NEWELL BRANDS INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of Newell Brands Inc.’s (“Newell Brands,” the “Company,” “we,” “us” or “our”) consolidated financial condition and results of operations. The discussion should be read in conjunction with the accompanying condensed consolidated financial statements and notes thereto. Forward-Looking Statements 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,” “seek to,” or similar statements. The Company cautions that forward-looking statements are not guarantees because there are inherent difficulties in predicting future results. Actual results may differ materially from those expressed or implied in the forward-looking statements. Important factors that could cause actual results to differ materially from those suggested by the forward-looking statements include, but are not limited to: • the Company's ability to 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 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 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 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; • the Company's ability to consistently maintain effective internal control over financial reporting; • risks related to the Company’s substantial indebtedness, potential increases in interest rates or changes in the Company’s credit ratings; • future events that could adversely affect the value of the Company’s assets and/or stock price and require additional impairment charges; • 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; • the risks inherent to the Company’s foreign operations, including currency fluctuations, exchange controls and pricing restrictions; • a failure or breach of one of the Company’s key information technology systems, networks, processes or related controls or those of the Company’s service providers; • the impact of United States and foreign regulations on the Company’s operations, including the impact of tariffs and environmental remediation costs and legislation and regulatory actions related to climate change; • the potential inability to attract, retain and motivate key employees; • changes in tax laws and the resolution of tax contingencies resulting in additional tax liabilities; • product liability, product recalls or related regulatory actions; • the Company’s ability to protect its intellectual property rights; • significant increases in the funding obligations related to the Company’s pension plans; and • other factors listed from time to time in our SEC filings, including but not limited to our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. The information contained in this Report is as of the date indicated. The Company assumes no obligation to update any forward-looking statements contained in this Report as a result of new information or future events or developments. In addition, there can be no assurance that the Company has correctly identified and assessed all of the factors affecting the Company or that the publicly available and other information the Company receives with respect to these factors is complete or correct. 25 Table of Contents Overview 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. Coffee. 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. Business Strategy 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 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; and • 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; 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. 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. 26 Table of Contents 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 Mapa, Quickie, Rubbermaid Commercial Products and Spontex Commercial cleaning and maintenance solutions; closet and garage organization; hygiene systems and material handling solutions Home Appliances Calphalon, Crockpot, Mr. Coffee, Oster and Sunbeam Household products, including kitchen appliances Home Solutions Ball (1) , Calphalon, Chesapeake Bay Candle, FoodSaver, Rubbermaid, Sistema, WoodWick and Yankee Candle Food and home storage products; fresh preserving products; vacuum sealing products; gourmet cookware, bakeware and cutlery and home fragrance products Learning and Development Aprica, Baby Jogger, Dymo, Elmer’s, EXPO, Graco, Mr. Sketch, NUK, Paper Mate, Parker, Prismacolor, Sharpie, Tigex, Waterman and X-Acto Baby gear and infant care products; writing instruments, including markers and highlighters, pens and pencils; art products; activity-based adhesive and cutting products and labeling solutions 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. See Footnote 16 of the Notes to the Unaudited Condensed Consolidated Financial Statements for further information. Recent Developments 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. 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. 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. Retail. 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 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. 27 Table of Contents Consumer demand patterns. During the quarantine phase of the pandemic in 2020, consumer purchasing behavior strongly shifted to certain focused categories. 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. 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, and the Company has mandated vaccinations for its U.S. 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. Debt Ratings 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. 28 Table of Contents Three Months Ended March 31, 2022 vs. Three Months Ended March 31, 2021 Consolidated Operating Results Three Months Ended March 31, (in millions) 2022 2021 $ Change % Change Net sales $ 2,388 $ 2,288 $ 100 4.4% Gross profit 740 731 9 1.2% Gross margin 31.0 % 31.9 % Operating income 217 192 25 13.0% Operating margin 9.1 % 8.4 % Interest expense, net 59 67 (8) (11.9)% 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 $ 234 $ 89 $ 145 NM Diluted earnings per share attributable to common shareholders $ 0.55 $ 0.21 NM - NOT MEANINGFUL 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 March 31, 2022 2021 $ Change Restructuring (See Footnote 4 ) and restructuring-related costs (a) $ 11 $ 13 $ (2) Transactions and other costs (b) 8 4 4 (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. 29 Table of Contents 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 income, net for three months ended March 31, 2022 and 2021 includes the following items: Three Months Ended March 31, 2022 2021 Foreign exchange losses, net $ 6 $ — Gain on disposition of business (See Footnote 2 ) (130) — Other (gains) losses, net — (1) $ (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. Treasury Regulations. Business Segment Operating Results Commercial Solutions Three Months Ended March 31, (in millions) 2022 2021 $ Change % Change Net sales $ 510 $ 471 $ 39 8.3% Operating income 55 50 5 10.0% Operating margin 10.8 % 10.6 % 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. 30 Table of Contents Home Appliances Three Months Ended March 31, (in millions) 2022 2021 $ Change % Change Net sales $ 340 $ 360 $ (20) (5.6)% Operating income (loss) (18) 3 (21) NM Operating margin (5.3) % 0.8 % 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 March 31, (in millions) 2022 2021 $ Change % Change Net sales $ 500 $ 504 $ (4) (0.8)% Operating income 61 61 — —% Operating margin 12.2 % 12.1 % 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 March 31, (in millions) 2022 2021 $ Change % Change Net sales $ 650 $ 617 $ 33 5.3% Operating income 130 110 20 18.2% Operating margin 20.0 % 17.8 % 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 31 Table of Contents 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 March 31, (in millions) 2022 2021 $ Change % Change Net sales $ 388 $ 336 $ 52 15.5% Operating income 45 15 30 NM Operating margin 11.6 % 4.5 % NM - NOT MEANINGFUL 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. 32 Table of Contents Liquidity and Capital Resources Liquidity 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. 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. 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 three months ended March 31, 2022 and 2021 (in millions): 2022 2021 Increase (Decrease) 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 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. 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 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 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 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 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. 33 Table of Contents 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. The Securitization Facility matures in October 2022 and bears interest at a margin over a variable interest rate. The maximum availability under the Securitization Facility fluctuates based on eligible accounts receivable balances. 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 From time to time, the Company enters into derivative transactions to hedge its exposures to interest rate, foreign currency rate and commodity price fluctuations. The Company does not enter into derivative transactions for trading purposes. Interest Rate Contracts The Company manages its fixed and floating rate debt mix using interest rate swaps. The Company may use fixed and floating rate swaps to alter its exposure to the impact of changing interest rates on its consolidated results of operations and future cash outflows for interest. Floating rate swaps would be used, depending on market conditions, to convert the fixed rates of long-term debt into short-term variable rates. Fixed rate swaps would be used to reduce the Company’s risk of the possibility of increased interest costs. The cash paid and received from the settlement of interest rate swaps is included in interest expense. Fair Value Hedges 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. The effective portion of the fair value gains or losses on these swaps is offset by fair value adjustments in the underlying debt. Cross-Currency Contracts The Company uses cross-currency swaps to hedge foreign currency risk on certain financing arrangements. The Company 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. dollar interest. The Company has elected the spot method for assessing the effectiveness of these contracts. 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 December 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 34 Table of Contents 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): March 31, 2022 Asset (Liability) Derivatives designated as effective hedges: Cash flow hedges: Foreign currency contracts $ 4 Fair value hedges: Interest rate swaps (1) Net investment hedges: Cross-currency swaps (19) Derivatives not designated as effective hedges: Foreign currency contracts (5) Total $ (21) Significant Accounting Policies and Critical Estimates Goodwill and Indefinite-Lived Intangibles Goodwill and indefinite-lived intangibles are tested and reviewed for impairment annually during the fourth quarter (on December 1), or more frequently if facts and circumstances warrant. Goodwill Goodwill is tested for impairment at a reporting unit level, and all of the Company’s goodwill is assigned to its reporting units. 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 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; the assignment of assets and liabilities to reporting units; 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 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. A provision is made, based on these projections, for the value of the reporting unit at the end of the forecast period, or terminal value. The present value of the finite-period cash flows and the terminal value are determined using a selected discount rate. 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. 35 Table of Contents Indefinite-lived intangibles The testing of indefinite-lived intangibles (primarily trademarks and tradenames) under established guidelines for impairment also requires significant use of judgment and assumptions (such as cash flow projections, royalty rates, terminal values and discount rates). An indefinite-lived intangible asset is impaired by the amount its carrying value exceeds its estimated fair value. For impairment testing purposes, the fair value of indefinite-lived intangibles is determined using either the relief from royalty method or the excess earnings method. The relief from royalty method estimates the value of a tradename by discounting the hypothetical avoided royalty payments to their present value over the economic life of the asset. The excess earnings method estimates the value of the intangible asset by quantifying the residual (or excess) cash flows generated by the asset and discounts those cash flows to the present. The excess earnings methodology requires the application of contributory asset charges. Contributory asset charges typically include assumed payments for the use of working capital, tangible assets and other intangible assets. Changes in forecasted operations and other assumptions could materially affect the estimated fair values. Changes in business conditions could potentially require adjustments to these asset valuations. 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 and foreign exchange rates. 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. If so, the Company may be subject to future incremental impairment charges as well as changes to recorded reserves and valuations. See Footnotes 1 and 7 of the Notes to the Unaudited Condensed Consolidated Financial Statements for further information. Item 3. Quantitative and Qualitative Disclosures about Market Risk There have been no material changes from the information previously reported under Part II, Item 7A. in the Company’s Annual Report on Form 10-K for the fiscal year ended.