NEWELL BRANDS INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of Newell Brands Inc.’s (“Newell Brands,” the “Company,” “we,” “us” or “our”) consolidated financial condition and results of operations. The discussion should be read in conjunction with the accompanying condensed consolidated financial statements and notes thereto. Forward-Looking Statements Forward-looking statements in this Report are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements generally can be identified by the use of words such as “intend,” “anticipate,” “believe,” “estimate,” “project,” “target,” “plan,” “expect,” “setting up,” “beginning to,” “will,” “should,” “would,” “could,” “resume,” “are confident that,” “remain optimistic that,” “seek to,” or similar statements. The Company cautions that forward-looking statements are not guarantees because there are inherent difficulties in predicting future results. Actual results may differ materially from those expressed or implied in the forward-looking statements. Important factors that could cause actual results to differ materially from those suggested by the forward-looking statements include, but are not limited to: • the Company’s ability to 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; • competition with other manufacturers and distributors of consumer products; • major retailers’ strong bargaining power and consolidation of the Company’s customers; • 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 cost and outcomes of governmental investigations, inspections, lawsuits, legislative requests or other actions by third parties, including but not limited to those described in Footnote 17 of the Notes to the Unaudited Condensed Consolidated Financial Statements , the potential outcomes of which could exceed policy limits, to the extent insured; • the Company’s ability to develop innovative new products, to develop, maintain and strengthen end-user brands and to realize the benefits of increased advertising and promotion spend; • the Company's ability to consistently maintain effective internal control over financial reporting; • 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; • 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 data privacy and climate change; • the potential inability to attract, retain and motivate key employees; • changes in tax laws and the resolution of tax contingencies resulting in additional tax liabilities; • product liability, product recalls or related regulatory actions; • the Company’s ability to protect its intellectual property rights; • significant increases in the funding obligations related to the Company’s pension plans; and • other factors listed from time to time in our SEC filings, including but not limited to our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q and other filings. 29 Table of Contents The information contained in this Report is as of the date indicated. The Company assumes no obligation to update any forward-looking statements contained in this Report as a result of new information or future events or developments. In addition, there can be no assurance that the Company has correctly identified and assessed all of the factors affecting the Company or that the publicly available and other information the Company receives with respect to these factors is complete or correct. Overview Newell Brands is a leading global consumer goods company with a strong portfolio of well-known brands, including Rubbermaid, FoodSaver, Calphalon, Sistema, Sharpie, Paper Mate, Dymo, EXPO, Elmer’s, Yankee Candle, Graco, NUK, Rubbermaid Commercial Products, Spontex, Coleman, Campingaz, Contigo, Oster, Sunbeam and Mr. Coffee. Newell Brands' beloved brands enhance and brighten consumers lives at home and outside by creating moments of joy, building confidence and providing peace of mind. The Company sells its products in nearly 200 countries around the world and has operations on the ground in over 40 of these countries, excluding third-party distributors. Business Strategy The Company 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: • Drive sustainable top line growth by focusing on innovation, sharpening brand positioning, strengthening the international businesses, enhancing digital marketing and omni-channel capabilities, and building customer relationships; • Improve operating margins by driving productivity and overhead savings, while reinvesting in the business; • Accelerate cash conversion cycle by focusing on cash efficiency and improving key working capital metrics; • Strengthen the portfolio by investing in attractive categories that are aligned with its capabilities and strategy and optimizing product mix; and • Strengthen organizational capabilities and employee engagement by building a winning team and focusing the best people on the right things. The Company is implementing this strategy while addressing key challenges such as shifting consumer preferences and behaviors; a highly competitive operating environment; a rapidly changing retail landscape; continued macroeconomic and geopolitical volatility; 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 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. The initiative is intended to reduce administrative complexity, improve inventory and invoicing workflow for our customers and enhance product availability for consumers through omni-channel enablement. This new operating model is also expected to drive efficiencies by better utilizing the Company's transportation and distribution network. 30 Table of Contents Organizational Structure On March 31, 2022, the Company sold its Connected Home & Security (“CH&S”) business unit to Resideo Technologies, Inc. The results of operations for CH&S continued to be reported in the Condensed Consolidated Statements of Operations as part of the Commercial Solutions segment through March 31, 2022. The Company's five primary reportable segments are the following: Segment Key Brands Description of Primary Products Commercial Solutions Mapa, Quickie, Rubbermaid, Rubbermaid Commercial Products and Spontex Commercial cleaning and maintenance solutions; closet and garage organization; hygiene systems and material handling solutions Home Appliances Calphalon, Crockpot, Mr. Coffee, Oster and Sunbeam Household products, including kitchen appliances Home Solutions Ball (1) , Calphalon, Chesapeake Bay Candle, FoodSaver, Rubbermaid, Sistema, WoodWick and Yankee Candle Food and home storage products; fresh preserving products; vacuum sealing products; gourmet cookware, bakeware and cutlery and home fragrance products Learning and Development Aprica, Baby Jogger, Dymo, Elmer’s, EXPO, Graco, Mr. Sketch, NUK, Paper Mate, Parker, Prismacolor, Sharpie, Tigex, Waterman and X-Acto Baby gear and infant care products; writing instruments, including markers and highlighters, pens and pencils; art products; activity-based adhesive and cutting products and labeling solutions Outdoor and Recreation Campingaz, Coleman, Contigo, ExOfficio and Marmot Products for outdoor and outdoor-related activities (1) and Ball® TM of Ball Corporation, used under license. This structure reflects the manner in which the chief operating decision maker regularly assesses information for decision-making purposes, including the allocation of resources. The Company also provides general corporate services to its segments which is reported as a non-operating segment, Corporate. See Footnote 16 of the Notes to the Unaudited Condensed Consolidated Financial Statements for further information. Recent Developments 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 31 Table of Contents 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. 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. 32 Table of Contents Results of Operations 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 Net sales $ 2,252 $ 2,787 $ (535) (19.2)% Gross profit 653 848 (195) (23.0)% Gross margin 29.0 % 30.4 % Operating income 35 281 (246) (87.5)% Operating margin 1.6 % 10.1 % Interest expense, net 57 65 (8) (12.3)% 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)% Diluted earnings per share attributable to common shareholders $ 0.07 $ 0.44 NM - NOT MEANINGFUL 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 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%. 33 Table of Contents 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 Impairment of goodwill and intangible assets (See Footnotes 1 and 7 ) $ 148 $ — $ 148 Restructuring (See Footnote 4 ) and restructuring-related costs (a) 12 13 (1) Transactions and other costs (b) 18 4 14 (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 expense, net for three months ended September 30, 2022 and 2021 includes the following items: Three Months Ended September 30, 2022 2021 Foreign exchange losses, net $ 10 $ 3 Gain on disposition of businesses (See Footnote 2 ) (3) — Other (gains) losses, net 1 (2) $ 8 $ 1 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. Treasury Regulations. 34 Table of Contents Business Segment Operating Results Commercial Solutions Three Months Ended September 30, (in millions) 2022 2021 $ Change % Change Net sales $ 397 $ 486 $ (89) (18.3)% Operating income 28 18 10 55.6% Operating margin 7.1 % 3.7 % 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 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. Home Appliances Three Months Ended September 30, (in millions) 2022 2021 $ Change % Change Net sales $ 305 $ 443 $ (138) (31.2)% Operating income (loss) (20) 19 (39) NM Operating margin (6.6) % 4.3 % Notable items impacting operating income (loss) comparability: Impairment of intangible asset (See Footnote 7 ) $ 15 $ — 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 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. 35 Table of Contents Home Solutions Three Months Ended September 30, (in millions) 2022 2021 $ Change % Change Net sales $ 510 $ 598 $ (88) (14.7)% Operating income (loss) (88) 75 (163) NM Operating margin (17.3) % 12.5 % Notable items impacting operating income (loss) comparability: Impairment of goodwill (See Footnote 7 ) $ 108 $ — 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 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 Net sales $ 751 $ 869 $ (118) (13.6)% Operating income 120 195 (75) (38.5)% Operating margin 16.0 % 22.4 % Notable items impacting operating income comparability: Impairment of intangible assets (See Footnote 7 ) $ 25 $ — 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 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. 36 Table of Contents Outdoor and Recreation Three Months Ended September 30, (in millions) 2022 2021 $ Change % Change Net sales $ 289 $ 391 $ (102) (26.1)% Operating income 8 27 (19) (70.4)% Operating margin 2.8 % 6.9 % 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 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 Nine Months Ended September 30, (in millions) 2022 2021 $ Change % Change Net sales $ 7,174 $ 7,784 $ (610) (7.8)% Gross profit 2,218 2,461 (243) (9.9)% Gross margin 30.9 % 31.6 % Operating income 569 778 (209) (26.9)% Operating margin 7.9 % 10.0 % Interest expense, net 171 197 (26) (13.2)% Other income, net (108) (3) (105) NM Income before income taxes 506 584 (78) (13.4)% Income tax provision 37 108 (71) (65.7)% Income tax rate 7.3 % 18.5 % Net income $ 469 $ 476 $ (7) (1.5)% Diluted earnings per share attributable to common shareholders $ 1.12 $ 1.11 NM - NOT MEANINGFUL 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 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 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- 37 Table of Contents 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 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 nine months ended September 30, 2022 and 2021 are as follows: Nine Months Ended September 30, 2022 2021 $ Change Impairment of goodwill and intangible assets (See Footnote 7 ) $ 148 $ — $ 148 Restructuring (See Footnote 4 ) and restructuring-related costs (a) 29 34 (5) Transactions and other costs (b) 30 17 13 (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 nine months ended September 30, 2022 and 2021 includes the following items: Nine Months Ended September 30, 2022 2021 Foreign exchange losses, net $ 26 $ 5 (Gain) loss on disposition of business (See Footnote 2 ) (136) 2 Other (gains) losses, net 2 (10) $ (108) $ (3) 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. 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. 38 Table of Contents Business Segment Operating Results Commercial Solutions Nine Months Ended September 30, (in millions) 2022 2021 $ Change % Change Net sales $ 1,336 $ 1,450 $ (114) (7.9)% Operating income 126 111 15 13.5% Operating margin 9.4 % 7.7 % 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 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 Nine Months Ended September 30, (in millions) 2022 2021 $ Change % Change Net sales $ 991 $ 1,197 $ (206) (17.2)% Operating income (loss) (23) 35 (58) NM Operating margin (2.3) % 2.9 % Notable items impacting operating income (loss) comparability: Impairment of intangible asset (See Footnote 7 ) $ 15 $ — NM - NOT MEANINGFUL 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 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. 39 Table of Contents Home Solutions Nine Months Ended September 30, (in millions) 2022 2021 $ Change % Change Net sales $ 1,477 $ 1,627 $ (150) (9.2)% Operating income (loss) (22) 189 (211) NM Operating margin (1.5) % 11.6 % Notable items impacting operating income (loss) comparability: Impairment of goodwill (See Footnote 7 ) $ 108 $ — 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 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. 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 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 Nine Months Ended September 30, (in millions) 2022 2021 $ Change % Change Net sales $ 2,266 $ 2,330 $ (64) (2.7)% Operating income 497 522 (25) (4.8)% Operating margin 21.9 % 22.4 % Notable items impacting operating income comparability: Impairment of intangible assets (See Footnote 7 ) $ 25 $ — 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 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. 40 Table of Contents Outdoor and Recreation Nine Months Ended September 30, (in millions) 2022 2021 $ Change % Change Net sales $ 1,104 $ 1,180 $ (76) (6.4)% Operating income 99 90 9 10.0% Operating margin 9.0 % 7.6 % 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 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 Liquidity The Company believes that its cash generating capability, together with its borrowing capacity and available cash and cash equivalents, provide continued financial viability and adequate liquidity to fund its operations, support its growth platforms, pay down debt and debt maturities as they come due and execute its ongoing business initiatives. The Company regularly assesses its cash requirements and the available sources to fund these needs. At 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 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 nine months ended September 30, 2022 and 2021 (in millions): 2022 2021 Increase (Decrease) Cash provided by (used in) operating activities $ (567) $ 490 $ (1,057) Cash provided by (used in) investing activities 420 (180) 600 Cash provided by (used in) financing activities 344 (800) 1,144 Exchange rate effect on cash, cash equivalents and restricted cash (13) (14) 1 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. 41 Table of Contents Cash Flows from Operating Activities 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. Cash Flows from Investing Activities 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 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 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. 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) 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. 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 September 30, 2022, the Company did not have any amounts outstanding under the Securitization Facility. 42 Table of Contents Risk Management From time to time, the Company enters into derivative transactions to hedge its exposures to interest rate, foreign currency rate and commodity price fluctuations. The Company does not enter into derivative transactions for trading purposes. 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 Goodwill and Indefinite-Lived Intangibles Goodwill and indefinite-lived intangibles are tested and reviewed for impairment annually during the fourth quarter (on December 1), or more frequently if facts and circumstances warrant. Goodwill Goodwill is tested for impairment at a reporting unit level, and all of the Company’s goodwill is assigned to its reporting units. Reporting units are determined based upon the Company’s organizational structure in place at the date of the goodwill impairment testing and generally one level below the operating segment level. The Company’s operations are comprised of seven reporting units, within its five primary operating segments. 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; the assignment of assets and liabilities to reporting units; and the estimation of future cash flows, business growth rates, terminal values, discount rates and total enterprise value. The income approach used is the discounted cash flow methodology and is based on five-year cash flow projections. The cash flows projected are analyzed on a debt-free basis (before cash payments to equity and interest-bearing debt investors) in order to develop an enterprise value from operations for the reporting unit. A provision is made, based on these projections, for the value of the reporting unit at the end of the forecast period, or terminal value. The present value of the finite-period cash flows and the terminal value are determined using a selected discount rate. The Company estimated the fair values of its reporting units based on discounted cash flow methodology reflecting its latest projections which included, among other things, the impact of significant input cost inflation for commodities, primarily resin, sourced finished goods, transportation and labor on its operations at the time the Company performed its impairment testing. 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. 43 Table of Contents Indefinite-lived intangibles The testing of indefinite-lived intangibles (primarily trademarks and tradenames) under established guidelines for impairment also requires significant use of judgment and assumptions (such as cash flow projections, royalty rates, terminal values and discount rates). An indefinite-lived intangible asset is impaired by the amount its carrying value exceeds its estimated fair value. For impairment testing purposes, the fair value of indefinite-lived intangibles is determined using either the relief from royalty method or the excess earnings method. The relief from royalty method estimates the value of a tradename by discounting the hypothetical avoided royalty payments to their present value over the economic life of the asset. The excess earnings method estimates the value of the intangible asset by quantifying the residual (or excess) cash flows generated by the asset and discounts those cash flows to the present. The excess earnings methodology requires the application of contributory asset charges. Contributory asset charges typically include assumed payments for the use of working capital, tangible assets and other intangible assets. Changes in forecasted operations and other assumptions could materially affect the estimated fair values. Changes in business conditions could potentially require adjustments to these asset valuations. 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. Item 3. Quantitative and Qualitative Disclosures about Market Risk There have been no material changes from the information previously reported under Part II, Item 7A. in the Company’s Annual Report on Form 10-K for the fiscal year ended.