Notes to Condensed Consolidated Financial Statements (unaudited)
Note 1 Organization and Basis of Presentation
Organization
We are a leading global provider of packaging solutions for the food, e-Commerce, electronics and industrial markets. We serve an array of end markets including food and beverage processing, food service, retail, commercial and consumer applications, by providing food safety and security, product protection and equipment which allows our customers to automate, reduce waste, simplify processes, and remove people from harm's way. Sealed Air provides solutions integrating packaging materials, automated equipment, and service to provide essential protection for products and people. We are investing in innovations that bring the industry toward a more sustainable future. We have established leading market positions through our iconic brands, differentiated technologies, global scale and market access and well-established customer relationships. Our portfolio of leading packaging solutions includes Cryovac® brand food packaging, Sealed Air® brand protective packaging, Autobag® brand automated packaging systems, and Bubble Wrap® brand packaging.
We conduct substantially all of our business through two wholly-owned subsidiaries, Cryovac, LLC 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 statement of our Condensed Consolidated Balance Sheet as of September 30, 2020 and our Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019 have been made. The results set forth in our Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and in our Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the full year. The Condensed Consolidated Balance Sheet as of December 31, 2019 was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. 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. All amounts are in millions, except per share amounts, and approximate due to rounding. All amounts are presented in US Dollar, unless otherwise specified.
Our Condensed Consolidated Financial Statements were prepared in accordance with the interim reporting requirements of the 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, 2019 (“2019 Form 10-K”) and with the information contained in our other publicly-available filings with the SEC.
Starting in the second quarter 2020, we have renamed our reporting segments from Food Care to Food and from Product Care to Protective. This segment reporting name change aligns with our use internally and in the markets we serve. There has been no change in the composition of the segments and no impact on prior period results of our reporting segments.
Impact of Inflation and Currency Fluctuation
Argentina
Economic and political events in Argentina have continued to expose us to heightened levels of foreign currency exchange risk. As of July 1, 2018, Argentina was designated as a highly inflationary economy under U.S. GAAP, and the US dollar replaced the Argentine peso as the functional currency for our subsidiaries in Argentina. All Argentine peso-denominated
monetary assets and liabilities were remeasured into US dollars using the current exchange rate available to us, and any changes in the exchange rate are reflected in net foreign exchange transaction loss, within Foreign currency exchange loss due to highly inflationary economies on the Condensed Consolidated Statements of Operations. For the three and nine months ended September 30, 2020, the Company recorded a $1.1 million and $3.2 million remeasurement loss, respectively. For the three and nine months ended September 30, 2019, the Company recorded a $1.3 million and $3.4 million remeasurement loss, respectively.
Note 2 Recently Adopted and Issued Accounting Standards
Recently Adopted Accounting Standards
In March 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 provides optional guidance for a limited time to ease the potential burden in accounting for reference rate reform by providing expedients and exceptions related to accounting for contracts, hedging relationships and other transactions affected by reference rate reform, if certain criteria are met. The amendments only apply to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective upon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. This standard update did not have a material impact on the Company's Condensed Consolidated Financial Statements.
In April 2019, the FASB issued 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging and Topic 825, Financial Instruments, (“ASU 2019-04”). ASU 2019-04 provides updates and amendments to previously issued ASUs. The amendments clarify the scope of the credit losses standard and address issues related to accrued interest receivable balances, recoveries, variable interest rates and prepayments. Codification Improvements to Topic 326, Financial Instruments - Credit Losses were adopted as part of our adoption of ASU 2016-13 as of January 1, 2020. These amendments did not have a material impact on the Company's Condensed Consolidated Financial Statements. The amendments related to Derivatives and Hedging address partial-term fair value hedges and fair value hedge basis adjustments. Codification Improvements to Topic 815, Derivatives and Hedging were effective for us beginning July 1, 2019 and did not have a material impact on the Company's Condensed Consolidated Financial Statements. Amendments on Topic 825, Financial Instruments mainly address the scope of the guidance, the requirement for remeasurement under ASC 820 when using the measurement alternative, certain disclosure requirements and which equity securities have to be remeasured at historical exchange rates. We adopted the amendments related to Topic 825, Financial Instruments as of January 1, 2020 with no material impact on the Company's Condensed Consolidated Financial Statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). ASU 2018-15 amends Accounting Standards Codification (“ASC 350-40”) and aligns the accounting for costs incurred to implement a cloud computing arrangement that is a service contract with the guidance on capitalizing costs associated with developing or obtaining internal-use software. The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted ASU 2018-15 on January 1, 2020, using a prospective approach. The adoption did not have a material impact on the Company's Condensed Consolidated Financial Statements.
In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20), Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans (“ASU 2018-14”). ASU 2018-14 eliminates, adds and clarifies certain disclosure requirements related to defined benefit plans and other postretirement plans. The guidance is effective for fiscal years ending after December 15, 2020. We have adopted ASU 2018-14 for the year ending December 31, 2020, with no impact to our interim disclosures. Our adoption of ASU 2018-14 will only impact our annual disclosures related to Defined Benefit Plans and had no impact on the Company's Condensed Consolidated Financial Statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 amends the fair value measurement disclosure requirements of ASC 820, including new, eliminated and modified disclosure requirements. The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods therein. The Company adopted ASU 2018-13 on January 1, 2020. The adoption did not have an impact on the Company's Condensed Consolidated Financial Statements.
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”) and issued subsequent amendments to the initial guidance, collectively, Topic 326. 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. The Company adopted ASU 2016-13 on January 1, 2020. The Company adopted ASU 2016-13 using a modified retrospective approach which requires that the Company recognize the cumulative effect of the initial adoption, if any, as an adjustment to retained earnings. There was no cumulative gross-up or adjustment to our allowance for credit losses as a result of our adoption of ASU 2016-13. Based on financial instruments currently held by us, the adoption of ASU 2016-13 impacts our trade receivables, specifically our allowance for doubtful accounts. As part of our adoption of ASU 2016-13, we have expanded our disclosures related to credit losses. See Note 12, “Credit Losses,” to the Notes to Condensed Consolidated Financial Statements for additional information related to our credit losses.
Recently Issued Accounting Standards
In January 2020, the FASB issued ASU 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323) and Derivatives and Hedging (Topic 815) - Clarifying the Interactions Between Topic 321, Topic 323, and Topic 815 (“ASU 2020-01”). ASU 2020-01 makes improvements related to accounting for certain equity securities when the equity method of accounting is applied or discontinued and provides scope considerations related to forward contracts and purchased options on certain securities. The guidance is effective for fiscal years beginning after December 15, 2021 and interim periods within those fiscal years. We do not expect ASU 2020-01 to have a material impact on the Company's consolidated financial results.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 eliminates certain exceptions to the guidance in Topic 740 related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes, enacted change in tax laws or rates and clarifies the accounting transactions that result in a step-up in the tax basis of goodwill. The guidance is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. We do not expect ASU 2019-12 to have a material impact on the Company's consolidated financial results.
Note 3 Revenue Recognition, Contracts with Customers
Description of Revenue Generating Activities
We employ sales, marketing and customer service personnel throughout the world who sell and market our systems, products and services to and/or through a large number of distributors, fabricators, converters, e-Commerce and mail order fulfillment firms, and contract packaging firms as well as directly to end-users such as food processors, food service businesses, supermarket retailers, pharmaceutical companies, healthcare facilities, medical device manufacturers, and other manufacturers.
As discussed in Note 6, "Segments," of the Notes to Condensed Consolidated Financial Statements, our reporting segments are Food and Protective. Our Food applications are largely sold directly to end customers, while our Protective products are sold through business supply distributors and directly to the end customer.
Food:
Food largely serves perishable food processors, predominantly in fresh red meat, smoked and processed meats, poultry and dairy (solids and liquids) markets worldwide. Food offers integrated packaging materials and equipment solutions to increase food safety, extend shelf life, and optimize total cost. Its innovative, sustainable packaging enables customers to reduce costs and enhance their brands in the marketplace. Food solutions are marketed under the Cryovac® trademark and other highly recognized trade names including Cryovac Grip & Tear®, Cryovac Darfresh®, Cryovac Mirabella®, Simple Steps® and OptiDure™.
Protective:
Protective packaging solutions are utilized across many global markets and are especially valuable to e-Commerce, electronics and industrial manufacturing. Protective solutions are designed to protect valuable goods in shipping, and drive
operational excellence and automation for our customers, increasing their order fulfillment velocity while minimizing material usage, dimensional weight and packaging labor requirements. Recent acquisitions in Protective include Automated Packaging Systems, LLC (“Automated”) in 2019.
Protective benefits from the continued expansion of e-Commerce, increasing freight costs, scarcity of labor, and increasing demand for more sustainable packaging. Protective solutions are both sold directly to key accounts and through an extensive network of distributors that service business/industrial end-users. Protective solutions are additionally sold directly to fabricators, original equipment manufacturers, contract manufacturers, third-party logistics partners, e-Commerce/fulfillment operations, and at various retail centers. Protective solutions are marketed under brands including Bubble Wrap® brand inflatable packaging, Sealed Air® brand performance shrink films and Autobag® brand bagging systems. Protective product families include additional tradenames such as Instapak® polyurethane foam packaging solutions and Korrvu® suspension and retention packaging. In addition, we provide temperature assurance packaging solutions under the KevothermalTM and TempGuardTM brands.
Identify Contract with Customer:
For Sealed Air, the determination of whether an arrangement meets the definition of a contract under ASC 606 (“Topic 606”) depends on whether it creates enforceable rights and obligations. While enforceability is a matter of law, we believe that enforceable rights and obligations in a contract must be substantive in order for the contract to be in scope of Topic 606. That is, the penalty for noncompliance must be significant relative to the minimum obligation. Fixed or minimum purchase obligations with penalties for noncompliance are the most common examples of substantive enforceable rights present in our contracts. We determined that the contract term is the period of enforceability outlined by the terms of the contract. This means that in many cases, the term stated in the contract is different than the period of enforceability. After the minimum purchase obligation is met, subsequent sales are treated as separate contracts on a purchase order by purchase order basis. If no minimum purchase obligation exists, the next level of enforceability is determined, which often represents the individual purchase orders and the agreed upon terms.
Performance Obligations:
The most common goods and services determined to be distinct performance obligations are materials, equipment sales, and maintenance. Free on loan and leased equipment is typically identified as a separate lease component within the scope of ASC 842. The other goods or services promised in the contract with the customer in most cases do not represent performance obligations because they are neither separate nor distinct, or they are not material in the context of the contract.
Transaction Price and Variable Consideration:
Sealed Air has many forms of variable consideration present in its contracts with customers, including rebates and other discounts. Sealed Air estimates variable consideration using either the expected value method or the most likely amount method as described in the standard. We include in the transaction price some or all of an amount of variable consideration estimated to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
For all contracts that contain a form of variable consideration, Sealed Air estimates at contract inception, and periodically throughout the term of the contract, what volume of goods and/or services the customer will purchase in a given period and determines how much consideration is payable to the customer or how much consideration Sealed Air would be able to recover from the customer based on the structure of the type of variable consideration. In most cases the variable consideration in contracts with customers results in amounts payable to the customer by Sealed Air. Sealed Air adjusts the contract transaction price based on any changes in estimates each reporting period and performs an inception to date cumulative adjustment to the amount of revenue previously recognized. When the contract with a customer contains a minimum purchase obligation, Sealed Air only has enforceable rights to the amount of consideration promised in the minimum purchase obligation through the enforceable term of the contract. This amount of consideration, plus any variable consideration, makes up the transaction price for the contract.
Charges for rebates and other allowances are recognized as a deduction from revenue on an accrual basis in the period in which the associated revenue is recorded. When we estimate our rebate accruals, we consider customer-specific contractual commitments including stated rebate rates and history of actual rebates paid. Our rebate accruals are reviewed at each reporting period and adjusted to reflect data available at that time. We adjust the accruals to reflect any differences between estimated and actual amounts. These adjustments of transaction price impact the amount of net sales recognized by us in the period of adjustment. Revenue recognized for the three and nine months ended September 30, 2020 from performance obligations
satisfied in previous reporting periods was $1.6 million and $3.8 million, respectively, and $2.2 million and $4.0 million for the three and nine months ended September 30, 2019, respectively.
The Company does not adjust consideration in contracts with customers for the effects of a significant financing component if the Company expects that the period between transfer of a good or service and payment for that good or service will be one year or less. This is expected to be the case for the majority of the Company's contracts.
Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net sales on the Condensed Consolidated Statements of Operations.
Allocation of Transaction Price:
Sealed Air determines the standalone selling price for a performance obligation by first looking for observable selling prices of that performance obligation sold on a standalone basis. If an observable price is not available, we estimate the standalone selling price of the performance obligation using one of the three suggested methods in the following order of preference: adjusted market assessment approach, expected cost plus a margin approach, and residual approach.
Sealed Air often offers rebates to customers in their contracts that are related to the amount of materials purchased. We believe that this form of variable consideration should only be allocated to materials because the entire amount of variable consideration relates to the customer’s purchase of and Sealed Air’s efforts to provide materials. Additionally, Sealed Air has many contracts that have pricing tied to third-party indices. We believe that variability from index-based pricing should be allocated specifically to materials because the pricing formulas in these contracts are related to the cost to produce materials.
Transfer of Control:
Revenue is recognized upon transfer of control to the customer. Revenue for materials and equipment sales is recognized based on shipping terms, which is the point in time the customer obtains control of the promised goods. Maintenance revenue is recognized straight-line on the basis that the level of effort is consistent over the term of the contract. Lease components within contracts with customers are recognized in accordance with Topic 842.
Disaggregated Revenue
For the three and nine months ended September 30, 2020 and 2019, revenues from contracts with customers summarized by Segment Geography were as follows:
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Three Months Ended September 30, 2020
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(In millions)
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Food
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Protective
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Total
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North America
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$
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398.3
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$
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342.3
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$
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740.6
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EMEA
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154.2
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100.9
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255.1
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APAC
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102.4
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83.8
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186.2
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South America
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44.9
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3.9
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48.8
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Topic 606 Segment Revenue
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699.8
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530.9
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1,230.7
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Non-Topic 606 Revenue (Leasing: Sales-type and Operating)
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4.8
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1.7
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6.5
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Total
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$
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704.6
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$
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532.6
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$
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1,237.2
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Nine Months Ended September 30, 2020
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(In millions)
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Food
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Protective
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Total
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North America
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$
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1,178.7
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$
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959.7
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$
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2,138.4
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EMEA
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446.1
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292.3
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738.4
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APAC
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288.6
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227.6
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516.2
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South America
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139.6
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10.0
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149.6
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Topic 606 Segment Revenue
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2,053.0
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1,489.6
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3,542.6
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Non-Topic 606 Revenue (Leasing: Sales-type and Operating)
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15.1
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4.6
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19.7
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Total
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$
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2,068.1
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$
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1,494.2
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$
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3,562.3
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Three Months Ended September 30, 2019
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(In millions)
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Food
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Protective
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Total
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North America
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$
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415.3
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$
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310.1
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$
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725.4
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EMEA
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152.8
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96.3
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249.1
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APAC
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102.6
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76.4
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179.0
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South America
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53.7
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4.5
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58.2
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Topic 606 Segment Revenue
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724.4
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487.3
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1,211.7
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Non-Topic 606 Revenue (Leasing: Sales-type and Operating)
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5.2
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1.6
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6.8
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Total
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$
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729.6
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$
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488.9
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$
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1,218.5
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Nine Months Ended September 30, 2019
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(In millions)
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Food
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Protective
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Total
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North America
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$
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1,199.2
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$
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858.8
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$
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2,058.0
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EMEA
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449.5
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279.3
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728.8
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APAC
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301.3
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216.2
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517.5
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South America
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156.6
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12.4
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169.0
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Topic 606 Segment Revenue
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2,106.6
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1,366.7
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3,473.3
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Non-Topic 606 Revenue (Leasing: Sales-type and Operating)
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14.0
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4.9
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18.9
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Total
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$
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2,120.6
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$
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1,371.6
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$
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3,492.2
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Contract Balances
The time between when a performance obligation is satisfied and when billing and payment occur is closely aligned, with the exception of equipment accruals. An equipment accrual is a contract offering, whereby a customer is incentivized to use a portion of the materials transaction price for future equipment purchases. Long-term contracts that include an equipment accrual create a timing difference between when cash is collected and when the performance obligation is satisfied, resulting in a contract liability (unearned revenue). Contract liabilities arising from contracts with customers as of September 30, 2020 and December 31, 2019 were included within the following line items on our Condensed Consolidated Balance Sheets:
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(In millions)
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September 30, 2020
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December 31, 2019
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Other current liabilities
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7.0
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6.2
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Other non-current liabilities
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14.6
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10.5
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Total contract liabilities
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$
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21.6
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$
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16.7
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The contract liability balances represent deferred revenue, primarily related to equipment accruals. Revenue recognized in the three and nine months ended September 30, 2020 that was included in contract liability balances at the beginning of the period was $2.8 million and $8.1 million, respectively, and $2.9 million and $4.6 million in the three and nine months ended September 30, 2019, respectively. This revenue was driven primarily by equipment performance obligations being satisfied.
There were $0.1 million and no contract asset balances included within prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019, respectively.
Remaining Performance Obligations
The following table summarizes the estimated transaction price from contracts with customers allocated to performance obligations or portions of performance obligations that have not yet been satisfied as of September 30, 2020, as well as the expected timing of recognition of that transaction price.
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(In millions)
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Short-Term
(12 months or less)(1)
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Long-Term
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Total
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Total transaction price
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$
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7.0
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$
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14.6
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$
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21.6
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(1) Our enforceable contractual obligations tend to be short term in nature. The table above does not include the transaction price of any remaining performance obligations that are part of the contracts with expected durations of one year or less.
Assets recognized for the costs to obtain or fulfill a contract
The Company recognizes incremental costs to fulfill a contract as an asset if such incremental costs are expected to be recovered, relate directly to a contract or anticipated contract, and generate or enhance resources that will be used to satisfy performance obligations in the future.
The Company recognizes incremental costs to obtain a contract as an expense when incurred if the amortization period of the asset that otherwise would have been recognized is one year or less. For example, the Company generally expenses sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within selling, general and administrative expenses.
Costs for shipping and handling activities performed after a customer obtains control of a good are accounted for as costs to fulfill a contract and are included in cost of goods sold.
Note 4 Leases
Lessor
Sealed Air has contractual obligations as a lessor with respect to some of our automated and equipment solutions including 'free on loan' equipment and leased equipment, both sales-type and operating. The consideration in a contract that contains both lease and non-lease components is allocated based on the standalone selling price.
Our contractual obligations for operating leases can include termination and renewal options. Our contractual obligations for sales-type leases tend to have fixed terms and can include purchase options. We utilize the reasonably certain threshold criteria in determining which options our customers will exercise.
All lease payments are primarily fixed in nature and therefore captured in the lease receivable. Our lease receivable balance at September 30, 2020 was:
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(in millions)
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Short-Term
(12 months or less)
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Long-Term
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Total
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Total lease receivable (Sales-type and Operating)
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$
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5.5
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$
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10.5
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$
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16.0
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Lessee
Sealed Air has contractual obligations as a lessee with respect to warehouses, offices, manufacturing facilities, IT equipment, automobiles, and material production equipment.
Under the leasing standard, ASC 842, leases that are more than one year in duration are capitalized and recorded on the balance sheet. Some of our leases, namely for automobiles and real estate, offer an option to extend the term of such leases. We utilize the reasonably certain threshold criteria in determining which options we will exercise. Furthermore, some of our lease payments are based on index rates with minimum annual increases. These represent fixed payments and are captured in the future minimum lease payments calculation.
In determining the discount rate to use in calculating the present value of lease payments, we estimate the rate of interest we would pay on a collateralized loan with the same payment terms as the lease by utilizing our bond yields traded in the secondary market to determine the estimated cost of funds for the particular tenor. We update our assumptions and discount rates on a quarterly basis.
We utilize the short-term lease recognition exemption for all asset classes as part of our on-going accounting under ASC 842. This means, for those leases that qualify, we will not recognize right of use (“ROU”) assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets. We have also elected the practical expedient to not separate lease and non-lease components for all asset classes, meaning all consideration that is fixed, or in-substance fixed, will be captured as part of our lease components for balance sheet purposes. Furthermore, all variable payments included in lease agreements will be disclosed as variable lease expense when incurred. Generally, variable lease payments are based on usage and common area maintenance. These payments will be included as variable lease expense when recognized.
The following table details our lease obligations included in our Condensed Consolidated Balance Sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
September 30, 2020
|
|
December 31, 2019
|
Other non-current assets:
|
|
|
|
|
Finance leases - ROU assets
|
|
$
|
58.9
|
|
|
$
|
54.8
|
|
Finance leases - Accumulated depreciation
|
|
(22.5)
|
|
|
(15.0)
|
|
Operating lease right-of-use-assets:
|
|
|
|
|
Operating leases - ROU assets
|
|
121.2
|
|
|
118.8
|
|
Operating leases - Accumulated depreciation
|
|
(43.9)
|
|
|
(28.7)
|
|
Total lease assets
|
|
$
|
113.7
|
|
|
$
|
129.9
|
|
Current portion of long-term debt:
|
|
|
|
|
Finance leases
|
|
$
|
(10.0)
|
|
|
(10.4)
|
|
Current portion of operating lease liabilities:
|
|
|
|
|
Operating leases
|
|
(24.3)
|
|
|
(26.2)
|
|
Long-term debt, less current portion:
|
|
|
|
|
Finance leases
|
|
(25.3)
|
|
|
(28.7)
|
|
Long-term operating lease liabilities, less current portion:
|
|
|
|
|
Operating leases
|
|
(54.5)
|
|
|
(65.7)
|
|
Total lease liabilities
|
|
$
|
(114.1)
|
|
|
$
|
(131.0)
|
|
At September 30, 2020, estimated future minimum annual rental commitments under non-cancelable real and personal property leases were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Operating leases
|
|
Finance leases
|
Remainder of 2020
|
|
$
|
7.6
|
|
|
$
|
3.3
|
|
2021
|
|
26.0
|
|
|
11.9
|
|
2022
|
|
18.5
|
|
|
7.4
|
|
2023
|
|
12.7
|
|
|
3.8
|
|
2024
|
|
8.3
|
|
|
2.1
|
|
Thereafter
|
|
16.4
|
|
|
13.5
|
|
Total lease payments
|
|
89.5
|
|
|
42.0
|
|
Less: Interest
|
|
(10.7)
|
|
|
(6.7)
|
|
Present value of lease liabilities
|
|
$
|
78.8
|
|
|
$
|
35.3
|
|
The following lease cost is included in our Condensed Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(in millions)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Lease cost(1)
|
|
|
|
|
|
|
|
Finance leases
|
|
|
|
|
|
|
|
Amortization of ROU assets
|
$
|
2.6
|
|
|
$
|
2.4
|
|
|
$
|
8.1
|
|
|
$
|
6.5
|
|
Interest on lease liabilities
|
0.5
|
|
|
0.5
|
|
|
1.4
|
|
|
1.5
|
|
Operating leases
|
7.1
|
|
|
7.4
|
|
|
23.0
|
|
|
23.7
|
|
Short-term lease cost
|
1.0
|
|
|
2.0
|
|
|
2.7
|
|
|
3.9
|
|
Variable lease cost
|
1.3
|
|
|
1.6
|
|
|
4.1
|
|
|
4.7
|
|
Total lease cost
|
$
|
12.5
|
|
|
$
|
13.9
|
|
|
$
|
39.3
|
|
|
$
|
40.3
|
|
(1) With the exception of Interest on lease liabilities, we record lease costs to Cost of sales or Selling, general and administrative expenses on the Condensed Consolidated Statements of Operations, depending on the use of the leased asset. Interest on lease liabilities is recorded to Interest expense, net on the Condensed Consolidated Statements of Operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
(in millions)
|
|
2020
|
|
2019
|
Other information:
|
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flows - finance leases
|
|
$
|
3.3
|
|
|
$
|
3.9
|
|
Operating cash flows - operating leases
|
|
$
|
23.9
|
|
|
$
|
26.1
|
|
Financing cash flows - finance leases
|
|
$
|
8.7
|
|
|
$
|
6.5
|
|
|
|
|
|
|
ROU assets obtained in exchange for new finance lease liabilities
|
|
$
|
5.3
|
|
|
$
|
19.6
|
|
ROU assets obtained in exchange for new operating lease liabilities
|
|
$
|
9.6
|
|
|
$
|
14.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
2020
|
|
2019
|
Weighted average information:
|
|
|
|
|
Finance leases
|
|
|
|
|
Remaining lease term (in years)
|
|
6.1
|
|
6.4
|
Discount rate
|
|
4.8
|
%
|
|
5.0
|
%
|
Operating leases
|
|
|
|
|
Remaining lease term (in years)
|
|
4.7
|
|
4.9
|
Discount rate
|
|
5.1
|
%
|
|
5.4
|
%
|
Note 5 Acquisitions
Acquisitions
Automated Packaging Systems, LLC
On August 1, 2019 the Company acquired 100% of the limited liability company interest in Automated Packaging Systems, LLC, formerly, Automated Packaging Systems, Inc. (“Automated”), a manufacturer of automated bagging systems.
The acquisition is included in our Protective reporting segment. Automated offers opportunities to expand the Company's automated solutions and into adjacent markets.
Cash paid for Automated was $441.4 million. The opening balance sheet includes $58.2 million of assumed liabilities in connection with a deferred incentive compensation plan for Automated's European employees. Of this amount, $19.0 million and $19.7 million were paid during the nine months ending September 30, 2020 and the fourth quarter of 2019, respectively. Sealed Air is expected to make the remaining payment to the deferred incentive compensation plan participants in June 2021.
The purchase price was primarily funded with proceeds from the incremental term facility provided for under an amendment to our Credit Facility, as described in Note 14, "Debt and Credit Facilities," of the Notes to Condensed Consolidated Financial Statements. For the nine months ended September 30, 2020, transaction expenses recognized for the Automated acquisition were $0.3 million. These expenses primarily relate to the first quarter purchase price adjustment and are included within selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.
The following table summarizes the consideration transferred to acquire Automated and the allocation of purchase price among the assets acquired and liabilities assumed, including measurement period adjustments recorded through the finalized purchase price allocation on August 1, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revised Preliminary Allocation
|
|
Measurement Period
|
|
Final Allocation
|
(In millions)
|
|
As of August 1, 2019
|
|
Adjustments
|
|
As of September 30, 2020
|
Total consideration transferred
|
|
$
|
445.7
|
|
|
$
|
(4.3)
|
|
|
$
|
441.4
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
16.0
|
|
|
(0.2)
|
|
|
15.8
|
|
Trade receivables, net
|
|
37.3
|
|
|
—
|
|
|
37.3
|
|
Other receivables
|
|
0.3
|
|
|
—
|
|
|
0.3
|
|
Inventories, net
|
|
40.7
|
|
|
(0.7)
|
|
|
40.0
|
|
Prepaid expenses and other current assets
|
|
2.3
|
|
|
—
|
|
|
2.3
|
|
Property and equipment, net(1)
|
|
76.9
|
|
|
8.7
|
|
|
85.6
|
|
Identifiable intangible assets, net(1)
|
|
81.1
|
|
|
(0.6)
|
|
|
80.5
|
|
Goodwill
|
|
261.3
|
|
|
(14.6)
|
|
|
246.7
|
|
Operating lease right-of-use-assets
|
|
—
|
|
|
4.3
|
|
|
4.3
|
|
Other non-current assets
|
|
24.7
|
|
|
1.1
|
|
|
25.8
|
|
Total assets
|
|
$
|
540.6
|
|
|
$
|
(2.0)
|
|
|
$
|
538.6
|
|
Liabilities:
|
|
|
|
|
|
|
Accounts payable
|
|
12.0
|
|
|
—
|
|
|
12.0
|
|
Current portion of long-term debt
|
|
2.6
|
|
|
(0.5)
|
|
|
2.1
|
|
Current portion of operating lease liabilities
|
|
—
|
|
|
1.5
|
|
|
1.5
|
|
|
|
|
|
|
|
|
Other current liabilities
|
|
56.2
|
|
|
(3.3)
|
|
|
52.9
|
|
Long-term debt, less current portion
|
|
4.3
|
|
|
(0.3)
|
|
|
4.0
|
|
Long-term operating lease liabilities, less current portion
|
|
—
|
|
|
2.8
|
|
|
2.8
|
|
Deferred taxes
|
|
—
|
|
|
0.5
|
|
|
0.5
|
|
Other non-current liabilities
|
|
19.8
|
|
|
1.6
|
|
|
21.4
|
|
Total liabilities
|
|
$
|
94.9
|
|
|
$
|
2.3
|
|
|
$
|
97.2
|
|
(1)In the Preliminary Allocation as of August 1, 2019, $2.4 million of software was initially recorded as computer hardware within Property and equipment, net as disclosed in the 2019 Form 10-K. The asset represents software acquired and has been reclassified in identifiable intangible assets, net within Revised Preliminary Allocation in the table above.
Measurement period adjustments recorded in the current year through finalization of the purchase price allocation on August 1, 2020 were primarily a result of the deferred incentive compensation payment adjustment and a favorable net working capital and purchase price settlement with the seller of $4.3 million during the first quarter.
The following table summarizes the acquired identifiable intangible assets, net and their useful lives.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
Useful life
|
|
|
(in millions)
|
|
(in years)
|
Customer relationships
|
|
$
|
28.9
|
|
|
13.0
|
Trademarks and tradenames
|
|
15.6
|
|
|
9.1
|
Capitalized software
|
|
2.4
|
|
|
3.0
|
Technology
|
|
29.6
|
|
|
6.4
|
Backlog
|
|
4.0
|
|
|
0.4
|
Total intangible assets with definite lives
|
|
$
|
80.5
|
|
|
|
Goodwill is a result of the expected synergies and cross-selling opportunities that this acquisition is expected to bring to the Company, as well as the expected growth potential in the acquired automated and sustainable solutions. Goodwill allocated to Automated's U.S. entities is deductible for tax purposes. Goodwill allocated to Automated's foreign entities is not deductible for tax purposes. The goodwill balance has been recorded to the Protective reportable segment.
Other non-current assets include the net overfunded position of a closed defined benefit pension plan in the United Kingdom. Refer to Note 17, "Defined Benefit Pension Plans and Other Post-Employment Benefit Plans," of the Notes to Condensed Consolidated Financial Statements for additional information on the Company's other defined benefit pension plans.
In conjunction with the acquisition and subsequent integration, the Company expects to incur restructuring charges. No restructuring accrual is included in our opening balance sheet as the liability did not exist at the time of acquisition. Refer to Note 13, "Restructuring Activities," of the Notes to Condensed Consolidated Financial Statements for more detail on the Company's restructuring activity.
The inclusion of Automated in our consolidated financial statements is not deemed material with respect to the requirement to provide pro forma results of operations in ASC 805. As such, pro forma information is not presented.
Other 2019 Acquisition Activity
During the second quarter of 2019, Food had acquisition activity resulting in a total purchase price paid of $23.4 million. The Company allocated the consideration transferred to the fair value of assets acquired and liabilities assumed, resulting in an allocation to goodwill of $6.0 million. The final purchase price adjustments resulting in an increase to goodwill of $0.3 million were recorded in the third quarter of 2019. Identifiable intangible assets acquired were not material.
Note 6 Segments
The Company’s segment reporting structure consists of two reportable segments as follows and a Corporate category:
•Food; and
•Protective.
Starting in the second quarter of 2020, we renamed our reporting segments from Food Care to Food and from Product Care to Protective. This segment reporting name change aligns with our use internally and in the markets we serve. There has been no change in the composition of the segments and no impact on prior period results of our reportable segments.
The Company’s Food and Protective segments are considered reportable segments under FASB ASC Topic 280. Our reportable segments are aligned with similar groups of products. Corporate includes certain costs that are not allocated to the reportable segments. The Company evaluates performance of the reportable segments based on the results of each segment. The performance metric used by the Company's chief operating decision maker to evaluate performance of our reportable segments is Adjusted EBITDA. The Company allocates expense to each segment based on various factors including direct usage of resources, allocation of headcount, allocation of software licenses or, in cases where costs are not clearly delineated, costs may be allocated on portion of either net trade sales or an expense factor such as cost of goods sold.
We allocate and disclose depreciation and amortization expense to our segments, although depreciation and amortization are not included in the segment performance metric Adjusted EBITDA. We also allocate and disclose restructuring charges and impairment of goodwill and other intangible assets by segment, although they are not included in the segment performance metric Adjusted EBITDA since restructuring charges and impairment of goodwill and other intangible assets are categorized as Special Items. The accounting policies of the reportable segments and Corporate are the same as those applied to the Consolidated Financial Statements.
The following tables show Net Sales and Adjusted EBITDA by reportable segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(In millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Net Sales:
|
|
|
|
|
|
|
|
|
Food
|
|
$
|
704.6
|
|
|
$
|
729.6
|
|
|
$
|
2,068.1
|
|
|
$
|
2,120.6
|
|
As a % of Total Company net sales
|
|
57.0
|
%
|
|
59.9
|
%
|
|
58.1
|
%
|
|
60.7
|
%
|
Protective
|
|
532.6
|
|
|
488.9
|
|
|
1,494.2
|
|
|
1,371.6
|
|
As a % of Total Company net sales
|
|
43.0
|
%
|
|
40.1
|
%
|
|
41.9
|
%
|
|
39.3
|
%
|
Total Company Net Sales
|
|
$
|
1,237.2
|
|
|
$
|
1,218.5
|
|
|
$
|
3,562.3
|
|
|
$
|
3,492.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(In millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Adjusted EBITDA from continuing operations
|
|
|
|
|
|
|
|
|
Food
|
|
$
|
152.4
|
|
|
$
|
159.6
|
|
|
$
|
477.8
|
|
|
$
|
458.1
|
|
Adjusted EBITDA Margin
|
|
21.6
|
%
|
|
21.9
|
%
|
|
23.1
|
%
|
|
21.6
|
%
|
Protective
|
|
108.7
|
|
|
84.0
|
|
|
293.0
|
|
|
243.0
|
|
Adjusted EBITDA Margin
|
|
20.4
|
%
|
|
17.2
|
%
|
|
19.6
|
%
|
|
17.7
|
%
|
Corporate
|
|
(1.8)
|
|
|
(2.5)
|
|
|
1.6
|
|
|
(7.5)
|
|
Total Company Adjusted EBITDA from continuing operations
|
|
$
|
259.3
|
|
|
$
|
241.1
|
|
|
$
|
772.4
|
|
|
$
|
693.6
|
|
Adjusted EBITDA Margin
|
|
21.0
|
%
|
|
19.8
|
%
|
|
21.7
|
%
|
|
19.9
|
%
|
The following table shows a reconciliation of net earnings before income tax provision to Total Company Adjusted EBITDA from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(In millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Earnings before income tax provision
|
|
$
|
149.2
|
|
|
$
|
102.3
|
|
|
$
|
441.3
|
|
|
$
|
234.8
|
|
Interest expense, net
|
|
43.0
|
|
|
48.5
|
|
|
130.7
|
|
|
136.6
|
|
Depreciation and amortization, net of adjustments(1)
|
|
56.2
|
|
|
53.2
|
|
|
161.1
|
|
|
131.4
|
|
Special Items:
|
|
|
|
|
|
|
|
|
Restructuring charges(2)
|
|
1.0
|
|
|
6.9
|
|
|
11.7
|
|
|
43.6
|
|
Other restructuring associated costs(3)
|
|
7.2
|
|
|
12.8
|
|
|
15.0
|
|
|
50.8
|
|
Foreign currency exchange loss due to highly inflationary economies
|
|
1.1
|
|
|
1.3
|
|
|
3.2
|
|
|
3.4
|
|
|
|
|
|
|
|
|
|
|
Charges related to the Novipax settlement agreement
|
|
—
|
|
|
—
|
|
|
—
|
|
|
59.0
|
|
Charges related to acquisition and divestiture activity
|
|
1.0
|
|
|
6.0
|
|
|
5.1
|
|
|
9.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Special Items(4)
|
|
0.6
|
|
|
10.1
|
|
|
4.3
|
|
|
24.8
|
|
Pre-tax impact of Special Items
|
|
10.9
|
|
|
37.1
|
|
|
39.3
|
|
|
190.8
|
|
Total Company Adjusted EBITDA from continuing operations
|
|
$
|
259.3
|
|
|
$
|
241.1
|
|
|
$
|
772.4
|
|
|
$
|
693.6
|
|
(1)Depreciation and amortization by segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(In millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Food
|
|
$
|
31.7
|
|
|
$
|
30.6
|
|
|
$
|
90.9
|
|
|
$
|
81.8
|
|
Protective
|
|
24.5
|
|
|
22.7
|
|
|
70.2
|
|
|
50.7
|
|
|
|
|
|
|
|
|
|
|
Total Company depreciation and amortization(i)
|
|
$
|
56.2
|
|
|
$
|
53.3
|
|
|
$
|
161.1
|
|
|
$
|
132.5
|
|
Depreciation and amortization adjustments
|
|
—
|
|
|
(0.1)
|
|
|
—
|
|
|
(1.1)
|
|
Depreciation and amortization, net of adjustments
|
|
$
|
56.2
|
|
|
$
|
53.2
|
|
|
$
|
161.1
|
|
|
$
|
131.4
|
|
(i) Includes share-based incentive compensation of $12.3 million and $31.3 million for the three and nine months ended September 30, 2020, respectively, and $12.0 million and $25.2 million for the three and nine months ended September 30, 2019, respectively.
(2)Restructuring charges by segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(In millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Food
|
|
$
|
(1.4)
|
|
|
$
|
3.9
|
|
|
$
|
3.8
|
|
|
$
|
26.3
|
|
Protective
|
|
2.4
|
|
|
3.0
|
|
|
7.9
|
|
|
17.3
|
|
Total Company restructuring charges
|
|
$
|
1.0
|
|
|
$
|
6.9
|
|
|
$
|
11.7
|
|
|
$
|
43.6
|
|
(3)Other restructuring associated costs for the three and nine months ended September 30, 2020 primarily relate to fees paid to third-party consultants in support of Reinvent SEE. Other restructuring associated costs for the three and nine months ended September 30, 2019 primarily relate to fees paid to third-party consultants in support of Reinvent SEE and costs associated with property consolidations and machinery and equipment relocations resulting from Reinvent SEE. See Note 13, "Restructuring Activities," to the Condensed Consolidated Financial Statements for additional information related to Reinvent SEE and our restructuring program.
(4)Other Special Items for the three and nine months ended September 30, 2019, primarily included fees related to professional services (mainly legal fees) directly associated with Special Items or events that are considered one-time or infrequent.
Assets by Reportable Segments
The following table shows assets allocated by reportable segment. Assets allocated by reportable segment include: trade receivables, net; inventory, net; property and equipment, net; goodwill; intangible assets, net; and leased systems, net.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
September 30, 2020
|
|
December 31, 2019
|
Assets allocated to segments:
|
|
|
|
|
Food
|
|
$
|
2,025.5
|
|
|
$
|
1,997.8
|
|
Protective
|
|
2,790.1
|
|
|
2,762.9
|
|
Total segments
|
|
4,815.6
|
|
|
4,760.7
|
|
Assets not allocated:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
316.8
|
|
|
$
|
262.4
|
|
Assets held for sale
|
|
0.7
|
|
|
2.8
|
|
Income tax receivables
|
|
15.2
|
|
|
32.8
|
|
Other receivables
|
|
65.9
|
|
|
80.3
|
|
Deferred taxes
|
|
246.3
|
|
|
238.6
|
|
Other
|
|
367.7
|
|
|
387.6
|
|
Total
|
|
$
|
5,828.2
|
|
|
$
|
5,765.2
|
|
Note 7 Inventories, net
The following table details our inventories, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
September 30, 2020
|
|
December 31, 2019
|
Raw materials
|
|
$
|
111.5
|
|
|
$
|
99.2
|
|
Work in process
|
|
147.2
|
|
|
136.2
|
|
Finished goods
|
|
372.2
|
|
|
334.9
|
|
Total
|
|
$
|
630.9
|
|
|
$
|
570.3
|
|
Note 8 Property and Equipment, net
The following table details our property and equipment, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
September 30, 2020
|
|
December 31, 2019
|
Land and improvements
|
|
$
|
49.4
|
|
|
$
|
50.7
|
|
Buildings
|
|
764.9
|
|
|
747.0
|
|
Machinery and equipment
|
|
2,498.4
|
|
|
2,453.2
|
|
Other property and equipment
|
|
138.8
|
|
|
141.3
|
|
Construction-in-progress
|
|
122.6
|
|
|
127.9
|
|
Property and equipment, gross
|
|
3,574.1
|
|
|
3,520.1
|
|
Accumulated depreciation and amortization
|
|
(2,437.7)
|
|
|
(2,378.2)
|
|
Property and equipment, net
|
|
$
|
1,136.4
|
|
|
$
|
1,141.9
|
|
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)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Interest cost capitalized
|
|
$
|
1.2
|
|
|
$
|
2.5
|
|
|
$
|
4.4
|
|
|
$
|
6.4
|
|
Depreciation and amortization expense for property and equipment
|
|
$
|
34.2
|
|
|
$
|
31.7
|
|
|
$
|
101.8
|
|
|
$
|
88.7
|
|
Note 9 Goodwill and Identifiable Intangible Assets, net
Goodwill
The following table shows our goodwill balances by reportable segment. 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, 2020, we did not identify any changes in circumstances that would indicate the carrying value of goodwill may not be recoverable. As part of our on-going assessment of goodwill impairment considerations, the Company considered the impact that COVID-19 has had on the overall economic environment, more specifically on the markets in which our products are sold. The Company does not believe the COVID-19 pandemic has had a material negative impact on our business to date, nor has it triggered a need to perform a quantitative impairment test on our goodwill balances. The assessment is based on the significant headroom of the reporting units' calculated fair value over their carrying value as of our most recent annual test and after consideration of the Company's year-to-date financial results and expected long-term financial performance. We will continue to assess COVID-19's impact on our business, including any indicators of goodwill impairment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Food
|
|
Protective
|
|
Total
|
Gross Carrying Value at December 31, 2019
|
|
$
|
577.2
|
|
|
$
|
1,830.0
|
|
|
$
|
2,407.2
|
|
Accumulated impairment(1)
|
|
(49.3)
|
|
|
(141.0)
|
|
|
(190.3)
|
|
Carrying Value at December 31, 2019
|
|
$
|
527.9
|
|
|
$
|
1,689.0
|
|
|
$
|
2,216.9
|
|
Acquisition, purchase price and other adjustments
|
|
—
|
|
|
(5.0)
|
|
|
(5.0)
|
|
Currency translation
|
|
(4.4)
|
|
|
0.2
|
|
|
(4.2)
|
|
|
|
|
|
|
|
|
Carrying Value at September 30, 2020
|
|
$
|
523.5
|
|
|
$
|
1,684.2
|
|
|
$
|
2,207.7
|
|
(1)There was no change to our accumulated impairment balance during the nine months ended September 30, 2020.
Identifiable Intangible Assets, net
The following tables summarize our identifiable intangible assets, net. As of September 30, 2020, there were no impairment indicators present.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
(In millions)
|
Gross
Carrying Value
|
|
Accumulated Amortization
|
|
|
|
Net
|
|
Gross
Carrying Value
|
|
Accumulated Amortization
|
|
|
|
Net
|
Customer relationships
|
$
|
102.0
|
|
|
$
|
(34.9)
|
|
|
|
|
$
|
67.1
|
|
|
$
|
102.0
|
|
|
$
|
(30.5)
|
|
|
|
|
$
|
71.5
|
|
Trademarks and tradenames
|
30.9
|
|
|
(7.5)
|
|
|
|
|
23.4
|
|
|
31.1
|
|
|
(4.3)
|
|
|
|
|
26.8
|
|
Software
|
109.3
|
|
|
(78.7)
|
|
|
|
|
30.6
|
|
|
95.3
|
|
|
(62.8)
|
|
|
|
|
32.5
|
|
Technology
|
67.0
|
|
|
(32.1)
|
|
|
|
|
34.9
|
|
|
66.8
|
|
|
(27.2)
|
|
|
|
|
39.6
|
|
Contracts
|
13.5
|
|
|
(10.8)
|
|
|
|
|
2.7
|
|
|
13.2
|
|
|
(10.4)
|
|
|
|
|
2.8
|
|
Total intangible assets with definite lives
|
322.7
|
|
|
(164.0)
|
|
|
|
|
158.7
|
|
|
308.4
|
|
|
(135.2)
|
|
|
|
|
173.2
|
|
Trademarks and tradenames with indefinite lives
|
8.9
|
|
|
—
|
|
|
|
|
8.9
|
|
|
8.9
|
|
|
—
|
|
|
|
|
8.9
|
|
Total identifiable intangible assets, net
|
$
|
331.6
|
|
|
$
|
(164.0)
|
|
|
|
|
$
|
167.6
|
|
|
$
|
317.3
|
|
|
$
|
(135.2)
|
|
|
|
|
$
|
182.1
|
|
The following table shows the remaining estimated future amortization expense at September 30, 2020.
|
|
|
|
|
|
|
|
|
Year
|
|
Amount
(in millions)
|
Remainder of 2020
|
|
$
|
12.2
|
|
2021
|
|
29.9
|
|
2022
|
|
22.2
|
|
2023
|
|
15.9
|
|
2024
|
|
14.1
|
|
Thereafter
|
|
64.4
|
|
Total
|
|
$
|
158.7
|
|
Note 10 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 to 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.
As of September 30, 2020, the maximum purchase limit for receivable interests was $50.0 million, subject to the availability limits described below.
The amounts available from time to time under this program may be less than $50.0 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, 2020, the amount available under the program was $50.0 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 further decline in the amounts available to us under the program or termination of the program.
The program expires annually in the fourth quarter and is renewable.
European Accounts Receivable 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 Sheets. 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.
As of September 30, 2020, the maximum purchase limit for receivable interests was €80.0 million ($93.9 million equivalent at September 30, 2020), subject to availability limits. The terms and provisions of this program are similar to our U.S. program discussed above. As of September 30, 2020, the amount available under this program before utilization was €69.9 million ($82.1 million equivalent as of September 30, 2020).
This program expires annually in the third quarter and is renewable.
Utilization of Our Accounts Receivable Securitization Programs
As of September 30, 2020, there were no amounts borrowed under our U.S. or European programs. As of December 31, 2019, there were no amounts borrowed 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. The total interest paid for these programs was $0.1 million and $0.4 million for the three and nine months ended September 30, 2020, respectively, and $0.2 million and $0.6 million for the three and nine months ended September 30, 2019, 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, 2020.
Note 11 Accounts Receivable Factoring Programs
The Company has entered into factoring agreements and customers' supply chain financing arrangements to sell certain receivables to unrelated third-party financial institutions. These programs are entered into in the normal course of business. We account for these transactions in accordance with ASC 860, "Transfers and Servicing" ("ASC 860"). ASC 860 allows for the ownership transfer of accounts receivable to qualify for sale treatment when the appropriate criteria is met, which permits the Company to exclude the balances sold under these programs from Trade receivables, net on the Condensed Consolidated Balance Sheets. Receivables are considered sold when (i) they are transferred beyond the reach of the Company and its creditors, (ii) the purchaser has the right to pledge or exchange the receivables, and (iii) the Company has no continuing involvement in the transferred receivables. In addition, the Company provides no other forms of continued financial support to the purchaser of the receivables once the receivables are sold.
Gross amounts received under these programs for the nine months ended September 30, 2020 and 2019 were $308.7 million and $246.1 million, respectively. The fees associated with transfer of receivables for all programs were approximately $0.4 million and $1.4 million for the three and nine months ended September 30, 2020, respectively, and approximately $1.2 million and $2.5 million for the three and nine months ended September 30, 2019, respectively.
Note 12 Credit Losses
We are exposed to credit losses primarily through our sales of packaging solutions to third-party customers. Our customer's (the counterparty) ability to pay is assessed through our internal credit review processes. Based on the dollar value of credit extended, we assess our customers' credit by reviewing the total expected receivable exposure, expected timing of payments and the customer’s established credit rating. In determining customer creditworthiness, we assess our customers' credit utilizing different resources including external credit validations and/or our own assessment through analysis of the customers' financial statements and review of trade/bank references. We also consider contract terms and conditions, country and political risk, and the customer's mix of products purchased (for example: equipment vs. materials) in our evaluation. A credit limit is established for each customer based on the outcome of this review. Credit limits are reviewed at least annually for existing customers.
We monitor our ongoing credit exposure through active review of counterparty balances against contract terms and due dates. Our activities are performed at both the country/entity level as well as the regional level. Monitoring and review activities include account reconciliations, analysis of aged receivables, resolution status review for disputed amounts, and identification and remediation of counter-parties experiencing payment issues. Our management reviews current credit exposure at least quarterly based on level of risk and amount of exposure.
When necessary, we utilize collection agencies and legal counsel to pursue recovery of defaulted receivables. Trade receivable balances are written off when deemed to be uncollectible and after collection efforts have been exhausted. Our annual historical credit losses have been approximately 0.1%, or less, of net trade sales over the last three years.
Our allowance for credit losses on trade receivables is assessed at the end of each quarter based on an analysis of historical losses and our assessment of future expected losses. We are monitoring the impact that COVID-19 may have on outstanding receivables. All customer accounts are actively managed and no losses in excess of our allowance are expected as of September 30, 2020.
At September 30, 2020, our trade receivable balance was $582.7 million, net of allowances of $11.6 million. At December 31, 2019, our allowance for credit losses on trade receivables (allowance for bad debt) was $8.2 million. Our overall balance of allowance for credit losses on trade receivables has increased by $3.4 million. For the three and nine months ended September 30, 2020, $0.8 million and $3.4 million, respectively, was charged to our allowance for credit losses related to our trade receivables.
Note 13 Restructuring Activities
For the three and nine months ended September 30, 2020, the Company incurred $1.0 million and $11.7 million of restructuring charges, respectively, and $7.2 million and $15.0 million, respectively, of other related costs for our restructuring programs. These charges were primarily a result of restructuring and associated costs incurred in connection with the Company’s Reinvent SEE strategy.
Our primary restructuring program (“Program”) is defined as the initiatives associated with our Reinvent SEE strategy in addition to the conclusion of our previously existing restructuring programs at the time of Reinvent SEE's approval. Reinvent SEE is a three-year program approved by the Board of Directors in December 2018. The expected spend in the previously existing program at the time of Reinvent SEE's approval was primarily related to elimination of stranded costs following the sale of our Diversey segment and Hygiene Solutions business to Diamond (BC) B.V. in 2017. The Company expects restructuring activities associated with the Program to be completed by the end of 2021.
The Board of Directors has approved cumulative restructuring spend of $840 to $885 million for the Program. Restructuring spend is estimated to be incurred as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Total Restructuring Program Range
|
|
Less Cumulative Spend to Date
|
|
Remaining Restructuring Spend(2)
|
|
|
Low
|
|
High
|
|
|
|
Low
|
|
High
|
Costs of reduction in headcount as a result of reorganization
|
|
$
|
355
|
|
|
$
|
370
|
|
|
$
|
(335)
|
|
|
$
|
20
|
|
|
$
|
35
|
|
Other expenses associated with the Program
|
|
230
|
|
|
245
|
|
|
(213)
|
|
17
|
|
|
32
|
|
Total expense
|
|
$
|
585
|
|
|
$
|
615
|
|
|
$
|
(548)
|
|
|
$
|
37
|
|
|
$
|
67
|
|
Capital expenditures
|
|
255
|
|
|
270
|
|
|
(239)
|
|
|
16
|
|
|
31
|
|
Total estimated cash cost(1)
|
|
$
|
840
|
|
|
$
|
885
|
|
|
$
|
(787)
|
|
|
$
|
53
|
|
|
$
|
98
|
|
(1) Total estimated cash cost excludes the impact of proceeds expected from the sale of property and equipment and foreign currency impact.
(2) Remaining restructuring spend primarily consists of restructuring costs associated with the Company’s Reinvent SEE strategy.
The Company also has a restructuring program related to recent acquisitions. We incurred approximately $1.7 million in restructuring charges related to this activity during the three and nine month periods ended September 30, 2020. We incurred no restructuring charges related to this activity during the three or nine month period ended September 30, 2019. See Note 5, "Acquisitions," of the Notes to Condensed Consolidated Financial Statements for additional information related to our acquisitions.
The following table details our restructuring activities reflected in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(In millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
Other associated costs
|
|
$
|
7.2
|
|
|
$
|
12.8
|
|
|
$
|
15.0
|
|
|
$
|
50.8
|
|
Restructuring charges
|
|
1.0
|
|
|
6.9
|
|
|
11.7
|
|
|
43.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charges
|
|
$
|
8.2
|
|
|
$
|
19.7
|
|
|
$
|
26.7
|
|
|
$
|
94.4
|
|
Capital expenditures
|
|
$
|
0.2
|
|
|
$
|
0.2
|
|
|
$
|
0.4
|
|
|
$
|
2.5
|
|
The restructuring accrual, spending and other activity for the nine months ended September 30, 2020 and the accrual balance remaining at September 30, 2020 related to these programs were as follows:
|
|
|
|
|
|
(In millions)
|
|
Restructuring accrual at December 31, 2018
|
$
|
37.5
|
|
Accrual and accrual adjustments
|
41.9
|
|
Cash payments during 2019
|
(47.6)
|
|
|
|
Effect of changes in foreign currency exchange rates
|
(0.3)
|
|
Restructuring accrual at December 31, 2019
|
$
|
31.5
|
|
Accrual and accrual adjustments
|
11.7
|
|
Cash payments during 2020
|
(23.0)
|
|
|
|
Effect of changes in foreign currency exchange rates
|
(0.5)
|
|
Restructuring accrual at September 30, 2020
|
$
|
19.7
|
|
We expect to pay $17.0 million of the accrual balance remaining at September 30, 2020 within the next twelve months. This amount is included in accrued restructuring costs on the Condensed Consolidated Balance Sheets at September 30, 2020. Of the remaining accrual of $2.7 million, $0.6 million relating to Reinvent SEE is expected to be paid by the end of 2021 and $2.1 million relating to the restructuring program for recent acquisitions is expected to be paid in periods including, and beyond, 2021. These amounts are included in other non-current liabilities on our Condensed Consolidated Balance Sheets at September 30, 2020.
One of the components of Reinvent SEE was to enhance the operational efficiency of the Company by acting as “One SEE.” The program was approved by our Board of Directors as a consolidated program benefiting both Food and Protective and accordingly the expected program spend by reporting segment is not available. However, of the restructuring accrual of $19.7 million as of September 30, 2020, $9.6 million was attributable to Food and $10.1 million was attributable to Protective.
Note 14 Debt and Credit Facilities
Our total debt outstanding consisted of the amounts set forth in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Interest rate
|
|
September 30, 2020
|
|
December 31, 2019
|
Short-term borrowings(1)
|
|
|
|
$
|
7.4
|
|
|
$
|
98.9
|
|
Current portion of long-term debt(2)
|
|
|
|
21.8
|
|
|
16.7
|
|
Total current debt
|
|
|
|
29.2
|
|
|
115.6
|
|
Term Loan A due August 2022
|
|
|
|
474.6
|
|
|
474.6
|
|
Term Loan A due July 2023
|
|
|
|
209.3
|
|
|
218.2
|
|
|
|
|
|
|
|
|
Senior Notes due December 2022
|
|
4.875
|
%
|
|
422.6
|
|
|
421.9
|
|
Senior Notes due April 2023
|
|
5.250
|
%
|
|
422.7
|
|
|
422.0
|
|
Senior Notes due September 2023
|
|
4.500
|
%
|
|
467.9
|
|
|
445.6
|
|
Senior Notes due December 2024
|
|
5.125
|
%
|
|
422.4
|
|
|
421.9
|
|
Senior Notes due September 2025
|
|
5.500
|
%
|
|
397.7
|
|
|
397.4
|
|
Senior Notes due December 2027
|
|
4.000
|
%
|
|
420.7
|
|
|
420.4
|
|
Senior Notes due July 2033
|
|
6.875
|
%
|
|
445.8
|
|
|
445.7
|
|
Other(2)
|
|
|
|
26.4
|
|
|
30.9
|
|
Total long-term debt, less current portion(3)
|
|
|
|
3,710.1
|
|
|
3,698.6
|
|
Total debt(4)
|
|
|
|
$
|
3,739.3
|
|
|
$
|
3,814.2
|
|
(1)Short-term borrowings of $7.4 million at September 30, 2020 were comprised of short-term borrowings from various lines of credit. Short-term borrowings of $98.9 million at December 31, 2019 were comprised of $89.0 million under our revolving credit facility and $9.9 million from various lines of credit.
(2)Current portion of long-term debt includes finance lease liabilities of $10.0 million and $10.4 million at September 30, 2020 and December 31, 2019, respectively. Other debt includes long-term liabilities associated with our finance leases of $25.3 million and $28.7 million at September 30, 2020 and December 31, 2019, respectively. See Note 4, "Leases," of the Notes to Condensed Consolidated Financial Statements for additional information on finance and operating lease liabilities.
(3)Amounts are shown net of unamortized discounts and issuance costs of $21.4 million as of September 30, 2020 and $24.6 million as of December 31, 2019.
(4)As of September 30, 2020, our weighted average interest rate on our short-term borrowings outstanding was 2.1% and on our long-term debt outstanding was 4.4%. As of December 31, 2019, our weighted average interest rate on our short-term borrowings outstanding was 5.0% and on our long-term debt outstanding was 4.8%.
Senior Notes
2019 Activity
On November 26, 2019, Sealed Air issued $425 million aggregate principal amount of 4.00% Senior Notes due December 1, 2027. The proceeds were used to repurchase and discharge the Company's $425 million 6.50% Senior Notes due 2020. The aggregate repurchase price was $452.0 million, which included the principal amount of $425 million, a premium of $15.5 million and accrued interest of $11.5 million. We recognized a pre-tax loss of $16.1 million on the extinguishment, including the premium mentioned above and $1.2 million of accelerated amortization of non-lender fees partially offset by a $0.6 million gain on the settlement of interest rate swaps. We also capitalized $3.5 million of non-lender fees incurred in connection with the 4.00% Senior Notes which are included in long-term debt, less current portion on our Condensed Consolidated Balance Sheets.
Amended and Restated Senior Secured Credit Facility
On August 1, 2019, Sealed Air Corporation, on behalf of itself and certain of its subsidiaries, and Sealed Air Corporation (US) entered into an amendment and incremental assumption agreement (the “Amendment”) further amending the Third Amended and Restated Syndicated Credit Facility Agreement (the “Credit Facility”). The Amendment provides for a new incremental term facility in an aggregate principal amount of $475 million, to be used, in part, to finance the acquisition of Automated. In addition, we incurred $0.4 million of lender and third-party fees included in carrying amounts of outstanding debt. See Note 5, "Acquisitions," of the Notes to Condensed Consolidated Financial Statements for additional information related to the Automated acquisition.
Short-term Borrowings
The following table summarizes our available lines of credit and committed and uncommitted lines of credit, including the revolving credit facility, and the amounts available under our accounts receivable securitization programs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
September 30, 2020
|
|
December 31, 2019
|
Used lines of credit(1)
|
|
$
|
7.4
|
|
|
$
|
98.9
|
|
Unused lines of credit
|
|
1,292.4
|
|
|
1,245.2
|
|
Total available lines of credit(2)
|
|
$
|
1,299.8
|
|
|
$
|
1,344.1
|
|
(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)Of the total available lines of credit, $1,132.1 million was committed as of September 30, 2020.
Covenants
Each issue of our outstanding senior notes imposes limitations on our operations and those of specified subsidiaries. Our 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 leverage ratio of debt to EBITDA. We were in compliance with the above financial covenants and limitations at September 30, 2020.
Note 15 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 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 Accumulated Other Comprehensive Loss (“AOCL”) 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 designated as cash flow hedges 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 cash flow hedging activities that were included in AOCL were a $2.4 million loss and a $0.4 million gain for the three and nine months ended September 30, 2020, respectively, and a $0.9 million gain and $0.4 million loss for the three and nine months ended September 30, 2019, respectively. The unrealized amounts in AOCL will fluctuate based on changes in the fair value of open contracts during each reporting period.
We estimate that $1.0 million of net unrealized losses related to cash flow hedging activities included in AOCL 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 (expense) 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 not designated as hedges 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, 2020 and December 31, 2019, we had no outstanding interest rate swaps.
Net Investment Hedge
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 increase in the translated value of the debt was $19.8 million ($14.9 million, net of tax) as of September 30, 2020 and is reflected in AOCL on our Condensed Consolidated Balance Sheets.
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 settled these swaps 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 AOCL.
For derivative instruments that are designated and qualify as hedges of net investments in foreign operations, 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 AOCL, 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 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 16, “Fair Value Measurements and Other Financial Instruments,” of the Notes to Condensed Consolidated Financial Statements 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 Hedge
|
|
|
|
Non-Designated as Hedging Instruments
|
|
Total
|
(In millions)
|
September 30, 2020
|
|
December 31, 2019
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
|
September 30, 2020
|
|
December 31, 2019
|
Derivative Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts and options
|
$
|
0.5
|
|
|
$
|
0.2
|
|
|
|
|
|
|
$
|
5.9
|
|
|
$
|
2.6
|
|
|
$
|
6.4
|
|
|
$
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivative Assets
|
$
|
0.5
|
|
|
$
|
0.2
|
|
|
|
|
|
|
$
|
5.9
|
|
|
$
|
2.6
|
|
|
$
|
6.4
|
|
|
$
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
$
|
(1.1)
|
|
|
$
|
(2.0)
|
|
|
|
|
|
|
$
|
(2.1)
|
|
|
$
|
(2.0)
|
|
|
$
|
(3.2)
|
|
|
$
|
(4.0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivative Liabilities(1)
|
$
|
(1.1)
|
|
|
$
|
(2.0)
|
|
|
|
|
|
|
$
|
(2.1)
|
|
|
$
|
(2.0)
|
|
|
$
|
(3.2)
|
|
|
$
|
(4.0)
|
|
Net Derivatives(2)
|
$
|
(0.6)
|
|
|
$
|
(1.8)
|
|
|
|
|
|
|
$
|
3.8
|
|
|
$
|
0.6
|
|
|
$
|
3.2
|
|
|
$
|
(1.2)
|
|
(1)Excludes €400.0 million of euro-denominated debt ($467.9 million equivalent at September 30, 2020 and $445.6 million equivalent at December 31, 2019), which is designated as a net investment hedge.
(2)The following table reconciles gross positions without the impact of master netting agreements to the balance sheet classification:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Current Assets
|
|
Other Current Liabilities
|
|
|
|
|
(In millions)
|
September 30, 2020
|
|
December 31, 2019
|
|
September 30, 2020
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
Gross position
|
$
|
6.4
|
|
|
$
|
2.8
|
|
|
$
|
(3.2)
|
|
|
$
|
(4.0)
|
|
|
|
|
|
|
|
|
|
Impact of master netting agreements
|
(1.9)
|
|
|
(1.1)
|
|
|
1.9
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
Net amounts recognized on the Condensed Consolidated Balance Sheets
|
$
|
4.5
|
|
|
$
|
1.7
|
|
|
$
|
(1.3)
|
|
|
$
|
(2.9)
|
|
|
|
|
|
|
|
|
|
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
|
|
Location of Gain (Loss) Recognized on
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(In millions)
|
Condensed Consolidated Statements of Operations
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedges:
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
Cost of sales
|
|
$
|
(2.4)
|
|
|
$
|
—
|
|
|
$
|
0.7
|
|
|
$
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury locks
|
Interest expense, net
|
|
—
|
|
|
—
|
|
|
0.1
|
|
|
0.1
|
|
Sub-total cash flow hedges
|
|
|
(2.4)
|
|
|
—
|
|
|
0.8
|
|
|
1.6
|
|
Fair Value Hedges:
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
Interest expense, net
|
|
0.1
|
|
|
0.1
|
|
|
0.4
|
|
|
0.4
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
Foreign currency forward and option contracts
|
Other (expense) income, net
|
|
2.1
|
|
|
(3.5)
|
|
|
(0.3)
|
|
|
(7.8)
|
|
Total
|
|
|
$
|
(0.2)
|
|
|
$
|
(3.4)
|
|
|
$
|
0.9
|
|
|
$
|
(5.8)
|
|
Note 16 Fair Value Measurements and Other Financial Instruments
Fair Value Measurements
Fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There are three levels to the fair value hierarchy as follows:
Level 1 - observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets
Level 2 - inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly
Level 3 - unobservable inputs for which there is little or no market data, which may require the reporting entity to develop its own assumptions.
The fair value, measured on a recurring basis, of our financial instruments, using the fair value hierarchy under U.S. GAAP are included in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
(In millions)
|
|
Total Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Cash equivalents
|
|
$
|
97.2
|
|
|
$
|
97.2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Derivative financial and hedging instruments net asset (liability):
|
|
|
|
|
|
|
|
|
Foreign currency forward and option contracts
|
|
$
|
3.2
|
|
|
$
|
—
|
|
|
$
|
3.2
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
(In millions)
|
|
Total Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Cash equivalents
|
|
$
|
41.1
|
|
|
$
|
41.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Other current assets
|
|
$
|
14.4
|
|
|
$
|
14.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Derivative financial and hedging instruments net asset (liability):
|
|
|
|
|
|
|
|
|
Foreign currency forward and option contracts
|
|
$
|
(1.2)
|
|
|
$
|
—
|
|
|
$
|
(1.2)
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Equivalents
Our cash equivalents consisted of bank time deposits. Since these are short-term highly liquid investments with remaining maturities of 3 months or less, they present negligible risk of changes in fair value due to changes in interest rates and are classified as Level 1 financial instruments.
Other current assets
Other current assets include primarily time deposits, greater than 90 days to maturity at time of purchase at our insurance captive and are classified as Level 1 financial instruments. There were no such items as of September 30, 2020.
Derivative Financial Instruments
Our foreign currency forward contracts, foreign currency options, interest rate 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. Such financial instruments are classified as 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.
Foreign currency forward contracts and options are included in Prepaid expenses and other current assets and Other current liabilities on the Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019.
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 credit facilities and senior notes. 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 debt, excluding our lease liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
(In millions)
|
|
Interest rate
|
|
Carrying Amount
|
|
Fair Value
|
|
Carrying Amount
|
|
Fair Value
|
Term Loan A Facility due August 2022
|
|
|
|
$
|
474.6
|
|
|
$
|
474.6
|
|
|
$
|
474.6
|
|
|
$
|
474.6
|
|
Term Loan A Facility due July 2023(1)
|
|
|
|
220.5
|
|
|
220.5
|
|
|
223.8
|
|
|
223.8
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Notes due December 2022
|
|
4.875
|
%
|
|
422.6
|
|
|
443.8
|
|
|
421.9
|
|
|
450.1
|
|
Senior Notes due April 2023
|
|
5.250
|
%
|
|
422.7
|
|
|
448.5
|
|
|
422.0
|
|
|
454.1
|
|
Senior Notes due September 2023(1)
|
|
4.500
|
%
|
|
467.9
|
|
|
510.6
|
|
|
445.6
|
|
|
509.5
|
|
Senior Notes due December 2024
|
|
5.125
|
%
|
|
422.4
|
|
|
460.8
|
|
|
421.9
|
|
|
458.9
|
|
Senior Notes due September 2025
|
|
5.500
|
%
|
|
397.7
|
|
|
444.7
|
|
|
397.4
|
|
|
441.2
|
|
Senior Notes due December 2027
|
|
4.000
|
%
|
|
420.7
|
|
|
443.4
|
|
|
420.4
|
|
|
431.5
|
|
Senior Notes due July 2033
|
|
6.875
|
%
|
|
445.8
|
|
|
574.1
|
|
|
445.7
|
|
|
528.8
|
|
Other foreign borrowings(1)
|
|
|
|
9.0
|
|
|
9.2
|
|
|
12.1
|
|
|
12.4
|
|
Other domestic borrowings
|
|
|
|
—
|
|
|
—
|
|
|
89.0
|
|
|
89.0
|
|
Total debt(2)
|
|
|
|
$
|
3,703.9
|
|
|
$
|
4,030.2
|
|
|
$
|
3,774.4
|
|
|
$
|
4,073.9
|
|
(1)Includes borrowings denominated in currencies other than US dollars.
(2)The carrying amount and estimated fair value of debt exclude lease liabilities.
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, goodwill, intangible assets and asset retirement obligations.
Note 17 Defined Benefit Pension Plans and Other Post-Employment Benefit Plans
The following tables show the components of our net periodic benefit (income) cost for our defined benefit pension plans for the three and nine months ended September 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2020
|
|
Three Months Ended
September 30, 2019
|
(In millions)
|
|
U.S.
|
|
International
|
|
Total
|
|
U.S.
|
|
International
|
|
Total
|
Components of net periodic benefit (income) cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
—
|
|
|
$
|
1.1
|
|
|
$
|
1.1
|
|
|
$
|
0.1
|
|
|
$
|
1.0
|
|
|
$
|
1.1
|
|
Interest cost
|
|
1.3
|
|
|
3.0
|
|
|
4.3
|
|
|
1.7
|
|
|
3.7
|
|
|
5.4
|
|
Expected return on plan assets
|
|
(2.2)
|
|
|
(5.0)
|
|
|
(7.2)
|
|
|
(1.9)
|
|
|
(6.2)
|
|
|
(8.1)
|
|
Amortization of net prior service cost
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of net actuarial loss
|
|
0.4
|
|
|
1.2
|
|
|
1.6
|
|
|
0.3
|
|
|
1.0
|
|
|
1.3
|
|
Net periodic (income) cost
|
|
(0.5)
|
|
|
0.3
|
|
|
(0.2)
|
|
|
0.2
|
|
|
(0.5)
|
|
|
(0.3)
|
|
Cost of settlement
|
|
—
|
|
|
0.9
|
|
|
0.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total benefit (income) cost
|
|
$
|
(0.5)
|
|
|
$
|
1.2
|
|
|
$
|
0.7
|
|
|
$
|
0.2
|
|
|
$
|
(0.5)
|
|
|
$
|
(0.3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2020
|
|
Nine Months Ended
September 30, 2019
|
(In millions)
|
|
U.S.
|
|
International
|
|
Total
|
|
U.S.
|
|
International
|
|
Total
|
Components of net periodic benefit (income) cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
0.1
|
|
|
$
|
3.3
|
|
|
$
|
3.4
|
|
|
$
|
0.1
|
|
|
$
|
3.0
|
|
|
$
|
3.1
|
|
Interest cost
|
|
4.0
|
|
|
8.9
|
|
|
12.9
|
|
|
5.2
|
|
|
11.1
|
|
|
16.3
|
|
Expected return on plan assets
|
|
(6.7)
|
|
|
(15.0)
|
|
|
(21.7)
|
|
|
(5.5)
|
|
|
(18.4)
|
|
|
(23.9)
|
|
Amortization of net prior service cost
|
|
—
|
|
|
0.1
|
|
|
0.1
|
|
|
—
|
|
|
0.1
|
|
|
0.1
|
|
Amortization of net actuarial loss
|
|
1.1
|
|
|
3.6
|
|
|
4.7
|
|
|
1.0
|
|
|
2.8
|
|
|
3.8
|
|
Net periodic (income) cost
|
|
$
|
(1.5)
|
|
|
$
|
0.9
|
|
|
$
|
(0.6)
|
|
|
$
|
0.8
|
|
|
$
|
(1.4)
|
|
|
$
|
(0.6)
|
|
Cost of settlement
|
|
—
|
|
|
1.0
|
|
|
1.0
|
|
|
—
|
|
|
0.3
|
|
|
0.3
|
|
Total benefit (income) cost
|
|
$
|
(1.5)
|
|
|
$
|
1.9
|
|
|
$
|
0.4
|
|
|
$
|
0.8
|
|
|
$
|
(1.1)
|
|
|
$
|
(0.3)
|
|
The following table shows the components of our net periodic benefit cost for our other post-retirement employee benefit plans for the three and nine months ended September 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(In millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost
|
|
$
|
0.3
|
|
|
$
|
0.4
|
|
|
$
|
0.8
|
|
|
$
|
1.2
|
|
Amortization of net prior service credit
|
|
—
|
|
|
—
|
|
|
(0.2)
|
|
|
(0.2)
|
|
Amortization of net actuarial gain
|
|
—
|
|
|
—
|
|
|
(0.1)
|
|
|
(0.1)
|
|
Net periodic benefit cost
|
|
$
|
0.3
|
|
|
$
|
0.4
|
|
|
$
|
0.5
|
|
|
$
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 18 Income Taxes
2020 Regulations and Coronavirus Aid, Relief and Economic Security Act
In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law in March 2020. The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”). Corporate taxpayers may carryback net operating losses (NOLs) originating between 2018 and 2020 for up to five years, which was not previously allowed under the 2017 Tax Act. The CARES Act also eliminates the 80% of taxable income limitation by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019 or 2020. Taxpayers may generally deduct interest up to the sum of 50% of adjusted taxable income plus business interest income (30% limit under the 2017 Tax Act) for 2019 and 2020. The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the 2017 Tax Act.
In addition, the CARES Act raises the corporate charitable deduction limit to 25% of taxable income and makes qualified improvement property generally eligible for 15-year cost-recovery and 100% bonus depreciation. The enactment of the CARES Act did not result in any material adjustments to our income tax provision for the three and nine months ended September 30, 2020.
In July 2020, the U.S. Department of Treasury issued final tax regulations with respect to the global intangible low-taxed income (GILTI) proposed tax regulations originally published in 2019. Among other changes, these regulations now permit an election to exclude from the GILTI calculation items of income which are subject to a high effective rate of foreign tax. We have adopted these final regulations and recorded a discrete benefit of $16.1 million related to the 2018 - 2019 tax years and have reflected the 2020 benefit in the annual effective tax rate.
Effective Income Tax Rate and Income Tax Provision
For interim tax reporting, we estimate one annual effective tax rate for tax jurisdictions not subject to a valuation allowance and apply that rate 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.
State income taxes, foreign earnings subject to higher tax rates and non-deductible expenses increase the Company's effective income tax rate compared to the U.S. statutory rate of 21.0%.
Our effective income tax rate was 11.7% and 21.5%, respectively, for the three and nine months ended September 30, 2020. For the three months ended September 30, 2020, the effective income tax rate was favorably impacted by GILTI regulations issued in the third quarter and the favorable resolution of specific uncertain tax positions. For the nine months ended September 30, 2020, the Company's effective income tax rate was positively impacted by recently issued GILTI regulations and the favorable resolution of specific uncertain tax positions.
Our effective income tax rate was 22.3% and 27.9% for the three and nine months ended September 30, 2019, respectively. The Company's effective income tax rate for the three month period ended September 30, 2019 was positively impacted by the benefit of U.S. Research and Development credits for current and prior periods and was negatively impacted by a U.S. audit assessment related to the valuation of an Intellectual Property transfer in 2011. For the nine month period ended September 30, 2019, the Company's effective income tax rate was negatively impacted by U.S. audit assessments associated with 2011 and 2012 transactions, which were partially offset by the benefits for the U.S. Research and Development credit for current and prior periods and the release of valuation allowance on deferred assets in Brazil related to improved profitability from Reinvent SEE initiatives.
There was a negligible change in our valuation allowances for the three and nine months ended September 30, 2020. There was a negligible change in valuation allowance for the three months ended September 30, 2019 and an $8.1 million decrease for the release of valuation allowance on deferred tax assets in Brazil for the nine months ended September 30, 2019.
We reported a net decrease in unrecognized tax positions in the three and nine months ended September 30, 2020 of $2.4 million and $8.1 million, respectively primarily related to the resolution of certain uncertain tax positions. We are not currently able to reasonably estimate the amount by which the liability for unrecognized tax positions may increase or decrease during the next 12 months as a result of the remaining items under IRS audit for those years. We reported a net increase in unrecognized tax positions in the three and nine months ended September 30, 2019 of $16.7 million and $26.4 million, respectively, primarily related to U.S. audit assessments and interest accruals on existing positions. Interest and penalties on tax assessments are included in income tax expense.
With respect to the 2014 tax year, the IRS has proposed to disallow the deduction of approximately $1.49 billion for the settlement payments made pursuant to the Settlement agreement, as defined in Note 19, "Commitments and Contingencies," of the Notes to Condensed Consolidated Financial Statements, and the reduction of our U.S. federal tax liability by approximately $525 million. Although we continue to believe that we have meritorious defenses to the proposed disallowance and are protesting it with the IRS, this matter will likely not be resolved in 2020. It is possible that future developments in this matter could have a material impact on the uncertain tax position balances and results of operations, including cash flow, within the next 12 months.
We have no outstanding liability with respect to Transition Tax associated with the U.S. Tax Cuts and Jobs Act of 2017.
Note 19 Commitments and Contingencies
Diversey Sale Clawback Agreement and Receivables
As part of our 2017 sale of Diversey to Diamond (BC) B.V. (the “Buyer”), Sealed Air and the Buyer entered into that certain Letter Agreement (the “Clawback Agreement”), under which Sealed Air could be required to return a portion of the proceeds we received in the sale, if, and to the extent, Diversey failed to achieve a specified minimum gross margin arising from sales of certain products during the one year period following a successful renewal of certain commercial contracts. In the third quarter of 2019, the Buyer submitted a claim to us under the Clawback Agreement seeking such a refund in the amount of $49.2 million, and we delivered a dispute notice to the Buyer in respect to such claim in the fourth quarter of 2019. On April 29, 2020, Sealed Air and the Buyer entered into a Stipulation and Agreement of Settlement and Release (the “Diversey Settlement Agreement”), whereby, among other things, the Buyer released us from any and all claims under the Clawback Agreement, and the parties terminated the Clawback Agreement.
Pursuant to the Diversey Settlement Agreement, the parties settled their disputes relating to certain other Tax Receivables and other receivables arising out of the Diversey sale, including fees owed to Sealed Air from the Buyer pursuant to the Transition Service Agreement entered into in connection with the sale (“TSA”) and cash held by Diversey in certain non-U.S. jurisdictions as of the sale closing date that Buyer was required to cooperate to deliver to Sealed Air when and as permitted, subject to certain limitations (“Trapped Cash”). Under the Diversey Settlement Agreement, Sealed Air relinquished all of its
rights to receive any of the Trapped Cash, and the parties further agreed to release each other from any and all claims arising under or with respect to the TSA, the Trapped Cash, and the Clawback Agreement and such other matters as expressly agreed upon in the Diversey Settlement Agreement (provided, that, except for those specific matters released, the terms of the Purchase Agreement otherwise remain in effect in accordance with their terms).
Settlement Agreement Tax Deduction
On March 31, 1998, the Company completed a multi-step transaction (the “Cryovac transaction”) involving W.R. Grace & Co. (“Grace”) which brought the Cryovac packaging business and the former Sealed Air’s business under the common ownership of the Company. As part of that transaction, Grace and its subsidiaries retained all liabilities arising out of their operations before the Cryovac transaction (including asbestos-related liabilities), other than liabilities relating to Cryovac’s operations, and agreed to indemnify the Company with respect to such retained liabilities. Beginning in 2000, we were served with a number of lawsuits alleging that the Cryovac transaction was a fraudulent transfer or gave rise to successor liability or both, and that, as a result, we were responsible for alleged asbestos liabilities of Grace and its subsidiaries. On April 2, 2001, Grace and a number of its subsidiaries filed petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). In connection with Grace’s Chapter 11 case, the Bankruptcy Court granted the official committees appointed to represent asbestos claimants in Grace’s Chapter 11 case (the “Committees”) permission to pursue against the Company and its subsidiary Cryovac, Inc. fraudulent transfer, successor liability, and other claims based upon the Cryovac transaction. In November 2002, we reached an agreement in principle with the Committees to resolve all current and future asbestos-related claims made against us and our affiliates, as well as indemnification claims by Fresenius Medical Care Holdings, Inc. and affiliated companies, in each case, in connection with the Cryovac transaction. A definitive settlement agreement was entered into in 2003 and approved by the Bankruptcy Court in 2005 (such agreement, the "Settlement agreement"). The Settlement agreement was subsequently incorporated into the plan of reorganization for Grace (the "Plan") and the Plan was confirmed by the Bankruptcy Court in 2011 and the United States District Court in 2012.
On February 3, 2014 (the “Effective Date”), the Plan implementing the Settlement agreement became effective with W. R. Grace & Co., or Grace, emerging from bankruptcy and the injunctions and releases provided by the Plan becoming effective. On the Effective Date, the Company’s subsidiary, Cryovac, Inc., made the payments contemplated by the Settlement agreement, consisting of aggregate cash payments in the amount of $929.7 million to the WRG Asbestos PI Trust (the “PI Trust”) and the WRG Asbestos PD Trust (the “PD Trust”) and the transfer of 18 million shares of Sealed Air common stock (the “Settlement Shares”) to the PI Trust, in each case, reflecting adjustments made in accordance with the Settlement agreement.
The IRS completed its field examination of our U.S. federal income tax returns for the years 2011 through 2014 in the third quarter of 2020. As previously disclosed, the IRS has proposed to disallow for the 2014 taxable year the entirety of the deduction of the approximately $1.49 billion settlement payments made pursuant to the Settlement agreement and the resulting reduction of our U.S. federal tax liability by approximately $525 million. We continue to believe that we have meritorious defenses to the proposed disallowance and have filed a protest with the IRS. We expect to enter the IRS administrative appeals process in late 2020 or early 2021. At this time, we cannot predict when the IRS administrative appeals process will be resolved or the outcome of such process. It is possible that future developments in this matter could have a material impact on the uncertain tax position balances and results of operations, including cash flow, within the next 12 months.
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 Sheets or Statements 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 Sheets or Statements 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:
•indemnities in connection with the sale of businesses, primarily related to the sale of Diversey. Our indemnity obligations under the relevant agreements may be limited in terms of time, amount or scope. As it relates to certain income tax related liabilities, the relevant agreements may not provide any cap for such liabilities, and the period in which we would be liable would lapse upon expiration of the statute of limitation for assessment of the underlying taxes. Because of the conditional nature of these obligations and the unique facts and circumstances involved in each particular agreement, we are unable to reasonably estimate the potential maximum exposure associated with these items;
•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 consolidated financial position and results 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.
As of September 30, 2020, the Company has no reason to believe a loss exceeding amounts already recognized would be incurred.
Other Matters
We are also involved in various other legal actions incidental to our business. We believe, after consulting with counsel, that the disposition of these other legal proceedings and matters will not have a material effect on our consolidated financial condition or results of operations including potential impact to cash flows.
Note 20 Stockholders’ Equity (Deficit)
Repurchase of Common Stock
On May 2, 2018, the Board of Directors increased the total authorization to repurchase the Company's issued and outstanding stock to $1.0 billion. This current program has no expiration date and replaced all previous authorizations.
During the three and nine months ended September 30, 2020, we repurchased 521,498 shares, for approximately $20.0 million, with an average share price of $38.37. These repurchases were made under open market transactions, including through plans complying with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended and pursuant to the share repurchase program previously authorized by our Board of Directors.
During the nine months ended September 30, 2019, we repurchased 1,560,633 shares, for approximately $67.2 million, with an average share price of $43.09. These repurchases were made under open market transactions, including through plans complying with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended and pursuant to the share repurchase program previously authorized by our Board of Directors. We did not repurchase any shares during the three months ended September 30, 2019.
Dividends
On February 13, 2020, our Board of Directors declared a quarterly cash dividend of $0.16 per common share, or $24.9 million, which was paid on March 20, 2020, to stockholders of record at the close of business on March 6, 2020.
On May 21, 2020, our Board of Directors declared a quarterly cash dividend of $0.16 per common share, or $24.9 million, which was paid on June 19, 2020, to stockholders of record at the close of business on June 5, 2020.
On July 17, 2020 our Board of Directors declared a quarterly cash dividend of $0.16 per common share, or $24.9 million, which was paid on September 18, 2020 to shareholders of record at the close of business on September 4, 2020.
On October 21, 2020, our Board of Directors declared a quarterly cash dividend of $0.16 per common share, which will be paid on December 18, 2020 to shareholders of recorded at the close of business on December 4, 2020.
The dividends paid in the nine months ended September 30, 2020 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 Statements of Operations. There is no guarantee that our Board of Directors will declare any future dividends.
Share-based Compensation
In 2014, the Board of Directors adopted, and our stockholders approved, the 2014 Omnibus Incentive Plan (“Omnibus Incentive Plan”). Under the Omnibus Incentive Plan, the maximum number of shares of Common Stock authorized was 4,250,000, plus total shares available to be issued as of May 22, 2014 under the 2002 Directors Stock Plan and the 2005 Contingent Stock Plan (collectively, the “Predecessor Plans”). The Omnibus Incentive Plan replaced the Predecessor Plans and no further awards were granted under the Predecessor Plans. The Omnibus Incentive Plan provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, unrestricted stock, performance share units known as PSU awards, other stock awards and cash awards to officers, non-employee directors, key employees, consultants and advisors.
In 2018, the Board of Directors adopted, and our shareholders approved an amendment and restatement to the Omnibus Incentive Plan. The amended plan adds 2,199,114 shares of common stock to the share pool previously available under the Omnibus Incentive Plan.
We record share-based incentive compensation expense in selling, general and administrative expenses and cost of sales on our Condensed Consolidated Statements of Operations for both equity-classified and liability-classified awards. We record corresponding credit to additional paid-in capital within stockholders’ equity for equity-classified awards, and to either current or non-current liability for liability-classified awards based on the fair value of the share-based incentive compensation awards at the date of grant. Total expense for the liability-classified awards continues to be remeasured to fair value at the end of each reporting period. We recognize an expense or credit reflecting the straight-line recognition, net of estimated forfeitures, of the expected cost of the program. The number of Performance Share Units ("PSUs") earned may equal, exceed or be less than the targeted number of shares depending on whether the performance criteria are met, surpassed or not met.
The table below shows our total share-based incentive compensation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(In millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Total share-based incentive compensation expense(1)
|
|
$
|
12.3
|
|
|
$
|
12.0
|
|
|
$
|
31.3
|
|
|
$
|
25.2
|
|
(1)The amounts presented 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 certain cash-based awards, however, the amounts include the expense related to share based awards that are settled in cash.
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 employees, which include for each participant 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 earned, 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-year 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 days of service during the award performance period, further adjusted based on the achievement of the performance goals during the award performance period. PSUs are classified as equity in the Condensed
Consolidated Balance Sheets, with the exception of awards that are required by local laws or regulations to be settled in cash. These are classified as either current or non-current liabilities in the Condensed Consolidated Balance Sheets.
2020 Three-year PSU Awards
During the first quarter 2020, the O&C Committee approved awards with a three-year performance period beginning January 1, 2020 to December 31, 2022 for executive officers and other selected employees. The O&C Committee established performance goals, which are (i) relative total shareholder return (Relative TSR) weighted at 34%, (ii) three-year cumulative average growth rate (CAGR) of consolidated Adjusted EBITDA weighted at 33%, and (iii) Return on Invested Capital (ROIC) 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 target number of PSUs granted and the grant date fair value of the PSUs are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Relative TSR
|
|
ROIC
|
|
Adjusted EBITDA CAGR
|
February 12, 2020 grant date
|
|
|
|
|
|
|
Number of units granted
|
|
33,335
|
|
|
35,068
|
|
|
35,068
|
|
Fair value on grant date
|
|
$
|
38.87
|
|
|
$
|
35.86
|
|
|
$
|
35.86
|
|
February 13, 2020 grant date
|
|
|
|
|
|
|
Number of units granted
|
|
44,206
|
|
|
42,507
|
|
|
42,507
|
|
Fair value on grant date
|
|
$
|
34.08
|
|
|
$
|
34.40
|
|
|
$
|
34.40
|
|
March 1, 2020 grant date
|
|
|
|
|
|
|
Number of units granted
|
|
31,064
|
|
|
29,690
|
|
|
29,690
|
|
Fair value on grant date
|
|
$
|
29.85
|
|
|
$
|
30.31
|
|
|
$
|
30.31
|
|
The assumptions used to calculate the grant date fair value of the PSUs based on Relative TSR are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
February 12, 2020
grant date
|
February 13, 2020
grant date
|
March 1, 2020
grant date
|
Expected price volatility
|
23.7
|
%
|
23.7
|
%
|
23.7
|
%
|
Risk-free interest rate
|
1.4
|
%
|
1.4
|
%
|
0.9
|
%
|
2017 Three-year PSU Awards
In February 2020, the O&C Committee reviewed the performance results for the 2017-2019 PSUs. Performance goals for these PSUs were based on Adjusted EBITDA margin, net trade sales CAGR and Relative TSR. Based on overall performance for 2017-2019 PSUs, these awards paid out at 90.3% of target or 216,581 shares.
Note 21 Accumulated Other Comprehensive Loss
The following table provides details of comprehensive income (loss) for the nine months ended September 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Unrecognized
Pension Items
|
|
Cumulative
Translation
Adjustment
|
|
Unrecognized
Losses on Derivative
Instruments for
net investment
hedge
|
|
Unrecognized
Gains on
Derivative
Instruments
for cash flow hedge
|
|
|
|
Accumulated Other
Comprehensive
Loss, Net of Taxes
|
Balance at December 31, 2019
|
|
$
|
(146.1)
|
|
|
$
|
(728.6)
|
|
|
$
|
(34.5)
|
|
|
$
|
0.2
|
|
|
|
|
$
|
(909.0)
|
|
Other comprehensive (loss) income before reclassifications
|
|
(0.4)
|
|
|
(77.5)
|
|
|
(16.3)
|
|
|
0.7
|
|
|
|
|
(93.5)
|
|
Less: amounts reclassified from accumulated other comprehensive loss
|
|
4.3
|
|
|
—
|
|
|
—
|
|
|
(0.7)
|
|
|
|
|
3.6
|
|
Net current period other comprehensive income (loss)
|
|
3.9
|
|
|
(77.5)
|
|
|
(16.3)
|
|
|
—
|
|
|
|
|
(89.9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2020(1)
|
|
$
|
(142.2)
|
|
|
$
|
(806.1)
|
|
|
$
|
(50.8)
|
|
|
$
|
0.2
|
|
|
|
|
$
|
(998.9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018
|
|
$
|
(136.4)
|
|
|
$
|
(744.8)
|
|
|
$
|
(41.9)
|
|
|
$
|
2.7
|
|
|
|
|
$
|
(920.4)
|
|
Other comprehensive (loss) income before reclassifications
|
|
(0.1)
|
|
|
(25.7)
|
|
|
15.2
|
|
|
0.5
|
|
|
|
|
(10.1)
|
|
Less: amounts reclassified from accumulated other comprehensive loss
|
|
2.7
|
|
|
—
|
|
|
—
|
|
|
(1.0)
|
|
|
|
|
1.7
|
|
Net current period other comprehensive income (loss)
|
|
2.6
|
|
|
(25.7)
|
|
|
15.2
|
|
|
(0.5)
|
|
|
|
|
(8.4)
|
|
Balance at September 30, 2019(1)
|
|
$
|
(133.8)
|
|
|
$
|
(770.5)
|
|
|
$
|
(26.7)
|
|
|
$
|
2.2
|
|
|
|
|
$
|
(928.8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)The ending balance in AOCL includes gains and losses on intra-entity foreign currency transactions. The intra-entity currency translation adjustment was $19.8 million and $10.8 million as of September 30, 2020 and 2019, respectively.
The following table provides detail of amounts reclassified from AOCL:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
(In millions)
|
|
2020(1)
|
|
2019(1)
|
|
2020(1)
|
|
2019(1)
|
|
Location of Amount
Reclassified from AOCL
|
Defined benefit pension plans and other post-employment benefits:
|
|
|
|
|
|
|
|
|
|
|
Settlement activity
|
|
$
|
(0.9)
|
|
|
$
|
—
|
|
|
$
|
(1.0)
|
|
|
$
|
—
|
|
|
|
Prior service credit
|
|
—
|
|
|
—
|
|
|
0.1
|
|
|
0.1
|
|
|
|
Actuarial losses
|
|
(1.6)
|
|
|
(1.3)
|
|
|
(4.6)
|
|
|
(3.7)
|
|
|
|
Total pre-tax amount
|
|
(2.5)
|
|
|
(1.3)
|
|
|
(5.5)
|
|
|
(3.6)
|
|
|
Other (expense) income, net
|
Tax benefit
|
|
0.5
|
|
|
0.3
|
|
|
1.2
|
|
|
0.9
|
|
|
|
Net of tax
|
|
(2.0)
|
|
|
(1.0)
|
|
|
(4.3)
|
|
|
(2.7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (losses) gains on cash flow hedging derivatives:(2)
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
(2.4)
|
|
|
—
|
|
|
0.7
|
|
|
1.5
|
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
Treasury locks
|
|
—
|
|
|
—
|
|
|
0.1
|
|
|
0.1
|
|
|
Interest expense, net
|
Total pre-tax amount
|
|
(2.4)
|
|
|
—
|
|
|
0.8
|
|
|
1.6
|
|
|
|
Tax benefit (expense)
|
|
0.7
|
|
|
—
|
|
|
(0.1)
|
|
|
(0.6)
|
|
|
|
Net of tax
|
|
(1.7)
|
|
|
—
|
|
|
0.7
|
|
|
1.0
|
|
|
|
Total reclassifications for the period
|
|
$
|
(3.7)
|
|
|
$
|
(1.0)
|
|
|
$
|
(3.6)
|
|
|
$
|
(1.7)
|
|
|
|
(1)Amounts in parenthesis indicate changes to earnings (loss).
(2)These accumulated other comprehensive components are included in our derivative and hedging activities. See Note 15, “Derivatives and Hedging Activities,” of the Notes to Condensed Consolidated Financial Statements for additional details.
Note 22 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)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Net foreign exchange transaction (loss) gain
|
|
$
|
(1.4)
|
|
|
$
|
(1.5)
|
|
|
$
|
5.2
|
|
|
$
|
(4.1)
|
|
Bank fee expense
|
|
(1.1)
|
|
|
(1.1)
|
|
|
(3.4)
|
|
|
(3.6)
|
|
Pension (expense) income other than service costs
|
|
(0.1)
|
|
|
0.2
|
|
|
1.1
|
|
|
1.1
|
|
Other, net
|
|
1.4
|
|
|
0.5
|
|
|
5.0
|
|
|
7.9
|
|
Other (expense) income, net
|
|
$
|
(1.2)
|
|
|
$
|
(1.9)
|
|
|
$
|
7.9
|
|
|
$
|
1.3
|
|
Note 23 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)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Basic Net Earnings Per Common Share:
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
134.0
|
|
|
$
|
68.0
|
|
|
$
|
360.7
|
|
|
$
|
158.7
|
|
Distributed and allocated undistributed net earnings to unvested restricted stockholders
|
|
—
|
|
|
(0.1)
|
|
|
(0.1)
|
|
|
(0.3)
|
|
Distributed and allocated undistributed net earnings
|
|
134.0
|
|
|
67.9
|
|
|
360.6
|
|
|
158.4
|
|
Distributed net earnings - dividends paid to common stockholders
|
|
(24.9)
|
|
|
(24.6)
|
|
|
(74.6)
|
|
|
(74.1)
|
|
Allocation of undistributed net earnings to common stockholders
|
|
$
|
109.1
|
|
|
$
|
43.3
|
|
|
$
|
286.0
|
|
|
$
|
84.3
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic
|
|
155.5
|
|
|
154.0
|
|
|
155.2
|
|
|
154.4
|
|
Basic net earnings per common share:
|
|
|
|
|
|
|
|
|
Distributed net earnings
|
|
$
|
0.16
|
|
|
$
|
0.16
|
|
|
$
|
0.48
|
|
|
$
|
0.48
|
|
Allocated undistributed net earnings to common stockholders
|
|
0.70
|
|
|
0.28
|
|
|
1.84
|
|
|
0.55
|
|
Basic net earnings per common share
|
|
$
|
0.86
|
|
|
$
|
0.44
|
|
|
$
|
2.32
|
|
|
$
|
1.03
|
|
Diluted Net Earnings Per Common Share:
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Distributed and allocated undistributed net earnings
|
|
$
|
134.0
|
|
|
$
|
67.9
|
|
|
$
|
360.6
|
|
|
$
|
158.4
|
|
Add: Allocated undistributed net earnings to unvested restricted stockholders
|
|
—
|
|
|
0.1
|
|
|
0.1
|
|
|
0.2
|
|
Less: Undistributed net earnings reallocated to unvested restricted stockholders
|
|
—
|
|
|
(0.1)
|
|
|
(0.1)
|
|
|
(0.2)
|
|
Net earnings available to common stockholders - diluted
|
|
$
|
134.0
|
|
|
$
|
67.9
|
|
|
$
|
360.6
|
|
|
$
|
158.4
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic
|
|
155.5
|
|
|
154.0
|
|
|
155.2
|
|
|
154.4
|
|
Effect of unvested restricted stock - nonparticipating security
|
|
0.1
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
Effect of contingently issuable shares
|
|
0.2
|
|
|
0.2
|
|
|
0.2
|
|
|
0.2
|
|
Effect of unvested restricted stock units
|
|
0.3
|
|
|
0.3
|
|
|
0.3
|
|
|
0.3
|
|
Weighted average number of common shares outstanding - diluted under two-class
|
|
156.1
|
|
|
154.5
|
|
|
155.8
|
|
|
154.9
|
|
Effect of unvested restricted stock - participating security
|
|
—
|
|
|
0.3
|
|
|
—
|
|
|
0.3
|
|
Weighted average number of common shares outstanding - diluted under treasury stock
|
|
156.1
|
|
|
154.8
|
|
|
155.8
|
|
|
155.2
|
|
Diluted net earnings per common share
|
|
$
|
0.86
|
|
|
$
|
0.44
|
|
|
$
|
2.31
|
|
|
$
|
1.02
|
|