Notes to Condensed Consolidated Financial Statements (unaudited)
Note 1 Organization and Basis of Presentation
Organization
We are a global leader in food safety and security and product protection. We serve an array of end markets including food and beverage processing, food service, retail, healthcare and industrial, and commercial and consumer applications. Our focus is on achieving quality sales growth through leveraging our geographic footprint, technological know-how and leading market positions to bring measurable, sustainable value to our customers and investors.
We conduct substantially all of our business through
two
wholly-owned subsidiaries, Cryovac, Inc. and Sealed Air Corporation (US). Throughout this report, when we refer to “Sealed Air,” the “Company,” “we,” “our,” or “us,” we are referring to Sealed Air Corporation and all of our subsidiaries, except where the context indicates otherwise.
Basis of Presentation
Our Condensed Consolidated Financial Statements include all of the accounts of the Company and our subsidiaries. We have eliminated all significant intercompany transactions and balances in consolidation. In management’s opinion, all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of our Condensed Consolidated Balance Sheet as of
September 30, 2017
and our Condensed Consolidated Statement of Operations for the
three and nine
months ended
September 30, 2017
and
2016
have been made. The results set forth in our Condensed Consolidated Statement of Operations for the
three and nine
months ended
September 30, 2017
and in our Condensed Consolidated Statement of Cash Flows for the nine months ended
September 30, 2017
are not necessarily indicative of the results to be expected for the full year. All amounts are in millions, except per share amounts, and approximate due to rounding. Some prior period amounts have been reclassified to conform to the current year presentation. These reclassifications, individually and in the aggregate, did not have a material impact on our condensed consolidated financial condition, results of operations or cash flows.
Our Condensed Consolidated Financial Statements were prepared in accordance with the interim reporting requirements of the U.S. Securities and Exchange Commission (“SEC”). As permitted under those rules, annual footnotes or other financial information that are normally required by U.S. GAAP have been condensed or omitted. The preparation of Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in our Condensed Consolidated Financial Statements and accompanying notes. Actual results could differ from these estimates.
We are responsible for the unaudited Condensed Consolidated Financial Statements and notes included in this report. As these are condensed financial statements, they should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2016
as filed with the SEC on February 15, 2017 (“2016 Form 10-K”) and with the information contained in other publicly-available filings with the SEC.
On March 25, 2017, we entered into a definitive agreement to sell the Diversey Care division and the food hygiene and cleaning business within the Food Care division (collectively "Diversey"). The sale of Diversey was completed on September 6, 2017. The net assets of Diversey met the criteria to be classified as “held for sale” for the period ended December 31, 2016. Results of operations for Diversey are reported as discontinued operations in all periods presented. See Note 3, “Discontinued Operations” for further information.
As a result of the Diversey transaction, we have also changed our segment reporting structure effective as of January 1, 2017. See Note 4, “Segments” for further information.
Impact of Inflation and Currency Fluctuation
Venezuela
Economic and political events in Venezuela have continued to expose us to heightened levels of foreign currency exchange risk. Accordingly, Venezuela has been designated a highly inflationary economy under U.S. GAAP, and the U.S. dollar replaced the bolivar fuerte as the functional currency for our subsidiaries in Venezuela. All bolivar-denominated monetary assets and liabilities are remeasured into U.S. dollars using the current exchange rate available to us, and any changes in the exchange rate are reflected in foreign currency exchange loss related to our Venezuelan subsidiaries on the Condensed Consolidated Statements of Operations.
2016 Activity
Effective March 10, 2016, there were only two legal mechanisms in Venezuela to access U.S. dollars. This included the DIPRO (
10.0
bolivars per U.S. dollar), which replaced the CENCOEX rate and is the preferential rate for essential goods and services and; the DICOM rate, which replaced the SIMADI rate, which was allowed to float freely.
At
September 30, 2016
, we evaluated which legal mechanisms were available to our Venezuelan subsidiaries to access U.S. dollars. We concluded that we would use the DICOM rate to remeasure our bolivar denominated monetary assets and liabilities since it was our only legally available option and our intent on a go-forward basis to utilize this market to settle any future transactions based on the then current facts and circumstances. The DICOM rate as of
September 30, 2016
was
658.8853
.
During the first six months of 2016, we were only able to access the SIMADI market (during the period the market was available) and only received minimal amounts of U.S. dollars during the first three months of 2016. We did not receive any U.S. dollars via the CENCOEX (at an official rate of
6.3
) or the DIPRO (at an official rate of
10.0
). For any U.S. dollar denominated monetary asset or liability, such amounts do not get remeasured at month-end since it is already an asset or liability denominated in U.S. dollars. As a result of this evaluation, the Company reported a remeasurement loss of
$0.4 million
(none of which related to continuing operations) for the three months ended
September 30, 2016
and
$3.2 million
(of which
$1.6 million
related to continuing operations) for the nine months ended
September 30, 2016
.
Due to the ongoing challenging economic situation in Venezuela, the Company approved a program in the second quarter of 2016 to cease operations in the country. Foreign exchange control regulations have affected our Venezuelan subsidiaries ability to obtain inventory and maintain normal production. This resulted in total costs of
$47.3 million
being incurred which included the following (i) a voluntary reduction in headcount including severance and termination benefits for employees of approximately
$0.3 million
, (ii) depreciation and amortization expense related to fixed assets and intangibles of approximately
$0.6 million
(iii) inventory reserves of
$0.4 million
and (iv) the reclassification of approximately
$46.0 million
of cumulative translation adjustment into net income as the Company’s decision to cease operations is similar to a substantially complete liquidation.
2017 Activity
On May 19, 2017, the Venezuelan government published in Exchange Agreement No. 38 that the DICOM system would now operate through an auction process which is referred to as the new DICOM. This became effective on May 23, 2017.
At
September 30, 2017
, we concluded that we would continue to use the DICOM rate to remeasure our remaining bolivar denominated monetary assets and liabilities since it was our only legally available option and our intent on a go-forward basis to utilize this market if needed, to settle any future transactions based on current facts and circumstances. During the first nine months of 2017, we did not receive any U.S dollars via any of the legal mechanisms noted above. The new DICOM rate as of
September 30, 2017
was
3,345.0
which reflects the last auction in June 2017. As a result of this evaluation, the Company reported a remeasurement loss of less than
$1.0 million
for the three months and nine months ended
September 30, 2017
(which included less than
$0.1 million
of income related to continuing operations).
We will continue to evaluate each reporting period the appropriate exchange rate to remeasure our financial statements based on the facts and circumstances as applicable.
Note 2 Recently Issued Accounting Standards
Recently Issued Accounting Standards
In August 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities ("ASU 2017-12"). This update intends to align the financial statements with an entity's risk management activities. ASU 2017-12 will allow for changes in the designation and measurement of hedges as well as expand the disclosures of hedge results. The amendments in ASU 2017-12 are effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted for all entities as of the beginning of an annual reporting period for which financial statements have not been issued or made available for issuance. We are currently in the process of evaluating this new standard update.
In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”). ASU 2017-09 amends the considerations for determining if a modification should be accounted for. This new guidance requires an entity to consider the fair value of an award before and after modification, the vesting conditions of the modified award and the classification of the modified award as an equity instrument. The amendments in ASU 2017-09 are effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted for all entities as of the beginning of an annual reporting period for which financial statements have not been issued or made available for issuance. We are currently in the process of evaluating this new standard update.
In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Benefit Postretirement Benefit Cost (“ASU 2017-07”). ASU 2017-07 changes how employers that sponsor defined benefit pension or other postretirement benefit plans present the net periodic benefit cost in the income statement. This new guidance requires entities to report the service cost component in the same line item or items as other compensation costs. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component outside of income from operations. The amendments in ASU 2017-07 are effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted for all entities as of the beginning of an annual reporting period for which financial statements have not been issued or made available for issuance. We are currently in the process of evaluating this new standard update.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 eliminates Step 2 as part of the goodwill impairment test. The amount of the impairment charge to be recognized would now be the amount by which the carrying value exceeds the reporting unit’s fair value. The loss to be recognized cannot exceed the amount of goodwill allocated to that reporting unit. The amendments in ASU 2017-04 are effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim and annual goodwill impairment tests performed on testing dates after January 1, 2017. We are currently in the process of evaluating this new standard update.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). ASU 2017-01 provides a screen to determine when a set is not a business. This screen states that when substantially all of the fair value of the group assets acquired (or disposed of) is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business. The amendments in ASU 2017-01 are effective for annual periods beginning after December 15, 2017, including interim periods within those periods. Early application is permitted for transactions for which the acquisition date occurs before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been issued. We are currently in the process of evaluating this new standard update.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”). ASU 2016-18 requires that entities include restricted cash and restricted cash equivalents with cash and cash equivalents in the beginning-of-period and end-of-period total amounts shown on the Statement of Cash Flows. The amendments in ASU 2016-18 are effective for fiscal years beginning after December 15, 2017, including interim reporting periods within those fiscal years. Early adoption, including adoption in interim periods, is permitted for all entities. Retrospective transition method is to be applied to each period presented. We are currently in the process of evaluating this new standard update.
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”). ASU 2016-16 requires entities to recognize income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments in ASU 2016-16 are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. Early adoption is permitted for all entities as of the beginning of an annual reporting period for which financial statements have not been issued or made available for issuance. We are currently in the process of evaluating this new standard update.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 provides guidance on eight specific cash flow issues in regard to how cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments in ASU 2016-15 are effective for fiscal years beginning after December 15, 2017, including interim periods within those years, with early adoption permitted. We are currently in the process of evaluating this new standard update.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires entities to measure all expected credit losses for most financial assets held at the reporting date based on an expected loss model which includes historical experience, current conditions, and reasonable and supportable forecasts. Entities will now use forward-looking information to better form their credit loss estimates. The ASU also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal periods. Entities may adopt earlier as of the fiscal year beginning after December 15, 2018, including interim periods within those fiscal years. We are currently in the process of evaluating this new standard update.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), (“ASU 2016-02”). This ASU requires an entity to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. The amendments also require certain quantitative and qualitative disclosures about leasing arrangements. The amendments in ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The updated guidance requires a modified retrospective adoption. We are currently in the process of evaluating this new standard update.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). This ASU requires equity investments except those under the equity method of accounting to be measured at fair value with the changes in fair value recognized in net income. The amendment simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. In addition, it also requires enhanced disclosures about investments. The amendments in ASU 2016-01 are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early application for certain provisions is allowed but early adoption of the amendments is not permitted. An entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. We are currently in the process of evaluating this new standard update.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), (“ASU 2014-09”) and issued subsequent amendments to the initial guidance in August 2015, March 2016, April 2016, May 2016, February 2017 and May 2017 within ASU 2015-04, ASU 2016-08, ASU 2016-10, ASU 2016-12, ASU 2017-05 and ASU 2017-10 respectively (ASU 2014-09, ASU 2015-04, ASU 2016-08, ASU 2016-10, ASU 2016-12, ASU 2017-05 and ASU 2017-10 collectively, Topic 606). Previous revenue recognition guidance in U.S. GAAP comprised broad revenue recognition concepts together with numerous revenue requirements for particular industries or transactions, which sometimes resulted in different accounting for economically similar transactions. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, ASU 2014-09 expands and enhances disclosure requirements which require disclosing sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. This includes both qualitative and quantitative information. The amendments in ASU 2014-09 are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, (“ASU 2015-14”). The amendments in ASU 2015-14 delay the effective date of ASU 2014-09 by one year to annual reporting periods beginning after December 15, 2017 and allow early adoption as of the original public entity effective date. The amendments in ASU 2016-08, ASU 2016-10 and ASU 2016-12 are effective in conjunction with ASU 2015-14.
The guidance permits two methods of adoption: full retrospective in which the standard is applied to all of the periods presented or modified retrospective where an entity will have to recognize the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings. We currently anticipate adopting the modified retrospective method.
Our efforts to adopt this standard to date have focused on contract analysis at a regional level. We currently estimate the most significant impact will be on the accounting for Free on Loan equipment in our Food Care division. Whereas today we do not recognize revenue on Free on Loan equipment, under the new standard, we anticipate allocating revenue to that equipment and treating it as a performance obligation. We are in the process of assessing the timing of when revenue assigned to Free on Loan equipment would be recognized.
Based on the information we have evaluated to date, we do not anticipate that the adoption of the amendments will have a significant impact on our consolidated financial statements with the exception of new and expanded disclosures.
Note 3 Discontinued Operations, Divestitures and Acquisitions
Discontinued Operations
On March 25, 2017, we entered into a definitive agreement to sell our Diversey Care division and the food hygiene and cleaning business within our Food Care division for gross proceeds of USD equivalent of $
3.2 billion
, subject to customary closing conditions. The transaction was completed on September 6, 2017. We recorded a net gain on the sale of Diversey of
$699.3 million
, net of taxes. We intend to use the cash generated from this transaction to repay debt and maintain our credit profile, repurchase shares to minimize earnings dilution, and fund core growth initiatives, including potential complementary acquisitions to our Food Care and Product Care divisions.
The sale of Diversey will allow us to enhance our strategic focus on the Food Care and Product Care divisions and simplify our operating structure. We have classified the operating results from this business, together with certain costs related to the divestiture transaction, as discontinued operations, net of tax, in the Condensed Consolidated Statements of Operations for the three and
nine
months ended
September 30, 2017
and 2016. Assets and liabilities of this business are classified as “held for sale” in the Condensed Consolidated Balance Sheets as of December 31, 2016.
Summary operating results of Diversey were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(In millions)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net sales
|
|
$
|
434.6
|
|
|
$
|
651.5
|
|
|
$
|
1,667.5
|
|
|
$
|
1,924.4
|
|
Cost of sales
|
|
249.1
|
|
|
368.2
|
|
|
949.5
|
|
|
1,075.6
|
|
Gross profit
|
|
185.5
|
|
|
283.3
|
|
|
718.0
|
|
|
848.8
|
|
Selling, general and administrative expenses
(1)
|
|
131.0
|
|
|
206.2
|
|
|
537.8
|
|
|
635.1
|
|
Amortization expense of intangible assets acquired
(1)
|
|
7.7
|
|
|
19.3
|
|
|
23.9
|
|
|
62.0
|
|
Operating profit
|
|
46.8
|
|
|
57.8
|
|
|
156.3
|
|
|
151.7
|
|
Other expense, net
|
|
(9.0
|
)
|
|
(2.8
|
)
|
|
(17.0
|
)
|
|
(9.4
|
)
|
Earnings from discontinued operations before income tax (benefit) provision
(1)(2)
|
|
37.8
|
|
|
55.0
|
|
|
139.3
|
|
|
142.3
|
|
Income tax (benefit) provision from discontinued operations
|
|
12.1
|
|
|
(44.5
|
)
|
|
28.0
|
|
|
(31.9
|
)
|
Net earnings from discontinued operations
|
|
$
|
25.7
|
|
|
$
|
99.5
|
|
|
$
|
111.3
|
|
|
$
|
174.2
|
|
|
|
(1)
|
For the nine months ended September 30, 2017, there was a revision to net earnings from discontinued operations, net of tax, on the Condensed Consolidated Statement of Operations related to depreciation and amortization on Diversey assets held for sale. As a result, selling, general and administrative expenses decreased
$6.1 million
, amortization expenses of intangible assets acquired decreased
$16.5 million
and income tax provision from discontinued operations increased
$6.2 million
.
|
|
|
(2)
|
For the three months and
nine
months ended
September 30, 2017
, net earnings from discontinued operations was impacted by a tax expense of
$12.1 million
and
$28.0 million
, respectively, driven by a change in the repatriation strategy of foreign earnings offset by a favorable earnings mix in jurisdictions with lower rates. For the three and
nine
months ended September 30, 2016, net earnings from discontinued operations were impacted by tax benefits of
$44.5 million
and
$31.9 million
, respectively, primarily related to the release of reserves, and earnings mix in jurisdictions with lower tax rates.
|
The carrying value of the major classes of assets and liabilities of Diversey were as follows:
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(In millions)
|
|
September 30, 2017
|
|
December 31, 2016
|
Assets:
|
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|
|
|
|
|
Cash and cash equivalents
|
|
$
|
—
|
|
|
$
|
30.0
|
|
Trade receivables, net
|
|
3.1
|
|
|
438.2
|
|
Inventories
|
|
0.5
|
|
|
203.2
|
|
Other receivables
|
|
11.5
|
|
|
70.3
|
|
Prepaid expenses and other current assets
|
|
—
|
|
|
80.6
|
|
Property and equipment, net
|
|
—
|
|
|
170.6
|
|
Goodwill
|
|
—
|
|
|
972.8
|
|
Intangible assets, net
|
|
—
|
|
|
669.9
|
|
Deferred taxes
|
|
0.1
|
|
|
50.7
|
|
Other non-current assets
|
|
—
|
|
|
162.0
|
|
Total assets held for sale
|
|
$
|
15.2
|
|
|
$
|
2,848.3
|
|
Liabilities:
|
|
|
|
|
Short-term borrowings
|
|
$
|
—
|
|
|
$
|
9.6
|
|
Current portion of long-term debt
|
|
—
|
|
|
31.1
|
|
Accounts payable
|
|
—
|
|
|
346.5
|
|
Other current liabilities
|
|
—
|
|
|
296.1
|
|
Long-term debt
|
|
—
|
|
|
175.7
|
|
Deferred taxes
|
|
—
|
|
|
56.3
|
|
Other non-current liabilities
|
|
—
|
|
|
269.0
|
|
Total liabilities held for sale
|
|
$
|
—
|
|
|
$
|
1,184.3
|
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The following table presents selected financial information regarding cash flows of Diversey that are included within discontinued operations in the Condensed Consolidated Statements of Cash Flows:
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|
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|
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|
|
|
|
|
Nine Months Ended
September 30,
|
(In millions)
|
|
2017
|
|
2016
|
Non-cash items included in net earnings from discontinued operations:
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
29.3
|
|
|
$
|
85.5
|
|
Share-based incentive compensation
|
|
10.2
|
|
|
9.2
|
|
Profit sharing expense
|
|
3.0
|
|
|
3.5
|
|
Provision for bad debt
|
|
2.3
|
|
|
4.0
|
|
Capital expenditures
|
|
11.9
|
|
|
14.7
|
|
The amounts disclosed in the tables above have been excluded from disclosures unless otherwise noted.
On April 1, 2017, the Diversey Care division acquired the UVC disinfection portfolio of Daylight Medical, a manufacturer of innovative medical devices. The preliminary fair value of the consideration transferred was approximately $
25.2 million
which included $
3.5 million
of cash paid at closing as well as a preliminary fair value of $
21.7 million
related to
$14.4 million
of noncontingent consideration which will be paid in the future and a
$7.3 million
of preliminary fair value for liability-classified contingent consideration. The assets and liabilities acquired as part of the acquisition are transferred with the sale of Diversey.
Divestitures
On August 1, 2017, we entered into an agreement to sell our polystyrene food tray business in Guarulhos, Brazil for a gross purchase price of
R$24.0 million
(or
$7.5 million
as of September 30, 2017). The closing of the transaction is expected to occur in the fourth quarter of 2017 after certain conditions are met. The purchase price is subject to working capital, cash and debt adjustments. As of September 30, 2017, there was
$4.9 million
of assets held for sale and
$1.8 million
of liabilities held for sale on the Condensed Consolidated Balance Sheet.
Acquisitions
On August 2, 2017, the Food Care division acquired Deltaplam Embalagens Indústria e Comércio Ltda ("Deltaplam"), a family owned and operated Brazilian flexible packaging manufacturer. The preliminary fair value of the consideration transferred was approximately
$25.8 million
. We recorded the fair value of the assets acquired and liabilities assumed on the acquisition date, which included
$8.1 million
of goodwill and
$7.4 million
of intangible assets.
Note 4 Segments
As a result of the sale of Diversey, we have changed our segment reporting structure. The Food Care division now excludes the food hygiene and cleaning business, which is included in discontinued operations, and includes our Medical Applications and New Ventures businesses, which were previously reported in the “Other” category. The Other category also previously included “Corporate” which is now its own category.
The Company’s segment reporting structure now consists of
two
reportable segments and a Corporate category as follows:
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•
|
Food Care (including Medical Applications and New Ventures businesses);
|
The Company’s Food Care and Product Care segments are considered reportable segments under FASB ASC Topic 280. Our reportable segments are aligned with similar groups of products and management team. Corporate includes certain costs that are not allocated to the reportable segments, primarily consisting of unallocated corporate overhead costs, including administrative functions and cost recovery variances not allocated to the reportable segments from global functional expenses.
We allocate and disclose depreciation and amortization expense to our segments, although property and equipment, net is not allocated to the segment assets, nor is depreciation and amortization included in the segment performance metric Adjusted EBITDA. As of January 1, 2017 we modified our calculation of Adjusted EBITDA to exclude interest income. The impact in this modification was
$1.6 million
and
$5.3 million
for the three and
nine
months ended
September 30, 2016
, respectively. We also disclose restructuring and other charges by segment, although these items are not included in the segment performance metric Adjusted EBITDA since restructuring and other charges are categorized as special items as outlined in the table reconciling U.S. GAAP net earnings from continuing operations to Non-U.S. GAAP Total Company Adjusted EBITDA set forth below. The accounting policies of the reportable segments and Corporate are the same as those applied to the Condensed Consolidated Financial Statements.
The following tables show Net Sales and Adjusted EBITDA by our segment reporting structure:
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Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(In millions)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Food Care
|
|
$
|
716.0
|
|
|
$
|
676.2
|
|
|
$
|
2,051.1
|
|
|
$
|
1,979.2
|
|
As a % of Total Company net sales
|
|
63.3
|
%
|
|
63.5
|
%
|
|
63.4
|
%
|
|
63.6
|
%
|
Product Care
|
|
415.3
|
|
|
388.9
|
|
|
1,182.7
|
|
|
1,130.7
|
|
As a % of Total Company net sales
|
|
36.7
|
%
|
|
36.5
|
%
|
|
36.6
|
%
|
|
36.4
|
%
|
Total Company Net Sales
|
|
$
|
1,131.3
|
|
|
$
|
1,065.1
|
|
|
$
|
3,233.8
|
|
|
$
|
3,109.9
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(In millions)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Adjusted EBITDA from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Food Care
|
|
$
|
158.3
|
|
|
$
|
155.6
|
|
|
$
|
446.0
|
|
|
$
|
440.7
|
|
Adjusted EBITDA Margin
|
|
22.1
|
%
|
|
23.0
|
%
|
|
21.7
|
%
|
|
22.3
|
%
|
Product Care
|
|
86.5
|
|
|
88.0
|
|
|
237.7
|
|
|
243.8
|
|
Adjusted EBITDA Margin
|
|
20.8
|
%
|
|
22.6
|
%
|
|
20.1
|
%
|
|
21.6
|
%
|
Corporate
(1)
|
|
(28.0)
|
|
|
(30.7)
|
|
|
(88.7)
|
|
|
(91.7)
|
|
Non-U.S. GAAP Total Company Adjusted EBITDA from continuing operations
|
|
$
|
216.8
|
|
|
$
|
212.9
|
|
|
$
|
595.0
|
|
|
$
|
592.8
|
|
Adjusted EBITDA Margin
|
|
19.2
|
%
|
|
20.0
|
%
|
|
18.4
|
%
|
|
19.1
|
%
|
|
|
(1)
|
Corporate includes costs previously allocated to the Diversey Care segment and food hygiene and cleaning business of our Food Care segment reported within discontinued operations of $
2.8 million
and $
3.5 million
for the three months ended
September 30, 2017
and 2016, respectively, and $
13.7 million
and $
10.4 million
for the
nine
months ended
September 30, 2017
and 2016, respectively.
|
The following table shows a reconciliation of U.S. GAAP net earnings from continuing operations to Non-U.S. GAAP Total Company Adjusted EBITDA from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(In millions)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
(1)
|
Net earnings from continuing operations
|
|
$
|
62.4
|
|
|
$
|
63.8
|
|
|
$
|
37.8
|
|
|
$
|
141.1
|
|
Interest expense
|
|
(54.0
|
)
|
|
(49.6
|
)
|
|
(153.7
|
)
|
|
(151.4
|
)
|
Interest income
|
|
4.9
|
|
|
1.7
|
|
|
10.3
|
|
|
5.3
|
|
Income tax provision
|
|
43.7
|
|
|
54.1
|
|
|
236.5
|
|
|
124.7
|
|
Depreciation and amortization
(3)
|
|
(42.7
|
)
|
|
(39.6
|
)
|
|
(116.3
|
)
|
|
(113.0
|
)
|
Accelerated depreciation and amortization of fixed assets and intangible assets for Venezuelan subsidiaries
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
0.8
|
|
Special Items:
|
|
|
|
|
|
|
|
|
Restructuring and other charges
(4)
|
|
(6.2
|
)
|
|
(1.3
|
)
|
|
(9.2
|
)
|
|
(1.1
|
)
|
Other restructuring associated costs included in cost of sales and selling, general and administrative expenses
|
|
(2.9
|
)
|
|
(5.2
|
)
|
|
(12.7
|
)
|
|
(13.2
|
)
|
SARs
|
|
—
|
|
|
0.3
|
|
|
—
|
|
|
(0.7
|
)
|
Foreign currency exchange loss related to Venezuelan subsidiaries
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.6
|
)
|
Charges related to ceasing operations in Venezuela
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(47.3
|
)
|
Gain (loss) on sale of North American foam trays and absorbent pads business and European food trays business
|
|
0.2
|
|
|
—
|
|
|
2.3
|
|
|
(1.6
|
)
|
(Loss) gain related to the sale of other businesses, investments and property, plant and equipment
|
|
(6.9
|
)
|
|
2.1
|
|
|
(7.1
|
)
|
|
—
|
|
Charges incurred related to the sale of Diversey
|
|
(13.7
|
)
|
|
—
|
|
|
(47.6
|
)
|
|
—
|
|
Settlement/curtailment benefits related to retained Diversey retirement plans
|
|
13.5
|
|
|
—
|
|
|
13.5
|
|
|
—
|
|
Other special items
(2)
|
|
(2.9
|
)
|
|
(3.5
|
)
|
|
(0.2
|
)
|
|
(3.2
|
)
|
Pre-tax impact of Special items
|
|
(18.9
|
)
|
|
(7.6
|
)
|
|
(61.0
|
)
|
|
(68.7
|
)
|
Non-U.S. GAAP Total Company Adjusted EBITDA from continuing operations
|
|
$
|
216.8
|
|
|
$
|
212.9
|
|
|
$
|
595.0
|
|
|
$
|
592.8
|
|
|
|
(1)
|
Due to the ongoing challenging economic situation in Venezuela, the Company approved a program in the second quarter of 2016 to cease operations in the country. Refer to Note 1, "Organization and Basis of Presentation," of the Notes to the Condensed Consolidated Financial Statement for further details.
|
|
|
(2)
|
Other special items for the three and nine months ended
September 30, 2017
, primarily included transaction fees related to various divestitures and acquisitions. Other special items for the three and
nine
months ended
September 30, 2016
primarily included a reduction in a non-income tax reserve following the completion of a governmental audit partially offset by legal fees associated with restructuring and acquisitions.
|
|
|
(3)
|
Depreciation and amortization by segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(In millions)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Food Care
|
|
$
|
26.4
|
|
|
$
|
23.1
|
|
|
$
|
75.8
|
|
|
$
|
68.3
|
|
Product Care
|
|
$
|
11.7
|
|
|
$
|
9.6
|
|
|
$
|
34.2
|
|
|
$
|
28.6
|
|
Corporate
|
|
$
|
4.6
|
|
|
$
|
6.9
|
|
|
$
|
6.3
|
|
|
$
|
16.1
|
|
Total Company depreciation and amortization
(1)
|
|
$
|
42.7
|
|
|
$
|
39.6
|
|
|
$
|
116.3
|
|
|
$
|
113.0
|
|
|
|
(1)
|
Includes share-based incentive compensation of
$12.3 million
and
$31.2 million
for the
three and nine
months ended
September 30, 2017
, respectively, and
$12.2 million
and
$37.6 million
for the
three and nine
months ended
September 30, 2016
, respectively.
|
|
|
(4)
|
Restructuring and other charges by segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(In millions)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Food Care
|
|
$
|
3.9
|
|
|
$
|
0.8
|
|
|
$
|
5.8
|
|
|
$
|
0.7
|
|
Product Care
|
|
2.3
|
|
|
0.5
|
|
|
3.4
|
|
|
0.4
|
|
Total Company restructuring and other charges
(1)
|
|
$
|
6.2
|
|
|
$
|
1.3
|
|
|
$
|
9.2
|
|
|
$
|
1.1
|
|
(1)
For the
nine
months ended
September 30, 2016
restructuring and other charges excludes $
0.3 million
related to severance and termination benefits for employees in our Venezuelan subsidiaries.
Assets by Reportable Segments
The following table shows assets allocated by our segment reporting structure. Only assets identifiable by segment and reviewed by our chief operating decision maker by segment are allocated by the reportable segment assets, which are trade receivables, net, and finished goods inventory, net. All other assets are included in “Assets not allocated.”
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
September 30, 2017
|
|
December 31, 2016
|
Assets:
|
|
|
|
|
|
|
Trade receivables, net, and finished goods inventories, net
|
|
|
|
|
|
|
Food Care
|
|
$
|
519.0
|
|
|
$
|
459.8
|
|
Product Care
|
|
334.0
|
|
|
261.5
|
|
Total segments
|
|
$
|
853.0
|
|
|
$
|
721.3
|
|
Assets not allocated
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,304.7
|
|
|
$
|
333.7
|
|
Property and equipment, net
|
|
951.0
|
|
|
889.6
|
|
Goodwill
|
|
1,898.3
|
|
|
1,882.9
|
|
Intangible assets, net
|
|
44.8
|
|
|
40.1
|
|
Assets held for sale
|
|
20.8
|
|
|
2,851.7
|
|
Other
|
|
866.8
|
|
|
679.9
|
|
Total
|
|
$
|
5,939.4
|
|
|
$
|
7,399.2
|
|
Note 5 Inventories
The following table details our inventories, net:
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
September 30, 2017
|
|
December 31, 2016
|
Inventories:
|
|
|
|
|
|
|
Raw materials
|
|
$
|
91.6
|
|
|
$
|
81.5
|
|
Work in process
|
|
143.6
|
|
|
114.4
|
|
Finished goods
|
|
312.5
|
|
|
260.8
|
|
Total
|
|
$
|
547.7
|
|
|
$
|
456.7
|
|
Note 6 Property and Equipment, net
The following table details our property and equipment, net:
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
September 30, 2017
|
|
December 31, 2016
|
Land and improvements
|
|
$
|
43.9
|
|
|
$
|
41.6
|
|
Buildings
|
|
696.1
|
|
|
600.2
|
|
Machinery and equipment
|
|
2,237.8
|
|
|
2,091.5
|
|
Other property and equipment
|
|
109.6
|
|
|
104.3
|
|
Construction-in-progress
|
|
170.2
|
|
|
210.1
|
|
Property and equipment, gross
|
|
3,257.6
|
|
|
3,047.7
|
|
Accumulated depreciation and amortization
(1)
|
|
(2,306.6
|
)
|
|
(2,158.1
|
)
|
Property and equipment, net
|
|
$
|
951.0
|
|
|
$
|
889.6
|
|
|
|
(1)
|
As of December 31, 2016, this amount includes
$0.4 million
related to the accelerated depreciation and amortization of fixed assets related to ceasing operations in Venezuela. Refer to Note 1, "Organization and Basis of Presentation," of the Notes to Condensed Consolidated Financial Statement Operations for further details.
|
The following table details our interest cost capitalized and depreciation and amortization expense for property and equipment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(In millions)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Interest cost capitalized
|
|
$
|
1.8
|
|
|
$
|
3.2
|
|
|
$
|
7.8
|
|
|
$
|
7.1
|
|
Depreciation and amortization expense for property and equipment
|
|
$
|
27.3
|
|
|
$
|
23.2
|
|
|
$
|
75.9
|
|
|
$
|
64.9
|
|
Note 7 Goodwill and Identifiable Assets
Goodwill
The following table shows our goodwill balances by our segment reporting structure. We review goodwill for impairment on a reporting unit basis annually during the fourth quarter of each year and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. As of
September 30, 2017
, we did not identify any changes in circumstances that would indicate the carrying value of goodwill may not be recoverable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Food Care
|
|
Product Care
|
|
Total
|
Carrying Value at December 31, 2016
|
|
$
|
510.8
|
|
|
$
|
1,372.1
|
|
|
$
|
1,882.9
|
|
Acquisitions and divestitures
|
|
7.2
|
|
|
(0.3
|
)
|
|
6.9
|
|
Currency translation
|
|
7.1
|
|
|
1.4
|
|
|
8.5
|
|
Carrying Value at September 30, 2017
|
|
$
|
525.1
|
|
|
$
|
1,373.2
|
|
|
$
|
1,898.3
|
|
Identifiable Intangible Assets
The following tables summarize our identifiable intangible assets with definite and indefinite useful lives. As of
September 30, 2017
, there were
no
impairment indicators present.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
(In millions)
|
Gross
Carrying Value
|
|
Accumulated Amortization
|
|
Net
|
|
Gross
Carrying Value
|
|
Accumulated Amortization
|
|
Net
|
Customer relationships
|
$
|
31.9
|
|
|
$
|
(19.0
|
)
|
|
$
|
12.9
|
|
|
$
|
25.0
|
|
|
$
|
(17.5
|
)
|
|
$
|
7.5
|
|
Trademarks and tradenames
|
0.7
|
|
|
(0.3
|
)
|
|
0.4
|
|
|
0.6
|
|
|
(0.2
|
)
|
|
0.4
|
|
Capitalized software
|
48.7
|
|
|
(37.8
|
)
|
|
10.9
|
|
|
42.6
|
|
|
(31.2
|
)
|
|
11.4
|
|
Technology
|
37.4
|
|
|
(26.7
|
)
|
|
10.7
|
|
|
34.4
|
|
|
(24.2
|
)
|
|
10.2
|
|
Contracts
|
10.6
|
|
|
(9.6
|
)
|
|
1.0
|
|
|
10.6
|
|
|
(8.9
|
)
|
|
1.7
|
|
Total intangible assets with definite lives
|
129.3
|
|
|
(93.4
|
)
|
|
35.9
|
|
|
113.2
|
|
|
(82.0
|
)
|
|
31.2
|
|
Trademarks and tradenames with indefinite lives
|
8.9
|
|
|
—
|
|
|
8.9
|
|
|
8.9
|
|
|
—
|
|
|
8.9
|
|
Total identifiable intangible assets
|
$
|
138.2
|
|
|
$
|
(93.4
|
)
|
|
$
|
44.8
|
|
|
$
|
122.1
|
|
|
$
|
(82.0
|
)
|
|
$
|
40.1
|
|
The following table shows the remaining estimated future amortization expense at
September 30, 2017
.
|
|
|
|
|
Year
|
Amount
(in millions)
|
Remainder of 2017
|
$
|
6.3
|
|
2018
|
12.8
|
|
2019
|
2.6
|
|
2020
|
2.9
|
|
Thereafter
|
11.3
|
|
Total
|
$
|
35.9
|
|
Note 8 Accounts Receivable Securitization Programs
U.S. Accounts Receivable Securitization Program
We and a group of our U.S. operating subsidiaries maintain an accounts receivable securitization program under which they sell eligible U.S. accounts receivable to an indirectly wholly-owned subsidiary that was formed for the sole purpose of entering into this program. The wholly-owned subsidiary in turn may sell an undivided fractional ownership interest in these receivables with
two
banks and issuers of commercial paper administered by these banks. The wholly-owned subsidiary retains the receivables it purchases from the operating subsidiaries. Any transfers of fractional ownership interests of receivables under the U.S. receivables securitization program to the
two
banks and issuers of commercial paper administered by these banks are considered secured borrowings with pledge of collateral and will be classified as short-term borrowings on our Condensed Consolidated Balance Sheets. These banks do not have any recourse against the general credit of the Company. The net trade receivables that served as collateral for these borrowings are reclassified from trade receivables, net to prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets.
Prior to the sale of Diversey, our U.S. program was amended to remove receivables associated with Diversey and reduce the program size accordingly. As of
September 30, 2017
, the maximum purchase limit for receivable interests was
$60.0 million
, subject to the availability limits described below.
The amounts available from time to time under this program may be less than
$60.0 million
due to a number of factors, including but not limited to our credit ratings, trade receivable balances, the creditworthiness of our customers and our receivables collection experience. As of
September 30, 2017
, the level of eligible assets available under the program equaled
$60.0 million
. Although we do not believe restrictions under this program presently materially restrict our operations, if an additional event occurs that triggers one of these restrictive provisions, we could experience a decline in the amounts available to us under the program or termination of the program.
This program expires annually in August and is renewable.
European Accounts Receivables Securitization Program
We and a group of our European subsidiaries maintain an accounts receivable securitization program with a special purpose vehicle, or SPV, two banks and issuers of commercial paper administered by these banks.
The European program is structured to be a securitization of certain trade receivables that are originated by certain of our European subsidiaries. The SPV borrows funds from the banks to fund its acquisition of the receivables and provides the banks with a first priority perfected security interest in the accounts receivable. We do not have an equity interest in the SPV. We concluded the SPV is a variable interest entity because its total equity investment at risk is not sufficient to permit the SPV to finance its activities without additional subordinated financial support from the bank via loans or via the collections from accounts receivable already purchased. Additionally, we are considered the primary beneficiary of the SPV since we control the activities of the SPV, and are exposed to the risk of uncollectable receivables held by the SPV. Therefore, the SPV is consolidated in our Condensed Consolidated Financial Statements. Any activity between the participating subsidiaries and the SPV is eliminated in consolidation. Loans from the banks to the SPV will be classified as short-term borrowings on our
Condensed Consolidated Balance Sheet. The net trade receivables that served as collateral for these borrowings are reclassified from trade receivables, net to prepaid expenses and other current assets on the Condensed Consolidated Balance Sheet. Prior to the sale of Diversey, the European program was amended to remove the receivables associated with Diversey and reduce the program size accordingly.
Prior to the sale of Diversey, our European program was amended to remove receivables associated with Diversey and reduce the program size accordingly. As of
September 30, 2017
, the maximum purchase limit for receivable interests was
€80.0 million
(
$94.3 million
equivalent at
September 30, 2017
), subject to availability limits. The terms and provisions of this program are similar to our U.S. program discussed above. As of
September 30, 2017
, the amount available under this program was
€79.2 million
(
$93.3 million
equivalent as of
September 30, 2017
).
This program expires annually in August and is renewable.
Utilization of Our Accounts Receivable Securitization Programs
As of
September 30, 2017
, there were
no
amounts outstanding under our U.S. or European programs. We continue to service the trade receivables supporting the programs, and the banks are permitted to re-pledge this collateral. Total interest expense for these programs was
$0.6 million
and
$1.0 million
for the three and nine months ended
September 30, 2017
, respectively. Total interest expense for these programs was
$0.4 million
and
$1.1 million
for the three and nine months ended September 30, 2016, respectively.
Under limited circumstances, the banks and the issuers of commercial paper can end purchases of receivables interests before the above expiration dates. A failure to comply with debt leverage or various other ratios related to our receivables collection experience could result in termination of the receivables programs. We were in compliance with these ratios at
September 30, 2017
.
As of December 31, 2016, there were
no
amounts outstanding under our U.S. and European programs.
Note 9 Restructuring and Relocation Activities
Consolidation of Restructuring Programs
In the first quarter of 2016, the Board of Directors agreed to consolidate the remaining activities of all restructuring programs to create a single program to be called the “Sealed Air Restructuring Program” or the “Program.”
The Program consists of a portfolio of restructuring projects across all of our divisions as part of our transformation of Sealed Air into a knowledge-based company, including reductions in headcount, and relocation of certain facilities and offices, which primarily reflects the relocation from our former corporate headquarters in Elmwood Park, New Jersey; and facilities in Saddle Brook, New Jersey; Racine, Wisconsin; and, Duncan and Greenville, South Carolina to our new global headquarters in Charlotte, North Carolina. The cost of the Charlotte campus was estimated to be approximately
$120 million
. The Program also includes costs associated with the sale of Diversey.
Program metrics are as follows:
|
|
|
|
|
|
Sealed Air Restructuring Program
|
Approximate positions eliminated by the program
|
1,950
|
|
Estimated Program Costs (in millions):
|
|
|
Costs of reduction in headcount as a result of reorganization
|
$245-$255
|
|
Other expenses associated with the Program
|
145-150
|
|
Total expense
|
$390-$405
|
|
Capital expenditures
|
250-255
|
|
Proceeds, foreign exchange and other cash items
|
(70)-(75)
|
|
Total estimated net cash cost
|
$570-$585
|
|
Program to Date Cumulative Expense (in millions):
|
|
Costs of reduction in headcount as a result of reorganization
|
$
|
234
|
|
Other expenses associated with the Program
|
121
|
|
Total Cumulative Expense
|
$
|
355
|
|
Cumulative capital expenditures
|
$
|
231
|
|
The following table details our restructuring activities as reflected in the Condensed Consolidated Statement of Operations for the
three and nine
months ended
September 30, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(In millions)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Continuing Operations
|
|
|
|
|
|
|
|
|
Other associated costs
|
|
$
|
2.9
|
|
|
$
|
5.2
|
|
|
$
|
12.7
|
|
|
$
|
13.2
|
|
Restructuring charges
|
|
6.2
|
|
|
1.3
|
|
|
9.2
|
|
|
1.1
|
|
Total charges from continuing operations
|
|
$
|
9.1
|
|
|
$
|
6.5
|
|
|
$
|
21.9
|
|
|
$
|
14.3
|
|
Charges included in discontinued operations
|
|
(1.4
|
)
|
|
1.1
|
|
|
2.3
|
|
|
6.2
|
|
Total charges
|
|
$
|
7.7
|
|
|
$
|
7.6
|
|
|
$
|
24.2
|
|
|
$
|
20.5
|
|
Capital expenditures
|
|
$
|
3.4
|
|
|
$
|
34.6
|
|
|
$
|
17.3
|
|
|
$
|
91.6
|
|
The restructuring accrual, spending and other activity for the
nine
months ended
September 30, 2017
and the accrual balance remaining at
September 30, 2017
related to these programs were as follows (in millions):
|
|
|
|
|
(In millions)
|
|
Restructuring accrual at December 31, 2016
|
$
|
47.4
|
|
Accrual and accrual adjustments
|
9.2
|
|
Cash payments during 2017
|
(32.2
|
)
|
Transfers as part of the sale of Diversey
|
(5.5
|
)
|
Effect of changes in foreign currency exchange rates
|
(1.2
|
)
|
Restructuring accrual at September 30, 2017
|
$
|
17.7
|
|
We expect to pay
$16.2 million
of the accrual balance remaining at
September 30, 2017
within the next twelve months. This amount is included in accrued restructuring costs on the Condensed Consolidated Balance Sheet at
September 30, 2017
.
The remaining accrual of
$1.5 million
is expected to be paid in
2018
. This amount is included in other non-current liabilities on our Condensed Consolidated Balance Sheet at
September 30, 2017
.
Note 10 Debt and Credit Facilities
Our total debt outstanding consisted of the amounts set forth on the following table:
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
September 30, 2017
|
|
December 31, 2016
|
Short-term borrowings
(1)
|
|
$
|
84.0
|
|
|
$
|
83.0
|
|
Current portion of long-term debt
|
|
2.0
|
|
|
297.0
|
|
Total current debt
|
|
86.0
|
|
|
380.0
|
|
Term Loan A due July 2019
|
|
222.2
|
|
|
818.3
|
|
6.50% Senior Notes due December 2020
|
|
423.4
|
|
|
423.1
|
|
4.875% Senior Notes due December 2022
|
|
420.2
|
|
|
419.6
|
|
5.25% Senior Notes due April 2023
|
|
420.2
|
|
|
419.7
|
|
4.50% Senior Notes due September 2023
|
|
467.9
|
|
|
416.7
|
|
5.125% Senior Notes due December 2024
|
|
420.6
|
|
|
420.2
|
|
5.50% Senior Notes due September 2025
|
|
396.6
|
|
|
396.4
|
|
6.875% Senior Notes due July 2033
|
|
445.4
|
|
|
445.3
|
|
Other
|
|
2.9
|
|
|
3.3
|
|
Total long-term debt, less current portion
(3)
|
|
3,219.4
|
|
|
3,762.6
|
|
Total debt
(2)(4)
|
|
$
|
3,305.4
|
|
|
$
|
4,142.6
|
|
|
|
(1)
|
Short-term borrowings of
$84.0 million
at
September 30, 2017
are comprised of
$43.0 million
of Diversey accounts payable obligations under financing arrangements which Sealed Air was fully reimbursed for as part of the sale of Diversey as well as
$41.0 million
of short term borrowings from various lines of credit. Short-term borrowings at
December 31, 2016
were comprised primarily of
$83.0 million
of short-term borrowings from various lines of credit.
|
|
|
(2)
|
As of
September 30, 2017
, our weighted average interest rate on our short-term borrowings outstanding, excluding the amounts related to the Diversey accounts payable obligations discussed above, was
7.4%
and on our long-term debt outstanding was
5.3%
. As of
December 31, 2016
, our weighted average interest rate on our short-term borrowings outstanding was
4.8%
and on our long-term debt outstanding was
4.7%
.
|
|
|
(3)
|
Amounts are net of unamortized discounts and issuance costs of
$30.9 million
as
September 30, 2017
and
$36.3 million
as of
December 31, 2016
.
|
|
|
(4)
|
Long-term debt instruments are listed in order of priority.
|
Lines of Credit
The following table summarizes our available lines of credit and committed and uncommitted lines of credit, including the Revolving Credit Facility discussed above, and the amounts available under our accounts receivable securitization programs.
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
September 30, 2017
|
|
December 31, 2016
|
Used lines of credit
(1)(2)
|
|
$
|
41.0
|
|
|
$
|
83.0
|
|
Unused lines of credit
|
|
1,075.3
|
|
|
1,074.4
|
|
Total available lines of credit
(3)
|
|
$
|
1,116.3
|
|
|
$
|
1,157.4
|
|
|
|
(1)
|
Includes total borrowings under the accounts receivable securitization programs, the revolving credit facility and borrowings under lines of credit available to several subsidiaries.
|
|
|
(2)
|
As of
September 30, 2017
and
December 31, 2016
, there were
$27.2 million
and
$25.4 million
of cash held on deposit, respectively, as a compensating balance for certain short-term borrowings, which is recorded in other current assets on the Condensed Consolidated Balance Sheet.
|
|
|
(3)
|
Of the total available lines of credit,
$853.3 million
were committed as of
September 30, 2017
.
|
Covenants
Each issue of our outstanding senior notes imposes limitations on our operations and those of specified subsidiaries. The Second Amended and Restated Syndicated Credit Facility (“Amended Credit Facility”) contains customary affirmative and negative covenants for credit facilities of this type, including limitations on our indebtedness, liens, investments, restricted payments, mergers and acquisitions, dispositions of assets, transactions with affiliates, amendment of documents and sale leasebacks, and a covenant specifying a maximum permitted ratio of Consolidated Net Debt to Consolidated EBITDA (as defined in the Amended Credit Facility). We were in compliance with the above financial covenants and limitations at
September 30, 2017
.
Recent Activity
In July 2017, we paid the full
$250.0 million
principal balance of the Term Loan A facility due in July 2017, upon its maturity.
On July 1, 2017, we executed an amendment to the Amended Credit Facility in order to close on the sale of Diversey. The amendment primarily allowed us to take steps necessary for the legal separation of the Diversey business and release the loan security effective with the sale closing. These changes do not impact the Condensed Consolidated Financial Statements as of September 30, 2017. Subsequent to the execution of the amendment, we prepaid the Brazilian tranche of our Term Loan A facility due in July 2019 in the amount of
$96.3 million
in connection with the anticipated Diversey transaction. An additional
$755.2 million
of this facility was prepaid in conjunction with the Diversey closing. As of September 30, 2017, the remaining balance of this facility was $
222.2 million
and no further amortization payments will be required before the maturity of the facility.
Note 11 Derivatives and Hedging Activities
We report all derivative instruments on our Condensed Consolidated Balance Sheets at fair value and establish criteria for designation and effectiveness of transactions entered into for hedging purposes.
As a large global organization, we face exposure to market risks, such as fluctuations in foreign currency exchange rates and interest rates. To manage the volatility relating to these exposures, we enter into various derivative instruments from time to time under our risk management policies. We designate derivative instruments as hedges on a transaction basis to support hedge accounting. The changes in fair value of these hedging instruments offset in part or in whole corresponding changes in the fair value or cash flows of the underlying exposures being hedged. We assess the initial and ongoing effectiveness of our hedging relationships in accordance with our policy. We do not purchase, hold or sell derivative financial instruments for trading purposes. Our practice is to terminate derivative transactions if the underlying asset or liability matures or is sold or terminated, or if we determine the underlying forecasted transaction is no longer probable of occurring.
We record the fair value positions of all derivative financial instruments on a net basis by counterparty for which a master netting arrangement is utilized.
Foreign Currency Forward Contracts Designated as Cash Flow Hedges
The primary purpose of our cash flow hedging activities is to manage the potential changes in value associated with the amounts receivable or payable on equipment and raw material purchases that are denominated in foreign currencies in order to minimize the impact of the changes in foreign currencies. We record gains and losses on foreign currency forward contracts qualifying as cash flow hedges in other comprehensive income to the extent that these hedges are effective and until we recognize the underlying transactions in net earnings, at which time we recognize these gains and losses in cost of sales, on our Condensed Consolidated Statements of Operations. Cash flows from derivative financial instruments are classified as cash flows from operating activities in the Condensed Consolidated Statements of Cash Flows. These contracts generally have original maturities of less than
12 months
.
Net unrealized after-tax gains/losses related to these contracts that were included in other comprehensive income were
$0.9 million
loss and
$5.7 million
loss for the
three and nine
months ended
September 30, 2017
, respectively, and
$1.3 million
gain and
$0.8 million
loss for the
three and nine
months ended
September 30, 2016
. The unrealized amounts in other comprehensive income will fluctuate based on changes in the fair value of open contracts during each reporting period.
We estimate that
$0.4 million
of net unrealized derivative losses included in accumulated other comprehensive income (AOCI) will be reclassified into earnings within the next twelve months.
Foreign Currency Forward Contracts Not Designated as Hedges
Our subsidiaries have foreign currency exchange exposure from buying and selling in currencies other than their functional currencies. The primary purposes of our foreign currency hedging activities are to manage the potential changes in value associated with the amounts receivable or payable on transactions denominated in foreign currencies and to minimize the impact of the changes in foreign currencies related to foreign currency-denominated interest-bearing intercompany loans and receivables and payables. The changes in fair value of these derivative contracts are recognized in other income, net, on our Condensed Consolidated Statements of Operations and are largely offset by the remeasurement of the underlying foreign currency-denominated items indicated above. Cash flows from derivative financial instruments are classified as cash flows from investing activities in the Condensed Consolidated Statements of Cash Flows. These contracts generally have original maturities of less than
12 months
.
Interest Rate Swaps
From time to time, we may use interest rate swaps to manage our fixed and floating interest rates on our outstanding indebtedness. At
September 30, 2017
and
December 31, 2016
, we had
no
outstanding interest rate swaps.
Interest Rate and Currency Swaps
In 2014, in connection with exercising the
$100.0 million
delayed draw under the senior secured credit facility, we entered into a series of interest rate and currency swaps in a notional amount of
$100.0 million
. On
September 30, 2016
, the first
$20.0 million
swap contract matured and was settled. As a result of the settlement, the Company received
$4.9 million
. For the
nine
months ended
September 30, 2017
, settlement payments were made for $
2.5 million
. In July 2017, we prepaid the Brazilian tranche of our Term Loan A facility due in July 2019 in the amount of
$96.3 million
in connection with the anticipated Diversey transaction. In anticipation of this loan prepayment, we terminated all the swaps used to convert the related U.S. dollar-denominated variable rate obligation into a fixed Brazilian real-denominated obligation. The related activity has been classified as net earnings from discontinued operations, net of tax on the Condensed Consolidated Statement of Operations.
Net Investment Hedge
During the second quarter of 2015, we entered into a series of foreign currency exchange forwards totaling
€270.0 million
. These foreign currency exchange forwards hedged a portion of the net investment in a certain European subsidiary against fluctuations in foreign exchange rates and expired in June 2015. The loss of
$3.5 million
(
$2.2 million
after tax) is recorded in AOCI on our Condensed Consolidated Balance Sheet.
The
€400.0 million
4.50%
notes issued in June 2015 are designated as a net investment hedge, hedging a portion of our net investment in a certain European subsidiary against fluctuations in foreign exchange rates. The change in the fair value of the debt was
$21.5 million
($
13.3 million
net of taxes) as of
September 30, 2017
and is reflected in long-term debt on our Condensed Consolidated Balance Sheet.
In March 2015, we entered into a series of cross-currency swaps with a combined notional amount of
$425.0 million
, hedging a portion of the net investment in a certain European subsidiary against fluctuations in foreign exchange rates. As a result of the sale of Diversey, we terminated these cross-currency swaps in September 2017 and will pay the settlement in October 2017. The fair value of the swaps on the date of termination was a liability of
$61.9 million
which was partially offset by semi-annual interest settlements of
$17.7 million
. This resulted in a net impact of
$(44.2) million
which is recorded in AOCI.
For derivative instruments that are designated and qualify as hedges of net investments in foreign operations, settlements and changes in fair values of the derivative instruments are recognized in unrealized net gains or loss on derivative instruments for net investment hedge, a component of AOCI, net of taxes, to offset the changes in the values of the net investments being hedged. Any portion of the net investment hedge that is determined to be ineffective is recorded in other (expense) income, net on the Condensed Consolidated Statements of Operations.
Other Derivative Instruments
We may use other derivative instruments from time to time to manage exposure to foreign exchange rates and to access to international financing transactions. These instruments can potentially limit foreign exchange exposure by swapping borrowings denominated in one currency for borrowings denominated in another currency.
Fair Value of Derivative Instruments
See Note 12, “Fair Value Measurements and Other Financial Instruments,” for a discussion of the inputs and valuation techniques used to determine the fair value of our outstanding derivative instruments.
The following table details the fair value of our derivative instruments included on our Condensed Consolidated Balance Sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow
|
|
Net Investment Hedge
|
|
Non-Designated
|
|
Total
|
(In millions)
|
September 30,
2017
|
|
December 31, 2016
|
|
September 30,
2017
|
|
December 31, 2016
|
|
September 30,
2017
|
|
December 31, 2016
|
|
September 30,
2017
|
|
December 31, 2016
|
Derivative Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
(2)
|
$
|
0.2
|
|
|
$
|
4.9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3.4
|
|
|
$
|
11.4
|
|
|
$
|
3.6
|
|
|
$
|
16.3
|
|
Interest rate currency swaps
(2)
|
—
|
|
|
23.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
23.9
|
|
Total Derivative Assets
|
$
|
0.2
|
|
|
$
|
28.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3.4
|
|
|
$
|
11.4
|
|
|
$
|
3.6
|
|
|
$
|
40.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
(2)
|
$
|
(3.0
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(11.3
|
)
|
|
$
|
(11.5
|
)
|
|
$
|
(14.3
|
)
|
|
$
|
(11.6
|
)
|
Cross-currency swaps
|
—
|
|
|
—
|
|
|
—
|
|
|
(5.3
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5.3
|
)
|
Total Derivative Liabilities
(1)
|
$
|
(3.0
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
—
|
|
|
$
|
(5.3
|
)
|
|
$
|
(11.3
|
)
|
|
$
|
(11.5
|
)
|
|
$
|
(14.3
|
)
|
|
$
|
(16.9
|
)
|
Net Derivatives
(3)
|
$
|
(2.8
|
)
|
|
$
|
28.7
|
|
|
$
|
—
|
|
|
$
|
(5.3
|
)
|
|
$
|
(7.9
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
(10.7
|
)
|
|
$
|
23.3
|
|
|
|
(1)
|
Excludes
€400.0 million
of euro-denominated debt (
$467.9 million
equivalent at
September 30, 2017
and
$416.7 million
equivalent at
December 31, 2016
), designated as a net investment hedge.
|
|
|
(2)
|
Amounts related to Diversey have been classified as held for sale on the Condensed Consolidated Balance Sheet as of December 31, 2016, $
(1.4) million
related to foreign currency forward contracts were reclassified to liabilities held for sale and $
23.9 million
related to interest rate and currency swaps were reclassified to assets held for sale. These financial instruments have been classified as Level 2 Inputs. Refer to Note 12 “Fair Value Measurements and Other Financial Instruments” for discussion of the inputs and valuation techniques used.
|
|
|
(3)
|
The following table reconciles gross positions without the impact of master netting agreements to the balance sheet classification:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Current Assets
|
|
Other Current Liabilities
|
|
Other Non-current Assets
|
|
Other Non-current Liabilities
|
(In millions)
|
September 30,
2017
|
|
December 31, 2016
|
|
September 30,
2017
|
|
December 31, 2016
|
|
September 30,
2017
|
|
December 31, 2016
|
|
September 30,
2017
|
|
December 31, 2016
|
Gross position
|
$
|
3.5
|
|
|
$
|
22.6
|
|
|
$
|
(14.2
|
)
|
|
$
|
(11.6
|
)
|
|
$
|
—
|
|
|
$
|
17.6
|
|
|
$
|
—
|
|
|
$
|
(5.3
|
)
|
Reclassified to held for sale
(1)
|
—
|
|
|
(7.3
|
)
|
|
—
|
|
|
2.3
|
|
|
—
|
|
|
(17.6
|
)
|
|
—
|
|
|
—
|
|
Impact of master netting agreements
|
(0.1
|
)
|
|
(0.2
|
)
|
|
0.1
|
|
|
0.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net amounts recognized on the Condensed Consolidated Balance Sheet
|
$
|
3.4
|
|
|
$
|
15.1
|
|
|
$
|
(14.1
|
)
|
|
$
|
(9.1
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(5.3
|
)
|
|
|
(1)
|
Amounts related to Diversey have been classified as held for sale on the Condensed Consolidated Balance Sheet as of December 31, 2016.
|
The following table details the effect of our derivative instruments on our Condensed Consolidated Statements of Operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Recognized in
Earnings on Derivatives
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(In millions)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
(1)(4)
|
|
$
|
(0.1
|
)
|
|
$
|
(1.1
|
)
|
|
$
|
1.8
|
|
|
$
|
(0.9
|
)
|
Interest rate and currency swaps
(2)(4)
|
|
(2.3
|
)
|
|
(0.4
|
)
|
|
(3.4
|
)
|
|
(24.6
|
)
|
Treasury locks
(3)
|
|
—
|
|
|
—
|
|
|
0.1
|
|
|
0.1
|
|
Sub-total cash flow hedges
|
|
(2.4
|
)
|
|
(1.5
|
)
|
|
(1.5
|
)
|
|
(25.4
|
)
|
Fair Value Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
0.2
|
|
|
0.2
|
|
|
0.4
|
|
|
0.4
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
(4)
|
|
(13.9
|
)
|
|
(6.0
|
)
|
|
(8.3
|
)
|
|
(24.7
|
)
|
Total
|
|
$
|
(16.1
|
)
|
|
$
|
(7.3
|
)
|
|
$
|
(9.4
|
)
|
|
$
|
(49.7
|
)
|
|
|
(1)
|
Amounts recognized on the foreign currency forward contracts were included in cost of sales during the
three and nine
months ended
September 30, 2017
and 2016.
|
|
|
(2)
|
Amounts recognized on the interest rate and currency swaps for the three months ended
September 30, 2017
and
2016
, included a
$2.0 million
loss and a
$1.2 million
gain, respectively, which is included in other (expense) income, net and interest (expense) income of
$(0.4) million
and
$(1.5) million
, respectively, related to the hedge of the interest payments. Amounts recognized on the interest rate and currency swaps for the
nine
months ended
September 30, 2017
and
2016
, included a
$1.0 million
loss and a
$20.5 million
loss, respectively, which is included in other (expense) income, net and interest (expense) income of
$(2.5) million
and
$(4.0) million
, respectively, related to the hedge of the interest payments.
|
|
|
(3)
|
Amounts recognized on the treasury locks were included in interest expense which is related to amortization of terminated interest rate swaps.
|
|
|
(4)
|
Amounts related to Diversey have been reclassified to earnings from discontinued operations before income tax provision on the Condensed Consolidated Statement of Operations. For the three months ended
September 30, 2017
and 2016 there was $
0.1 million
and $
3.5 million
reclassified, respectively. For the
nine
months ended
September 30, 2017
and
September 30, 2016
there was $
3.7 million
and $
(17.8) million
reclassified, respectively.
|
Note 12 Fair Value Measurements and Other Financial Instruments
Fair Value Measurements
In determining fair value of financial instruments, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and consider counterparty credit risk in our assessment of fair value. We determine fair value of our financial instruments based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:
|
|
•
|
Level 1 Inputs:
Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.
|
|
|
•
|
Level 2 Inputs:
Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
|
|
|
•
|
Level 3 Inputs:
Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.
|
The following table details the fair value hierarchy of our financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
(In millions)
|
|
Total Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Cash equivalents
|
|
$
|
771.4
|
|
|
$
|
771.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Compensating balance deposits
|
|
$
|
27.2
|
|
|
$
|
27.2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Derivative financial and hedging instruments net asset (liability):
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts and options
|
|
$
|
(10.7
|
)
|
|
$
|
—
|
|
|
$
|
(10.7
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
(In millions)
|
|
Total Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Cash equivalents
|
|
$
|
71.3
|
|
|
$
|
71.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Compensating balance deposits
|
|
$
|
52.9
|
|
|
$
|
52.9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Derivative financial and hedging instruments net asset (liability):
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
$
|
4.7
|
|
|
$
|
—
|
|
|
$
|
4.7
|
|
|
$
|
—
|
|
Interest rate and currency swaps
|
|
$
|
23.9
|
|
|
$
|
—
|
|
|
$
|
23.9
|
|
|
$
|
—
|
|
Cross-currency swaps
|
|
$
|
(5.3
|
)
|
|
$
|
—
|
|
|
$
|
(5.3
|
)
|
|
$
|
—
|
|
Cash Equivalents
Our cash equivalents at
September 30, 2017
and
December 31, 2016
consisted of bank time deposits (Level 1). Since these are short-term highly liquid investments with original maturities of three months or less at the date of purchase, they present negligible risk of changes in fair value due to changes in interest rates. The amount of cash equivalents increased during the third quarter of 2017, primarily as a result of the cash proceeds received from the sale of Diversey.
Compensating Balance Deposits
We have compensating balance deposits related to certain short-term borrowings. These represent bank certificates of deposits that will mature within the next
3
months.
Derivative Financial Instruments
Our foreign currency forward contracts, foreign currency options, euro-denominated debt, interest rate and currency swaps and cross-currency swaps are recorded at fair value on our Condensed Consolidated Balance Sheets using a discounted cash flow analysis that incorporates observable market inputs. These market inputs include foreign currency spot and forward rates, and various interest rate curves, and are obtained from pricing data quoted by various banks, third party sources and foreign currency dealers involving identical or comparable instruments (Level 2).
Counterparties to these foreign currency forward contracts have at least an investment grade rating. Credit ratings on some of our counterparties may change during the term of our financial instruments. We closely monitor our counterparties’ credit ratings and, if necessary, will make any appropriate changes to our financial instruments. The fair value generally reflects the estimated amounts that we would receive or pay to terminate the contracts at the reporting date.
Other Financial Instruments
The following financial instruments are recorded at fair value or at amounts that approximate fair value: (1) trade receivables, net, (2) certain other current assets, (3) accounts payable and (4) other current liabilities. The carrying amounts reported on our Condensed Consolidated Balance Sheets for the above financial instruments closely approximate their fair value due to the short-term nature of these assets and liabilities.
Other liabilities that are recorded at carrying value on our Condensed Consolidated Balance Sheets include our senior notes, except for our euro-denominated debt as discussed above. We utilize a market approach to calculate the fair value of our senior notes. Due to their limited investor base and the face value of some of our senior notes, they may not be actively traded on the date we calculate their fair value. Therefore, we may utilize prices and other relevant information generated by market transactions involving similar securities, reflecting U.S. Treasury yields to calculate the yield to maturity and the price on some of our senior notes. These inputs are provided by an independent third party and are considered to be Level 2 inputs.
We derive our fair value estimates of our various other debt instruments by evaluating the nature and terms of each instrument, considering prevailing economic and market conditions, and examining the cost of similar debt offered at the balance sheet date. We also incorporated our credit default swap rates and currency specific swap rates in the valuation of each debt instrument, as applicable.
These estimates are subjective and involve uncertainties and matters of significant judgment, and therefore we cannot determine them with precision. Changes in assumptions could significantly affect our estimates.
The table below shows the carrying amounts and estimated fair values of our total debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
(In millions)
|
|
Carrying Amount
|
|
Fair
Value
|
|
Carrying Amount
|
|
Fair
Value
|
Term Loan A Facility due July 2017
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
249.9
|
|
|
$
|
249.9
|
|
Term Loan A Facility due July 2019
(1)
|
|
222.2
|
|
|
222.2
|
|
|
1,067.8
|
|
|
1,067.8
|
|
6.50% Senior Notes due December 2020
|
|
423.4
|
|
|
473.1
|
|
|
423.1
|
|
|
477.3
|
|
4.875% Senior Notes due December 2022
|
|
420.2
|
|
|
452.1
|
|
|
419.6
|
|
|
437.6
|
|
5.25% Senior Notes due April 2023
|
|
420.2
|
|
|
456.9
|
|
|
419.7
|
|
|
441.1
|
|
4.50% Senior Notes due September 2023
(1)
|
|
467.9
|
|
|
534.2
|
|
|
416.7
|
|
|
453.4
|
|
5.125% Senior Notes due December 2024
|
|
420.6
|
|
|
456.3
|
|
|
420.2
|
|
|
437.3
|
|
5.50% Senior Notes due September 2025
|
|
396.6
|
|
|
438.6
|
|
|
396.4
|
|
|
418.8
|
|
6.875% Senior Notes due July 2033
|
|
445.4
|
|
|
525.7
|
|
|
445.3
|
|
|
462.7
|
|
Other foreign loans
(1)
|
|
44.2
|
|
|
44.8
|
|
|
78.9
|
|
|
79.2
|
|
Other domestic loans
|
|
44.7
|
|
|
44.7
|
|
|
21.4
|
|
|
21.3
|
|
Total debt
|
|
$
|
3,305.4
|
|
|
$
|
3,648.6
|
|
|
$
|
4,359.0
|
|
|
$
|
4,546.4
|
|
Less amounts included as liabilities held for sale
|
|
—
|
|
|
—
|
|
|
216.4
|
|
|
216.4
|
|
Total debt from continuing operations
|
|
$
|
3,305.4
|
|
|
$
|
3,648.6
|
|
|
$
|
4,142.6
|
|
|
$
|
4,330.0
|
|
|
|
(1)
|
Includes borrowings denominated in currencies other than U.S. dollars.
|
In addition to the table above, the Company remeasures amounts related to contingent consideration liabilities related to acquisitions and certain equity compensation, that were carried at fair value on a recurring basis in the Condensed Consolidated Financial Statements or for which a fair value measurement was required. Refer to Note 3 “Divestitures and Acquisitions” of the 2016 Annual Form 10-K for information regarding contingent consideration and Note 16 “Stockholders’ Equity” of the Notes to Condensed Consolidated Financial Statements for share based compensation. Included among our non-financial assets and liabilities that are not required to be measured at fair value on a recurring basis are inventories, net property and equipment, net, goodwill, intangible assets and asset retirement obligations.
Credit and Market Risk
Financial instruments, including derivatives, expose us to counterparty credit risk for nonperformance and to market risk related to changes in interest or currency exchange rates. We manage our exposure to counterparty credit risk through specific minimum credit standards, establishing credit limits, diversification of counterparties, and procedures to monitor concentrations of credit risk.
We do not expect any of our counterparties in derivative transactions to fail to perform as it is our policy to have counterparties to these contracts that have at least an investment grade rating. Nevertheless, there is a risk that our exposure to losses arising out of derivative contracts could be material if the counterparties to these agreements fail to perform their obligations. We will replace counterparties if a credit downgrade is deemed to increase our risk to unacceptable levels.
We regularly monitor the impact of market risk on the fair value and cash flows of our derivative and other financial instruments considering reasonably possible changes in interest and currency exchange rates and restrict the use of derivative financial instruments to hedging activities. We do not use derivative financial instruments for trading or other speculative purposes and do not use leveraged derivative financial instruments.
We continually monitor the creditworthiness of our diverse base of customers to which we grant credit terms in the normal course of business and generally do not require collateral. We consider the concentrations of credit risk associated with our trade accounts receivable to be commercially reasonable and believe that such concentrations do not leave us vulnerable to significant risks of near-term severe adverse impacts. The terms and conditions of our credit sales are designed to mitigate concentrations of credit risk with any single customer. Our sales are not materially dependent on a single customer or a small group of customers.
Note 13 Defined Benefit Pension Plans and Other Post-Employment Benefit Plans
The following table shows the components of our net periodic benefit cost (income) for our defined benefit pension plans for the
three and nine
months ended
September 30, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2017
|
|
Three Months Ended
September 30, 2016
|
(In millions)
|
|
U.S.
|
|
International
|
|
Total
|
|
U.S.
|
|
International
|
|
Total
|
Components of net periodic benefit cost or (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
—
|
|
|
$
|
2.1
|
|
|
$
|
2.1
|
|
|
$
|
0.2
|
|
|
$
|
2.4
|
|
|
$
|
2.6
|
|
Interest cost
|
|
1.6
|
|
|
5.8
|
|
|
7.4
|
|
|
2.0
|
|
|
6.4
|
|
|
8.4
|
|
Expected return on plan assets
|
|
(2.4
|
)
|
|
(10.6
|
)
|
|
(13.0
|
)
|
|
(2.5
|
)
|
|
(9.1
|
)
|
|
(11.6
|
)
|
Amortization of net prior service cost
|
|
—
|
|
|
(0.1
|
)
|
|
(0.1
|
)
|
|
—
|
|
|
0.1
|
|
|
0.1
|
|
Amortization of net actuarial loss
|
|
0.2
|
|
|
2.6
|
|
|
2.8
|
|
|
0.7
|
|
|
2.3
|
|
|
3.0
|
|
Net periodic benefit (income) cost
|
|
(0.6
|
)
|
|
(0.2
|
)
|
|
(0.8
|
)
|
|
0.4
|
|
|
2.1
|
|
|
2.5
|
|
Cost of settlement/curtailment
|
|
0.4
|
|
|
0.9
|
|
|
1.3
|
|
|
—
|
|
|
0.3
|
|
|
0.3
|
|
Total benefit (income) cost
|
|
$
|
(0.2
|
)
|
|
$
|
0.7
|
|
|
$
|
0.5
|
|
|
$
|
0.4
|
|
|
$
|
2.4
|
|
|
$
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2017
|
|
Nine Months Ended
September 30, 2016
|
(In millions)
|
|
U.S.
|
|
International
|
|
Total
|
|
U.S.
|
|
International
|
|
Total
|
Components of net periodic benefit cost (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
0.1
|
|
|
$
|
6.0
|
|
|
$
|
6.1
|
|
|
$
|
0.4
|
|
|
$
|
7.4
|
|
|
$
|
7.8
|
|
Interest cost
|
|
5.1
|
|
|
16.4
|
|
|
21.5
|
|
|
5.8
|
|
|
19.3
|
|
|
25.1
|
|
Expected return on plan assets
|
|
(7.3
|
)
|
|
(30.9
|
)
|
|
(38.2
|
)
|
|
(7.5
|
)
|
|
(27.2
|
)
|
|
(34.7
|
)
|
Amortization of net prior service cost
|
|
—
|
|
|
(0.2
|
)
|
|
(0.2
|
)
|
|
—
|
|
|
0.2
|
|
|
0.2
|
|
Amortization of net actuarial loss
|
|
0.6
|
|
|
7.8
|
|
|
8.4
|
|
|
1.7
|
|
|
6.7
|
|
|
8.4
|
|
Net periodic benefit (income) cost
|
|
(1.5
|
)
|
|
(0.9
|
)
|
|
(2.4
|
)
|
|
0.4
|
|
|
6.4
|
|
|
6.8
|
|
Cost of settlement/curtailment
|
|
1.2
|
|
|
1.4
|
|
|
2.6
|
|
|
—
|
|
|
0.1
|
|
|
0.1
|
|
Total benefit (income) cost
|
|
$
|
(0.3
|
)
|
|
$
|
0.5
|
|
|
$
|
0.2
|
|
|
$
|
0.4
|
|
|
$
|
6.5
|
|
|
$
|
6.9
|
|
The following table shows the components of our net periodic benefit cost for our other employee benefit plans for the
three and nine
months ended
September 30, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(In millions)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Components of net periodic benefit cost or (income):
|
|
|
|
|
|
|
|
|
Service costs
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
$
|
0.2
|
|
Interest cost
|
|
0.4
|
|
|
0.5
|
|
|
1.3
|
|
|
1.4
|
|
Amortization of net prior service cost
|
|
(0.3
|
)
|
|
(0.5
|
)
|
|
(1.1
|
)
|
|
(1.2
|
)
|
Amortization of net actuarial loss
|
|
—
|
|
|
—
|
|
|
(0.1
|
)
|
|
—
|
|
Net periodic benefit cost
|
|
0.1
|
|
|
0.1
|
|
|
0.2
|
|
|
0.4
|
|
Income of settlement/curtailment
|
|
(13.5
|
)
|
|
—
|
|
|
(13.5
|
)
|
|
—
|
|
Total benefit (income) cost
|
|
$
|
(13.4
|
)
|
|
$
|
0.1
|
|
|
$
|
(13.3
|
)
|
|
$
|
0.4
|
|
The net periodic costs disclosed in the tables above include the plans of Diversey which are included in assets and liabilities held for sale on the Condensed Consolidated Balance Sheet. The amounts of the costs disclosed above charged to discontinued operations approximately were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(In millions)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Defined benefit pension plans
|
|
$
|
(0.1
|
)
|
|
$
|
1.2
|
|
|
$
|
(0.5
|
)
|
|
$
|
3.6
|
|
Other employee benefit plans
|
|
0.1
|
|
|
0.1
|
|
|
0.1
|
|
|
0.1
|
|
Total expense (income) included in discontinued operations
|
|
$
|
—
|
|
|
$
|
1.3
|
|
|
$
|
(0.4
|
)
|
|
$
|
3.7
|
|
The weighted average expected long-term rate of return on plan assets used to determine the net periodic benefit cost as of December 31, 2016 was
6.7%
for U.S. plans and
4.5%
for our international plans. After the sale of Diversey in the third quarter of 2017 and transfer of certain related pension plans, the updated weighted average expected long-term rate of return on plan assets used to determine the net periodic benefit cost is
6.7%
for U.S. plans and
5.0%
for our international plans.
Note 14 Income Taxes
Effective Income Tax Rate and Income Tax Provision
For interim tax reporting, we estimate one single effective tax rate for tax jurisdictions not subject to a valuation allowance, which is applied to the year-to-date ordinary income/(loss). Tax effects of significant unusual or infrequently occurring items are excluded from the estimated annual effective tax rate calculation and recognized in the interim period in which they occur.
Our effective income tax rate for the three months ended
September 30, 2017
was
41.2%
and for the
nine
months ended
September 30, 2017
was
86.2%
. Our year to date effective income tax rate is higher than our calculated interim rate primarily as a result of planned distributions of earnings which had previously been determined to be indefinitely reinvested in operations outside the United States. Our change in assertion for these investments is related to distributions in anticipation of the sale of Diversey
.
Our effective income tax rate for the three months ended
September 30, 2016
was
45.9%
and for the
nine
months ended
September 30, 2016
was
46.9%
. The effective tax rate for the nine months ended September 30, 2016 was higher than our calculated interim rate because of an increase in valuation allowance against foreign tax credits which the Company expected to expire before utilization.
Note 15 Commitments and Contingencies
Cryovac Transaction Commitments and Contingencies
Refer to Part II, Item 8, Note 17, “Commitments and Contingencies” to our audited Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 for a description of the Settlement agreement (as defined therein). As discussed within the Material Commitments and Contingencies section of Part II, Item 7, Management's Discussion and Analysis, we increased our unrecognized tax benefits by
$104.0 million
in 2015, for the recording of a reserve related to the Settlement payment. Although the disposition of this matter has not changed, the Company believes it has valid
defenses, and strong arguments for the validity of the deductions, the ultimate outcome of negotiations may affect the utilization of certain tax attributes and require us to return all or a portion of the
$235.2 million
refund.
Environmental Matters
We are subject to loss contingencies resulting from environmental laws and regulations, and we accrue for anticipated costs associated with investigatory and remediation efforts when an assessment has indicated that a loss is probable and can be reasonably estimated. These accruals are not reduced by potential insurance recoveries, if any. We do not believe that it is reasonably possible that our liability in excess of the amounts that we have accrued for environmental matters will be material to our Condensed Consolidated Balance Sheet or Statement of Operations. Environmental liabilities are reassessed whenever circumstances become better defined or remediation efforts and their costs can be better estimated.
We evaluate these liabilities periodically based on available information, including the progress of remedial investigations at each site, the current status of discussions with regulatory authorities regarding the methods and extent of remediation and the apportionment of costs among potentially responsible parties. As some of these issues are decided (the outcomes of which are subject to uncertainties) or new sites are assessed and costs can be reasonably estimated, we adjust the recorded accruals, as necessary. We believe that these exposures are not material to our Condensed Consolidated Balance Sheet or Statement of Operations. We believe that we have adequately reserved for all probable and estimable environmental exposures.
Guarantees and Indemnification Obligations
We are a party to many contracts containing guarantees and indemnification obligations. These contracts primarily consist of:
|
|
•
|
product warranties with respect to certain products sold to customers in the ordinary course of business. These warranties typically provide that products will conform to specifications. We generally do not establish a liability for product warranty based on a percentage of sales or other formula. We accrue a warranty liability on a transaction-specific basis depending on the individual facts and circumstances related to each sale. Both the liability and annual expense related to product warranties are immaterial to our Condensed Consolidated Balance Sheet or Statement of Operations; and
|
|
|
•
|
licenses of intellectual property by us to third parties in which we have agreed to indemnify the licensee against third party infringement claims.
|
Note 16 Stockholders’ Equity
Repurchase of Common Stock
In July 2015, our Board of Directors authorized a repurchase program of up to
$1.5 billion
of the Company’s common stock, reflecting its commitment to return value to shareholders. The repurchase program has no expiration date and replaced the previously authorized program, which was terminated. Refer to Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds” for further information. This program replaced our prior share repurchase program, approved by our Board of Directors in August 2007 authorizing us to repurchase in the aggregate up to
20 million
shares of our outstanding common stock.
In March 2017, our Board of Directors authorized an increase to the existing share repurchase program by up to an additional
$1.5 billion
of the Company’s common stock.
During the
three and nine
months ended
September 30, 2017
, we repurchased
1,661,782
and
5,198,090
shares, for approximately
$72.4 million
and
$227.7 million
, respectively. During the
three and nine
months ended
September 30, 2016
, we repurchased
3,545,828
and
4,680,313
shares, for approximately
$165.0 million
and
$217.0 million
, respectively. These repurchases were made under privately negotiated or open market transactions in accordance with Rule 10b5-1 of the Securities Act of 1933, as amended, and pursuant to the share repurchase program previously approved by our Board of Directors.
In May 2017, the Company entered into an accelerated share repurchase agreement with a third-party financial institution to repurchase up to
$150.0 million
of the Company’s common stock. At the conclusion of the program in August, the Company had received a total of
2,914,955
shares and the notional program size was reduced to $
129.6 million
. Over the life of the transaction, shares were repurchased at an average price of $
44.47
per share.
In September 2017, the Company entered into an accelerated share repurchase agreement with a third-party financial institution to repurchase
$400.0 million
of the Company’s common stock. Through September 30, 2017, the Company had received a total of
7,368,179
shares under this agreement.
Dividends
On
July 7, 2017
, our Board of Directors declared a quarterly cash dividend of
$0.16
per common share, or $
30.3 million
, which was paid on
September 15, 2017
, to stockholders of record at the close of business day
September 1, 2017
.
The dividends paid in the
nine
months ended
September 30, 2017
were recorded as a reduction to cash and cash equivalents and retained earnings on our Condensed Consolidated Balance Sheets. Our credit facility and our notes contain covenants that restrict our ability to declare or pay dividends. However, we do not believe these covenants are likely to materially limit the future payment of quarterly cash dividends on our common stock. From time to time, we may consider other means of returning value to our stockholders based on our Condensed Consolidated Statement of Operations. There is no guarantee that our Board of Directors will declare any further dividends.
Share-based Incentive Compensation
We record share-based incentive compensation expense in selling, general and administrative expenses and cost of sales on our Condensed Consolidated Statements of Operations with a corresponding credit to additional paid-in capital within stockholders’ equity based on the fair value of the share-based incentive compensation awards at the date of grant. We recognize an expense or credit reflecting the straight-line recognition, net of estimated forfeitures, of the expected cost of the program. For the various Performance Share Unit ("PSU") awards programs described below, the cumulative amount accrued to date is adjusted up or down to the extent the expected performance against the targets has improved or worsened.
The table below shows our total share-based incentive compensation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(In millions)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Total share-based incentive compensation expense
(1)(2)
|
|
$
|
16.6
|
|
|
$
|
16.1
|
|
|
$
|
41.9
|
|
|
$
|
48.1
|
|
|
|
(1)
|
The amounts included above do not include the expense related to our U.S. profit sharing contributions made in the form of our common stock or the expense or income related to SARs and certain cash-based awards, however, the amounts include the expense related to share based awards that are settled in cash.
|
|
|
(2)
|
Of the consolidated share-based incentive compensation expense,
$4.0 million
and
$10.2 million
for the three and
nine
months ended
September 30, 2017
respectively, and
$3.4 million
and
$9.2 million
for the three and
nine
months ended
September 30, 2016
, respectively, were allocated to net earnings from discontinued operations, net of tax on the Condensed Consolidated Statement of Operations.
|
During the three months ended September 30, 2017, the vesting conditions of select equity awards were amended which required the Company account for these changes under modification accounting. Expense incurred related to the modification accounting during the three months ended September 30, 2017 was approximately
$2.1 million
. This expense is included in net earnings from discontinued operations, net of tax on the Condensed Consolidated Statement of Operations.
Chief Operating Officer (COO) and Chief Executive Officer-Designate 2017New Hire Equity Awards
On September 5, 2017, the Board elected Edward L. Doheny II, Chief Operating Officer and CEO-Designate and elected him as a Director of the Company effective September 18, 2017. As Chief Operating Officer and CEO-Designate, Mr. Doheny will work on transitioning with Jerome Peribere until December 31, 2017 and will then assume the Chief Executive Officer role effective January 1, 2018. Additionally, on September 5, 2017, the Company entered into an offer letter agreement, effective September 18, 2017, with Mr. Doheny. The Letter Agreement provides that Mr. Doheny will be granted on his start date
two
new-hire equity awards,
one
that is time-vesting and the other that is performance-vesting (the “New Hire Awards”).
The time-vesting New Hire Award, for
30,000
shares, requires Mr. Doheny to remain in service with the Company through December 31, 2020. The grant date fair value for this award was
$42.89
per share.
The performance-vesting New Hire Award, for
70,000
shares, in addition to the time-vesting requirement noted above, requires that either (i) the Company’s cumulative total stockholder return for 2018-2020 be in the top
33%
of its peers (using the same peers and methodology under the Company’s performance stock unit (PSU) awards) and the Company’s stock price as of December 31, 2020 equals at least
$60.00
per share, or (ii) the Company’s stock price as of December 31, 2020 equals at least
$75.00
per share. The Letter Agreement provides that the stock price as of December 31, 2020 for this purpose will be determined using a 30-day arithmetic mean of closing prices. Since the award includes a market condition, compensation expense will be recognized regardless of whether the market condition is satisfied provided that the requisite service has been provided.
The grant date fair value for this award was determined using a Monte Carlo Simulation model that incorporates predictive modeling techniques using Geometric Brownian Motion and Crystal Ball’s random number generation. Other assumptions include the expected volatility of all companies included in the total shareholder return, valuation modeling of vesting payoff determination featuring both performance goals as noted above, the historical share price returns analysis of all companies included in the total shareholder return and assumes dividends are reinvested. The expected volatility was based on the historical volatility of peer companies for a period of time that approximates the duration between the beginning and the end of the performance period. The risk-free interest rate is based on the Zero-Coupon Treasury STRIP yield curve matching the term from the valuation date to the end of the performance period Compensation expense for the performance-vesting Inducement Award is a fixed amount determined at the grant date fair value and is recognized
100%
from the time of the award to the end of the performance period regardless of whether shares are awarded at the end of the award performance period.
The assumptions used to calculate the grant date fair value of the performance-vesting New Hire Award are shown in the following table:
|
|
|
|
|
|
2017 Performance-vesting New Hire Award
|
Fair value on grant date
|
$
|
10.63
|
|
Expected price volatility
|
25.0
|
%
|
Risk-free interest rate
|
1.6
|
%
|
The awards are described in further detail in Mr. Doheny’s Offer Letter filed with the SEC as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 7, 2017.
PSU Awards
During the first
90 days
of each year, the Organization and Compensation (“O&C”) Committee of our Board of Directors approves PSU awards for our executive officers and other selected key executives, which include for each officer or executive a target number of shares of common stock and performance goals and measures that will determine the percentage of the target award that is earned following the end of the
three
-year performance period. Following the end of the performance period, in addition to shares, participants will also receive a cash payment in the amount of the dividends (without interest) that would have been paid during the performance period on the number of shares that they have earned. Each PSU is subject to forfeiture if the recipient terminates employment with the Company prior to the end of the
three years
award performance period for any reason other than death, disability or retirement. In the event of death, disability or retirement, a participant will receive a prorated payment based on such participant’s number of full months of service during the award performance period, further adjusted based on the achievement of the performance goals during the award performance period. All of these PSUs are classified as equity in the Condensed Consolidated Balance Sheet.
2017
Three
-year PSU Awards
In March 2017, the O&C Committee approved awards with a
three
-year performance period beginning
January 1, 2017
to
December 31, 2019
for certain executives. The O&C Committee established principal performance goals, which are (i) total shareholder return (TSR) weighted at
34%
, (ii) 2019 consolidated adjusted EBITDA margin weighted at
33%
, and (iii) Net Sales Compound Average Growth Rate in 2019 based on 2016 Net Sales weighted at
33%
. The total number of shares to be issued for these awards can range from
zero
to
200%
of the target number of shares.
The number of PSUs granted and the grant date fair value of the PSUs are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TSR
|
|
Net Sales CAGR
|
|
Adjusted EBITDA
|
Number of units granted
|
|
100,958
|
|
|
99,522
|
|
|
99,522
|
|
Fair value on grant date
(1)
|
|
$
|
46.07
|
|
|
$
|
45.36
|
|
|
$
|
45.36
|
|
|
|
(1)
|
Certain grants of the 2017
Three
-year PSU awards were modified during the second quarter of 2017. The impact to our total share-based incentive compensation expense and Condensed Consolidated Statement of Operations is not material.
|
The assumptions used to calculate the grant date fair value of the PSUs based on TSR are shown in the following table:
|
|
|
|
|
TSR portion of the 2017 PSU Award
|
Expected price volatility
|
25.0
|
%
|
Risk-free interest rate
|
1.6
|
%
|
2014
Three
-year PSU Awards
In February 2017, the O&C Committee reviewed the performance results for the 2014-2016 PSUs. Performance goals for these PSUs were based on Adjusted EBITDA margins and relative TSR. Based on overall performance for 2014-2016 PSUs, these awards paid out at
196%
of target or
636,723
units.
2014 Special PSU Awards
In February 2017, the O&C Committee reviewed the performance results for the first tranche of the 2014 Special PSUs. The performance goal for the Special PSUs was based on Adjusted Free Cash Flow with potential cancellation or reduction based on 2016 Adjusted EPS and relative TSR. The overall performance for Special PSUs was above maximum achievement levels and as a result these awards paid out at
200%
of target or
749,653
share-settled units. The remaining
50%
of the award will be issued in the first quarter of 2018 contingent on the final performance goal of working capital as a percentage of 2017 Net Trade Sales.
Note 17 Accumulated Other Comprehensive Income (Loss)
The following table provides details of comprehensive income (loss) for the
nine
months ended
September 30, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Unrecognized
Pension Items
|
|
Cumulative
Translation
Adjustment
|
|
Unrecognized Gains
(Losses) on
Derivative
Instruments
for net
investment
hedge
|
|
Unrecognized Gains
(Losses) on
Derivative
Instruments
for cash flow hedge
|
|
Accumulated Other
Comprehensive
Income
(Loss), Net of Taxes
|
Balance at December 31, 2015
|
|
$
|
(266.0
|
)
|
|
$
|
(564.0
|
)
|
|
$
|
1.7
|
|
|
$
|
8.3
|
|
|
$
|
(820.0
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
(3.6
|
)
|
|
19.4
|
|
|
(15.4
|
)
|
|
(19.4
|
)
|
|
(19.0
|
)
|
Less: amounts reclassified from accumulated other comprehensive income (loss)
|
|
9.2
|
|
|
(46.0
|
)
|
|
—
|
|
|
16.9
|
|
|
(19.9
|
)
|
Net current period other comprehensive income (loss)
|
|
5.6
|
|
|
(26.6
|
)
|
|
(15.4
|
)
|
|
(2.5
|
)
|
|
(38.9
|
)
|
Balance at September 30, 2016
(1)
|
|
$
|
(260.4
|
)
|
|
$
|
(590.6
|
)
|
|
$
|
(13.7
|
)
|
|
$
|
5.8
|
|
|
$
|
(858.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
$
|
(276.7
|
)
|
|
$
|
(701.9
|
)
|
|
$
|
21.0
|
|
|
$
|
8.5
|
|
|
$
|
(949.1
|
)
|
Other comprehensive income (loss) before reclassifications
(2)
|
|
175.0
|
|
|
5.5
|
|
|
(64.0
|
)
|
|
(8.7
|
)
|
|
107.8
|
|
Less: amounts reclassified from accumulated other comprehensive income (loss)
|
|
4.9
|
|
|
—
|
|
|
—
|
|
|
0.5
|
|
|
5.4
|
|
Net current period other comprehensive income (loss)
|
|
179.9
|
|
|
5.5
|
|
|
(64.0
|
)
|
|
(8.2
|
)
|
|
113.2
|
|
Balance at September 30, 2017
(1)
|
|
$
|
(96.8
|
)
|
|
$
|
(696.4
|
)
|
|
$
|
(43.0
|
)
|
|
$
|
0.3
|
|
|
$
|
(835.9
|
)
|
|
|
(1)
|
The ending balance in AOCI includes gains and losses on intra-entity foreign currency transactions. The intra-entity currency translation adjustment was
$(52.2) million
as of
September 30, 2017
and
$(31.4) million
as of
September 30, 2016
.
|
|
|
(2)
|
Other comprehensive income (loss) before reclassifications for the nine months ended September 30, 2017, included amounts which were written off as part of the sale of Diversey. Included in these amounts were
$173.4 million
of unrecognized pension items and
$454.7 million
of cumulative translation adjustments.
|
The following table provides detail of amounts reclassified from accumulated other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
(In millions)
|
|
2017
(1)
|
|
2016
(1)
|
|
2017
(1)
|
|
2016
(1)
|
|
Location of Amount
Reclassified from AOCI
|
Defined benefit pension plans and other post-employment benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service costs
|
|
$
|
0.4
|
|
|
$
|
0.4
|
|
|
$
|
1.3
|
|
|
$
|
1.0
|
|
|
(2)
|
Actuarial losses
|
|
(2.8
|
)
|
|
(3.0
|
)
|
|
(8.3
|
)
|
|
(8.4
|
)
|
|
(2)
|
Total pre-tax amount
|
|
(2.4
|
)
|
|
(2.6
|
)
|
|
(7.0
|
)
|
|
(7.4
|
)
|
|
|
Tax (expense) benefit
|
|
1.0
|
|
|
(3.0
|
)
|
|
2.1
|
|
|
(1.8
|
)
|
|
|
Net of tax
|
|
(1.4
|
)
|
|
(5.6
|
)
|
|
(4.9
|
)
|
|
(9.2
|
)
|
|
|
Reclassification from cumulative translation adjustment:
|
|
|
|
|
|
|
|
|
|
|
Charges related to Venezuelan subsidiaries
|
|
—
|
|
|
—
|
|
|
—
|
|
|
46.0
|
|
|
(5)
|
Net gains (losses) on cash flow hedging derivatives:
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
(0.1
|
)
|
|
(1.1
|
)
|
|
1.8
|
|
|
(0.9
|
)
|
|
(3)(4)
Other income (expense), net
|
Interest rate and currency swaps
|
|
(2.1
|
)
|
|
(0.2
|
)
|
|
(3.0
|
)
|
|
(24.2
|
)
|
|
(3)(4)
|
Treasury locks
|
|
—
|
|
|
—
|
|
|
0.1
|
|
|
0.1
|
|
|
(3)
Interest expense
|
Total pre-tax amount
|
|
(2.2
|
)
|
|
(1.3
|
)
|
|
(1.1
|
)
|
|
(25.0
|
)
|
|
|
Tax (expense) benefit
|
|
0.8
|
|
|
0.3
|
|
|
0.6
|
|
|
8.1
|
|
|
|
Net of tax
|
|
(1.4
|
)
|
|
(1.0
|
)
|
|
(0.5
|
)
|
|
(16.9
|
)
|
|
|
Total reclassifications for the period
|
|
$
|
(2.8
|
)
|
|
$
|
(6.6
|
)
|
|
$
|
(5.4
|
)
|
|
$
|
19.9
|
|
|
|
|
|
(1)
|
Amounts in parenthesis indicate changes to earnings (loss).
|
|
|
(2)
|
These accumulated other comprehensive components are included in the computation of net periodic benefit costs within cost of sales and selling, general, and administrative expenses on the Condensed Consolidated Statement of Operations.
|
|
|
(3)
|
These accumulated other comprehensive components are included in our derivative and hedging activities. See Note 11, “Derivatives and Hedging Activities,” of the Notes to Consolidated Financial Statements for additional details.
|
|
|
(4)
|
In 2016 and 2017, amounts related to the interest rate and currency swaps will be reclassified to earnings from discontinued operations before income tax provision.
|
|
|
(5)
|
Due to the ongoing challenging economic situation in Venezuela, the Company approved a program in the second quarter of 2016 to cease operations in the country. Refer to the Note 1 "Organization and Basis of Presentation," of the Condensed Consolidated Financial Statement for further details.
|
Note 18 Other (Expense) Income, net
The following table provides details of other (expense) income, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(In millions)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Interest and dividend income
|
|
$
|
4.9
|
|
|
$
|
1.7
|
|
|
$
|
10.3
|
|
|
$
|
5.3
|
|
Net foreign exchange transaction (losses) gains
|
|
(0.3
|
)
|
|
0.9
|
|
|
(7.8
|
)
|
|
5.7
|
|
Bank fee expense
|
|
(1.4
|
)
|
|
(1.2
|
)
|
|
(4.6
|
)
|
|
(3.9
|
)
|
Net (loss) gain on disposals of business and property and equipment
|
|
(0.9
|
)
|
|
0.2
|
|
|
1.3
|
|
|
(2.9
|
)
|
Other, net
|
|
(2.3
|
)
|
|
(1.2
|
)
|
|
(5.4
|
)
|
|
(2.8
|
)
|
Other (expense) income, net
|
|
$
|
—
|
|
|
$
|
0.4
|
|
|
$
|
(6.2
|
)
|
|
$
|
1.4
|
|
Note 19 Net Earnings Per Common Share
The following table shows the calculation of basic and diluted net earnings per common share under the two-class method:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(In millions, except per share amounts)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Basic Net Earnings Per Common Share:
|
|
|
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
Net earnings available to common stockholders
|
|
$
|
787.4
|
|
|
$
|
163.3
|
|
|
$
|
848.4
|
|
|
$
|
315.3
|
|
Distributed and allocated undistributed net loss to non-vested restricted stockholders
|
|
(5.0
|
)
|
|
(1.2
|
)
|
|
(5.3
|
)
|
|
(2.2
|
)
|
Distributed and allocated undistributed net earnings to common stockholders
|
|
782.4
|
|
|
162.1
|
|
|
843.1
|
|
|
313.1
|
|
Distributed net (loss) earnings - dividends paid to common stockholders
|
|
(30.1
|
)
|
|
(31.3
|
)
|
|
(91.5
|
)
|
|
(88.0
|
)
|
Allocation of undistributed net earnings to common stockholders
|
|
$
|
752.3
|
|
|
$
|
130.8
|
|
|
$
|
751.6
|
|
|
$
|
225.1
|
|
Denominator
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic
|
|
186.9
|
|
|
194.1
|
|
|
190.9
|
|
|
195.0
|
|
Basic net earnings per common share:
|
|
|
|
|
|
|
|
|
Distributed net earnings to common stockholders
|
|
$
|
0.16
|
|
|
$
|
0.16
|
|
|
$
|
0.48
|
|
|
$
|
0.45
|
|
Allocated undistributed net earnings to common stockholders
|
|
4.03
|
|
|
0.68
|
|
|
3.94
|
|
|
1.15
|
|
Basic net earnings per common share
(1)
|
|
$
|
4.19
|
|
|
$
|
0.84
|
|
|
$
|
4.42
|
|
|
$
|
1.60
|
|
Diluted Net Earnings Per Common Share:
|
|
|
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
Distributed and allocated undistributed net earnings to common stockholders
|
|
$
|
782.4
|
|
|
$
|
162.1
|
|
|
$
|
843.1
|
|
|
$
|
313.1
|
|
Add: Allocated undistributed net earnings to unvested restricted stockholders
|
|
4.8
|
|
|
1.1
|
|
|
4.8
|
|
|
1.7
|
|
Less: Undistributed net earnings (loss) reallocated to non-vested restricted stockholders
|
|
(4.8
|
)
|
|
(1.1
|
)
|
|
(4.8
|
)
|
|
(1.7
|
)
|
Net earnings available to common stockholders - diluted
|
|
$
|
782.4
|
|
|
$
|
162.1
|
|
|
$
|
843.1
|
|
|
$
|
313.1
|
|
Denominator
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic
|
|
186.9
|
|
|
194.1
|
|
|
190.9
|
|
|
195.0
|
|
Effect of contingently issuable shares
|
|
0.7
|
|
|
1.0
|
|
|
0.7
|
|
|
0.9
|
|
Effect of unvested restricted stock units
|
|
0.7
|
|
|
0.9
|
|
|
0.7
|
|
|
0.9
|
|
Weighted average number of common shares outstanding - diluted under two-class
|
|
188.3
|
|
|
196.0
|
|
|
192.3
|
|
|
196.8
|
|
Effect of unvested restricted stock - participating security
|
|
0.6
|
|
|
0.7
|
|
|
0.6
|
|
|
0.7
|
|
Weighted average number of common shares outstanding - diluted under treasury stock
|
|
188.9
|
|
|
196.7
|
|
|
192.9
|
|
|
197.5
|
|
Diluted net earnings per common share
(1)
|
|
$
|
4.15
|
|
|
$
|
0.83
|
|
|
$
|
4.37
|
|
|
$
|
1.59
|
|
|
|
(1)
|
For the nine months ended September 30, 2017, there was a revision to net earnings from discontinued operations, net of tax, on the Condensed Consolidated Statement of Operations related to depreciation and amortization on Diversey assets held for sale. Refer to the Condensed Consolidated Statement of Operations for further details.
|
Note 20 Subsequent Events
On September 11, 2017, the Company announced that its Product Care Division acquired Fagerdala Singapore Pte Ltd., a manufacturer and fabricator of polyethylene foam. Sealed Air will acquire
100 percent
of Fagerdala shares for approximately
$100 million
in cash. The sale closed October 2, 2017.
On
October 5, 2017
, our Board of Directors declared a quarterly cash dividend of
$0.16
per common share. The dividend is payable on
December 15, 2017
to stockholders of record at the close of business on
December 1, 2017
.
On October 6, 2017, the Company was notified by the Mexican Tax Authorities that certain items on a 2010 tax return filing are considered to be nondeductible. We are currently evaluating the merits of our filing position and the extent to which a liability, if any, should be established therewith.