What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-10-29 compared with 2021-07-30 · 184 added, 155 removed, 342 unchanged (50% of the section changed)

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Forward-looking statements in this Report are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

These statements generally can be identified by the use of words such as “intend,” “anticipate,” “believe,” “estimate,” “project,” “target,” “plan,” “expect,” “setting up,” “beginning to,” “will,” “should,” “would,” “could,” “resume,” “are confident that,” “remain optimistic that” or similar statements.

The Company cautions that forward-looking statements are not guarantees because there are inherent difficulties in predicting future results.

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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 manage the demand, supply and operational challenges with the actual or perceived effects of the COVID-19 pandemic, including as a result of any additional variants of the virus or the efficacy and distribution of vaccines;

• the Company’s dependence on the strength of retail, commercial and industrial sectors of the economy in various countries around the world;

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• the Company’s ability to improve productivity, reduce complexity and streamline operations;

• 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 the Condensed Consolidated Financial Statements , the potential outcomes of which could exceed policy limits, to the extent insured;

• 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;

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• our ability to effectively execute our turnaround plan;

• the impact of governmental investigations, inspections, lawsuits, legislative requests or other actions by third parties;

• the risks inherent to the Company’s foreign operations, including currency fluctuations, exchange controls and pricing restrictions;

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• the potential inability to attract, retain and motivate key employees;

• the resolution of tax contingencies resulting in additional tax liabilities;

• changes in tax laws and the resolution of tax contingencies resulting in additional tax liabilities;

• product liability, product recalls or related regulatory actions;

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Newell Brands is a leading global consumer goods company with a strong portfolio of well-known brands, including Rubbermaid®, Paper Mate®, Sharpie®, Dymo®, EXPO®, Parker®, Elmer’s®, Coleman®, Marmot®, Oster®, Sunbeam®, FoodSaver®, Mr.Coffee®, Rubbermaid Commercial Products®, Graco®, Baby Jogger®, NUK®, Calphalon®, Contigo®, First Alert®, Mapa®, Spontex® and Yankee Candle®.

Newell Brands is building #1 and #2 brands that brighten homes and lives every day and create moments of joy, build confidence and provide peace of mind.

Newell Brands' beloved brands enhance and brighten consumers lives at home and outside by creating moments of joy, building confidence and providing peace of mind.

The Company sells its products in nearly 200 countries around the world and has operations on the ground in over 40 of these countries, excluding third-party distributors.

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The Company is continuing to execute on its turnaround strategy of building a global, next generation consumer products company that can unleash the full potential of its brands in a fast-moving omni-channel environment.

The strategy, developed in 2019, is designed to drive sustainable top line growth, improve operating margins, accelerate cash conversion cycle and strengthen the portfolio, organizational capabilities and employee engagement, while addressing key challenges facing the Company.

These challenges include:

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• Driving sustainable profitable growth by focusing on innovation, as well as digital marketing, e-commerce and its international businesses;

• Improving margins by driving productivity and overhead savings, while reinvesting into the business;

• Improving margins by driving productivity and overhead savings, while reducing complexity and reinvesting into the business;

• Enhancing cash efficiency by improving key working capital metrics, resulting in a lower cash conversion cycle;

• Building a winning team through engagement and focusing the best people on the right things.

Continued execution of these strategic imperatives will better position the Company for long-term sustainable growth.

Continued execution of these strategic imperatives, in combination with new initiatives aimed to build operational excellence, will better position the Company for long-term sustainable and profitable growth.

During the third quarter of 2021 the Company announced Project Ovid, a multi-year, customer centric supply chain initiative to transform its go-to-market capabilities in the U.S., improve customer service levels and drive operational efficiencies.

This initiative will leverage technology to further simplify the organization by harmonizing and automating processes;

and re-engineering information systems.

Project Ovid is designed to optimize the Company’s distribution network by creating a single integrated supply chain from 23 business-unit-centric supply chains.

In addition, it is intended to reduce administrative complexity, improve inventory and invoicing workflow for our customers along with product availability through omni-channel enablement for consumers.

This new operating model is expected to drive efficiencies by better utilizing the Company's transportation and distribution network.

Organizational Structure

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The majority of the Company’s manufacturing and distribution facilities reopened during the second and third quarter of 2020 and have since been operating at or near capacity with inventory levels replenished.

The Company does, however, continue to face significant supply and labor shortages, capacity constraints, logistical challenges, and significantly higher than expected inflation for commodities, primarily resin, sourced finished goods, transportation and labor, which are expected to have a negative high-single-digit-percentage impact to costs of products sold for 2021.

These various disruptions are expected to persist in the near-term.

To help mitigate the negative impact of inflation to the operating performance of its businesses, the Company has taken selective pricing increases, accelerated productivity initiatives and deployed overhead cost containment efforts.

The Company does, however, continue to face significant product and supply and labor shortages, capacity constraints and logistical challenges across its businesses, including port congestion, constrained container availability and delays in carrier pickup, which have negatively impacted the Company's ability to satisfy demand for its products, creating order backlog in a number of categories.

The Company also continues to face significantly higher than expected inflation for commodities, primarily resin, sourced finished goods, transportation and labor, which are expected to have a negative high-single-digit-percentage impact to costs of products sold for 2021.

These various disruptions are expected to persist, at least in the near-term.

To help mitigate the negative impact of inflation to the operating performance of its businesses, the Company has secured selective pricing increases, accelerated productivity initiatives and deployed overhead cost containment efforts.

While the Company’s largest retail customers experienced a surge in sales as their stores remained open, a number of secondary customers, primarily in the specialty and department store channels, temporarily closed their brick and mortar doors in March 2020, and began to reopen in certain regions where conditions improved towards the end of the second quarter of 2020.

These dynamics, in combination with some retailers’ prioritization of essential items, have had a meaningful impact on the Company's traditional order patterns.

In addition, the Company temporarily closed its Yankee Candle retail stores in North America in mid-March of 2020.

In addition, the Company temporarily closed its Yankee Candle retail stores in North America in mid-March of 2020 due to COVID-19.

These stores reopened by the end of the third quarter in 2020 and have remained open since.

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During the quarantine phase of the pandemic in 2020, consumer purchasing behavior strongly shifted to certain focused categories.

Certain of the Company’s product categories have continued to benefit from this shift, primarily in

Food, Commercial and Home Appliances.

Some of the Company’s other businesses have seen positive momentum with a rebound in demand post lockdowns, in particular Writing, Baby and Parenting and Home Fragrance.

Certain of the Company’s product categories benefited from this shift, primarily in Food, Commercial and Home Appliances.

Some of the Company’s other businesses were negatively impacted but have seen positive momentum with an increase in demand post lockdowns, in particular Writing, Baby and Parenting and Home Fragrance.

While the Company expects the overall seasonality of its businesses to revert to historical trends as the impact of the global pandemic lessens, there still remains uncertainty over the volatility of future consumer demand patterns.

With the spread of new strains and variants of the coronavirus, the Company continues to monitor developments, including government requirements and recommendations at the national, state, and local level on whether to reinstate and/or extend certain initiatives previously implemented to help contain the spread of COVID-19.

The Company believes the extent of the impact of the COVID-19 pandemic to the Company's future sales, operating results, cash flows, liquidity and financial condition will continue to be driven by numerous evolving factors that the Company cannot accurately predict and which will vary by jurisdiction and market, including severity and duration of the pandemic, the emergence of new strains and variants of the coronavirus, the likelihood of a resurgence of positive cases, the development and availability of effective treatments and vaccines, especially in areas where conditions have recently worsened and lockdowns or travel bans have been reinstituted, the rate at which vaccines are administered to the general public, the timing and amount of fiscal stimulus and relief programs packages that are available to the general public, and any changes in consumer demand patterns for the Company's products as the impact of the global pandemic lessens.

Debt Redemption

On September 28, 2021, the Company redeemed its 3.75% senior notes due October 2021 (the “October 2021 Notes”) at a redemption price equal to 100% of the outstanding aggregate principal amount of the notes, plus accrued and unpaid interest to the redemption date.

On October 15, 2021 the Company delivered a notice of redemption to the holders of the 4.00%senior notes due June 2022 (the “June 2022 Notes”) that the Company will redeem the June 2022 Notes on November 22, 2021 for a redemption price equal to the current outstanding aggregate principal amount of the notes, subject to a customary make-whole premium, plus accrued and unpaid interest to the date of redemption.

Results of Operations

Three Months Ended June 30, 2021 vs.

Three Months Ended June 30, 2020

Three Months Ended September 30, 2021 vs.

Three Months Ended September 30, 2020

Consolidated Operating Results

Three Months Ended

September 30,

(in millions) 2021 2020 $ Change % Change

5 unchanged sentences

Interest expense, net 65 71 (6) (8.5)%

Other income, net (3) (1) (2) NM

Income before income taxes 243 93 150 NM

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

Income before income taxes 215 283 (68) (24.0)%

Income tax provision 25 (21) 46 NM

Income tax rate 11.6 % (7.4) %

Net income $ 197 $ 78 $ 119 NM

Net income $ 190 $ 304 $ (114) (37.5)%

Diluted earnings per share attributable to common shareholders $ 0.44 $ 0.71

NM - NOT MEANINGFUL

Net sales for the three months ended June 30, 2021 increased 28%, with all segments and major geographic regions showing growth.

This growth reflects strong demand from large retail store customers for the food preparation and storage, baby care, writing, labeling, scented candle, beverage and outdoor categories.

Net sales for the three months ended September 30, 2021 increased 3%, which reflects strong performance in the Learning and Development segment, driven by increased demand from large retail store customers for writing and baby care categories, as well as growth in the Home Appliances segment driven by increased demand in cooking and beverage appliances product categories, primarily in Latin America.

This growth was partially offset by the lapping of the prior-year period surge in consumer demand for certain categories and the prior-year reopening of Company's manufacturing sites, Yankee Candle stores and other retail stores.

In addition, net sales growth was negatively impacted by supply chain shortages and logistical challenges which the Company expects to continue through the remainder of 2021.

Changes in foreign currency favorably impacted net sales by $17 million, or 1%.

Gross profit increased 33% and gross profit margin improved to 32.6% as compared with 31.5% in the prior year period.

The gross margin improvement was driven by sales volume leverage, gross productivity, mix and net pricing, partially offset by significant input cost inflation for commodities, primarily resin, sourced finished goods, transportation and labor, which had a

negative high-single-digit-percentage impact to costs of products sold.

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

In addition to the increase in net sales and gross profit noted above, notable items impacting operating income for the three months ended June 30, 2021 and 2020 are as follows:

Gross profit decreased 7% and gross profit margin declined to 30.4% as compared with 33.9% in the prior year period.

The gross margin decline was driven by significant input cost inflation for commodities, primarily resin, sourced finished goods, transportation and labor, which had a negative high-single-digit-percentage impact to costs of products sold, partially offset by gross productivity, mix and net pricing.

The gross margin decline also reflected, in part, a timing lag between inflation and the full impact of responsive pricing actions.

Changes in foreign currency exchange rates favorably impacted gross profit by $3 million.

In addition to the change in gross profit noted above, notable items impacting operating income for the three months ended September 30, 2021 and 2020 are as follows:

Three Months Ended

September 30,

2021 2020 $ Change

Impairment of intangible asset (See Footnote 6) $ — $ 2 $ (2)

Restructuring (See Footnote 3) and restructuring-related costs 13 9 4

Transactions and other costs 4 5 (1)

Operating income increased to $305 million as compared to $163 million in the prior year period.

The current period performance reflected the higher gross profit noted above, cost savings from Yankee Candle retail store closures, lower restructuring and restructuring-related charges, partially offset by higher discretionary spending, incentive compensation expense and advertising and promotional costs.

The year-over-year comparison of the Company's operating results from the second quarter of 2021 to the prior year quarter reflects the impact of the most depressed consumption levels resulting from the COVID-related lockdowns which occurred in the second quarter of 2020.

The comparability of the Company's operating results in the second half of 2021 will reflect the lapping of the improved operating performance in the prior year period, as its manufacturing sites and Yankee Candle stores were reopened, other retail stores were reopened, and consumer demand for certain categories returned.

In addition, comparability of the Company's operating results in the second half of 2021 will be impacted by the volatility and uncertainty of the direction of future demand patterns, as well as the potential for continued inflation and supply chain and logistical challenges.

Operating income decreased to $281 million as compared to $363 million in the prior year period.

The current period performance reflected higher advertising and promotional costs and incentive compensation expense, partially offset by cost savings from Yankee Candle retail store closures.

The comparability of the Company's operating results in the third quarter of 2021, also reflects the lapping of the improved operating performance from the prior-year period surge in demand, as the Company's manufacturing sites and Yankee Candle stores were reopened, other retail stores were reopened, and consumer demand for certain categories returned.

In addition, comparability of the Company's operating results for the remainder of 2021 is expected to be impacted by the volatility and uncertainty of the direction of future demand patterns, as well as the potential for continued inflation, supply chain shortages and logistical challenges.

Interest expense, net decreased primarily due to lower debt levels.

The weighted average interest rates for the three months ended June 30, 2021 and 2020 were approximately 4.7% and 4.6%, respectively.

The weighted average interest rates for the three months ended September 30, 2021 and 2020 were approximately 4.7%.

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

Other income, net for three months ended June 30, 2021 and 2020 includes the following items:

Other expense, net for three months ended September 30, 2021 and 2020 includes the following items:

Three Months Ended

September 30,

Foreign exchange losses, net $ 3 $ —

Fair value equity adjustments (See Footnote 14) (1) —

Loss on disposition of businesses 2 —

Loss on disposition of businesses (See Footnote 1) — 9

Other (gains) losses, net (1) —

Income tax provision for the three months ended June 30, 2021 was $46 million as compared to $15 million for the three months ended June 30, 2020.

The effective tax rate for the three months ended June 30, 2021 was 18.9% as compared to 16.1% for the three months ended June 30, 2020.

The change in effective tax provision was 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 and certain discrete items.

In addition, income tax expense for the three months ended June 30, 2021 included a discrete benefit of $13 million associated with a reduction in valuation allowance related to the integration of certain U.K.

operations and $9 million related to statute of limitation expiration in France.

Income tax provision for the three months ended September 30, 2021 was $25 million as compared to a benefit of $21 million for the three months ended September 30, 2020.

The effective tax rate for the three months ended September 30, 2021 was 11.6% as compared to (7.4)% for the three months ended September 30, 2020.

The change in effective tax provision was impacted by a variety of factors, primarily resulting from certain discrete items.

The income tax provision for the three months ended September 30, 2021 included a discrete benefit of $37 million associated with a reduction in valuation allowance related to the integration of certain Luxembourg operations.

See Footnote 11 of the Notes to the Unaudited Condensed Consolidated Financial Statements for information regarding income taxes, including the inherent uncertainty associated with the Company's position on recently enacted U.S.

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Three Months Ended

September 30,

(in millions) 2021 2020 $ Change % Change

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Operating margin 3.7 % 15.7 %

Commercial Solutions net sales for the three months ended June 30, 2021 increased 19%, which reflected sales growth in both the Commercial and Connected Home and Security business units.

The Commercial business unit performance reflected increased demand in hand protection, cleaning, refuse, outdoor and organization categories, partially offset by a decline in washroom products.

The increase in net sales in the Connected Home and Security business largely reflects the lapping of the prior-year impact of lower demand, store closures and supply chain constraints resulting from the COVID-19 pandemic.

Changes in foreign currency favorably impacted net sales by $10 million, or 2%.

Operating income for the three months ended June 30, 2021 was $43 million as compared to $38 million in the prior year period.

The improvement in operating income is primarily due to gross profit leverage, as well as the lapping of the prior-year absorption impact associated with the temporary closure of a key Connected Home and Security manufacturing facility in Mexico, as a result of the COVID-19 pandemic.

The increase in operating income was partially offset by significant input cost inflation for commodities, primarily resin, sourced finished goods, transportation and labor.

Commercial Solutions net sales for the three months ended September 30, 2021 decreased 9%, which reflected sales decline in both the Commercial and Connected Home and Security business units.

The Commercial business unit performance reflected the lapping of the prior-year period surge in consumer demand for washroom products, cleaning and refuse categories, as well as supply chain shortages and logistical constraints.

The decrease in net sales in the Connected Home and Security performance also reflected the lapping of the prior-year period surge in demand, as well as supply chain shortages and logistical constraints.

Changes in foreign currency had a nominal impact to net sales.

Operating income for the three months ended September 30, 2021 was $18 million as compared to $84 million in the prior year period.

The decrease in operating income is primarily due to lower gross profit leverage and significant input cost inflation for commodities, primarily resin, sourced finished goods, transportation and labor, partially offset by favorable net pricing and gross productivity.

The operating margin decline reflected, in part, a timing lag between inflation and the full impact of responsive pricing actions.

Home Appliances

Three Months Ended

September 30,

(in millions) 2021 2020 $ Change % Change

Net sales $ 443 $ 430 $ 13 3.0%

Operating income 13 6 7 NM

Operating income 19 19 — —%

Operating margin 4.3 % 4.4 %

Home Appliances net sales for the three months ended June 30, 2021 increased 19%, which reflects strong demand, primarily in Latin America .

The second quarter performance also r eflects the lapping of the prior-year impact of government-imposed country-wide shutdowns resulting from the COVID-19 pandemic .

Home Appliances net sales for the three months ended September 30, 2021 increased 3%, which reflects strong demand, primarily in Latin America, partially offset by the lapping of the prior-year-period surge in consumer demand, as well as supply chain shortages and logistical constraints.

Changes in foreign currency favorably impacted net sales by $5 million, or 1%.

Operating income for the three months ended June 30, 2021 was $13 million as compared to $6 million in the prior year period.

The improvement in operating results is primarily due to gross profit leverage primarily from Latin American sales, pricing and gross productivity, partially offset by significant input cost inflation associated with transportation costs and sourced finished goods, as well as higher advertising and promotional costs.

Operating income for both the three months ended September 30, 2021 and 2020 was $19 million.

The gross profit performance reflected favorable net pricing and gross productivity, mostly offset by significant input cost inflation associated with transportation costs and sourced finished goods, as well as higher advertising and promotional costs.

Home Solutions

Three Months Ended

September 30,

(in millions) 2021 2020 $ Change % Change

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Operating margin 12.5 % 19.7 %

Home Solutions net sales for the three months ended June 30, 2021 increased 37%, due to strong sales performance in the Food and Home Fragrance business units.

The increase in Food business unit sales reflected increased demand across the fresh preserving, food storage and cookware and bakeware categories.

The increase in Home Fragrance sales was primarily due to increases in the wholesale channel, Yankee Candle retail stores and international markets.

The increase in net sales in the Home Fragrance business also reflected the lapping of the prior-year impact of temporary retail store closures and supply chain disruptions resulting from the temporary closure of a key Home Fragrance manufacturing facility in Massachusetts, both resulting from the COVID-19 pandemic.

In addition, net sales reflected the negative impact of the exit of five underperforming Yankee Candle retail stores.

Home Solutions net sales for the three months ended September 30, 2021 decreased 4%, primarily reflecting a decrease in the Food business unit which reflects the lapping of the prior-year period surge in consumer demand for food storage, vacuum sealing and cookware and bakeware categories, as well as supply chain shortages and logistical constraints.

This performance was partially offset by increased demand in the fresh preserving category.

Home Fragrance sales were down slightly which reflects the negative impact of the permanent Yankee Candle retail store closures in the prior year, as well as supply chain shortages and logistical constraints.

Changes in foreign currency favorably impacted net sales by $7 million, or 1%.

Operating income for the three months ended June 30, 2021 increased to $53 million as compared to $29 million in the prior year period.

The increase in operating income is primarily due to gross profit leverage, including the lapping of the prior year absorption impact associated with the temporary closure of a key Home Fragrance manufacturing facility in Massachusetts, pricing and the lapping of the non-cash impairment charge of $5 million, related to the operating leases of Yankee Candle retail store business.

The increase in operating income was partially offset by significant input cost inflation for commodities, primarily resin, sourced finished goods, transportation and labor, as well as higher advertising and promotional costs.

Operating income for the three months ended September 30, 2021 decreased to $75 million as compared to $123 million in the prior year period.

The decrease in operating income is primarily due to lower gross profit leverage and significant input cost inflation for commodities, primarily resin, wax and glass, sourced finished goods, transportation and labor.

The operating margin decline reflected, in part, a timing lag between inflation and the full impact of responsive pricing actions.

This decrease was partially offset by favorable net pricing and gross productivity as well as cost savings from Yankee Candle retail store closures.

Learning and Development

Three Months Ended

September 30,

(in millions) 2021 2020 $ Change % Change

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Operating margin 22.4 % 21.7 %

Learning and Development net sales for the three months ended June 30, 2021 increased 34% due to strong sales performance in the Baby and Parenting and Writing business units as they lap the negative prior-year impact of shifting consumer demand and store closures and supply chain disruptions resulting from the COVID-19 pandemic.

The Baby and Parenting business unit performance reflected increased demand in the baby gear and infant care categories.

The Writing unit performance reflected strong demand in the pens, markers, fine writing and labeling categories due to the gradual reopening of more schools and offices, partially offset by previous divestitures and product line exits.

Learning and Development net sales for the three months ended September 30, 2021 increased 19% due to strong sales performance in the Baby and Writing business units as they lapped the negative prior-year impact of shifting consumer demand and the impact of government shutdowns in Latin America resulting from the COVID-19 pandemic.

The Baby business unit performance reflected increased demand in the baby gear category, driven in part by government-related stimulus spending.

The Writing unit performance reflected increased demand in the pens, markers, fine writing and adhesion categories driven by the return to in-person learning and the gradual reopening of more offices, partially offset by a product line exit in the prior-year period as well as supply chain shortages and logistical constraints.

Changes in foreign currency favorably impacted net sales by $4 million, or 1%.

Operating income for the three months ended June 30, 2021 increased to $217 million as compared to $126 million in the prior-year period.

The increase in operating income is primarily due to gross profit leverage, including the prior year absorption impact of certain temporary manufacturing closures, partially offset by higher tariff costs, significant input cost inflation for commodities, primarily resin, transportation and labor, as well as higher advertising and promotional costs.

Operating income for the three months ended September 30, 2021 increased to $195 million as compared to $158 million in the prior-year period.

The increase in operating income is primarily due to gross profit leverage, gross productivity and favorable net pricing, partially offset by higher tariff costs, significant input cost inflation for commodities, primarily resin, transportation and labor, as well as higher advertising and promotional costs.

Outdoor and Recreation

Three Months Ended

September 30,

(in millions) 2021 2020 $ Change % Change

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Operating margin 6.9 % 10.2 %

Outdoor and Recreation net sales for the three months ended June 30, 2021 increased 28% primarily due to improvement in consumer purchasing patterns for outdoor related products, heating and lighting products, apparel and beverage products.

The increase in net sales also reflected the lapping of the negative prior-year impact of lower demand and store closures resulting from the COVID-19 pandemic.

Changes in foreign currency favorably impacted net sales by $12 million or 3%.

Operating income for the three months ended June 30, 2021 was $48 million as compared to operating income of $24 million.

This improvement was primarily due to gross profit leverage, partially offset by significant input cost inflation for commodities, primarily resin, sourced finished goods and transportation, as well as higher advertising and promotional costs.

Six Months Ended June 30, 2021 vs.

Six Months Ended June 30, 2020

Outdoor and Recreation net sales for the three months ended September 30, 2021 increased 2% primarily due to growth in outdoor equipment, beverage and cooler products, partially offset by a decline in apparel.

Net sales growth was negatively impacted by the lapping of the prior-year period surge in consumer demand, as well as supply chain shortages and logistical constraints.

Changes in foreign currency favorably impacted net sales by $1 million.

Operating income for the three months ended September 30, 2021 was $27 million as compared to $39 million in the prior-year period.

This decrease was primarily due to significant input cost inflation for commodities, primarily resin, sourced finished goods and transportation, partially offset by favorable net pricing and gross productivity.

The operating margin decline reflected, in part, a timing lag between inflation and the full impact of responsive pricing actions.

Nine Months Ended September 30, 2021 vs.

Nine Months Ended September 30, 2020

Consolidated Operating Results

Six Months Ended

Nine Months Ended

September 30,

(in millions) 2021

14 unchanged sentences

Net sales increased 16%, with all segments and major geographic regions showing growth.

This growth reflects strong demand from e-commerce channels and large retail store customers for the food preparation and storage, baby care, cleaning and sanitation, writing, labeling, scented candle, beverage and outdoor categories.

This growth reflects increased demand for the food preparation and storage, beverage appliances, baby care, cleaning and sanitation, writing, labeling, scented candle, beverage and outdoor categories.

Net sales growth was negatively impacted by supply chain shortages and logistical challenges which the Company expects to continue through the remainder of 2021.

Changes in foreign currency favorably impacted net sales by $118 million, or 2%.

Gross profit increased 26% and gross profit margin improved to 32.3% as compared with 32.0% in the prior year period.

negative high-single-digit-percentage impact to costs of products sold.

Gross profit increased 12% compared to prior year.

Gross profit margin declined to 31.6% as compared with 32.8% in the prior year period.

The increase in gross profit was driven by gross volume leverage, gross productivity, mix and favorable net pricing, partially offset by significant input cost inflation for commodities, primarily resin, sourced finished goods, transportation and labor, which had a negative high-single-digit-percentage impact to costs of products sold.

The gross margin decline reflected, in part, a timing lag between inflation and the full impact of responsive pricing actions.

Changes in foreign currency exchange rates favorably impacted gross profit by $36 million, or 2%.

In addition to the increase in net sales and gross profit noted above, notable items impacting operating income (loss) for the six months ended June 30, 2021 and 2020 are as follows:

Six Months Ended

In addition to the change in gross profit noted above, notable items impacting operating income (loss) for the nine months ended September 30, 2021 and 2020 are as follows:

Nine Months Ended

September 30,

2021 2020 $ Change

2 unchanged sentences

Transactions and other costs 17 20 (3)

Operating income increased to $497 million as compared to an operating loss of $1.2 billion in the prior year period.

Operating income increased to $778 million as compared to an operating loss of $882 million in the prior year period.

The operating results in the prior year period included $1.5 billion of non-cash impairment charges of goodwill, certain indefinite-lived intangible and other assets.

The current period performance reflected the higher gross profit noted above, cost savings from Yankee Candle retail store closures, and lower restructuring and restructuring-related charges, partially offset by higher discretionary spending, incentive compensation expense and advertising and promotional costs.

The year-over-year comparison of the Company's operating results from the first half of 2021 to the first half of the prior year reflects the impact of the most depressed consumption levels resulting from the COVID-related lockdowns which occurred in the second quarter of 2020.

Interest expense, net decreased primarily due to lower debt level.

The weighted average interest rates for the six months ended June 30, 2021 and 2020 were approximately 4.8% and 4.4%, respectively.

The current period performance reflected the gross profit performance noted above and cost savings from Yankee Candle retail store closures, partially offset by higher incentive compensation expense and advertising and promotional costs.

The year-over-year comparison of the Company's operating results to the prior year reflects the impact of the most depressed consumption levels resulting from the COVID-19 related lockdowns which occurred in the second quarter of 2020, and the lapping of the improved operating performance in the second half of 2020, as the Company's manufacturing sites and Yankee Candle stores were reopened, other retail stores were reopened, and consumer demand for certain categories returned.

In addition, comparability of the Company's operating results for the remainder of 2021 will be impacted by the volatility and uncertainty of the direction of future demand patterns, as well as the potential for continued inflation and supply chain shortages and logistical challenges.

Interest expense, net decreased primarily due lower debt levels.

The weighted average interest rates for the nine months ended September 30, 2021 and 2020 were approximately 4.7% and 5.0%, respectively.

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

Other (income) expense, net for six months ended June 30, 2021 and 2020 includes the following items:

Six Months Ended

Other (income) expense, net for nine months ended September 30, 2021 and 2020 includes the following items:

Nine Months Ended

September 30,

Foreign exchange losses, net $ 5 $ 11

Fair value equity adjustments (See Footnote 14) (1) 1

Loss on disposition of businesses 2 —

Loss on disposition of businesses (See Footnote 1) 2 9

Other gains, net (9) (1)

Income tax provision for the six months ended June 30, 2021 was $83 million as compared to income tax benefit for the six months ended June 30, 2020 of $189 million.

The effective tax rate for the six months ended June 30, 2021 was 22.5% as compared to benefit of 13.6% for the six months ended June 30, 2020.

The change in effective tax provision is driven primarily by the impact of goodwill impairment charges, the geographic mix of where the income was earned as well as certain taxable income inclusion items in the U.S.

The income tax provision for the nine months ended September 30, 2021 was $108 million as compared to an income tax benefit for the nine months ended September 30, 2020 of $210 million.

The effective tax rate for the nine months ended September 30, 2021 was 18.5% as compared to 19.0% for the nine months ended September 30, 2020.

The change in effective tax provision is driven primarily by the impact of goodwill impairment charges in the prior-year period, 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 and certain discrete items.

In addition, income tax expense for the six months ended June 30, 2021 included a discrete benefit of $13 million associated with a reduction in valuation allowance related to the integration of certain U.K.

The income tax provision for the nine months ended September 30, 2021 included discrete benefits of $37 million associated with a reduction in valuation allowance related to the integration of certain Luxembourg operations, $13 million associated with a reduction in valuation allowance related to the integration of certain U.K.

operations and $9 million related to statute of limitation expiration in France.

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Commercial Solutions

Six Months Ended

Nine Months Ended

September 30,

(in millions) 2021 2020 $ Change % Change

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NM - NOT MEANINGFUL

Commercial Solutions net sales for the six months ended June 30, 2021 increased 17%, which reflected sales growth in both the Commercial and Connected Home and Security business units.

The Commercial business unit performance reflected increased demand in hand protection, cleaning, outdoor and organization categories, partially offset by a decline in consumable washroom cleaning products.

Commercial Solutions net sales for the nine months ended September 30, 2021 increased 7%, which reflected sales growth in both the Commercial and Connected Home and Security business units.

The Commercial business unit performance reflected increased demand in the hand protection, cleaning, outdoor and organization categories, partially offset by a decline in consumable washroom products as well as supply chain shortages and logistical constraints.

The increase in net sales in the Connected Home and Security business unit was primarily due to higher demand from retail and contractor channels, and higher sales in certain areas impacted by inclement weather in certain parts of the U.S.

The increase in net sales in the Connected Home and Security business also reflected the lapping of the prior-year impact of lower demand and store closures, as well as supply chain constraints resulting from the COVID-19 pandemic.

The increase in net sales in the Connected Home and Security business also reflected the lapping of the prior-year impact of lower demand and store closures, partially offset by supply chain shortages and logistical constraints.

Changes in foreign currency favorably impacted net sales by $16 million, or 1%.

Operating income for the six months ended June 30, 2021 was $93 million as compared to an operating loss of $234 million in the prior year.

Operating income for the nine months ended September 30, 2021 was $111 million as compared to an operating loss of $150 million in the prior year.

The improvement in operating result is primarily due to the lapping of prior year non-cash impairment charges of certain indefinite-lived intangible assets, as well as gross profit leverage, including the lapping of the prior-year absorption impact associated with the temporary closure of a key Connected Home and Security manufacturing facility in Mexico, as a result of the COVID-19 pandemic, gross productivity and lower discretionary spending.

The increase in operating income was partially offset by significant input cost inflation for commodities, primarily resin, sourced finished goods, transportation and labor.

The operating margin in the current year was negatively impacted by a timing lag between inflation and the full impact of responsive pricing actions.

Home Appliances

Six Months Ended

Nine Months Ended

September 30,

(in millions) 2021 2020 $ Change % Change

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NM - NOT MEANINGFUL

Home Appliances net sales for the six months ended June 30, 2021 increased 28%, which reflects sales growth driven by strong demand across all major geographic regions.

Home Appliances net sales for the nine months ended September 30, 2021 increased 17%, which reflects sales growth driven by strong demand across all major geographic regions, partially offset by supply chain shortages and logistical constraints.

Changes in foreign currency favorably impacted net sales by $16 million, or 2%.

Operating income for the six months ended June 30, 2021 was $16 million as compared to an operating loss of $293 million in the prior year period.

offset by significant input cost inflation associated with sourced finished goods and transportation, as well as higher advertising and promotional costs.

Operating income for the nine months ended September 30, 2021 was $35 million as compared to an operating loss of $274 million in the prior year period.

The improvement in operating result is primarily due to the lapping of prior year non-cash impairment charges of goodwill and certain indefinite-lived intangible assets, as well as gross profit leverage, gross productivity and pricing, partially offset by significant input cost inflation associated with sourced finished goods and transportation, as well as higher labor costs and advertising and promotional costs.

Home Solutions

Six Months Ended

Nine Months Ended

September 30,

(in millions) 2021 2020 $ Change % Change

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NM - NOT MEANINGFUL

Home Solutions net sales for the six months ended June 30, 2021 increased 35%, due to strong sales performance in the Food and Home Fragrance business units.

The increase in Food business unit sales reflected increased demand across the vacuum sealing, fresh preserving, food storage and cookware and bakeware categories.

The increase in Home Fragrance sales was primarily due to increases in the wholesale channel and Yankee Candle retail stores, primarily in the U.S., and an increase in international markets, partially offset by permanent Yankee Candle retail store closures in the prior year.

Home Solutions net sales for the nine months ended September 30, 2021 increased 18%, due to strong sales performance in the Food and Home Fragrance business units.

The increase in Food business unit sales reflected increased demand across the vacuum sealing, fresh preserving, food storage and cookware and bakeware categories, partially offset by supply chain shortages and logistical constraints.

The increase in Home Fragrance sales was primarily due to increases in the wholesale channel and Yankee Candle retail stores, primarily in the U.S., and an increase in international markets, partially offset by supply chain shortages and logistical constraints as well as permanent Yankee Candle retail store closures in the prior year.

The increase in net sales in the Home Fragrance business also reflected the lapping of the prior-year impact of temporary retail store closures and supply chain disruptions resulting from temporary closure of its key manufacturing facility in Massachusetts, both resulting from the COVID-19 pandemic.

Changes in foreign currency favorably impacted net sales by $31 million, or 2%.

Operating income for the six months ended June 30, 2021 increased to $114 million as compared to a $272 million operating loss in the prior year period.

Operating income for the nine months ended September 30, 2021 increased to $189 million as compared to a $149 million operating loss in the prior-year period.

The increase in operating income is primarily due to the lapping of prior year non-cash impairment charges of goodwill, certain indefinite-lived intangible assets and other assets, gross profit leverage, including the lapping of the prior year absorption impact associated with the temporary closure of a key Home Fragrance manufacturing facility in Massachusetts, and pricing.

The increase in operating income also reflected savings from Yankee Candle retail store closures in the prior year and the exiting of its fundraising business in the prior year.

The operating margin in the current year was negatively impacted by a timing lag between inflation and the full impact of responsive pricing actions.

Learning and Development

Six Months Ended

Nine Months Ended

September 30,

(in millions) 2021 2020 $ Change % Change

Net sales $ 2,330 $ 1,887 $ 443 23.5%

Operating income 327 130 197 NM

Operating income 522 288 234 81.3%

Operating margin 22.4 % 15.3 %

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Impairment of goodwill and other intangible assets (See Footnote 6) $ — $ 80

NM - NOT MEANINGFUL

Learning and Development net sales for the six months ended June 30, 2021 increased 26% due to strong sales performance in the Baby and Parenting and Writing business units as they lap the negative prior-year impact of shifting consumer demand and store closures and supply chain disruption resulting from the COVID-19 pandemic.

The Baby and Parenting business unit performance reflected increased demand in the baby gear and infant care categories.

The Writing unit performance reflected strong demand in

the pens, markers, fine writing and labeling categories, due to the gradual reopening of more schools and offices, partially offset by previous divestitures and product line exits.

Learning and Development net sales for the nine months ended September 30, 2021 increased 24% due to strong sales performance in the Baby and Parenting and Writing business units as they lap the negative prior-year impact of shifting consumer demand and store closures and supply chain disruption resulting from the COVID-19 pandemic.

The Baby business unit performance reflected increased demand in the baby gear and infant care categories, driven in part by government-related stimulus spending.

The Writing unit performance reflected strong demand in the pens, markers, fine writing and labeling categories, driven by return to in-person learning and gradual reopening of more offices, partially offset by previous divestitures and product line exits as well as supply chain shortages and logistical constraints.

Changes in foreign currency favorably impacted net sales by $35 million, or 2%.

Operating income for the six months ended June 30, 2021 increased to $327 million as compared to $130 million in the prior-year period.

Operating income for the nine months ended September 30, 2021 increased to $522 million as compared to $288 million in the prior-year period.

The increase in operating income is primarily due to the lapping of prior year non-cash impairment charges of certain indefinite-lived intangible assets and gross profit leverage, including the prior year absorption impact of certain temporary manufacturing closures, partially offset by higher tariff costs, significant input cost inflation for commodities, primarily resin, sourced finished goods, transportation and labor, as well as higher advertising and promotional costs.

Outdoor and Recreation

Six Months Ended

Nine Months Ended

September 30,

(in millions) 2021 2020 $ Change % Change

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NM - NOT MEANINGFUL

Outdoor and Recreation net sales for the six months ended June 30, 2021 increased 20% primarily due to improvement in consumer purchasing patterns for outdoor related products as well as heating and lighting products.

Outdoor and Recreation net sales for the nine months ended September 30, 2021 increased 13% primarily due to improvement in consumer purchasing patterns for outdoor equipment, partially offset by supply chain shortages and logistical constraints.

The increase in net sales also reflected the lapping of the negative prior-year impact of lower demand and store closures resulting from the COVID-19 pandemic.

Changes in foreign currency favorably impacted net sales by $20 million or 2%.

Operating income for the six months ended June 30, 2021 was $63 million as compared to an operating loss of $450 million.

Operating income for the nine months ended September 30, 2021 was $90 million as compared to an operating loss of $411 million.

This improvement was primarily due to the lapping of prior year non-cash impairment charges of certain indefinite-lived intangible assets and gross profit leverage, partially offset by significant input cost inflation for commodities, primarily resin, sourced finished goods and transportation.

The operating margin in the current year was negatively impacted by a timing lag between inflation and the full impact of responsive pricing actions.

Liquidity and Capital Resources

The Company has the ability to borrow under its existing Accounts Receivable Securitization Facility (the “Securitization Facility”) and Revolving Credit Facility (the "Credit Revolver").

At June 30, 2021, the Company had no outstanding drawings against the Securitization Facility and Credit Revolver.

At September 30, 2021, the Company had no outstanding drawings against the Securitization Facility and Credit Revolver.

The Company currently believes its capital structure and cash resources can continue to support the funding of future dividends and will continue to evaluate all actions to strengthen its financial position and balance sheet, and to maintain its financial liquidity, flexibility and capital allocation strategy.

At June 30, 2021, the Company had cash and cash equivalents of approximately $637 million, of which approximately $601 million was held by the Company’s non-U.S.

At September 30, 2021, the Company had cash and cash equivalents of approximately $494 million, of which approximately $443 million was held by the Company’s non-U.S.

subsidiaries.

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The Company’s cash requirements are subject to change as business conditions warrant.

Although the Company continued to see improved sales performance during the first half of 2021, the extent of the impact of the COVID-19 pandemic to the Company's future sales, operating results, cash flows, liquidity and financial condition will continue to be driven by numerous evolving factors that the Company is not able to accurately predict and which will vary by jurisdiction and market, including severity and duration of the pandemic, the emergence of new strains and variants of the coronavirus, the likelihood of a resurgence of positive cases, the development and availability of effective treatments and vaccines, especially in areas where conditions have recently worsened and lockdowns or travel bans have been reinstituted, the rate at which vaccines are administered to the general public, the timing and amount of fiscal stimulus and relief programs

packages that are available to the general public, and any changes in consumer demand patterns for the Company's products as the impact of the global pandemic lessens.

The Company believes the extent of the impact of the COVID-19 pandemic to its future sales, operating results, cash flows, liquidity and financial condition will continue to be driven by numerous evolving factors that the Company is not able to accurately predict and which will vary by jurisdiction and market, including severity and duration of the pandemic, the emergence of new strains and variants of the coronavirus, the likelihood of a resurgence of positive cases, the development and availability of effective treatments and vaccines, especially in areas where conditions have recently worsened and lockdowns or travel bans have been reinstituted, the rate at which vaccines are administered to the general public, the timing and amount of fiscal stimulus and relief programs packages that are available to the general public, and any changes in consumer demand patterns for the Company's products as the impact of the global pandemic lessens.

Any such material adverse impacts could result in the Company's inability to satisfy financial maintenance covenants and could limit the ability to make future borrowings under existing debt instruments.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company's most recent Annual Report on Form 10-K, filed on February 18, 2021.

Cash, cash equivalents and restricted cash increased (decreased) as follows for the six months ended June 30, 2021 and 2020 (in millions):

Cash, cash equivalents and restricted cash increased (decreased) as follows for the nine months ended September 30, 2021 and 2020 (in millions):

2021 2020 Increase (Decrease)

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Cash used in investing activities (180) (138) (42)

Cash provided by (used in) financing activities (334) 239 (573)

Cash used in financing activities (800) (174) (626)

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

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As a result of the S&P and Moody's downgrades, the Company could no longer borrow from the commercial paper market on terms it deems acceptable or favorable.

Previously, the Company was able to issue commercial paper up to a maximum of $800 million provided there was a sufficient amount available for borrowing under the Company’s $1.25 billion revolving credit facility that matures in December 2023 (“the Credit Revolver”).

Previously, the Company was able to issue commercial paper up to a maximum of $800 million provided there was a sufficient amount available for borrowing under the Credit Revolver.

The Company’s ability to borrow under the Credit Revolver was not affected by the downgrades.

The interest rate for borrowings under the Credit Revolver is the borrowing period referenced the London Interbank Offered Rate (“LIBOR”) rate plus 127.5 basis points.

At June 30, 2021, the Company did not have any amounts outstanding under the Credit Revolver.

At September 30, 2021, the Company did not have any amounts outstanding under the Credit Revolver.

The Credit Revolver requires the maintenance of certain financial covenants.

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However, if economic conditions caused by the COVID-19 pandemic do not continue to improve or otherwise worsen, including as a result of any new virus variants or vaccine distribution or efficacy, our earnings and operating cash flows could be negatively impacted, which could impact our ability to maintain compliance with our financial covenants and require us to seek amendments to the Credit Revolver.

In addition, certain of the Company’s outstanding senior notes aggregating to approximately $4.2 billion were subjected to an interest rate adjustment of 25 basis points as a result of the Moody's and S&P downgrades, for a total of 50 basis points.

The Fitch downgrade did not impact the interest rates on any of the Company's senior notes.

Furthermore, the Company may be required to pay a higher interest rate in future financings, and its potential pool of investors and funding sources could decrease as a result of the downgrades.

Cash Flows from Operating Activities

The change in net cash used in operating activities reflects inventory build to support forecasted demand and higher annual incentive compensation payments, partially offset by benefits from extension of payment terms for goods and services with vendors and higher accounts receivable sold under the Customer Receivables Purchase Agreement in the current year.

The change in net cash provided by operating activities reflects inventory build to support forecasted demand and higher annual incentive compensation payments, partially offset by benefits from extension of payment terms for goods and services with vendors and higher accounts receivable sold under the Customer Receivables Purchase Agreement in the current year.

In addition, this performance reflects the impact of the COVID-19 pandemic in the prior year, which included lower operating results and favorable working capital performance.

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Cash Flows from Financing Activities

The change in net cash used in financing activities was primarily due to proceeds from the issuance of senior notes in the prior year and payments of long-term debt in the current year.

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

The change in net cash used in financing activities was primarily due to proceeds from the issuance of senior notes in the prior year and payments of long-term debt in the current year as well as the acquisition of noncontrolling interests.

See Footnotes 1 and 8 of the Notes to the Unaudited Condensed Consolidated Financial Statements for further information.

Capital Resources

On March 1, 2021, the Company redeemed its 3.15% senior notes that were scheduled to mature in April 2021 at a redemption price equal to 100% of the outstanding aggregate principal amount of the notes, plus accrued and unpaid interest to the Redemption Date.

On October 15, 2021 the Company delivered a notice of redemption to the holders of the 4.00% senior notes due June 2022 (the “June 2022 Notes”) that the Company will redeem the June 2022 Notes on November 22, 2021 for a redemption price equal to the current outstanding aggregate principal amount of the notes, subject to a customary make-whole premium, plus accrued and unpaid interest to the date of redemption.

On March 1, 2021, the Company redeemed its 3.15% senior notes due April 2021 (the “April 2021 Notes”) at a redemption price equal to 100% of the outstanding aggregate principal amount of the notes, plus accrued and unpaid interest to the redemption date.

During the first quarter of 2021, the Company repurchased $5 million of the 3.85% senior notes due 2023 at approximately 5% above par value.

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Prior to the Moody’s and S&P downgrades discussed above, the Credit Revolver provided the committed backup liquidity required to issue commercial paper.

At June 30, 2021, there were no commercial paper borrowings.

At September 30, 2021, there were no commercial paper borrowings.

In addition, there were approximately $23 million of outstanding standby letters of credit issued against the Credit Revolver and there were no borrowings outstanding under the Credit Revolver.

At June 30, 2021, the net availability under the Credit Revolver was approximately $1.23 billion.

At September 30, 2021, the net availability under the Credit Revolver was approximately $1.23 billion.

The Company maintains an Accounts Receivable Securitization Facility.

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The maximum availability under the Securitization Facility fluctuates based on eligible accounts receivable balances.

At June 30, 2021, the Company did not have any amounts outstanding under the Securitization Facility.

Factored receivables at the end of the second quarter of 2021 associated with the existing factoring agreement (the “Customer Receivables Purchase Agreement”) were approximately $450 million, an increase of approximately $100 million from December 31, 2020.

At September 30, 2021, the Company did not have any amounts outstanding under the Securitization Facility.

Factored receivables at the end of the third quarter of 2021 associated with the existing factoring agreement (the “Customer Receivables Purchase Agreement”) were approximately $450 million, an increase of approximately $100 million from December 31, 2020.

Transactions under this agreement continue to be 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.

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The Company records the discount as other (income) expense, net in the Condensed Consolidated Statement of Operations and collections of accounts receivables not yet submitted to the financial institution as a financing cash flow.

The Company was in compliance with all of its debt covenants under these instruments at June 30, 2021.

The Company was in compliance with all of its debt covenants under these instruments at September 30, 2021.

Risk Management

8 unchanged sentences

Fair Value Hedges

At June 30, 2021, the Company had approximately $100 million notional amount of interest rate swaps that exchange a fixed rate of interest for variable rate (LIBOR) of interest plus a weighted average spread.

At September 30, 2021, the Company had approximately $100 million notional amount of interest rate swaps that exchange a fixed rate of interest for variable rate (LIBOR) of interest plus a weighted average spread.

These floating rate swaps are designated as fair value hedges against $100 million of principal on the 4.00% senior notes due 2024 for the remaining life of the note.

2 unchanged sentences

The Company uses cross-currency swaps to hedge foreign currency risk on certain financing arrangements.

The Company previously entered into two cross-currency swaps with an aggregate notional amount of $900 million which were 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.

With these cross-currency swaps, which mature in January and February 2025, respectively, the Company pays a fixed rate of Euro-based interest and receives a fixed rate of U.S.

The Company previously entered into two cross-currency swaps, maturing in January and February 2025, respectively, with an aggregate notional amount of $900 million.

During the third quarter of 2021, the Company entered into another cross-currency swap with a notional amount of $358 million, maturing in September 2027.

Each of these cross-currency swaps were 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 fixed rate of Euro-based interest and receives a fixed rate of U.S.

dollar interest.

The Company has elected the spot method for assessing the effectiveness of these contracts.

During the three and six months ended June 30, 2021, the Company recognized income of $3 million and $7 million, respectively, in interest expense, net, related to the portion of cross-currency swaps excluded from hedge effectiveness testing.

During the three and nine months ended September 30, 2021, the Company recognized income of $4 million and $11 million, respectively, in interest expense, net, related to the portion of cross-currency swaps excluded from hedge effectiveness testing.

During the three and nine months ended September 30, 2020, the Company recognized income of $3 million and $10 million, 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 and have maturity dates through June 2022.

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 statements of operations as the underlying hedged item.

At June 30, 2021, the Company had approximately $464 million notional amount outstanding of forward foreign currency contracts that are designated as cash flow hedges of forecasted inventory purchases and sales.

At September 30, 2021, the Company had approximately $525 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 contracts, to mitigate the exposure of foreign currency transactions.

At June 30, 2021, the Company had approximately $988 million notional amount outstanding of these foreign currency contracts that are not designated as effective hedges for accounting purposes and have maturity dates through May 2022.

At September 30, 2021, the Company had approximately $1.0 billion notional amount outstanding of these foreign currency contracts that are not designated as effective hedges for accounting purposes and have maturity dates through September 2022.

Fair market value gains or losses are included in the results of operations and are classified in other (income) expense, net.

The following table presents the net fair value of derivative financial instruments (in millions):

September 30,

Derivatives designated as effective hedges:

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The Company’s operations are comprised of eight reporting units, within its five primary operating segments.

During the first quarter of 2020, the Company concluded that an impairment-triggering event had occurred for all of its reporting

units as the Company has experienced significant COVID-19 related disruption to its business in three primary areas:

During the first quarter of 2020, the Company concluded that an impairment-triggering event had occurred for all of its reporting units as the Company experienced significant COVID-19 related disruption to its business in three primary areas:

supply chain, as certain manufacturing and distribution facilities were temporarily closed in line with government guidelines;

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and the estimation of future cash flows, business growth rates, terminal values, discount rates and total enterprise value.

The income approach used is the discounted cash flow methodology and is based on five-year cash flow projections.

The income approach used is the discounted cash flow

methodology and is based on five-year cash flow projections.

The cash flows projected are analyzed on a “debt-free” basis (before cash payments to equity and interest-bearing debt investors) in order to develop an enterprise value from operations for the reporting unit.

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As a result of the impairment testing performed in connection with the COVID-19 global pandemic triggering event, the Company determined that its goodwill associated with its Home Appliances and Home Solutions segments were impaired.

During the six months ended June 30, 2020, the Company recorded an aggregate non-cash charge of $212 million to reflect the impairments of goodwill as the reporting unit carrying values exceeded their fair values.

During the nine months ended September 30, 2020, the Company recorded an aggregate non-cash charge of $212 million to reflect the impairments of goodwill as the reporting unit carrying values exceeded their fair values.

Indefinite-lived intangibles

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As a result of the impairment testing performed in connection with the COVID-19 pandemic triggering event during the first quarter of 2020, the Company determined that certain of its indefinite-lived intangible assets in all of its operating segments were impaired.

During the six months ended June 30, 2020, the Company recorded impairment charges of $1.3 billion to reflect impairment of these indefinite-lived trade names because their carrying values exceeded their fair values.

During the nine months ended September 30, 2020, the Company recorded impairment charges of $1.3 billion to reflect impairment of these indefinite-lived trade names because their carrying values exceeded their fair values.

In addition, during the third quarter of 2020, the Company concluded that a triggering event had occurred for an indefinite-lived intangible asset in the Learning and Development segment as a result of a product line divestiture.

During the three and nine months ended September 30, 2020, the Company recorded a non-cash charge of $2 million to reflect the impairment of this indefinite-lived intangible asset.

The Company believes the circumstances and global disruption caused by COVID-19 may continue to affect its businesses, future

operating results, cash flows and financial condition and that the scope and duration of the pandemic is highly uncertain.

In addition, some of the other inherent estimates and assumptions used in determining fair value of the reporting units are outside the control of management, including interest rates, cost of capital, tax rates, industry growth, credit ratings, foreign exchange rates, and inflation.

Given the uncertainty of these factors, as well as the inherent difficulty in predicting the severity and duration of the COVID-19 global pandemic and associated recovery and the uncertainties regarding the potential financial impact on the Company's business and the overall economy, there can be no assurance that the Company's estimates and assumptions made for purposes of the goodwill and indefinite-lived intangible asset impairment testing performed during the fourth quarter of 2020 will prove to be accurate predictions of the future.

Given the uncertainty of these factors, as well as the inherent difficulty in predicting the severity and duration of the COVID-19 global pandemic and associated recovery and the uncertainties regarding the potential financial impact on the Company's business and the overall economy as discussed further in Footnote 1 , there can be no assurance that the Company's estimates and assumptions will prove to be accurate predictions of the future.

Although management has made its best estimates based upon current information, actual results could materially differ from those estimates and may require future changes to such estimates and assumptions.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis