Notes to Consolidated Financial Statements
Note 1 Organization and Nature of Operations
We are a leading global provider of packaging solutions for the food, e-Commerce and industrial markets. Our portfolio of packaging solutions includes Cryovac® brand food packaging, Sealed Air® brand protective packaging, Autobag® brand automated packaging systems, and Bubble Wrap® brand packaging. We serve an array of end markets including food and beverage processing, food service, retail, and commercial and consumer applications. Sealed Air provides solutions integrating packaging materials, automated equipment, and services to provide essential protection for products and people which enable our customers to automate, reduce waste, simplify processes, and remove people from harm's way. We are investing in innovations that bring the industry toward a more sustainable future while providing food safety and security and product protection. We have established leading market positions through our differentiated materials, equipment and services, iconic brands, well-established customer relationships and global scale and market access.
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.
Note 2 Summary of Significant Accounting Policies and Recently Issued Accounting Standards
Summary of Significant Accounting Policies
Basis of Presentation
Our 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. All amounts are in U.S. dollar denominated in millions, except per share amounts and unless otherwise noted, and are approximate due to rounding.
Starting in the second quarter 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 reporting segments.
When we cross reference to a “Note,” we are referring to our “Notes to Consolidated Financial Statements,” unless the context indicates otherwise.
Use of Estimates
The preparation of our Consolidated Financial Statements and related disclosures in conformity with U.S. GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and revenue and expenses during the period reported. These estimates include, among other items, assessing the expected credit losses of receivables, asset retirement obligations, the use and recoverability of inventory, the estimation of fair value of financial instruments, assumptions used in the calculation of income taxes, useful lives and recoverability of tangible assets and goodwill and other intangible assets, assumptions used in our defined benefit pension plans and other post-employment benefit plans, estimates related to self-insurance such as the aggregate liability for uninsured claims using historical experience, insurance and actuarial estimates and estimated trends in claim values, fair value measurement of assets, costs for incentive compensation and accruals for commitments and contingencies. We review these estimates and assumptions periodically using historical experience and other factors and reflect the effects of any revisions in the Consolidated Financial Statements in the period we determine any revisions to be necessary. Actual results could differ from these estimates.
Financial Instruments
We may use financial instruments, such as cross-currency swaps, interest rate swaps, caps and collars, U.S. Treasury lock agreements and foreign currency exchange forward contracts and options related to our borrowing and trade activities. We may use these financial instruments from time to time to manage our exposure to fluctuations in interest rates and foreign currency exchange rates. We do not purchase, hold or sell derivative financial instruments for trading purposes. We face credit risk if the counterparties to these transactions are unable to perform their obligations. Our policy is to have counterparties to these contracts that have at least an investment grade rating.
We report derivative instruments at fair value and establish criteria for designation and effectiveness of transactions entered into for hedging purposes. Before entering into any derivative transaction, we identify our specific financial risk, the appropriate hedging instrument to use to reduce this risk, and the correlation between the financial risk and the hedging instrument. We use forecasts and historical data as the basis for determining the anticipated values of the transactions to be hedged. We do not enter into derivative transactions that do not have a high correlation with the underlying financial risk we are trying to reduce. We regularly review our hedge positions and the correlation between the transaction risks and the hedging instruments.
We account for derivative instruments as hedges of the related underlying risks if we designate these derivative instruments as hedges and the derivative instruments are effective as hedges of recognized assets or liabilities, forecasted transactions, unrecognized firm commitments or forecasted intercompany transactions.
We record gains and losses on derivatives qualifying as cash flow hedges in Accumulated other comprehensive loss (“AOCL”), to the extent that hedges are effective and until the underlying transactions are recognized on the Consolidated Statements of Operations, at which time we also recognize the gains or losses of the derivatives on the Consolidated Statements of Operations. We recognize gains and losses on qualifying fair value hedges and the related loss or gain on the hedged item attributable to the hedged risk on the Consolidated Statements of Operations.
Generally, 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. Any deferred gains or losses associated with derivative instruments are recognized on the Consolidated Statements of Operations over the period in which the income or expense on the underlying hedged transaction is recognized.
See Note 15, “Derivatives and Hedging Activities,” for further details.
Foreign Currency Translation
In non-U.S. locations that are not considered highly inflationary, we translate the balance sheets at the end of period exchange rates with translation adjustments accumulated in stockholders’ equity (deficit) on our Consolidated Balance Sheets. We translate the statements of operations at the average exchange rates during the applicable period.
We translate assets and liabilities of our operations in countries with highly inflationary economies at the end of period exchange rates, except that nonmonetary asset and liability amounts are translated at historical exchange rates. In countries with highly inflationary economies, we translate items reflected in the statements of operations at average rates of exchange prevailing during the period, except that nonmonetary amounts are translated at historical exchange rates.
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 U.S. 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 U.S. 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 Consolidated Statements of Operations. For the years ended December 31, 2020, 2019 and 2018, the Company recorded a $4.7 million, a $4.6 million, and a $2.4 million remeasurement loss, respectively. The exchange rate as of December 31, 2020, 2019 and 2018 was 84.1461, 59.8723 and 37.6679, respectively.
We will continue to evaluate each reporting period the appropriate exchange rate to remeasure our financial statements based on the facts and circumstances as applicable.
Commitments and Contingencies — Litigation
On an ongoing basis, we assess the potential liabilities related to any lawsuits or claims brought against us. While it is typically very difficult to determine the timing and ultimate outcome of these actions, we use our best judgment to determine if it is probable that we will incur an expense related to the settlement or final adjudication of these matters and whether a reasonable estimation of the probable loss, if any, can be made. In assessing probable losses, we make estimates of the amount of insurance recoveries, if any. We accrue a liability when we believe a loss is probable and the amount of loss can be reasonably estimated. Due to the inherent uncertainties related to the eventual outcome of litigation and potential insurance recovery, it is possible that disputed matters may be resolved for amounts materially different from any provisions or disclosures that we have previously made. We expense legal costs, including those legal costs expected to be incurred in connection with a loss contingency, as incurred.
Revenue Recognition
Revenue from contracts with customers is recognized using a five-step model consisting of the following: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the Company satisfies a performance obligation. Performance obligations are satisfied when the Company transfers control of a good or service to a customer, which can occur over time or at a point in time. The amount of revenue recognized is based on the consideration to which the Company expects to be entitled in exchange for those goods or services, including the expected value of variable consideration. The customer’s ability and intent to pay the transaction price is assessed in determining whether a contract exists with the customer. If collectability of substantially all of the consideration in a contract is not probable, consideration received is not recognized as revenue unless the consideration is nonrefundable and the Company no longer has an obligation to transfer additional goods or services to the customer or collectability becomes probable.
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 Consolidated Statements of Operations.
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 impact the amount of net sales recognized by us in the period of adjustment. Charges for rebates and other allowances were approximately 5% of sales in 2020, 4% of sales in 2019 and 5% of sales in 2018. Refer to Note 3, “Revenue Recognition, Contracts with Customers,” for further discussion of revenue.
Costs to obtain or fulfill a Contract and Shipping and Handling Costs
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 on the Consolidated Statements of Operations.
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.
Research and Development
We expense research and development costs as incurred. Research and development costs were $95.9 million in 2020, $77.3 million in 2019 and $80.8 million in 2018. In 2020, we brought our Packaging Application Centers and certain engineering teams under our overall Innovation, Research and Development organization to focus the centers and teams on innovation and product development. This move follows an operational change as well as a shift in organizational reporting and responsibility. As a result, approximately $12.6 million in expenses related to the centers and those engineering teams are now included in research and development expenses for 2020. Previously, these costs were primarily considered sales and marketing expenses within selling, general and administrative expenses on the Consolidated Statements of Operations.
Share-Based Incentive Compensation
At the 2014 Annual Meeting, the 2014 Omnibus Incentive Plan (the “Omnibus Plan”) was approved by our stockholders. Subsequently, the Board of Directors adopted, and at the 2018 Annual Stockholders' Meeting, our stockholders approved, an amendment and restatement to the 2014 Omnibus Incentive Plan. See Note 21, “Stockholders’ Equity (Deficit),” of the Notes for further information on this plan.
We record share-based compensation awards exchanged for employee services at fair value on the date of grant and record the expense for these awards in cost of sales and in selling, general and administrative expense, as applicable, on our Consolidated Statements of Operations over the requisite employee service period. Share-based incentive compensation expense includes an estimate for forfeitures and anticipated achievement levels and is generally recognized over the expected term of the award on a straight-line basis. The Company accelerates expense on performance-based awards using a graded vesting schedule for employees who meet retirement eligibility requirements prior to the end of the award’s service period. For performance-based awards, the Company reassesses at each reporting date whether achievement of the performance condition is probable and accrues compensation expense if and when achievement of the performance condition is probable. For performance awards with market-based conditions, the fair value of the award is determined at the grant date and is recognized at 100% over the performance period regardless of actual market condition performance.
Income Taxes
We file a consolidated U.S. federal income tax return and our non-U.S. subsidiaries file income tax returns in their respective local jurisdictions. We provide for income taxes on those portions of our foreign subsidiaries’ accumulated earnings that we believe are not reinvested indefinitely in our businesses.
We account for income taxes under the asset and liability method to provide for income taxes on all transactions recorded in the Consolidated Financial Statements. We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax benefit carryforwards. We determine deferred tax assets and liabilities at the end of each period using enacted tax rates.
In assessing the need for a valuation allowance, we estimate future reversals of existing temporary differences, future taxable earnings, with consideration for the feasibility of ongoing planning strategies, taxable income in carryback periods and past operating results to determine which deferred tax assets are more likely than not to be realized in the future. Changes to tax laws, statutory tax rates and future taxable earnings can have an impact on valuation allowances related to deferred tax assets.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are measured based on the largest amount of benefit that has a greater than fifty percent likelihood of being realized upon settlement with tax authorities. We recognize interest and penalties related to unrecognized tax benefits in income tax expense on our Consolidated Statements of Operations. See Note 19, “Income Taxes,” for further discussion.
Cash and Cash Equivalents
We consider highly liquid investments with original maturities of three months or less to be cash equivalents. Our policy is to invest cash in excess of short-term operating and debt service requirements in cash equivalents. Cash equivalents are stated at cost, which approximates fair value because of the short-term maturity of the instruments. Our policy is to transact with counterparties that are rated at least A- by Standard & Poor’s and A3 by Moody’s. Some of our operations are located in countries that are rated below A- or A3. In this case, we try to minimize our risk by holding cash and cash equivalents at financial institutions with which we have existing global relationships whenever possible, diversifying counterparty exposures and minimizing the amount held by each counterparty and within the country in total.
Time deposits or certificate of deposits with maturities greater than 90 days from the time of purchase are considered marketable securities and classified as other current assets in our Consolidated Balance Sheets. Any investments made in longer-term time deposits or maturities and conversion out of the longer-term time deposits during the current year are reflected as an investment in marketable securities on our Consolidated Statements of Cash Flows. As of December 31, 2020 and 2019, we had $0 and $13.2 million, respectively, deposited in time deposits with a maturity greater than 90 days.
Accounts Receivable Securitization Programs
We and a group of our U.S. operating subsidiaries maintain an accounts receivable securitization program under which they sell eligible U.S. accounts receivable to an indirectly wholly-owned subsidiary that was formed for the sole purpose of entering into this program. The wholly-owned subsidiary in turn may sell an undivided fractional ownership interest in these receivables with two banks and an issuer of commercial paper administered by these banks. The wholly-owned subsidiary retains the receivables it purchases from the operating subsidiaries. Any transfers of undivided fractional ownership interests of receivables under the U.S. receivables securitization program to the two banks and an issuer 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 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 Consolidated Balance Sheets.
We have a European accounts receivable securitization and purchase program with a special purpose vehicle, or SPV, two banks and a group of our European subsidiaries. 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 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 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 Consolidated Balance Sheets. See Note 10, “Accounts Receivable Securitization Programs,” for further details.
Accounts Receivable Factoring Agreements
The Company has entered factoring agreements and customers' supply chain financing arrangements, to sell certain trade receivables to unrelated third-party financial institutions. We account for these transactions in accordance with Accounting Standards Codification (“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 present the balances sold under the program to be excluded from Trade receivables, net on the 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. See Note 11, “Accounts Receivable Factoring Agreements,” for further details.
Trade Receivables, Net
In the normal course of business, we extend credit to customers that satisfy pre-defined credit criteria. Trade receivables, which are included on the Consolidated Balance Sheets, are stated at amounts due from our customers net of allowances for expected credit losses on trade receivables.
Allowance for 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 customers' 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. For the years ended December 31, 2020, 2019 and 2018, $3.7 million, $2.5 million and $2.3 million, respectively, was charged to our allowance for credit losses related to our trade receivables.
Supply Chain Financing Arrangements
We facilitate a voluntary supply chain financing program to provide some of our suppliers with the opportunity to sell receivables due from us (our accounts payables) to participating financial institutions at the sole discretion of both the suppliers and the financial institutions. These programs are administered by participating financial institutions. Should the supplier choose to participate in the program, it will receive payment from the financial institution in advance of agreed payment terms; our responsibility is limited to making payments to the respective financial institutions on the terms originally negotiated with our supplier. The range of payment terms is consistent regardless of a vendor's participation in the program. We monitor our days payable outstanding relative to our peers and industry trends in order to assess our conclusion that these programs continue to be trade payable programs and not indicative of borrowing arrangements. The liabilities continue to be presented as trade
payables in our consolidated balance sheets until they are paid, and they are reflected as cash flows from operating activities when settled.
Equity Investments
We hold strategic investments in other companies. These investments are accounted for under the measurement alternative described in ASC 321 for equity investments that do not have readily determinable fair values. These investments are measured at cost, less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. We do not exercise significant influence over these companies. These investments are carried on our Consolidated Balance Sheets within Other non-current assets. Changes in fair value based on impairment or resulting from observable price changes are recorded to net income and included within Other income (expense), net on the Consolidated Statements of Operations. See Note 16, “Fair Value Measurements, Equity Investments and Other Financial Instruments,” for further details.
Inventories, Net
Our inventories are determined using the FIFO method or a weighted average for some raw materials. We state inventories at the lower of cost or net realizable value. Costs related to inventories include raw materials, direct labor and manufacturing overhead which are included in cost of sales on the Consolidated Statements of Operations.
Property and Equipment, Net
We state property and equipment at cost, except for property and equipment that have been impaired, for which we reduce the carrying amount to the estimated fair value at the impairment date. We capitalize significant improvements and charge repairs and maintenance costs that do not extend the lives of the assets to expense as incurred. We remove the cost and accumulated depreciation of assets sold or otherwise disposed of from the accounts and recognize any resulting gain or loss upon the disposition of the assets.
We depreciate the cost of property and equipment over their estimated useful lives on a straight-line basis as follows: buildings, including leasehold improvements — 10 to 40 years; machinery and equipment — 5 to 10 years; and other property and equipment — 2 to 10 years.
Leases
Sealed Air is involved in leasing activity as both a lessee and a lessor. Sealed Air is the lessor primarily for equipment used by our customers to meet their packaging needs. Sealed Air is the lessee of property used for production and for sales and administrative functions, including real property, buildings, manufacturing and office equipment, offices and automobiles.
We recognize a right-of-use (“ROU”) asset and lease liability for all leases with terms of more than 12 months, in accordance with ASC 842. 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 ROU assets or lease liabilities. Recognition, measurement and presentation of expenses depends on classification as a finance or operating lease.
As a lessee, 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 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.
Our contractual obligations for operating leases as a lessor 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.
Goodwill and Identifiable Intangible Assets, Net
Goodwill represents the excess of the purchase price over the estimated fair value of the net assets acquired, including the amount assigned to identifiable intangible assets.
Identifiable intangible assets consist primarily of patents, licenses, trademarks, trade names, customer lists and relationships, non-compete agreements and technology-based intangibles and other contractual agreements. We amortize finite lived identifiable intangible assets over the shorter of their stated or statutory duration or their estimated useful lives, currently ranging from 2 to 28 years, on a straight-line basis to their estimated residual values and review them for impairment upon the identification of events or changes in circumstances that indicate the carrying amount of the asset may not be recoverable.
We use the acquisition method of accounting for all business combinations and do not amortize goodwill or intangible assets with indefinite useful lives. Goodwill and intangible assets with indefinite useful lives are tested for possible impairment annually during the fourth quarter of each fiscal year or more frequently if events or changes in circumstances indicate that the asset might be impaired. See Note 9, “Goodwill and Identifiable Intangible Assets, net,” for further details.
Impairment and Disposal of Long-Lived Assets
For finite-lived intangible assets, such as customer relationships, contracts, intellectual property, and for other long-lived assets, such as property, plant and equipment, whenever impairment indicators are present, we perform a review for impairment. The impairment model is a two step test under which we first calculate the recoverability of the carrying value by comparing the undiscounted value of the projected cash flows associated with the asset or asset group, including its estimated residual value, to the carrying amount. If the cash flows associated with the asset or asset group are less than the carrying value, we calculate the fair value of the asset, or asset group. If the carrying amount is found to be greater than the fair value, we record an impairment loss for the excess of carrying value over the fair value. In addition, in all cases of an impairment review, we re-evaluate the remaining useful lives of the assets and modify them, as appropriate.
Self-Insurance
We retain the obligation for specified claims and losses related to property, casualty, workers’ compensation and employee benefit claims. We accrue for outstanding reported claims and claims that have been incurred but not reported based upon management’s estimates of the aggregate liability for retained losses using historical experience, insurance company estimates and the estimated trends in claim values. Our estimates include management’s and independent insurance companies’ assumptions regarding economic conditions, the frequency and severity of claims and claim development patterns and settlement practices. These estimates and assumptions are monitored and evaluated on a periodic basis by management and are adjusted when warranted by changing circumstances. Although management believes it has the ability to adequately project and record estimated claim payments, actual results could differ significantly from the recorded liabilities.
Pensions
For a number of our U.S. and international employees, we maintain defined benefit pension plans. We are required to make assumptions regarding the valuation of projected benefit obligations and the performance of plan assets for our defined benefit pension plans.
We review and approve the assumptions made by our third-party actuaries regarding the valuation of benefit obligations and performance of plan assets. The most significant assumptions used to determine the benefit obligation and expense of the pension plans are the discount rate used to measure future obligations and the expected future rate of return on plan assets. The measurement date used to determine benefit obligations and plan assets is December 31. In general, changes to these assumptions could impact our consolidated financial condition or results of operation.
See Note 17, “Profit Sharing, Retirement Savings Plans and Defined Benefit Pension Plans,” for information about the Company’s benefit plans.
Net Earnings per Common Share
Basic earnings per common share is calculated by dividing net earnings available to common stockholders by the weighted average number of common shares outstanding for the period. Non-vested share-based payment awards that contain non-forfeitable rights to dividends are treated as participating securities and therefore included in computing earnings per common share using the “two-class method.” The two-class method is an earnings allocation formula that calculates basic and diluted net earnings per common share for each class of common stock separately based on dividends declared and participation rights in undistributed earnings. Non-vested restricted stock issued under our Omnibus Plan prior to January 1, 2018 are considered participating securities since these securities have non-forfeitable rights to dividends when we declare a dividend
during the contractual vesting period of the share-based payment award and are therefore included in our earnings allocation formula using the two-class method.
When calculating diluted net earnings per common share, the more dilutive effect of applying either of the following is presented: (a) the two-class method (described above) assuming that the participating security is not exercised or converted, or, (b) the treasury stock method for the participating security. Our diluted net earnings per common share for all periods presented was calculated using the two-class method since such method was more dilutive.
See Note 24, “Net Earnings Per Common Share,” for further discussion.
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 Consolidated Financial Statements.
In April 2019, the FASB issued ASU 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 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 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 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 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. See Note 17, “Profit Sharing, Retirement Savings Plans and Defined Benefit Pension Plans,” and Note 18, “Other Post-Employment Benefits and Other Employee Benefit Plans” for new disclosures related to the cash balance interest crediting rate and qualitative discussion of discount rates and drivers of actuarial losses in the current year.
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 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. Cumulative gross-up or adjustments to our allowance for credit losses as a result of our adoption of ASU 2016-13 were not material. Based on financial instruments currently held by us, the adoption of ASU 2016-13 impacts our trade receivables, specifically our allowance for doubtful accounts (allowance for credit losses on trade receivables). As part of our adoption of ASU 2016-13, we have expanded our accounting policy disclosures related to credit losses. See above, “Allowance for Credit Losses,” for additional information.
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,” 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 in fresh red meat, smoked and processed meats, poultry, seafood, plant-based and dairy (solid and liquids) markets worldwide. Food offers integrated packaging materials and automated equipment solutions to increase food safety, extend shelf life, automate processes and optimize total cost. Its materials, automated equipment and service 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, consumer goods, pharmaceutical and medical devices and industrial manufacturing. Protective solutions are designed to
increase our customers' packaging velocity, minimize packaging waste, reduce labor dependencies and address dimensional weight challenges. Recent acquisitions in Protective include AFP, Inc. (“AFP”) in 2018 and Automated Packaging Systems, LLC in 2019.
Protective benefits from the continued expansion of e-Commerce, increasing freight costs, scarcity of labor, and increasing demand for automation and sustainable packaging solutions. Protective solutions are sold through a strategic network of distributors as well as directly to our customers, including, but not limited to, fabricators, original equipment manufacturers, contract manufacturers, logistics partners, and e-Commerce/fulfillment operations. 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 years ended December 31, 2020, 2019 and 2018 from performance obligations satisfied in previous reporting periods was $4.5 million, $5.0 million and $5.6 million, 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 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 ASC 842.
Disaggregated Revenue
For the years ended December 31, 2020, 2019 and 2018, revenues from contracts with customers summarized by Segment and Geography were as follows:
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|
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|
Year Ended December 31, 2020
|
(In millions)
|
|
Food
|
|
Protective
|
|
Total
|
North America
|
|
$
|
1,587.3
|
|
|
$
|
1,321.4
|
|
|
$
|
2,908.7
|
|
EMEA
|
|
617.9
|
|
|
410.1
|
|
|
1,028.0
|
|
APAC
|
|
406.4
|
|
|
324.1
|
|
|
730.5
|
|
South America
|
|
192.1
|
|
|
14.7
|
|
|
206.8
|
|
Topic 606 Segment Revenue
|
|
2,803.7
|
|
|
2,070.3
|
|
|
4,874.0
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Non-Topic 606 Revenue (Leasing: Sales-type and Operating)
|
|
21.8
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|
|
7.4
|
|
|
29.2
|
|
Total
|
|
$
|
2,825.5
|
|
|
$
|
2,077.7
|
|
|
$
|
4,903.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
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(In millions)
|
|
Food
|
|
Protective
|
|
Total
|
North America
|
|
$
|
1,612.2
|
|
|
$
|
1,197.9
|
|
|
$
|
2,810.1
|
|
EMEA
|
|
617.1
|
|
|
388.2
|
|
|
1,005.3
|
|
APAC
|
|
413.7
|
|
|
299.0
|
|
|
712.7
|
|
South America
|
|
216.2
|
|
|
16.9
|
|
|
233.1
|
|
Topic 606 Segment Revenue
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|
2,859.2
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|
|
1,902.0
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|
|
4,761.2
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Non-Topic 606 Revenue (Leasing: Sales-type and Operating)
|
|
21.3
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|
|
8.6
|
|
|
29.9
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Total
|
|
$
|
2,880.5
|
|
|
$
|
1,910.6
|
|
|
$
|
4,791.1
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Year Ended December 31, 2018
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(In millions)
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|
Food
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|
Protective
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Total
|
North America
|
|
$
|
1,599.8
|
|
|
$
|
1,115.7
|
|
|
$
|
2,715.5
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EMEA
|
|
653.1
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|
|
381.2
|
|
|
1,034.3
|
|
APAC
|
|
424.1
|
|
|
300.8
|
|
|
724.9
|
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South America
|
|
211.0
|
|
|
17.9
|
|
|
228.9
|
|
Topic 606 Segment Revenue
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|
2,888.0
|
|
|
1,815.6
|
|
|
4,703.6
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Non-Topic 606 Revenue (Leasing: Sales-type and Operating)
|
|
20.1
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|
|
9.0
|
|
|
29.1
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Total
|
|
$
|
2,908.1
|
|
|
$
|
1,824.6
|
|
|
$
|
4,732.7
|
|
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). The following contract assets and liabilities were included in our Consolidated Balance Sheets as of December 31, 2020 and 2019:
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|
|
|
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|
|
December 31,
|
(In millions)
|
|
2020
|
|
|
|
2019
|
Contract assets
|
|
$
|
1.4
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract liabilities
|
|
$
|
20.3
|
|
|
|
|
$
|
16.7
|
|
The contract liability balances represent deferred revenue, primarily related to equipment accruals. Revenue recognized in the years ended December 31, 2020, 2019 and 2018, that was included in the contract liability balance at the beginning of the period was $14.0 million, $5.6 million, and $4.9 million, respectively. This revenue was driven primarily by equipment performance obligations being satisfied.
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 December 31, 2020 and 2019, as well as the expected timing of recognition of that transaction price.
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|
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|
|
|
|
|
|
|
|
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December 31,
|
(In millions)
|
|
2020
|
|
2019
|
Short-Term (12 months or less)(1)
|
|
$
|
7.3
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|
|
$
|
6.2
|
|
Long-Term
|
|
13.0
|
|
|
10.5
|
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Total transaction price
|
|
$
|
20.3
|
|
|
$
|
16.7
|
|
(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 balances at December 31, 2020 and 2019 were as follows:
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|
|
|
|
|
|
|
|
|
December 31,
|
(in millions)
|
|
2020
|
|
2019
|
Short-Term (12 months or less)
|
|
$
|
5.4
|
|
|
$
|
4.9
|
|
Long-Term
|
|
11.9
|
|
|
10.6
|
|
Total lease receivables (Sales-type and Operating)
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|
$
|
17.3
|
|
|
$
|
15.5
|
|
Lessee
Sealed Air has contractual obligations as a lessee with respect to warehouses, offices, and manufacturing facilities, IT equipment, automobiles, and material production equipment.
The following table details our lease obligations included in our Consolidated Balance Sheets.
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|
|
|
|
|
|
December 31,
|
(in millions)
|
|
2020
|
|
2019
|
Other non-current assets:
|
|
|
|
|
Finance leases - ROU assets
|
|
$
|
58.2
|
|
|
$
|
54.8
|
|
Finance leases - Accumulated depreciation
|
|
(22.6)
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|
|
(15.0)
|
|
Operating lease right-of-use-assets:
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|
|
|
|
Operating leases - ROU assets
|
|
127.4
|
|
|
118.8
|
|
Operating leases - Accumulated depreciation
|
|
(51.3)
|
|
|
(28.7)
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|
Total lease assets
|
|
$
|
111.7
|
|
|
$
|
129.9
|
|
Current portion of long-term debt:
|
|
|
|
|
Finance leases
|
|
$
|
(10.5)
|
|
|
$
|
(10.4)
|
|
Current portion of operating lease liabilities:
|
|
|
|
|
Operating leases
|
|
(24.3)
|
|
|
(26.2)
|
|
Long-term debt, less current portion:
|
|
|
|
|
Finance leases
|
|
(23.9)
|
|
|
(28.7)
|
|
Long-term operating lease liabilities, less current portion:
|
|
|
|
|
Operating leases
|
|
(53.2)
|
|
|
(65.7)
|
|
Total lease liabilities
|
|
$
|
(111.9)
|
|
|
$
|
(131.0)
|
|
At December 31, 2020, estimated future minimum annual rental commitments under non-cancelable real and personal property leases were as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Finance leases
|
|
Operating leases
|
2021
|
|
$
|
11.9
|
|
|
$
|
27.2
|
|
2022
|
|
8.9
|
|
|
19.9
|
|
2023
|
|
4.2
|
|
|
13.7
|
|
2024
|
|
2.2
|
|
|
8.7
|
|
2025
|
|
1.8
|
|
|
6.0
|
|
Thereafter
|
|
11.8
|
|
|
10.9
|
|
Total lease payments
|
|
40.8
|
|
|
86.4
|
|
Less: Interest
|
|
(6.4)
|
|
|
(8.9)
|
|
Present value of lease liabilities
|
|
$
|
34.4
|
|
|
$
|
77.5
|
|
The following lease cost is included in our Consolidated Statements of Operations:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in millions)
|
|
2020
|
|
2019
|
Lease cost(1)
|
|
|
|
|
Finance leases
|
|
|
|
|
Amortization of ROU assets
|
|
$
|
10.9
|
|
|
$
|
9.1
|
|
Interest on lease liabilities
|
|
1.8
|
|
|
2.1
|
|
Operating leases
|
|
31.1
|
|
|
32.9
|
|
Short-term lease cost
|
|
3.7
|
|
|
5.9
|
|
Variable lease cost
|
|
5.8
|
|
|
5.2
|
|
Total lease cost
|
|
$
|
53.3
|
|
|
$
|
55.2
|
|
(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 Consolidated Statements of Operations, depending on the use of the leased asset. Interest on lease liabilities is recorded to Interest expense, net on the Consolidated Statements of Operations.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in millions)
|
|
2020
|
|
2019
|
Other information:
|
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flows - finance leases
|
|
$
|
4.4
|
|
|
$
|
5.1
|
|
Operating cash flows - operating leases
|
|
$
|
33.3
|
|
|
$
|
34.7
|
|
Financing cash flows - finance leases
|
|
$
|
11.6
|
|
|
$
|
9.3
|
|
|
|
|
|
|
ROU assets obtained in exchange for new finance lease liabilities
|
|
$
|
7.1
|
|
|
$
|
21.3
|
|
ROU assets obtained in exchange for new operating lease liabilities
|
|
$
|
14.3
|
|
|
$
|
34.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
Weighted average information:
|
|
|
|
|
Finance leases
|
|
|
|
|
Remaining lease term (in years)
|
|
6.1
|
|
6.4
|
Discount rate
|
|
4.7
|
%
|
|
4.9
|
%
|
Operating leases
|
|
|
|
|
Remaining lease term (in years)
|
|
4.5
|
|
4.9
|
Discount rate
|
|
5.0
|
%
|
|
5.2
|
%
|
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., a manufacturer of automated bagging systems. The acquisition is included in our Protective reporting segment. Automated Packaging Systems offers opportunities to expand the Company's automated solutions and into adjacent markets.
Cash paid for Automated Packaging Systems was $441.4 million in cash. The opening balance sheet included $58.2 million of assumed liabilities in connection with a deferred incentive compensation plan for Automated Packaging System's European employees. Of this amount $19.0 million and $19.7 million was paid during the years ended December 31, 2020 and 2019, respectively. Sealed Air is expected to make the remaining payment to the deferred incentive compensation plan participants in 2021.
The purchase price was primarily funded with proceeds from the incremental term facility provided for under an amendment to our Third Amended and Restated Credit Agreement, as described in Note 14, "Debt and Credit Facilities," of the Notes. For the years ended December 31, 2020 and 2019, transaction expenses recognized for the Automated Packaging Systems acquisition were $0.3 million and $3.3 million, respectively. These expenses are included within selling, general and administrative expenses in the Consolidated Statements of Operations.
The following table summarizes the consideration transferred to acquire Automated Packaging Systems and the allocation of the purchase price among the assets acquired and liabilities assumed, including measurement period adjustments recorded through the finalized purchase price allocation on August 1, 2020.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
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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 year ended December 31, 2020 through finalization of the purchase price allocation on August 1, 2020 were primarily a result of a favorable net working capital and purchase price settlement with the seller of $4.3 million during the first quarter of 2020.
The following table summarizes the identifiable intangible assets, net and their useful lives.
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Amount
|
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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 provide for the Company, as well as the expected growth potential in acquired automated and sustainable solutions. Goodwill allocated to Automated Packaging System's U.S. entities is deductible for tax purposes. Goodwill allocated to Automated Packaging
Systems' foreign entities is not deductible for tax purposes. The goodwill balance has been recorded to the Protective reportable segment.
Other non-current assets at the opening balance sheet date includes the net overfunded position of a closed defined benefit pension plan in the United Kingdom. At December 31, 2020, the plan was in an underfunded position and is classified within other non-current liabilities on our Consolidated Balance Sheet. Refer to Note 17, "Profit Sharing, Retirement Savings Plans and Defined Benefit Pension Plans," 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 12, "Restructuring Activities," for more detail on the Company's restructuring activity.
The inclusion of Automated Packaging Systems 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.
Acquisition of AFP, Inc,
On August 1, 2018, the Company acquired AFP, Inc., a privately held fabricator of foam, corrugated, molded pulp and wood packaging solutions. The acquisition is included in our Protective reporting segment. This acquisition expands our protective packaging offerings in the electronic, transportation and industrial markets with custom engineered applications. We acquired 100% of AFP shares for an estimated consideration of $74.1 million, excluding $3.3 million of cash acquired.
The following table summarizes the consideration transferred to acquire AFP and the final allocation of the purchase price among the assets acquired and liabilities assumed.
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Preliminary Allocation
|
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Measurement Period
|
|
Final Allocation
|
(In millions)
|
|
As of August 1, 2018
|
|
Adjustments
|
|
As of September 30, 2019
|
Total consideration transferred
|
|
$
|
70.8
|
|
|
$
|
3.3
|
|
|
$
|
74.1
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
2.9
|
|
|
0.4
|
|
|
3.3
|
|
Trade receivables, net
|
|
30.8
|
|
|
—
|
|
|
30.8
|
|
Inventories, net
|
|
7.1
|
|
|
—
|
|
|
7.1
|
|
Prepaid expenses and other current assets
|
|
0.7
|
|
|
—
|
|
|
0.7
|
|
Property and equipment, net
|
|
3.5
|
|
|
(0.4)
|
|
|
3.1
|
|
Identifiable intangible assets, net
|
|
18.6
|
|
|
0.7
|
|
|
19.3
|
|
Goodwill
|
|
21.6
|
|
|
1.0
|
|
|
22.6
|
|
Other non-current assets
|
|
0.7
|
|
|
(0.4)
|
|
|
0.3
|
|
Total assets
|
|
$
|
85.9
|
|
|
$
|
1.3
|
|
|
$
|
87.2
|
|
Liabilities:
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
—
|
|
|
0.1
|
|
|
0.1
|
|
Accounts payable
|
|
13.8
|
|
|
(2.2)
|
|
|
11.6
|
|
|
|
|
|
|
|
|
Other current liabilities
|
|
1.3
|
|
|
(0.1)
|
|
|
1.2
|
|
Long-term debt, less current portion
|
|
—
|
|
|
0.2
|
|
|
0.2
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
15.1
|
|
|
$
|
(2.0)
|
|
|
$
|
13.1
|
|
The following table summarizes the identifiable intangible assets, net and their useful lives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
Useful life
|
|
|
(in millions)
|
|
(in years)
|
Customer relationships
|
|
$
|
14.9
|
|
|
11
|
Trademarks and tradenames
|
|
4.4
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets with definite lives
|
|
$
|
19.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill associated with the AFP acquisition is deductible for tax purposes.
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 (as identified below). 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:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In millions)
|
|
2020
|
|
2019
|
|
2018
|
Net Sales
|
|
|
|
|
|
|
Food
|
|
$
|
2,825.5
|
|
|
$
|
2,880.5
|
|
|
$
|
2,908.1
|
|
As a % of Total Company net sales
|
|
57.6
|
%
|
|
60.1
|
%
|
|
61.4
|
%
|
Protective
|
|
2,077.7
|
|
|
1,910.6
|
|
|
1,824.6
|
|
As a % of Total Company net sales
|
|
42.4
|
%
|
|
39.9
|
%
|
|
38.6
|
%
|
Total Company Net Sales
|
|
$
|
4,903.2
|
|
|
$
|
4,791.1
|
|
|
$
|
4,732.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In millions)
|
|
2020
|
|
2019
|
|
2018
|
Adjusted EBITDA from continuing operations
|
|
|
|
|
|
|
Food
|
|
$
|
647.5
|
|
|
$
|
629.3
|
|
|
$
|
577.8
|
|
Adjusted EBITDA Margin
|
|
22.9
|
%
|
|
21.8
|
%
|
|
19.9
|
%
|
Protective
|
|
408.0
|
|
|
349.9
|
|
|
318.6
|
|
Adjusted EBITDA Margin
|
|
19.6
|
%
|
|
18.3
|
%
|
|
17.5
|
%
|
Corporate
|
|
(4.4)
|
|
|
(14.4)
|
|
|
(6.9)
|
|
Total Company Adjusted EBITDA from continuing operations
|
|
$
|
1,051.1
|
|
|
$
|
964.8
|
|
|
$
|
889.5
|
|
Adjusted EBITDA Margin
|
|
21.4
|
%
|
|
20.1
|
%
|
|
18.8
|
%
|
The following table shows a reconciliation of net earnings before income tax provision to Total Company Adjusted EBITDA from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In millions)
|
|
2020
|
|
2019
|
|
2018
|
Earnings before income tax provision
|
|
$
|
626.2
|
|
|
$
|
370.3
|
|
|
$
|
457.8
|
|
Interest expense, net
|
|
174.4
|
|
|
184.1
|
|
|
177.9
|
|
Depreciation and amortization, net of adjustments(1)
|
|
216.5
|
|
|
184.5
|
|
|
159.0
|
|
Special Items:
|
|
|
|
|
|
|
Restructuring charges(2)
|
|
11.0
|
|
|
41.9
|
|
|
47.8
|
|
Other restructuring associated costs(3)
|
|
19.5
|
|
|
60.3
|
|
|
15.8
|
|
Foreign currency exchange loss due to highly inflationary economies
|
|
4.7
|
|
|
4.6
|
|
|
2.5
|
|
Loss on debt redemption and refinancing activities
|
|
—
|
|
|
16.1
|
|
|
1.9
|
|
Increase in fair value of equity investment
|
|
(15.1)
|
|
|
—
|
|
|
—
|
|
Charges related to acquisition and divestiture activity
|
|
7.1
|
|
|
14.9
|
|
|
34.2
|
|
Charges related to the Novipax settlement agreement
|
|
—
|
|
|
59.0
|
|
|
—
|
|
|
|
|
|
|
|
|
Gain from class-action litigation settlement
|
|
—
|
|
|
—
|
|
|
(14.9)
|
|
|
|
|
|
|
|
|
Other Special Items(4)
|
|
6.8
|
|
|
29.1
|
|
|
7.5
|
|
Pre-tax impact of Special Items
|
|
34.0
|
|
|
225.9
|
|
|
94.8
|
|
Total Company Adjusted EBITDA from continuing operations
|
|
$
|
1,051.1
|
|
|
$
|
964.8
|
|
|
$
|
889.5
|
|
(1) Depreciation and amortization by segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In millions)
|
|
2020
|
|
2019
|
|
2018
|
Food
|
|
$
|
122.2
|
|
|
$
|
110.3
|
|
|
$
|
105.4
|
|
Protective
|
|
94.3
|
|
|
75.0
|
|
|
56.0
|
|
|
|
|
|
|
|
|
Total Company depreciation and amortization(i)
|
|
216.5
|
|
|
185.3
|
|
|
161.4
|
|
Depreciation and amortization adjustments(ii)
|
|
—
|
|
|
(0.8)
|
|
|
(2.4)
|
|
Depreciation and amortization, net of adjustments
|
|
$
|
216.5
|
|
|
$
|
184.5
|
|
|
$
|
159.0
|
|
(i)Includes share-based incentive compensation of $42.3 million in 2020, $34.4 million in 2019 and $29.9 million in 2018.
(ii)Represents depreciation and amortization which is considered to be related to a Special Item and is also included in the Special Items presented in the above table.
(2) Restructuring and other charges by segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In millions)
|
|
2020
|
|
2019
|
|
2018
|
Food
|
|
$
|
3.2
|
|
|
$
|
23.5
|
|
|
$
|
17.7
|
|
Protective
|
|
7.8
|
|
|
18.4
|
|
|
30.1
|
|
Total Company restructuring charges
|
|
$
|
11.0
|
|
|
$
|
41.9
|
|
|
$
|
47.8
|
|
(3) Other restructuring associated costs for the year ended December 31, 2020, primarily relate to fees paid to third-party consultants in support of our Reinvent SEE business transformation. Other restructuring associated costs for the year ended December 31, 2019, primarily relate to fees paid to third-party consultants in support of Reinvent SEE and costs related to property consolidations resulting from Reinvent SEE.
(4) Other Special Items for the years ended December 31, 2020, 2019 and 2018, primarily included fees related to professional services, including legal fees, directly associated with Special Items of events that are considered one-time or infrequent in nature.
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In millions)
|
|
2020
|
|
2019
|
Assets allocated to segments:
|
|
|
|
|
Food
|
|
$
|
2,019.1
|
|
|
$
|
1,997.8
|
|
Protective
|
|
2,795.4
|
|
|
2,762.9
|
|
Total segments
|
|
$
|
4,814.5
|
|
|
$
|
4,760.7
|
|
Assets not allocated:
|
|
|
|
|
Cash and cash equivalents
|
|
548.7
|
|
|
262.4
|
|
Assets held for sale
|
|
0.3
|
|
|
2.8
|
|
Income tax receivables
|
|
71.2
|
|
|
32.8
|
|
Other receivables
|
|
69.5
|
|
|
80.3
|
|
Deferred taxes
|
|
187.1
|
|
|
238.6
|
|
Other
|
|
392.5
|
|
|
387.6
|
|
Total
|
|
$
|
6,083.8
|
|
|
$
|
5,765.2
|
|
Geographic Information
The following table shows net sales and total long-lived assets allocated by geography. Sales are attributed to the country/geography in which they originate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In millions)
|
|
2020
|
|
2019
|
|
2018
|
Net sales(1):
|
|
|
|
|
|
|
North America(1)
|
|
$
|
2,928.1
|
|
|
$
|
2,828.1
|
|
|
$
|
2,734.9
|
|
EMEA
|
|
1,031.6
|
|
|
1,010.4
|
|
|
1,038.5
|
|
APAC
|
|
736.0
|
|
|
718.8
|
|
|
729.8
|
|
South America
|
|
207.5
|
|
|
233.8
|
|
|
229.5
|
|
Total
|
|
$
|
4,903.2
|
|
|
$
|
4,791.1
|
|
|
$
|
4,732.7
|
|
Total long-lived assets(2)(3):
|
|
|
|
|
|
|
North America(2)
|
|
$
|
948.4
|
|
|
$
|
919.3
|
|
|
|
EMEA
|
|
386.0
|
|
|
345.8
|
|
|
|
APAC
|
|
247.4
|
|
|
248.3
|
|
|
|
South America
|
|
39.8
|
|
|
50.2
|
|
|
|
Total
|
|
$
|
1,621.6
|
|
|
$
|
1,563.6
|
|
|
|
(1)Net sales to external customers within the U.S. were $2,607.3 million, $2,501.6 million and $2,402.3 million for the years ended December 31, 2020, 2019 and 2018, respectively. No non-U.S. country accounted for net sales in excess of 10% of consolidated net sales for the years ended December 31, 2020, 2019 or 2018.
(2)Total long-lived assets in the U.S. were $921.4 million and $893.8 million at December 31, 2020 and 2019, respectively. No non-U.S. country had long-lived assets in excess of 10% of consolidated long-lived assets at December 31, 2020 or 2019.
(3)Total long-lived assets represent total assets excluding total current assets, deferred tax assets, goodwill, and intangible assets.
Note 7 Inventories, net
The following table details our inventories, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In millions)
|
|
2020
|
|
2019
|
Raw materials
|
|
$
|
113.8
|
|
|
$
|
99.2
|
|
Work in process
|
|
139.7
|
|
|
136.2
|
|
Finished goods
|
|
343.2
|
|
|
334.9
|
|
Total
|
|
$
|
596.7
|
|
|
$
|
570.3
|
|
Note 8 Property and Equipment, net
The following table details our property and equipment, net.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In millions)
|
|
2020
|
|
2019
|
Land and improvements
|
|
$
|
50.8
|
|
|
$
|
50.7
|
|
Buildings
|
|
786.5
|
|
|
747.0
|
|
Machinery and equipment
|
|
2,543.5
|
|
|
2,453.2
|
|
Other property and equipment
|
|
133.5
|
|
|
141.3
|
|
Construction-in-progress
|
|
150.1
|
|
|
127.9
|
|
Property and equipment, gross
|
|
3,664.4
|
|
|
3,520.1
|
|
Accumulated depreciation and amortization
|
|
(2,474.7)
|
|
|
(2,378.2)
|
|
Property and equipment, net
|
|
$
|
1,189.7
|
|
|
$
|
1,141.9
|
|
The following table details our interest cost capitalized and depreciation and amortization expense for property and equipment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In millions)
|
|
2020
|
|
2019
|
|
2018
|
Interest cost capitalized
|
|
$
|
5.6
|
|
|
$
|
8.4
|
|
|
$
|
6.3
|
|
Depreciation and amortization expense for property and equipment
|
|
$
|
136.6
|
|
|
$
|
122.0
|
|
|
$
|
115.9
|
|
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. For our 2020 annual review, the Company elected to bypass the optional qualitative assessment and performed a quantitative assessment by reporting unit as of October 1, 2020. Based on the results of the quantitative assessment, which indicated a fair value in excess of carrying amount for each of the Company's designated reporting units, we concluded there was no impairment of goodwill. There have been no significant events or circumstances affecting the valuation of goodwill subsequent to the quantitative assessment performed as of October 1, 2020. As part of our 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.
Allocation of Goodwill to Reporting Segment
The following table shows our goodwill balances by reportable segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Food
|
|
Protective
|
|
Total
|
Gross Carrying Value at December 31, 2018
|
|
$
|
568.9
|
|
|
$
|
1,568.9
|
|
|
$
|
2,137.8
|
|
Accumulated impairment
|
|
(49.2)
|
|
|
(141.0)
|
|
|
(190.2)
|
|
Carrying Value at December 31, 2018
|
|
$
|
519.7
|
|
|
$
|
1,427.9
|
|
|
$
|
1,947.6
|
|
Acquisition, purchase price and other adjustments
|
|
6.3
|
|
|
257.0
|
|
|
263.3
|
|
Currency translation
|
|
2.0
|
|
|
4.1
|
|
|
6.1
|
|
Gross Carrying Value at December 31, 2019
|
|
$
|
577.2
|
|
|
$
|
1,830.0
|
|
|
$
|
2,407.2
|
|
Accumulated impairment
|
|
(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
|
|
—
|
|
|
(5.3)
|
|
|
(5.3)
|
|
Currency translation
|
|
2.5
|
|
|
8.9
|
|
|
11.4
|
|
Gross Carrying Value at December 31, 2020
|
|
$
|
579.7
|
|
|
$
|
1,833.6
|
|
|
$
|
2,413.3
|
|
Accumulated impairment(1)
|
|
(49.5)
|
|
|
(141.2)
|
|
|
(190.7)
|
|
Carrying Value at December 31, 2020
|
|
$
|
530.2
|
|
|
$
|
1,692.4
|
|
|
$
|
2,222.6
|
|
(1) The change in accumulated impairment from December 31, 2019 to December 31, 2020 is due to the impact of foreign currency translation.
As noted above, it was determined under a quantitative assessment that there was no impairment of goodwill. However, if we become aware of indicators of impairment in future periods, we may be required to perform an interim assessment for some or all of our reporting units before the next annual assessment. Examples of such indicators may include a decrease in expected net earnings, adverse equity market conditions, a decline in current market multiples, a decline in our common stock price, a significant adverse change in legal factors or business climates, an adverse action or assessment by a regulator, unanticipated competition, strategic decisions made in response to economic or competitive conditions, or a more likely than not expectation that a reporting unit or a significant portion of a reporting unit will be sold or disposed of. In the event of significant adverse changes of the nature described above, we may have to recognize a non-cash impairment of goodwill, which could have a material adverse effect on our consolidated financial condition and results of operations.
Identifiable Intangible Assets, net
The following tables summarize our identifiable intangible assets, net with definite and indefinite useful lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
(In millions)
|
|
Gross
Carrying
Value
|
|
Accumulated
Amortization
|
|
Net
|
|
Gross
Carrying
Value
|
|
Accumulated
Amortization
|
|
Net
|
Customer relationships
|
|
$
|
105.2
|
|
|
$
|
(37.2)
|
|
|
$
|
68.0
|
|
|
$
|
102.0
|
|
|
$
|
(30.5)
|
|
|
$
|
71.5
|
|
Trademarks and tradenames
|
|
31.3
|
|
|
(8.5)
|
|
|
22.8
|
|
|
31.1
|
|
|
(4.3)
|
|
|
26.8
|
|
Software
|
|
104.7
|
|
|
(69.7)
|
|
|
35.0
|
|
|
95.3
|
|
|
(62.8)
|
|
|
32.5
|
|
Technology
|
|
66.7
|
|
|
(33.0)
|
|
|
33.7
|
|
|
66.8
|
|
|
(27.2)
|
|
|
39.6
|
|
Contracts
|
|
13.6
|
|
|
(11.0)
|
|
|
2.6
|
|
|
13.2
|
|
|
(10.4)
|
|
|
2.8
|
|
Total intangible assets with definite lives
|
|
321.5
|
|
|
(159.4)
|
|
|
162.1
|
|
|
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
|
|
$
|
330.4
|
|
|
$
|
(159.4)
|
|
|
$
|
171.0
|
|
|
$
|
317.3
|
|
|
$
|
(135.2)
|
|
|
$
|
182.1
|
|
The following table shows the estimated future amortization expense at December 31, 2020.
|
|
|
|
|
|
|
|
|
Year
|
|
Amount
(in millions)
|
2021
|
|
$
|
35.4
|
|
2022
|
|
26.1
|
|
2023
|
|
19.8
|
|
2024
|
|
14.3
|
|
2025
|
|
14.1
|
|
Thereafter
|
|
52.4
|
|
Total
|
|
$
|
162.1
|
|
Amortization expense was $37.5 million in 2020, $28.9 million in 2019 and $15.7 million in 2018.
The following table shows the remaining weighted average useful life of our definite lived intangible assets as of December 31, 2020.
|
|
|
|
|
|
|
Remaining weighted average useful lives
|
Customer relationships
|
11.7
|
Trademarks and trade names
|
9.1
|
Technology
|
4.1
|
Contracts
|
6.4
|
Total identifiable intangible assets, net with definite lives
|
8.0
|
Expected future cash flows associated with the Company's intangible assets are not expected to be materially affected by the Company's intent or ability to renew or extend the arrangements. Based on our experience with similar agreements, we expect to continue to renew contracts held as intangibles through the end of the remaining useful lives.
During the fourth quarter of 2020, we identified a triggering event related to our foam fabrication producing asset group within our Protective segment. The asset group's primary asset was determined to be the intangible asset of Customer Relationships, which has a remaining useful life of approximately 12 years. The triggering event was related to the finalization of the upcoming year's financial projections and budget which indicated short-term deterioration in the profitability of the specific asset group's North American operations. The short-term deterioration is driven, in part, by a decrease in expected sales of a particular customer within the region. The decline in expected performance identified as a triggering event is not expected to be material to the overall segment or total Company. We performed a quantitative analysis of the recoverability of the net asset group and determined that the assets were not impaired, as the expected cash flows, including the residual value of the net asset group exceeded the carrying value. Key assumptions used to estimate the recoverable amount of the asset group were expected future sales performance and efficiency and cost improvements resulting in cash flow growth over the remaining useful life of the primary asset. The asset group tested for impairment had a net carrying value of $120.5 million as of the date of testing, of which $47.6 million was attributable to intangible assets.
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 with two banks and issuers of commercial paper administered by these banks. The wholly-owned subsidiary retains the receivables it purchases from the operating subsidiaries. Any transfers of fractional ownership interests of receivables under the U.S. receivables securitization program to the two banks and issuers of commercial paper administered by these banks are considered secured borrowings with pledge of collateral and will be classified as short-term borrowings on our 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 Consolidated Balance Sheets.
As of December 31, 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 December 31, 2020, the amount available to us 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 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 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 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 Consolidated Balance Sheets.
As of December 31, 2020, the maximum purchase limit for receivable interests was €80.0 million ($98.4 million equivalent), subject to availability limits. The terms and provisions of this program are similar to our U.S. program discussed above. As of December 31, 2020, the amount available under this program before utilization was €77.7 million ($95.5 million equivalent).
This program expires annually in the third quarter and is renewable.
Utilization of Our Accounts Receivable Securitization Programs
As of December 31, 2020 and 2019, there were no outstanding borrowings 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 $0.4 million, $0.8 million and $0.6 million for the years ended December 31, 2020, 2019 and 2018, 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 December 31, 2020.
Note 11 Accounts Receivable Factoring Agreements
The Company has entered into factoring agreements and customers' supply chain financing arrangements, to sell certain trade 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 true-sale treatment when the appropriate criteria is met, which permits the Company to present the balances sold under the program to be excluded from Trade receivables, net on the 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 factored under this program for the year ended December 31, 2020 and 2019 were $465.6 million and $351.3 million, respectively. The fees associated with transfer of receivables for all programs were approximately $2.2 million, $3.5 million and $2.0 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Note 12 Restructuring Activities
For the year ended December 31, 2020, the Company incurred $11.0 million of restructuring charges and $19.6 million 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 business transformation.
Our primary restructuring program (“Program”) is defined as the initiatives associated with our Reinvent SEE business transformation in addition to the conclusion of our previously existing restructuring programs at the time of Reinvent SEE's approval. The Reinvent SEE business transformation 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 the 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
|
|
$
|
340
|
|
|
$
|
355
|
|
|
$
|
(334)
|
|
|
$
|
6
|
|
|
$
|
21
|
|
Other expenses associated with the Program
|
|
255
|
|
|
270
|
|
|
(220)
|
|
|
35
|
|
|
50
|
|
Total expense
|
|
595
|
|
|
625
|
|
|
(554)
|
|
|
41
|
|
|
71
|
|
Capital expenditures
|
|
245
|
|
|
260
|
|
(239)
|
|
|
6
|
|
|
21
|
|
Total estimated cash cost(1)
|
|
$
|
840
|
|
|
$
|
885
|
|
|
$
|
(793)
|
|
|
$
|
47
|
|
|
$
|
92
|
|
(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 Program.
The Company also has a restructuring program related to recent acquisitions. We incurred approximately $1.7 million and $2.3 million in restructuring charges related to this activity during the years ended December 31, 2020 and 2019, respectively. See Note 5, "Acquisitions," of the Notes for additional information related to our acquisitions.
The following table details our aggregate restructuring activities as reflected in the Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In millions)
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
Other associated costs(1)
|
|
$
|
19.6
|
|
|
$
|
60.3
|
|
|
$
|
13.9
|
|
Restructuring charges
|
|
11.0
|
|
|
41.9
|
|
|
47.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charges
|
|
$
|
30.6
|
|
|
$
|
102.2
|
|
|
$
|
61.7
|
|
Capital expenditures
|
|
$
|
0.4
|
|
|
$
|
3.4
|
|
|
$
|
1.0
|
|
(1) Other associated costs excludes non-cash cost of $1.9 million for the year ended December 31, 2018 related to share- based compensation expense.
The aggregate restructuring accrual, spending and other activity for the years ended December 31, 2020, 2019 and 2018 and the accrual balance remaining at those year-ends were as follows:
|
|
|
|
|
|
(In millions)
|
|
Restructuring accrual at December 31, 2017
|
$
|
16.1
|
|
|
|
Accrual and accrual adjustments
|
47.8
|
|
Cash payments during 2018
|
(25.0)
|
|
|
|
Effects of changes in foreign currency exchange rates
|
(1.4)
|
|
Restructuring accrual at December 31, 2018
|
$
|
37.5
|
|
Accrual and accrual adjustments
|
41.9
|
|
Cash payments during 2019
|
(47.6)
|
|
Effects of changes in foreign currency exchange rates
|
(0.3)
|
|
Restructuring accrual at December 31, 2019
|
$
|
31.5
|
|
Accrual and accrual adjustments
|
11.0
|
|
Cash payments during 2020
|
(28.0)
|
|
|
|
Effect of changes in foreign currency exchange rates
|
(0.2)
|
|
Restructuring accrual at December 31, 2020
|
$
|
14.3
|
|
We expect to pay $12.2 million of the accrual balance remaining at December 31, 2020 within the next twelve months. This amount is included in accrued restructuring costs on the Consolidated Balance Sheets at December 31, 2020. The remaining accrual of $2.1 million, primarily related to restructuring for recent acquisitions, is expected to be paid in periods including, and beyond, 2022. These amounts are included in other non-current liabilities on our Consolidated Balance Sheets at December 31, 2020.
One of the components of the Reinvent SEE business transformation 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 $14.3 million as of December 31, 2020, $6.5 million was attributable to Food and $7.8 million was attributable to Protective.
Note 13 Other Current and Non-Current Liabilities
The following tables detail our other current liabilities and other non-current liabilities at December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In millions)
|
|
2020
|
|
2019
|
Other current liabilities:
|
|
|
|
|
Accrued salaries, wages and related costs
|
|
$
|
209.2
|
|
|
$
|
191.5
|
|
Accrued operating expenses
|
|
192.1
|
|
|
197.2
|
|
Accrued customer volume rebates
|
|
83.3
|
|
|
78.3
|
|
Accrued interest
|
|
37.8
|
|
|
41.6
|
|
Accrued employee benefit liability
|
|
4.9
|
|
|
5.5
|
|
Total
|
|
$
|
527.3
|
|
|
$
|
514.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In millions)
|
|
2020
|
|
2019
|
Other non-current liabilities:
|
|
|
|
|
Accrued employee benefit liability
|
|
$
|
201.0
|
|
|
$
|
178.5
|
|
Other postretirement liability
|
|
38.3
|
|
|
38.2
|
|
Uncertain tax position liability
|
|
381.4
|
|
|
384.0
|
|
Other various liabilities
|
|
107.6
|
|
|
129.5
|
|
Total
|
|
$
|
728.3
|
|
|
$
|
730.2
|
|
Note 14 Debt and Credit Facilities
Our total debt outstanding consisted of the amounts set forth on the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In millions)
|
|
Interest rate
|
|
2020
|
|
2019
|
Short-term borrowings (1)
|
|
|
|
$
|
7.2
|
|
|
$
|
98.9
|
|
Current portion of long-term debt(2)
|
|
|
|
22.3
|
|
|
16.7
|
|
Total current debt
|
|
|
|
29.5
|
|
|
115.6
|
|
Term Loan A due August 2022
|
|
|
|
474.7
|
|
|
474.6
|
|
Term Loan A due July 2023
|
|
|
|
208.6
|
|
|
218.2
|
|
|
|
|
|
|
|
|
Senior Notes due December 2022
|
|
4.875
|
%
|
|
423.3
|
|
|
421.9
|
|
Senior Notes due April 2023
|
|
5.250
|
%
|
|
422.9
|
|
|
422.0
|
|
Senior Notes due September 2023
|
|
4.500
|
%
|
|
490.2
|
|
|
445.6
|
|
Senior Notes due December 2024
|
|
5.125
|
%
|
|
422.1
|
|
|
421.9
|
|
Senior Notes due September 2025
|
|
5.500
|
%
|
|
397.8
|
|
|
397.4
|
|
Senior Notes due December 2027
|
|
4.000
|
%
|
|
420.9
|
|
|
420.4
|
|
Senior Notes due July 2033
|
|
6.875
|
%
|
|
446.0
|
|
|
445.7
|
|
Other(2)
|
|
|
|
24.9
|
|
|
30.9
|
|
Total long-term debt, less current portion(3)
|
|
|
|
3,731.4
|
|
|
3,698.6
|
|
Total debt(4)
|
|
|
|
$
|
3,760.9
|
|
|
$
|
3,814.2
|
|
(1)Short-term borrowings at December 31, 2020 were comprised of $7.2 million in short-term borrowings from various lines of credit. Short-term borrowings at December 31, 2019 were comprised of $89.0 million under our revolving credit facility and $9.9 million of short-term borrowings from various lines of credit.
(2)The Current portion of long-term debt includes finance lease liabilities of $10.5 million and $10.4 million as of December 31, 2020 and 2019, respectively. The Other debt balance includes $23.9 million and $28.7 million for long-term liabilities associated with our finance leases as of December 31, 2020 and 2019, respectively. See Note 4, “Leases,” of the Notes for additional information on finance and operating lease liabilities.
(3)Amounts are net of unamortized discounts and issuance costs of $20.1 million and $24.6 million as of December 31, 2020 and 2019, respectively.
(4)As of December 31, 2020, our weighted average interest rate on our short-term borrowings outstanding was 2.2% 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%.
Debt Maturities
The following table summarizes the scheduled annual maturities for the next five years and thereafter of our long-term debt, including the current portion of long-term debt and finance leases. This schedule represents the principal portion amount outstanding of our debt, and therefore excludes debt discounts, effect of present value discounting for capital lease obligations, interest rate swaps and lender and finance fees.
|
|
|
|
|
|
|
|
|
Year
|
|
Amount
(in millions)
|
2021
|
|
$
|
23.7
|
|
2022
|
|
908.9
|
|
2023
|
|
1,130.7
|
|
2024
|
|
427.2
|
|
2025
|
|
401.8
|
|
Thereafter
|
|
887.8
|
|
Total
|
|
$
|
3,780.1
|
|
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 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 Credit Agreement, described below. 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 Packaging Systems. 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 for additional information related to the Automated Packaging Systems acquisition.
2018 Activity
On July 12, 2018, the Company and certain of its subsidiaries entered into a third amended and restated credit agreement and an amendment No. 1 thereto (the “Third Amended and Restated Agreement”) whereby its senior secured credit facility was amended and restated with Bank of America, N.A., as agent and the other financial institutions party thereto. The changes include: (i) the refinancing of the term loan A facilities and revolving credit facilities with a new U.S. dollar term loan A facility in an aggregate principal amount of approximately $186.5 million, a new pounds sterling term loan A facility in an aggregate principal amount of approximately £29.4 million, and increased our revolving credit facilities from $700.0 million to $1.0 billion (including revolving facilities available in U.S. dollars, euros, pounds sterling, Canadian dollars, Australian dollars, Japanese yen, New Zealand dollars and Mexican pesos), (ii) increased flexibility to lower the interest rate margin for the term loan A facilities and revolving credit facilities, which will range from 125 to 200 basis points (bps) in the case of LIBOR loans, subject to the achievement of certain leverage tests, (iii) the extension of the final maturity of the term loan A facilities and revolving credit commitment to July 11, 2023, (iv) the removal of the requirement to prepay the loans with respect to excess cash flow, (v) adjustments to the financial maintenance covenant of Consolidated Net Debt to Consolidated EBITDA (in each case, as defined in the Third Amended and Restated Credit Agreement) and other covenants to provide additional flexibility to the Company, (vi) the release of certain non-U.S. asset collateral previously pledged by certain of the Company's subsidiaries and (vii) other amendments.
As a result of the Third Amended and Restated Credit Agreement, we recognized $1.9 million of loss on debt redemption in our Consolidated Statements of Operations in the year ended December 31, 2018. This amount includes $1.5 million of accelerated amortization of original issuance discount related to the term loan A and lender and non-lender fees related to the entire credit facility. Also included in the loss on debt redemption was $0.4 million of non-lender fees incurred in connection with the Third Amended and Restated Credit Agreement. In addition, we incurred $0.7 million of lender and third-party fees that are included in the carrying amounts of the outstanding debt under the credit facility. We also capitalized $4.9 million of fees that are included in other assets on our Consolidated Balance Sheets. The amortization expense related to original issuance discount and lender and non-lender fees is calculated using the effective interest rate method over the lives of the respective debt instruments.
Total amortization expense related to the senior secured credit facility was $2.0 million, $1.8 million and $3.2 million for the years ended December 31, 2020, 2019 and 2018, respectively, and is included in interest expense, net in our Consolidated Statements of Operations.
Lines of Credit
The following table summarizes our available lines of credit and committed and uncommitted lines of credit, including the revolving credit facility discussed above, and the amounts available under our accounts receivable securitization programs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In millions)
|
|
2020
|
|
2019
|
Used lines of credit(1)
|
|
$
|
7.2
|
|
|
$
|
98.9
|
|
Unused lines of credit
|
|
1,312.0
|
|
|
1,245.2
|
|
Total available lines of credit(2)
|
|
$
|
1,319.2
|
|
|
$
|
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, $1,145.5 million were committed as of December 31, 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 to EBITDA. We were in compliance with the above financial covenants and limitations at December 31, 2020 and 2019.
Note 15 Derivatives and Hedging Activities
We report all derivative instruments on our 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 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 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 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 included in AOCL were a $1.6 million loss, a $2.8 million loss and a $2.9 million gain for the years ended December 31, 2020, 2019 and 2018, respectively. The unrealized amount in AOCL will fluctuate based on changes in the fair value of open contracts during each reporting period.
We estimate that $2.9 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 income (expense), net, on our Consolidated Statements of Operations and are largely offset by the remeasurement of the underlying foreign currency-denominated items indicated above. Cash flows from derivative financial instruments are classified as cash flows from investing activities in the 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 December 31, 2020 and 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 $42.0 million ($31.5 million net of tax) as of December 31, 2020, and is reflected in AOCL on our Consolidated Balance Sheets.
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 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, Equity Investments and Other Financial Instruments,” of the Notes 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 Consolidated Balance Sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedge
|
|
|
|
Non-Designated as Hedging Instruments
|
|
Total
|
|
|
December 31,
|
|
|
|
December 31,
|
|
December 31,
|
(In millions)
|
|
2020
|
|
2019
|
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Derivative Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts and options
|
|
$
|
—
|
|
|
$
|
0.2
|
|
|
|
|
|
|
$
|
7.3
|
|
|
$
|
2.6
|
|
|
$
|
7.3
|
|
|
$
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivative Assets
|
|
$
|
—
|
|
|
$
|
0.2
|
|
|
|
|
|
|
$
|
7.3
|
|
|
$
|
2.6
|
|
|
$
|
7.3
|
|
|
$
|
2.8
|
|
Derivative Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
$
|
(2.8)
|
|
|
$
|
(2.0)
|
|
|
|
|
|
|
$
|
(4.2)
|
|
|
$
|
(2.0)
|
|
|
$
|
(7.0)
|
|
|
$
|
(4.0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivative Liabilities(1)
|
|
$
|
(2.8)
|
|
|
$
|
(2.0)
|
|
|
|
|
|
|
$
|
(4.2)
|
|
|
$
|
(2.0)
|
|
|
$
|
(7.0)
|
|
|
$
|
(4.0)
|
|
Net Derivatives (2)
|
|
$
|
(2.8)
|
|
|
$
|
(1.8)
|
|
|
|
|
|
|
$
|
3.1
|
|
|
$
|
0.6
|
|
|
$
|
0.3
|
|
|
$
|
(1.2)
|
|
(1)Excludes €400.0 million of euro-denominated debt ($490.2 million equivalent at December 31, 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
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|
|
|
(In millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
Gross position
|
|
$
|
7.3
|
|
|
$
|
2.8
|
|
|
$
|
(7.0)
|
|
|
$
|
(4.0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of master netting agreements
|
|
(2.3)
|
|
|
(1.1)
|
|
|
2.3
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
Net amounts recognized on the Consolidated Balance Sheets
|
|
$
|
5.0
|
|
|
$
|
1.7
|
|
|
$
|
(4.7)
|
|
|
$
|
(2.9)
|
|
|
|
|
|
|
|
|
|
The following table details the effect of our derivative instruments on our Consolidated Statements of Operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain (Loss) Recognized on
|
|
Amount of Gain (Loss) Recognized in
Earnings on Derivatives
|
|
|
Consolidated Statements of Operations
|
|
Year Ended December 31,
|
(In millions)
|
|
|
|
2020
|
|
2019
|
|
2018
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
Cash Flow Hedges:
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
Cost of sales
|
|
$
|
(0.8)
|
|
|
$
|
1.6
|
|
|
$
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury locks
|
|
Interest expense, net
|
|
0.1
|
|
|
0.1
|
|
|
0.1
|
|
Sub-total cash flow hedges
|
|
|
|
(0.7)
|
|
|
1.7
|
|
|
0.3
|
|
Fair Value Hedges:
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
Interest expense, net
|
|
—
|
|
|
0.6
|
|
|
0.5
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts and options
|
|
Other income (expense), net
|
|
4.1
|
|
|
(6.6)
|
|
|
(12.3)
|
|
Total
|
|
|
|
$
|
3.4
|
|
|
$
|
(4.3)
|
|
|
$
|
(11.5)
|
|
Note 16 Fair Value Measurements, Equity Investments 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
(In millions)
|
|
Total Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Cash equivalents
|
|
$
|
235.1
|
|
|
$
|
235.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Derivative financial and hedging instruments net asset (liability):
|
|
|
|
|
|
|
|
|
Foreign currency forward and option contracts
|
|
$
|
0.3
|
|
|
$
|
—
|
|
|
$
|
0.3
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 December 31, 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 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 Consolidated Balance Sheets as of December 31, 2020 and 2019.
Equity Investments
Sealed Air maintains equity investments in companies which are accounted for under the measurement alternative described in ASC 321-10-35-2 for equity investments that do not have readily determinable fair values. We do not exercise
significant influence over these companies. The carrying value of these investments are included in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In millions)
|
|
2020
|
|
2019
|
|
2018
|
Carrying amount at the beginning of period
|
|
$
|
7.5
|
|
|
$
|
7.5
|
|
|
$
|
—
|
|
Purchases
|
|
2.6
|
|
|
—
|
|
|
7.5
|
|
Impairments or downward adjustments
|
|
—
|
|
|
—
|
|
|
—
|
|
Upward adjustments
|
|
15.1
|
|
|
—
|
|
|
—
|
|
Currency translation on investments
|
|
0.2
|
|
|
—
|
|
|
—
|
|
Carrying amount at the end of period
|
|
$
|
25.4
|
|
|
$
|
7.5
|
|
|
$
|
7.5
|
|
There have been no cumulative impairments or downward adjustments on any of the equity investments above, as of December 31, 2020. The cumulative upward adjustments of the equity investments above, as of December 31, 2020, is $15.1 million. The upward fair value adjustment was recorded in the fourth quarter 2020, based on the valuation of additional equity issued by the investee which was deemed to be an observable transaction of a similar investment under ASC 321. The gain was recorded within Other income (expense), net on the Consolidated Statements of Operations.
During the fourth quarter of 2020, Sealed Air made an additional investment in one of our investees of $5.7 million. The equity issuance is subject to customary regulatory and statutory approval which we expect to receive in early 2021. Upon receipt of approval, this investment will convert to equity and be held as an equity investment valued under the measurement alternative in ASC 321.
Our equity investments described above are maintained on the Consolidated Balance Sheets within Other non-current assets.
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 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 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
(In millions)
|
|
Interest rate
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
Term Loan A Facility due August 2022
|
|
|
|
$
|
474.7
|
|
|
$
|
474.7
|
|
|
$
|
474.6
|
|
|
$
|
474.6
|
|
Term Loan A Facility due July 2023(1)
|
|
|
|
220.0
|
|
|
220.0
|
|
|
223.8
|
|
|
223.8
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Notes due December 2022
|
|
4.875
|
%
|
|
423.3
|
|
|
446.0
|
|
|
421.9
|
|
|
450.1
|
|
Senior Notes due April 2023
|
|
5.250
|
%
|
|
422.9
|
|
|
450.8
|
|
|
422.0
|
|
|
454.1
|
|
Senior Notes due September 2023(1)
|
|
4.500
|
%
|
|
490.2
|
|
|
537.5
|
|
|
445.6
|
|
|
509.5
|
|
Senior Notes due December 2024
|
|
5.125
|
%
|
|
422.1
|
|
|
466.8
|
|
|
421.9
|
|
|
458.9
|
|
Senior Notes due September 2025
|
|
5.500
|
%
|
|
397.8
|
|
|
446.7
|
|
|
397.4
|
|
|
441.2
|
|
Senior Notes due December 2027
|
|
4.000
|
%
|
|
420.9
|
|
|
453.6
|
|
|
420.4
|
|
|
431.5
|
|
Senior Notes due July 2033
|
|
6.875
|
%
|
|
446.0
|
|
|
594.4
|
|
|
445.7
|
|
|
528.8
|
|
Other foreign borrowings(1)
|
|
|
|
8.8
|
|
|
9.1
|
|
|
12.1
|
|
|
12.4
|
|
Other domestic borrowings
|
|
|
|
—
|
|
|
—
|
|
|
89.0
|
|
|
89.0
|
|
Total debt(2)
|
|
|
|
$
|
3,726.7
|
|
|
$
|
4,099.6
|
|
|
$
|
3,774.4
|
|
|
$
|
4,073.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Includes borrowings denominated in currencies other than U.S. dollars.
(2)The carrying amount and estimated fair value of debt exclude lease liabilities.
In addition to the table above, the Company remeasures amounts related to certain equity compensation that are carried at fair value on a recurring basis in the Consolidated Financial Statements or for which a fair value measurement was required. Refer to Note 21, “Stockholders’ Equity (Deficit),” of the Notes for additional detail on share-based compensation. Included among our non-financial assets and liabilities that are not required to be measured at fair value on a recurring basis are inventories, net property and equipment, goodwill, intangible assets and asset retirement obligations.
Credit and Market Risk
Financial instruments, including derivatives, expose us to counterparty credit risk for nonperformance and to market risk related to changes in interest or currency exchange rates. We manage our exposure to counterparty credit risk through specific minimum credit standards, establishing credit limits, diversification of counterparties, and procedures to monitor concentrations of credit risk.
We do not expect any of our counterparties in derivative transactions to fail to perform as it is our policy to have counterparties to these contracts that have at least an investment grade rating. Nevertheless, there is a risk that our exposure to losses arising out of derivative contracts could be material if the counterparties to these agreements fail to perform their obligations. We will replace counterparties if a credit downgrade is deemed to increase our risk to unacceptable levels.
We regularly monitor the impact of market risk on the fair value and cash flows of our derivative and other financial instruments considering reasonably possible changes in interest and currency exchange rates and restrict the use of derivative financial instruments to hedging activities. We do not use derivative financial instruments for trading or other speculative purposes and do not use leveraged derivative financial instruments.
We continually monitor the creditworthiness of our diverse base of customers to which we grant credit terms in the normal course of business and generally do not require collateral. We consider the concentrations of credit risk associated with our trade accounts receivable to be commercially reasonable and believe that such concentrations do not leave us vulnerable to significant risks of near-term severe adverse impacts. The terms and conditions of our credit sales are designed to mitigate concentrations of credit risk with any single customer. Our sales are not materially dependent on a single customer or a small group of customers.
Note 17 Profit Sharing, Retirement Savings Plans and Defined Benefit Pension Plans
Profit Sharing and Retirement Savings Plans
We have a qualified non-contributory profit sharing plan covering most of our U.S. employees. Contributions to this plan, which are made at the discretion of our Board of Directors, may be made in cash, shares of our common stock, or in a combination of cash and shares of our common stock. We also maintain a qualified contributory retirement savings plan in which most of our U.S. employees are eligible to participate. The qualified contributory retirement savings plans generally provide for our contributions in cash based upon the amount contributed to the plans by the participants.
Our contributions to our profit sharing plan accrual and retirement savings plans are charged to operations and amounted to $46.3 million in 2020, $39.3 million in 2019 and $36.3 million in 2018. In 2020, 823,567 shares were contributed as part of our contribution to the profit sharing plan related to 2019; in 2019, 487,108 shares were contributed as part of our contribution to the profit sharing plan related to 2018, and in 2018, 538,524 shares were contributed as part of our contribution to the profit sharing plan related to 2017. These shares were issued out of treasury stock.
We have various international defined contribution benefit plans which cover certain employees. We have expanded use of these plans in select countries where they have been used to supplement or replace defined benefit plans.
Defined Benefit Pension Plans
We recognize the funded status of each defined pension benefit plan as the difference between the fair value of plan assets and the projected benefit obligation of the employee benefit plans in the Consolidated Balance Sheets, with a corresponding adjustment to accumulated other comprehensive loss, net of taxes. Each overfunded plan is recognized as an asset and each underfunded plan is recognized as a liability on our Consolidated Balance Sheets. Subsequent changes in the funded status are reflected on the Consolidated Balance Sheets in unrecognized pension items, a component of AOCL, which are included in total stockholders’ equity (deficit). The amount of unamortized pension items is recorded net of tax.
We amortize actuarial gains or losses over the average future working lifetime (or remaining lifetime of inactive participants if there are no active participants). We use the corridor method, where the corridor is the greater of ten percent of the projected benefit obligation or fair value of assets at year end. If actuarial gains or losses do not exceed the corridor, then there is no amortization of gain or loss.
The following table shows the components of our net periodic benefit cost (income) and cost of special events for the three years ended December 31, for our pension plans charged to operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In millions)
|
|
2020
|
|
2019
|
|
2018
|
Net periodic benefit cost (income):
|
|
|
|
|
|
|
U.S. and international net periodic benefit cost included in cost of sales(1)
|
|
$
|
1.2
|
|
|
$
|
1.1
|
|
|
$
|
0.8
|
|
U.S. and international net periodic benefit cost included in selling, general and administrative expenses
|
|
3.4
|
|
|
2.8
|
|
|
3.5
|
|
U.S. and international net periodic benefit (income) and cost of special events included in other (income) expense
|
|
(3.8)
|
|
|
(4.4)
|
|
|
(8.4)
|
|
Total benefit cost (income)
|
|
$
|
0.8
|
|
|
$
|
(0.5)
|
|
|
$
|
(4.1)
|
|
(1)The amount recorded in inventory for the years ended December 31, 2020, 2019 and 2018 was not material.
A number of our U.S. employees, including some employees who are covered by collective bargaining agreements, participate in defined benefit pension plans. Some of our international employees participate in defined benefit pension plans in their respective countries. The following table presents our funded status for 2020 and 2019 for our U.S. and international pension plans. The measurement date used to determine benefit obligations and plan assets is December 31 for all material plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
(In millions)
|
|
U.S.
|
|
International
|
|
Total
|
|
U.S.
|
|
International
|
|
Total
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of period
|
|
$
|
194.1
|
|
|
$
|
703.7
|
|
|
$
|
897.8
|
|
|
$
|
182.1
|
|
|
$
|
633.5
|
|
|
$
|
815.6
|
|
Service cost
|
|
0.1
|
|
|
4.5
|
|
|
4.6
|
|
|
0.1
|
|
|
3.8
|
|
|
3.9
|
|
Interest cost
|
|
5.3
|
|
|
11.2
|
|
|
16.5
|
|
|
6.9
|
|
|
15.0
|
|
|
21.9
|
|
Actuarial loss
|
|
18.2
|
|
|
64.5
|
|
|
82.7
|
|
|
17.0
|
|
|
60.0
|
|
|
77.0
|
|
Settlement
|
|
—
|
|
|
(9.8)
|
|
|
(9.8)
|
|
|
—
|
|
|
(3.7)
|
|
|
(3.7)
|
|
Benefits paid
|
|
(15.5)
|
|
|
(23.4)
|
|
|
(38.9)
|
|
|
(12.1)
|
|
|
(26.4)
|
|
|
(38.5)
|
|
Employee contributions
|
|
—
|
|
|
0.8
|
|
|
0.8
|
|
|
—
|
|
|
0.7
|
|
|
0.7
|
|
Business acquisition
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9.0
|
|
|
9.0
|
|
Other
|
|
—
|
|
|
0.3
|
|
|
0.3
|
|
|
0.1
|
|
|
(0.3)
|
|
|
(0.2)
|
|
Foreign exchange impact
|
|
—
|
|
|
31.1
|
|
|
31.1
|
|
|
—
|
|
|
12.1
|
|
|
12.1
|
|
Projected benefit obligation at end of period
|
|
$
|
202.2
|
|
|
$
|
782.9
|
|
|
$
|
985.1
|
|
|
$
|
194.1
|
|
|
$
|
703.7
|
|
|
$
|
897.8
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of period
|
|
$
|
137.1
|
|
|
$
|
624.9
|
|
|
$
|
762.0
|
|
|
$
|
119.9
|
|
|
$
|
548.8
|
|
|
$
|
668.7
|
|
Actual return on plan assets
|
|
8.6
|
|
|
62.5
|
|
|
71.1
|
|
|
21.3
|
|
|
67.7
|
|
|
89.0
|
|
Employer contributions
|
|
11.3
|
|
|
13.6
|
|
|
24.9
|
|
|
8.1
|
|
|
12.8
|
|
|
20.9
|
|
Employee contributions
|
|
—
|
|
|
0.8
|
|
|
0.8
|
|
|
—
|
|
|
0.7
|
|
|
0.7
|
|
Benefits paid
|
|
(15.5)
|
|
|
(23.4)
|
|
|
(38.9)
|
|
|
(12.1)
|
|
|
(26.4)
|
|
|
(38.5)
|
|
Settlement
|
|
—
|
|
|
(9.9)
|
|
|
(9.9)
|
|
|
—
|
|
|
(3.7)
|
|
|
(3.7)
|
|
Business acquisition
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10.7
|
|
|
10.7
|
|
Other
|
|
0.1
|
|
|
(0.4)
|
|
|
(0.3)
|
|
|
(0.1)
|
|
|
(0.4)
|
|
|
(0.5)
|
|
Foreign exchange impact
|
|
—
|
|
|
26.9
|
|
|
26.9
|
|
|
—
|
|
|
14.7
|
|
|
14.7
|
|
Fair value of plan assets at end of period
|
|
$
|
141.6
|
|
|
$
|
695.0
|
|
|
$
|
836.6
|
|
|
$
|
137.1
|
|
|
$
|
624.9
|
|
|
$
|
762.0
|
|
Underfunded status at end of year
|
|
$
|
(60.6)
|
|
|
$
|
(87.9)
|
|
|
$
|
(148.5)
|
|
|
$
|
(57.0)
|
|
|
$
|
(78.8)
|
|
|
$
|
(135.8)
|
|
Accumulated benefit obligation at end of year
|
|
$
|
202.2
|
|
|
$
|
766.1
|
|
|
$
|
968.3
|
|
|
$
|
194.1
|
|
|
$
|
690.4
|
|
|
$
|
884.5
|
|
Actuarial losses resulting in an increase to our projected benefit obligation for the year ended December 31, 2020 were primarily due to a reduction in weighted average discount rates for our U.S. and International plans of 90 basis points and 50 basis points, respectively. Actuarial losses resulting in an increase to our projected benefit obligation for the year ended December 31, 2019 were primarily due to a reduction in weighted average discount rates for our U.S. and International plans of 100 basis points and 70 basis points, respectively.
Amounts included in the Consolidated Balance Sheets, including plans which were deemed immaterial and not included above, consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
(In millions)
|
|
U.S.
|
|
International
|
|
Total
|
|
U.S.
|
|
International
|
|
Total
|
Other non-current assets
|
|
$
|
—
|
|
|
$
|
54.3
|
|
|
$
|
54.3
|
|
|
$
|
—
|
|
|
$
|
44.2
|
|
|
$
|
44.2
|
|
Other current liabilities
|
|
—
|
|
|
(4.0)
|
|
|
(4.0)
|
|
|
—
|
|
|
(3.4)
|
|
|
(3.4)
|
|
Other non-current liabilities
|
|
(60.6)
|
|
|
(140.4)
|
|
|
(201.0)
|
|
|
(57.0)
|
|
|
(121.5)
|
|
|
(178.5)
|
|
Net amount recognized
|
|
$
|
(60.6)
|
|
|
$
|
(90.1)
|
|
|
$
|
(150.7)
|
|
|
$
|
(57.0)
|
|
|
$
|
(80.7)
|
|
|
$
|
(137.7)
|
|
The following table shows the components of our net periodic benefit (income) cost for the years ended December 31, for our pension plans charged to operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
December 31, 2018
|
(In millions)
|
|
U.S.
|
|
International
|
|
Total
|
|
U.S.
|
|
International
|
|
Total
|
|
U.S.
|
|
International
|
|
Total
|
Components of net periodic benefit (income) cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
0.1
|
|
|
$
|
4.5
|
|
|
$
|
4.6
|
|
|
$
|
0.1
|
|
|
$
|
3.8
|
|
|
$
|
3.9
|
|
|
$
|
0.1
|
|
|
$
|
4.2
|
|
|
$
|
4.3
|
|
Interest cost
|
|
5.3
|
|
|
11.2
|
|
|
16.5
|
|
|
6.9
|
|
|
15.0
|
|
|
21.9
|
|
|
6.5
|
|
|
15.2
|
|
|
21.7
|
|
Expected return on plan assets
|
|
(9.0)
|
|
|
(19.4)
|
|
|
(28.4)
|
|
|
(7.3)
|
|
|
(24.7)
|
|
|
(32.0)
|
|
|
(8.7)
|
|
|
(29.2)
|
|
|
(37.9)
|
|
Other adjustments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
0.1
|
|
Amortization of net prior service cost
|
|
—
|
|
|
0.2
|
|
|
0.2
|
|
|
—
|
|
|
0.2
|
|
|
0.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of net actuarial loss
|
|
1.5
|
|
|
4.6
|
|
|
6.1
|
|
|
1.4
|
|
|
3.7
|
|
|
5.1
|
|
|
0.9
|
|
|
2.4
|
|
|
3.3
|
|
Net periodic benefit (income) cost
|
|
(2.1)
|
|
|
1.1
|
|
|
(1.0)
|
|
|
1.1
|
|
|
(2.0)
|
|
|
(0.9)
|
|
|
(1.1)
|
|
|
(7.4)
|
|
|
(8.5)
|
|
Cost of settlement
|
|
—
|
|
|
1.8
|
|
|
1.8
|
|
|
—
|
|
|
0.4
|
|
|
0.4
|
|
|
1.6
|
|
|
2.8
|
|
|
4.4
|
|
Total benefit cost (income)
|
|
$
|
(2.1)
|
|
|
$
|
2.9
|
|
|
$
|
0.8
|
|
|
$
|
1.1
|
|
|
$
|
(1.6)
|
|
|
$
|
(0.5)
|
|
|
$
|
0.5
|
|
|
$
|
(4.6)
|
|
|
$
|
(4.1)
|
|
The amounts included in AOCL that have not yet been recognized as components of net periodic benefit cost at December 31, 2020 and 2019 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
(In millions)
|
|
U.S.
|
|
International
|
|
Total
|
|
U.S.
|
|
International
|
|
Total
|
Unrecognized net prior service costs
|
|
$
|
0.2
|
|
|
$
|
5.2
|
|
|
$
|
5.4
|
|
|
$
|
0.2
|
|
|
$
|
4.5
|
|
|
$
|
4.7
|
|
Unrecognized net actuarial loss
|
|
66.0
|
|
|
158.8
|
|
|
224.8
|
|
|
48.9
|
|
|
143.6
|
|
|
192.5
|
|
Total
|
|
$
|
66.2
|
|
|
$
|
164.0
|
|
|
$
|
230.2
|
|
|
$
|
49.1
|
|
|
$
|
148.1
|
|
|
$
|
197.2
|
|
Changes in plan assets and benefit obligations recognized in AOCL for the year ended December 31, 2020 and 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
(In millions)
|
|
U.S.
|
|
International
|
|
Total
|
|
U.S.
|
|
International
|
|
Total
|
Current year actuarial loss
|
|
$
|
18.6
|
|
|
$
|
21.4
|
|
|
$
|
40.0
|
|
|
$
|
3.0
|
|
|
$
|
16.9
|
|
|
$
|
19.9
|
|
Prior year service cost occurring during the year
|
|
—
|
|
|
0.8
|
|
|
0.8
|
|
|
0.1
|
|
|
—
|
|
|
0.1
|
|
Amortization of actuarial loss
|
|
(1.5)
|
|
|
(4.6)
|
|
|
(6.1)
|
|
|
(1.4)
|
|
|
(3.7)
|
|
|
(5.1)
|
|
Amortization of prior service cost
|
|
—
|
|
|
(0.2)
|
|
|
(0.2)
|
|
|
—
|
|
|
(0.2)
|
|
|
(0.2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement
|
|
—
|
|
|
(1.8)
|
|
|
(1.8)
|
|
|
—
|
|
|
(0.4)
|
|
|
(0.4)
|
|
Total
|
|
$
|
17.1
|
|
|
$
|
15.6
|
|
|
$
|
32.7
|
|
|
$
|
1.7
|
|
|
$
|
12.6
|
|
|
$
|
14.3
|
|
Information for plans with accumulated benefit obligations and projected benefit obligations in excess of plan assets as of December 31, 2020 and 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
(In millions)
|
|
U.S.
|
|
International
|
|
Total
|
|
U.S.
|
|
International
|
|
Total
|
Projected benefit obligation
|
|
$
|
202.2
|
|
|
$
|
526.4
|
|
|
$
|
728.6
|
|
|
$
|
194.1
|
|
|
$
|
467.5
|
|
|
$
|
661.6
|
|
Accumulated benefit obligation
|
|
202.2
|
|
|
510.3
|
|
|
712.5
|
|
|
194.1
|
|
|
454.7
|
|
|
648.8
|
|
Fair value of plan assets
|
|
141.6
|
|
|
384.0
|
|
|
525.6
|
|
|
137.1
|
|
|
344.6
|
|
|
481.7
|
|
Actuarial Assumptions
Weighted average assumptions used to determine benefit obligations at December 31, 2020 and 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
(In millions)
|
|
U.S.
|
|
International
|
|
U.S.
|
|
International
|
Benefit obligations
|
|
|
|
|
|
|
|
|
Discount rate
|
|
2.4
|
%
|
|
1.4
|
%
|
|
3.3
|
%
|
|
1.9
|
%
|
Rate of compensation increase
|
|
N/A
|
|
2.3
|
%
|
|
N/A
|
|
2.3
|
%
|
Cash balance interest credit rate
|
|
1.2
|
%
|
|
1.1
|
%
|
|
2.0
|
%
|
|
1.1
|
%
|
Weighted average assumptions used to determine net periodic benefit cost for the years ended December 31, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
December 31, 2018
|
(In millions)
|
|
U.S.
|
|
International
|
|
U.S.
|
|
International
|
|
U.S.
|
|
International
|
Net periodic benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
3.3
|
%
|
|
1.9
|
%
|
|
4.3
|
%
|
|
2.6
|
%
|
|
3.6
|
%
|
|
2.5
|
%
|
Expected long-term rate of return
|
|
6.5
|
%
|
|
3.3
|
%
|
|
6.2
|
%
|
|
4.7
|
%
|
|
6.2
|
%
|
|
4.9
|
%
|
Rate of compensation increase
|
|
N/A
|
|
2.3
|
%
|
|
N/A
|
|
2.3
|
%
|
|
N/A
|
|
2.3
|
%
|
Cash balance interest credit rate
|
|
2.0
|
%
|
|
1.1
|
%
|
|
3.0
|
%
|
|
1.4
|
%
|
|
2.3
|
%
|
|
1.1
|
%
|
Estimated Future Benefit Payments
We expect the following estimated future benefit payments, which reflect expected future service as appropriate, to be paid in the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
(in millions)
|
Year
|
|
U.S.
|
|
International
|
|
Total
|
2021
|
|
$
|
11.8
|
|
|
$
|
30.2
|
|
|
$
|
42.0
|
|
2022
|
|
11.7
|
|
|
28.3
|
|
|
40.0
|
|
2023
|
|
11.7
|
|
|
28.2
|
|
|
39.9
|
|
2024
|
|
11.7
|
|
|
30.6
|
|
|
42.3
|
|
2025
|
|
11.2
|
|
|
30.8
|
|
|
42.0
|
|
2026 to 2030 (combined)
|
|
54.9
|
|
|
171.6
|
|
|
226.5
|
|
Total
|
|
$
|
113.0
|
|
|
$
|
319.7
|
|
|
$
|
432.7
|
|
Plan Assets
We review the expected long-term rate of return on plan assets annually, taking into consideration our asset allocation, historical returns, and the current economic environment. The expected return on plan assets is calculated based on the fair value of plan assets at year end. To determine the expected return on plan assets, expected cash flows have been taken into account.
Our long-term objectives for plan investments are to ensure that (a) there is an adequate level of assets to support benefit obligations to participants over the life of the plans, (b) there is sufficient liquidity in plan assets to cover current benefit obligations, and (c) there is a high level of investment return consistent with a prudent level of investment risk. The investment strategy is focused on a long-term total return in excess of a pure fixed income strategy with short-term volatility less than that of a pure equity strategy. To accomplish these objectives, in many instances the plan assets are invested on a glide-path which reduces the exposure to return-seeking assets as the plan's funded status increases. Overall, we invest assets primarily in a diversified mix of equity and fixed income investments. For our U.S. plan, the target asset allocation includes 65%-75% in return seeking assets, which are primarily comprised of global equities. The remainder of the assets in the U.S. plan are comprised of liability hedging assets which are primarily fixed income investments.
In some of our international pension plans, we have purchased bulk annuity contracts (buy-ins). These annuity contracts provide cash flows that match the future benefit payments for a specific group of pensioners. These contacts are issued by third party insurance companies with no affiliation to Sealed Air. Insurance companies from which we purchase the annuity contracts are assessed as credit worthy. As of December 31, 2020 and 2019, buy-ins represented $131.2 million and $119.5 million of
total plan assets, respectively. The value of these assets is actuarially determined based on the present value of the underlying liabilities.
We currently expect our contributions to the pension plans to be approximately $18.1 million in 2021. Additionally, we expect benefits paid directly by the Company related to our defined benefit pension plans to be $4.0 million in 2021.
The fair values of our U.S. and international pension plan assets, by asset category and by the level of fair values are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
NAV(5)
|
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
NAV(5)
|
Cash and cash equivalents(1)
|
|
$
|
11.0
|
|
|
$
|
2.1
|
|
|
$
|
8.9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
43.4
|
|
|
$
|
1.9
|
|
|
$
|
41.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Fixed income funds(2)
|
|
417.3
|
|
|
—
|
|
|
281.5
|
|
|
—
|
|
|
135.8
|
|
|
323.8
|
|
|
—
|
|
|
210.2
|
|
|
—
|
|
|
113.6
|
|
Equity funds(3)
|
|
122.3
|
|
|
—
|
|
|
48.0
|
|
|
—
|
|
|
74.3
|
|
|
146.9
|
|
|
—
|
|
|
61.5
|
|
|
—
|
|
|
85.4
|
|
Other(4)
|
|
286.0
|
|
|
—
|
|
|
9.1
|
|
|
206.4
|
|
|
70.5
|
|
|
247.9
|
|
|
—
|
|
|
9.9
|
|
|
180.2
|
|
|
57.8
|
|
Total
|
|
$
|
836.6
|
|
|
$
|
2.1
|
|
|
$
|
347.5
|
|
|
$
|
206.4
|
|
|
$
|
280.6
|
|
|
$
|
762.0
|
|
|
$
|
1.9
|
|
|
$
|
323.1
|
|
|
$
|
180.2
|
|
|
$
|
256.8
|
|
(1)Short-term investment fund that invests in a collective trust that holds short-term highly liquid investments with principal preservation and daily liquidity as its primary objectives. Investments are primarily comprised of certificates of deposit, government securities, commercial paper, and time deposits.
(2)Fixed income funds that invest in a diversified portfolio primarily consisting of publicly traded government bonds and corporate bonds. There are no restrictions on these investments, and they are valued at the net asset value of shares held at year end.
(3)Equity funds that invest in a diversified portfolio of publicly traded domestic and international common stock. There are no restrictions on these investments, and they are valued at the net asset value of units held at year end.
(4)The largest component of other assets are bulk annuity contracts (buy-ins). These annuity contracts provide cash flows that match the future benefit payments for a specific group of pensioners. The other assets also include real estate and other alternative investments.
(5)These assets are measured at Net Asset Value (NAV) as a practical expedient under ASC 820.
The following table shows the activity of our U.S. and international plan assets, which are measured at fair value using Level 3 inputs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In millions)
|
|
2020
|
|
2019
|
Balance at beginning of period
|
|
$
|
180.2
|
|
|
$
|
150.1
|
|
Gain on assets still held at end of year
|
|
15.4
|
|
|
16.8
|
|
Purchases, sales, issuance, and settlements
|
|
2.4
|
|
|
8.3
|
|
Foreign exchange gain
|
|
8.4
|
|
|
5.0
|
|
Balance at end of period
|
|
$
|
206.4
|
|
|
$
|
180.2
|
|
Note 18 Other Post-Employment Benefits and Other Employee Benefit Plans
In addition to providing pension benefits, we maintain two Other Post-Employment Benefit Plans which provide a portion of healthcare, dental, vision and life insurance benefits for certain retired legacy employees. These plans are in the U.S. and Canada. Covered employees who retired on or after attaining age 55 and who had rendered at least 10 years of service were entitled to post-retirement healthcare, dental and life insurance benefits. These benefits are subject to deductibles, co-payment provisions and other limitations. The information below relates to these two plans.
Contributions made by us, net of Medicare Part D subsidies received in the U.S., are reported below as benefits paid. We may change the benefits at any time. The status of these plans, including a reconciliation of benefit obligations, a reconciliation of plan assets and the funded status of the plans, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In millions)
|
|
2020
|
|
2019
|
Change in benefit obligations:
|
|
|
|
|
Benefit obligation at beginning of period
|
|
$
|
43.5
|
|
|
$
|
46.4
|
|
|
|
|
|
|
Interest cost
|
|
1.0
|
|
|
1.6
|
|
Actuarial loss (gain)
|
|
2.4
|
|
|
(1.2)
|
|
Benefits paid, net
|
|
(3.5)
|
|
|
(3.3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of period
|
|
$
|
43.4
|
|
|
$
|
43.5
|
|
Change in plan assets:
|
|
|
|
|
Fair value of plan assets at beginning of period
|
|
$
|
—
|
|
|
$
|
—
|
|
Employer contribution
|
|
3.5
|
|
|
3.3
|
|
Benefits paid, net
|
|
(3.5)
|
|
|
(3.3)
|
|
Fair value of plan assets at end of period
|
|
$
|
—
|
|
|
$
|
—
|
|
Net amount recognized:
|
|
|
|
|
Underfunded status
|
|
$
|
(43.4)
|
|
|
$
|
(43.5)
|
|
Accumulated benefit obligation at end of year
|
|
$
|
43.4
|
|
|
$
|
43.5
|
|
Net amount recognized in consolidated balance sheets consists of:
|
|
|
|
|
Current liability
|
|
$
|
(5.1)
|
|
|
$
|
(5.3)
|
|
Non-current liability
|
|
(38.3)
|
|
|
(38.2)
|
|
Net amount recognized
|
|
$
|
(43.4)
|
|
|
$
|
(43.5)
|
|
Amounts recognized in accumulated other comprehensive loss consist of:
|
|
|
|
|
Net actuarial loss (gain)
|
|
$
|
1.9
|
|
|
$
|
(0.6)
|
|
Prior service credit
|
|
(2.3)
|
|
|
(2.6)
|
|
Total
|
|
$
|
(0.4)
|
|
|
$
|
(3.2)
|
|
Actuarial losses resulting in an increase to our projected benefit obligation for the year ended December 31, 2020 were primarily due to a reduction in the weighted average discount rate of 90 basis points. The accumulated post-retirement benefit obligations were determined using a weighted-average discount rate of 2.2% at December 31, 2020 and 3.1% at December 31, 2019.
The components of net periodic benefit cost were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In millions)
|
|
2020
|
|
2019
|
|
2018
|
Components of net periodic benefit cost:
|
|
|
|
|
|
|
Service cost
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
Interest cost
|
|
1.0
|
|
|
1.6
|
|
|
1.4
|
|
Amortization of net gain
|
|
(0.2)
|
|
|
(0.2)
|
|
|
(0.2)
|
|
Amortization of prior service credit
|
|
(0.3)
|
|
|
(0.3)
|
|
|
(0.3)
|
|
Net periodic benefit cost
|
|
$
|
0.5
|
|
|
$
|
1.1
|
|
|
$
|
1.0
|
|
Impact of settlement/curtailment
|
|
—
|
|
|
—
|
|
|
—
|
|
Total benefit cost for fiscal year
|
|
$
|
0.5
|
|
|
$
|
1.1
|
|
|
$
|
1.0
|
|
The amortization of any prior service cost is determined using a straight-line amortization of the cost over the average remaining service period of employees expected to receive benefits under the plan. Changes in benefit obligations that were recognized in AOCL for the years ended December 31, 2020 and December 31, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
(In millions)
|
|
U.S.
|
|
International
|
|
Total
|
|
U.S.
|
|
International
|
|
Total
|
Current year actuarial loss (gain)
|
|
$
|
2.4
|
|
|
$
|
—
|
|
|
$
|
2.4
|
|
|
$
|
(1.0)
|
|
|
$
|
(0.2)
|
|
|
$
|
(1.2)
|
|
Amortization of actuarial gain
|
|
—
|
|
|
0.2
|
|
|
0.2
|
|
|
—
|
|
|
0.2
|
|
|
0.2
|
|
Amortization of prior service credit
|
|
0.3
|
|
|
—
|
|
|
0.3
|
|
|
0.3
|
|
|
—
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2.7
|
|
|
$
|
0.2
|
|
|
$
|
2.9
|
|
|
$
|
(0.7)
|
|
|
$
|
—
|
|
|
$
|
(0.7)
|
|
Healthcare Cost Trend Rates
The assumed healthcare cost trend rates have an effect on the amounts recognized in our Consolidated Statements of Operations for the healthcare plans. For the year ended December 31, 2020, healthcare cost trend rates were assumed to be 6.3% for the U.S. plan and 5.0% for the Canada plan. The trend rates assumed for 2021 are 6.5% and 5.0% for the U.S. and Canada plan, respectively. Rates are expected to decrease to 5.0% by 2028 for the U.S. plan, and remain unchanged in future years for the Canada plan.
Expected post-retirement benefits (net of Medicare Part D subsidies) for each of the next five years and succeeding five years are as follows:
|
|
|
|
|
|
|
|
|
Year
|
|
Amount
(in millions)
|
2021
|
|
$
|
5.1
|
|
2022
|
|
4.6
|
|
2023
|
|
4.2
|
|
2024
|
|
3.8
|
|
2025
|
|
3.3
|
|
2026 to 2030 (combined)
|
|
11.4
|
|
Total
|
|
$
|
32.4
|
|
Note 19 Income Taxes
In 2020, 2019 and 2018, we recorded tax provisions of $142.1 million, $76.6 million and $307.5 million, respectively. Cash tax payments, net of refunds were $102.0 million, $94.7 million and $155.0 million for 2020, 2019 and 2018, respectively.
Tax Cuts and Jobs Act
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (“TCJA”). The legislation significantly changed U.S. tax law by, among other things, lowering the corporate income tax rate, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries (“Transition Tax”). The TCJA permanently reduced the U.S. corporate income tax rate from a maximum of 35% to 21%, effective January 1, 2018.
While the TCJA provides for a territorial tax system, beginning in 2018, it includes the global intangible low-taxed income (“GILTI”) provision. The Company has elected to account for GILTI tax in the period in which it is incurred. The GILTI provisions require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets.
Provisional Tax Impacts
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the TCJA. SAB 118 provided that where reasonable estimates can be made, the provisional accounting should be based on such estimates and when no reasonable estimate can be made, the provisional accounting may be based on the tax law in effect before the TCJA.
We applied the guidance in SAB 118 when accounting for the enactment-date effects of TCJA. Accordingly, we remeasured U.S. deferred tax assets and liabilities in 2017 based on the income tax rates at which the deferred tax assets and liabilities were expected to reverse in the future and refined the calculations. For the year ended December 31, 2018, an incremental expense of $1.6 million was recorded related to the remeasurement of the U.S. deferred tax assets.
At December 31, 2017, we were not able to reasonably estimate the impact of Transition Tax and therefore our estimate of Transition Tax expense was recorded in the first quarter of 2018. Accordingly, we recognized a provisional tax expense of $290 million related to the tax on the deemed repatriated earnings in our consolidated financial statements for the quarter ended March 31, 2018. The one-time Transition Tax is based on our total post-1986 earnings and profits (“E&P”), which had been deferred from U.S. taxes under prior law. A final adjustment was made to the provisional amounts allowed under SAB 118 in the fourth quarter of 2018 based on additional guidance from the IRS and state taxing authorities, and the filing of the 2017 tax returns. After the adjustment, total Transition Tax recorded in 2018 was $222 million. The impact of the Transition Tax comprised 48.5% of the 2018 effective tax rate. As of December 31, 2018, we completed our accounting for the tax effects of enactment of the TCJA.
In the fourth quarter of 2019, as part of our Reinvent SEE business transformation and in order to align our structure with our evolving global operations, we transferred certain intangible assets between wholly-owned subsidiaries. The transfer resulted in the establishment of a deferred tax asset and the corresponding recognition of deferred tax benefit of $49 million.
Coronavirus Aid, Relief and Economic Security Act and Issuance of 2020 Tax Regulations
In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law in March 2020. Among other things, the CARES Act raises certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”).
Taxpayers may generally deduct interest expense up to the sum of 50% of adjusted taxable income plus business interest income (30% limit under the 2017 Tax Act) for 2020 and 2019. As a result, we had no Federal disallowed interest expense in 2020 and 2019.
In July 2020, the U.S. Department of Treasury issued final tax regulations with respect to the 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 the net benefit in 2020.
The components of earnings before income tax provision were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In millions)
|
|
2020
|
|
2019
|
|
2018
|
Domestic
|
|
$
|
328.2
|
|
|
$
|
126.7
|
|
|
$
|
255.1
|
|
Foreign
|
|
298.0
|
|
|
243.6
|
|
|
202.7
|
|
Total
|
|
$
|
626.2
|
|
|
$
|
370.3
|
|
|
$
|
457.8
|
|
The components of our income tax provision were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In millions)
|
|
2020
|
|
2019
|
|
2018
|
Current tax expense:
|
|
|
|
|
|
|
Federal
|
|
$
|
(14.2)
|
|
|
$
|
62.3
|
|
|
$
|
228.2
|
|
State and local
|
|
5.6
|
|
|
4.6
|
|
|
9.8
|
|
Foreign
|
|
69.9
|
|
|
64.1
|
|
|
59.8
|
|
Total current expense
|
|
$
|
61.3
|
|
|
$
|
131.0
|
|
|
$
|
297.8
|
|
Deferred tax expense (benefit):
|
|
|
|
|
|
|
Federal
|
|
$
|
59.4
|
|
|
$
|
(19.0)
|
|
|
$
|
56.8
|
|
State and local
|
|
11.8
|
|
|
4.0
|
|
|
(21.2)
|
|
Foreign
|
|
9.6
|
|
|
(39.4)
|
|
|
(25.9)
|
|
Total deferred tax expense (benefit)
|
|
80.8
|
|
|
(54.4)
|
|
|
9.7
|
|
Total income tax provision
|
|
$
|
142.1
|
|
|
$
|
76.6
|
|
|
$
|
307.5
|
|
Deferred tax assets (liabilities) consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In millions)
|
|
2020
|
|
2019
|
|
|
|
|
|
Accruals not yet deductible for tax purposes
|
|
$
|
16.0
|
|
|
$
|
17.4
|
|
Net operating loss carryforwards
|
|
252.1
|
|
|
245.9
|
|
Foreign, federal and state credits
|
|
6.5
|
|
|
8.4
|
|
Employee benefit items
|
|
78.7
|
|
|
79.5
|
|
Capitalized expenses
|
|
6.2
|
|
|
32.2
|
|
Intangibles
|
|
24.9
|
|
|
21.8
|
|
Derivatives and other
|
|
59.8
|
|
|
47.7
|
|
Sub-total deferred tax assets
|
|
444.2
|
|
|
452.9
|
|
Valuation allowance
|
|
(207.1)
|
|
|
(197.6)
|
|
Total deferred tax assets
|
|
$
|
237.1
|
|
|
$
|
255.3
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
(66.0)
|
|
|
$
|
(37.0)
|
|
Unremitted foreign earnings
|
|
(11.0)
|
|
|
(10.0)
|
|
Intangible assets
|
|
—
|
|
|
—
|
|
Other
|
|
(4.0)
|
|
|
(0.4)
|
|
Total deferred tax liabilities
|
|
(81.0)
|
|
|
(47.4)
|
|
Net deferred tax assets
|
|
$
|
156.1
|
|
|
$
|
207.9
|
|
A valuation allowance has been provided based on the uncertainty of utilizing the tax benefits, primarily related to the following deferred tax assets:
•$195.1 million of foreign items, primarily net operating losses; and
•$6.0 million of state tax credits.
For the year ended December 31, 2020, the valuation allowance increased by $9.5 million. The change is primarily driven by an increase related to currency revaluation, offset by a net decrease attributable to increased profitability in EMEA.
As of December 31, 2020, we have foreign net operating loss carryforwards of $930.6 million expiring in years beginning in 2021 with the large majority of losses having an unlimited carryover. The state net operating loss carryforwards totaling $506.3 million expire in various amounts over 1 to 19 years.
As of December 31, 2020, we have $0.4 million of foreign and federal tax credit carryforwards and $7.8 million of state credit carryovers expiring in 2021 – 2028. Most of the credit carryovers have a valuation allowance.
Although a deferred tax liability of $11.0 million was recorded as of December 31, 2020 for planned repatriation of foreign earnings, the Company has indefinitely reinvested most of its foreign earnings, which are the principal component of U.S. and foreign outside basis differences. The total amount of unremitted foreign earnings is $5.2 billion upon which the U.S. federal income tax effect has largely been recorded as a result of Transition Tax. Remitting these foreign earnings would result in additional foreign and U.S. income tax consequences, the net tax costs of which are not practicable to determine.
We have no outstanding liability with respect to Transition Tax.
A reconciliation of the provision for income taxes, with the amount computed by applying the statutory federal income tax rate, 21%, to income before provision for income taxes, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Computed expected tax
|
|
$
|
131.5
|
|
|
21.0
|
%
|
|
$
|
77.8
|
|
|
21.0
|
%
|
|
$
|
96.1
|
|
|
21.0
|
%
|
State income taxes, net of federal tax benefit
|
|
13.4
|
|
|
2.1
|
%
|
|
6.7
|
|
|
1.8
|
%
|
|
8.4
|
|
|
1.8
|
%
|
Foreign earnings taxed at different rates
|
|
10.5
|
|
|
1.7
|
%
|
|
10.5
|
|
|
2.8
|
%
|
|
8.3
|
|
|
1.8
|
%
|
U.S. tax on foreign earnings
|
|
24.0
|
|
|
3.8
|
%
|
|
29.0
|
|
|
7.8
|
%
|
|
13.5
|
|
|
2.9
|
%
|
Tax credits
|
|
(27.8)
|
|
|
(4.4)
|
%
|
|
(50.1)
|
|
|
(13.5)
|
%
|
|
(20.7)
|
|
|
(4.5)
|
%
|
Unremitted foreign earnings
|
|
2.5
|
|
|
0.4
|
%
|
|
10.0
|
|
|
2.7
|
%
|
|
—
|
|
|
—
|
%
|
Reorganization and divestitures
|
|
0.4
|
|
|
0.1
|
%
|
|
(47.2)
|
|
|
(12.7)
|
%
|
|
—
|
|
|
—
|
%
|
Withholding tax
|
|
4.2
|
|
|
0.7
|
%
|
|
4.8
|
|
|
1.3
|
%
|
|
21.7
|
|
|
4.7
|
%
|
Net change in valuation allowance
|
|
(5.2)
|
|
|
(0.8)
|
%
|
|
(7.6)
|
|
|
(2.1)
|
%
|
|
(39.8)
|
|
|
(8.7)
|
%
|
Net change in unrecognized tax benefits
|
|
(1.1)
|
|
|
(0.2)
|
%
|
|
36.0
|
|
|
9.7
|
%
|
|
95.0
|
|
|
20.8
|
%
|
Tax Cuts and Jobs Act and associated Tax Regulations
|
|
(22.4)
|
|
|
(3.6)
|
%
|
|
—
|
|
|
—
|
%
|
|
117.6
|
|
|
25.7
|
%
|
Other
|
|
12.1
|
|
|
1.9
|
%
|
|
6.7
|
|
|
1.9
|
%
|
|
7.4
|
|
|
1.7
|
%
|
Income tax expense and rate
|
|
$
|
142.1
|
|
|
22.7
|
%
|
|
$
|
76.6
|
|
|
20.7
|
%
|
|
$
|
307.5
|
|
|
67.2
|
%
|
Unrecognized Tax Benefits
We are providing the following disclosures related to our unrecognized tax benefits and the effect on our effective income tax rate if recognized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(in millions)
|
|
2020
|
|
2019
|
|
2018
|
Beginning balance of unrecognized tax benefits
|
|
$
|
390.3
|
|
|
$
|
356.4
|
|
|
$
|
214.3
|
|
Additions for tax positions of current year
|
|
2.7
|
|
|
3.4
|
|
|
106.0
|
|
Additions for tax positions of prior years
|
|
8.3
|
|
|
47.9
|
|
|
59.5
|
|
Reductions for tax positions of prior years
|
|
(18.2)
|
|
|
(16.0)
|
|
|
(7.0)
|
|
Reductions for lapses of statutes of limitation and settlements
|
|
(3.5)
|
|
|
(1.4)
|
|
|
(16.4)
|
|
Ending balance of unrecognized tax benefits
|
|
$
|
379.6
|
|
|
$
|
390.3
|
|
|
$
|
356.4
|
|
In 2020, our unrecognized tax benefit decreased by $10.7 million, primarily related to decreases in North America for resolution of audit matters. In 2019, we increased our unrecognized tax benefit by $33.9 million, also primarily related to North America.
If the unrecognized tax benefits at December 31, 2020 were recognized, our income tax provision would decrease by $333.0 million, resulting in a substantially lower effective tax rate. Based on the potential outcome of the Company’s global tax examinations and the expiration of the statute of limitations for specific jurisdictions, it is possible that the unrecognized tax benefits could change significantly within the next 12 months. Absent resolution of significant tax controversy, the associated impact on the reserve balance is estimated to be a decrease in the range of $0.9 to $2.3 million during 2021.
We recognize interest and penalties associated with unrecognized tax benefits in our income tax provision in the Consolidated Statements of Operations. Interest and penalties recorded were $5.6 million, $13.1 million and negligible, respectively in 2020, 2019 and 2018. We had gross liabilities, for interest and penalties, of $65.3 million at December 31, 2020, $56.2 million at December 31, 2019 and $18.2 million at December 31, 2018. The increase in the gross liability related to interest and penalties from 2018 to 2019 was primarily due to a reclass within other non-current liabilities from unrecognized tax benefits to interest and penalties which had no impact on the overall Consolidated Balance Sheets or Consolidated Statements of Operations.
Most of the unrecognized tax benefit amount of $379.6 million relates to North America.
Income Tax Returns
The IRS completed its field examination of the U.S federal income tax returns for the years 2011-2014 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 payment made pursuant to the Settlement agreement (as defined in Note 20, “Commitments and Contingencies”) 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. Although we expected to enter the IRS administrative appeals process in late 2020, or early 2021, upon receipt of our protest, the IRS determined that it needed additional information before transferring the matter to the IRS administrative appeals process. We are currently responding to requests for further information from the IRS and at this time, cannot predict when we will enter the IRS administrative appeals process, when such process will conclude, or the outcome of such process. It is possible that future developments in this matter could have a material impact to the uncertain tax position balances and results of operations, including cash flow, within the next twelve months.
State income tax returns are generally subject to examination for a period of 3 to 5 years after their filing date. We have various state income tax returns in the process of examination and are generally open to examination for periods after 2015.
Our foreign income tax returns are under examination in various jurisdictions in which we conduct business. Income tax returns in foreign jurisdictions have statutes of limitations generally ranging from 3 to 5 years after their filing date. We have various foreign returns in the process of examination but have largely concluded all other income tax matters for the years prior to 2015.
Management believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any of the issues addressed in the Company’s tax audits are resolved in a manner that is inconsistent with management’s expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs and could be required to make significant payments as a result.
Note 20 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 2019, the Buyer submitted a claim to us under the Clawback Agreement seeking such a refund. 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).
Novipax Complaint
On March 31, 2017, a complaint was filed in the Superior Court of the State of Delaware against Sealed Air Corporation, Cryovac Inc., Sealed Air Corporation (US) and Sealed Air (Canada) Co./Cie. (individually and collectively the “Company”) styled Novipax Holdings LLC (“Novipax”) v. Sealed Air Corporation, Cryovac Inc., Sealed Air Corporation (US) and Sealed Air (Canada) Co. / Cie. (the “Complaint”). To cover the estimated costs of settlement, including a one-time cash payment as well as accrual of expenses relating to a proposed supply agreement under which the Company would continue to purchase materials from Novipax for a specified period for use in the manufacturing of the Company’s products, the Company recorded a charge of $59.0 million during the second quarter of 2019, which is included in Selling, general and administrative expenses in the Company’s Consolidated Statements of Operations for the year ended December 31, 2019. On July 10, 2019 the settlement agreement was finalized and executed, and the parties agreed to the release and dismissal of the litigation claims.
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. Although we expected to enter the IRS administrative appeals process in late 2020 or early 2021, upon receipt of our protest, the IRS determined that it needed additional information before transferring the matter to the IRS administrative appeals process. We are currently responding to requests for further information from the IRS and, at this time, cannot predict when we will enter the IRS administrative appeals process, when such process will conclude, 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 flows, 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 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 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 December 31, 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.
Other Principal Contractual Obligations
At December 31, 2020, we had other principal contractual obligations, which included agreements to purchase an estimated amount of goods, including raw materials, or services in the normal course of business, aggregating to approximately $128.2 million. The estimated future cash outlays are as follows:
|
|
|
|
|
|
Year
|
Amount
(in millions)
|
2021
|
$
|
52.3
|
|
2022
|
24.8
|
|
2023
|
19.8
|
|
2024
|
17.6
|
|
2025
|
13.7
|
|
|
|
Total
|
$
|
128.2
|
|
Asset Retirement Obligations
The Company has recorded asset retirement obligations primarily associated with asbestos abatement, lease restitution and the removal of underground tanks. The Company's asset retirement obligation liabilities were $10.6 million and $10.7 million at December 31, 2020 and 2019, respectively. The Company also recorded assets within property and equipment, net which included $3.8 million and $3.6 million related to buildings and $5.9 million and $6.4 million related to leasehold improvements as of December 31, 2020 and 2019, respectively. Accumulated depreciation for amounts related to buildings was $1.3 million and $1.0 million and accumulated depreciation for amounts related to leasehold improvements was $4.4 million and $4.2 million, as of December 31, 2020 and 2019, respectively. For the years ended December 31, 2020, 2019 and 2018 accretion expense was $0.3 million.
Note 21 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. Share purchases made prior to May 2, 2018 were under previous Board of Directors share repurchase authorizations, specifically the $1.5 billion authorization made in July 2015 plus the increase to that existing share repurchase program by up to an additional $1.5 billion made in March 2017.
During the year ended December 31, 2020, we repurchased 856,437 shares for a total of approximately $34.6 million with an average share price of $40.43. These repurchases were made under open market transactions, including through plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, or the Exchange Act, as amended, and pursuant to the share repurchase program authorized by our Board of Directors. At December 31, 2020, 74,281 shares repurchased had not yet settled or were not yet reflected by our recordkeeper or in our shares outstanding as of December 31, 2020.
During the year ended December 31, 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 under the of the Securities Exchange Act of 1934, or the Exchange Act, as amended, and pursuant to the share repurchase program authorized by our Board of Directors.
During the year ended December 31, 2018, we repurchased 14,898,454 shares, for approximately $651.4 million with an average share price of $43.72. These repurchases were made under privately negotiated, accelerated share repurchase programs or open market transactions pursuant to the share repurchase program previously approved by our Board of Directors. During the year ended December 31, 2018, share purchases under open market transactions were 13,678,818 shares, for approximately $571.4 million with an average share price of $41.77.
Dividends
The following table shows our total cash dividends paid in the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions, except per share amounts)
|
|
Total Cash
Dividends Paid
|
|
Total Cash Dividends Paid per Common Share
|
2018
|
|
$
|
102.9
|
|
|
$
|
0.64
|
|
2019
|
|
99.1
|
|
|
0.64
|
|
2020
|
|
100.3
|
|
|
0.64
|
|
|
|
|
|
|
On February 11, 2021, our Board of Directors declared a quarterly cash dividend of $0.16 per common share payable on March 19, 2021 to stockholders of record at the close of business on March 5, 2021. The estimated amount of this dividend payment is $24.8 million based on 154.9 million shares of our common stock issued and outstanding as of February 16, 2021.
The dividend payments discussed above are recorded as reductions to cash and cash equivalents and retained earnings on our Consolidated Balance Sheets. Our senior secured credit facility and our senior notes contain covenants that restrict our ability to declare or pay dividends and repurchase stock. 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 consolidated financial condition and results of operations. There is no guarantee that our Board of Directors will declare any further dividends.
Common Stock
The following is a summary of changes during the years ended December 31, in shares of our common stock and common stock in treasury:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Changes in common stock:
|
|
|
|
|
|
|
Number of shares, beginning of year
|
|
231,622,535
|
|
|
231,619,037
|
|
|
230,080,944
|
|
Restricted stock shares issued for new awards
|
|
—
|
|
|
1,478
|
|
|
569,960
|
|
Restricted stock shares, forfeited
|
|
(15,271)
|
|
|
(110,984)
|
|
|
(86,518)
|
|
Shares issued for vested restricted stock units
|
|
315,902
|
|
|
164,347
|
|
|
151,280
|
|
Shares issued as part of acquisition
|
|
—
|
|
|
—
|
|
|
20,000
|
|
Shares issued for 2014 Special Performance Stock Units (PSU) Awards
|
|
—
|
|
|
—
|
|
|
658,783
|
|
Shares issued for 2015 Three-Year PSU Awards
|
|
—
|
|
|
—
|
|
|
129,139
|
|
Shares issued for 2017 Three-Year PSU Awards
|
|
133,752
|
|
|
—
|
|
|
—
|
|
Shares issued for Stock Leverage Opportunity Awards (SLO)
|
|
8,471
|
|
|
6,321
|
|
|
109,841
|
|
Shares granted and issued under the Omnibus Incentive Plan and Directors Stock Plan to Directors
|
|
42,911
|
|
|
123,824
|
|
|
10,841
|
|
Canceled shares for tax netting(1)
|
|
(150,217)
|
|
|
(181,488)
|
|
|
—
|
|
Other activity
|
|
—
|
|
|
—
|
|
|
(25,233)
|
|
Number of shares issued, end of year
|
|
231,958,083
|
|
|
231,622,535
|
|
|
231,619,037
|
|
Changes in common stock in treasury:
|
|
|
|
|
|
|
Number of shares held, beginning of year
|
|
77,109,722
|
|
|
75,964,667
|
|
|
61,485,423
|
|
Repurchase of common stock(2)
|
|
782,156
|
|
|
1,632,163
|
|
|
14,826,924
|
|
Profit sharing contribution paid in stock
|
|
(823,567)
|
|
|
(487,108)
|
|
|
(538,524)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares withheld for taxes(1)
|
|
—
|
|
|
—
|
|
|
190,844
|
|
Number of shares held, end of year(2)
|
|
77,068,311
|
|
|
77,109,722
|
|
|
75,964,667
|
|
Number of common stock outstanding, end of year(2)
|
|
154,889,772
|
|
|
154,512,813
|
|
|
155,654,370
|
|
(1)Effective January 1, 2019, new share issuances for vested awards are netted by the number of shares required to cover the recipients' portion of income tax. The portion withheld for taxes are canceled. Prior to January 1, 2019, the shares required to cover the recipients' portion of income tax were issued and recorded to treasury stock. Shares netted for taxes in 2020 and 2019 primarily relates to vesting activity for restricted stock shares issued in prior years.
(2)Repurchase of common stock for the year ended December 31, 2020, as shown above, excludes 74,281 shares of common stock that had been repurchased by the Company but were not yet settled or not yet reflected by the Recordkeeper as of December 31, 2020. The table above and our Consolidated Balance Sheets reflect the number of shares held in treasury per our Recordkeeper.
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 stockholders 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.
Prior to the Omnibus Incentive Plan, the 2005 Contingent Stock Plan represented our sole long-term equity compensation program for officers and employees. The 2005 Contingent Stock Plan provided for awards of equity-based compensation, including restricted stock, restricted stock units, PSU awards and cash awards measured by share price, to our executive officers and other key employees, as well as U.S.-based key consultants. Prior to the Omnibus Incentive Plan, the 2002 Directors Stock Plan provided for annual grants of shares to non-employee directors, and interim grants of shares to eligible directors elected at times other than at an annual meeting, as all or part of the annual or interim retainer fees for non-employee directors. During 2002, we adopted a plan that permitted non-employee directors to elect to defer all or part of their annual retainer until the non-employee director retires from the Board of Directors. The non-employee director could elect to defer the portion of the annual retainer payable in shares of stock, as well as the portion, if any, payable in cash. Cash dividends on deferred shares are reinvested into additional deferred units in each non-employee director’s account.
A summary of the changes in common shares available for awards under the Omnibus Incentive Plan and Predecessor Plans follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Number of shares available, beginning of year
|
|
4,048,509
|
|
|
4,489,347
|
|
|
3,668,954
|
|
Newly approved Shares under Omnibus Incentive Plan
|
|
—
|
|
|
—
|
|
|
2,199,114
|
|
Restricted stock shares issued for new awards
|
|
—
|
|
|
—
|
|
|
(571,438)
|
|
Restricted stock shares forfeited
|
|
15,271
|
|
|
105,960
|
|
|
91,542
|
|
Restricted stock units awarded
|
|
(1,014,667)
|
|
|
(819,808)
|
|
|
(219,923)
|
|
Restricted stock units forfeited
|
|
105,832
|
|
|
96,534
|
|
|
64,122
|
|
Shares issued for 2014 Special PSU Awards
|
|
—
|
|
|
—
|
|
|
(658,783)
|
|
Shares issued for 2015 Three-Year PSU Awards
|
|
—
|
|
|
—
|
|
|
(129,139)
|
|
Shares issued for 2017 Three-Year PSU Awards
|
|
(133,752)
|
|
|
—
|
|
|
—
|
|
Restricted stock units awarded for SLO Awards
|
|
(73,731)
|
|
|
(46,195)
|
|
|
(23,478)
|
|
SLO units forfeited
|
|
—
|
|
|
1,580
|
|
|
817
|
|
Director shares granted and issued
|
|
(20,835)
|
|
|
(22,015)
|
|
|
(10,560)
|
|
Director units granted and deferred(1)
|
|
(22,826)
|
|
|
(6,262)
|
|
|
(16,505)
|
|
Shares withheld for taxes(2)
|
|
279,509
|
|
|
249,368
|
|
|
94,624
|
|
|
|
|
|
|
|
|
Number of shares available, end of year(3)
|
|
3,183,310
|
|
|
4,048,509
|
|
|
4,489,347
|
|
(1)Director units granted and deferred include the impact of share-settled dividends earned and deferred on deferred shares.
(2)The Omnibus Incentive Plan and 2005 Contingent Stock Plan permit withholding of taxes and other charges that may be required by law to be paid attributable to awards by withholding a portion of the shares attributable to such awards.
(3)The above table excludes approximately 1.3 million contingently issuable shares under the PSU awards and SLO awards, which represents the maximum number of shares that could be issued under those awards as of December 31, 2020.
We record share-based incentive compensation expense in selling, general and administrative expenses and cost of sales on our Consolidated Statements of Operations for both equity-classified awards and liability-classified awards. We record a corresponding credit to additional paid-in capital within stockholders’ equity (deficit) for equity-classified awards, and to either a 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 share-based award. The number of 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 following table summarizes the Company’s pre-tax share-based incentive compensation expense and related income tax benefit for the years ended December 31, 2020, 2019 and 2018 related to the Company’s PSU awards, SLO awards and restricted stock awards.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2020
|
|
2019
|
|
2018
|
2020 Three-year PSU Awards
|
|
$
|
5.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
2019 Three-year PSU Awards
|
|
3.5
|
|
|
4.3
|
|
|
—
|
|
2018 Three-year PSU Awards
|
|
1.9
|
|
|
0.2
|
|
|
2.7
|
|
2017 Three-year PSU Awards(1)
|
|
—
|
|
|
—
|
|
|
3.7
|
|
2017 COO and Chief Executive Officer-Designate New Hire Equity Awards(2)
|
|
0.2
|
|
|
0.2
|
|
|
0.2
|
|
2016 Three-year PSU Awards(1)
|
|
—
|
|
|
—
|
|
|
(3.0)
|
|
SLO Awards
|
|
2.2
|
|
|
3.2
|
|
|
1.6
|
|
Other long-term share-based incentive compensation programs(3)(4)
|
|
29.2
|
|
|
26.5
|
|
|
24.7
|
|
Total share-based incentive compensation expense(5)
|
|
$
|
42.3
|
|
|
$
|
34.4
|
|
|
$
|
29.9
|
|
Associated tax benefits recognized
|
|
$
|
7.1
|
|
|
$
|
5.8
|
|
|
$
|
4.9
|
|
(1) On May 18, 2017, the Organization and Compensation Committee of our Board of Directors (“O&C Committee”) approved a change in the vesting policy regarding the existing 2017 Three-year PSU Awards and 2016 Three-year PSU Awards for Ilham Kadri. The approved change resulted in a pro-rata share of vesting calculated on the close date of the sale of Diversey. Dr. Kadri’s awards were still subject to the performance metrics stipulated in the plan documents and paid out in accordance with the original planned timing.
(2) For the year ended December 31, 2020, this amount includes expense associated with award modifications as described under the section titled “Chief Operating Officer (COO) and Chief Executive Officer-Designate 2017 New Hire Equity Awards and 2020 Award Modifications.”
(3) The amount includes the expenses associated with the restricted stock awards consisting of restricted stock shares, restricted stock units and cash-settled restricted stock unit awards.
(4) In December 2018, the Equity Award Committee approved a change in the vesting condition for certain individuals who would be leaving the Company under a restructuring phase of our Reinvent SEE business transformation. For these modifications, we recorded the cumulative expense of the higher fair value of the impacted awards at modification approval.
(5) The amounts do not include the expense related to our U.S. profit sharing contributions made in the form of our common stock as these contributions are not considered share-based incentive compensation.
Restricted Stock, Restricted Stock Units and Cash-Settled Restricted Stock Unit Awards
Restricted stock, restricted stock units and cash-settled restricted stock unit awards (cash payment in an amount equal to the value of the shares on the vesting date) provide for a vesting period. Awards vest earlier in the event of the participant’s death or disability. If a participant terminates employment prior to vesting, then the award of restricted stock, restricted stock units or cash-settled restricted stock unit awards is forfeited, except for certain circumstances following a change in control. The O&C Committee may waive the forfeiture of all or a portion of an award. Generally, restricted stock (but not restricted stock units or cash-settled restricted stock unit awards) granted before January 1, 2018 pay dividends on the same basis as other stockholders entitled to receive dividends. Generally, restricted stock, restricted stock units, and cash-settled stock unit awards granted after January 1, 2018 pay dividend equivalents upon vesting.
The following table summarizes activity for unvested restricted stock and restricted stock units for 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock shares
|
|
Restricted stock units
|
|
|
Shares
|
|
Weighted-Average per Share Fair Value on Grant Date
|
|
Aggregate
Intrinsic
Value (in millions)
|
|
Shares
|
|
Weighted-Average per Share Fair Value on Grant Date
|
|
Aggregate
Intrinsic
Value (in millions)
|
Non-vested at December 31, 2019
|
|
583,955
|
|
|
$
|
45.51
|
|
|
|
|
1,055,659
|
|
|
$
|
44.11
|
|
|
|
Granted
|
|
—
|
|
|
—
|
|
|
|
|
1,014,667
|
|
|
31.01
|
|
|
|
Vested
|
|
(434,636)
|
|
|
45.99
|
|
|
$
|
20.0
|
|
|
(486,059)
|
|
|
44.59
|
|
|
$
|
21.7
|
|
Forfeited or expired
|
|
(15,271)
|
|
|
44.24
|
|
|
|
|
(105,832)
|
|
|
38.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested at December 31, 2020
|
|
134,048
|
|
|
$
|
44.11
|
|
|
|
|
1,478,435
|
|
|
$
|
35.39
|
|
|
|
A summary of the Company’s fair values of its vested restricted stock shares and restricted stock units are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2020
|
|
2019
|
|
2018
|
Fair value of restricted stock shares vested
|
|
$
|
13.2
|
|
|
$
|
23.7
|
|
|
$
|
13.5
|
|
Fair value of restricted stock units vested
|
|
$
|
15.6
|
|
|
$
|
10.1
|
|
|
$
|
6.9
|
|
A summary of the Company’s unrecognized compensation cost and weighted average periods over which the compensation cost is expected to be recognized for its non-vested restricted stock shares and restricted stock units are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Unrecognized Compensation Costs
|
|
Weighted Average to be recognized (in years)
|
Restricted Stock shares
|
|
$
|
1.2
|
|
|
0.2
|
Restricted Stock units
|
|
$
|
34.3
|
|
|
1.0
|
The non-vested cash awards excluded from table above had $2.0 million unrecognized compensation costs and weighted-average remaining contractual life of approximately 1.0 years. We have recognized liabilities of $1.2 million in other current liabilities on our Consolidated Balance Sheets. Cash paid for vested cash-settled restricted stock unit awards was $0.9 million and $1.3 million in 2020 and 2019, respectively.
PSU Awards
Three-year PSU awards for 2018, 2019 and 2020
During the first 90 days of each year, the 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, 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 full months of service during the award performance period, further adjusted based on the achievement of the performance goals during the award performance period. All PSUs are classified as equity in the Consolidated Balance Sheets, with the exception of awards that are required by local laws or regulations to be settled in cash. This subset of PSU awards are classified as either current or non-current liabilities in the Consolidated Balance Sheets.
The O&C Committee established principal performance goals, which are (i) relative total shareholder return over the three-year performance period weighted at 34% for the 2018, 2019 and 2020 awards; (ii) consolidated Adjusted EBITDA
margin measured in the final year of the award weighted at 33% for the 2018 and 2019 awards; or Adjusted EBITDA compound annual growth rate (“CAGR”) in the case of the 2020 awards; and (iii) return on invested capital for the 2019 and 2020 awards weighted at 33%; or three-year net trade sales CAGR in the case of the 2018 awards. The total number of shares to be issued for these awards can range from zero to 200% of the target number of shares.
In the third quarter of 2019, the O&C Committee approved PSU awards for an additional pool of individuals in connection with our Reinvent SEE business transformation. The established performance goals are identical to those approved for awards granted to our executive officers and other selected key executives in the first quarter of 2019.
PSUs – Relative Total Shareholder Return (Relative TSR)
The PSUs granted based on Relative TSR are contingently awarded and will be payable in shares of the Company’s common stock upon the expiration of a three-year award performance period based on the Company’s TSR ranking relative to a peer group of companies. The fair value of the PSUs was estimated on the grant date using a Monte Carlo Simulation. Other assumptions include the expected volatility of all companies included in the Relative TSR, the historical share price returns analysis of all companies included in the Relative TSR and assumes dividends are reinvested. The expected volatility was based on the historical volatility for a period of time that approximates the duration between the valuation date and the end of the performance period. The risk-free interest rate is based on the Zero-Coupon Treasury STRIP yield curve matching the term from the valuation date to the end of the performance period. Compensation expense for the PSUs based on Relative TSR (which is considered a market condition) is a fixed amount determined at the grant date fair value and is recognized 100% over the three-year award performance period regardless of whether the performance condition is satisfied.
The number of PSUs granted based on Relative TSR and the assumptions used to calculate the grant date fair value are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of units granted
|
|
Fair value on grant date
|
|
Expected price volatility
|
|
Risk-free interest rate
|
2020:
|
|
|
|
|
|
|
|
|
March 1, 2020 grant date
|
|
31,064
|
|
|
$
|
29.85
|
|
|
23.70
|
%
|
|
0.90
|
%
|
February 13, 2020 grant date
|
|
44,206
|
|
|
$
|
34.08
|
|
|
23.70
|
%
|
|
1.40
|
%
|
February 12, 2020 grant date
|
|
33,335
|
|
|
$
|
38.87
|
|
|
23.70
|
%
|
|
1.40
|
%
|
2019:
|
|
|
|
|
|
|
|
|
July 11, 2019 grant date
|
|
20,724
|
|
|
$
|
55.82
|
|
|
23.00
|
%
|
|
1.86
|
%
|
February 14, 2019 grant date
|
|
24,905
|
|
|
$
|
57.34
|
|
|
22.80
|
%
|
|
2.51
|
%
|
February 13, 2019 grant date
|
|
24,914
|
|
|
$
|
59.15
|
|
|
22.80
|
%
|
|
2.55
|
%
|
2018:
|
|
|
|
|
|
|
|
|
February 13, 2018 grant date
|
|
56,829
|
|
|
$
|
43.40
|
|
|
22.00
|
%
|
|
2.00
|
%
|
PSUs – Adjusted EBITDA Margin
The PSUs granted based on Adjusted EBITDA margin are contingently awarded and will be payable in shares of the Company’s common stock based on the Company’s Adjusted EBITDA margin at the end of the performance period compared to a target set at the time of the grant by the O&C Committee. The fair value of the PSUs is based on grant date fair value which is equivalent to the closing price of one share of the Company’s common stock on the date of grant. The number of PSUs earned based on Adjusted EBITDA margin varies according to the outcome of the performance condition. The Company reassesses at each reporting date whether achievement of the performance condition is probable and accrues compensation expense if and when achievement of the performance condition is probable.
The number of PSUs granted based on Adjusted EBITDA margin and the grant date fair value are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of units granted
|
|
Fair value on grant date
|
2019:
|
|
|
|
|
July 11, 2019 grant date
|
|
25,997
|
|
|
$
|
43.22
|
|
February 14, 2019 grant date
|
|
32,922
|
|
|
$
|
42.10
|
|
February 13, 2019 grant date
|
|
33,885
|
|
|
$
|
42.21
|
|
2018:
|
|
|
|
|
February 13, 2018 grant date
|
|
57,378
|
|
|
$
|
41.72
|
|
PSUs – Net Trade Sales Compound Annual Growth Rate
The PSUs granted based on Net Trade Sales CAGR are contingently awarded and will be payable in shares of the Company’s common stock based on the Company’s Net Trade Sales CAGR over a three-year award performance period compared to a target set at the time of the grant by the O&C Committee. The fair value of the PSUs is based on grant date fair value which is equivalent to the closing price of one share of the Company’s common stock on the date of grant. The number of PSUs earned based on Net Trade Sales CAGR varies based on the probable outcome of the performance condition. The Company reassesses at each reporting date whether achievement of the performance condition is probable and accrues compensation expense if and when achievement of the performance condition is probable.
The number of PSUs granted based on Net Trade Sales Growth CAGR and the grant date fair value are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of units granted
|
|
Fair value on grant date
|
2018:
|
|
|
|
|
February 13, 2018 grant date
|
|
57,378
|
|
|
$
|
41.72
|
|
PSUs - Return on Invested Capital
The PSUs granted based on Return on Invested Capital (ROIC) are contingently awarded and will be payable in shares of the Company’s common stock based on the Company’s ROIC over a three-year award performance period compared to a target set at the time of the grant by the O&C Committee. The fair value of the PSUs is based on grant date fair value which is equivalent to the closing price of one share of the Company’s common stock on the date of grant. The number of PSUs earned based on ROIC varies based on the probable outcome of the performance condition. The Company reassesses at each reporting date whether achievement of the performance condition is probable and accrues compensation expense if and when achievement of the performance condition is probable.
The number of PSUs granted based on ROIC and the grant date fair value are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of units granted
|
|
Fair value on grant date
|
2020:
|
|
|
|
|
March 1, 2020 grant date
|
|
29,690
|
|
|
$
|
30.31
|
|
February 13, 2020 grant date
|
|
42,507
|
|
|
$
|
34.40
|
|
February 12, 2020 grant date
|
|
35,068
|
|
|
$
|
35.86
|
|
2019:
|
|
|
|
|
July 11, 2019 grant date
|
|
25,997
|
|
|
$
|
43.22
|
|
February 14, 2019 grant date
|
|
32,922
|
|
|
$
|
42.10
|
|
February 13, 2019 grant date
|
|
33,885
|
|
|
$
|
42.21
|
|
PSUs - Adjusted EBITDA Compound Annual Growth Rate
The PSUs granted based on Adjusted EBITDA CAGR are contingently awarded and will be payable in shares of the Company’s common stock based on the Company’s Adjusted EBITDA CAGR over a three-year performance period compared to a target set at the time of the grant by the O&C Committee. The fair value of the PSUs is based on grant date fair value which is equivalent to the closing price of one share of the Company’s common stock on the date of grant. The number of PSUs earned based on Adjusted EBITDA CAGR varies based on the probable outcome of the performance condition. The Company
reassesses at each reporting date whether achievement of the performance condition is probable and accrues compensation expense if and when achievement of the performance condition is probable.
The number of PSUs granted based on Adjusted EBITDA CAGR and the grant date fair value are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of units granted
|
|
Fair value on grant date
|
2020:
|
|
|
|
|
March 1, 2020 grant date
|
|
29,690
|
|
|
$
|
30.31
|
|
February 13, 2020 grant date
|
|
42,507
|
|
|
$
|
34.40
|
|
February 12, 2020 grant date
|
|
35,068
|
|
|
$
|
35.86
|
|
The following table includes additional information related to estimated earned payout based on the probable outcome of the performance conditions and market condition as of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Payout %
|
|
|
Return on Invested Capital
|
|
Net Trade Sales CAGR
|
|
Adjusted EBITDA Margin
|
|
Adjusted EBITDA CAGR
|
|
Relative TSR(1)
|
|
Combined
|
2020 Three-year PSU Awards
|
|
100
|
%
|
|
N/A
|
|
N/A
|
|
100
|
%
|
|
63
|
%
|
|
87
|
%
|
2019 Three-year PSU Awards
|
|
150
|
%
|
|
N/A
|
|
60
|
%
|
|
N/A
|
|
63
|
%
|
|
91
|
%
|
2018 Three-year PSU Awards
|
|
N/A
|
|
—
|
%
|
|
121
|
%
|
|
N/A
|
|
44
|
%
|
|
55
|
%
|
(1) Relative Total Shareholder Return is a market-based condition. Accordingly, we make no assumptions related to future performance. The percentages above represent actual rankings as of December 31, 2020. Any portion of outstanding awards based on the achievement of market-based conditions are accrued at 100% of fair value over the performance period in accordance with ASC 718.
The following table summarizes activity for outstanding three-year PSU awards for 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Aggregate Intrinsic Value
(in millions)
|
Outstanding at December 31, 2019
|
|
629,504
|
|
|
|
Granted(1)
|
|
323,135
|
|
|
|
Converted
|
|
(216,581)
|
|
|
$
|
9.8
|
|
Forfeited or expired
|
|
(38,971)
|
|
|
|
Outstanding at December 31, 2020
|
|
697,087
|
|
|
|
Fully vested at December 31, 2020
|
|
209,631
|
|
|
$
|
8.9
|
|
(1)This represents the target number of performance units granted. Actual number of PSUs earned, if any, is dependent upon performance and may range from 0% to 200% percent of the target.
The following table summarizes activity for non-vested three-year PSU awards for 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-Average per Share Fair Value on Grant Date
|
Non-vested at December 31, 2019
|
|
370,703
|
|
|
$
|
45.08
|
|
Granted
|
|
323,135
|
|
|
36.33
|
|
Vested
|
|
(189,445)
|
|
|
42.07
|
|
Forfeited or expired
|
|
(16,937)
|
|
|
42.64
|
|
Non-vested at December 31, 2020
|
|
487,456
|
|
|
$
|
40.41
|
|
A summary of the Company’s fair value for its vested three-year PSU awards is shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2020
|
|
2019
|
|
2018
|
Fair value of three-year PSU awards vested
|
|
$
|
9.6
|
|
|
$
|
10.3
|
|
|
$
|
14.9
|
|
A summary of the Company’s unrecognized compensation cost for three-year PSU awards at the current estimated earned payout based on the probable outcome of the performance condition and weighted average periods over which the compensation cost is expected to be recognized as shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Unrecognized Compensation Costs
|
|
Weighted Average to be recognized (in years)
|
2020 Three-year PSU Awards
|
|
$
|
5.9
|
|
|
2
|
2019 Three-year PSU Awards
|
|
3.0
|
|
|
1
|
2018 Three-year PSU Awards
|
|
—
|
|
|
0
|
Chief Operating Officer (COO) and Chief Executive Officer-Designate 2017 New Hire Equity Awards and 2020 Award Modifications
On September 5, 2017, the Board elected Edward L. Doheny II, Chief Operating Officer and CEO-Designate and elected him as a Director of the Company effective September 18, 2017. Mr. Doheny worked on transitioning with Jerome Peribere until December 31, 2017 and then assumed the role and title of President and Chief Executive Officer effective as of January 1, 2018. Additionally, on September 5, 2017, the Company entered into an offer letter agreement, effective September 18, 2017, with Mr. Doheny. The Letter Agreement provided that Mr. Doheny would be granted on his start date two new-hire equity awards, one that was time-vesting and the other that was performance-vesting (the “New Hire Awards”).
The time-vesting New Hire Award, for 30,000 shares, required Mr. Doheny to remain in service with the Company through December 31, 2020. The grant date fair value for this award was $42.89 per share. The award vested fully on December 31, 2020.
The performance-vesting New Hire Award, for 70,000 shares, in addition to the time-vesting requirement noted above, required that either (i) the Company’s cumulative total stockholder return for 2018-2020 be in the top 33% of its peers (using the same peers and methodology under the Company’s performance stock unit (PSU) awards) and the Company’s stock price as of December 31, 2020 equaled at least $60.00 per share, or (ii) the Company’s stock price as of December 31, 2020 equaled at least $75.00 per share. The Letter Agreement provided that the stock price as of December 31, 2020 for this purpose would be determined using a 30-day arithmetic mean of closing prices.
On December 10, 2020, Mr. Doheny entered into a subsequent Letter Agreement with the Company, which modifies the terms of the performance-vesting New Hire Award. This Letter Agreement converts one half of the award, or 35,000 shares, to an award of time-vesting restricted stock units, which requires Mr. Doheny to remain in service with the Company through September 18, 2022. The grant date fair value of this award was $45.40 per share.
The remaining half of the award, or 35,000 shares, remains performance-vesting, subject to the original performance conditions, but measured as of September 18, 2022. The grant date fair value for this award was determined using a Monte Carlo Simulation model that incorporates predictive modeling techniques using Geometric Brownian Motion and Crystal Ball’s random number generation. Other assumptions include the expected volatility of all companies included in the relative total shareholder return, valuation modeling of vesting payoff determination featuring both performance goals as noted above, the historical share price returns analysis of all companies included in the relative total shareholder return and assumes dividends are reinvested. The expected volatility was based on the historical volatility of peer companies for a period of time that approximates the duration between the beginning and the end of the performance period. The risk-free interest rate was based on the Zero-Coupon Treasury STRIP yield curve matching the term from the valuation date to the end of the performance period. Compensation expense for the performance-vesting award is a fixed amount determined at the grant date and is recognized 100% from the time of the award to the end of the performance period regardless of whether the performance conditions are satisfied.
The assumptions used to calculate the grant date fair value of the performance-vesting award are shown in the following table:
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2020 Performance-Vesting Award
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Fair value on grant date
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$
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12.67
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Expected price volatility
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38.5
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%
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Risk-free interest rate
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0.2
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%
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The awards are described in further detail in Mr. Doheny’s Offer Letter filed with the SEC as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 7, 2017 and in the Letter Agreement filed with the SEC as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on December 14, 2020.
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 units. Of this, 82,829 units were withheld for tax, resulting in net share issuances of 133,752.
Stock Leverage Opportunity Awards
Before the start of each performance year, certain key executives are eligible to elect to receive all or a portion of their annual cash bonus for that year, in increments of 25% of the annual bonus, as an award of restricted stock units under the Omnibus Incentive Plan in lieu of cash. The portion provided as an equity award may be given a premium to be determined by the O&C Committee each year and will be rounded up to the nearest whole share. The award will be granted following the end of the performance year and after determination by the O&C Committee of the amount of the annual bonus award for each executive officer and other selected key executives who have elected to take all or a portion of his or her annual bonus as an equity award, but no later than the March 15 following the end of the performance year.
The equity award will be made in the form of an award of restricted stock units that will vest on the second anniversary of the grant date or earlier in the event of death, disability or retirement from employment with the Company, and the shares subject to the award will not be transferable by the recipient until the later of vesting or the second anniversary of the grant date. For the “principal portion” of the award that would have otherwise been paid in cash, the award vests upon any termination of employment, other than for cause. For the “premium portion” of the award, the award may early vest only in case of death, disability or retirement from the Company. Except as described above, if the recipient ceases to be employed by the Company prior to vesting, then the award is forfeited, except for certain circumstances following a change in control. SLO awards in the form of restricted stock units have no voting rights until shares are issued to them but do receive a cash payment in the amount of the dividends (without interest) on the shares they have earned at about the same time that shares are issued to them following vesting.
The 2020 SLO awards comprise an estimated aggregate of 69,950 restricted stock units as of December 31, 2020. The final number of units issued will be determined based on Annual Incentive Plan payout. During 2020, 73,731 restricted stock units were issued for the 2019 annual incentive plan. We recorded $2.2 million, $3.2 million and $1.6 million in expense related to the SLO program in the years ended December 31, 2020, 2019 and 2018, respectively. We record compensation expense for these awards in selling, general and administrative expenses on the Consolidated Statements of Operations with a corresponding credit to additional paid-in capital within stockholders’ equity (deficit), based on the fair value of the awards at the end of each reporting period, which reflects the effects of stock price changes. The expense is recognized over a fifteen-month period.
Other Common Stock Issuances
In connection with the acquisition of B+ Equipment in the third quarter of 2015, the Company issued 20,000 shares of restricted common stock on September 26, 2018 to certain former equity holders of B+ Equipment. These shares were issued in offshore transactions with no direct selling efforts in the U.S. and without registration under the Securities Act of 1933, as amended, in reliance upon the issuer safe harbor provided by Regulation S.
During 2017, we granted 30,506 performance share unit awards to key executives based on acquisition activity, of which 7,130 and 5,177 were forfeited during 2019 and 2018, respectively. No units were forfeited in 2020. The performance metrics required the acquired business to reach certain performance-based conditions over a set period of time. The associated (income) expense recognized for the years ended December 31, 2019 and 2018 was $(0.4) million and $0.3 million, respectively. No
amounts were recognized for these awards in our Consolidated Statements of Operations for the year ended December 31, 2020. Based on overall performance, the awards will payout at 0% of target, or zero units.
Note 22 Accumulated Other Comprehensive Loss
The following table provides details of comprehensive loss:
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(In millions)
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Unrecognized
Pension Items
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Cumulative
Translation
Adjustment
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Unrecognized
Losses on Derivative Instruments for net investment
hedge
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Unrecognized
Gains (Losses) on
Derivative Instruments
for cash flow hedge
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Accumulated
Other Comprehensive
Loss, Net of
Taxes
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Balance at December 31, 2018(1)
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$
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(136.4)
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$
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(744.8)
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$
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(41.9)
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$
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2.7
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$
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(920.4)
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Other comprehensive (loss) income before reclassifications
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(13.3)
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16.2
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7.4
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(1.4)
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8.9
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Less: amounts reclassified from accumulated other comprehensive loss
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3.6
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—
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—
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(1.1)
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2.5
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Net current period other comprehensive (loss) income
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(9.7)
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16.2
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7.4
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(2.5)
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11.4
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Balance at December 31, 2019(1)
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$
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(146.1)
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$
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(728.6)
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$
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(34.5)
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$
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0.2
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$
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(909.0)
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Other comprehensive (loss) income before reclassifications
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(30.8)
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6.9
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(33.0)
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(2.4)
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(59.3)
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Less: amounts reclassified from accumulated other comprehensive loss
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4.4
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—
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—
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0.4
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4.8
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Net current period other comprehensive (loss) income
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(26.4)
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6.9
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(33.0)
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(2.0)
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(54.5)
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Balance at December 31, 2020(1)
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$
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(172.5)
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$
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(721.7)
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$
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(67.5)
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$
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(1.8)
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$
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(963.5)
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(1)The ending balance in AOCL includes gains and losses on intra-entity foreign currency transactions. The intra-entity currency translation adjustments were $37.0 million, $(4.5) million and $65.8 million for the years ended December 31, 2020, 2019 and 2018, respectively.
The following table provides detail of amounts reclassified from AOCL:
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(In millions)
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2020
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2019
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2018
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Location of Amount Reclassified from AOCL
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Defined benefit pension plans and other post-employment benefits:
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Prior service credits
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$
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0.1
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$
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0.1
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$
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0.3
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Actuarial losses
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(5.9)
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(4.9)
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(3.1)
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Total pre-tax amount
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(5.8)
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(4.8)
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(2.8)
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Other income (expense), net
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Tax benefit
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1.4
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1.2
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0.7
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Net of tax
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(4.4)
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(3.6)
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(2.1)
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Net (losses) gains on cash flow hedging derivatives:(1)
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Foreign currency forward contracts
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(0.8)
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1.6
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0.2
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Cost of sales
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Treasury locks
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0.1
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0.1
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0.1
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Interest expense, net
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Total pre-tax amount
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(0.7)
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1.7
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0.3
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Tax benefit (expense)
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0.3
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(0.6)
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(0.1)
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Net of tax
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(0.4)
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1.1
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0.2
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Total reclassifications for the period
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$
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(4.8)
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$
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(2.5)
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$
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(1.9)
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(1)These accumulated other comprehensive components are included in our derivative and hedging activities. See Note 15, “Derivatives and Hedging Activities,” for additional details.
Note 23 Other Income (Expense), net
The following table provides details of other income (expense), net:
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Year Ended December 31,
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(In millions)
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2020
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2019
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2018
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Net foreign exchange transaction gain (loss)
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$
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1.7
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$
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(7.7)
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$
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(16.7)
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Bank fee expense
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(6.3)
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(5.0)
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(4.4)
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Pension income other than service costs
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0.9
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1.0
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3.9
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Increase in fair value of equity investments
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15.1
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—
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—
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Loss on debt redemption and refinancing activities
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—
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(16.1)
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(1.9)
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Other, net
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5.8
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8.3
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1.0
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Other income (expense), net
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$
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17.2
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$
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(19.5)
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$
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(18.1)
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Note 24 Net Earnings per Common Share
The following table sets forth the calculation of basic and diluted net earnings per common share under the two-class method for the years ended December 31:
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Year Ended December 31,
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(In millions, except per share amounts)
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2020
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2019
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2018
|
Basic Net Earnings Per Common Share:
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Numerator
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Net earnings
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$
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502.9
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$
|
263.0
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$
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193.1
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Distributed and allocated undistributed net earnings to unvested restricted stockholders
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(0.2)
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(0.5)
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(0.9)
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Distributed and allocated undistributed net earnings
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502.7
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262.5
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192.2
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Distributed net earnings - dividends paid to common stockholders
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|
(99.4)
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(98.7)
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|
(101.7)
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Allocation of undistributed net earnings to common stockholders
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$
|
403.3
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$
|
163.8
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$
|
90.5
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Denominator
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|
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Weighted average number of common shares outstanding - basic
|
|
155.2
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|
|
154.3
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|
|
159.4
|
|
Basic net earnings per common share:
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Distributed net earnings
|
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$
|
0.64
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$
|
0.64
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$
|
0.64
|
|
Allocated undistributed net earnings to common stockholders
|
|
2.60
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|
|
1.06
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|
|
0.57
|
|
Basic net earnings per common share
|
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$
|
3.24
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|
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$
|
1.70
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|
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$
|
1.21
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Diluted Net Earnings Per Common Share:
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|
|
Numerator
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|
|
Distributed and allocated undistributed net earnings to common stockholders
|
|
$
|
502.7
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|
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$
|
262.5
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|
|
$
|
192.2
|
|
Add: Allocated undistributed net earnings to unvested restricted stockholders
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|
0.1
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|
|
0.4
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|
|
0.5
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Less: Undistributed net earnings reallocated to unvested restricted stockholders
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(0.1)
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(0.4)
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(0.5)
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Net earnings available to common stockholders - diluted
|
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$
|
502.7
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|
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$
|
262.5
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|
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$
|
192.2
|
|
Denominator
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|
|
|
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|
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Weighted average number of common shares outstanding - basic
|
|
155.2
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|
|
154.3
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|
|
159.4
|
|
Effect of unvested restricted stock - nonparticipating security
|
|
0.1
|
|
|
—
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|
|
—
|
|
Effect of contingently issuable shares
|
|
0.2
|
|
|
0.2
|
|
|
0.1
|
|
Effect of unvested restricted stock units
|
|
0.5
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|
|
0.3
|
|
|
0.3
|
|
Weighted average number of common shares outstanding - diluted under two-class
|
|
156.0
|
|
|
154.8
|
|
|
159.8
|
|
Effect of unvested restricted stock - participating security
|
|
—
|
|
|
0.4
|
|
|
0.4
|
|
Weighted average number of common shares outstanding - diluted under treasury stock
|
|
156.0
|
|
|
155.2
|
|
|
160.2
|
|
Diluted net earnings per common share
|
|
$
|
3.22
|
|
|
$
|
1.69
|
|
|
$
|
1.20
|
|
PSU Awards
We included contingently issuable shares using the treasury stock method for our PSU awards in the diluted weighted average number of common shares outstanding based on the number of contingently issuable shares that would be issued assuming the end of our reporting period was the end of the relevant PSU award contingency period. The calculation of diluted weighted average shares outstanding related to PSUs was nominal in 2020, 2019 and 2018.
SLO Awards
The shares or units associated with the 2020 SLO awards are considered contingently issuable shares and therefore are not included in the basic or diluted weighted average number of common shares outstanding for the year ended December 31, 2020.
These shares or units will not be included in the common shares outstanding until the final determination of the amount of annual incentive compensation is made in the first quarter of 2021. Once this determination is made, the shares or units will be included in diluted weighted average number of common shares outstanding if the impact to diluted net earnings per common share is dilutive. The numbers of shares or units associated with SLO awards for 2020, 2019 and 2018 were nominal.