Notes to Condensed Consolidated Financial Statements (unaudited)
Note 1 Organization and Basis of Presentation
Organization
We are a global leader in food safety and security and product protection. We serve an array of end markets including food and beverage processing, food service, retail and commercial and consumer applications. Our focus is on achieving quality sales growth through leveraging our geographic footprint, technological know-how and leading market positions to bring measurable, sustainable value to our customers and investors.
We conduct substantially all of our business through
two
wholly-owned subsidiaries, Cryovac, Inc. and Sealed Air Corporation (US). Throughout this report, when we refer to “Sealed Air,” the “Company,” “we,” “our,” or “us,” we are referring to Sealed Air Corporation and all of our subsidiaries, except where the context indicates otherwise.
Basis of Presentation
Our Condensed Consolidated Financial Statements include all of the accounts of the Company and our subsidiaries. We have eliminated all significant intercompany transactions and balances in consolidation. In management’s opinion, all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of our Condensed Consolidated Balance Sheets as of
June 30, 2018
and our Condensed Consolidated Statements of Operations for the
three and six
months ended
June 30, 2018
and
2017
have been made. The results set forth in our Condensed Consolidated Statements of Operations for the
three and six
months ended
June 30, 2018
and in our Condensed Consolidated Statements of Cash Flows for the
six
months ended
June 30, 2018
are not necessarily indicative of the results to be expected for the full year. All amounts are in millions, except per share amounts, and approximate due to rounding. Some prior period amounts have been reclassified to conform to the current year presentation. These reclassifications, individually and in the aggregate, did not have a material impact on our condensed consolidated financial condition, results of operations or cash flows.
Our Condensed Consolidated Financial Statements were prepared in accordance with the interim reporting requirements of the U.S. Securities and Exchange Commission (“SEC”). As permitted under those rules, annual footnotes or other financial information that are normally required by U.S. GAAP have been condensed or omitted. The preparation of Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in our Condensed Consolidated Financial Statements and accompanying notes. Actual results could differ from these estimates.
We are responsible for the unaudited Condensed Consolidated Financial Statements and notes included in this report. As these are condensed financial statements, they should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2017
as filed with the SEC on February 21, 2018 (“
2017
Form 10-K”) and with the information contained in other publicly-available filings with the SEC.
To accelerate productivity improvements and elimination of operational redundancies, the Company implemented a change in allocation of Corporate expenses. These expenses are now allocated to Food Care and Product Care segments. For comparison purposes, the Company presented
2017
results to reflect the revised allocation of these costs. This segment reporting change has no impact on total Company operating results. See Note 5, “Segments,” of the Notes to Condensed Consolidated Financial Statements for further information.
Note 2 Recently Adopted and Issued Accounting Standards
Recently Adopted Accounting Standards
In August 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities ("ASU 2017-12"). This update is intended to align the financial statements with an entity's risk management activities. ASU 2017-12 will allow for changes in the designation and measurement of hedges as well as expand the disclosures of hedge results. The amendments in ASU 2017-12 are effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. The Company elected to early adopt ASU 2017-12 as of January 1, 2018. The adoption did not have an impact on the Company's Condensed Consolidated Financial Results.
In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”). ASU 2017-09 amends the considerations for determining what events require modification accounting. This new guidance requires an entity to consider the fair value of an award before and after modification, the vesting conditions of the modified award and the classification of the modified award as an equity instrument. The amendments in ASU 2017-09 are effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The Company adopted ASU 2017-09 on January 1, 2018. The adoption did not have an impact on the Company's Condensed Consolidated Financial Results. This ASU will be applied prospectively when changes to the terms or conditions of a share-based payment award occur.
In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Benefit Postretirement Benefit Cost (“ASU 2017-07”). ASU 2017-07 changes how employers that sponsor defined benefit pension or other postretirement benefit plans present the net periodic benefit cost in the income statement. This new guidance requires entities to report the service cost component in the same line item or items as other compensation costs. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component outside of income from operations. The amendments in ASU 2017-07 are effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The Company adopted ASU 2017-07 on January 1, 2018. The effect of retrospectively adopting this guidance resulted in a reclassification of
$0.6 million
and
$1.4 million
from cost of sales and selling, general and administrative expenses to other (expense) income, net on the Condensed Consolidated Statements of Operations for the
three and six
months ended
June 30, 2017
and
$16.7 million
for the year ended December 31, 2017.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 eliminates Step 2 as part of the goodwill impairment test. The amount of the impairment charge to be recognized would now be the amount by which the carrying value exceeds the reporting unit’s fair value. The loss to be recognized cannot exceed the amount of goodwill allocated to that reporting unit. The amendments in ASU 2017-04 are effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company has elected to early adopt ASU 2017-04 as of January 1, 2018. The Company will apply the guidance related to ASU 2017-04 during our annual impairment test in the fourth quarter of 2018.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). ASU 2017-01 provides a screen to determine when a set of assets is a business. This screen states that when substantially all of the fair value of a group of assets acquired (or disposed of) is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business. The amendments in ASU 2017-01 are effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The Company adopted ASU 2017-01 on January 1, 2018. The adoption did not have an impact on the Company's Condensed Consolidated Financial Results however, it could have a material impact on the Company's Condensed Consolidated Financial Results if the Company enters into future business combinations.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”). ASU 2016-18 requires that entities include restricted cash and restricted cash equivalents with cash and cash equivalents in the beginning-of-period and end-of-period total amounts shown on the Statements of Cash Flows. The amendments in ASU 2016-18 are effective for fiscal years beginning after December 15, 2017, including interim reporting periods within those fiscal years. The Company adopted ASU 2016-18 on January 1, 2018. As a result of this retrospective adoption, the reclassification of restricted cash into a change in total cash resulted in an increase in financing activities of
$2.0 million
for the
six
months ended
June 30, 2017
and a decrease in financing activities of
$25.4 million
for the year ended December 31, 2017.
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”). ASU 2016-16 requires entities to recognize income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments in ASU 2016-16 are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. The Company adopted ASU 2016-16 on January 1, 2018. This was adopted using the modified retrospective approach which resulted in a decrease in other assets of
$7.5 million
, an increase in non-current deferred tax assets of
$4.8 million
, a decrease in other non-current liabilities of
$1.7 million
and a decrease in retained earnings was
$1.0 million
on the Condensed Consolidated Balance Sheets.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 provides guidance on eight specific cash flow issues in regard to how cash receipts and cash payments are presented and classified in the statements of cash flows. The amendments in ASU 2016-15 are effective for fiscal years beginning after December 15, 2017, including interim periods within those years, with early adoption permitted. The Company adopted ASU 2016-15 on January 1, 2018. As a result of the adoption, there were no impacts on prior year statements of cash flow however this adoption may impact future periods.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). This ASU requires equity investments except those under the equity method of accounting to be measured at fair value with the changes in fair value recognized in net income. The amendment simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. In addition, it also requires enhanced disclosures about investments. Additionally, in February 2018, the FASB issued ASU 2018-03, Technical Corrections and Improvements to Financial Instruments - Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2018-03") and in March 2018, the FASB issued ASU 2018-04, Investments - Debt Securities (Subtopic 320) and Regulated Operations (Topic 980), Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 117 and SEC Release No. 33-9273 (SEC Update) ("ASU 2018-04") which were issued to clarify some of the language in ASU 2016-01. The amendments in ASU 2016-01, 2018-03 and 2018-04 are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. An entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The Company adopted ASU 2016-01, 2018-03 and 2018-04 on January 1, 2018. The adoption of these standards did not have an impact on the Company's Condensed Consolidated Financial Results.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), (“ASU 2014-09”) and issued subsequent amendments to the initial guidance, collectively, Topic 606. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, ASU 2014-09 expands and enhances disclosure requirements which require disclosing sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. This includes both qualitative and quantitative information. The amendments in ASU 2014-09 are effective for annual reporting periods beginning after December 15, 2017.
The Company adopted the new revenue recognition standard using the modified retrospective approach with a cumulative effect adjustment to beginning retained earnings at January 1, 2018. Prior periods presented were not retrospectively adjusted for this change. The Company has applied the new revenue recognition standard only to contracts that were not completed as of January 1, 2018.
The Company elected to reflect the aggregate effect of all contract modifications that occurred before the beginning of the earliest period presented under the new revenue recognition standard when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations for the modified contract at transition. The effects of application of this relief are de minimis.
Changes in accounting policy resulting from adoption of Topic 606
The adoption of Topic 606 did not have a significant impact on our consolidated financial statements with the exception of new and expanded disclosures.
The following tables summarizes the effect of adoption of the new revenue recognition standard by line item on the Company’s Condensed Consolidated Financial Statements, and the reason for the change:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
(In millions)
|
As Reported
|
|
Balances without Adoption of Topic 606
|
|
Effect of Change
|
Net sales
|
$
|
2,286.2
|
|
|
$
|
2,285.1
|
|
|
$
|
1.1
|
|
Other current liabilities
|
379.9
|
|
|
379.1
|
|
|
0.8
|
|
Other non-current liabilities
|
621.0
|
|
|
617.8
|
|
|
3.2
|
|
|
|
|
|
|
|
Impact by Line Item
|
Reason for Change
|
Opening Balance Sheet Adjustment as of January 1, 2018
(In millions)
|
Other current liabilities
|
Certain contracts include an equipment accrual, whereby a customer is awarded a credit based on consumable purchases that can be redeemed for future equipment purchases. Long term contracts that include an equipment accrual create a timing difference between when cash is collected and the performance obligation is satisfied. Upon the adoption of Topic 606 the equipment accrual balance was increased to reflect the standalone selling price within our equipment portfolio.
|
$
|
2.4
|
|
Retained earnings
|
The modified retrospective adoption of the new revenue standard resulted in a cumulative adjustment decreasing retained earnings, which was associated with adjusting our equipment accrual contract offering to the standalone selling price value.
|
(2.4
|
)
|
Lease income was an additional line item impacted by the new revenue standard; however, there is no timing change associated with the change in presentation. Under the new revenue standard, certain contracts that include free-on-loan equipment, with minimum purchase obligations and associated substantive penalties for noncompliance, were deemed to include a lease component that was not previously identified as an element to the contract under ASC 605. As such, a portion of the transaction price is reclassified from revenue to lease income.
Recently Issued Accounting Standards
In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income ("ASU 2018-02"). As a result of the Tax Cut and Jobs Act ("TCJA"), this ASU was issued to provide entities with the option to reclassify straddle tax effects in accumulated other comprehensive income to retained earnings. ASU 2018-02 can be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal income tax rate pursuant to the TCJA is recognized. The guidance is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted for reporting periods for which financial statements have yet to be issued or made available for issuance. We are currently in the process of evaluating the effect that ASU 2018-02 will have on the Company's Condensed Consolidated Financial Results.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires entities to measure all expected credit losses for most financial assets held at the reporting date based on an expected loss model which includes historical experience, current conditions, and reasonable and supportable forecasts. Entities will now use forward-looking information to better form their credit loss estimates. The ASU also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal periods. Entities may adopt earlier as of the fiscal year beginning after December 15, 2018, including interim periods within those fiscal years. We are currently in the process of evaluating this new standard update however we do not anticipate for this to have a material impact on the Company's Condensed Consolidated Financial Results.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), (“ASU 2016-02”). This ASU requires an entity to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. Similar modifications have been made to lessor accounting in-line with revenue recognition guidance. The amendments also require certain quantitative and qualitative disclosures about leasing arrangements. The amendments in ASU 2016-02, and subsequent related amendments, are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The guidance permits two methods of adoption: modified retrospective where an entity initially applies the new leases standard at the beginning of the earliest period presented in the financial statements or an alternative transition method where an entity can initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We are currently in the process of evaluating this new standard update. We expect there to be a material impact on the Company's Condensed Consolidated Financial Results.
Note 3 Revenue Recognition, Contracts with Customers
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.
Description of Revenue Generating Activities
We employ sales, marketing and customer service personnel throughout the world who sell and market our 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, foodservice businesses, supermarket retailers, pharmaceutical companies, healthcare facilities, medical device manufacturers, and other manufacturers.
As discussed in Note 5, "Segments," of the Notes to Condensed Consolidated Financial Statements, our reporting segments include: Food Care and Product Care. Our Food Care applications are largely sold directly to end customers, while most of our Product Care products are sold through business supply distributors.
Food Care:
The Food Care division focuses on providing processors, retailers and food service operators a broad range of integrated system solutions that improve the management of contamination risk during the food and beverage production process, extend product shelf life through packaging technologies, and improve merchandising, ease-of-use, and back-of-house preparation processes. Our systems are designed to be turn-key and reduce customers’ total operating costs through improved operational efficiencies and reduced food waste, as well as lower water and energy use. As a result, processors are able to produce and deliver their products more cost-effectively, safely, efficiently, and with greater confidence through their supply chain with a trusted partner.
The business largely serves perishable food and beverage processors, predominantly in fresh red meat, smoked and processed meats, beverages, poultry and dairy (solids and liquids) markets worldwide, and maintains a leading position in the applications it targets.
Product Care:
Product Care provides the industries we serve with a wide range of sustainable packaging solutions designed to reduce shipping and fulfillment costs, increase operational efficiency, reduce damage, and enhance customer and brand experience. While serving a broad range of industries and market sectors, Product Care solutions are especially valuable to the E-Commerce Fulfillment, General Manufacturing, Electronics and Transportation sectors. The breadth of the Product Care portfolio, extensive packaging engineering and technical services, and global reach supports the needs of multinational customers who require excellent, consistent performance and supply reliability.
Today, Product Care solutions are largely sold through business supply distribution that sells to business/industrial end-users. Additionally, solutions are sold directly to fabricators, original equipment manufacturers/contract manufacturers, third party logistics partners, e-commerce/fulfillment operations, and at retail centers, where Product Care offers select products for consumer use on a global basis.
Identify Contract with Customer:
For Sealed Air, the determination of whether an arrangement meets the definition of a contract under 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 were 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, each purchase order represents the contract.
Performance Obligations:
The most common goods and services determined to be distinct performance obligations are consumables/materials, equipment sales, and maintenance. Free on loan and leased equipment is typically identified as a separate lease component in scope of Topic 840. 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 in the
three and six
months ended
June 30, 2018
from performance obligations satisfied in previous reporting periods is
$1.6 million
and
$3.3 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 contracts.
Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net sales on the Condensed Consolidated Statements of Operations.
Allocation of Transaction Price:
Sealed Air determines the standalone selling price for a performance obligation by first looking for observable selling prices of that performance obligation sold on a standalone basis. If an observable price is not available, we estimate the standalone selling price of the performance obligation using one of the three suggested methods in the following order of preference: adjusted market assessment approach, expected cost plus a margin approach, and residual approach.
Sealed Air often offers rebates to customers in their contracts that are related to the amount of consumables purchased. We believe that this form of variable consideration should only be allocated to consumables because the entire amount of variable consideration relates to the customer’s purchase of and Sealed Air’s efforts to provide consumables. 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 consumables because the pricing formulas in these contracts are related to the cost to produce consumables.
Transfer of Control:
Revenue is recognized upon transfer of control to the customer. Revenue for consumables and equipment sales is recognized based on shipping terms, which is the point in time the customer obtains control of the promised goods. Maintenance revenue is recognized straight-line on the basis that the level of effort is consistent over the term of the contract. Lease components within contracts with customers are recognized in accordance with Topic 840.
Disaggregated Revenue
For the
three and six
months ended
June 30, 2018
, revenues from contracts with customers summarized by Segment Geography were as follows:
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|
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|
|
|
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Three Months Ended June 30, 2018
|
(In millions)
|
|
Food Care
|
|
Product Care
|
|
Total
|
North America
|
|
$
|
351.9
|
|
|
$
|
257.0
|
|
|
$
|
608.9
|
|
EMEA
(1)
|
|
163.8
|
|
|
97.0
|
|
|
260.8
|
|
Latin America
|
|
90.1
|
|
|
12.6
|
|
|
102.7
|
|
APAC
(2)
|
|
102.2
|
|
|
73.2
|
|
|
175.4
|
|
Topic 606 Segment Revenue
|
|
708.0
|
|
|
439.8
|
|
|
1,147.8
|
|
Non-Topic 606 Revenue (Leasing)
|
|
5.0
|
|
|
2.4
|
|
|
7.4
|
|
Total
|
|
$
|
713.0
|
|
|
$
|
442.2
|
|
|
$
|
1,155.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
(In millions)
|
|
Food Care
|
|
Product Care
|
|
Total
|
North America
|
|
$
|
692.9
|
|
|
$
|
506.9
|
|
|
$
|
1,199.8
|
|
EMEA
(1)
|
|
319.4
|
|
|
198.2
|
|
|
517.6
|
|
Latin America
|
|
181.2
|
|
|
24.2
|
|
|
205.4
|
|
APAC
(2)
|
|
205.9
|
|
|
143.2
|
|
|
349.1
|
|
Topic 606 Segment Revenue
|
|
1,399.4
|
|
|
872.5
|
|
|
2,271.9
|
|
Non-Topic 606 Revenue (Leasing)
|
|
9.9
|
|
|
4.4
|
|
|
14.3
|
|
Total
|
|
$
|
1,409.3
|
|
|
$
|
876.9
|
|
|
$
|
2,286.2
|
|
|
|
(1)
|
EMEA = Europe, Middle East and Africa
|
|
|
(2)
|
APAC = Asia, Australia and New Zealand
|
Contract Balances
The time between which 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 consumables transaction price for future equipment purchases. Long term contracts that include an equipment accrual create a timing difference between when cash is collected and the performance obligation is satisfied, resulting in a contract liability (unearned revenue). The opening and closing balances of contract assets and contract liabilities arising from contracts with customers as of
June 30, 2018
were as follows:
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|
|
|
|
|
|
|
|
|
(In millions)
|
|
December 31, 2017
|
|
January 1, 2018,
as adjusted
|
|
June 30, 2018
|
Contract assets
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Contract liabilities
|
|
3.1
|
|
|
5.5
|
|
|
8.1
|
|
Revenue recognized in the
three and six
months ended
June 30, 2018
that was included in the contract liability balance at the beginning of the period was
$2.3 million
and
$3.0 million
, respectively. This revenue was driven primarily by equipment performance obligations being satisfied.
The contract liability balance represents deferred revenue, primarily related to equipment accruals. The increase in the first half of 2018 to deferred revenue was driven predominately by new contracts recently entered.
Remaining Performance Obligations
Our enforceable contractual obligations tend to be short term in nature, and the following table does not include the transaction price of any remaining performance obligations that are part of the contracts with expected durations of less than one year. Additionally, 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
June 30, 2018
, as well as the expected timing of recognition of that transaction price.
|
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|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Short-Term
(12 months or less)
|
|
Long-Term
|
|
Total
|
Total transaction price
|
|
$
|
1.7
|
|
|
$
|
6.4
|
|
|
$
|
8.1
|
|
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 expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within sales and marketing 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 Discontinued Operations, Divestitures and Acquisitions
Discontinued Operations
On March 25, 2017, we entered into a definitive agreement to sell our Diversey Care division and the food hygiene and cleaning business within our Food Care division (collectively, "Diversey") for gross proceeds of USD equivalent of $
3.2 billion
, subject to customary closing conditions. The transaction was completed on September 6, 2017. During 2018, we recorded an additional net gain on the sale of Diversey of
$38.5 million
, net of taxes. This was related to the final net working capital settlement as well as the release of tax indemnity reserves upon expiration of statute of limitations.
We have classified the operating results of Diversey, together with certain costs related to the divestiture transaction, as discontinued operations, net of tax, in the Condensed Consolidated Statements of Operations for the
three and six
months ended
June 30, 2017
.
Summary operating results of Diversey were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Three Months Ended June 30, 2017
|
|
Six Months Ended June 30, 2017
|
Net sales
|
|
$
|
651.2
|
|
|
$
|
1,232.9
|
|
Cost of sales
|
|
369.9
|
|
|
700.4
|
|
Gross profit
|
|
281.3
|
|
|
532.5
|
|
Selling, general and administrative expenses
(1)
|
|
197.9
|
|
|
399.1
|
|
Amortization expense of intangible assets acquired
(1)
|
|
4.6
|
|
|
22.3
|
|
Restructuring and other charges
(2)
|
|
3.8
|
|
|
1.5
|
|
Operating profit
|
|
75.0
|
|
|
109.6
|
|
Other expense, net
|
|
(5.1
|
)
|
|
(8.0
|
)
|
Earnings from discontinued operations before income tax provision
(1)(3)
|
|
69.9
|
|
|
101.6
|
|
Income tax (benefit) provision from discontinued operations
(1)(2)
|
|
(5.2
|
)
|
|
15.9
|
|
Net earnings from discontinued operations, net of tax
|
|
$
|
75.1
|
|
|
$
|
85.7
|
|
|
|
(1)
|
For the three and six months ended June 30, 2017, there was a revision to net earnings from discontinued operations, net of tax, on the Condensed Consolidated Statement of Operations related to depreciation and amortization on Diversey assets held for sale. As a result, selling, general and administrative expenses decreased
$6.1 million
, amortization expenses of intangible assets acquired decreased
$16.5 million
and income tax provision from discontinued operations increased
$6.2 million
.
|
|
|
(2)
|
During the three and six months ended June 30, 2017, a reclassification of restructuring expenses from continuing operations to discontinued operations was made. Refer to the Condensed Consolidated Statements of Operations for additional information.
|
|
|
(3)
|
For the
three and six
months ended
June 30, 2017
, net earnings from discontinued operations was impacted by a
$5.2 million
benefit and
$15.9 million
expense, respectively, related to a change in the repatriation strategy of foreign earnings offset by a favorable earnings mix in jurisdictions with lower rates.
|
The following table presents selected financial information regarding cash flows of Diversey that are included within discontinued operations in the Condensed Consolidated Statements of Cash Flows:
|
|
|
|
|
|
(In millions)
|
|
Six Months Ended
June 30, 2017
|
Non-cash items included in net earnings from discontinued operations:
|
|
|
|
Depreciation and amortization
|
|
$
|
27.7
|
|
Share-based incentive compensation
|
|
6.0
|
|
Profit sharing expense
|
|
1.5
|
|
Provision for bad debt
|
|
1.7
|
|
Capital expenditures
|
|
9.7
|
|
The amounts disclosed in the tables above have been excluded from the Notes to Condensed Consolidated Financial Statements unless otherwise noted.
Divestitures
Divestiture of Embalagens Ltda.
On August 1, 2017, we entered into an agreement to sell our polystyrene food tray business in Guarulhos, Brazil for a gross purchase price of
R$26.9 million
(or
$8.2 million
as of the closing date of March 19, 2018). The purchase price is subject to working capital, cash and debt adjustments. For the three and six months ended
June 30, 2018
, the Company recognized an immaterial net loss on sale and a net gain on the sale of
$1.0 million
, respectively, within other expense, net on the Condensed Consolidated Statements of Operations.
Acquisitions
Acquisition of Fagerdala
On October 2, 2017, the Company acquired Fagerdala Singapore Pte Ltd. ("Fagerdala"), a manufacturer and fabricator of polyethylene foam based in Singapore, to join its Product Care division. We acquired
100%
of Fagerdala shares for estimated consideration of S$
144.2 million
, or
$106.2 million
, net of cash acquired of
$13.3 million
, inclusive of purchase price adjustments which will be finalized in 2018. We acquired Fagerdala to leverage its manufacturing footprint in Asia, expertise in foam manufacturing and fabrication, and commercial organization to grow sales in the consumer electronics, medical equipment and devices, automotive, temperature assurance, and e-commerce fulfillment sectors.
The following table summarizes the consideration transferred to acquire Fagerdala and the preliminary allocation of the purchase price among the assets acquired and liabilities assumed.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preliminary Allocation
|
|
Measurement Period
|
|
Revised Preliminary Allocation
|
(In millions)
|
|
As of October 2, 2017
|
|
Adjustments
|
|
As of June 30, 2018
|
Total consideration transferred
|
|
$
|
106.6
|
|
|
$
|
(0.4
|
)
|
|
$
|
106.2
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
13.3
|
|
|
|
|
13.3
|
|
Trade receivables, net
|
|
22.4
|
|
|
|
|
22.4
|
|
Inventory, net
|
|
10.0
|
|
|
0.1
|
|
|
10.1
|
|
Prepaid expenses and other current assets
|
|
8.4
|
|
|
|
|
8.4
|
|
Property and equipment, net
|
|
23.3
|
|
|
|
|
23.3
|
|
Intangible assets, net
|
|
41.4
|
|
|
0.7
|
|
|
42.1
|
|
Goodwill
|
|
39.3
|
|
|
(0.6
|
)
|
|
38.7
|
|
Assets
|
|
$
|
158.1
|
|
|
$
|
0.2
|
|
|
$
|
158.3
|
|
Liabilities:
|
|
|
|
|
|
|
Short-term borrowings
|
|
14.0
|
|
|
|
|
14.0
|
|
Accounts payable
|
|
6.9
|
|
|
|
|
6.9
|
|
Other current liabilities
|
|
15.1
|
|
|
0.9
|
|
|
16.0
|
|
Long-term debt, less current portion
|
|
3.8
|
|
|
|
|
3.8
|
|
Non-current deferred taxes
|
|
11.7
|
|
|
(0.3
|
)
|
|
11.4
|
|
Liabilities
|
|
$
|
51.5
|
|
|
$
|
0.6
|
|
|
$
|
52.1
|
|
The valuation of property and equipment, net and intangible assets is preliminary. We expect to complete the valuation in the third quarter of 2018. All of the goodwill is allocated to the Product Care reporting unit. The
$42.1 million
fair value allocated to definite-lived intangible assets consists primarily of
$25.4 million
of customer relationships with a useful life of
seventeen
years,
$10.6 million
of trademarks and tradenames with a useful life of
fifteen
years and various acquired technologies of
$6.1 million
with useful lives of
thirteen
years.
Acquisition of Deltaplam
On August 1, 2017, the Food Care division acquired Deltaplam Embalagens Indústria e Comércio Ltda ("Deltaplam"), a family owned and operated Brazilian flexible packaging manufacturer. The preliminary fair value of the consideration transferred was approximately
$25.8 million
. We recorded the fair value of the assets acquired and liabilities assumed on the acquisition date, which included
$8.1 million
of goodwill and
$7.4 million
of intangible assets. As of
June 30, 2018
, the final fair value of the consideration transferred was
$25.3 million
, which included
$9.7 million
of goodwill and
$5.9 million
of intangible assets.
Note 5 Segments
To accelerate productivity improvements and elimination of operational redundancies, the Company implemented a change in allocation of Corporate expenses. These expenses are now allocated to Food Care and Product Care segments. For comparison purposes, the Company presented 2017 results to reflect the revised allocation of these costs. This segment reporting change has no impact on total Company operating results.
The Company’s segment reporting structure consists of
two
reportable segments and a Corporate category as follows:
The Company’s Food Care and Product Care segments are considered reportable segments under FASB ASC Topic 280. Our reportable segments are aligned with similar groups of products and management team. Corporate includes certain costs that are not allocated to or monitored by the reportable segments' management.
We allocate and disclose depreciation and amortization expense to our segments, although property and equipment, net is not allocated to the segment assets, nor is depreciation and amortization included in the segment performance metric Adjusted EBITDA. The accounting policies of the reportable segments and Corporate are the same as those applied to the Condensed Consolidated Financial Statements. Refer to "Non-U.S. GAAP Information" for additional details on the use and calculation of our Non-U.S. GAAP measures presented below.
The following tables show Net Sales and Adjusted EBITDA by reportable segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(In millions)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Food Care
|
|
$
|
713.0
|
|
|
$
|
679.5
|
|
|
$
|
1,409.3
|
|
|
$
|
1,335.1
|
|
As a % of Total Company net sales
|
|
61.7
|
%
|
|
63.5
|
%
|
|
61.6
|
%
|
|
63.5
|
%
|
Product Care
|
|
442.2
|
|
|
390.8
|
|
|
876.9
|
|
|
767.4
|
|
As a % of Total Company net sales
|
|
38.3
|
%
|
|
36.5
|
%
|
|
38.4
|
%
|
|
36.5
|
%
|
Total Company Net Sales
|
|
$
|
1,155.2
|
|
|
$
|
1,070.3
|
|
|
$
|
2,286.2
|
|
|
$
|
2,102.5
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(In millions)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Adjusted EBITDA from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Food Care
|
|
$
|
135.4
|
|
|
$
|
131.8
|
|
|
$
|
270.1
|
|
|
$
|
253.8
|
|
Adjusted EBITDA Margin
|
|
19.0
|
%
|
|
19.4
|
%
|
|
19.2
|
%
|
|
19.0
|
%
|
Product Care
|
|
78.5
|
|
|
69.4
|
|
|
156.9
|
|
|
132.7
|
|
Adjusted EBITDA Margin
|
|
17.8
|
%
|
|
17.8
|
%
|
|
17.9
|
%
|
|
17.3
|
%
|
Corporate
|
|
3.6
|
|
|
(4.9
|
)
|
|
(4.7
|
)
|
|
(8.3
|
)
|
Non-U.S. GAAP Total Company Adjusted EBITDA from continuing operations
|
|
$
|
217.5
|
|
|
$
|
196.3
|
|
|
$
|
422.3
|
|
|
$
|
378.2
|
|
Adjusted EBITDA Margin
|
|
18.8
|
%
|
|
18.3
|
%
|
|
18.5
|
%
|
|
18.0
|
%
|
The following table shows a reconciliation of net earnings (loss) from continuing operations to Non-U.S. GAAP Total Company Adjusted EBITDA from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(In millions)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net earnings (loss) from continuing operations
|
|
$
|
83.3
|
|
|
$
|
29.0
|
|
|
$
|
(124.7
|
)
|
|
$
|
(24.7
|
)
|
Interest expense, net
|
|
(44.5
|
)
|
|
(47.7
|
)
|
|
(86.5
|
)
|
|
(94.3
|
)
|
Income tax provision
|
|
33.5
|
|
|
56.4
|
|
|
355.0
|
|
|
192.8
|
|
Depreciation and amortization
(1)
|
|
(40.8
|
)
|
|
(36.4
|
)
|
|
(81.2
|
)
|
|
(73.6
|
)
|
Depreciation and amortization adjustments
|
|
0.1
|
|
|
—
|
|
|
0.3
|
|
|
—
|
|
Special Items:
|
|
|
|
|
|
|
|
|
Restructuring and other charges
(2)
|
|
(7.1
|
)
|
|
(1.1
|
)
|
|
(15.7
|
)
|
|
(3.0
|
)
|
Other restructuring associated costs
|
|
0.4
|
|
|
(5.9
|
)
|
|
(1.8
|
)
|
|
(9.8
|
)
|
Loss on debt redemption
|
|
(0.4
|
)
|
|
—
|
|
|
(0.4
|
)
|
|
—
|
|
(Loss) gain on acquisition and divestiture activity
|
|
(1.2
|
)
|
|
(0.4
|
)
|
|
(5.2
|
)
|
|
1.9
|
|
Charges incurred due to the sale of Diversey
|
|
(5.8
|
)
|
|
(17.8
|
)
|
|
(12.6
|
)
|
|
(33.9
|
)
|
(Loss) gain from class-action litigation settlement
|
|
(0.1
|
)
|
|
—
|
|
|
12.6
|
|
|
—
|
|
Other Special Items
(3)
|
|
(1.3
|
)
|
|
(1.6
|
)
|
|
(1.5
|
)
|
|
2.6
|
|
Pre-tax impact of Special Items
|
|
(15.5
|
)
|
|
(26.8
|
)
|
|
(24.6
|
)
|
|
(42.2
|
)
|
Non-U.S. GAAP Total Company Adjusted EBITDA from continuing operations
|
|
$
|
217.5
|
|
|
$
|
196.3
|
|
|
$
|
422.3
|
|
|
$
|
378.2
|
|
|
|
(1)
|
Depreciation and amortization by segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(In millions)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Food Care
|
|
$
|
27.2
|
|
|
$
|
25.8
|
|
|
$
|
54.1
|
|
|
$
|
50.5
|
|
Product Care
|
|
13.6
|
|
|
10.6
|
|
|
27.1
|
|
|
23.1
|
|
Total Company depreciation and amortization
(i)
|
|
$
|
40.8
|
|
|
$
|
36.4
|
|
|
$
|
81.2
|
|
|
$
|
73.6
|
|
|
|
(i)
|
Includes share-based incentive compensation of
$7.7 million
and
$15.3 million
for the
three and six
months ended
June 30, 2018
, respectively, and
$10.9 million
and
$18.9 million
for the
three and six
months ended
2017
, respectively.
|
|
|
(2)
|
Restructuring and other charges by segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(In millions)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Food Care
|
|
$
|
1.5
|
|
|
$
|
0.7
|
|
|
$
|
6.1
|
|
|
$
|
1.9
|
|
Product Care
|
|
5.6
|
|
|
0.4
|
|
|
9.6
|
|
|
1.1
|
|
Total Company restructuring and other charges
|
|
$
|
7.1
|
|
|
$
|
1.1
|
|
|
$
|
15.7
|
|
|
$
|
3.0
|
|
|
|
(3)
|
Other Special Items for the three months ended June 30, 2017 primarily included expense related to the recovered wage tax reserve as well as legal fees associated with restructuring and acquisitions. Other Special Items for the six months ended June 30, 2017, primarily included a recovered wage tax as the result of a court ruling partially offset by legal fees associated with restructuring and acquisitions.
|
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, net, intangible assets, net and leased systems, net.
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
June 30, 2018
|
|
December 31, 2017
|
Assets allocated to segments:
|
|
|
|
|
|
|
Food Care
|
|
$
|
1,564.9
|
|
|
$
|
1,545.5
|
|
Product Care
|
|
2,595.9
|
|
|
2,620.2
|
|
Total segments
|
|
4,160.8
|
|
|
4,165.7
|
|
Assets not allocated:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
180.1
|
|
|
$
|
594.0
|
|
Assets held for sale
|
|
0.7
|
|
|
4.0
|
|
Income tax receivables
|
|
19.9
|
|
|
85.1
|
|
Other receivables
|
|
100.0
|
|
|
90.2
|
|
Deferred taxes
|
|
113.6
|
|
|
176.2
|
|
Other
|
|
284.1
|
|
|
165.1
|
|
Total
|
|
$
|
4,859.2
|
|
|
$
|
5,280.3
|
|
Note 6 Inventories
The following table details our inventories:
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
June 30, 2018
|
|
December 31, 2017
|
Raw materials
|
|
$
|
98.3
|
|
|
$
|
82.8
|
|
Work in process
|
|
145.2
|
|
|
125.7
|
|
Finished goods
|
|
336.7
|
|
|
298.3
|
|
Total
|
|
$
|
580.2
|
|
|
$
|
506.8
|
|
Note 7 Property and Equipment, net
The following table details our property and equipment, net:
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
June 30, 2018
|
|
December 31, 2017
|
Land and improvements
|
|
$
|
41.4
|
|
|
$
|
43.5
|
|
Buildings
|
|
709.6
|
|
|
718.9
|
|
Machinery and equipment
|
|
2,320.7
|
|
|
2,330.5
|
|
Other property and equipment
|
|
119.2
|
|
|
116.3
|
|
Construction-in-progress
|
|
119.0
|
|
|
114.7
|
|
Property and equipment, gross
|
|
3,309.9
|
|
|
3,323.9
|
|
Accumulated depreciation and amortization
|
|
(2,326.2
|
)
|
|
(2,325.5
|
)
|
Property and equipment, net
|
|
$
|
983.7
|
|
|
$
|
998.4
|
|
The following table details our interest cost capitalized and depreciation and amortization expense for property and equipment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(In millions)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Interest cost capitalized
|
|
$
|
1.5
|
|
|
$
|
3.0
|
|
|
$
|
3.7
|
|
|
$
|
6.0
|
|
Depreciation and amortization expense for property and equipment
|
|
$
|
29.7
|
|
|
$
|
24.5
|
|
|
$
|
58.6
|
|
|
$
|
48.6
|
|
Note 8 Goodwill and Identifiable Intangible Assets, net
Goodwill
The following table shows our goodwill balances by reportable segment. We review goodwill for impairment on a reporting unit basis annually during the fourth quarter of each year and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. As of
June 30, 2018
, we did not identify any changes in circumstances that would indicate the carrying value of goodwill may not be recoverable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Food Care
|
|
Product Care
|
|
Total
|
Carrying Value at December 31, 2017
|
|
$
|
526.9
|
|
|
$
|
1,412.9
|
|
|
$
|
1,939.8
|
|
Purchase price and other adjustments
|
|
(0.6
|
)
|
|
(0.6
|
)
|
|
(1.2
|
)
|
Currency translation
|
|
(4.3
|
)
|
|
(2.3
|
)
|
|
(6.6
|
)
|
Carrying Value at June 30, 2018
|
|
$
|
522.0
|
|
|
$
|
1,410.0
|
|
|
$
|
1,932.0
|
|
Identifiable Intangible Assets, Net
The following tables summarize our identifiable intangible assets, net. As of
June 30, 2018
, there were
no
impairment indicators present.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
(In millions)
|
Gross
Carrying Value
|
|
Accumulated Amortization
|
|
Net
|
|
Gross
Carrying Value
|
|
Accumulated Amortization
|
|
Net
|
Customer relationships
|
$
|
54.7
|
|
|
$
|
(20.7
|
)
|
|
$
|
34.0
|
|
|
$
|
59.7
|
|
|
$
|
(19.7
|
)
|
|
$
|
40.0
|
|
Trademarks and tradenames
|
11.2
|
|
|
(0.8
|
)
|
|
10.4
|
|
|
11.6
|
|
|
(0.5
|
)
|
|
11.1
|
|
Capitalized software
|
58.6
|
|
|
(44.3
|
)
|
|
14.3
|
|
|
50.6
|
|
|
(40.0
|
)
|
|
10.6
|
|
Technology
|
42.5
|
|
|
(28.1
|
)
|
|
14.4
|
|
|
39.2
|
|
|
(27.5
|
)
|
|
11.7
|
|
Contracts
|
13.5
|
|
|
(9.9
|
)
|
|
3.6
|
|
|
10.9
|
|
|
(9.6
|
)
|
|
1.3
|
|
Total intangible assets with definite lives
|
180.5
|
|
|
(103.8
|
)
|
|
76.7
|
|
|
172.0
|
|
|
(97.3
|
)
|
|
74.7
|
|
Trademarks and tradenames with indefinite lives
|
8.9
|
|
|
—
|
|
|
8.9
|
|
|
8.9
|
|
|
—
|
|
|
8.9
|
|
Total identifiable intangible assets, net
|
$
|
189.4
|
|
|
$
|
(103.8
|
)
|
|
$
|
85.6
|
|
|
$
|
180.9
|
|
|
$
|
(97.3
|
)
|
|
$
|
83.6
|
|
The following table shows the remaining estimated future amortization expense at
June 30, 2018
.
|
|
|
|
|
Year
|
Amount
(in millions)
|
Remainder of 2018
|
$
|
7.0
|
|
2019
|
11.3
|
|
2020
|
8.7
|
|
2021
|
5.7
|
|
Thereafter
|
44.0
|
|
Total
|
$
|
76.7
|
|
Note 9 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 we sell eligible U.S. accounts receivable to an indirectly wholly-owned subsidiary that was formed for the sole purpose of entering into this program. The wholly-owned subsidiary in turn may sell an undivided fractional ownership interest in these receivables to
two
banks and issuers of commercial paper administered by these banks. The wholly-owned subsidiary retains the receivables it purchases from the operating subsidiaries. Any transfers of fractional ownership interests of receivables under the U.S. receivables securitization program to the
two
banks and issuers of commercial paper administered by these banks are considered secured borrowings with pledge of collateral and are classified as short-term borrowings on our Condensed Consolidated Balance Sheets. These banks do not have any recourse against the general credit of the Company. The net trade receivables that served as collateral for these borrowings are reclassified from trade receivables, net to prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets.
As of
June 30, 2018
, the maximum purchase limit for receivable interests was
$60.0 million
, subject to the availability limits described below.
The amounts available from time to time under this program may be less than
$60.0 million
due to a number of factors, including but not limited to our credit ratings, trade receivable balances, the creditworthiness of our customers and our receivables collection experience. As of
June 30, 2018
, the level of eligible assets available under the program equaled
$60.0 million
. Although we do not believe restrictions under this program presently materially restrict our operations, if an additional event occurs that triggers one of these restrictive provisions, we could experience a decline in the amounts available to us under the program or termination of the program.
This program expires annually in August and is renewable.
European Accounts Receivables Securitization Program
We and a group of our European subsidiaries maintain an accounts receivable securitization program with a special purpose vehicle, or SPV, two banks and issuers of commercial paper administered by these banks.
The European program is structured to be a securitization of certain trade receivables that are originated by certain of our European subsidiaries. The SPV borrows funds from the banks to fund its acquisition of the receivables and provides the banks with a first priority perfected security interest in the accounts receivable. We do not have an equity interest in the SPV. We concluded the SPV is a variable interest entity because its total equity investment at risk is not sufficient to permit the SPV to finance its activities without additional subordinated financial support from the bank via loans or via the collections from accounts receivable already purchased. Additionally, we are considered the primary beneficiary of the SPV since we control the activities of the SPV, and are exposed to the risk of uncollectable receivables held by the SPV. Therefore, the SPV is consolidated in our Condensed Consolidated Financial Statements. Any activity between the participating subsidiaries and the SPV is eliminated in consolidation. Loans from the banks to the SPV are classified as short-term borrowings on our
Condensed Consolidated Balance Sheets. The net trade receivables that served as collateral for these borrowings are reclassified from trade receivables, net to prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets.
As of
June 30, 2018
, the maximum purchase limit for receivable interests was
€80.0 million
(
$92.6 million
equivalent at
June 30, 2018
), subject to availability limits. The terms and provisions of this program are similar to our U.S. program discussed above. As of
June 30, 2018
, the amount available under this program was
€75.1 million
(
$86.8 million
equivalent as of
June 30, 2018
).
This program expires annually in August and is renewable.
Utilization of Our Accounts Receivable Securitization Programs
As of
June 30, 2018
, there were
no
amounts outstanding under our U.S. program and
€54.0 million
(
$62.4 million
equivalent as of
June 30, 2018
) outstanding under our European program. 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 less than
$1.0 million
for the
three and six
months ended
June 30, 2018
and
2017
.
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
June 30, 2018
.
As of
December 31, 2017
, there were
no
amounts outstanding under our U.S. and European programs.
Note 10 Restructuring Activities
Consolidation of Restructuring Programs
In the first quarter of 2016, the Board of Directors agreed to consolidate the remaining activities of all restructuring programs to create a single program to be called the “Sealed Air Restructuring Program” or the “Program.”
The Program consists of a portfolio of restructuring projects across all of our divisions as part of our transformation of Sealed Air into a knowledge-based company, including reductions in headcount, and relocation of certain facilities and offices, which primarily reflects the relocation from our former corporate headquarters in Elmwood Park, New Jersey; and facilities in Saddle Brook, New Jersey; Racine, Wisconsin; and Duncan and Greenville, South Carolina to our new global headquarters in Charlotte, North Carolina. The cost of the Charlotte campus was estimated to be approximately
$120 million
. The Program also includes costs associated with the sale of Diversey.
Program metrics are as follows:
|
|
|
|
|
|
Sealed Air Restructuring Program
|
Approximate positions eliminated by the program
|
1,950
|
|
Estimated Program Costs (in millions):
|
|
|
Costs of reduction in headcount as a result of reorganization
|
$275-$280
|
|
Other expenses associated with the Program
|
135-140
|
|
Total expense
|
$410-$420
|
|
Capital expenditures
|
240-245
|
|
Proceeds, foreign exchange and other cash items
|
(70)-(75)
|
|
Total estimated net cash cost
|
$580-$590
|
|
Program to Date Cumulative Expense (in millions):
|
|
Costs of reduction in headcount as a result of reorganization
|
$
|
253
|
|
Other expenses associated with the Program
|
125
|
|
Total Cumulative Expense
|
$
|
378
|
|
Cumulative capital expenditures
|
$
|
235
|
|
The following table details our restructuring activities reflected in the Condensed Consolidated Statements of Operations for the
three and six
months ended
June 30, 2018
and
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(In millions)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Continuing Operations:
|
|
|
|
|
|
|
|
|
Other associated costs
|
|
$
|
0.4
|
|
|
$
|
5.9
|
|
|
$
|
2.6
|
|
|
$
|
9.8
|
|
Restructuring charges
(1)
|
|
7.1
|
|
|
1.1
|
|
|
15.7
|
|
|
3.0
|
|
Total charges from continuing operations
|
|
$
|
7.5
|
|
|
$
|
7.0
|
|
|
18.3
|
|
|
12.8
|
|
Charges included in discontinued operations
(1)
|
|
—
|
|
|
5.2
|
|
|
—
|
|
|
3.5
|
|
Total charges
|
|
$
|
7.5
|
|
|
$
|
12.2
|
|
|
$
|
18.3
|
|
|
$
|
16.3
|
|
Capital expenditures
|
|
$
|
0.3
|
|
|
$
|
4.0
|
|
|
$
|
0.5
|
|
|
$
|
13.9
|
|
|
|
(1)
|
During the three and six months ended June 30, 2017, a reclassification of restructuring expenses from continuing operations to discontinued operations was made. Refer to the Condensed Consolidated Statements of Operations for additional information.
|
The restructuring accrual, spending and other activity for the
six
months ended
June 30, 2018
and the accrual balance remaining at
June 30, 2018
related to these programs were as follows:
|
|
|
|
|
(In millions)
|
|
Restructuring accrual at December 31, 2017
|
$
|
16.1
|
|
Accrual and accrual adjustments
|
15.7
|
|
Cash payments during 2018
|
(7.5
|
)
|
Effect of changes in foreign currency exchange rates
|
(1.0
|
)
|
Restructuring accrual at June 30, 2018
|
$
|
23.3
|
|
We expect to pay
$20.4 million
of the accrual balance remaining at
June 30, 2018
within the next twelve months. This amount is included in accrued restructuring costs on the Condensed Consolidated Balance Sheets at
June 30, 2018
. The remaining accrual of
$2.9 million
is expected to be paid in the second half of
2019
. This amount is included in other non-current liabilities on our Condensed Consolidated Balance Sheets at
June 30, 2018
.
Note 11 Debt and Credit Facilities
Our total debt outstanding consisted of:
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
June 30, 2018
|
|
December 31, 2017
|
Short-term borrowings
(1)
|
|
$
|
117.1
|
|
|
$
|
25.3
|
|
Current portion of long-term debt
|
|
1.5
|
|
|
2.2
|
|
Total current debt
|
|
118.6
|
|
|
27.5
|
|
Term Loan A due July 2019
|
|
222.7
|
|
|
222.7
|
|
6.50% Senior Notes due December 2020
|
|
423.8
|
|
|
423.6
|
|
4.875% Senior Notes due December 2022
|
|
420.7
|
|
|
420.4
|
|
5.25% Senior Notes due April 2023
|
|
420.8
|
|
|
420.4
|
|
4.50% Senior Notes due September 2023
|
|
459.6
|
|
|
474.3
|
|
5.125% Senior Notes due December 2024
|
|
421.0
|
|
|
420.7
|
|
5.50% Senior Notes due September 2025
|
|
396.9
|
|
|
396.7
|
|
6.875% Senior Notes due July 2033
|
|
445.5
|
|
|
445.4
|
|
Other
|
|
6.1
|
|
|
6.3
|
|
Total long-term debt, less current portion
(3)
|
|
3,217.1
|
|
|
3,230.5
|
|
Total debt
(2)
|
|
$
|
3,335.7
|
|
|
$
|
3,258.0
|
|
|
|
(1)
|
Short-term borrowings of
$117.1 million
at
June 30, 2018
are comprised of
$62.4 million
under our European securitization program and
$54.7 million
of short-term borrowings from various lines of credit. Short-term borrowings of
$25.3 million
at
December 31, 2017
were comprised
$2.1 million
of Diversey accounts payable obligations under financing arrangements which Sealed Air was fully reimbursed for as part of the sale of Diversey as well as
$23.2 million
of short-term borrowings from various lines of credit.
|
|
|
(2)
|
As of
June 30, 2018
, our weighted average interest rate on our short-term borrowings outstanding was
2.4%
and on our long-term debt outstanding was
5.4%
. As of
December 31, 2017
, our weighted average interest rate on our short-term borrowings outstanding was
5.4%
and on our long-term debt outstanding was
5.3%
.
|
|
|
(3)
|
Amounts are net of unamortized discounts and issuance costs of
$26.7 million
as
June 30, 2018
and
$29.5 million
as of
December 31, 2017
.
|
Credit Facility
On July 12, 2018, we executed the Third Amended and Restated Syndicated Credit Facility ("Amended Credit Facility"). We refinanced 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 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). The expiration date was extended for term loan A facilities and revolving credit commitment to July 11, 2023.
Lines of Credit
The following table summarizes our available lines of credit and committed and uncommitted lines of credit, including the Revolving Credit Facility discussed above, and the amounts available under our accounts receivable securitization programs.
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
June 30, 2018
|
|
December 31, 2017
|
Used lines of credit
(1)
|
|
$
|
117.1
|
|
|
$
|
23.2
|
|
Unused lines of credit
|
|
958.3
|
|
|
1,108.6
|
|
Total available lines of credit
(2)
|
|
$
|
1,075.4
|
|
|
$
|
1,131.8
|
|
|
|
(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,
$846.8 million
was committed as of
June 30, 2018
.
|
Covenants
Each issue of our outstanding senior notes imposes limitations on our operations and those of specified subsidiaries. The Amended Credit Facility contains customary affirmative and negative covenants for credit facilities of this type, including limitations on our indebtedness, liens, investments, restricted payments, mergers and acquisitions, dispositions of assets, transactions with affiliates, amendment of documents and sale leasebacks, and a covenant specifying a maximum permitted ratio of Consolidated Net Debt to Consolidated EBITDA (as defined in the Amended Credit Facility). We were in compliance with the above financial covenants and limitations at
June 30, 2018
.
Note 12 Derivatives and Hedging Activities
We report all derivative instruments on our Condensed Consolidated Balance Sheets at fair value and establish criteria for designation and effectiveness of transactions entered into for hedging purposes.
As a large global organization, we face exposure to market risks, such as fluctuations in foreign currency exchange rates and interest rates. To manage the volatility relating to these exposures, we enter into various derivative instruments from time to time under our risk management policies. We designate derivative instruments as hedges on a transaction basis to support hedge accounting. The changes in fair value of these hedging instruments offset in part or in whole corresponding changes in the fair value or cash flows of the underlying exposures being hedged. We assess the initial and ongoing effectiveness of our hedging relationships in accordance with our policy. We do not purchase, hold or sell derivative financial instruments for trading purposes. Our practice is to terminate derivative transactions if the underlying asset or liability matures or is sold or terminated, or if we determine the underlying forecasted transaction is no longer probable of occurring.
We record the fair value positions of all derivative financial instruments on a net basis by counterparty for which a master netting arrangement is utilized.
Foreign Currency Forward Contracts Designated as Cash Flow Hedges
The primary purpose of our cash flow hedging activities is to manage the potential changes in value associated with the amounts receivable or payable on equipment and raw material purchases that are denominated in foreign currencies in order to minimize the impact of the changes in foreign currencies. We record gains and losses on foreign currency forward contracts qualifying as cash flow hedges in accumulated other comprehensive income (loss) ("AOCI") to the extent that these hedges are effective and until we recognize the underlying transactions in net earnings, at which time we recognize these gains and losses in cost of sales, on our Condensed Consolidated Statements of Operations. Cash flows from derivative financial instruments are classified as cash flows from operating activities in the Condensed Consolidated Statements of Cash Flows. These contracts generally have original maturities of less than
12 months
.
Net unrealized after-tax gains/losses related to these contracts that were included in AOCI were
$1.3 million
gain and
$2.4 million
gain for the
three and six
months ended
June 30, 2018
, respectively, and
$1.9 million
loss and
$4.8 million
loss for the
three and six
months ended
June 30, 2017
, respectively. The unrealized amounts in AOCI will fluctuate based on changes in the fair value of open contracts during each reporting period.
We estimate that
$1.1 million
of net unrealized derivative gains included in AOCI will be reclassified into earnings within the next twelve months.
Foreign Currency Forward Contracts Not Designated as Hedges
Our subsidiaries have foreign currency exchange exposure from buying and selling in currencies other than their functional currencies. The primary purposes of our foreign currency hedging activities are to manage the potential changes in value associated with the amounts receivable or payable on transactions denominated in foreign currencies and to minimize the impact of the changes in foreign currencies related to foreign currency-denominated interest-bearing intercompany loans and receivables and payables. The changes in fair value of these derivative contracts are recognized in other income, net, on our Condensed Consolidated Statements of Operations and are largely offset by the remeasurement of the underlying foreign currency-denominated items indicated above. Cash flows from derivative financial instruments are classified as cash flows from investing activities in the Condensed Consolidated Statements of Cash Flows. These contracts generally have original maturities of less than
12 months
.
Interest Rate Swaps
From time to time, we may use interest rate swaps to manage our fixed and floating interest rates on our outstanding indebtedness. At
June 30, 2018
and
December 31, 2017
, we had
no
outstanding interest rate swaps.
Net Investment Hedge
During the second quarter of 2015, we entered into a series of foreign currency exchange forwards totaling
€270.0 million
. These foreign currency exchange forwards hedged a portion of the net investment in a certain European subsidiary against fluctuations in foreign exchange rates and expired in June 2015. The loss of
$3.5 million
(
$2.2 million
after tax) is recorded in AOCI on our Condensed Consolidated Balance Sheets.
The
€400.0 million
4.50%
notes issued in June 2015 are designated as a net investment hedge, hedging a portion of our net investment in a certain European subsidiary against fluctuations in foreign exchange rates. The change in the fair value of the debt was
$12.8 million
(
$5.9 million
net of tax) as of
June 30, 2018
, and is reflected in AOCI on our Condensed Consolidated Balance Sheets.
In March 2015, we entered into a series of cross-currency swaps with a combined notional amount of
$425.0 million
, hedging a portion of the net investment in a certain European subsidiary against fluctuations in foreign exchange rates. As a result of the sale of Diversey, we terminated these cross-currency swaps in September 2017 and settled these swaps in October 2017. The fair value of the swaps on the date of termination was a liability of
$61.9 million
which was partially offset by semi-annual interest settlements of
$17.7 million
. This resulted in a net impact of
$(44.2) million
which is recorded in AOCI.
For derivative instruments that are designated and qualify as hedges of net investments in foreign operations, settlements and changes in fair values of the derivative instruments are recognized in unrealized net gains or loss on derivative instruments for net investment hedge, a component of AOCI, net of taxes, to offset the changes in the values of the net investments being hedged. Any portion of the net investment hedge that is determined to be ineffective is recorded in other expense, net on the Condensed Consolidated Statements of Operations.
Other Derivative Instruments
We may use other derivative instruments from time to time to manage exposure to foreign exchange rates and to access to international financing transactions. These instruments can potentially limit foreign exchange exposure by swapping borrowings denominated in one currency for borrowings denominated in another currency.
Fair Value of Derivative Instruments
See Note 13, “Fair Value Measurements and Other Financial Instruments,” for a discussion of the inputs and valuation techniques used to determine the fair value of our outstanding derivative instruments.
The following table details the fair value of our derivative instruments included on our Condensed Consolidated Balance Sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow
|
|
Non-Designated
|
|
Total
|
(In millions)
|
June 30, 2018
|
|
December 31, 2017
|
|
June 30, 2018
|
|
December 31, 2017
|
|
June 30, 2018
|
|
December 31, 2017
|
Derivative Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
$
|
1.5
|
|
|
$
|
0.5
|
|
|
$
|
3.2
|
|
|
$
|
3.6
|
|
|
$
|
4.7
|
|
|
$
|
4.1
|
|
Total Derivative Assets
|
$
|
1.5
|
|
|
$
|
0.5
|
|
|
$
|
3.2
|
|
|
$
|
3.6
|
|
|
$
|
4.7
|
|
|
$
|
4.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
$
|
—
|
|
|
$
|
(2.4
|
)
|
|
$
|
(4.7
|
)
|
|
$
|
(3.3
|
)
|
|
$
|
(4.7
|
)
|
|
$
|
(5.7
|
)
|
Total Derivative Liabilities
(1)
|
$
|
—
|
|
|
$
|
(2.4
|
)
|
|
$
|
(4.7
|
)
|
|
$
|
(3.3
|
)
|
|
$
|
(4.7
|
)
|
|
$
|
(5.7
|
)
|
Net Derivatives
(2)
|
$
|
1.5
|
|
|
$
|
(1.9
|
)
|
|
$
|
(1.5
|
)
|
|
$
|
0.3
|
|
|
$
|
—
|
|
|
$
|
(1.6
|
)
|
|
|
(1)
|
Excludes
€400.0 million
of euro-denominated debt (
$459.6 million
equivalent at
June 30, 2018
and
$474.3 million
equivalent at
December 31, 2017
), designated as a net investment hedge.
|
|
|
(2)
|
The following table reconciles gross positions without the impact of master netting agreements to the balance sheet classification:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Current Assets
|
|
Other Current Liabilities
|
(In millions)
|
June 30, 2018
|
|
December 31, 2017
|
|
June 30, 2018
|
|
December 31, 2017
|
Gross position
|
$
|
4.7
|
|
|
$
|
4.1
|
|
|
$
|
(4.7
|
)
|
|
$
|
(5.7
|
)
|
Impact of master netting agreements
|
—
|
|
|
(0.4
|
)
|
|
—
|
|
|
0.4
|
|
Net amounts recognized on the Condensed Consolidated Balance Sheets
|
$
|
4.7
|
|
|
$
|
3.7
|
|
|
$
|
(4.7
|
)
|
|
$
|
(5.3
|
)
|
The following table details the effect of our derivative instruments on our Condensed Consolidated Statements of Operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Recognized in
Earnings on Derivatives
|
|
Location of Gain (Loss) Recognized on
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(In millions)
|
Condensed Consolidated Statements of Operations
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
Cost of sales
|
|
$
|
(1.2
|
)
|
|
$
|
0.7
|
|
|
$
|
(1.8
|
)
|
|
$
|
0.8
|
|
Treasury locks
|
Interest expense, net
|
|
0.1
|
|
|
—
|
|
|
0.1
|
|
|
0.1
|
|
Sub-total cash flow hedges
|
|
|
(1.1
|
)
|
|
0.7
|
|
|
(1.7
|
)
|
|
0.9
|
|
Fair Value Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
Interest expense, net
|
|
0.1
|
|
|
0.1
|
|
|
0.2
|
|
|
0.2
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
Other income (expense), net
|
|
(5.7
|
)
|
|
(4.6
|
)
|
|
(6.9
|
)
|
|
0.6
|
|
Total
|
|
|
$
|
(6.7
|
)
|
|
$
|
(3.8
|
)
|
|
$
|
(8.4
|
)
|
|
$
|
1.7
|
|
Note 13 Fair Value Measurements and Other Financial Instruments
Fair Value Measurements
In determining fair value of financial instruments, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and consider counterparty credit risk in our assessment of fair value. We determine fair value of our financial instruments based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:
|
|
•
|
Level 1 Inputs:
Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.
|
|
|
•
|
Level 2 Inputs:
Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
|
|
|
•
|
Level 3 Inputs:
Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.
|
The following table details the fair value hierarchy of our financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
(In millions)
|
|
Total Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Cash equivalents
|
|
$
|
26.4
|
|
|
$
|
26.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Derivative financial and hedging instruments net liability:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts and options
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
(In millions)
|
|
Total Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Cash equivalents
|
|
$
|
297.5
|
|
|
$
|
297.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Derivative financial and hedging instruments net liability:
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
$
|
(1.6
|
)
|
|
$
|
—
|
|
|
$
|
(1.6
|
)
|
|
$
|
—
|
|
Cash Equivalents
Our cash equivalents at
June 30, 2018
and
December 31, 2017
consisted of bank time deposits (Level 1). Since these are short-term highly liquid investments with original maturities of three months or less at the date of purchase, they present negligible risk of changes in fair value due to changes in interest rates.
Derivative Financial Instruments
Our foreign currency forward contracts, foreign currency options, euro-denominated debt, interest rate and currency swaps and cross-currency swaps are recorded at fair value on our Condensed Consolidated Balance Sheets using a discounted cash flow analysis that incorporates observable market inputs. These market inputs include foreign currency spot and forward rates, and various interest rate curves, and are obtained from pricing data quoted by various banks, third party sources and foreign currency dealers involving identical or comparable instruments (Level 2).
Counterparties to these foreign currency forward contracts have at least an investment grade rating. Credit ratings on some of our counterparties may change during the term of our financial instruments. We closely monitor our counterparties’ credit ratings and, if necessary, will make any appropriate changes to our financial instruments. The fair value generally reflects the estimated amounts that we would receive or pay to terminate the contracts at the reporting date.
Other Financial Instruments
The following financial instruments are recorded at fair value or at amounts that approximate fair value: (1) trade receivables, net, (2) certain other current assets, (3) accounts payable and (4) other current liabilities. The carrying amounts reported on our Condensed Consolidated Balance Sheets for the above financial instruments closely approximate their fair value due to the short-term nature of these assets and liabilities.
Other liabilities that are recorded at carrying value on our Condensed Consolidated Balance Sheets include our senior notes, except for our euro-denominated debt as discussed above. We utilize a market approach to calculate the fair value of our senior notes. Due to their limited investor base and the face value of some of our senior notes, they may not be actively traded on the date we calculate their fair value. Therefore, we may utilize prices and other relevant information generated by market transactions involving similar securities, reflecting U.S. Treasury yields to calculate the yield to maturity and the price on some of our senior notes. These inputs are provided by an independent third party and are considered to be Level 2 inputs.
We derive our fair value estimates of our various other debt instruments by evaluating the nature and terms of each instrument, considering prevailing economic and market conditions, and examining the cost of similar debt offered at the balance sheet date. We also incorporated our credit default swap rates and currency specific swap rates in the valuation of each debt instrument, as applicable.
These estimates are subjective and involve uncertainties and matters of significant judgment, and therefore we cannot determine them with precision. Changes in assumptions could significantly affect our estimates.
The table below shows the carrying amounts and estimated fair values of our total debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
(In millions)
|
|
Carrying Amount
|
|
Fair Value
|
|
Carrying Amount
|
|
Fair Value
|
Term Loan A Facility due July 2019
(1)
|
|
$
|
222.7
|
|
|
$
|
222.7
|
|
|
$
|
222.7
|
|
|
$
|
222.7
|
|
6.50% Senior Notes due December 2020
|
|
423.8
|
|
|
449.8
|
|
|
423.6
|
|
|
465.1
|
|
4.875% Senior Notes due December 2022
|
|
420.7
|
|
|
432.4
|
|
|
420.4
|
|
|
451.0
|
|
5.25% Senior Notes due April 2023
|
|
420.8
|
|
|
434.7
|
|
|
420.4
|
|
|
455.6
|
|
4.50% Senior Notes due September 2023
(1)
|
|
459.6
|
|
|
518.5
|
|
|
474.3
|
|
|
544.4
|
|
5.125% Senior Notes due December 2024
|
|
421.0
|
|
|
428.9
|
|
|
420.7
|
|
|
456.2
|
|
5.50% Senior Notes due September 2025
|
|
396.9
|
|
|
412.9
|
|
|
396.7
|
|
|
439.9
|
|
6.875% Senior Notes due July 2033
|
|
445.5
|
|
|
496.3
|
|
|
445.4
|
|
|
527.3
|
|
Other foreign borrowings
(1)
|
|
122.9
|
|
|
121.7
|
|
|
30.2
|
|
|
30.4
|
|
Other domestic borrowings
|
|
1.8
|
|
|
2.1
|
|
|
3.6
|
|
|
3.6
|
|
Total debt
|
|
$
|
3,335.7
|
|
|
$
|
3,520.0
|
|
|
$
|
3,258.0
|
|
|
$
|
3,596.2
|
|
|
|
(1)
|
Includes borrowings denominated in currencies other than U.S. dollars.
|
In addition to the table above, the Company remeasures amounts related to contingent consideration liabilities related to acquisitions and certain equity compensation, that were carried at fair value on a recurring basis in the Condensed Consolidated Financial Statements or for which a fair value measurement was required. Refer to Note 4 “Discontinued Operations, Divestitures and Acquisitions” of the
2017
Annual Form 10-K for information regarding contingent consideration and Note 17 “Stockholders’ Equity,” of the Notes to Condensed Consolidated Financial Statements for share based compensation.
Note 14 Defined Benefit Pension Plans and Other Post-Employment Benefit Plans
The following table shows the components of our net periodic benefit cost (income) for our defined benefit pension plans for the
three and six
months ended
June 30, 2018
and
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2018
|
|
Three Months Ended
June 30, 2017
|
(In millions)
|
|
U.S.
|
|
International
|
|
Total
|
|
U.S.
|
|
International
|
|
Total
|
Components of net periodic benefit cost (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
0.1
|
|
|
$
|
1.1
|
|
|
$
|
1.2
|
|
|
$
|
0.1
|
|
|
$
|
1.7
|
|
|
$
|
1.8
|
|
Interest cost
|
|
1.6
|
|
|
3.9
|
|
|
5.5
|
|
|
1.7
|
|
|
4.0
|
|
|
5.7
|
|
Expected return on plan assets
|
|
(2.2
|
)
|
|
(7.5
|
)
|
|
(9.7
|
)
|
|
(2.4
|
)
|
|
(7.6
|
)
|
|
(10.0
|
)
|
Amortization of net actuarial loss
|
|
0.2
|
|
|
0.6
|
|
|
0.8
|
|
|
0.2
|
|
|
1.4
|
|
|
1.6
|
|
Net periodic income
|
|
(0.3
|
)
|
|
(1.9
|
)
|
|
(2.2
|
)
|
|
(0.4
|
)
|
|
(0.5
|
)
|
|
(0.9
|
)
|
Cost of settlement/curtailment
|
|
—
|
|
|
0.1
|
|
|
0.1
|
|
|
0.8
|
|
|
—
|
|
|
0.8
|
|
Total (income) benefit cost
|
|
$
|
(0.3
|
)
|
|
$
|
(1.8
|
)
|
|
$
|
(2.1
|
)
|
|
$
|
0.4
|
|
|
$
|
(0.5
|
)
|
|
$
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2018
|
|
Six Months Ended
June 30, 2017
|
(In millions)
|
|
U.S.
|
|
International
|
|
Total
|
|
U.S.
|
|
International
|
|
Total
|
Components of net periodic benefit cost (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
0.1
|
|
|
$
|
2.1
|
|
|
$
|
2.2
|
|
|
$
|
0.1
|
|
|
$
|
3.4
|
|
|
$
|
3.5
|
|
Interest cost
|
|
3.2
|
|
|
7.8
|
|
|
11.0
|
|
|
3.5
|
|
|
8.0
|
|
|
11.5
|
|
Expected return on plan assets
|
|
(4.4
|
)
|
|
(14.9
|
)
|
|
(19.3
|
)
|
|
(4.9
|
)
|
|
(15.2
|
)
|
|
(20.1
|
)
|
Amortization of net actuarial loss
|
|
0.5
|
|
|
1.2
|
|
|
1.7
|
|
|
0.4
|
|
|
2.8
|
|
|
3.2
|
|
Net periodic income
|
|
(0.6
|
)
|
|
(3.8
|
)
|
|
(4.4
|
)
|
|
(0.9
|
)
|
|
(1.0
|
)
|
|
(1.9
|
)
|
Cost of settlement/curtailment
|
|
—
|
|
|
0.1
|
|
|
0.1
|
|
|
0.8
|
|
|
0.5
|
|
|
1.3
|
|
Total income
|
|
$
|
(0.6
|
)
|
|
$
|
(3.7
|
)
|
|
$
|
(4.3
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
(0.5
|
)
|
|
$
|
(0.6
|
)
|
The following table shows the components of our net periodic benefit cost (income) for our other post-retirement employee benefit plans for the
three and six
months ended
June 30, 2018
and
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(In millions)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
Service costs
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
Interest cost
|
|
0.4
|
|
|
0.4
|
|
|
0.7
|
|
|
0.9
|
|
Amortization of net prior service cost
|
|
(0.1
|
)
|
|
(0.3
|
)
|
|
(0.2
|
)
|
|
(0.8
|
)
|
Amortization of net actuarial loss
|
|
(0.1
|
)
|
|
(0.1
|
)
|
|
(0.1
|
)
|
|
(0.1
|
)
|
Net periodic benefit cost
|
|
$
|
0.2
|
|
|
$
|
0.1
|
|
|
$
|
0.4
|
|
|
$
|
0.1
|
|
In 2017, the net periodic (income) costs related to Diversey plans were excluded from the tables above. The amounts of the costs charged to discontinued operations were as follows:
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Three Months Ended June 30, 2017
|
|
Six Months Ended June 30, 2017
|
Defined benefit pension plans
|
|
$
|
(0.2
|
)
|
|
$
|
(0.4
|
)
|
Other employee benefit plans
|
|
—
|
|
|
—
|
|
Total income included in discontinued operations
|
|
$
|
(0.2
|
)
|
|
$
|
(0.4
|
)
|
Note 15 Income Taxes
Effective Income Tax Rate and Income Tax Provision
On December 22, 2017, the TCJA was enacted, substantially changing the U.S. tax system and affecting the Company in a number of ways. Notably, the TCJA:
|
|
•
|
establishes a flat corporate income tax rate of 21.0% on U.S. earnings;
|
|
|
•
|
imposes a one-time tax on unremitted cumulative non-U.S. earnings of foreign subsidiaries (“Transition Tax”);
|
|
|
•
|
generally allows for the repatriation of future earnings of foreign subsidiaries without incurring additional U.S. taxes by transitioning to a territorial system of taxation;
|
|
|
•
|
imposes a new minimum tax on certain non-U.S. earnings, irrespective of the territorial system of taxation, global intangible low-taxed income (GILTI);
|
|
|
•
|
subjects certain payments made by a U.S. company to a related foreign company to certain minimum taxes (Base Erosion Anti-Abuse Tax);
|
|
|
•
|
eliminates certain prior tax incentives for manufacturing in the United States and creates an incentive for U.S. companies to sell, lease or license goods and services abroad by allowing for a reduction in taxes owed on earnings related to such sales;
|
|
|
•
|
allows the cost of investments in certain depreciable assets acquired and placed in service after September 27, 2017 to be immediately expensed;
|
|
|
•
|
reduces deductions with respect to certain compensation paid to specified executive officers; and
|
|
|
•
|
allows for installment payments to be paid over a period of eight years and the first installment was paid in 2018.
|
On December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared or analyzed in reasonable detail to complete the accounting for certain income tax effects of TCJA. SAB 118 provides 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 have 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 based on the income tax rates at which the deferred tax assets and liabilities are expected to reverse in the future (generally
21%
), in 2017. This remeasurement resulted in
$41.1 million
of tax expense for the year ended
December 31, 2017
. At
December 31, 2017
, we were not able to reasonably estimate the impact of Transition Tax. For a description of the impact of the TCJA for the year ended
December 31, 2017
, reference is made to Note 16, “Income Taxes,” of the Notes to Consolidated Financial Statements contained in Part II, Item 8 of our Annual Report on Form 10-K for the year ended
December 31, 2017
The one-time Transition Tax is based on our total post-1986 earnings and profits ("E&P"), which we had deferred from U.S taxes under prior law. During the
six
months ended
June 30, 2018
, the Company recognized a provisional tax liability of
$290.0 million
for the Transition Tax. The actual amount of Transition Tax may differ from the provisional amount due to, among other things, changes in tax calculations associated with the sale of Diversey, which we have not yet finalized, changes in interpretations and assumptions the Company has made, changes in the treatment of Transition Tax by state taxing authorities and additional regulatory guidance that may be issued. Any adjustments made to the provisional amounts under SAB 118 will be recorded as discrete adjustments in the period identified (not to extend beyond the one-year measurement period provided in SAB 118). No adjustments to the Transition Tax were recorded in the second quarter. The accounting is expected to be complete when the 2017 U.S. corporate income tax return is filed in the second half of 2018.
For interim tax reporting, we estimate one single effective tax rate for tax jurisdictions not subject to a valuation allowance, which is applied to the year-to-date ordinary income/(loss). Tax effects of significant unusual or infrequently occurring items are excluded from the estimated annual effective tax rate calculation and recognized in the interim period in which they occur.
Our effective income tax rate was
28.7%
and
154.1%
for the
three and six
months ended
June 30, 2018
. The difference between the Company’s effective income tax rate and the U.S. statutory rate of
21.0%
relates to the provisional amount for Transition Tax associated with the TCJA, withholding taxes, non-deductible expenses, state income taxes, and the effect of the GILTI provision enacted as part of the TCJA offset by the benefits from lapses in statute of limitations on foreign unrecognized tax benefits.
Our effective income tax rate was
66.0%
and
114.7%
for the
three and six
months ended
June 30, 2017
. The rate is greater than the statutory rate primarily due to
$17.8 million
of tax expense related to the sale of Diversey and tax expense related to the settlement of a foreign position of
$3.4 million
.
The GILTI provisions, which require us to include in our U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary's tangible assets, are complex and subject to continuing regulatory interpretation by the U.S. Internal Revenue Service ("IRS"). We are required to make an accounting policy election of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current period expense when incurred (the “period cost method”) or (2) factoring such amounts into the Company’s measurement of its deferred taxes (the “deferred
method”). We have elected to recognize the GILTI as a period expense in the period the tax is incurred. Under this policy, we have not provided deferred taxes related to temporary differences that upon their reversal will affect the amount of income subject to GILTI in the period. This election increases the annual effective tax rate by approximately
3.5%
. We will continue to refine our calculation which may result in changes to this amount.
Note 16 Commitments and Contingencies
Cryovac Transaction Commitments and Contingencies
Refer to Part II, Item 8, Note 17, “Commitments and Contingencies” to our audited Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2017
for a description of the Settlement agreement (as defined therein).
Environmental Matters
We are subject to loss contingencies resulting from environmental laws and regulations, and we accrue for anticipated costs associated with investigatory and remediation efforts when an assessment has indicated that a loss is probable and can be reasonably estimated. These accruals are not reduced by potential insurance recoveries, if any. We do not believe that it is reasonably possible that our liability in excess of the amounts that we have accrued for environmental matters will be material to our Condensed Consolidated Balance Sheets or Statements of Operations. Environmental liabilities are reassessed whenever circumstances become better defined or remediation efforts and their costs can be better estimated.
We evaluate these liabilities periodically based on available information, including the progress of remedial investigations at each site, the current status of discussions with regulatory authorities regarding the methods and extent of remediation and the apportionment of costs among potentially responsible parties. As some of these issues are decided (the outcomes of which are subject to uncertainties) or new sites are assessed and costs can be reasonably estimated, we adjust the recorded accruals, as necessary. We believe that these exposures are not material to our Condensed Consolidated Balance Sheets or Statements of Operations. We believe that we have adequately reserved for all probable and estimable environmental exposures.
Guarantees and Indemnification Obligations
We are a party to many contracts containing guarantees and indemnification obligations. These contracts primarily consist of:
|
|
•
|
indemnities in connection with the sale of businesses, primarily related to the sale of Diversey. Our indemnity obligations under the relevant agreements may be limited in terms of time, amount or scope. As it relates to certain income tax related liabilities, the relevant agreements may not provide any cap for such liabilities, and the period in which we would be liable would lapse upon expiration of the statute of limitation for assessment of the underlying taxes. Due to 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 under 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 accrue a warranty liability on a transaction-specific basis depending on the individual facts and circumstances related to each sale. Both the liability and annual expense related to product warranties are immaterial to our Condensed Consolidated Balance Sheets or Statements of Operations; and
|
|
|
•
|
intellectual property warranties in which we have agreed to indemnify customers against third party infringement claims based on certain products sold to those customers.
|
As of
June 30, 2018
, the Company has no reason to believe a loss exceeding amounts already recognized would be incurred.
Note 17 Stockholders’ Equity
Repurchase of Common Stock
In July 2015, our Board of Directors authorized a repurchase program of up to
$1.5 billion
of the Company’s common stock, reflecting its commitment to return value to shareholders. The repurchase program had no expiration date and replaced the previously authorized program, which was terminated. Refer to Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds” for further information.
In March 2017, our Board of Directors authorized an increase to the existing share repurchase program by up to an additional
$1.5 billion
of the Company’s common stock. Additionally, in May 2018, the Board of Directors reset the share repurchase program authorization to
$1.0 billion
. This new program has no expiration date and replaces the previous authorizations.
During the
three and six
months ended
June 30, 2018
, we repurchased
1,780,578
and
10,575,532
shares, for approximately
$77.1 million
and
$481.6 million
, respectively. These repurchases were made under privately negotiated, accelerated share repurchase activity or open market transactions in accordance with Rule 10b5-1 of the Securities Act of 1933, as amended and pursuant to the share repurchase program previously authorized by our Board of Directors.
During the
three and six
months ended
June 30, 2018
, share repurchases under open market transactions were
1,780,578
and
9,355,896
shares, for approximately
$77.1 million
and
$401.6 million
with an average share price of
$43.29
and
$42.93
, respectively.
In November 2017, the Company entered into an accelerated share repurchase agreement with a third-party financial institution to repurchase
$400.0 million
of the Company’s common stock. Through December 31, 2017, the Company received a total of
7,089,056
shares under this agreement. At the conclusion of the program in February 2018, the Company received a total of
8,308,692
shares with an average share price of
$48.14
.
During the
three and six
months ended
June 30, 2017
, we repurchased
3,536,308
shares, for approximately
$155.3 million
.
Dividends
On
May 17, 2018
, our Board of Directors declared a quarterly cash dividend of
$0.16
per common share, or $
25.7 million
, which was paid on
June 15, 2018
, to stockholders of record at the close of business on
June 1, 2018
.
On
July 13, 2018
, our Board of Directors declared a quarterly cash dividend of
$0.16
per common share, which will be paid on
September 21, 2018
, to stockholders of record at the close of business on
September 7, 2018
.
The dividends paid in the
six
months ended
June 30, 2018
were recorded as a reduction to cash and cash equivalents and retained earnings on our Condensed Consolidated Balance Sheets. Our credit facility and our notes contain covenants that restrict our ability to declare or pay dividends. However, we do not believe these covenants are likely to materially limit the future payment of quarterly cash dividends on our common stock. From time to time, we may consider other means of returning value to our stockholders based on our Condensed Consolidated Statements of Operations. There is no guarantee that our Board of Directors will declare any further dividends.
Share-based Compensation
Under the 2014 Omnibus Incentive Plan (“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. In 2018, the Board of Directors adopted, and its shareholders approved an amendment and restatement to the 2014 Omnibus Incentive Plan. The amended plan adds
2,199,114
shares of common stock to the share pool previously available under the Omnibus Incentive Plan.
We record share-based incentive compensation expense in selling, general and administrative expenses and cost of sales on our Condensed Consolidated Statements of Operations with a corresponding credit to additional paid-in capital within stockholders’ equity based on the fair value of the share-based incentive compensation awards at the date of grant. We recognize an expense or credit reflecting the straight-line recognition, net of estimated forfeitures, of the expected cost of the program. For the various Performance Share Unit ("PSU") awards programs described below, the cumulative amount accrued to date is adjusted up or down to the extent the expected performance against the targets has improved or worsened.
The table below shows our total share-based incentive compensation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(In millions)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Total share-based incentive compensation expense
(1)
|
|
$
|
7.1
|
|
|
$
|
11.0
|
|
|
$
|
14.6
|
|
|
$
|
19.1
|
|
|
|
(1)
|
The amounts included above do not include the expense related to our U.S. profit sharing contributions made in the form of our common stock or the expense or income related to certain cash-based awards, however, the amounts include the expense related to share based awards that are settled in cash.
|
PSU Awards
During the first
90 days
of each year, the Organization and Compensation (“O&C”) Committee of our Board of Directors approves PSU awards for our executive officers and other selected key executives, which include for each officer or executive a target number of shares of common stock and performance goals and measures that will determine the percentage
of the target award that is earned following the end of the
three
-year performance period. Following the end of the performance period, in addition to shares, participants will also receive a cash payment in the amount of the dividends (without interest) that would have been paid during the performance period on the number of shares that they have earned. Each PSU is subject to forfeiture if the recipient terminates employment with the Company prior to the end of the
three years
award performance period for any reason other than death, disability or retirement. In the event of death, disability or retirement, a participant will receive a prorated payment based on such participant’s number of days of service during the award performance period, further adjusted based on the achievement of the performance goals during the award performance period. All of these PSUs are classified as equity in the Condensed Consolidated Balance Sheets.
2018
Three
-year PSU Awards
In 2018, the O&C Committee approved awards with a
three
-year performance period beginning
January 1, 2018
to
December 31, 2020
for certain executives. The O&C Committee established performance goals, which are (i) total shareholder return (TSR) weighted at
34%
, (ii) 2020 consolidated adjusted EBITDA margin weighted at
33%
, and (iii) Net Sales Compound Average Growth Rate in 2020 based on 2017 Net Sales weighted at
33%
. The total number of shares to be issued for these awards can range from
zero
to
200%
of the target number of shares.
The number of PSUs granted and the grant date fair value of the PSUs are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TSR
|
|
Net Sales CAGR
|
|
Adjusted EBITDA
|
Number of units granted
|
|
56,829
|
|
|
57,378
|
|
|
57,378
|
|
Fair value on grant date
|
|
$
|
43.40
|
|
|
$
|
41.72
|
|
|
$
|
41.72
|
|
The assumptions used to calculate the grant date fair value of the PSUs based on TSR are shown in the following table:
|
|
|
|
|
TSR portion of the 2018 PSU Award
|
Expected price volatility
|
22.0
|
%
|
Risk-free interest rate
|
2.0
|
%
|
2015
Three
-year PSU Awards
In 2018, the O&C Committee reviewed the performance results for the 2015-2017 PSUs. Performance goals for these PSUs were based on Adjusted EBITDA margins and relative TSR. Based on overall performance for 2015-2017 PSUs, these awards paid out at
73.3%
of target or
129,139
units.
2014 Special PSU Awards
In 2018, the O&C Committee reviewed the performance results for the second tranche of the 2014 Special PSUs. The performance goal for the Special PSUs was based on working capital as a percentage of 2017 Net Trade Sales. The overall performance for Special PSUs was above maximum achievement levels and as a result these awards paid out at
658,783
share-settled units.
Note 18 Accumulated Other Comprehensive Income (Loss)
The following table provides details of comprehensive income (loss) for the
six
months ended
June 30, 2018
and
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Unrecognized
Pension Items
|
|
Cumulative
Translation
Adjustment
|
|
Unrecognized Gains
(Losses) on
Derivative
Instruments
for net
investment
hedge
|
|
Unrecognized Gains
(Losses) on
Derivative
Instruments
for cash flow hedge
|
|
Accumulated Other
Comprehensive
Income
(Loss), Net of Taxes
|
Balance at December 31, 2016
|
|
$
|
(276.7
|
)
|
|
$
|
(701.9
|
)
|
|
$
|
21.0
|
|
|
$
|
8.5
|
|
|
$
|
(949.1
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
1.8
|
|
|
73.8
|
|
|
(44.4
|
)
|
|
(5.4
|
)
|
|
25.8
|
|
Less: amounts reclassified from accumulated other comprehensive income
|
|
3.5
|
|
|
—
|
|
|
—
|
|
|
(0.8
|
)
|
|
2.7
|
|
Net current period other comprehensive income (loss)
|
|
5.3
|
|
|
73.8
|
|
|
(44.4
|
)
|
|
(6.2
|
)
|
|
28.5
|
|
Balance at June 30, 2017
(1)
|
|
$
|
(271.4
|
)
|
|
$
|
(628.1
|
)
|
|
$
|
(23.4
|
)
|
|
$
|
2.3
|
|
|
$
|
(920.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017
|
|
$
|
(103.4
|
)
|
|
$
|
(694.4
|
)
|
|
$
|
(46.8
|
)
|
|
$
|
(0.3
|
)
|
|
$
|
(844.9
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
0.1
|
|
|
(28.7
|
)
|
|
11.2
|
|
|
1.2
|
|
|
(16.2
|
)
|
Less: amounts reclassified from accumulated other comprehensive income
|
|
1.0
|
|
|
—
|
|
|
—
|
|
|
1.3
|
|
|
2.3
|
|
Net current period other comprehensive income (loss)
|
|
1.1
|
|
|
(28.7
|
)
|
|
11.2
|
|
|
2.5
|
|
|
(13.9
|
)
|
Balance at June 30, 2018
(1)
|
|
$
|
(102.3
|
)
|
|
$
|
(723.1
|
)
|
|
$
|
(35.6
|
)
|
|
$
|
2.2
|
|
|
$
|
(858.8
|
)
|
|
|
(1)
|
The ending balance in AOCI includes gains and losses on intra-entity foreign currency transactions. The intra-entity currency translation adjustment was
$69.9 million
and
$(23.3) million
as of
June 30, 2018
and
2017
, respectively.
|
The following table provides detail of amounts reclassified from accumulated other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
(In millions)
|
|
2018
(1)
|
|
2017
(1)
|
|
2018
(1)
|
|
2017
(1)
|
|
Location of Amount
Reclassified from AOCI
|
Defined benefit pension plans and other post-employment benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service costs
|
|
$
|
0.1
|
|
|
$
|
0.4
|
|
|
$
|
0.2
|
|
|
$
|
0.9
|
|
|
(2)
|
Actuarial losses
|
|
(0.7
|
)
|
|
(2.7
|
)
|
|
(1.6
|
)
|
|
(5.5
|
)
|
|
(2)
|
Total pre-tax amount
|
|
(0.6
|
)
|
|
(2.3
|
)
|
|
(1.4
|
)
|
|
(4.6
|
)
|
|
|
Tax benefit
|
|
0.2
|
|
|
0.5
|
|
|
0.4
|
|
|
1.1
|
|
|
|
Net of tax
|
|
(0.4
|
)
|
|
(1.8
|
)
|
|
(1.0
|
)
|
|
(3.5
|
)
|
|
|
Net (losses) gains on cash flow hedging derivatives:
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
(1.2
|
)
|
|
1.3
|
|
|
(1.8
|
)
|
|
1.9
|
|
|
(3)
Other expense, net
|
Interest rate and currency swaps
|
|
—
|
|
|
2.7
|
|
|
—
|
|
|
(1.1
|
)
|
|
(3)
|
Treasury locks
|
|
0.1
|
|
|
—
|
|
|
0.1
|
|
|
0.1
|
|
|
(3)
Interest expense, net
|
Total pre-tax amount
|
|
(1.1
|
)
|
|
4.0
|
|
|
(1.7
|
)
|
|
0.9
|
|
|
|
Tax benefit (expense)
|
|
0.3
|
|
|
(1.4
|
)
|
|
0.4
|
|
|
(0.1
|
)
|
|
|
Net of tax
|
|
(0.8
|
)
|
|
2.6
|
|
|
(1.3
|
)
|
|
0.8
|
|
|
|
Total reclassifications for the period
|
|
$
|
(1.2
|
)
|
|
$
|
0.8
|
|
|
$
|
(2.3
|
)
|
|
$
|
(2.7
|
)
|
|
|
|
|
(1)
|
Amounts in parenthesis indicate changes to earnings (loss).
|
|
|
(2)
|
These accumulated other comprehensive components are included in the computation of net periodic benefit costs within cost of sales and selling, general, and administrative expenses on the Condensed Consolidated Statements of Operations.
|
|
|
(3)
|
These accumulated other comprehensive components are included in our derivative and hedging activities. See Note 12, “Derivatives and Hedging Activities,” of the Notes to Consolidated Financial Statements for additional details.
|
Note 19 Other Income (Expense), net
The following table provides details of other income (expense), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(In millions)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net foreign exchange transaction loss
|
|
$
|
(2.0
|
)
|
|
$
|
(3.5
|
)
|
|
$
|
(13.7
|
)
|
|
$
|
(7.5
|
)
|
Bank fee expense
|
|
(1.4
|
)
|
|
(1.4
|
)
|
|
(2.4
|
)
|
|
(3.2
|
)
|
Net gain (loss) on disposals of business and property and equipment
|
|
0.1
|
|
|
(0.1
|
)
|
|
0.6
|
|
|
2.2
|
|
Pension income other than service costs
|
|
2.7
|
|
|
0.6
|
|
|
5.2
|
|
|
1.4
|
|
Other, net
|
|
1.7
|
|
|
(0.9
|
)
|
|
(0.6
|
)
|
|
—
|
|
Other income (expense), net
|
|
$
|
1.1
|
|
|
$
|
(5.3
|
)
|
|
$
|
(10.9
|
)
|
|
$
|
(7.1
|
)
|
Note 20 Net Earnings (Loss) Per Common Share
The following table shows the calculation of basic and diluted net earnings (loss) per common share under the two-class method:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(In millions, except per share amounts)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Basic Net Earnings (Loss) Per Common Share:
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
114.4
|
|
|
$
|
104.1
|
|
|
$
|
(86.2
|
)
|
|
$
|
61.0
|
|
Distributed and allocated undistributed net earnings to unvested restricted stockholders
|
|
(0.6
|
)
|
|
(0.6
|
)
|
|
(0.3
|
)
|
|
(0.2
|
)
|
Distributed and allocated undistributed net earnings (loss)
|
|
113.8
|
|
|
103.5
|
|
|
(86.5
|
)
|
|
60.8
|
|
Distributed net earnings - dividends paid to common stockholders
|
|
(25.5
|
)
|
|
(30.4
|
)
|
|
(51.9
|
)
|
|
(61.4
|
)
|
Allocation of undistributed net earnings (loss) to common stockholders
|
|
$
|
88.3
|
|
|
$
|
73.1
|
|
|
$
|
(138.4
|
)
|
|
$
|
(0.6
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic
|
|
159.7
|
|
|
192.5
|
|
|
162.5
|
|
|
192.9
|
|
Basic net earnings per common share:
|
|
|
|
|
|
|
|
|
Distributed net earnings
|
|
$
|
0.16
|
|
|
$
|
0.16
|
|
|
$
|
0.32
|
|
|
$
|
0.32
|
|
Allocated undistributed net earnings (loss) to common stockholders
|
|
0.55
|
|
|
0.37
|
|
|
(0.85
|
)
|
|
(0.01
|
)
|
Basic net earnings (loss) per common share
|
|
$
|
0.71
|
|
|
$
|
0.53
|
|
|
$
|
(0.53
|
)
|
|
$
|
0.31
|
|
Diluted Net Earnings (Loss) Per Common Share:
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Distributed and allocated undistributed net earnings (loss)
|
|
$
|
113.8
|
|
|
$
|
103.5
|
|
|
$
|
(86.5
|
)
|
|
$
|
60.8
|
|
Add: Allocated undistributed net earnings to unvested restricted stockholders
|
|
0.4
|
|
|
0.4
|
|
|
—
|
|
|
—
|
|
Less: Undistributed net earnings reallocated to unvested restricted stockholders
|
|
(0.4
|
)
|
|
(0.4
|
)
|
|
—
|
|
|
—
|
|
Net earnings (loss) available to common stockholders - diluted
|
|
$
|
113.8
|
|
|
$
|
103.5
|
|
|
$
|
(86.5
|
)
|
|
$
|
60.8
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic
|
|
159.7
|
|
|
192.5
|
|
|
162.5
|
|
|
192.9
|
|
Effect of contingently issuable shares
|
|
0.1
|
|
|
0.7
|
|
|
—
|
|
|
0.7
|
|
Effect of unvested restricted stock units
|
|
0.4
|
|
|
1.0
|
|
|
—
|
|
|
1.0
|
|
Weighted average number of common shares outstanding - diluted under two-class
|
|
160.2
|
|
|
194.2
|
|
|
162.5
|
|
|
194.6
|
|
Effect of unvested restricted stock - participating security
|
|
0.4
|
|
|
0.6
|
|
|
—
|
|
|
0.7
|
|
Weighted average number of common shares outstanding - diluted under treasury stock
|
|
160.6
|
|
|
194.8
|
|
|
162.5
|
|
|
195.3
|
|
Diluted net earnings (loss) per common share
|
|
$
|
0.71
|
|
|
$
|
0.52
|
|
|
$
|
(0.53
|
)
|
|
$
|
0.30
|
|
Note 21 Subsequent Events
On August 1, 2018, Sealed Air acquired AFP, Inc., a leading, privately held fabricator of foam, corrugated, molded pulp and wood packaging solutions. This acquisition expands Sealed Air’s protective packaging solutions in the electronics, transportation and industrial markets with custom-engineered applications. AFP generated
$125 million
in net sales in 2017 and operates
six
facilities across the U.S. with further presence in Asia and Mexico.