What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-07-29 compared with 2022-04-29 · 231 added, 115 removed, 234 unchanged (60% 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;

• the Company's ability to manage 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;

1 unchanged sentence

• 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;

• supply chain and operational disruptions in the markets in which we operate, whether as a result of the actual or perceived effects of the COVID-19 pandemic or broader geopolitical and macroeconomic conditions, including the military conflict between Russia and Ukraine;

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

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

2 unchanged sentences

• 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;

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

• unexpected costs or expenses associated with dispositions;

• our ability to effectively execute our turnaround plan, including Project Ovid;

• risks related to the Company’s substantial indebtedness, potential increases in interest rates or changes in the Company’s credit ratings;

• 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;

5 unchanged sentences

• significant increases in the funding obligations related to the Company’s pension plans;

• 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.

• other factors listed from time to time in our SEC filings, including but not limited to our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q and other filings.

The information contained in this Report is as of the date indicated.

5 unchanged sentences

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 Company continues 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:

9 unchanged sentences

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.

9 unchanged sentences

Segment Key Brands Description of Primary Products

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

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

closet and garage organization;

12 unchanged sentences

activity-based adhesive and cutting products and labeling solutions

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

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

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

3 unchanged sentences

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:

COVID-19 Pandemic

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 two 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.

The Company continues to face 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 certain categories.

The Company also continues to face significant 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 half 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.

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.

Consumer demand patterns.

2 unchanged sentences

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.

The Company continues to monitor for any future developments regarding COVID-19, 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 the virus.

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.

Russia-Ukraine Conflict

The global economy has been negatively impacted by the military conflict between Russia and Ukraine.

While the Company does not expect the conflict to have a material impact on its results of operations, it has experienced shortages in raw materials and increased costs for transportation, energy, and commodities due in part to the negative impact of the Russia-Ukraine military conflict on the global economy.

Further escalation of geopolitical tensions related to the conflict, including increased trade barriers and restrictions on global trade could result in, among other things, supply disruptions, lower consumer demand, and changes to foreign exchange rates and financial markets, any of which may adversely affect our business and supply chain.

Additionally, if the military conflict escalates beyond its current scope, the Company could be negatively impacted by economic recessions in certain neighboring European countries or globally.

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.

Under the SRP, the Company may purchase its common shares 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

During the three months ended June 30, 2022, the Company repurchased approximately $50 million of its shares of common stock at an average purchase price of $22.01 per share.

At June 30, 2022, the Company has remaining authority to repurchase approximately $50 million of its shares of common stock under the SRP.

Results of Operations

Three Months Ended June 30, 2022 vs.

Three Months Ended June 30, 2021

Consolidated Operating Results

Three Months Ended

(in millions) 2022 2021 $ Change % Change

Net sales $ 2,534 $ 2,709 $ (175) (6.5)%

Gross profit 825 882 (57) (6.5)%

Gross margin 32.6 % 32.6 %

Operating income 317 305 12 3.9%

Operating margin 12.5 % 11.3 %

Interest expense, net 55 65 (10) (15.4)%

Other (income) expense, net 8 (3) 11 NM

Income before income taxes 254 243 11 4.5%

Income tax provision 50 46 4 8.7%

Income tax rate 19.7 % 18.9 %

Net income $ 204 $ 197 $ 7 3.6%

Diluted earnings per share attributable to common shareholders $ 0.49 $ 0.46

NM - NOT MEANINGFUL

Net sales for the three months ended June 30, 2022 decreased 6%, as pricing actions by the Company were more than offset by a negative impact on sales of approximately 3% due to the sale of the CH&S business at the end of the first quarter of 2022, softening demand in certain categories in the U.S., primarily in the Home Appliances and Home Solutions segments, which lapped elevated levels of demand, and certain category exits in Home Appliances and Outdoor and Recreation segments.

In addition, net sales for the Outdoor and Recreation segment reflected a shift in customer orders placed during the first quarter of the year as a result of supply chain constraints.

Changes in foreign currency unfavorably impacted net sales by $80 million, or 3%.

Gross profit decreased 6% and gross margin remained flat at 32.6%.

Gross margin performance reflected favorable net pricing and gross productivity, offset by significant input cost inflation for commodities, primarily metals, sourced finished goods, transportation and labor, which had a negative high-single-digit-percentage impact to costs of products sold.

The gross profit decline also reflected the sale of the CH&S business.

Changes in foreign currency exchange rates unfavorably impacted gross profit by $29 million or 3%.

In addition to the change in gross profit noted above, notable items impacting operating income for the three months ended June 30, 2022 and 2021 are as follows:

Three Months Ended

2022 2021 $ Change

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

$ 6 $ 8 $ (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 June 30, 2022 were $2 million, net and primarily related to facility closures.

For the three months ended June 30, 2021, restructuring-related costs reported in cost of sales and SG&A were $2 million and $1 million, respectively, and primarily relate to facility closures.

Restructuring costs were $4

million and $5 million for the three months ended June 30, 2022 and 2021, respectively.

(b) Transactions and other costs for the three months ended June 30, 2022 and 2021 primarily relate to completed divestitures and fees for certain legal proceedings.

Operating income increased to $317 million as compared to $305 million in the prior year period.

The increase in operating income reflects lower incentive compensation expense and lower overhead spending, partially offset by the impact of lower gross profit.

Operating income was also negatively impacted by the sale of the CH&S business.

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

The weighted average interest rates for the three months ended June 30, 2022 and 2021 were approximately 4.2% and 4.7%, respectively.

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

Other (income) expense, net for three months ended June 30, 2022 and 2021 includes the following items:

Three Months Ended

Foreign exchange losses, net $ 10 $ 2

Fair value equity adjustments (See Footnote 15 )

(Gain) loss on disposition of businesses (See Footnote 2 )

Other (gains) losses, net 2 (7)

Income tax provision for the three months ended June 30, 2022 was $50 million as compared to $46 million for the three months ended June 30, 2021.

The effective tax rate for the three months ended June 30, 2022 was 19.7% as compared to 18.9% for the three months ended June 30, 2021.

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 June 30, 2022 included a discrete benefit of $11 million associated with the reduction in valuation allowance related to the integration of certain Brazilian operations The income tax provision for the three months ended June 30, 2021 included a discrete benefit of $13 million associated with a reduction in valuation allowance related to the integration of certain U.K.

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

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

(in millions) 2022 2021 $ Change % Change

Net sales $ 429 $ 493 $ (64) (13.0)%

Operating income 43 43 — —%

Operating margin 10.0 % 8.7 %

Commercial Solutions net sales for the three months ended June 30, 2022 decreased 13%, primarily due to the sale of the CH&S business at the end of the first quarter of 2022, which unfavorably impacted net sales by approximately 19%, partially offset by growth in the Commercial business unit driven primarily by pricing actions and increased demand in certain categories.

Changes in foreign currency unfavorably impacted net sales by $13 million, or 3%.

Operating income for the three months ended June 30, 2022 was flat as compared to the prior year period.

This performance reflected gross profit leverage and gross productivity, offset by significant input cost inflation for sourced finished goods, transportation and labor.

Operating income was also negatively impacted by the CH&S sale.

Home Appliances

Three Months Ended

(in millions) 2022 2021 $ Change % Change

Net sales $ 346 $ 394 $ (48) (12.2)%

Operating income 15 13 2 15.4%

Operating margin 4.3 % 3.3 %

Home Appliances net sales for the three months ended June 30, 2022 decreased 12%, which reflects certain category exits and softening demand in the U.S.

due to higher customer inventory levels and the lapping of elevated levels of demand, partially offset by pricing actions.

Changes in foreign currency unfavorably impacted net sales by $6 million, or 2%.

Operating income for the three months ended June 30, 2022 was $15 million as compared to $13 million in the prior year period.

The increase in operating income was due to favorable net pricing, gross productivity and lower incentive compensation expense, partially offset by significant input cost inflation associated with transportation costs and sourced finished goods.

Home Solutions

Three Months Ended

(in millions) 2022 2021 $ Change % Change

Net sales $ 467 $ 525 $ (58) (11.0)%

Operating income 5 53 (48) (90.6)%

Operating margin 1.1 % 10.1 %

Home Solutions net sales for the three months ended June 30, 2022 decreased 11%, reflecting decreases in both the Food and Home Fragrance business units.

The Food business unit decline reflects the softening demand in certain categories in the U.S., as the business lapped elevated levels of demand, partially offset by pricing actions.

The decline in Home Fragrance business unit sales reflects softening global demand, as the business lapped elevated levels of demand, as well as the exit of approximately 42 underperforming Yankee Candle retail stores during the year.

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

Operating income for the three months ended June 30, 2022 decreased to $5 million as compared to $53 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 metals and wax, transportation, labor and sourced finished goods.

This decrease was partially offset by gross productivity and lower incentive compensation expense.

Learning and Development

Three Months Ended

(in millions) 2022 2021 $ Change % Change

Net sales $ 865 $ 844 $ 21 2.5%

Operating income 247 217 30 13.8%

Operating margin 28.6 % 25.7 %

Learning and Development net sales for the three months ended June 30, 2022 increased 2% due to growth in the Writing business unit, partially offset by a slight decline in the Baby business unit.

The Writing business unit performance reflected pricing actions and improved return to in-person learning and gradual reopening of more offices, partially offset by logistical constraints and supply chain shortages, particularly in labelling.

Pricing actions in the Baby business unit were largely offset by softening demand in certain categories in the U.S., as the business lapped elevated levels of demand.

Changes in foreign currency unfavorably impacted net sales by $26 million, or 3%.

Operating income for the three months ended June 30, 2022 increased to $247 million as compared to $217 million in the prior-year period.

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

Outdoor and Recreation

Three Months Ended

(in millions) 2022 2021 $ Change % Change

Net sales $ 427 $ 453 $ (26) (5.7)%

Operating income 46 48 (2) (4.2)%

Operating margin 10.8 % 10.6 %

Outdoor and Recreation net sales for the three months ended June 30, 2022 decreased 6% primarily due to the impact of prior-quarter order timing ahead of the outdoor season, certain category exits and softening demand in certain categories in the U.S.

reflecting higher customer inventory levels, mostly offset by pricing actions.

Changes in foreign currency unfavorably impacted net sales by $25 million or 6%.

Operating income for the three months ended June 30, 2022 was $46 million as compared to $48 million in the prior-year period.

The decline was due to lower gross profit leverage, significant input cost inflation for sourced finished goods and transportation, and higher advertising and promotion costs, partially offset by gross productivity and lower overhead spend.

Six Months Ended June 30, 2022 vs.

Six Months Ended June 30, 2021

Consolidated Operating Results

Six Months Ended

(in millions) 2022

7 unchanged sentences

Other income, net (116) (4) (112) NM

Income before income taxes 282 126 156 NM

Income before income taxes 536 369 167 45.3%

Income tax provision 98 83 15 18.1%

Income tax rate 18.3 % 22.5 %

Net income $ 234 $ 89 $ 145 NM

Net income $ 438 $ 286 $ 152 53.1%

Diluted earnings per share attributable to common shareholders $ 1.04 $ 0.67

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.

Net sales decreased 2%, as pricing actions by the Company were more than offset by the impact of the sale of the CH&S business at the end of the first quarter of 2022, which negatively impacted net sales by approximately 2%, softening demand in certain categories in the U.S., primarily within the Home Appliances and Home Solutions segments, which lapped elevated levels of demand, and certain category exits in the Home Appliances and Outdoor and Recreation segments.

In addition, net sales were favorably impacted by early order timing ahead of the back to school season and Project Ovid go-live.

Changes in foreign currency unfavorably impacted net sales by $121 million, or 2%.

Gross profit increased slightly compared to prior year.

Gross profit decreased slightly compared to prior year.

Gross profit margin declined to 31.8% as compared with 32.3% 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 decrease in gross margin was driven by significant input cost inflation for commodities, primarily resin and metals, 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.

The gross profit decline also reflected the impact of the sale of CH&S.

Changes in foreign currency exchange rates unfavorably impacted gross profit by $45 million, or 3%.

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

In addition to the change in gross profit noted above, notable items impacting operating income for the six months ended June 30, 2022 and 2021 are as follows:

Six Months Ended

2022 2021 $ Change

2 unchanged sentences

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.

(a) Restructuring-related costs reported in cost of goods sold for the six months ended June 30, 2022 was $8 million and primarily relate to facility closures.

For the six months ended June 30, 2021, restructuring-related costs reported in cost of sales and SG&A were $7 million and $4 million, respectively, and primarily relate to facility closures.

Restructuring costs were $9 million and $10 million for the six months ended June 30, 2022 and 2021, respectively.

(b) Transactions and other costs for the six months ended June 30, 2022 and 2021 primarily relate to completed divestitures and fees for certain legal proceedings.

Operating income increased to $534 million as compared to $497 million in the prior year period.

The improvement in the operating results reflects lower overhead spending.

The improvement reflects lower compensation expense, gross productivity and lower overhead spending, partially offset by lower gross profit and the impact of

the CH&S sale.

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.

The weighted average interest rates for the six months ended June 30, 2022 and 2021 were approximately 4.3% 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

Other income, net for six months ended June 30, 2022 and 2021 includes the following items:

Six Months Ended

Foreign exchange losses, net $ 16 $ 2

Gain on disposition of business (See Footnote 2 )

Fair value equity adjustments (See Footnote 15 )

(Gain) loss on disposition of business (See Footnote 2 )

Other (gains) losses, net 2 (8)

$ (116) $ (4)

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.

The income tax provision for the six months ended June 30, 2022 was $98 million as compared to an income tax provision for the six months ended June 30, 2021 of $83 million.

The effective tax rate for the six months ended June 30, 2022 was 18.3% as compared to 22.5% for the six months ended June 30, 2021.

The income tax provision for the six months ended June 30, 2022 included discrete benefits of $4 million associated with the approval of certain state tax credits and $11 million associated with the reduction in valuation allowance related to the integration of certain Brazilian operations, offset by $15 million of income tax expense related to the divestiture of the CH&S business unit .

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

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

2 unchanged sentences

Commercial Solutions

Three Months Ended

Six Months Ended

(in millions) 2022 2021 $ Change % Change

2 unchanged sentences

Operating margin 10.4 % 9.6 %

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.

Commercial Solutions net sales for the six months ended June 30, 2022 decreased 3%, which primarily reflected the sale of the CH&S business at the end of the first quarter of 2022, which unfavorably impacted net sales by approximately 10%, partially offset by growth in the Commercial business unit primarily driven by pricing actions and increased demand in certain categories.

Changes in foreign currency unfavorably impacted net sales by $21 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.

Operating income for the six months ended June 30, 2022 was $98 million as compared to $93 million in the prior year.

The increase in operating income is due to gross productivity and lower advertising and promotion costs and overhead spending, partially offset by significant input cost inflation, primarily resin and metals, sourced finished goods, transportation and labor, as well as the impact of the CH&S sale.

Home Appliances

Three Months Ended

Six Months Ended

(in millions) 2022 2021 $ Change % Change

3 unchanged sentences

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.

Home Appliances net sales for the six months ended June 30, 2022 decreased approximately 9%, which reflects softening demand in the U.S.

due to higher customer inventory levels and the lapping of elevated levels of demand in the prior-year, and certain category exits, partially offset by pricing actions and increased demand in Latin America.

Changes in foreign currency unfavorably impacted net sales by $11 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.

Operating loss for the six months ended June 30, 2022 was $3 million as compared to an operating income of $16 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

Six Months Ended

(in millions) 2022 2021 $ Change % Change

2 unchanged sentences

Operating margin 6.8 % 11.1 %

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.

Home Solutions net sales for the six months ended June 30, 2022 decreased 6%.

An increase in sales 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, partially offset by softening demand in certain categories in the U.S., as the business lapped elevated levels of demand in the prior-year.

The decline in Home Fragrance business unit sales reflected softening global demand, as the business lapped elevated levels of demand in the prior year, as well as the exit of approximately 42 underperforming Yankee Candle retail stores during the first half of 2022.

Changes in foreign currency unfavorably impacted net sales by $14 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.

Operating income for the six months ended June 30, 2022 was $66 million as compared to $114 million in the prior year period.

This decrease was partially offset by gross productivity and lower overhead spend.

Learning and Development

Three Months Ended

Six Months Ended

(in millions) 2022 2021 $ Change % Change

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Operating margin 24.9 % 22.4 %

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.

Learning and Development net sales for the six months ended June 30, 2022 increased 4% due to sales growth in the Writing and Baby business units.

The modest growth in the Baby business unit sales reflected the impact of pricing actions, partially offset by softening demand in certain categories in the U.S.

and product availability constraints.

The Writing unit performance reflected pricing actions, early order timing ahead of the back to school season, improved return to in-person learning and gradual reopening of more offices, partially offset by supply chain shortages, particularly in labeling, and logistical constraints.

Changes in foreign currency unfavorably impacted net sales by $37 million, or 3%.

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.

Operating income for the six months ended June 30, 2022 increased to $377 million as compared to $327 million in the prior-year period.

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

Outdoor and Recreation

Three Months Ended

Six Months Ended

(in millions) 2022 2021 $ Change % Change

Net sales $ 815 $ 789 $ 26 3.3%

Operating income 45 15 30 NM

Operating income 91 63 28 44.4%

Operating margin 11.2 % 8.0 %

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.

Outdoor and Recreation net sales for the six months ended June 30, 2022 increased 3% primarily due to pricing actions and improved product availability, partially offset by certain category exits and softening demand in certain categories in the U.S.

reflecting higher customer inventory levels and the lapping of elevated levels of demand in the prior year.

Changes in foreign currency unfavorably impacted net sales by $38 million or 5%.

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

Operating income for the six months ended June 30, 2022 was $91 million as compared to $63 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.

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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.

At June 30, 2022, the Company had cash and cash equivalents of approximately $323 million, of which approximately $285 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.

The Company believes the extent of the impact of the COVID-19 pandemic and indirect impact of the Russia-Ukraine conflict 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.

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):

Cash, cash equivalents and restricted cash increased (decreased) as follows for the six months ended June 30, 2022 and 2021 (in millions):

2022 2021 Increase (Decrease)

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

Cash provided by (used in) operating activities $ (450) $ 76 $ (526)

Cash provided by (used in) investing activities 499 (105) 604

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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.

The change in net cash used in operating activities reflects inventory build to support sales and the Project Ovid go-live, the timing of customer collections and vendor payments and higher annual incentive compensation payments.

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.

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

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.

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

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”).

The Company has the ability to borrow under its existing $1.25 billion revolving credit facility that matures in December 2023 (the “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.

At June 30, 2022 there were approximately $22 million of outstanding standby letters of credit issued

against the Credit Revolver, with a net availability of approximately $1.1 billion.

There were no borrowings outstanding under the Credit Revolver and $112 million commercial paper borrowings at June 30, 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.

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.

In addition, if economic conditions caused by the COVID-19 pandemic or the indirect macroeconomic impact of the Russia-Ukraine conflict 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 June 30, 2022.

Factored receivables at the end of the second quarter of 2022 associated with the existing factoring agreement (the “Customer Receivables Purchase Agreement”) were approximately $545 million, an increase of approximately $45 million from December 31, 2021.

During the second quarter of 2022, the Company amended the Customer Receivables Purchase Agreement to (1) increase the amount of certain customer receivables that may be sold under the agreement, (2) add new customers to the agreement and (3) change the reference rate from LIBOR to Secured Overnight Financing Rate (“SOFR”).

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.

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.

During the second quarter of 2022, the Company amended the Securitization Facility.

This amendment (1) reduced the aggregate commitment under the Securitization Facility to $375 million from $600 million, (2) extended its maturity by one year to October 2023 and (3) changed the reference rate under the Securitization Facility from LIBOR to SOFR.

The Securitization Facility 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 June 30, 2022, the Company has $260 million outstanding under the Securitization Facility.

Risk Management

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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.

At June 30, 2022, the Company had approximately $100 million notional amount of interest rate swaps that exchange a fixed rate of interest for a 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.

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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.

During the three months ended June 30, 2022 and 2021, the Company recognized income of $6 million and $3 million, respectively, and income of $11 million

and $7 million for the six months ended June 30, 2022 and 2021, 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

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.

At June 30, 2022, the Company had approximately $375 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.

At June 30, 2022, the Company had approximately $1.5 billion notional amount outstanding of these foreign currency contracts that are not designated as effective hedges for accounting purposes and have maturity dates through May 2023.

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

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

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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 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.

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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.

The Company believes the circumstances and global disruption caused by COVID-19 and the indirect macroeconomic impact of the Russia-Ukraine conflict may continue to affect its businesses, future operating results, cash flows and financial condition.

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.

Given the uncertainty of these factors as discussed further in Footnote 1 of the Notes to the Unaudited Condensed Consolidated Financial Statements and Recent Developments , 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 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.

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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