NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Description of the Company and Summary of Significant Accounting Policies
Description of the Company and Business Segments
Kenvue Inc. (“Kenvue” or the “Company”) is a pure-play consumer health company with iconic brands including Aveeno®, BAND-AID® Brand, Johnson’s®, Listerine®, Neutrogena®, Nicorette®, Tylenol®, and Zyrtec®. The Company is organized into three reportable business segments: Self Care, Skin Health and Beauty, and Essential Health. The Self Care segment includes a broad product range such as cough, cold, and allergy; pain care; digestive health; smoking cessation; eye care; and other products. The Skin Health and Beauty segment is focused on face and body care, as well as hair, sun, and other products. The Essential Health segment includes oral care, baby care, women’s health, wound care, and other products.
Kenvue was initially formed as a wholly owned subsidiary of Johnson & Johnson (“J&J”). In November 2021, J&J announced its intention to separate its Consumer Health segment (the “Consumer Health Business”) into a new, publicly traded company (the “Separation”). In August 2023, J&J completed the Separation and Kenvue’s transition to being a fully independent company.
Pending Transaction with Kimberly-Clark
On November 2, 2025, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Kimberly-Clark Corporation, a Delaware corporation (“K-C” or, with reference to the post-closing period, the “combined company”), Vesta Sub I, Inc., a Delaware corporation and a direct wholly owned subsidiary of K-C, and Vesta Sub II, LLC, a Delaware limited liability company and a direct wholly owned subsidiary of K-C, pursuant to which K-C will acquire all of the outstanding shares of the Company in a series of transactions (the “Pending Transaction”). Pursuant to the terms and subject to the conditions of the Merger Agreement, Company shareholders will receive 1) 0.14625 shares of K-C common stock, par value $1.25 per share (the “K-C Common Stock”), plus 2) $3.50 in cash. Upon completion of the Pending Transaction, current Company shareholders are expected to own approximately 46% and current K-C shareholders are expected to own approximately 54% of the combined company on a fully diluted basis.
On January 29, 2026, Company shareholders approved the adoption of the Merger Agreement and K-C’s shareholders approved the issuance of K-C Common Stock in connection with the Pending Transaction, in each case at a special meeting of shareholders held for that purpose. Additionally, the waiting period applicable to the Pending Transaction under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, expired on February 4, 2026. The Pending Transaction remains subject to the satisfaction or waiver of other customary closing conditions, including the receipt of a number of foreign regulatory approvals.
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, the Condensed Consolidated Financial Statements reflect all adjustments, consisting of normal and recurring adjustments, necessary for a fair statement of the financial condition, results of operations, and cash flows for the periods indicated. These financial statements should be read in conjunction with the audited consolidated financial statements and related disclosures included in the Company’s Annual Report on Form 10-K for the fiscal twelve months ended December 28, 2025 filed on February 20, 2026 with the SEC.
Intercompany balances and transactions have been eliminated. The Condensed Consolidated Financial Statements include the accounts of the Company and its affiliates and entities consolidated under the variable interest and voting models.
Reclassifications
Certain prior period amounts have been reclassified to conform to current fiscal year presentation.
Use of Estimates
The preparation of the Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and revenue and expenses during the periods reported. Estimates are used when accounting for, among other things, sales discounts, trade promotions, rebates, allowances and incentives, product liabilities, income taxes and related valuation allowances, withholding taxes, pensions, postretirement benefits, fair value of financial instruments, stock-based compensation assumptions, depreciation, amortization, employee benefits, contingencies, and the valuation of goodwill, intangible assets, and liabilities. Actual results may or may not differ from those estimates.
Global and North America Headquarters
On April 20, 2023, the Company entered into a long-term lease for a newly renovated global and North America corporate headquarters building and a newly constructed research and development building in Summit, New Jersey. In March 2025, the Company began operating out of the new global and North America corporate headquarters. The relocation to this new campus from multiple U.S.-based locations will continue throughout 2026 when the new research and development building is expected to be complete by the end of 2026.
Separation-Related Costs
The Company is incurring certain non-recurring separation-related costs in connection with the establishment of Kenvue as a standalone public company (“Separation-related costs”), which are included in Cost of sales and Selling, general, and administrative expenses in the Condensed Consolidated Statements of Operations. Separation-related costs associated with information technology and other activities, primarily related to the disentanglement of systems and the discontinuance of certain information technology assets, are substantially completed. Costs related to legal entity name changes as well as minimal costs related to other activities are expected to continue for a longer period than originally anticipated.
Separation-related costs for the fiscal three months ended March 29, 2026 and March 30, 2025 consisted of:
| | | | | | | | | | | | | | | | | | | | |
| | | | Fiscal Three Months Ended |
| (Dollars in Millions) | | | | | | March 29, 2026 | | March 30, 2025 | | |
Information technology and other(1) | | | | | | $ | — | | | $ | 33 | | | |
Legal entity name change | | | | | | 3 | | | 5 | | | |
Total Separation-related costs | | | | | | $ | 3 | | | $ | 38 | | | |
(1) Primarily related to the disentanglement of systems and the costs associated with the discontinuation of certain information technology assets.
Research and Development
Research and development expenses are expensed as incurred and included in Selling, general, and administrative expenses in the Condensed Consolidated Statements of Operations. Research and development expenses were $84 million and $99 million for the fiscal three months ended March 29, 2026 and March 30, 2025, respectively.
Supplier Finance Program
As of March 29, 2026 and December 28, 2025, the Company’s Accounts payable balances included $337 million and $314 million, respectively, related to invoices from suppliers participating in the supplier finance program.
Net Economic Benefit Arrangements
In connection with the Separation, J&J and Kenvue entered into a separation agreement (the “Separation Agreement”) on May 3, 2023. Under the Separation Agreement, transfer of certain assets and liabilities of the Consumer Health Business in certain jurisdictions (each, a “Deferred Local Business”) was not completed prior to the date on which Kenvue completed its initial public offering (the “Kenvue IPO”) on May 8, 2023 and was deferred due to certain precedent conditions, which include ensuring compliance with applicable law and obtaining necessary governmental approvals and other consents, and for other business reasons. At the Kenvue IPO and until the Deferred Local Business transfers to the Company, J&J 1) holds and
operates the Deferred Local Businesses on behalf of and for the benefit of the Company and 2) will use reasonable best efforts to treat and operate, insofar as reasonably practicable and to the extent permitted by applicable law, each such Deferred Local Business in the ordinary course of business in all material respects consistent with past practice. The benefits and costs related to these Deferred Local Businesses will be assumed by the Company. In addition, the Company and J&J will use reasonable best efforts to take all actions to transfer each Deferred Local Business as promptly as reasonably practicable. When the precedent conditions are met, the Deferred Local Businesses will be transferred as per the terms of the arrangement with J&J.
With respect to certain Deferred Local Businesses that are legal entities and the Deferred Local Businesses that are not legal entities (“Deferred Markets”), the Company and J&J entered into net economic benefit arrangements effective on April 4, 2023, pursuant to which, among other things, J&J will transfer to the Company the net profits from the operations of each of the Deferred Markets (or, in the event the operations of any such Deferred Markets result in net losses to J&J, the Company will reimburse J&J for the amount of such net losses).
The Company had a net liability to J&J of $55 million and $44 million as of March 29, 2026 and December 28, 2025, respectively, in relation to the net economic benefit arrangements on the Condensed Consolidated Balance Sheets. The Company recognized Net income of $5 million and $8 million for the fiscal three months ended March 29, 2026 and March 30, 2025, respectively, in relation to the net economic benefit arrangements in the Condensed Consolidated Statements of Operations.
Recent Accounting Standards Not Yet Adopted
Accounting Standards Update (“ASU”) 2024-03—Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses
In November 2024, the Financial Accounting Standards Board (the “FASB”) issued ASU 2024-03—Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”). Among other various new disclosures, ASU 2024-03 requires public business entities to disaggregate operating expenses included in certain expense captions presented on the face of the income statement into specific categories (including purchases of inventory, employee compensation, depreciation, and intangible asset amortization) to provide enhanced transparency into the nature of expenses. This guidance is effective for public business entities for fiscal years beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027. Companies are required to apply the amendments either 1) prospectively to financial statements issued for reporting periods after the effective date of this ASU or 2) retrospectively to all periods presented in the financial statements. Early adoption is permitted. The Company is currently evaluating this guidance and the impact on its disclosures.
ASU 2025-06—Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software
In September 2025, the FASB issued ASU 2025-06—Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software (“ASU 2025-06”). ASU 2025-06 simplifies capitalization guidance by removing all references to software development project stages so that the guidance is neutral to different software development methods. The amendment requires entities to start capitalizing software costs when both of the following occur: 1) management has authorized and committed to funding the software project and 2) it is probable that the project will be completed and the software will be used to perform the function intended. This guidance is effective for all entities for fiscal years beginning after December 15, 2027, and for interim periods within those fiscal years. Companies are permitted to apply the amendments using a prospective, retrospective, or modified transition approach. Early adoption is permitted. The Company is currently evaluating this guidance and the impact on its financial statements and related disclosures.
ASU 2025-09—Derivatives and Hedging (Topic 815): Hedge Accounting Improvements
In November 2025, the FASB issued ASU 2025-09—Derivatives and Hedging (Topic 815): Hedge Accounting Improvements (“ASU 2025-09”). The amendments included in the five issues addressed in ASU 2025-09 are intended to more closely align hedge accounting with the economics of an entity’s risk management activities and to simplify the application of certain existing hedge accounting guidance. This guidance is effective for all public business entities for fiscal years beginning after December 15, 2026, and for interim periods within those fiscal years. Companies are required to apply the amendments prospectively and may elect to adopt the amendments for hedging relationships that exist as of the date of adoption. Early adoption is permitted. The Company is currently evaluating this guidance and the impact on its financial statements and related disclosures.
No other new accounting standards that were issued or became effective during the fiscal three months ended March 29, 2026 had, or are expected to have, a significant impact on the Condensed Consolidated Financial Statements.
2. Inventories
As of March 29, 2026 and December 28, 2025, Inventories consisted of:
| | | | | | | | | | | | | | |
| (Dollars in Millions) | | March 29, 2026 | | December 28, 2025 |
| Raw materials and supplies | | $ | 299 | | | $ | 275 | |
Goods in process | | 92 | | | 103 | |
| Finished goods | | 1,283 | | | 1,288 | |
| Total inventories | | $ | 1,674 | | | $ | 1,666 | |
3. Intangible Assets and Goodwill
As of March 29, 2026 and December 28, 2025, the gross and net amounts of intangible assets were:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | March 29, 2026 | | December 28, 2025 |
| (Dollars in Millions) | | | | | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| Definite-lived intangible assets: | | | | | | | | | | | | | | | | |
| Patents and trademarks | | | | | | $ | 4,328 | | | $ | (2,061) | | | $ | 2,267 | | | $ | 4,406 | | | $ | (2,054) | | | $ | 2,352 | |
| Customer relationships | | | | | | 2,025 | | | (1,174) | | | 851 | | | 2,049 | | | (1,178) | | | 871 | |
| Other intangibles | | | | | | 1,319 | | | (764) | | | 555 | | | 1,329 | | | (760) | | | 569 | |
| Total definite-lived intangible assets | | | | | | $ | 7,672 | | | $ | (3,999) | | | $ | 3,673 | | | $ | 7,784 | | | $ | (3,992) | | | $ | 3,792 | |
| Indefinite-lived intangible assets: | | | | | | | | | | | | | | | | |
| Trademarks | | | | | | $ | 4,805 | | | $ | — | | | $ | 4,805 | | | $ | 4,840 | | | $ | — | | | $ | 4,840 | |
| Other | | | | | | 62 | | | — | | | 62 | | | 62 | | | — | | | 62 | |
| Total intangible assets, net | | | | | | $ | 12,539 | | | $ | (3,999) | | | $ | 8,540 | | | $ | 12,686 | | | $ | (3,992) | | | $ | 8,694 | |
Gross carrying amount changes for the fiscal three months ended March 29, 2026 were driven by the impact of currency translations.
No intangible asset impairments were recognized for both the fiscal three months ended March 29, 2026 and March 30, 2025.
Amortization expense for the Company’s amortizable assets, which is included in Cost of sales, was $65 million and $63 million for the fiscal three months ended March 29, 2026 and March 30, 2025, respectively.
The following table summarizes the changes in the carrying amount of goodwill by reportable business segment during the fiscal three months ended March 29, 2026:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in Millions) | | | | | | Self Care | | Skin Health and Beauty | | Essential Health | | Total Goodwill |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| December 28, 2025 | | | | | | $ | 5,562 | | | $ | 2,263 | | | $ | 1,684 | | | $ | 9,509 | |
| Currency translation | | | | | | (86) | | | (33) | | | (14) | | | (133) | |
| March 29, 2026 | | | | | | $ | 5,476 | | | $ | 2,230 | | | $ | 1,670 | | | $ | 9,376 | |
Goodwill Impairment Tests
For the fiscal twelve months ended December 28, 2025, the Company completed its annual goodwill impairment tests and performed a qualitative assessment on each of the reporting units on the annual test date and concluded that no impairment to goodwill was necessary as it was more likely than not that the estimated fair value of each reporting unit was in excess of its respective carrying value.
In addition to the qualitative assessment performed as of the annual test date for the fiscal twelve months ended December 28, 2025, there was a reassessment of the long-term outlook for the Skin Health and Beauty business during the fiscal three months ended September 28, 2025. The revised outlook aimed to address slower growth in the broader skincare categories, as well as the recent decline in profitability of the Skin Health and Beauty reporting unit. Management revised the internal forecasts to reflect the updated outlook. These changes in circumstances were determined to be a triggering event, which resulted in a quantitative interim impairment assessment of the fair value of the Skin Health and Beauty reporting unit. The Company also elected to perform a quantitative interim impairment assessment for the Self Care and Essential Health reporting units in conjunction with the assessment performed for the Skin Health and Beauty reporting unit, which were the latest quantitative impairment assessments performed.
Based on the results of the assessment, the estimated fair value of the Skin Health and Beauty reporting unit exceeded the carrying value by approximately 10%; therefore, no impairment charge was recorded for the fiscal three months ended September 28, 2025. If all other assumptions were held constant, an increase of approximately 100 basis points in the selected discount rate would have resulted in an impairment charge. No impairment to goodwill was necessary for any of the Company’s reporting units, as the estimated fair value of each reporting unit exceeded its respective carrying value.
A decline in forecasted Net sales or net income, or adverse macroeconomic developments such as rising interest rates, could significantly reduce the excess between fair value and carrying value. Management continues to monitor the performance of the Skin Health and Beauty business; further deterioration of market conditions or an inability of the Company to execute on its strategies could lead to an impairment charge of the goodwill associated with the Skin Health and Beauty reporting unit in the future.
4. Borrowings
The components of the Company’s debt as of March 29, 2026 and December 28, 2025 were as follows:
| | | | | | | | | | | | | | | | | | | | |
| (Dollars in Millions) | | | | | | | | March 29, 2026 | | December 28, 2025 |
Senior Notes(1) | | | | | | | | | | |
5.35% Senior Notes due 2026 | | | | | | | | $ | — | | | $ | 750 | |
5.05% Senior Notes due 2028 | | | | | | | | 1,000 | | | 1,000 | |
5.00% Senior Notes due 2030 | | | | | | | | 1,000 | | | 1,000 | |
4.85% Senior Notes due 2032 | | | | | | | | 750 | | | 750 | |
4.90% Senior Notes due 2033 | | | | | | | | 1,250 | | | 1,250 | |
5.10% Senior Notes due 2043 | | | | | | | | 750 | | | 750 | |
5.05% Senior Notes due 2053 | | | | | | | | 1,500 | | | 1,500 | |
5.20% Senior Notes due 2063 | | | | | | | | 750 | | | 750 | |
Other(2) | | | | | | | | 133 | | | 134 | |
| Discounts and debt issuance costs | | | | | | | | (61) | | | (63) | |
| Total | | | | | | | | 7,072 | | | 7,821 | |
| Less: Current portion of long-term debt—principal amount, net of discounts and debt issuance costs | | | | | | | | — | | | (750) | |
| Total long-term debt | | | | | | | | 7,072 | | | 7,071 | |
| Current portion of long-term debt—principal amount | | | | | | | | — | | | 750 | |
| Commercial paper | | | | | | | | 1,586 | | | 700 | |
| Discounts and debt issuance costs | | | | | | | | (8) | | | (2) | |
| Other | | | | | | | | 11 | | | 5 | |
| Total loans and notes payable | | | | | | | | 1,589 | | | 1,453 | |
| Total debt | | | | | | | | $ | 8,661 | | | $ | 8,524 | |
(1) On May 22, 2025, the Company issued a series of senior unsecured notes maturing in 2032 in an aggregate principal amount of $750 million. These notes, collectively with the series of senior unsecured notes issued on March 22, 2023, are referred to as the “Senior Notes.”
(2) Other consists primarily of finance lease liabilities.
Interest Expense, Net
The amount included in Interest expense, net in the Condensed Consolidated Statements of Operations for the fiscal three months ended March 29, 2026 and March 30, 2025 consisted of the following:
| | | | | | | | | | | | | | | | | | |
| | | | Fiscal Three Months Ended |
| (Dollars in Millions) | | | | | | March 29, 2026 | | March 30, 2025 |
| Interest expense | | | | | | $ | 106 | | | $ | 107 | |
Interest income | | | | | | (11) | | | (13) | |
| Total interest expense, net | | | | | | $ | 95 | | | $ | 94 | |
Fair Value of Debt
The Company’s debt was recorded at the carrying amount. The estimated fair value of the Company’s Senior Notes was $6.7 billion and $7.6 billion as of March 29, 2026 and December 28, 2025, respectively. Fair value was estimated based upon quoted market prices in active markets which would be considered Level 2 in the fair value hierarchy. The carrying value of the commercial paper notes approximated the fair value as of March 29, 2026 and December 28, 2025 due to the nature and short-term duration of the instrument.
5. Accrued and Other Liabilities
As of March 29, 2026 and December 28, 2025, Accrued liabilities and Other liabilities, respectively, consisted of:
| | | | | | | | | | | | | | |
| (Dollars in Millions) | | March 29, 2026 | | December 28, 2025 |
| Accrued expenses | | $ | 412 | | | $ | 428 | |
| Accrued compensation and benefits | | 219 | | | 343 | |
Operating lease liabilities | | 42 | | | 43 | |
Tax indemnification liability(1) | | 31 | | | 22 | |
Other accrued liabilities | | 197 | | | 323 | |
Total accrued liabilities | | $ | 901 | | | $ | 1,159 | |
| | | | | | | | | | | | | | |
| (Dollars in Millions) | | March 29, 2026 | | December 28, 2025 |
| Accrued income taxes | | $ | 241 | | | $ | 219 | |
| Operating lease liabilities | | 99 | | | 107 | |
Tax indemnification liability(1) | | 129 | | | 135 | |
Other accrued liabilities | | 110 | | | 140 | |
| Total other liabilities | | $ | 579 | | | $ | 601 | |
(1) The balances primarily relate to the Tax Matters Agreement (as defined in Note 8, “Relationship with J&J—Transactions with J&J, Including the Separation Agreement”) entered into with J&J on May 3, 2023 that governs the parties’ respective rights, responsibilities, and obligations with respect to tax liabilities and benefits, tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings, and other matters regarding taxes.
6. Accumulated Other Comprehensive Loss
The following tables summarize the changes in the accumulated balances for each component of Accumulated other comprehensive loss during the fiscal three months ended March 29, 2026 and March 30, 2025:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in Millions) | | Foreign Currency Translation | | Employee Benefit Plans | | Gain on Derivatives and Hedges(1) | | | | Total Accumulated Other Comprehensive Loss |
| December 28, 2025 | | $ | (4,862) | | | $ | (125) | | | $ | 28 | | | | | $ | (4,959) | |
| Other comprehensive (loss) income before reclassifications | | (232) | | | 1 | | | (10) | | | | | (241) | |
Amounts reclassified to the Condensed Consolidated Statement of Operations | | — | | | — | | | (6) | | | | | (6) | |
| Net current period Other comprehensive (loss) income | | (232) | | | 1 | | | (16) | | | | | (247) | |
| March 29, 2026 | | $ | (5,094) | | | $ | (124) | | | $ | 12 | | | | | $ | (5,206) | |
| | | | | | | | | | |
| December 29, 2024 | | $ | (6,040) | | | $ | (130) | | | $ | 24 | | | | | $ | (6,146) | |
| Other comprehensive income (loss) before reclassifications | | 452 | | | (4) | | | (5) | | | | | 443 | |
Amounts reclassified to the Condensed Consolidated Statement of Operations | | — | | | 1 | | | 3 | | | | | 4 | |
| Net current period Other comprehensive income (loss) | | 452 | | | (3) | | | (2) | | | | | 447 | |
| March 30, 2025 | | $ | (5,588) | | | $ | (133) | | | $ | 22 | | | | | $ | (5,699) | |
(1) For the fiscal three months ended March 29, 2026 and March 30, 2025, the Company recorded a total after-tax change in Accumulated other comprehensive loss of $(16) million and $(2) million, respectively, related to its cash flow hedge portfolio.
Amounts in Accumulated other comprehensive loss are presented net of the related tax impact. Foreign currency translation is not adjusted for income taxes where it relates to permanent investments in international operations. For additional details on comprehensive income, see the Condensed Consolidated Statements of Comprehensive Income.
The provision (benefit) for taxes allocated to the components of Accumulated other comprehensive loss before reclassification for the fiscal three months ended March 29, 2026 and March 30, 2025 was as follows:
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| | | | | | | | | | | | | | | | Fiscal Three Months Ended |
| (Dollars in Millions) | | | | | | | | | | | | | | | | | | March 29, 2026 | | March 30, 2025 | | |
| Foreign currency translation | | | | | | | | | | | | | | | | | | $ | 10 | | | $ | (9) | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Gain on derivatives and hedges | | | | | | | | | | | | | | | | | | (3) | | | (1) | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Total provision (benefit) for taxes recognized in Accumulated other comprehensive loss | | | | | | | | | | | | | | | | | | $ | 7 | | | $ | (10) | | | |
The provision (benefit) for taxes allocated to employee benefit plans before reclassifications was not significant for the fiscal three months ended March 29, 2026 and March 30, 2025. The provision (benefit) for taxes allocated to the reclassifications from Accumulated other comprehensive loss to the Condensed Consolidated Statements of Operations was not significant for the fiscal three months ended March 29, 2026 and March 30, 2025.
7. Stock-Based Compensation
The classification of stock-based compensation expense for the fiscal three months ended March 29, 2026 and March 30, 2025 was as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | | Fiscal Three Months Ended |
| (Dollars in Millions) | | | | | | March 29, 2026 | | March 30, 2025 | | |
Cost of sales | | | | | | $ | 5 | | | $ | 8 | | | |
Selling, general, and administrative expenses | | | | | | 24 | | | 36 | | | |
Total stock-based compensation expense | | | | | | $ | 29 | | | $ | 44 | | | |
Grant activity for the fiscal three months ended March 29, 2026 primarily relates to restricted stock units awarded as part of the annual grant of stock-based awards under the 2023 Long-Term Incentive Plan (the “Kenvue 2023 Plan”) that occurred during the fiscal three months ended March 29, 2026.
8. Relationship with J&J
On August 23, 2023, Kenvue became a fully independent company upon the completion of an exchange offer (the “Exchange Offer”) through which certain J&J shareholders exchanged shares of J&J common stock for shares of Kenvue common stock owned by J&J. The Company continues to have material agreements with J&J—see “—Transactions with J&J, Including the Separation Agreement” section within this footnote for additional details of these material agreements that govern the Company’s relationship with J&J.
Transactions with J&J, Including the Separation Agreement
In connection with the Separation, Kenvue entered into various agreements with J&J which created a framework for the Company’s ongoing relationship with J&J following the completion of the Kenvue IPO. These agreements include, but are not limited to:
•the Separation Agreement, which governs aspects of Kenvue’s relationship with J&J following the Kenvue IPO;
•the tax matters agreement (the “Tax Matters Agreement”), which governs J&J’s and Kenvue’s respective rights, responsibilities, and obligations with respect to all tax matters, including tax liabilities, tax attributes, tax contests, and tax returns and remains in effect following the Kenvue IPO;
•a transition services agreement (the “Transition Services Agreement”), pursuant to which J&J provides to Kenvue certain services for terms of varying duration following the Kenvue IPO; and
•a transition manufacturing agreement (the “Transition Manufacturing Agreement”), pursuant to which J&J provides to Kenvue certain manufacturing services for terms of varying duration following the Kenvue IPO.
The Company had the following balances and transactions with J&J and its affiliates, primarily in connection with the Tax Matters Agreement, Transition Services Agreement, and the Transition Manufacturing Agreement, reported in the Condensed Consolidated Financial Statements:
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| (Dollars in Millions) | | | | | | March 29, 2026 | | December 28, 2025 |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Due to J&J | | | | | | $ | 291 | | | $ | 275 | |
Due from J&J | | | | | | $ | 149 | | | $ | 112 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | Fiscal Three Months Ended |
| (Dollars in Millions) | | | | | | March 29, 2026 | | March 30, 2025 | | |
Expense recognized in Cost of sales | | | | | | $ | 29 | | | $ | 47 | | | |
(Income) expense recognized in Selling, general, and administrative expenses | | | | | | $ | (6) | | | $ | 15 | | | |
| | | | | | | | | | |
In April 2025, the Company completed its Transition Services Agreement program. Consistent with the program’s plan, the Company finalized the exit of more than 2,300 transition services.
9. Other Operating Expense, Net and Other Expense, Net
Other operating expense, net for the fiscal three months ended March 29, 2026 and March 30, 2025 consisted of:
| | | | | | | | | | | | | | | | | | | | |
| | | | Fiscal Three Months Ended |
| (Dollars in Millions) | | | | | | March 29, 2026 | | March 30, 2025 | | |
| | | | | | | | | | |
| Royalty income | | | | | | $ | (5) | | | $ | (4) | | | |
| | | | | | | | | | |
Impact of Deferred Markets(1) | | | | | | 6 | | | 12 | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Other(2) | | | | | | 10 | | | 5 | | | |
| Total other operating expense, net | | | | | | $ | 11 | | | $ | 13 | | | |
(1) Includes the provision for taxes, minority interest expense, and service fees to be paid to J&J under the net economic benefit arrangements. See Note 1, “Description of the Company and Summary of Significant Accounting Policies—Net Economic Benefit Arrangements,” for more information regarding Deferred Markets.
(2) Other consists primarily of other miscellaneous operating (income) expenses.
Other expense, net for the fiscal three months ended March 29, 2026 and March 30, 2025 consisted of:
| | | | | | | | | | | | | | | | | | | | |
| | | | Fiscal Three Months Ended |
| (Dollars in Millions) | | | | | | March 29, 2026 | | March 30, 2025 | | |
| Currency losses on transactions | | | | | | $ | — | | | $ | 6 | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Total other expense, net | | | | | | $ | — | | | $ | 6 | | | |
10. Income Taxes
For interim financial statement purposes, U.S. GAAP provision (benefit) for taxes related to ordinary income is determined by applying an estimated annual effective income tax rate against a company’s ordinary income, subject to certain limitations on the benefit of losses. Provision (benefit) for taxes related to items not characterized as ordinary income is recognized as a discrete item when incurred. The estimation of the Company’s income tax provision requires the use of management forecasts and other estimates, the application of statutory income tax rates, and an evaluation of valuation allowances. The Company’s estimated annual effective income tax rate may be revised, if necessary, in each interim period.
The worldwide effective income tax rates were 29.5% and 29.7% for the fiscal three months ended March 29, 2026 and March 30, 2025, respectively. The decrease in the effective tax rate for the fiscal three months ended March 29, 2026 as compared to the fiscal three months ended March 30, 2025 was primarily the result of changes to the jurisdictional mix of income and favorable impacts to U.S. tax on foreign earnings attributable to the prior year enactment of the One Big Beautiful Bill Act
which became effective in the current year, partially offset by an increase in unfavorable return-to-provision adjustments and a shortfall on stock-based compensation recorded during the fiscal three months ended March 29, 2026 as compared to a windfall on stock-based compensation recorded during the fiscal three months ended March 30, 2025.
As of March 29, 2026, the Company had approximately $227 million of liabilities from unrecognized tax benefits. The Company conducts business and files tax returns in numerous countries. With respect to the United States, per the Tax Matters Agreement between J&J and the Company, J&J remains liable for all liabilities related to the final settlement of any U.S. federal income tax audits in which the Company was part of J&J’s federal consolidated tax return. In other major jurisdictions where the Company conducts business, the years that are under tax audit or remain open to tax audits range from 2015 and forward.
The Company has included the impact of enacted legislation related to the Organization for Economic Co-operation and Development’s (the “OECD”) Pillar Two Inclusive Framework (“Pillar Two”) in its provision for taxes beginning in fiscal year 2024. While the impact of currently enacted laws for Pillar Two is not significant, it is possible that further administrative guidance from the OECD or new legislation in countries where the Company operates could have a material effect on the Company’s provision for taxes in the future. In addition, in January 2025, the United States issued an executive order expressing disagreement with certain aspects of Pillar Two. In June 2025, the Group of Seven issued a statement supporting the exclusion of U.S.-parented groups from certain aspects of Pillar Two in exchange for the United States not imposing certain retaliatory taxes. On January 5, 2026, the OECD announced the Side-by-Side (“SbS”) package, implemented as administrative guidance and modifying the operation of the Pillar Two rules. The package introduces simplifications and new safe harbors for U.S. and other multinational companies where domestic and international tax systems meet robust requirements to coexist with Pillar Two, which would fully exempt U.S.-parented groups from the application of the Income Inclusion Rule and Undertaxed Profits Rule Pillar Two top up taxes. The SbS package also extends the current Transitional Country-by-Country Reporting Safe Harbor by one year. The SbS package is not expected to have a material impact on the Company’s effective tax rate. The Company will continue to monitor any additional changes to Pillar Two.
11. Net Income Per Share
The Company had 1,940,321,506 shares of common stock issued and 1,919,934,784 shares of common stock outstanding as of March 29, 2026.
Diluted net income per share is computed by giving effect to all potentially dilutive equity instruments or equity awards that are outstanding during the period. The following table summarizes the shares held by the Company that were determined to be anti-dilutive under the treasury stock method and therefore excluded from the diluted net income per share calculation during the fiscal three months ended March 29, 2026 and March 30, 2025:
| | | | | | | | | | | | | | | | | | | | |
| | | | Fiscal Three Months Ended |
(Shares in Millions) | | | | | | March 29, 2026 | | March 30, 2025 | | |
Anti-dilutive shares(1) | | | | | | 63 | | | 42 | | | |
(1) For the fiscal three months ended March 29, 2026 and March 30, 2025, the majority of anti-dilutive shares related to stock options.
Net income per share for the fiscal three months ended March 29, 2026 and March 30, 2025 was calculated as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | | Fiscal Three Months Ended |
(In Millions, Except Per Share Data) | | | | | | March 29, 2026 | | March 30, 2025 | | |
| Net income | | | | | | $ | 474 | | | $ | 322 | | | |
| | | | | | | | | | |
| Basic weighted-average number of shares outstanding | | | | | | 1,918 | | | 1,914 | | | |
Dilutive effects of stock-based awards | | | | | | 4 | | | 11 | | | |
| Diluted weighted-average number of shares outstanding | | | | | | 1,922 | | | 1,925 | | | |
| | | | | | | | | | |
| Net income per share: | | | | | | | | | | |
| Basic | | | | | | $ | 0.25 | | | $ | 0.17 | | | |
| Diluted | | | | | | $ | 0.25 | | | $ | 0.17 | | | |
12. Fair Value Measurements
Fair value measurements are estimated based on valuation techniques and inputs categorized as follows:
•Level 1—Quoted prices in active markets for identical assets or liabilities
•Level 2—Significant other observable inputs
•Level 3—Significant unobservable inputs
If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
The following fair value hierarchy table presents the components and classification of the Company’s financial assets and liabilities measured at fair value on a recurring basis as of March 29, 2026 and December 28, 2025:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | March 29, 2026 | | December 28, 2025 |
| (Dollars in Millions) | | | | | | Carrying Value | | Level 1 | | Level 2 | | Level 3 | | Carrying Value | | Level 1 | | Level 2 | | Level 3 |
| Assets: | | | | | | | | | | | | | | | | | | | | |
| Forward foreign exchange contracts | | | | | | $ | 50 | | | $ | — | | | $ | 50 | | | $ | — | | | $ | 73 | | | $ | — | | | $ | 73 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | |
| Cross currency swap contracts | | | | | | 36 | | | — | | | 36 | | | — | | | 20 | | | — | | | 20 | | | — | |
| Total assets | | | | | | $ | 86 | | | $ | — | | | $ | 86 | | | $ | — | | | $ | 93 | | | $ | — | | | $ | 93 | | | $ | — | |
| Liabilities: | | | | | | | | | | | | | | | | | | | | |
| Forward foreign exchange contracts | | | | | | $ | (66) | | | $ | — | | | $ | (66) | | | $ | — | | | $ | (63) | | | $ | — | | | $ | (63) | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | |
| Cross currency swap contracts | | | | | | (64) | | | — | | | (64) | | | — | | | (111) | | | — | | | (111) | | | — | |
| Total liabilities | | | | | | $ | (130) | | | $ | — | | | $ | (130) | | | $ | — | | | $ | (174) | | | $ | — | | | $ | (174) | | | $ | — | |
| Net amount presented in Prepaid expenses and other receivables: | | | | | | $ | 16 | | | $ | — | | | $ | 16 | | | $ | — | | | $ | 22 | | | $ | — | | | $ | 22 | | | $ | — | |
| Net amount presented in Accounts payable: | | | | | | $ | (53) | | | $ | — | | | $ | (53) | | | $ | — | | | $ | (59) | | | $ | — | | | $ | (59) | | | $ | — | |
| Net amount presented in Other assets: | | | | | | $ | 9 | | | $ | — | | | $ | 9 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Net amount presented in Other liabilities: | | | | | | $ | (16) | | | $ | — | | | $ | (16) | | | $ | — | | | $ | (44) | | | $ | — | | | $ | (44) | | | $ | — | |
As of March 29, 2026 and December 28, 2025, cash equivalents were $107 million and $79 million, respectively, which were primarily composed of time deposits and money market funds.
The carrying amount of Cash and cash equivalents, Trade receivables, Prepaid expenses and other receivables, and Loans and notes payable approximated fair value as of March 29, 2026 and December 28, 2025. The fair value of forward foreign exchange contracts is the aggregation by currency of all future cash flows discounted to its present value at the prevailing
market interest rates and subsequently converted to the U.S. dollar at the current spot foreign exchange rate. The cross currency swap contracts are each recorded at fair value derived from observable market data, including foreign exchange rates and yield curves.
There were no transfers between Level 1, Level 2, or Level 3 during the fiscal three months ended March 29, 2026 and the fiscal twelve months ended December 28, 2025.
The following table sets forth the notional amounts of the Company’s outstanding derivative instruments as of March 29, 2026 and December 28, 2025:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | March 29, 2026 | | December 28, 2025 |
| (Dollars in Millions) | | | | | | Forward Foreign Exchange Contracts | | | | Cross Currency Swap Contracts | | Total Notional Amount | | Forward Foreign Exchange Contracts | | | | Cross Currency Swap Contracts | | Total Notional Amount |
Cash flow hedges | | | | | | $ | 2,882 | | | | | $ | — | | | $ | 2,882 | | | $ | 3,422 | | | | | $ | — | | | $ | 3,422 | |
| Fair value hedges | | | | | | $ | 322 | | | | | $ | — | | | $ | 322 | | | $ | 296 | | | | | $ | — | | | $ | 296 | |
| Net investment hedges | | | | | | $ | — | | | | | $ | 2,000 | | | $ | 2,000 | | | $ | — | | | | | $ | 2,000 | | | $ | 2,000 | |
| Undesignated hedging instruments | | | | | | $ | 612 | | | | | $ | — | | | $ | 612 | | | $ | 502 | | | | | $ | — | | | $ | 502 | |
Cash Flow Hedges
For the fiscal three months ended March 29, 2026 and March 30, 2025, the Company recorded a total after-tax change in Accumulated other comprehensive loss of $(16) million and $(2) million, respectively, related to its cash flow hedge portfolio.
Forward Foreign Exchange Contracts
In certain jurisdictions, the Company uses forward foreign exchange contracts to manage its exposure to the variability of foreign exchange rates. Changes in the fair value of derivatives are recorded each period in earnings or Other comprehensive (loss) income, depending on whether the derivative is designated as part of a hedge transaction, and if so, the type of hedge transaction.
The Company enters into forward foreign exchange contracts to hedge a portion of forecasted cash flows denominated in foreign currency. The terms of these contracts are generally no longer than 12 to 18 months. These contracts are designated as cash flow hedging relationships at the date of contract inception, in accordance with the appropriate accounting guidance. At inception, all designated hedging relationships are expected to be highly effective. These contracts are accounted for using the forward method, and all gains/losses associated with these contracts are recorded in Other comprehensive (loss) income. The Company reclassifies the gains and losses related to these contracts at the time the inventory is sold to the customer into Net sales or Cost of sales and Other expense, net in the Condensed Consolidated Statements of Operations, as applicable.
The Company expects that substantially all of the amounts related to forward foreign exchange contracts will be reclassified into earnings over the next 12 months as a result of transactions that are expected to occur over that period. The maximum length of time over which the Company is hedging transactional exposure is 18 months. The amount ultimately realized in earnings may differ as foreign exchange rates change. Realized gains and losses are ultimately determined by actual exchange rates at maturity of the derivative.
The following table summarizes the gains and losses recognized on forward foreign exchange contracts designated as cash flow hedges within Other comprehensive (loss) income and the gains and losses reclassified into earnings for the fiscal three months ended March 29, 2026 and March 30, 2025:
| | | | | | | | | | | | | | | | | | | |
| | | | Fiscal Three Months Ended | |
(Dollars in Millions) | | | | | | March 29, 2026 | | March 30, 2025 | |
| Loss recognized in Other comprehensive (loss) income | | | | | | $ | (13) | | | $ | (6) | | |
| Gain (loss) reclassified from Other comprehensive (loss) income into earnings | | | | | | $ | 7 | | | $ | (4) | | |
The following table summarizes the gains and losses reclassified from Other comprehensive (loss) income into earnings related to the forward foreign exchange contracts designated as cash flow hedges for the fiscal three months ended March 29, 2026 and March 30, 2025:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Three Months Ended | |
| | March 29, 2026 | | March 30, 2025 | |
| (Dollars in Millions) | | Net Sales | | Cost of Sales | | Other Expense, Net | | Net Sales | | Cost of Sales | | Other Expense, Net | |
| Gain (loss) reclassified from Other comprehensive (loss) income into earnings | | $ | — | | | $ | 1 | | | $ | 6 | | | $ | — | | | $ | (11) | | | $ | 7 | | |
Fair Value Hedges
Forward Foreign Exchange Contracts
The Company entered into forward foreign exchange contracts beginning in the fiscal three months ended March 31, 2024 to hedge against the risk of changes in the fair value of foreign-denominated intercompany debt attributable to foreign exchange rate fluctuations. These contracts are designated as fair value hedging relationships at the date of contract inception, in accordance with the appropriate accounting guidance. At inception, all designated fair value hedging relationships are expected to be highly effective. The contracts are accounted for using the spot method with changes in the fair value of the contract attributable to the changes in spot rates recorded within Other expense, net in the Condensed Consolidated Statements of Operations. The Company has elected to exclude the changes in the fair value attributable to the difference between the spot price and the forward price, as well as any cross currency basis spread, from the assessment of hedge effectiveness (the “Excluded Components”). The value of the Excluded Components was not significant to the Condensed Consolidated Financial Statements in the current fiscal period or prior fiscal period. The changes in fair value attributable to the Excluded Components are recorded in Accumulated other comprehensive loss and are recognized in Other expense, net in the Condensed Consolidated Statements of Operations on a systematic and rational basis over the life of the hedging instrument.
Net Investment Hedges
Cross Currency Swap Contracts
Beginning in the fiscal three months ended December 31, 2023, the Company entered into cross currency swap contracts to hedge exposure in foreign subsidiaries with local functional currencies. These contracts are designated as net investment hedges at the date of contract inception, in accordance with the appropriate accounting guidance. These contracts are accounted for using the spot method with changes in the fair value of the contracts attributable to changes in spot rates recorded within Cumulative Translation Adjustments (“CTA”) as a component of Other comprehensive (loss) income and will remain there until the hedged net investments are sold or substantially liquidated. The Company has elected to exclude the changes in the fair value attributable to time value and spot-forward rate differences (the “Excluded Net Investment Hedge Components on Cross Currency Swap Contracts”) from the assessment of the hedge effectiveness. The value of the Excluded Net Investment Hedge Components on Cross Currency Swap Contracts was not significant to the Condensed Consolidated Financial Statements in the current fiscal period or prior fiscal period. The changes in fair value attributable to the Excluded Net Investment Hedge Components on Cross Currency Swap Contracts are recognized into Interest expense, net in the Condensed Consolidated Statements of Operations on a systematic and rational basis through the swap accrual over the life of the hedging instrument.
The following table summarizes the gains and losses recognized within Other comprehensive (loss) income related to the cross currency swap contracts designated as net investment hedges for the fiscal three months ended March 29, 2026 and March 30, 2025:
| | | | | | | | | | | | | | | | | | | | | |
| | | | Fiscal Three Months Ended | |
(Dollars in Millions) | | | | | | March 29, 2026 | | March 30, 2025 | | | |
| Gain (loss) recognized in CTA within Other comprehensive (loss) income | | | | | | $ | 36 | | | $ | (56) | | | | |
Other than amounts excluded from effectiveness testing, the Company did not reclassify any gains or losses from CTA within Other comprehensive (loss) income to earnings during the fiscal three months ended March 29, 2026 and March 30, 2025 related to the cross currency swap contracts designated as net investment hedges.
Undesignated Hedging Instruments
Undesignated Forward Foreign Exchange Contracts
The Company enters into forward foreign exchange contracts to offset the foreign currency exposure related to the monetary assets and liabilities in non-functional currencies. These contracts are not designated as cash flow hedging relationships, and the net allocated gains and losses related to these contracts are recognized within Other expense, net in the Condensed Consolidated Statements of Operations. As of March 29, 2026 and December 28, 2025, the Company held forward foreign exchange contracts that were not designated in cash flow hedging relationships with a fair value of $2 million and $0 million, respectively.
The following table summarizes the gains and losses recognized within Other expense, net related to the undesignated forward foreign exchange contracts for the fiscal three months ended March 29, 2026 and March 30, 2025:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Fiscal Three Months Ended | | | | | | | | | | | | | | |
(Dollars in Millions) | | | | | | March 29, 2026 | | March 30, 2025 | | | | | | | | | | |
| Gain recognized in Other expense, net | | | | | | $ | 2 | | | $ | — | | | | | | | | | | | | | | | |
Effectiveness
On an ongoing basis, the Company assesses whether each derivative continues to be highly effective in offsetting changes of hedged items. When a derivative is no longer expected to be highly effective, hedge accounting is discontinued.
Statement of Cash Flows
Cash flows from derivatives designated in hedging relationships are reflected in the Condensed Consolidated Statements of Cash Flows consistent with the presentation of the hedged item. Cash flows from derivatives that were not accounted for as designated hedging relationships reflect the classification of the cash flows associated with the activities being economically hedged.
Credit Risk
The Company is exposed to the risk of credit loss in the event of nonperformance by counterparties to financial instrument contracts; however, nonperformance is considered unlikely and any nonperformance is unlikely to be material as it is the Company’s policy to contract with diverse, creditworthy counterparties based upon both strong credit ratings and other credit considerations. The Company has negotiated International Swaps and Derivatives Association, Inc. master agreements with its counterparties, which contain master netting provisions providing the legal right and ability to offset exposures across trades with each counterparty. Given the rights provided by these contracts, the Company presents derivative balances based on its “net” counterparty exposure. These agreements do not require the posting of collateral.
13. Commitments and Contingencies
The Company and/or certain of its subsidiaries are involved from time to time in various lawsuits and claims relating to product liability, labeling, marketing, advertising, pricing, intellectual property, commercial contracts, foreign exchange controls, antitrust and trade regulation, labor and employment, securities transactions and related disclosures, indemnification, information technology systems, data privacy and cybersecurity, environmental, health and safety, tax matters, governmental investigations, and other legal proceedings that arise in the ordinary course of their business.
The Company records accruals for loss contingencies associated with these legal matters when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. As of March 29, 2026, the Company has determined that the liabilities associated with certain litigation matters are probable and can be reasonably estimated. The Company has accordingly accrued for those contingent liabilities and will continue to monitor each related legal issue and adjust accruals as might be warranted based on new information and further developments. Accrued liabilities related to litigation matters are included in Accrued liabilities and Other liabilities on the Condensed Consolidated Balance Sheets. For these and other
litigation and regulatory matters discussed below for which a loss is probable or reasonably possible, the Company is unable to estimate the possible loss or range of loss beyond the amounts accrued. Amounts accrued for legal contingencies often result from a complex series of judgments about future events and uncertainties that rely heavily on estimates and assumptions including timing of related payments. The ability to make such estimates and judgments can be affected by various factors including whether, among other things, damages sought in the proceedings are unsubstantiated or indeterminate; scientific and legal discovery has commenced or is complete; proceedings are in early stages; matters present legal uncertainties; significant facts are in dispute; procedural or jurisdictional issues exist; the number of potential claims is certain or predictable; comprehensive multi-party settlements are achievable; there are complex related cross-claims and counterclaims; and/or there are numerous parties involved.
In the Company’s opinion, based on its examination of these matters, its experience to date and discussions with counsel, the ultimate outcome of legal proceedings, net of liabilities accrued on the Condensed Consolidated Balance Sheets, is not expected to have a material adverse effect on the Company’s financial position. However, the resolution of, or increase in accruals for, one or more of these matters in any reporting period may have a material adverse effect on the Company’s results of operations and cash flows for that period.
Product Liability
The Company and/or certain of its subsidiaries are involved in numerous product liability claims and lawsuits involving multiple products. Claimants in these cases seek substantial compensatory and, where available, punitive or exemplary damages or legal fees. While the Company believes it has substantial defenses, it is not feasible to predict the ultimate outcome of litigation. From time to time, even if it has substantial defenses, the Company considers isolated settlements based on a variety of circumstances. The Company may accrue an estimate of the legal defense costs needed to defend each matter when those costs are probable and can be reasonably estimated. For certain of these matters, the Company may accrue additional amounts such as estimated costs associated with settlements, damages, and other losses. Product liability accruals can represent projected product liability for thousands of claims around the world, each in different litigation environments and with different fact patterns. Changes to the accruals may be required in the future as additional information becomes available.
Claims for personal injury have been made against the Company’s subsidiary Johnson & Johnson Consumer Inc., now known as Kenvue Brands LLC (“JJCI”), along with other third-party sellers of acetaminophen-containing products, in federal court alleging that in utero exposure to acetaminophen (the active ingredient in Tylenol®, an over-the-counter (“OTC”) pain medication) is associated with the development of autism spectrum disorder and/or attention-deficit/hyperactivity disorder in children. In October 2022, lawsuits filed in federal courts in the United States were organized as a multi-district litigation in the U.S. District Court for the Southern District of New York. In February 2024, the court entered final judgment in favor of JJCI and the other sellers of acetaminophen-containing products and dismissed the majority of cases then pending in the multi-district litigation. A Notice of Appeal was filed for those cases in March 2024. In August 2024, all remaining cases then pending in the multi-district litigation were dismissed. As of December 2024, all cases were on appeal. Product liability lawsuits continue to be filed, and the Company continues to receive information with respect to potential costs and the anticipated number of cases. In addition, lawsuits have been filed in state court against JJCI, the Company, and J&J. Lawsuits have also been filed in Canada against the Company’s subsidiary Johnson & Johnson Inc. (Canadian affiliate), now known as Kenvue Canada Inc. (“JJI”), and J&J. At this stage in these proceedings, the Company is unable to reasonably estimate either the likelihood or the magnitude of its potential liability arising out of these claims and lawsuits.
In October 2025, the State of Texas filed a petition in the District Court of Panola County, Texas, against the Company, Kenvue Brands LLC (formerly known as Johnson & Johnson Consumer Inc.) and J&J, alleging violations of the Texas Deceptive Trade Practices-Consumer Protection Act (the “DTPA”) and the Texas Uniform Fraudulent Transfer Act (the “TUFTA”) relating to allegations that prenatal and early-childhood exposure to acetaminophen is associated with autism spectrum disorder and attention-deficit/hyperactivity disorder in children. The complaint sought injunctive relief, civil penalties, disgorgement of assets, and other remedies. In November 2025, the TUFTA and DTPA claims against the Company and J&J were dismissed and the TUFTA claims against Kenvue Brands LLC were dismissed. A Notice of Appeal was filed in December 2025. At this stage in these proceedings, the Company is unable to reasonably estimate the likelihood or magnitude of potential liability arising from this matter.
In October 2025, claims for personal injury and, in some cases, consequential death, were brought in the Business and Property Courts in Manchester (Circuit Commercial Court, KBD) against Kenvue UK Limited, J&J, and J&J’s subsidiary, Johnson & Johnson Management Limited, in respect of Johnson’s® Baby Powder. In December 2025, the claims were transferred to the Civil List of the King’s Bench Division in London. The claimants allege they developed mesothelioma, cancer of the female reproductive system, lung granulomata and/or fibrosis, together with uterine fibroids as a result of exposure to Johnson’s® Baby Powder. The claimants claim that the defendants are liable for negligence and the tort of deceit.
Additionally, in February 2026, an Australian law firm announced it has commenced a proceeding in the Supreme Court of Australia against J&J and the Company’s affiliates Johnson & Johnson Pty Ltd and Johnson & Johnson Pacific Pty Limited. The claimants allege they developed cancer as a result of exposure to talc-based products. The proceedings have not been served.
In March 2026, claimants applied for a group action against Kenvue UK Limited, J&J, and J&J’s subsidiary, Johnson & Johnson Management Limited, and applied for the appointment of a representative party to be permitted in the Lords of Council and Session in the Court of Session in Scotland. Claimants are alleging claims for personal injury, and in some cases, consequential death, as a result of the use of mineral talc-based cosmetic powder. Specifically, claimants allege they have developed mesothelioma, cancer of the female reproductive system, lung granulomata and/or fibrosis, together with uterine fibroids as a result of their exposure to Johnson’s® Baby Powder. At this stage in these proceedings, the Company is unable to reasonably estimate either the likelihood or the magnitude of its potential liability arising out of these claims related to talc-based Johnson’s® Baby Powder.
General Litigation
In 2006, J&J acquired Pfizer’s OTC business including the U.S. rights to OTC Zantac, which were on-sold to Boehringer Ingelheim (“BI”) as a condition to merger control approval such that BI assumed product liability risk for U.S. sales from and after December 2006. J&J received indemnification from BI and gave Pfizer indemnification in connection with the transfer of the Zantac business to BI from Pfizer, through J&J. In November 2019, J&J received a demand for indemnification from Pfizer, pursuant to the 2006 Stock and Asset Purchase Agreement between J&J and Pfizer. In January 2020, J&J received a demand for indemnification from BI, pursuant to the 2006 Asset Purchase Agreement among J&J, Pfizer, and BI. Pursuant to the agreements, Pfizer and BI have asserted indemnification claims against J&J ostensibly related to Zantac sales by Pfizer. In November 2022, J&J received a demand for indemnification from GlaxoSmithKline LLC, pursuant to the 2006 Stock and Asset Purchase Agreement between J&J and Pfizer, and certain 1993, 1998, and 2002 agreements between Glaxo Wellcome and Warner-Lambert entities. The notices seek indemnification for legal claims related to OTC Zantac (ranitidine) products. Plaintiffs in the underlying actions allege that Zantac and other OTC medications that contain ranitidine may degrade and result in unsafe levels of NDMA (N-nitrosodimethylamine) and can cause or have caused various cancers in individuals using the products and seek declaratory and monetary relief. J&J has rejected all the demands for indemnification relating to the underlying actions. No J&J entity sold Zantac in the United States.
In 2016, JJI sold the Canadian Zantac business to Sanofi Consumer Health, Inc. (“Sanofi”). Under the 2016 Asset Purchase Agreement between JJI and Sanofi (the “2016 Purchase Agreement”), Sanofi assumed certain liabilities, including those pertaining to Zantac (ranitidine) product sold by Sanofi after closing and losses arising from or relating to recalls, withdrawals, replacements, or related market actions or post-sale warning in respect of products sold by Sanofi after the closing, and JJI is required to indemnify Sanofi for certain other excluded liabilities. In November 2019, JJI received a notice reserving rights to claim indemnification from Sanofi pursuant to the 2016 Purchase Agreement. The notice refers to indemnification for legal claims in class actions and various individual personal injury actions with similar allegations to the U.S. litigation related to OTC Zantac (ranitidine) products.
Beginning in 2019, multiple putative class actions naming J&J and/or JJI were filed in Canada with similar allegations regarding Zantac or ranitidine use. JJI is named in one of the two outstanding putative class actions. The outstanding putative class action naming JJI has been stayed in the Quebec Superior Court. The Ontario Superior Court of Justice action, which named J&J and JJI and was previously pending, was discontinued by court order in May 2025. JJI was also named as a defendant, along with other manufacturers, in various personal injury actions in Canada related to Zantac products. JJI has provided Sanofi notice reserving rights to claim indemnification pursuant to the 2016 Purchase Agreement related to the class actions and personal injury actions. At this stage in these proceedings, the Company is unable to reasonably estimate either the likelihood or the magnitude of its potential liability arising out of these claims and lawsuits.
In September 2023, the Nonprescription Drugs Advisory Committee (the “NDAC”) of the U.S. Food and Drug Administration (the “FDA”) met to discuss new data on the effectiveness of orally administered phenylephrine (“PE”) and concluded that the current scientific data do not support that the recommended dosage of orally administered PE is effective as a nasal decongestant. Neither the FDA nor the NDAC raised concerns about safety issues with use of oral PE at the recommended dose. In November 2024, the FDA issued a proposed order to remove the ingredient from the OTC monograph. Beginning in September 2023, following the NDAC vote, putative class actions were filed against the Company and its affiliates, along with other third-party sellers and manufacturers of PE-containing products, asserting various causes of action including violation of consumer protection statutes, negligence, and unjust enrichment. The complaints seek damages and injunctive relief. In December 2023, lawsuits filed in federal courts in the United States were organized as a multi-district litigation in the U.S.
District Court for the Eastern District of New York. In November 2024, the U.S. District Court for the Eastern District of New York dismissed plaintiffs’ streamlined complaint, and a Notice of Appeal was filed in December 2024. Separately, putative Canadian class actions were filed beginning in September 2023 against the Company, JJI, and JJCI, along with other third-party sellers and manufacturers of PE-containing products, alleging false, misleading representations, and seeking damages and declaratory relief based on various causes of action including breach of consumer protection statutes, negligent misrepresentation, and civil conspiracy. In December 2024, a representative action was filed in the Federal Court of Australia, Victoria Registry, against the Company’s subsidiary Johnson & Johnson Pacific Pty Limited alleging contraventions of the consumer guarantees regime and seeking damages and associated relief based on broadly similar causes of action to those in the United States. In February 2025, a representative action was filed in the High Court of New Zealand, Auckland Registry against Johnson & Johnson (New Zealand) Limited and the Company’s subsidiaries JNTL Consumer Health (New Zealand) Limited and Johnson & Johnson Pacific Pty Limited, alleging breaches of the Fair Trading Act 1986 and the Consumer Guarantees Act 1993.
Additionally, beginning in October 2023, two putative securities class actions were filed in the U.S. District Court for the District of New Jersey against the Company and certain of its officers, among other defendants. In December 2023, the two cases were consolidated as In re Kenvue Inc. Securities Litigation and a lead plaintiff was appointed. In March 2024, a consolidated amended complaint was filed that named the Company’s directors as defendants in addition to the defendants named in the initial complaints. The consolidated amended complaint brings claims under the Securities Act of 1933, as amended. It alleges that the Company’s registration statements and prospectuses filed with the SEC in connection with the Kenvue IPO on Form S-1 and the Exchange Offer on Form S-4 contained misleading statements and omissions about PE. It seeks damages for all shareholders who acquired shares pursuant to the Kenvue IPO and the Exchange Offer registration statements and prospectuses.
In January 2024, shareholder derivative complaints were filed in the U.S. District Court for the District of New Jersey against the Company as the nominal defendant and the Company’s directors and certain of its officers as defendants, among other defendants. The derivative complaints allege breaches of fiduciary duties based on disclosures in the Company’s SEC filings regarding PE, and they seek damages and equitable relief. The derivative complaints have been consolidated as In re Kenvue, Inc. Derivative Litigation and have been stayed. At this stage in these proceedings, the Company is unable to reasonably estimate either the likelihood or the magnitude of its potential liability arising out of these claims and lawsuits.
In March 2024, following the filing of a Citizen Petition with the FDA by Valisure LLC that included testing results purporting to show that benzoyl peroxide (“BPO”) OTC acne products can degrade into benzene at levels well above the alleged limit of two parts per million, putative class actions were filed against the Company and its affiliates, along with other third-party sellers and manufacturers of BPO-containing acne products, asserting various causes of action including violation of consumer protection statutes, negligence, breach of express and implied warranties, and unjust enrichment. The complaints, pending in the U.S. District Court for the District of New Jersey, seek damages and injunctive relief. Following the grant of a motion to dismiss without prejudice, plaintiffs filed an amended complaint. At this stage in these proceedings, the Company is unable to reasonably estimate either the likelihood or the magnitude of its potential liability arising out of these claims and lawsuits.
JJCI, along with more than 120 other companies, is a defendant in a cost recovery action brought by Occidental Chemical Corporation in June 2018 in the U.S. District Court for the District of New Jersey, related to the clean-up of a section of the Lower Passaic River in New Jersey. Certain defendants (not including JJCI) have executed a settlement with the U.S. Environmental Protection Agency and U.S. Department of Justice, which was confirmed through a judicial Consent Decree in December 2024. A Notice of Appeal was filed in January 2025. The cost recovery case has been administratively closed but can be re-opened upon request.
The Company or its subsidiaries are also parties to various proceedings brought under the Comprehensive Environmental Response, Compensation, and Liability Act, commonly known as Superfund, and comparable state, local, or foreign laws in which the primary relief sought is the Company’s agreement to implement environmental investigation and remediation activities at designated hazardous waste sites or to reimburse the government or third parties for the costs they have incurred in performing investigation, oversight, or remediation at such sites.
Other
A significant number of personal injury claims alleging that talc causes cancer were made against J&J and certain of its current and former affiliates, including the Company, arising out of the use of body powders containing talc, primarily Johnson’s® Baby Powder. These personal injury suits were and continue to be filed primarily in state and federal courts in the United States and in Canada, although suits have been filed in other jurisdictions as well.
Pursuant to the Separation Agreement, J&J has retained all liabilities on account of or relating to harm arising out of, based upon, or resulting from, directly or indirectly, the presence of or exposure to talc or talc-containing products sold by J&J or its affiliates in the United States and Canada (the “Talc-Related Liabilities”) and, as a result, has agreed to indemnify the Company for the Talc-Related Liabilities and any costs associated with resolving such claims, including matters that have commenced in the United States and Canada naming the Company or its affiliates. The Company will, however, remain responsible for all liabilities on account of or relating to harm arising out of, based upon, or resulting from, directly or indirectly, the presence of or exposure to talc or talc-containing products sold outside the United States or Canada.
14. Segments of Business
The Company is organized into three reportable business segments: Self Care, Skin Health and Beauty, and Essential Health.
The Company’s Chief Operating Decision Maker (the “CODM”), the Chief Executive Officer, uses Segment adjusted operating income as the measure of profit or loss and to evaluate the performance of the Company’s segments. For each segment, the CODM uses this information to assist in evaluating underlying trends, to monitor budget and forecast versus actual results, to make investment decisions to allocate resources both in total, and between the segments, and to make key segment personnel decisions. Segment profit is based on Operating income, excluding depreciation, amortization of intangible assets, Separation-related costs, restructuring expenses and operating model optimization initiatives, the impact of the conversion of stock-based awards, issuance of Founder Shares (as defined below), Pending Transaction and other related costs (as defined below), Skillman sale-leaseback, Other operating expense, net, and unallocated general corporate administrative expenses (referred to herein as “Segment adjusted operating income”), as the CODM excludes these items in assessing segment financial performance. General corporate/unallocated expenses, which include expenses related to treasury, legal operations, and certain other expenses, along with gains and losses related to the overall management of the Company, are not allocated to the segments. In assessing segment performance and managing operations, the CODM does not review segment assets.
The Company operates the business through the following three reportable business segments based on product categories:
| | | | | |
| Reportable Segments | Product Categories |
| Self Care | Cough, Cold, and Allergy |
| Pain Care |
| Other Self Care (Digestive Health, Smoking Cessation, Eye Care, and Other) |
| Skin Health and Beauty | Face and Body Care |
| Hair, Sun, and Other |
| Essential Health | Oral Care |
| Baby Care |
| Other Essential Health (Women’s Health, Wound Care, and Other) |
The Company’s product categories as a percentage of Net sales for the fiscal three months ended March 29, 2026 and March 30, 2025 were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | | Fiscal Three Months Ended |
| Product Categories | | | | | | March 29, 2026 | | March 30, 2025 | | |
| Cough, Cold, and Allergy | | | | | | 15 | % | | 16 | % | | |
| Pain Care | | | | | | 12 | | | 13 | | | |
| Other Self Care | | | | | | 17 | | | 16 | | | |
| Face and Body Care | | | | | | 18 | | | 18 | | | |
| Hair, Sun, and Other | | | | | | 9 | | | 8 | | | |
| Oral Care | | | | | | 10 | | | 10 | | | |
| Baby Care | | | | | | 9 | | | 9 | | | |
| Other Essential Health | | | | | | 10 | | | 10 | | | |
| Total | | | | | | 100 | % | | 100 | % | | |
Segment Net Sales and Segment Adjusted Operating Income
Segment net sales and Segment adjusted operating income for the fiscal three months ended March 29, 2026 and March 30, 2025 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Three Months Ended | | |
| | March 29, 2026 | | March 30, 2025 | | | | |
| (Dollars in Millions) | | Self Care | | Skin Health and Beauty | | Essential Health | | Total | | Self Care | | Skin Health and Beauty | | Essential Health | | Total | | | | | | | | | | | | |
| Net sales | | $ | 1,699 | | | $ | 1,059 | | | $ | 1,151 | | | $ | 3,909 | | | $ | 1,667 | | | $ | 977 | | | $ | 1,097 | | | $ | 3,741 | | | | | | | | | | | | | |
Segment adjusted Cost of sales(1) | | 578 | | | 437 | | | 518 | | | 1,533 | | | 587 | | | 413 | | | 496 | | | 1,496 | | | | | | | | | | | | | |
Other segment expense items(2) | | 496 | | | 454 | | | 334 | | | 1,284 | | | 514 | | | 472 | | | 362 | | | 1,348 | | | | | | | | | | | | | |
| Segment adjusted operating income | | $ | 625 | | | $ | 168 | | | $ | 299 | | | $ | 1,092 | | | $ | 566 | | | $ | 92 | | | $ | 239 | | | $ | 897 | | | | | | | | | | | | | |
| Reconciliation to Income before taxes | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Less: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Depreciation(3) | | | | | | | | 78 | | | | | | | | | 73 | | | | | | | | | | | | | |
Amortization of intangible assets(4) | | | | | | | | 65 | | | | | | | | | 63 | | | | | | | | | | | | | |
Separation-related costs(5) | | | | | | | | 3 | | | | | | | | | 38 | | | | | | | | | | | | | |
Restructuring expenses and operating model optimization initiatives(6) | | | | | | | | 78 | | | | | | | | | 67 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Conversion of stock-based awards(7) | | | | | | | | 1 | | | | | | | | | 3 | | | | | | | | | | | | | |
Founder Shares(8) | | | | | | | | 2 | | | | | | | | | 3 | | | | | | | | | | | | | |
Pending Transaction and other related costs(9) | | | | | | | | 16 | | | | | | | | | — | | | | | | | | | | | | | |
Skillman sale-leaseback | | | | | | | | 2 | | | | | | | | | — | | | | | | | | | | | | | |
| Other operating expense, net | | | | | | | | 11 | | | | | | | | | 13 | | | | | | | | | | | | | |
| General corporate/unallocated expenses | | | | | | | | 69 | | | | | | | | | 79 | | | | | | | | | | | | | |
| Operating income | | | | | | | | $ | 767 | | | | | | | | | $ | 558 | | | | | | | | | | | | | |
| Other expense, net | | | | | | | | — | | | | | | | | | 6 | | | | | | | | | | | | | |
| Interest expense, net | | | | | | | | 95 | | | | | | | | | 94 | | | | | | | | | | | | | |
| Income before taxes | | | | | | | | $ | 672 | | | | | | | | | $ | 458 | | | | | | | | | | | | | |
(1) The Company defines Segment adjusted cost of sales as Cost of sales adjusted for amortization of intangible assets, operating model optimization initiatives, Separation-related costs, Pending Transaction and other related costs (as defined below), Founder Shares (as defined below), and general corporate/unallocated expenses.
(2) Other segment expense items for each reportable business segment include brand support, employee-related costs, shipping and handling costs, research and development costs, and certain other operating expenses (income).
(3) Depreciation consists of depreciation of property, plant, and equipment and amortization of integration and development costs capitalized in connection with cloud computing arrangements.
(4) Relates to the amortization of definite-lived intangible assets (primarily trademarks, trade names, and customer lists) over their estimated useful lives.
(5) See Note 1, “Description of the Company and Summary of Significant Accounting Policies—Separation-Related Costs,” for additional information regarding Separation-related costs.
(6) Restructuring expenses and operating model optimization initiatives relate to the 2026 Restructuring Initiative for the fiscal three months ended March 29, 2026 and the 2024 Multi-Year Restructuring Initiative for the fiscal three months ended March 30, 2025. See Note 15, “Restructuring Expenses and Operating Model Optimization Initiatives,” for additional information.
(7) Segment adjusted operating income excludes the impact of the conversion of stock-based awards that occurred on August 23, 2023. The adjustment represents the net impact of the gain on reversal of previously recognized stock-based compensation expense, offset by stock-based compensation expense recognized in the fiscal three months ended March 29, 2026 and March 30, 2025 relating to employee services provided prior to the Separation.
(8) On August 25, 2023, the Company’s Compensation & Human Capital Committee approved equity grants to individuals employed by Kenvue as of October 2, 2023 (the “Founder Shares”). On October 2, 2023, the Founder Shares were granted to all Kenvue employees in the form of stock options and performance stock units to executive officers and either stock options and performance stock units or restricted stock units to non-executive individuals.
(9) Pending Transaction and other related costs consist of expenses incurred in connection with the Pending Transaction, including advisory fees, legal costs, professional service costs, and other related costs (the “Pending Transaction and other related costs”).
Depreciation and Amortization
Depreciation and amortization by reportable business segment for the fiscal three months ended March 29, 2026 and March 30, 2025 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | Fiscal Three Months Ended |
| (Dollars in Millions) | | | | | | | | | | | | | | | | | | | | | | | | March 29, 2026 | | March 30, 2025 | | |
| Self Care | | | | | | | | | | | | | | | | | | | | | | | | $ | 53 | | | $ | 49 | | | |
| Skin Health and Beauty | | | | | | | | | | | | | | | | | | | | | | | | 30 | | | 29 | | | |
| Essential Health | | | | | | | | | | | | | | | | | | | | | | | | 60 | | | 58 | | | |
Total depreciation and amortization(1) | | | | | | | | | | | | | | | | | | | | | | | | $ | 143 | | | $ | 136 | | | |
(1) Depreciation consists of depreciation of property, plant, and equipment and amortization of integration and development costs capitalized in connection with cloud computing arrangements. Amortization relates to the amortization of intangible assets.
15. Restructuring Expenses and Operating Model Optimization Initiatives
2024 Multi-Year Restructuring Initiative
As part of the Company’s continued transformation to a fit-for-purpose consumer company, during the fiscal year 2024, the Company began strategic initiatives intended to enhance organizational efficiencies and better position Kenvue for future growth (“Our Vue Forward”). To further Our Vue Forward, on May 6, 2024, the Company’s Board of Directors (the “Board”) approved a multi-year initiative (the “2024 Multi-Year Restructuring Initiative”) to build on the Company’s strengths, improve underlying information technology infrastructure, and optimize its cost structure by rebalancing resources to better position the Company for future growth. The 2024 Multi-Year Restructuring Initiative primarily included global workforce reductions, changes in management structure, and the transition to centralized shared-service functions in lower-cost locations.
As of the end of fiscal year 2025, the Company completed all actions under the 2024 Multi-Year Restructuring Initiative, and no additional costs will be incurred. The 2024 Multi-Year Restructuring Initiative resulted in pre-tax restructuring expenses and other charges totaling $556 million through the fiscal twelve months ended December 28, 2025. The Company will continue to make cash payments for restructuring expenses and other charges already incurred, with the majority of these payments anticipated to occur by the end of fiscal year 2026. These payments have been, and are expected to continue to be, funded primarily through cash flows generated from operations.
The following table summarizes the classification of pre-tax restructuring expenses and other charges incurred related to the 2024 Multi-Year Restructuring Initiative during the fiscal three months ended March 30, 2025:
| | | | | | | | | | | | | | | | |
| | | | | | Fiscal Three Months Ended |
(Dollars in Millions) | | | | | | | | March 30, 2025 | | |
| Restructuring expenses | | | | | | | | $ | 60 | | | |
| Cost of sales | | | | | | | | 6 | | | |
| Selling, general, and administrative expenses | | | | | | | | 1 | | | |
| Total pre-tax restructuring expenses and other charges | | | | | | | | $ | 67 | | | |
2026 Restructuring Initiative
On February 17, 2026, the Company’s Board approved an initiative (the “2026 Restructuring Initiative”) that aims to optimize its operating model, transform its supply chain, reduce complexity, and drive operational efficiencies, while strengthening core capabilities. The initiative is expected to result in pre-tax restructuring expenses and other charges totaling approximately $250 million in fiscal year 2026, consisting of information technology and project-related costs (approximately 59%), employee-related costs (approximately 35%), and other implementation costs (approximately 6%). These charges are expected to be funded primarily through cash flows generated from operations.
The following table summarizes the classification of pre-tax restructuring expenses and other charges incurred related to the 2026 Restructuring Initiative during the fiscal three months ended March 29, 2026:
| | | | | | | | | | | | | | | | |
| | | | Fiscal Three Months Ended |
| (Dollars in Millions) | | | | | | March 29, 2026 | | | | |
| Restructuring expenses | | | | | | $ | 71 | | | | | |
| Cost of sales | | | | | | 5 | | | | | |
| Selling, general, and administrative expenses | | | | | | 2 | | | | | |
| Total pre-tax restructuring expenses and other charges | | | | | | $ | 78 | | | | | |
The following table summarizes the pre-tax restructuring expenses and other charges incurred by cost type related to the 2026 Restructuring Initiative during the fiscal three months ended March 29, 2026, which also represents inception-to-date through March 29, 2026:
| | | | | | | | | | | | | | | | | | |
| | | | Fiscal Three Months Ended | | |
| (Dollars in Millions) | | | | | | March 29, 2026 | | | | | |
Employee-related costs(1) | | | | | | $ | 48 | | | | | | | |
Information technology and project-related costs(2) | | | | | | 30 | | | | | | | |
| | | | | | | | | | | | |
Total pre-tax restructuring expenses and other charges | | | | | | $ | 78 | | | | | | | |
(1) Employee-related costs primarily include severance and other termination benefits.
(2) Information technology and project-related costs primarily include advisory costs to operationalize the initiative.
The following table summarizes the activity related to accrued restructuring expenses and other charges for the 2026 Restructuring Initiative during the fiscal three months ended March 29, 2026:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in Millions) | | | | | | Employee-Related Costs(1) | | Information Technology and Project-Related Costs(2) | | | | Total Accrued Costs |
| December 28, 2025 | | | | | | $ | — | | | $ | — | | | | | $ | — | |
| Charges to earnings | | | | | | 48 | | | 30 | | | | | 78 | |
| Cash payments | | | | | | (19) | | | (19) | | | | | (38) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| March 29, 2026 | | | | | | $ | 29 | | | $ | 11 | | | | | $ | 40 | |
(1) Employee-related costs primarily include severance and other termination benefits.
(2) Information technology and project-related costs primarily include advisory costs to operationalize the initiative.