What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-04-29 compared with 2021-10-29 · 161 added, 338 removed, 188 unchanged (73% of the section changed)

8 unchanged sentences

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, as well as the impact of any vaccine mandates on our global businesses;

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

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

• competition with other manufacturers and distributors of consumer products;

• major retailers’ strong bargaining power and consolidation of the Company’s customers;

• changes in the prices and availability of labor, transportation, raw materials and sourced products, including significant inflation, and the Company's ability to obtain them in a timely manner;

• changes in the prices and availability of labor, transportation, raw materials and sourced products, including significant inflation, and the Company's ability to obtain them in a timely manner and to offset cost increases through pricing and productivity;

• 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 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 17 of the Notes to the Unaudited 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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• future events that could adversely affect the value of the Company’s assets and/or stock price and require additional impairment charges;

• unexpected costs or expenses associated with divestitures;

• the Company's ability to complete planned divestitures, and other unexpected costs or expenses associated with dispositions;

• our ability to effectively execute our turnaround plan;

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• a failure or breach of one of the Company’s key information technology systems, networks, processes or related controls or those of the Company’s service providers;

• the impact of United States or foreign regulations on the Company’s operations, including the impact of tariffs and environmental remediation costs;

• the impact of United States and foreign regulations on the Company’s operations, including the impact of tariffs and environmental remediation costs and legislation and regulatory actions related to climate change;

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

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In addition, there can be no assurance that the Company has correctly identified and assessed all of the factors affecting the Company or that the publicly available and other information the Company receives with respect to these factors is complete or correct.

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 a leading global consumer goods company with a strong portfolio of well-known brands, including Rubbermaid, FoodSaver, Calphalon, Sistema, Sharpie, Paper Mate, Dymo, EXPO, Elmer’s, Yankee Candle, Graco, NUK, Rubbermaid Commercial Products, Spontex, Coleman, Campingaz, Contigo, Oster, Sunbeam and Mr.

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.

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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 reducing complexity and addressing key challenges facing the Company.

These challenges include:

shifting consumer preferences and behaviors;

The strategy, developed in 2019, is designed to:

• Drive sustainable top line growth by focusing on innovation, sharpening brand positioning, strengthening the international businesses, enhancing digital marketing and omni-channel capabilities, and building customer relationships;

• Improve operating margins by driving productivity and overhead savings, while reinvesting in the business;

• Accelerate cash conversion cycle by focusing on cash efficiency and improving key working capital metrics;

• Strengthen the portfolio by investing in attractive categories that are aligned with its capabilities and strategy and optimizing product mix;

• Strengthen organizational capabilities and employee engagement by building a winning team and focusing the best people on the right things.

The Company is implementing this strategy while addressing key challenges such as shifting consumer preferences and behaviors;

a highly competitive operating environment;

a rapidly changing retail landscape, including growth in e-commerce;

continued macroeconomic and political volatility and an evolving regulatory landscape.

The COVID-19 pandemic and its impact to the Company’s business resulted in the acceleration of these initiatives in many respects.

The Company has made significant progress on the following imperatives it previously identified as part of its turnaround strategy:

• Strengthening the portfolio by investing in attractive categories aligned with its capabilities and strategy;

• 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 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, 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.

a rapidly changing retail landscape;

continued macroeconomic and geopolitical volatility;

significant inflationary and supply chain pressures, and an evolving regulatory landscape.

The coronavirus (COVID-19) pandemic and its impact to the Company’s business resulted in the acceleration of the turnaround initiatives in many respects.

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 growth.

One such initiative that was announced in the third quarter of 2021 is Project Ovid, a multi-year, customer centric supply chain initiative to transform the Company's go-to-market capabilities in the U.S., improve customer service levels and drive operational efficiencies.

This initiative is expected to leverage technology to further simplify the organization by harmonizing and automating processes.

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.

The initiative is intended to reduce administrative complexity, improve inventory and invoicing workflow for our customers and enhance product availability for consumers through omni-channel enablement.

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

Organizational Structure

On March 31, 2022, the Company sold its Connected Home & Security (“CH&S”) business unit to Resideo Technologies, Inc.

The results of operations for CH&S continued to be reported in the Condensed Consolidated Statements of Operations as part of the Commercial Solutions segment through March 31, 2022.

The Company's five primary reportable segments are the following:

Segment Key Brands Description of Primary Products

Commercial Solutions BRK®, First Alert®, Mapa®, Quickie®, Rubbermaid Commercial Products®, and Spontex® Commercial cleaning and maintenance solutions;

Commercial Solutions Mapa, Quickie, Rubbermaid Commercial Products and Spontex Commercial cleaning and maintenance solutions;

closet and garage organization;

hygiene systems and material handling solutions

connected home and security and smoke and carbon monoxide alarms

Home Appliances Calphalon®, Crock-Pot®, Mr.

Home Appliances Calphalon, Crockpot, Mr.

Coffee, Oster and Sunbeam Household products, including kitchen appliances

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activity-based adhesive and cutting products and labeling solutions

Outdoor and Recreation Coleman®, Contigo®, ExOfficio®, Marmot® Products for outdoor and outdoor-related activities

Outdoor and Recreation Coleman, Contigo, ExOfficio and Marmot Products for outdoor and outdoor-related activities

(1) and Ball® TM of Ball Corporation, used under license.

This structure reflects the manner in which the chief operating decision maker regularly assesses information for decision-making purposes, including the allocation of resources.

The Company also provides general corporate services to its segments which is reported as a non-operating segment, Corporate.

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Recent Developments

Coronavirus (COVID-19)

The COVID-19 pandemic, which began in late 2019, has continued to disrupt the Company’s global operations, similar to those of many large, multi-national corporations in three primary areas:

Supply chain.

Of the Company's 135 manufacturing and distribution facilities, approximately 20 were temporarily closed at the end of the first quarter of 2020, the most significant of which were its South Deerfield, MA, Home Fragrance plant, its Mexicali, Mexico and India Writing facilities and its Juarez, Mexico Connected Home and Security facility, all of which were closed in accordance with government guidelines.

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 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.

The Company continues to face significant product, supply and labor shortages, capacity constraints and logistical challenges across its businesses, including port congestion, constrained shipping 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, including resin and metals, sourced finished goods, transportation and labor, which had a negative high-single-digit-percentage impact to costs of products sold in the first quarter of 2022.

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

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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 due to COVID-19.

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

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

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

Consumer demand patterns.

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 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 or whether to mandate vaccinations.

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 September 30, 2021 vs.

Three Months Ended September 30, 2020

At that time, 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 experienced a surge in demand post lockdowns, in particular Writing, Baby and Home Fragrance.

While the seasonality of the Company's businesses reverted back to historical trends in 2021, uncertainty still remains over the volatility and direction of future consumer demand patterns as certain of its businesses are lapping the prior-year surge in demand.

The Company believes the extent of the impact of the COVID-19 pandemic on 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 or hospitalizations, the development and availability of effective treatments and vaccines, especially in areas where conditions have recently worsened and work restrictions, operational 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 may become available to the general public in the future, and any changes in consumer demand patterns for the Company's products as the impact of the global pandemic lessens.

professional and office-based employees.

Sale of Connected Home & Security

On March 31, 2022, the Company sold its CH&S business unit to Resideo Technologies, Inc., for approximately $593 million, subject to customary working capital and other post-closing adjustments.

As a result, the Company recorded a pretax gain of $130 million, which was included in other income, net in its Condensed Consolidated Statements of Operations.

Share Repurchase Program

On February 6, 2022, the Company's Board of Directors authorized a $375 million Share Repurchase Program (“SRP”), effective immediately through the end of 2022.

The Company’s common shares may be purchased by the Company in the open market, in negotiated transactions or in other manners, as permitted by federal securities laws and other legal requirements.

On February 25, 2022, the Company repurchased $275 million of its shares of common stock beneficially owned by Carl C.

Icahn and certain of his affiliates (collectively, “Icahn Enterprises”), at a purchase price of $25.86 per share, the closing price of the Company's common shares on February 18, 2022.

At March 31, 2022, the Company has remaining authority to repurchase approximately $100 million of shares of common stock under the SRP.

On February 11, 2022, S&P Global Inc.

(“S&P”) upgraded the Company’s debt rating to “BBB-” from “BB+” as S&P believed the Company has been able to achieve S&P’s target debt level.

As a result of this upgrade, the Company is now in a position to access the commercial paper market, up to a maximum of $800 million provided there is a sufficient amount available for borrowing under the Company's $1.25 billion revolving credit facility maturing in December 2023 (the “Credit Revolver”).

In addition, the interest rate on the relevant senior notes decreased by 25 basis points due to the upgrade, reducing the Company’s interest expense by approximately $10 million on an annualized basis (approximately $8 million in 2022).

However, certain of the Company’s outstanding senior notes aggregating to approximately $4.2 billion are still subject to an interest rate adjustment of 25 basis points in connection with the Moody’s Corporation (“Moody’s”) downgraded debt rating in 2020.

Three Months Ended March 31, 2022 vs.

Three Months Ended March 31, 2021

Consolidated Operating Results

Three Months Ended

September 30,

(in millions) 2021 2020 $ Change % Change

(in millions) 2022

$ Change % Change

Net sales $ 2,388 $ 2,288 $ 100 4.4%

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Interest expense, net 59 67 (8) (11.9)%

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

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

Income tax provision 25 (21) 46 NM

Other income, net (124) (1) (123) NM

Income before income taxes 282 126 156 NM

Income tax provision 48 37 11 29.7%

Income tax rate 17.0 % 29.4 %

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

Net income $ 234 $ 89 $ 145 NM

Diluted earnings per share attributable to common shareholders $ 0.55 $ 0.21

NM - NOT MEANINGFUL

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 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:

Net sales increased 4%, driven by growth in the Commercial Solutions, Learning and Development and Outdoor and Recreation segments, partially offset by declines in the Home Appliances and Home Solutions segments, which lapped the prior year impact of a surge in consumer demand.

This growth primarily reflects pricing actions by the Company as well as customer inventory replenishment, partially offset by softening consumption in certain categories in the U.S.

and certain category exits in the Outdoor and Recreation and Home Appliances segments.

As result of the ongoing supply chain constraints, the first quarter results benefited from a shift in customer orders normally placed in the second quarter of the year.

Changes in foreign currency unfavorably impacted net sales by $41 million, or 2%.

Gross profit increased slightly compared to prior year.

Gross profit margin declined to 31.0% as compared with 31.9% in the prior year period.

The decrease in gross margin 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.

The gross margin decline was partially offset by favorable net pricing and gross productivity.

Changes in foreign currency exchange rates unfavorably impacted gross profit by $16 million, or 2%.

In addition to the change in gross profit noted above, notable items impacting operating income for the three months ended March 31, 2022 and 2021 are as follows:

Three Months Ended

September 30,

2022 2021 $ 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 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 September 30, 2021 and 2020 were approximately 4.7%.

Restructuring (See Footnote 4 ) and restructuring-related costs (a)

$ 11 $ 13 $ (2)

Transactions and other costs (b)

(a) Restructuring-related costs reported in cost of goods sold and selling, general and administrative expenses (“SG&A”) for the three months ended March 31, 2022 were $5 million and $1 million, respectively, and primarily relate to facility closures.

For the three months ended March 31, 2021, restructuring-related costs reported in cost of sales and SG&A were $5 million and $3 million, respectively, and primarily relate to facility closures.

Restructuring costs were $5 million for both the three months ended March 31, 2022 and 2021.

(b) Transactions and other costs for the three months ended March 31, 2022 and 2021 primarily relate to completed divestitures and fees for certain legal proceedings.

Operating income increased to $217 million as compared to $192 million in the prior year period.

The improvement in the operating results reflects lower overhead spending.

Interest expense, net decreased primarily due to lower long-term debt levels and higher interest income.

The weighted average interest rates for the three months ended March 31, 2022 and 2021 were approximately 4.5% and 4.8%, respectively.

See Footnote 9 of the Notes to the Unaudited Condensed Consolidated Financial Statements for further information.

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

Other income, net for three months ended March 31, 2022 and 2021 includes the following items:

Three Months Ended

September 30,

Foreign exchange losses, net $ 6 $ —

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

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

Gain on disposition of business (See Footnote 2 )

Other (gains) losses, net — (1)

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.

$ (124) $ (1)

The income tax provision for the three months ended March 31, 2022 was $48 million as compared to an income tax provision for the three months ended March 31, 2021 of $37 million.

The effective tax rate for the three months ended March 31, 2022 was 17.0% as compared to 29.4% for the three months ended March 31, 2021.

The income tax provision for the three months ended March 31, 2022 included a discrete benefit of $4 million associated with the approval of certain state tax credits, offset by $14 million of income tax expense related to the divestiture of the CH&S business unit.

The three months ended March 31, 2021 were also impacted by $1 million of discrete tax items.

See Footnote 12 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) 2022 2021 $ Change % Change

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Operating margin 10.8 % 10.6 %

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.

Commercial Solutions net sales for the three months ended March 31, 2022 increased 8%, which reflected sales growth in both the Commercial and Connected Home and Security business units.

The Commercial business unit performance primarily reflected the impact of pricing actions.

The increase in net sales in the Connected Home and Security business unit was primarily due to increased demand from the contractor channel and improved product availability.

Changes in foreign currency unfavorably impacted net sales by $8 million, or 2%.

Operating income for the three months ended March 31, 2022 was $55 million as compared to $50 million in the prior year.

The increase in operating income is due to gross profit leverage, gross productivity and lower advertising and promotion costs and overhead spending, partially offset by input cost inflation, particularly for resin, transportation, labor and sourced finished goods.

Home Appliances

Three Months Ended

September 30,

(in millions) 2022 2021 $ Change % Change

Net sales $ 340 $ 360 $ (20) (5.6)%

Operating income 19 19 — —%

Operating income (loss) (18) 3 (21) NM

Operating margin (5.3) % 0.8 %

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 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.

NM - NOT MEANINGFUL

Home Appliances net sales for the three months ended March 31, 2022 decreased approximately 6%, which reflects softening demand in the U.S., as the business lapped the prior-year surge in consumer demand due to the COVID-19 pandemic, and certain category exits, partially offset by pricing actions and strong demand in Latin America.

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

Operating loss for the three months ended March 31, 2022 was $18 million as compared to an operating income of $3 million in the prior year period.

The decline in operating result is primarily due to lower gross profit leverage, higher advertising and promotional costs, and input cost inflation, particularly for sourced finished goods and transportation.

Home Solutions

Three Months Ended

September 30,

(in millions) 2022 2021 $ Change % Change

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Operating margin 12.2 % 12.1 %

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 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.

Home Solutions net sales for the three months ended March 31, 2022 decreased 1%.

Strong sales performance in the Food business unit was more than offset by the decline in the Home Fragrance business unit.

The increase in Food business unit sales primarily reflected pricing actions.

The decline in Home Fragrance business unit sales reflected softening demand, primarily in the U.S.

as the business lapped the prior year surge in consumer demand due to the COVID-19 pandemic, as well as the exit of approximately 38 underperforming Yankee Candle retail stores during the first quarter of 2022.

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

Operating income for the three months ended March 31, 2022 was flat as compared to the prior-year period.

This performance reflected gross productivity and lower compensation expense, offset by significant input cost inflation for commodities, primarily metals and wax, transportation, labor and sourced finished goods, as well as higher advertising and promotional costs.

Learning and Development

Three Months Ended

September 30,

(in millions) 2022 2021 $ Change % Change

2 unchanged sentences

Operating margin 20.0 % 17.8 %

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 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.

Learning and Development net sales for the three months ended March 31, 2022 increased 5% due to strong sales performance in the Baby and Writing business units.

The Baby business unit performance reflected pricing actions and improved product availability.

The Writing unit performance reflected strong sales driven by pricing actions, improved return to in-person learning

and gradual reopening of more offices and earlier back to school sales to certain retailers, partially offset by supply chain shortages, particularly in labeling, and logistical constraints.

Changes in foreign currency unfavorably impacted net sales by $11 million, or 2%.

Operating income for the three months ended March 31, 2022 increased to $130 million as compared to $110 million in the prior-year period.

The increase in operating income is primarily due to gross profit leverage, gross productivity, and lower compensation and advertising and promotional costs, partially offset by significant input cost inflation for sourced finished goods, transportation and labor.

Outdoor and Recreation

Three Months Ended

September 30,

(in millions) 2022 2021 $ Change % Change

Net sales $ 388 $ 336 $ 52 15.5%

Operating income 27 39 (12) (30.8)%

Operating margin 6.9 % 10.2 %

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

Nine Months Ended

September 30,

(in millions) 2021

$ Change % Change

Net sales $ 7,784 $ 6,696 $ 1,088 16.2%

Gross profit 2,461 2,195 266 12.1%

Gross margin 31.6 % 32.8 %

Operating income (loss) 778 (882) 1,660 NM

Operating margin 10.0 % (13.2) %

Interest expense, net 197 205 (8) (3.9)%

Other (income) expense, net (3) 20 (23) NM

Income (loss) before income taxes 584 (1,107) 1,691 NM

Income tax provision (benefit) 108 (210) 318 NM

Income tax rate 18.5 % 19.0 %

Net income (loss) $ 476 $ (897) $ 1,373 NM

Diluted earnings (loss) per share attributable to common shareholders $ 1.11 $ (2.12)

NM - NOT MEANINGFUL

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

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 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 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

Impairment of goodwill and intangible assets (See Footnote 6) $ — $ 1,471 $ (1,471)

Restructuring (See Footnote 3) and restructuring-related costs 34 32 2

Transactions and other costs 17 20 (3)

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 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 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 (See Footnote 1) 2 9

Other gains, net (9) (1)

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.

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.

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.

Treasury Regulations.

Business Segment Operating Results

Commercial Solutions

Nine Months Ended

September 30,

(in millions) 2021 2020 $ Change % Change

Net sales $ 1,450 $ 1,361 $ 89 6.5%

Operating income (loss) 111 (150) 261 NM

Operating margin 7.7 % (11.0) %

Notable items impacting operating income (loss) comparability:

Impairment of goodwill and other intangible assets (See Footnote 6) $ — $ 320

NM - NOT MEANINGFUL

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, 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 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

Nine Months Ended

September 30,

(in millions) 2021 2020 $ Change % Change

Net sales $ 1,197 $ 1,021 $ 176 17.2%

Operating income (loss) 35 (274) 309 NM

Operating margin 2.9 % (26.8) %

Notable items impacting operating income (loss) comparability:

Impairment of goodwill and other intangible assets (See Footnote 6) $ — $ 287

NM - NOT MEANINGFUL

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 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

Nine Months Ended

September 30,

(in millions) 2021 2020 $ Change % Change

Net sales $ 1,627 $ 1,384 $ 243 17.6%

Operating income (loss) 189 (149) 338 NM

Operating margin 11.6 % (10.8) %

Notable items impacting operating income (loss) comparability:

Impairment of goodwill and other intangible assets (See Footnote 6) $ — $ 302

NM - NOT MEANINGFUL

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 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 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.

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

Nine Months Ended

September 30,

(in millions) 2021 2020 $ Change % Change

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

Operating income 522 288 234 81.3%

Operating margin 22.4 % 15.3 %

Notable items impacting operating income comparability:

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

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 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

Nine Months Ended

September 30,

(in millions) 2021 2020 $ Change % Change

Net sales $ 1,180 $ 1,043 $ 137 13.1%

Operating income (loss) 90 (411) 501 NM

Operating income 45 15 30 NM

Operating margin 11.6 % 4.5 %

Notable items impacting operating income (loss) comparability:

Impairment of goodwill and other intangible assets (See Footnote 6) $ — $ 482

NM - NOT MEANINGFUL

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 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.

Outdoor and Recreation net sales for the three months ended March 31, 2022 increased 15% primarily due to pricing actions, customer inventory replenishment and order timing ahead of the outdoor season and improved product availability.

Changes in foreign currency unfavorably impacted net sales by $13 million or 4%.

Operating income for the three months ended March 31, 2022 was $45 million as compared to $15 million in the prior-year period.

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

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 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 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.

The Company believes that its cash generating capability, together with its borrowing capacity and available cash and cash equivalents, provide continued financial viability and adequate liquidity to fund its operations, support its growth platforms, pay down debt and debt maturities as they come due and execute its ongoing business initiatives.

The Company regularly assesses its cash requirements and the available sources to fund these needs.

At March 31, 2022, the Company had cash and cash equivalents of approximately $344 million, of which approximately $233 million was held by the Company’s non-U.S.

subsidiaries.

Overall, the Company believes that available cash and cash equivalents, cash flows generated from future operating activities and borrowing capacity provide the Company with continued financial viability and adequate liquidity to fund its operations, support its growth platforms, pay down debt and debt maturities as they come due and execute its ongoing business initiatives.

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

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.

For further information regarding the impact of COVID-19 on the Company, refer to Risk Factors in Part I - Item 1A and Recent Developments in Part II - Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company's most recent Annual Report on Form 10-K, filed on February 14, 2022.

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

Cash, cash equivalents and restricted cash increased (decreased) as follows for the three months ended March 31, 2022 and 2021 (in millions):

2022 2021 Increase (Decrease)

Cash provided by operating activities $ 490 $ 820 $ (330)

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

Cash used in operating activities $ (272) $ (25) $ (247)

Cash provided by (used in) investing activities 559 (54) 613

Cash used in financing activities (393) (239) (154)

Exchange rate effect on cash, cash equivalents and restricted cash 8 (14) 22

Increase (decrease) in cash, cash equivalents and restricted cash $ (504) $ 494 $ (998)

Decrease in cash, cash equivalents and restricted cash $ (98) $ (332) $ 234

The Company tends to generate the majority of its operating cash flow in the third and fourth quarters of the year due to seasonal variations in operating results, the timing of annual performance-based compensation payments, customer program payments, working capital requirements and credit terms provided to customers.

Factors Affecting Liquidity

On November 1, 2019, S&P Global Inc.

(“S&P”) downgraded the Company’s debt rating to “BB+” as S&P believed the Company would fail to meet S&P’s target debt level for 2019.

In addition, on March 9, 2020, Moody’s Corporation ("Moody’s") downgraded the Company’s debt rating to “Ba1” based on a view that the Company would fail to meet Moody's target debt level for 2020.

Subsequently on April 15, 2020, Fitch Ratings ("Fitch") downgraded the Company’s debt rating to "BB" as they believed the Company would fail to meet Fitch's target debt level for 2020.

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 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 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.

A failure to maintain our financial covenants would impair our ability to borrow under the Credit Revolver.

At the time of filing this Quarterly Report on Form 10-Q, the Company is in compliance with all of its financial covenants.

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, respectively, for a total of 50 basis points.

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 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.

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 higher accounts receivable sold under the Customer Receivables Purchase Agreement in the current year.

See Capital Resources for further information.

Cash Flows from Investing Activities

The change in cash used in investing activities was primarily due to higher capital expenditures.

The change in cash provided by investing activities was primarily due to proceeds from divestiture of CH&S and sale of property, plant and equipment, partially offset by higher capital expenditures.

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 as well as the acquisition of noncontrolling interests.

The change in net cash used in financing activities was primarily due to repurchase of shares of the Company's common stock in the current-year period, partially offset by debt repayments in the prior-year period.

See Footnotes 1, 9 and 14 of the Notes to the Unaudited Condensed Consolidated Financial Statements for further information.

Capital Resources

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.

The total consideration, excluding accrued interest, was approximately $5 million.

As a result of the partial debt repurchase the Company recorded an immaterial loss.

Under the Company's $1.25 billion Credit Revolver that matures in December 2023, the Company may borrow funds on a variety of interest rate terms.

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

The Company maintains an Accounts Receivable Securitization Facility.

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

Under the Company's Credit Revolver, the interest rate is London Interbank Offered Rate (“LIBOR”) rate plus 105.0 basis points.

The Credit Revolver provides for the issuance of up to $100 million of letters of credit, so long as there is a sufficient amount available for borrowing under the Credit Revolver.

At March 31, 2022 there were approximately $22 million of outstanding standby letters of credit issued against the Credit Revolver, with a net availability of approximately $1.23 billion.

There were no borrowings outstanding under the Credit Revolver or commercial paper borrowings at March 31, 2022.

The Credit Revolver requires the maintenance of certain financial covenants.

A failure to maintain our financial covenants would impair our ability to borrow under the Credit Revolver.

In addition, if economic conditions caused by the COVID-19 pandemic do not improve or otherwise worsen, 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.

The Company was in compliance with all of its debt covenants at March 31, 2022.

The aggregate commitment under the Securitization Facility is $600 million.

1 unchanged sentence

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

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.

The Company classifies the proceeds received from the sales of accounts receivable as an operating cash flow in the unaudited Condensed Consolidated Statement of Cash Flows.

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 September 30, 2021.

At March 31, 2022, the Company did not have any amounts outstanding under the Securitization Facility.

Factored receivables at the end of the first quarter of 2022 associated with the existing factoring agreement (the “Customer Receivables Purchase Agreement”) were approximately $535 million, an increase of approximately $35 million from December 31, 2021.

Transactions under this agreement are accounted for as sales of accounts receivable, and the receivables sold are removed from the Condensed Consolidated Balance Sheet at the time of the sales transaction.

The Company classifies the proceeds received from the sales of accounts receivable as an operating cash flow in the Condensed Consolidated Statement of Cash Flows.

The Company records the discount as other income, 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.

Risk Management

8 unchanged sentences

Fair Value Hedges

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.

At March 31, 2022, 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, 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.

The Company previously entered into three cross-currency swaps, maturing in January 2025, February 2025 and September 2027, respectively, with an aggregate notional amount of $1.3 billion.

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.

1 unchanged sentence

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

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.

During the three months ended March 31, 2022 and 2021, the Company recognized income of $5 million and $4 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 September 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 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 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.

underlying hedged item.

At March 31, 2022, the Company had approximately $467 million notional amount outstanding of forward foreign currency contracts that are designated as cash flow hedges of forecasted inventory purchases and sales.

The Company also uses foreign currency contracts, primarily forward foreign currency contracts, to mitigate the foreign currency exposure of certain other foreign currency transactions.

At March 31, 2022, the Company had approximately $1.2 billion notional amount outstanding of these foreign currency contracts that are not designated as effective hedges for accounting purposes and have maturity dates through December 2022.

Fair market value gains or losses are included in the results of operations and are classified in other income, net in the Company's Condensed Consolidated Statement of Operations.

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

September 30,

Derivatives designated as effective hedges:

12 unchanged sentences

Reporting units are determined based upon the Company’s organizational structure in place at the date of the goodwill impairment testing and generally one level below the operating segment level.

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 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;

the temporary closure of secondary customer retail stores as well as the Company's Yankee Candle retail stores in North America;

and changes in consumer demand patterns to certain focused categories.

The Company used a quantitative approach, which involves comparing the fair value of each of the reporting units to the carrying value of those reporting units.

If the carrying value of a reporting unit exceeds its fair value, an impairment loss would be calculated as the differences between these amounts, limited to the amount of reporting unit goodwill allocated to the reporting unit.

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

The quantitative goodwill impairment testing requires significant use of judgment and assumptions, such as the identification of reporting units;

1 unchanged sentence

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.

1 unchanged sentence

The present value of the finite-period cash flows and the terminal value are determined using a selected discount rate.

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 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.

The Company estimated the fair values of its reporting units based on discounted cash flow methodology reflecting its latest projections which included, among other things, the impact of significant input cost inflation for commodities, primarily resin, sourced finished goods, transportation and labor on its operations at the time the Company performed its impairment testing.

See Footnotes 1 and 7 of the Notes to Unaudited Condensed Consolidated Financial Statements for further information.

Indefinite-lived intangibles

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Changes in business conditions could potentially require adjustments to these asset valuations.

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 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

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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