What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-10-28 compared with 2022-07-29 · 215 added, 207 removed, 258 unchanged (62% 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 optimize costs and cash flow and mitigate the impact of retailer inventory rebalancing through discretionary and overhead spend management, advertising and promotion expense optimization, demand forecast and supply plan adjustments and actions to improve working capital;

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

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

• 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;

• competition with other manufacturers and distributors of consumer products;

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• 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;

• 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;

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• unexpected costs or expenses associated with dispositions;

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

• the Company's ability to effectively execute its 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;

• 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;

22 unchanged sentences

continued macroeconomic and geopolitical volatility;

a softening macro backdrop;

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

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.

One such initiative 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, which commenced its first phase go-live during the third quarter of 2022, 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.

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Recent Developments

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 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.

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 a 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.

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.

Current Macroeconomic Conditions

The Company, which has been impacted in recent years by inflationary and supply chain pressures, labor shortages, and logistical challenges across its businesses, and more recently by the indirect macroeconomic impact of the Russia-Ukraine conflict, is also experiencing additional headwinds due to softening global demand and an increased focus by retailers to rebalance inventory levels in light of continued inflationary pressures on consumers.

The segments most impacted by the softening global demand are Home Appliances and Home Solutions.

These collective macroeconomic trends, the duration or severity of which are highly uncertain, are rapidly changing the retail landscape and have negatively impacted the Company’s operating results, cash flows and financial condition in 2022 and are expected to persist for the remainder of the year and into 2023.

To help mitigate the negative impact of these conditions to the operating performance of its businesses, the Company has secured selective pricing increases, accelerated productivity initiatives, optimized advertising and promotion expenses, deployed overhead cost containment efforts, adjusted demand forecasts and supply plans, and taken actions designed to improve working capital.

The Company will continue to evaluate other opportunities to improve its financial performance both in the short and long term.

Although management has made its best estimates and assumptions based upon current information, actual results could materially differ given the uncertainty of these factors and may require future changes to such estimates and assumptions, including reserves, which may result in future expense or impairment charges.

See Footnote 1 of the Notes to Unaudited Condensed Consolidated Financial Statements for further information on use of estimates and risks

Russia-Ukraine Conflict

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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.

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.

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.

Goodwill and Other Indefinite-Lived Intangible Asset Impairment

During the third quarter of 2022, the Company concluded that a triggering event had occurred for its Home Fragrance reporting unit, in the Home Solutions segment, an indefinite-lived tradename in the Home Appliances reporting unit, and two indefinite-lived tradenames for the Baby reporting unit, in the Learning and Development segment.

The Company performed an impairment test and determined that the Home Fragrance reporting unit goodwill, and the indefinite-lived tradenames in the Home Appliances and Baby reporting units noted above were impaired.

During the three and nine months ended September 30, 2022, the Company recorded an aggregate non-cash impairment charge of $148 million, as the carrying values exceeded their fair values.

A quantitative impairment test was also performed for the indefinite-lived tradename and long-lived assets in the Home Fragrance reporting unit resulting in no impairment.

See Footnotes 1 and 7 of the Notes to Unaudited Condensed Consolidated Financial Statements and Significant Accounting Policies and Critical Estimates for information.

Revolving Credit Facility Refinancing

On August 31, 2022, the Company entered into a $1.5 billion senior unsecured revolving credit facility (the “Credit Revolver”) that matures in August 2027.

The Credit Revolver refinanced the Company’s previous $1.25 billion senior unsecured revolving credit facility that was scheduled to mature in December 2023.

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

Senior Notes Due 2027 and 2029

On September 14, 2022, the Company completed a registered public offering of $500 million principal amount of 6.375% senior notes that mature in September 2027 (the “September 2027 Notes”) and $500 million principal amount of 6.625% senior notes that mature in September 2029 (the “September 2029 Notes”).

The Company received proceeds of approximately $990 million, net of fees and expenses paid.

The Company used the net proceeds from the September 2027 and September 2029 Notes, together with available cash, to redeem the Company's outstanding April 2023 Notes (defined below) during the fourth quarter of 2022.

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

Redemption of Senior Notes Due 2023

On September 19, 2022, the Company delivered a notice of redemption to the holders of the Company's 3.85% senior notes due April 2023 (the “April 2023 Notes”), and the Company redeemed the April 2023 Notes on October 19, 2022.

The redemption price was 100.002% of the outstanding aggregate principal amount of the notes, plus accrued and unpaid interest to the date of redemption.

The total consideration paid was approximately $1.09 billion, and the Company will recognize a nominal debt extinguishment loss in the fourth quarter of 2022.

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

Results of Operations

Three Months Ended June 30, 2022 vs.

Three Months Ended June 30, 2021

Three Months Ended September 30, 2022 vs.

Three Months Ended September 30, 2021

Consolidated Operating Results

Three Months Ended

September 30,

(in millions) 2022 2021 $ Change % Change

5 unchanged sentences

Interest expense, net 57 65 (8) (12.3)%

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 %

Other expense, net 8 1 7 NM

Income (loss) before income taxes (30) 215 (245) NM

Income tax provision (benefit) (61) 25 (86) NM

Income tax rate NM 11.6 %

Net income $ 31 $ 190 $ (159) (83.7)%

1 unchanged sentence

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.

Net sales for the three months ended September 30, 2022 decreased 19%, as pricing actions by the Company were more than offset by softening global demand, as retailers significantly pulled back on orders in an effort to rebalance inventory, a negative impact on sales of approximately 4% due to the sale of the CH&S business at the end of the first quarter of 2022, certain category exits in the Home Appliances and Outdoor and Recreation segments and the impact of a shift in order timing to the first half of 2022 primarily in the Learning and Development and Outdoor and Recreation segments.

The net sales performance also reflected the lapping of elevated levels of demand in certain categories during the prior year.

Changes in foreign currency unfavorably impacted net sales by $100 million, or 4%.

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.

Gross profit decreased 23% and gross margin decreased to 29.0% as compared with 30.4% in the prior year period.

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

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

Changes in foreign currency exchange rates unfavorably impacted gross profit by $32 million or 4%.

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:

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

Three Months Ended

September 30,

2022 2021 $ Change

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

Impairment of goodwill and intangible assets (See Footnotes 1 and 7 )

$ 148 $ — $ 148

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

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.

(a) Restructuring-related costs reported in cost of goods sold and selling, general and administrative expenses (“SG&A”) for the three months ended September 30, 2022 were $7 million and $2 million, respectively, primarily related to facility closures.

For the three months ended September 30, 2021, restructuring-related costs reported in cost of sales and SG&A were $6 million and $1 million, respectively, and primarily relate to facility closures.

Restructuring costs were $3 million and $6 million for the three months ended September 30, 2022 and 2021, respectively.

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

Operating income decreased to $35 million as compared to $281 million in the prior year period.

The decrease in operating income reflects impact of lower gross profit, partially offset by lower incentive compensation expense, advertising and promotion costs and overhead spending.

Operating income was also negatively impacted by the non-cash impairment charges relating to goodwill and indefinite-lived assets and the sale of the CH&S business.

Interest expense, net decreased primarily due to higher interest income.

The weighted average interest rates for the three months ended September 30, 2022 and 2021 were approximately 4.1% 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:

Other expense, net for three months ended September 30, 2022 and 2021 includes the following items:

Three Months Ended

September 30,

Foreign exchange losses, net $ 10 $ 3

Fair value equity adjustments (See Footnote 15 )

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

Gain on disposition of businesses (See Footnote 2 )

Other (gains) losses, net 1 (2)

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.

Income tax benefit for the three months ended September 30, 2022 was $61 million as compared to $25 million of income tax expense for the three months ended September 30, 2021.

The effective tax rate for the three months ended September 30, 2022 was 203.3%, due to increased discrete tax benefits combined with pretax losses associated with impairment charges, as compared to 11.6% for the three months ended September 30, 2021.

The change in effective tax provision was impacted by a variety of factors including certain discrete items.

Income tax expense for the three months ended September 30, 2022 included a discrete benefit of $58 million associated with a change in the Company's indefinite reinvestment assertion regarding certain earnings within its Irish operations, $6 million associated with tradename impairments, $4 million associated with the reduction of a valuation allowance related to operations in the state of Georgia and $2 million associated with the approval of certain state tax credits.

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

See Footnote 12 of the Notes to the Unaudited Condensed Consolidated Financial Statements for information regarding income taxes, including the inherent uncertainty associated with the Company's position on recently enacted U.S.

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Three Months Ended

September 30,

(in millions) 2022 2021 $ Change % Change

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Operating margin 7.1 % 3.7 %

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.

Commercial Solutions net sales for the three months ended September 30, 2022 decreased 18%, 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 22%, partially offset by growth in the Commercial business unit driven primarily by pricing actions and improved order fulfillment resulting from the easing of supply chain constraints.

Changes in foreign currency unfavorably impacted net sales by $20 million, or 4%.

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 for the three months ended September 30, 2022 was $28 million as compared to $18 million in the prior year period.

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

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

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Three Months Ended

September 30,

(in millions) 2022 2021 $ Change % Change

Net sales $ 305 $ 443 $ (138) (31.2)%

Operating income 15 13 2 15.4%

Operating income (loss) (20) 19 (39) NM

Operating margin (6.6) % 4.3 %

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.

Notable items impacting operating income (loss) comparability:

Impairment of intangible asset (See Footnote 7 )

NM - NOT MEANINGFUL

Home Appliances net sales for the three months ended September 30, 2022 decreased 31%, reflecting softening global demand, certain category exits and the lapping of elevated levels of demand during the prior year, partially offset by pricing actions.

Changes in foreign currency unfavorably impacted net sales by $10 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.

Operating loss for the three months ended September 30, 2022 was $20 million as compared to operating income of $19 million in the prior year period.

The decrease in operating income was primarily due to lower gross profit leverage, higher absorption costs associated with lower sales volume and significant input cost inflation associated with transportation costs and sourced finished goods, partially offset by gross productivity as well as lower incentive compensation expense and advertising and promotion costs.

Operating income was also negatively impacted by the non-cash impairment charge related to an indefinite-lived tradename.

Home Solutions

Three Months Ended

September 30,

(in millions) 2022 2021 $ Change % Change

Net sales $ 510 $ 598 $ (88) (14.7)%

Operating income 5 53 (48) (90.6)%

Operating income (loss) (88) 75 (163) NM

Operating margin (17.3) % 12.5 %

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.

Notable items impacting operating income (loss) comparability:

Impairment of goodwill (See Footnote 7 )

NM - NOT MEANINGFUL

Home Solutions net sales for the three months ended September 30, 2022 decreased 15%, reflecting decreases in both the Food and Home Fragrance business units.

The Food business unit decline reflects softening global demand, lost distribution in one product line at a key customer and an order timing shift into the fourth quarter, partially offset by pricing actions.

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

Changes in foreign currency unfavorably impacted net sales by $16 million, or 3%.

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.

Operating loss for the three months ended September 30, 2022 was $88 million as compared to operating income of $75 million in the prior year period.

The decline in operating income was driven by the non-cash goodwill impairment charge in the Home Fragrance reporting unit, lower gross profit leverage, higher absorption costs associated with lower sales volume, and significant input cost inflation for commodities, primarily metals and wax, transportation, labor and sourced finished goods.

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

Learning and Development

Three Months Ended

September 30,

(in millions) 2022 2021 $ Change % Change

2 unchanged sentences

Operating margin 16.0 % 22.4 %

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.

Notable items impacting operating income comparability:

Impairment of intangible assets (See Footnote 7 )

Learning and Development net sales for the three months ended September 30, 2022 decreased 14% due to decline in the Writing and Baby business units.

The Writing business unit performance reflected logistical constraints and supply chain shortages, particularly in labelling, a shift in order timing to the first half of 2022 ahead of the back to school season, and softening demand in certain categories in the U.S., partially offset by pricing actions.

Pricing actions in the Baby business unit were more than offset by softening demand in certain categories in the U.S., as the business lapped elevated levels of demand during the prior year.

Changes in foreign currency unfavorably impacted net sales by $31 million, or 4%.

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.

Operating income for the three months ended September 30, 2022 decreased to $120 million as compared to $195 million in the prior-year period.

The decrease in operating income reflected lower gross profit leverage, higher absorption costs associated with lower sales volume and input cost inflation for sourced finished goods, transportation and labor, partially offset by gross productivity and lower incentive compensation costs.

Operating income was also negatively impacted by non-cash impairment charges related to indefinite-lived tradenames in the Baby reporting unit.

Outdoor and Recreation

Three Months Ended

September 30,

(in millions) 2022 2021 $ Change % Change

2 unchanged sentences

Operating margin 2.8 % 6.9 %

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.

Outdoor and Recreation net sales for the three months ended September 30, 2022 decreased 26%, reflecting softening demand primarily in the U.S.

and Asia Pacific, certain category exits and a shift in order timing to the first half of 2022 ahead of the outdoor season, partially offset by pricing actions.

Changes in foreign currency unfavorably impacted net sales by $23 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

Operating income for the three months ended September 30, 2022 was $8 million as compared to $27 million in the prior-year period.

The decline was due to lower gross profit leverage, higher absorption costs associated with lower sales volume and significant input cost inflation for sourced finished goods and transportation, partially offset by gross productivity and lower incentive compensation costs.

Nine Months Ended September 30, 2022 vs.

Nine Months Ended September 30, 2021

Consolidated Operating Results

Six Months Ended

Nine Months Ended

September 30,

(in millions) 2022

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NM - NOT MEANINGFUL

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.

Net sales decreased 8%, as pricing actions by the Company were more than offset by softening global demand, as retailers significantly pulled back on orders in an effort to rebalance inventory, 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 3%, and category exits in the Home Appliances and Outdoor and Recreation segments.

The net sales performance also reflected the lapping of elevated levels of demand in certain categories during the prior year.

Changes in foreign currency unfavorably impacted net sales by $221 million, or 3%.

Gross profit decreased slightly compared to prior year.

Gross profit decreased 10% compared to prior year.

Gross profit margin declined to 30.9% as compared with 31.6% in the prior year period.

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 decrease in gross margin was driven by higher absorption costs associated with lower sales volume, as well as significant input cost inflation for commodities, 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.

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

Changes in foreign currency exchange rates unfavorably impacted gross profit by $77 million, or 3%.

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

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

Nine Months Ended

September 30,

2022 2021 $ Change

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

Impairment of goodwill and intangible assets (See Footnote 7 )

$ 148 $ — $ 148

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

Transactions and other costs (b)

(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 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 six months ended June 30, 2022 and 2021 were approximately 4.3% and 4.8%, respectively.

(a) Restructuring-related costs reported in cost of goods sold and SG&A for the nine months ended September 30, 2022 was $15 million and $2 million, respectively, and primarily relate to facility closures.

For the nine months ended September 30, 2021, restructuring-related costs reported in cost of sales and SG&A were $13 million and $5 million, respectively, and primarily relate to facility closures.

Restructuring costs were $12 million and $16 million for the nine months ended September 30, 2022 and 2021, respectively.

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

Operating income decreased to $569 million as compared to $778 million in the prior year period.

The decline reflects lower gross profit, partially offset by gross productivity, as well as lower incentive compensation expense, advertising and promotion costs and overhead spending.

Operating income was also negatively impacted by the non-cash impairment charges relating to goodwill and indefinite-lived tradenames.

Interest expense, net decreased primarily due to lower long-term debt levels during the first half of the year, and higher interest income.

The weighted average interest rates for the nine months ended September 30, 2022 and 2021 were approximately 4.3% and 4.7%, respectively.

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

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

Six Months Ended

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

Nine Months Ended

September 30,

Foreign exchange losses, net $ 26 $ 5

Fair value equity adjustments (See Footnote 15 )

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

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$ (108) $ (3)

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.

The income tax provision for the nine months ended September 30, 2022 was $37 million as compared to $108 million for the nine months ended September 30, 2021.

The effective tax rate for the nine months ended September 30, 2022 was 7.3%, reflecting an increase in discrete tax benefits, as compared to 18.5% for the nine months ended September 30, 2021.

The nine months ended September 30, 2022 included discrete benefits of $58 million associated with a change in the Company's indefinite reinvestment assertion regarding certain earnings within it Irish operations, $11 million associated with the reduction in valuation allowance related to the integration of certain Brazilian operations and $4 million associated with the approval of certain state tax credits, offset by $16 million of income tax expense related to the divestiture of the CH&S business unit .

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

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

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Commercial Solutions

Six Months Ended

Nine Months Ended

September 30,

(in millions) 2022 2021 $ Change % Change

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Operating margin 9.4 % 7.7 %

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.

Commercial Solutions net sales for the nine months ended September 30, 2022 decreased 8%, 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 14%, partially offset by growth in the Commercial business unit, primarily driven by pricing actions and improved order fulfillment resulting from the easing of supply chain constraints.

Changes in foreign currency unfavorably impacted net sales by $41 million, or 3%.

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.

Operating income for the nine months ended September 30, 2022 was $126 million as compared to $111 million in the prior year.

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

Home Appliances

Six Months Ended

Nine Months Ended

September 30,

(in millions) 2022 2021 $ Change % Change

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Operating margin (2.3) % 2.9 %

Notable items impacting operating income (loss) comparability:

Impairment of intangible asset (See Footnote 7 )

NM - NOT MEANINGFUL

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.

Home Appliances net sales for the nine months ended September 30, 2022 decreased approximately 17%, which reflects softening global demand, certain category exits and the lapping of elevated levels of demand during the prior year, partially offset by pricing actions.

Changes in foreign currency unfavorably impacted net sales by $21 million, or 2%.

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.

Operating loss for the nine months ended September 30, 2022 was $23 million as compared to operating income of $35 million in the prior year period.

The decline in operating income is primarily due to lower gross profit leverage, higher absorption costs associated with lower sales volume and significant input cost inflation associated with transportation costs and sourced finished goods, partially offset by gross productivity and lower incentive compensation expense.

Operating income was also negatively impacted by the non-cash impairment charge related to an indefinite-lived asset.

Home Solutions

Six Months Ended

Nine Months Ended

September 30,

(in millions) 2022 2021 $ Change % Change

Net sales $ 1,477 $ 1,627 $ (150) (9.2)%

Operating income 66 114 (48) (42.1)%

Operating income (loss) (22) 189 (211) NM

Operating margin (1.5) % 11.6 %

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.

Notable items impacting operating income (loss) comparability:

Impairment of goodwill (See Footnote 7 )

NM - NOT MEANINGFUL

Home Solutions net sales for the nine months ended September 30, 2022 decreased 9%, reflecting decreases in both the Food and Home Fragrance business units.

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

The net sales performance for the segment also reflected the lapping of elevated demand during the prior year.

Changes in foreign currency unfavorably impacted net sales by $30 million, or 2%.

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.

Operating loss for the nine months ended September 30, 2022 was $22 million as compared to operating income of $189 million in the prior year period.

The decrease in operating income is primarily due to the non-cash goodwill impairment charge in the Home Fragrance reporting unit, lower gross profit leverage, higher absorption costs associated with lower sales volume 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

Six Months Ended

Nine Months Ended

September 30,

(in millions) 2022 2021 $ Change % Change

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Operating margin 21.9 % 22.4 %

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.

Notable items impacting operating income comparability:

Impairment of intangible assets (See Footnote 7 )

Learning and Development net sales for the nine months ended September 30, 2022 decreased 3%, reflecting decreases in both the Writing and Baby business units.

The Writing business unit performance reflected pricing actions, which were more than offset by logistical constraints and supply chain shortages, particularly in labelling, and softening demand in certain categories in the U.S.

Pricing actions in the Baby business unit were more than offset by softening demand in certain categories in the U.S., as the business lapped elevated levels of demand during the prior year.

Changes in foreign currency unfavorably impacted net sales by $68 million, or 3%.

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.

Operating income for the nine months ended September 30, 2022 decreased to $497 million as compared to $522 million in the prior-year period.

The decrease in operating income is primarily due to the non-cash impairment charges related to indefinite-lived assets in the Baby reporting unit.

In addition, gross productivity and lower compensation costs were offset by lower gross profit leverage and significant input cost inflation for sourced finished goods, transportation and labor.

Outdoor and Recreation

Six Months Ended

Nine Months Ended

September 30,

(in millions) 2022 2021 $ Change % Change

2 unchanged sentences

Operating margin 9.0 % 7.6 %

NM - NOT MEANINGFUL

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.

Outdoor and Recreation net sales for the nine months ended September 30, 2022 decreased 6% primarily reflecting softening U.S.

demand and certain category exits.

The net sales performance for this segment also reflects the lapping of elevated levels of demand in the prior year, partially offset by pricing actions and improved product availability.

Changes in foreign currency unfavorably impacted net sales by $61 million or 5%.

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.

Operating income for the nine months ended September 30, 2022 was $99 million as compared to $90 million in the prior-year period.

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

Liquidity and Capital Resources

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

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.

At September 30, 2022, the Company had cash and cash equivalents of approximately $636 million, of which approximately $238 million was held by the Company’s non-U.S.

subsidiaries.

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.

The Company believes the extent of the impact of this rapidly changing retail landscape, which reflects an increased focus by retailers to rebalance inventory levels in light of continued inflationary pressures on consumers, as well as the supply chain disruptions, inflationary pressures and uncertainty over the volatility and direction of future demand patterns on the Company's future sales, operating results, cash flows, liquidity and financial condition will continue to be driven by numerous evolving factors the Company cannot accurately predict and which will vary.

For further information, 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 six months ended June 30, 2022 and 2021 (in millions):

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

2022 2021 Increase (Decrease)

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Cash provided by (used in) investing activities 420 (180) 600

Cash used in financing activities (185) (338) 153

Cash provided by (used in) financing activities 344 (800) 1,144

Exchange rate effect on cash, cash equivalents and restricted cash (13) (14) 1

Decrease in cash, cash equivalents and restricted cash $ (139) $ (373) $ 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.

Increase (decrease) in cash, cash equivalents and restricted cash $ 184 $ (504) $ 688

The Company has historically generated 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.

See below for further information on the Company's recent operating cash flow performance.

Cash Flows from Operating Activities

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.

The change in net cash used in operating activities reflects the impact of a significantly greater than expected pullback in retailer orders as retailers rebalance inventory in the light of continued inflationary pressures on consumers, which resulted in lower sales volume and unfavorable working capital associated with inventory build to support sales and the Project Ovid go-live, the timing of customer collections and vendor payments, and lower accounts receivable sold under the Customer Receivables Purchase Agreement.

See Capital Resources for further information.

2 unchanged sentences

Cash Flows from Financing Activities

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.

The change in net cash provided by 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 $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 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 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”).

On August 31, 2022, the Company entered into a $1.5 billion senior unsecured revolving credit facility (the “Credit Revolver”) that matures in August 2027.

The Credit Revolver refinanced the Company’s previous $1.25 billion senior unsecured revolving credit facility that was scheduled to mature in December 2023.

Under the Credit Revolver, the Company may borrow funds on a variety of interest rate terms.

The Credit Revolver provides committed back-up liquidity for the issuance of commercial paper, in each case, to the extent there is sufficient availability for borrowing under the Credit Revolver.

At September 30, 2022 there were no borrowings outstanding under the Credit Revolver and no commercial paper borrowings.

The Credit Revolver provides for the issuance of up to $150 million of letters of credit, so long as there is sufficient availability for borrowing under the Credit Revolver.

At September 30, 2022, the Company had approximately $22 million of outstanding standby letters of credit issued against the Credit Revolver, with a net availability of approximately $1.48 billion.

The Company was in compliance with all of its debt covenants at September 30, 2022.

Factored receivables at September 30, 2022 associated with the Company's existing factoring agreement (the “Customer Receivables Purchase Agreement”) were approximately $375 million, a decrease of approximately $125 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 London Interbank Offered Rate (“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.

1 unchanged sentence

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

The Company maintains an Accounts Receivable Securitization Facility (the “Securitization Facility”).

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

2 unchanged sentences

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.

At September 30, 2022, the Company did not have any amounts outstanding under the Securitization Facility.

Risk Management

1 unchanged sentence

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 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.

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 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 with maturity dates through March 2023.

The derivatives used to hedge these forecasted transactions that meet the criteria for hedge accounting are accounted for as cash flow hedges.

The effective portion of the gains or losses on these derivatives is deferred as a component of AOCL until it is recognized in earnings at the same time that the hedged item affects earnings and is included in the same caption in the statements of operations as the underlying hedged item.

At June 30, 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 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):

Derivatives designated as effective hedges:

Cash flow hedges:

Foreign currency contracts

Fair value hedges:

Interest rate swaps

Net investment hedges:

Cross-currency swaps

Derivatives not designated as effective hedges:

Foreign currency contracts

See Footnote 10 of the Notes to the Unaudited Condensed Consolidated Financial Statements for further information on the Company's derivative instruments.

Significant Accounting Policies and Critical Estimates

4 unchanged sentences

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

During the third quarter of 2022, the Company concluded that a triggering event had occurred for the Home Fragrance reporting unit in the Home Solutions segment, which reflected a downward revision of forecasted cash flows due to softening global demand, as retailers significantly pulled back on orders in an effort to rebalance inventory.

The decline in global demand is driven primarily by inflationary pressures which are impacting the discretionary spending behavior of consumers.

The Company bypassed the qualitative approach to testing goodwill and used a quantitative approach, which involves comparing the fair value of the reporting unit to its carrying value.

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

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

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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.

The Company performed an impairment test and determined that the Home Fragrance reporting unit goodwill was impaired.

During the three and nine months ended September 30, 2022 the Company recorded a non-cash impairment charge of $108 million, as the carrying value of the reporting unit exceeded its fair value.

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

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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 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 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.

During the third quarter of 2022, the Company concluded that a triggering event had occurred for an indefinite-lived tradename in its Home Fragrance reporting unit, in the Home Solutions segment, an indefinite-lived tradename in the Home Appliances reporting unit, and two indefinite-lived tradenames for the Baby reporting unit, in the Learning and Development segment.

The Company performed a quantitative impairment test and determined that the indefinite-lived tradenames in the Home Appliances and Baby reporting units noted above were impaired.

During the three and nine months ended September 30, 2022, the Company recorded an aggregate non-cash impairment charge of $40 million, as the carrying values exceeded their fair values.

A quantitative impairment test was also performed for the indefinite-lived tradename and long-lived assets in the Home Fragrance reporting unit resulting in no impairment.

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

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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