of the Site, after the U.S. EPA has selected the Newark Bay remedy. OCC has also stated that it may broaden its claims in the future after completion of the Natural Resource Damage Assessment described below. In March 2023, the Court granted an unopposed motion to stay the OCC Litigation. On January 5, 2024, the Court granted a motion to extend the stay pending the Court’s adjudication of the then anticipated, and currently pending, motion to enter the amended Consent Decree embodying the U.S. EPA Settlement. At this time, the Company cannot predict the eventual outcome of the OCC Litigation.
In 2007, the National Oceanic and Atmospheric Administration (“NOAA”), acting as the lead administrative trustee on behalf of itself and the U.S. Department of the Interior, issued a Notice of Intent to Perform a Natural Resource Damage Assessment to the Company Parties, along with numerous other entities, identifying the recipients as PRPs. The federal trustees (who now include the United States Department of Commerce, represented by NOAA, and the Department of the Interior, represented by the United States Fish and Wildlife Service) are presently undertaking the Natural Resource Damage Assessment with respect to the Site.
Based on currently known facts and circumstances, the Company does not believe that the Lower Passaic River matter is reasonably likely to have a material impact on the Company’s results of operations. However, in the event of one or more adverse determinations related to this matter, including the OCC Litigation and Natural Resource Damage Assessment noted above (for which the Company cannot currently estimate the range of possible losses), it is possible that the ultimate liability resulting from this matter and the impact on the Company’s results of operations could be material.
Because of the uncertainties associated with environmental investigations and response activities, the possibility that the Company could be identified as a PRP at sites identified in the future that require the incurrence of environmental response costs and the possibility that sites acquired in business combinations may require environmental response costs, actual costs to be incurred by the Company may vary from the Company’s estimates.
24
Other Matters
In the normal course of business and as part of its acquisition and divestiture strategy, the Company may provide certain representations and indemnifications related to legal, environmental, product liability, tax or other types of issues. Based on the nature of these representations and indemnifications, it is not possible to predict the maximum potential payments under all of these agreements due to the conditional nature of the Company’s obligations and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under these agreements did not have a material effect on the Company’s business, financial condition or results of operations. In connection with the 2018 sale of The Waddington Group, Novolex Holdings, Inc. (the “Buyer”) filed suit against the Company in October 2019 in the Superior Court of Delaware. The Buyer generally alleged that the Company fraudulently breached certain representations in the Equity Purchase Agreement between the Company and Buyer, dated May 2, 2018, resulting in an inflated purchase price for The Waddington Group. In the year ended December 31, 2021, the Company recorded an immaterial reserve to continuing operations in its Consolidated Financial Statements based on its best estimate of probable loss associated with this matter. Further, in connection with the Company’s sale of The United States Playing Card Company (“USPC”), Cartamundi, Inc. and Cartamundi España, S.L., (the “Buyers”) have notified the Company of their contention that certain representations and warranties in the Stock Purchase Agreement, dated June 4, 2019, were inaccurate and/or breached, and have sought indemnification to the extent that the Buyers are required to pay related damages arising out of a third party lawsuit that was filed against USPC in 2021.
During the fourth quarter of 2022, the Company recorded an immaterial reserve based on the outcome of a judicial ruling relating to indirect taxes in an international entity. During the first quarter of 2023, the Company paid the estimated liability to the relevant taxing authorities. Although the Company cannot predict the ultimate outcome of this contingency with certainty, it believes that any additional amounts it may be required to pay will not have a material effect on the Company’s Condensed Consolidated Financial Statements.
Although the Company cannot predict the ultimate outcome of other proceedings with certainty, it believes that the ultimate resolution of the Company’s proceedings, including any amounts it may be required to pay in excess of amounts reserved, will not have a material effect on the Company’s Condensed Consolidated Financial Statements, except as otherwise described in this
Footnote 16
.
At June 30, 2024, the Company had approximately $
42
million in standby letters of credit primarily related to the Company’s self-insurance programs, including workers’ compensation, product liability and medical expenses.
25
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
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. 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 soft global demand and 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 or changes in the Company’s credit ratings including the failure to maintain financial covenants which if breached could subject us to cross-default and acceleration provisions in our 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, including as a result of geopolitical and macroeconomic conditions and any global military conflicts including those between Russia and Ukraine and in the Middle East;
•
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 Company’s ability to effectively execute its turnaround plan, including Project Ovid, Project Phoenix, the Network Optimization Project and the Realignment Plan;
•
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 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;
•
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 16 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 remediate the material weaknesses in internal control over financial reporting and to maintain effective internal control over financial reporting;
•
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 and environmental remediation costs and legislation and regulatory actions related to product safety, 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;
•
significant increases in the funding obligations related to the Company’s pension plans; and
26
•
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 over 150 countries around the world and has operations on the ground in over 40 of these countries, excluding third-party distributors.
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” strategy choices 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 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 soft macro backdrop; significant inflationary pressures on consumers 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. Project Ovid was designed to optimize the Company’s distribution network by creating a single integrated supply chain from 23 business-unit-centric supply chains. The Company continues to implement the remaining phases of this initiative.
In May 2023, the Company announced a restructuring and cost 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 Company currently estimates that it will incur approximately $37 million to $49 million in restructuring and restructuring-related charges associated with the execution of the Network Optimization Project. The Company also 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 was intended to strengthen the Company by leveraging its scale to further reduce complexity, streamline its operating model and drive operational efficiencies. The Company commenced reducing headcount during the first quarter of 2023, and while the program was mostly completed by the end of 2023, charges will continue to be recognized as the Company completes remaining actions in accordance
27
with local regulations and consultation requirements. The Company estimates that it will incur approximately $100 million to $130 million in restructuring and restructuring-related charges in connection with Project Phoenix.
In January 2024, the Company announced an organizational realignment, which is expected to strengthen the Company’s front-end commercial capabilities, such as consumer understanding and brand communication, in support of the “where to play” and “how to win” strategy choices the Company unveiled in June of 2023 (the “Realignment Plan”). In addition to improving accountability, the Realignment Plan is designed to unlock operational efficiencies and cost savings, reduce complexity and free up funds for reinvestment. As part of the Realignment Plan, the Company is making several operating model changes, which entail: standing up a cross-functional brand management organization, realigning business unit finance to fully support the new global brand management model, further simplifying and standardizing regional go-to-market organizations, and centralizing domestic retail sales teams, the digital technology team, business-aligned accounting personnel, the Manufacturing Quality team, and the Human Resources functions into the appropriate center-led teams to drive standardization, efficiency and scale with a One Newell approach. The Company will also further optimize the Company’s real estate footprint and pursue other cost reduction initiatives. These actions are expected to be substantially implemented by the end of 2024, subject to local law and consultation requirements. 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 and restructuring-related charges.
Organizational Structure
The Company implemented an operating model
intended to drive further simplification and unlock additional efficiencies and synergies within the Company, the chief operating decision maker (“CODM”) reviews the businesses as
three
operating segments:
Home and Commercial Solutions,
Learning and Development and Outdoor and Recreation.
The Company’s three reportable segments are the following:
| Segment | Key Brands | Description of Primary Products | ||||||||||||
| Home and Commercial Solutions |
Ball
(1)
, Calphalon, Crockpot, FoodSaver, Mapa, Mr. Coffee, Oster, 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 | Dymo, Elmer’s, EXPO, Graco, NUK, Paper Mate, Parker and Sharpie | 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 and Marmot | Active lifestyle products for outdoor and outdoor-related activities; technical apparel and on-the-go beverageware | ||||||||||||
(1)
and Ball
®
TM of Ball Corporation, used under license.
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 15
of the Notes to Unaudited Condensed Consolidated Financial Statements
for further information.
Recent Developments
Current Macroeconomic Conditions
The Company continues to be impacted by soft global demand, major retailers’ focus on tight control over inventory levels, inflationary pressures, elevated interest rates and indirect macroeconomic impacts from geopolitical conflicts. 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.
28
To help mitigate the negative impact of these conditions to the operating performance of its businesses, the Company has secured selective pricing increases, accelerated productivity initiatives, optimized advertising and promotion expenses, deployed overhead cost containment efforts, adjusted demand forecasts and supply plans, and taken actions designed to improve working capital. The Company will continue to evaluate other opportunities to improve its financial performance both in the short and long term.
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.
Geopolitical Conflicts
The global economy has been negatively impacted by military conflicts, such as the Russia-Ukraine conflict and the conflicts in the Middle East. While the Company does not expect these conflicts to have a material impact on its results of operations, it has experienced supply chain disruptions, shortages in raw materials and increased costs for transportation, energy and commodities due in part to the negative impact of these conflicts on the global economy. Further escalation of geopolitical tensions, 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 these military conflicts escalate beyond their current scope, the Company could be negatively impacted by localized or global economic recessions. See
Results of Operations
and
Footnote 1 of the Notes to Unaudited Condensed Consolidated Financial Statements
for further information.
Organizational Realignment Plan
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 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
In alignment with the Company’s strategy, the Company determined that certain tradenames with aggregate carrying values of $322 million no longer met the criteria to be classified as indefinite-lived tradenames effective January 1, 2024. The estimated useful lives range from 10 to 15 years, which will increase the Company’s annual amortization expense by $25 million, approximately $6 million quarterly. See
Footnote 6 of the Notes to Unaudited Condensed Consolidated Financial Statements
for further information.
Amendment to Credit Revolver
The Company had a $1.5 billion senior unsecured revolving credit facility (the “Credit Revolver”) maturing in August 2027. On February 7, 2024, the Company entered into a second amendment to the Credit Revolver agreement. The second amendment reduced the commitments of the lenders from $1.5 billion to $1.0 billion; replaced existing financial covenants with new covenants, including a collateral coverage ratio and total net leverage ratio; provided a guarantee by the Company and certain subsidiaries of all obligations under the Credit Revolver, including certain hedging obligations, cash management obligations, and supply chain financing obligations; and granted the lenders under the Credit Revolver a security interest in certain eligible assets and all products and proceeds of the foregoing, subject to certain limitations. See
Footnote 8 of the Notes to Unaudited Condensed Consolidated Financial Statements
for further information.
29
Debt Rating Downgrades
During February 2024, Moody’s Corporation and S&P Global Inc. 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.
Results of Operations
Three Months Ended June 30, 2024 vs. Three Months Ended June 30, 2023
Consolidated Operating Results
|
Three Months Ended
June 30, |
|||||||||||||||||||||||
| (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
June 30, |
|||||||||||||||||
| 2024 | 2023 | $ Change | |||||||||||||||
|
Restructuring and restructuring-related costs (See
Footnote 3
)
(a) (b)
|
$ | 26 | $ | 39 | $ | (13) | |||||||||||
|
Transaction costs and other
(c)
|
5 | 12 | (7) | ||||||||||||||
|
Impairment of intangible asset (See
Footnote 6
)
|
— | 8 | (8) | ||||||||||||||
|
Amortization of acquired intangibles (See
Footnote 6
)
|
25 | 19 | 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
30
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
June 30, |
|||||||||||
| 2024 | 2023 | ||||||||||
| 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 | |||||||||
| $ | 1 | $ | 9 | ||||||||
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
June 30, |
|||||||||||||||||||||||
| (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. The improvement in operating results is primarily due to gross productivity, pricing, savings from restructuring actions, lower restructuring and restructuring-related charges and the absence of non-cash impairment charges primarily related to
31
indefinite-lived tradenames, partially offset by higher advertising and promotion costs and additional amortization of certain tradenames.
Learning and Development
|
Three Months Ended
June 30, |
|||||||||||||||||||||||
| (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
June 30, |
|||||||||||||||||||||||
| (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.
32
Six Months Ended June 30, 2024 vs. Six Months Ended June 30, 2023
Consolidated Operating Results
|
Six Months Ended
June 30, |
|||||||||||||||||||||||
| (in millions) |
2024
|
2023
|
$ Change | % Change | |||||||||||||||||||
| Net sales | $ | 3,686 | $ | 4,009 | $ | (323) | (8.1)% | ||||||||||||||||
| Gross profit | 1,203 | 1,111 | 92 | 8.3% | |||||||||||||||||||
| Gross margin | 32.6 | % | 27.7 | % | |||||||||||||||||||
| Operating income | 179 | 84 | 95 | NM | |||||||||||||||||||
| Operating margin | 4.9 | % | 2.1 | % | |||||||||||||||||||
| Interest expense, net | 148 | 144 | 4 | 2.8% | |||||||||||||||||||
| Other expense, net | 6 | 21 | (15) | (71.4)% | |||||||||||||||||||
| 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 income (loss) | $ | 36 | $ | (84) | $ | 120 | NM | ||||||||||||||||
| Diluted earnings (loss) per share | $ | 0.09 | $ | (0.20) | |||||||||||||||||||
NM - NOT MEANINGFUL
Net sales for the six 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 $122 million, or 3%.
Gross profit increased compared to prior year. 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 and benefits from productivity initiatives impacting operating income for the six months ended June 30, 2024 and 2023 were as follows:
|
Six Months Ended
June 30, |
|||||||||||||||||
| 2024 | 2023 | $ Change | |||||||||||||||
|
Restructuring and restructuring-related costs (See
Footnote 3
)
(a) (b)
|
$ | 65 | $ | 90 | $ | (25) | |||||||||||
|
Transaction costs and other
(c)
|
1 | 21 | (20) | ||||||||||||||
|
Impairment of intangible asset (See
Footnote 6
)
|
— | 8 | (8) | ||||||||||||||
|
Amortization of acquired intangibles (See
Footnote 6
)
|
50 | 38 | 12 | ||||||||||||||
(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.
33
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 six months ended June 30, 2024 and 2023 includes the following items:
|
Six Months Ended
June 30, |
|||||||||||
| 2024 | 2023 | ||||||||||
| 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 | |||||||||
| $ | 6 | $ | 21 | ||||||||
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.
Business Segment Operating Results
Home and Commercial Solutions
|
Six Months Ended
June 30, |
|||||||||||||||||||||||
| (in millions) | 2024 | 2023 | $ Change | % Change | |||||||||||||||||||
| Net sales | $ | 1,855 | $ | 2,029 | $ | (174) | (8.6)% | ||||||||||||||||
| Operating income (loss) | 64 | (58) | 122 | NM | |||||||||||||||||||
| Operating margin | 3.5 | % | (2.9) | % | |||||||||||||||||||
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. Changes in foreign currency unfavorably impacted net sales by $71 million, or 3%.
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.
34
Learning and Development
|
Six Months Ended
June 30, |
|||||||||||||||||||||||
| (in millions) | 2024 | 2023 | $ Change | % Change | |||||||||||||||||||
| Net sales | $ | 1,372 | $ | 1,377 | $ | (5) | (0.4)% | ||||||||||||||||
| Operating income | 299 | 260 | 39 | 15.0% | |||||||||||||||||||
| Operating margin | 21.8 | % | 18.9 | % | |||||||||||||||||||
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
|
Six Months Ended
June 30, |
|||||||||||||||||||||||
| (in millions) | 2024 | 2023 | $ Change | % Change | |||||||||||||||||||
| Net sales | $ | 459 | $ | 603 | $ | (144) | (23.9)% | ||||||||||||||||
| Operating income (loss) | (29) | 4 | (33) | NM | |||||||||||||||||||
| Operating margin | (6.3) | % | 0.7 | % | |||||||||||||||||||
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. Changes in foreign currency unfavorably impacted net sales by $24 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.
Liquidity and Capital Resources
Liquidity
The Company believes the extent of the impact of this rapidly changing retail and consumer landscape, which reflects major retailers focus on tight control over 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
Business Strategy
and
Recent Developments
, the Company has taken actions to further strengthen its financial position and balance sheet, and maintain financial liquidity and flexibility, including amending certain terms of its Credit Revolver.
The Company believes these actions and its cash generating capability, together with its borrowing capacity and available cash and cash equivalents, provide adequate liquidity to fund its operations, support its growth platforms, pay down debt and debt maturities as they come due and execute its ongoing business initiatives for the foreseeable future. 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 21, 2024.
35
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. 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 operating activities | $ | 64 | $ | 277 | $ | (213) | |||||||||||
| Cash used in investing activities | (84) | (94) | 10 | ||||||||||||||
| Cash provided by (used in) financing activities | 78 | (158) | 236 | ||||||||||||||
| Exchange rate effect on cash, cash equivalents and restricted cash | (14) | 2 | (16) | ||||||||||||||
| 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 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
The change in cash used in investing activities was primarily due to lower capital expenditures, as significant projects, primarily related to Project Ovid, were mostly executed during the prior year.
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.
See
Footnote 8 of the Notes to the Unaudited Condensed Consolidated Financial Statements
for further information.
Capital Resources
The Company has a $1.0 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 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.
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 9
of the Notes to Unaudited Condensed Consolidated Financial Statements
for further information on the Company's derivative instruments.
36
Significant Accounting Policies and Critical Estimates
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.
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, 2023.
Item 4. Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to provide reasonable assurance that information which is required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating such controls and procedures, the Company recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
As required by Rule 13a-15(b) of the Exchange Act, the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this Quarterly Report. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were not effective as of June 30, 2024, due to material weaknesses in internal control over financial reporting described below.
Notwithstanding the identified material weaknesses, management, including the Company’s Chief Executive Officer and Chief Financial Officer have determined, based on the procedures performed, that the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q fairly represent in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, for the periods presented in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”).
A material weakness is defined as a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
We continue to have material weaknesses in our internal control over financial reporting as disclosed in Management’s Annual Report on Internal Control Over Financial Reporting in
Item 9A. Controls and Procedures
, of our Annual Report on Form 10-K for the year ended December 31, 2023, in that the Company did not maintain effective controls over the reviews of significant assumptions used in the impairment assessment of goodwill, indefinite-lived tradenames and long-lived assets. Specifically, the control activities related to the reviews of the significant assumptions utilized in the impairment assessments were not executed, as designed, at the appropriate level of precision to prevent or detect a material misstatement. These control deficiencies resulted in management adjustments to the impairment loss and the other intangible assets, net accounts, prior to the issuance of the Company’s financial statements. These control deficiencies could result in a material misstatement of the goodwill, indefinite-lived tradenames, long-lived assets and the related accounts and disclosures in the annual or interim consolidated financial statements. Accordingly, our management has determined that these control deficiencies constitute material weaknesses.
Remediation Plan
The Company is committed to maintaining a strong internal control environment and believes remediation efforts will result in significant improvements in its internal control over financial reporting.
Our management, with the oversight of the Audit Committee of the Board, is updating our internal processes and controls to strengthen their effectiveness and has developed a remediation plan, which includes the following actions:
37
•
Identifying additional resources to assist in the preparation and reviews of significant assumptions used in the impairment assessments; and
•
Improving the development of sufficient supporting documentation related to reviews over significant assumptions associated with the Company’s impairment assessments.
The Company will monitor the effectiveness of its remediation plan and will refine its remediation plan as appropriate.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting during the quarter ended June 30, 2024, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Information required under this Item is contained above in Part I. Financial Information, Item 1 and is incorporated herein by reference.
Item 1A. Risk Factors
There have been no material changes in our risk factors from those disclosed in
Part I, Item 1A.
of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities
Issuer Purchases of Equity Securities
The following table provides information about the Company’s purchases of equity securities during the three months ended June 30, 2024:
| Calendar Month |
Total Number
of Shares
Purchased
(1)
|
Average
Price Paid
Per Share
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
Maximum
Approximate Dollar Value of
Shares that May Yet Be Purchased
Under the Plans or Programs
|
|||||||||||||||||||
| April | — | $ | — | — | $ | — | |||||||||||||||||
| May | 52,607 | 8.12 | — | — | |||||||||||||||||||
| June | — | — | — | — | |||||||||||||||||||
| Total | 52,607 | $ | 8.12 | — | |||||||||||||||||||
(1)
Shares purchased during the three months ended June 30, 2024 were acquired by the Company based on their fair market value on the vesting date in order to satisfy employees’ tax withholding and payment obligations in connection with the vesting of awards of restricted stock units.
Item 5. Other Information
None of the Company’s directors and officers
adopted
, modified or
terminated
a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the Company’s fiscal quarter ended June 30, 2024.
38
Item 6. Exhibits
| Exhibit Number | Description of Exhibit | |||||||
| ITEM 3 — ARTICLES OF INCORPORATION AND BY-LAWS | ||||||||
| 3.1 | ||||||||
| ITEM 10 — MATERIAL CONTRACTS | ||||||||
| 10.1* | ||||||||
| 10.2*† | ||||||||
| 10.3† | ||||||||
| ITEM 31 — RULE 13a-14(a)/15d-14(a) CERTIFICATIONS | ||||||||
| 31.1† | ||||||||
| 31.2† | ||||||||
| ITEM 32 — SECTION 1350 CERTIFICATIONS | ||||||||
| 32.1† | ||||||||
| 32.2† | ||||||||
| ITEM 101 — INTERACTIVE DATA FILE | ||||||||
| 101.SCH | XBRL Taxonomy Extension Schema | |||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase | |||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase | |||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase | |||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase | |||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | |||||||
†
Filed herewith.
*
Represents management contracts and compensatory plans and arrangements.
39
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
NEWELL BRANDS INC.
Registrant |
|||||||||||
| Date: |
July 26, 2024
|
/s/ Mark J. Erceg | |||||||||
| Mark J. Erceg | |||||||||||
| Chief Financial Officer | |||||||||||
| Date: |
July 26, 2024
|
/s/ Robert A. Schmidt | |||||||||
| Robert A. Schmidt | |||||||||||
| Chief Accounting Officer | |||||||||||
40
TABLE OF CONTENTS
Part I, Item 1AprintItem 2. Unregistered Sales Of Equity Securities, Use Of Proceeds and Issuer Purchases Of Equity SecuritiesprintItem 5. Other InformationprintItem 6. ExhibitsprintItem 3 Articles Of Incorporation and By-lawsprintItem 10 Material ContractsprintItem 31 Rule 13a-14(a)/15d-14(a) CertificationsprintItem 32 Section 1350 CertificationsprintItem 101 Interactive Data Fileprint