SECURITIES AND EXCHANGE COMMISSION
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| ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20152018
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| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period fromto Commission File Number 001-37443
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(Exact name of registrant as specified in its charter)
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| Delaware | | 26-1251958 |
(State or other jurisdiction of incorporation or organization) | | Identification No.) |
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| 3075 Highland Parkway, Suite 200 Downers Grove, Illinois | | 60515 |
| (Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (331) 777-6000
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Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | | Name of each exchange on which registered |
| Common Stock ($0.01 par value) | | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No ¨ No
xIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No xý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes xý No ¨ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes xý No ¨ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated
filer”filer,” “smaller reporting company,” and
“smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer | | ¨ | ý | Accelerated filer | | ¨ |
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| Non-accelerated filer | | x | ¨ | Smaller reporting company | ¨ | Emerging growth company | ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes¨ Noxý Aggregate market value of common stock held by non-affiliates of registrant on June
30, 2015: $1.429, 2018: $3.4 billion (see Item 12, under Part III hereof), based on a closing price of registrant’s Common Stock of
$26.03$26.24 per share.
At February 12,
2016, 137,960,4602019, 141,732,317 shares of the registrant’s common stock, $0.01 par value, were outstanding.
Documents Incorporated by Reference
Certain portions of the registrant’s Proxy Statement for the Annual Meeting of Stockholders to be held May
5, 20168, 2019 and to be filed within 120 days after the registrant’s fiscal year ended December 31,
20152018 (hereinafter referred to as “Proxy Statement”) are incorporated by reference into Part III.
Unless the context otherwise indicates or requires, as used in this Annual Report on Form 10-K, (i) the terms “we,” “our,” “us,” “Univar” and the “Company,” refer to Univar Inc. and its consolidated subsidiaries, and (ii) the term “issuer” refers to Univar Inc. exclusive of its subsidiaries.
Our fiscal year ends on December 31, and references to “fiscal” when used in reference to any twelve month period ended December 31, refer to our fiscal years ended December 31.
The term “GAAP” refers to accounting principles generally accepted in the United States of America.
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Forward-looking statements and information
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities litigation Reform Act of 1995. Some of the forward-looking statements can be identified by the use of forward-looking terms such as “believes,” “expects,” “may,” “will,” “should,” “could,” “seeks,” “intends,” “plans,” “estimates,” “anticipates” or other comparable terms. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this Annual Report on Form 10-K and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition,
capital commitments, macro-economic conditions, liquidity, prospects,
business trends, currency trends, competition, markets, growth strategies and the industries in which we operate and including, without limitation, statements relating to our estimated or anticipated financial performance or results. Forward-looking statements are subject to known and unknown risks and uncertainties, many of which may be beyond our control. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industries in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Annual Report on Form 10-K. In addition, even if our results of operations, financial condition and liquidity, and the development of the industries in which we operate are consistent with the forward-looking statements contained in this Annual Report on Form 10-K, those results or developments may not be indicative of results,
conditions or developments in subsequent periods. A number of important factors could cause actual results to differ materially from those contained in or implied by the forward-looking statements, including those reflected in forward-looking statements relating to our operations and business and the risks and uncertainties discussed in “Risk Factors.” Factors that could cause actual results to differ from those reflected in forward-looking statements relating to our operations and business include:
general economic conditions, particularly fluctuations in industrial production;production and the demands of our customers;
disruptiondisruptions in the supply of chemicals we distribute or our customers’ or producers’ operations;
termination or change of contracts or relationships bywith customers or producers on short notice;
the price and availability of chemicals, or a decline in the demand for chemicals;
our ability to pass through cost increases to our customers;
our ability to meet customer demand for a product;
trends in oil and gas prices;
competitive pressures in the chemical distribution industry;
consolidation of our competitors;
our ability to execute strategic investments, including pursuing acquisitions and/or dispositions, and successfully integrating and operating acquired companies;
challengesliabilities associated with international operations, including securing producersacquisitions, dispositions and personnel, compliance with foreign laws and changes in economic or political conditions;ventures;
potential impairment of goodwill;
inability to generate sufficient working capital;
our ability to effectively implement our strategies or achieve our business goals;sustain profitability;
exposure to interest rate and currency fluctuations;
competitive pressures in the chemical distribution industry;
consolidation of our competitors;
our ability to implement and efficiently operate the systems needed to manage our operations;
the risks associated with security threats, including cybersecurity threats;
increases in transportation costs and changes in our relationship with third party carriers;
the risks associated with hazardous materials and related activities;
accidents, safety failures, environmental damage, product quality issues, major or systemic delivery failures involving our distribution network or the products we carry or adverse health effects or other harm related to the materials we blend, manage, handle, store, sell or transport;
challenges associated with international operations, including securing producers and personnel, import/export requirements, compliance with foreign laws and international business laws and changes in economic or political conditions;
our ability to effectively implement our strategies or achieve our business goals;
exposure to interest rate and currency fluctuations;
evolving laws and regulations relating to hydraulic fracturing and risks associated with chemicals used in hydraulic fracturing;
losses due to potential product liability claims and recalls and asbestos claims;
compliance with extensive environmental, health and safety laws, including laws relating to our environmental services businesses and the investigation and remediation of contamination, that could require material expenditures or changes in our operations;
general regulatory and tax requirements;
operational risks for which we may not be adequately insured;
ongoing litigation and other legal and regulatory actions and risks, including asbestos claims;
potential impairment of goodwill;
inability to generate sufficient working capital;
loss of key personnel;
labor disruptions and other costs associated with the unionized portion of our workforce;
negative developments affecting our pension plans;plans and multi-employer pensions;
the impact of labeling regulations;changes in legislation, regulation and government policy; and
our substantial indebtedness and the restrictions imposed by our debt instruments and indenture.
All forward-looking statements made in this Annual Report on Form 10-K are qualified by these cautionary statements. These forward-looking statements are made only as of the date of this Annual Report on Form 10-K and we do not undertake any obligation, other than as may be required by law, to update or revise any forward-looking or cautionary statements to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise and changes in future operating results over time or otherwise.
Comparisons of results between current and prior periods are not intended to express any future trends, or indications of future performance, unless expressed as such, and should only be viewed as historical data.
ITEM 1.BUSINESS
We are a leading global chemical
and ingredients distributor and provider of
innovative value-addedspecialty services. We
sourcepurchase chemicals from
over 8,000thousands of chemical producers worldwide and
provide a comprehensive array of productswarehouse, repackage, blend, dilute, transport and
servicessell those chemicals to
over 160,000more than 100,000 customer locations
in over 150across approximately 130 countries. Our
specialized services include e-commerce and digital marketing of chemicals for our producers, chemical waste removal and ancillary services, on-site storage of chemicals for our customers, and support services for the agricultural and pest control industries. We derive competitive advantage from our scale,
and broad
geographic reach, combinedproduct offering, leading digital solutions, technical expertise, specialized services, long-standing relationships with
our deep product knowledge and end market expertiseleading chemical producers and our
differentiated value-added services, provide us with a distinct competitive advantage and enable us to offer customers a “one-stop shop” for their chemical needs. As a result, we believe we are strategically positioned for growth.industry leading safety record.
The global chemical distribution industry is large
and fragmented
and growing,with thousands of distributors but represents a relatively small portion of the total chemical industry. While the total chemical industry is projected to grow at rates about equal to the growth of the gross national product of countries we operate in around the world, the distributed chemicals portion of the market is projected to grow faster as producers and customers increasingly realize the benefits of outsourcing. Chemical producers rely on us to warehouse,
repackage, transport and sell their products as a way to
improveexpand their market access,
enhance their geographic reach,
and lower their
costs.costs and grow their business. Customers who purchase products and services from us benefit from a lower total cost of ownership, as they are able to simplify
thetheir chemical sourcing process and outsource
a variety of functions
to us such as
just-in-time availability of the right product, packaging,
inventory management, mixing, blending and
formulating.Since hiring our Presidenttechnical expertise. They also rely on us for safe delivery and CEO, Erik Fyrwald, in May 2012, we have significantly enhanced our management teamoff-loading of chemicals that is fully compliant with increasing local and have implemented a series of transformational initiatives to drive growth and improved operating performance. These initiatives include:
federal regulations.focusing increased efforts on strengthening our market, technical and product expertise in attractive, high-growth industry sectors;
increasing and enhancing our value-added services, such as specialty product blending, automated tank monitoring and refill of less than truckload quantities, chemical waste management and digitally-enabled marketing and sales;
undertaking a series of measures to drive operational excellence, such as enhancing our supply chain and logistics expertise, enhancing our global sourcing capabilities, reducing procurement costs, streamlining back-office functions and improving our working capital efficiency;
pursuing commercial excellence programs, including significantly increasing our global sales force, establishing a performance driven sales culture and developing our proprietary, analytics-based mobile sales force tools; and
continuing to improve upon our distribution industry leadership in safety performance, which serves as a differentiating factor for both producers and our customers.
As a result of these initiatives, we believe we are well-positioned to capture market share and to improve our margins. In the twelve monthsyear ended December 31, 2015,2018, we generated $9.0$8.6 billion in net sales, net income of $172.3 million and $600.1$640.4 million in Adjusted EBITDA. For a reconciliation of Adjusted EBITDA to net income (loss), see Footnote (1) in “Selected Financial Data” in Item 6 of this Annual Report on Form 10-K.
While we seek to grow volumes across our business, our enhanced focus on end markets and regions with the most attractive growth prospects is a key element of our strategy, as demand within the majority of these end markets and regions is growing faster than overall global chemical distribution demand. We are continuously strengthening our market, technological and product expertise in these attractive, higher-growth end markets, including food ingredients, pharmaceutical ingredients, personal care, water treatment and agricultural sciences. In addition to successfully focusing our sales organization and operating assets to target high-growth end markets, we have made several recent acquisitions that expand our capabilities and technology offerings with
active pharmaceutical ingredients (Arrow Chemical), agriculture chemical formulation and services (Future /BlueStar), natural oleochemical blends (Chemical Associates), and specialty products used to formulate environmentally friendly coatings (Polymer Technologies).
The following charts illustrate the geographical and end market diversity of our
20152018 net sales:
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2015 Net Sales by Region
| | 2015 Net Sales by End Market
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We maintain strong, long-term relationships with
bothour producers and our customers, many of which span
multiple decades. We source materials from thousands of producers worldwide, including
premier global
leaders such as Dow Chemical Company, ExxonMobil, Eastman Chemical Company, LyondellBasell, Dow Corning, BASF and Formosa Chemicals. Ourleaders. For the year ended December 31, 2018, our 10 largest producers accounted for approximately
36%27 percent of our total chemical
purchases in the year ended December 31, 2015.purchases. Similarly, we sell products to thousands of customers globally, ranging from small and medium-sized businesses to large industrial
customers, including Akzo Nobel, Dow Chemical Company, Henkel, Ecolab, PPG, Valero Energy, FMC Corporation, Georgia-Pacific and Kellogg Company. Ourcustomers. For the year ended December 31, 2018, our top 10 customers accounted for approximately
11%10 percent of our consolidated net
sales for the year ended December 31, 2015.sales. Globally, we service our customers with highly responsive on-time delivery.
Our business is organized and managed in four geographical segments: Univar USA (“USA”), Univar Canada (“Canada”), Univar Europe and the Middle East and Africa (“EMEA”), and Rest of World (“Rest of World”), which
includes developing businessesis predominantly in Latin
America (including Brazil and Mexico) and the Asia-Pacific region.America. For additional information on our geographical segments, see “Note
20:22: Segments” in Item 8 of this Annual Report on Form 10-K for additional information.
We supply a
significant amountbroad offering of commodity and specialty chemicals
and ingredients, as well as specialized
value-added services to a wide range of end markets, touching a majority of the manufacturing and industrial production sectors in the United States. Our close proximity to customers,
combined with our deep product knowledge and end market expertise, serves as a competitive
advantage and we believe that nearly 100% of U.S. manufacturing GDP is located within 150 miles of a Univar location. Moreover, our global sourcing capabilities and focus allows us to globally source lower cost chemicals.In the United States, we service these multiple end-markets with nearly one day order times and on-time delivery more than 95 percent of the time from our 121 terminals. advantage.
We repackage and blend bulk chemicals for shipment by our transportation fleet
of over 2,600 tractors, tankers and trailers.as well as common carriers. Our highly skilled salesforce is deployed by
a geographic sales district as well as by end-use market
and industry, e.g.,
coatings & adhesives, chemical manufacturing, food products and ingredients, pharmaceutical products and ingredients, water treatment, personal care, cleaning and sanitation and mining.Canada
Our Canadian operations are divided into two regions: Eastern Canada, where we focus primarily on key customer end markets, including cleaning and sanitization, coatings and adhesives, food ingredients chemical manufacturing,and products, pharmaceutical ingredients and products, personal care, and pharmaceutical.energy.
Canada
Our Canadian operations are regionally focused, with a highly skilled salesforce supplying a broad offering of commodity and specialty chemicals and specialized services to the local customer base. In Eastern Canada, we primarily focus on industrial markets such as food ingredients, pharmaceutical ingredients, coatings and adhesives, and chemical manufacturing. We also service the cleaning and sanitation, personal care, mining, and energy markets. In Western Canada, we focus primarily on forestry, chemical manufacturing, mining, and oil and gasenergy markets such as(e.g., midstream gas andpipeline, oil sands processing as well as refining. Our Agricultural Sciences industry group distributesand oil refining). Lastly, due to its
size, we have dedicated resources and expertise serving the agriculture end market. In agriculture, we formulate and distribute crop protection
and fertilizer products to independent retailers and specialty applicators servicing the agricultural
sciences end
marketmarkets in both Western Canada and Eastern
Canada.Canada and we provide support services to agricultural chemical producers throughout the country.
We maintain a strong presence in the United Kingdom and Continental Europe with sales offices in 20 countries. We also have
sixfour sales offices in the Middle East and Africa.
In 2013, our management team began implementing
We execute primarily on a pan-European
strategy to consolidate our European operations, including ourbasis, leveraging centralized or shared information technology systems, raw materials procurement, logistics, route operations and the management of producer relationships
in orderwhere possible to benefit from economies of scale and improve cost efficiency. We
are also strengthening ourhave strong end market expertise and key account management capability across Europe to better support sales representatives in each country
by moving from a country-based approach to a pan-European operationand for serving our key customer end markets, namely pharmaceutical
ingredients and finished products,
andfood ingredients,
food, coating and adhesives, and personal
care as part of our focus on higher-growth end markets.care.
Rest of World
Our global footprint also includes
We operate sales offices and distribution sites in Mexico, Brazil and to a lesser extent the Asia-Pacific region.
Chemical distribution demand growth within these regions has outpaced the overall global market, a trend which we expectWe continue to
continue in the future. We further expanded our footprint inlook for expansion opportunities throughout Latin America
through our 2011 acquisition of Arinos,and opened a
distributor of specialty and commodity chemicalsnew sales center in
Brazil, our 2013 acquisition of Quimicompuestos, a leading distributor of commodity chemicalsColombia, in
Mexico and our 2014 acquisition of D’Altomare, a Brazilian distributor of specialty chemicals and ingredients.2018.
Our Competitive Strengths
We
believe the followingderive strength and competitive
strengths have enabled us to become an integrated resource to bothadvantage from our scale, broad product offering, leading digital solutions, high levels of service and expertise, long-standing relationships with producers, and our
customers and to build and maintainindustry leading
market positions in many of the key regions and end markets that we serve.Leading global market position in an attractive, growing industry
We are one of the world’s leading chemical distribution companies. We continue to focus on increasing our market share through organic growth, marketing alliances and strategic acquisitions in both established markets, such as the United States, and emerging markets, such as Latin America and the Middle East. We are also well positioned in attractive and high-growth end markets, including water treatment, agricultural sciences, food ingredients, cleaning and sanitization, pharmaceutical products and ingredients and personal care.
Our scale and geographic reach, combined with our broad product offerings, product knowledge and market expertise and our differentiated value-added service offerings, provide us with a significant competitive advantage in the highly fragmented third party chemical distribution market, which includes more than 10,000 participants, primarily comprised of smaller distributors with limited geographic and product reach.
We operate in a highly attractive, expanding market. This growth has outpaced the growth of total chemical demand and this trend is forecasted to continue as a result of increased outsourcing of distribution by producers
and growing demand from customers for value-added services, safe operations and environmental regulatory compliance. Third party chemical distribution growth is expected to continue to be driven by these trends, as well as consolidation of the highly fragmented chemical distribution market. We believe that we are well-positioned to benefit from this anticipated growth.
Global sourcing and distribution network producing operational and scale efficiencies
safety record.
Scale
We operate one of the most extensive chemical distribution networks in the world, comprised of over 850comprising more than 600 distribution facilities, more thanapproximately 90 million gallons of chemical storage tank capacity approximately 3,100and hundreds of tractors, railcars, tankers and trailers approximately 1,400 railcars, approximately 127 rail/barge terminals and 38 deep sea terminals.operating daily through our facilities. We believe that nearly 100%purchase thousands of U.S. manufacturing GDP is located within 150 milesdifferent chemicals, some in large quantities, from over thousands of one of our locations and we service demand in these zones on very short lead times, for example in 1 to 2 days.producers. Our purchasing power and global procurement relationships provide us with competitive advantages over local and regional competitors due to economies of scale as well asand our enhanced ability to manage our inventoryworking capital.
Product breadth and working capital. Our global distributionmarket reach
We offer a wide range of chemical products and services across nearly all end-use markets. This enables us to present to customers a “one-stop-shop” approach that simplifies their procurement process and lowers their total cost of ownership, and provides suppliers with the opportunity to achieve growth by accessing new end markets through us.
Leading digital solutions
We offer today’s customers a flexible, omni-channel experience empowered partially by an industry-leading digital commerce platform, also creates significant value forMyUnivar.com. Here, customers can - at any time from any device - browse our full catalog, request a quote, and access a wide array of documents necessary to managing their business. This provides unparalleled access to valuable information, allows customers to do business on their own terms, and enhances the customer experience.
In addition, through both producersUnivar and ChemPoint capabilities, we offer suppliers cutting edge digital marketing and sales solutions to extend market reach and improve penetration. Leveraging digital solutions such as CRM, digital marketing, and advanced analytics enables us to effectively create and capture demand on behalf of our supplier partners.
Service and expertise
Globally, we provide our customers through the combinationwith highly responsive on-time delivery from our nearby facilities. This highly responsive service level enables our customers to lower their inventory levels and avoid production interruptions from lack of chemical ingredients.
To complement our
comprehensive inventory, electronic orderingextensive product portfolio, we offer to our customers specialized services, such as our chemical waste removal and
shipment tracking, “just-in-time” delivery, centralized order handlingenvironmental response services, chemical storage, and
fulfillmentspecialty product blending and
accessformulation services. These services provide efficiency gains to
networked inventory sourcing. In addition, our
scale allows us to service an international customer base in both establishedcustomers and
emerging markets and positions us to take market share as producers and customers streamline their distributor relationships. As one of the world’s largest chemical distributors, we are able to reduce costs by aggregating demand and implementing consistent processes to operate with increasing efficiency as we expand into new markets.Long-standing, strongdeepen our relationships with a broad set ofthem.
We also provide, through our highly skilled sales force, in-depth product technical knowledge and end market expertise to our customers, as well as valuable market and customer insights to our producers about how their products are performing in the market.
Long-standing producer and
customerscustomer relationships
We source chemicals from more than 8,000 producers,have developed strong, long-term relationships, many of which arespanning several decades, with the world's premier global chemical producers including Dow Chemical Company, ExxonMobil, Eastman Chemical Company, LyondellBasell, Dow Corning, BASF and Formosa Chemicals. We distribute products to over 160,000more than 100,000 customer locations around the globe, from small and medium-sizedmedium sized businesses to global industrial customers, including Akzo Nobel, Dow Chemical Company, Henkel, Ecolab, PPG, Valero Energy, FMC Corporation, Georgia-Pacific and Kellogg Company, across a diverse range of high-value and high-growth end markets. We believe that our scale, geographic reach, diversified distribution channels, broad product and value-added services offerings, as well as our deep technical expertise and knowledgeable sales force, are key differentiators relative to smaller, regional and local competitors, and have enabled us to develop strong, long-term relationships, often spanning several decades, with both producers and customers. The strength of our relationships has provided opportunities for us to integrate our service and logistics capabilities into theirour customers’ and producers’ business processes and to promote collaboration on supply chain optimization, and, in the case of producers, marketing and other revenue enhancement strategies. In addition,
Safety and regulatory compliance
At Univar we are Serious about Safety. Our safety culture is embedded into our strongglobal operations. Safety is foundational in planning for operations, products, processes and facilities. Specific initiatives include:
data driven and causality-based accident prevention work;
improved process and facility controls;
mandatory general education and role specific safety recordtraining;
joint management-worker Health and environmental regulatory complianceSafety Committees; and
safety audits, incident investigation and improvement measures.
Our efforts have resulted in significant improvements in global safety metrics during the last 7 years. We track worker injuries using the US Occupational Safety & Health Administration (OSHA) standardized methodology of Total Case Incident Rate (TCIR), which is
the rate of recordable injuries per 200,000 hours worked. We have reduced our TCIR from 1.69 in 2011 to 0.58 in 2018, an
increasingly important consideration for producers and our customers when choosing a chemical distributor.Broad value-added service offerings driving customer loyalty
To complement our extensive product portfolio, we offer a broad rangeimprovement of value-added services, such as our unique distribution platform for specialty and fine chemicals (ChemPoint.com), automated tank monitoring and refill of less than truckload quantities (MiniBulk), chemical waste management (ChemCare), and specialty product blending (Magnablend)66.0%. Our deep technical expertise, combined with our knowledgeable sales force, allows us to provide tailored solutions to our customers.
We believe that
our innovative and differentiated value-added service offerings provide efficiency and productivity benefits to our customers. In addition, these value-added services generally have higher margins than our chemical product sales.Strategically positioned assets and sales force focused on high-growth end markets
We have successfully focused our sales organization and operating assets to target high-growth end markets, including water treatment, agricultural sciences, food products and ingredients, pharmaceutical products and
ingredients and personal care. We have dedicated sales teams composed of professionals with technical and industry-specific expertise, allowing us to connect a broad set of chemical producers to a broad set of end-user markets. Along with our broad end market exposure, we touch a majority of the manufacturing and industrial production sectorsbeing Serious about Safety results in the United States. Our close proximity to customers serves as a competitive advantage by:
maintaining and improving relationships with our customers, who view safety performance as a key criterion for vendor selection;
improving employee recruitment and retention; and
reducing the likelihood of incidents and enabling our employees to focus on their contributions.
While we believe
that nearly 100% of U.S. manufacturing GDP is located within 150 miles of a Univar location. The location ofbeing Serious about Safety improves our
facilitiesservice, productivity and
our logistics capabilities lead to high customer retention and a larger addressable market. In addition, the increased demand for drinking and waste water treatment has driven an increase in demand for the water treatment chemicals we distribute. We believe our technical expertise and the value-added services we provide to municipalities and industrial users will continue to deliver market share gains in our water vertical.Resilient business platform with significant growth potential
We believe that the combination of our large geographic footprint, end market diversity, fragmented producer and customer base and broad product offerings provides us with a resilient business platform that enhances our flexibility and ability to take advantage of growth opportunities. We buy thousands of different chemical products in bulk quantities, process them, repack them in quantities that are matched to the needs of our customers, sell them and deliver them to approximately 160,000 customer locations in over 150 countries. In addition to our vast geographic reach, we serve a wide range of end markets with over 30,000 products and have no major exposure to any single end market or customer. Our 10 largest customers accounted for approximately 11% of our consolidated net sales for the year ended December 31, 2015. We also benefit from sourcing our products from a diverse and large set of producers, with our ten largest producers accounting for approximately 36% of our chemical expenditures in 2015. For the past three years, capital expenditures have typically averaged less than 2% of sales annually. Capital expenditures for our business have historically been low and predictable year over year. We believe that the combination of our disciplined approach to cost control, our active asset management strategy and our low capital expenditure requirements has resulted in a strong business platformfinancial performance, that is well positioned for growthnot why safety is important to us. At Univar, we believe it is our responsibility to provide safe working conditions and adaptablechallenge ourselves to changing industry dynamics.
Experienced and proven management team
We have assembled a highly experienced management team that have, on average, over 30 years of experience in the chemical industry. Our management team is led by our Chief Executive Officer, Erik Fyrwald, formerly the President and Chief Executive Officer of Nalco Holding Company and President of Ecolab, Inc., who has over 30 years of experience in the chemical and distribution industries. Since mid-2012, our senior management team has implemented an enhanced business strategy and successfully transformed our pricing structure, sales force, capital efficiency and acquisition and integration strategy.
continually improve.
We believe that we are well-positionedwell positioned to capitalize on industrydrive profitable growth, trends and opportunities to increase our market share, and capitalize on industry outsourcing trends by focusing on expanding our scalekey initiatives of Commercial Greatness, Operational Excellence and global infrastructure, while further cultivating our relationships with key producers and customers. We also intend to continue to implement strategies to improve our operating margins. The key elements of ourOne Univar.
Drive profitable growth
strategy are to:Leverage our market leading position to grow organically in existing and new geographies and end markets
Commercial Greatness.We seek to build uponincrease the value we provide our positioncustomers and our producers by improving our customers’ experience and driving additional growth for our producers. We seek to:
further develop a highly skilled and well-equipped sales force utilizing a value-based consultative sales approach that is aligned to customer and end market needs by geography, product and service, and industry specialization;
continue to increase our technical and industry-specific product and market expertise;
develop a world-class marketing capability to dynamically identify and align resources with high-growth, high value opportunities;
cultivate and maintain long-term producer relationships through deep market and product knowledge, value-based selling, reduced complexity in distribution channels, and offering complementary products and services as a total solution for our customers; and
offer industry-leading digital solutions that drive customer and supplier preference, enhance supply chain efficiency, empower employees with valuable insights and provide new sources of profitable growth through innovation.
Operational Excellence.We are committed to continuously improving our operating performance and lowering our costs per transaction. We seek to:
align our business teams with identified growth opportunities in customer end markets, product markets, services, and industries in a way that narrows focus and increases accountability;
increase our use of digital tools to simplify tasks, lower costs and improve customer experience;
continue to use Lean methodologies to deliver project-by-project productivity gains;
increase the cost efficiency of our warehouses, terminals, tank farms and logistics, and improve our net working capital efficiency;
deliver a compelling customer value proposition by providing simplified sourcing, cost effective just-in-time delivery and managed inventory along with value-added services; and
continue to build on our industry leading safety performance as a differentiator with both customers and producers.
One Univar.We are committed to developing a healthy, high-performance culture through the selection, recognition and development of engaged employees. We aspire to build an environment where the best people want to work and add value for our customers, producers and shareholders. We will strengthen the overall governance and efficiency of our global market leaderbusiness operations with integrated, disciplined operating processes and by leveraging best practices.
Expand our scalemarket share
We believe our Commercial Greatness, Operational Excellence and
global networkOne Univar initiatives will allow us to
capitalize onoutperform competitors, leading to market
opportunities, as major chemical producers outsource an increasing portion of their distribution operations and rationalize their distributor relationships. Because many producers and customers look for distributors with specialized industry or product knowledge, weshare gains. We will continue to
streamline and enhance our customer experience in order to be the easiest distributor to do business with and to increase customer preference for Univar. In addition, we believe our industry-focused go-to-market strategy combined with innovative sales and marketing support and strong customer preference will lead to winning additional product authorizations from producers. Finally, we are also pursuing selective acquisitions to increase our presence and develop
competitive advantage in attractive end markets and whose products and service capabilities can benefit from our
technicaland industry-specific expertisescale advantages. As a result, Univar is positioned well to becomegain market share.
Capitalize on industry outsourcing trends
We are well positioned to benefit from the preferred distributor for an even broader rangegrowing trend of chemical producers and customers to outsource key tasks to chemical distributors. As a full-line distributor with a strong supply-chain-network across a broad geographic region, we are well suited to help customers and producers consolidate their distributor relationships and lower their total costs of ownership or service. Finally, as a leader in existingchemical distribution, we believe we can accelerate this trend by increasing the attractiveness of our total value proposition to both customers and new markets.our producers.
Through our Commercial Greatness, Operational Excellence and One Univar initiatives and by reinforcing our “one-stop-shop” provider capability, we will build on and increase the economic value we create in the global supply chain.
Accelerate digital transformation
We are positioned well to drive profitable growth and increased operational efficiency by orchestrating a multi-year digital transformation. We will
also continue to
improve theintroduce new, innovative digital solutions that enhance our customer experience
through dedicated sales teams composed of professionals with industry-specific expertise in areas such as water treatment, agricultural services, food products and
ingredients, pharmaceutical products and ingredients, personal care, coatings and adhesives. In addition, we are expanding the scope of our account management by appointing global account leaders to broaden our relationships with global customers. Our broad geographic footprint and extensive producerdrive stronger customer preference and customer
relationships provide us with a unique opportunity to expand our operations in developing geographies. We believe that we are well-positioned to capture additional sales volume and grow organically as we reinforce our position as a “one-stop” providerloyalty, thereby increasing the lifetime value of
chemicals to customers and related supply chain management services for chemical producers.Focus on continued development of innovative value-added services
We are focused on developing and offering a range of value-added services that provide efficiency gains for producers and lower the total cost of ownership for our customers. We will also continue to partner with customers to develop tailored solutionsUnivar. Through MyUnivar.com, we already offer an industry leading digital portal that allows customers to meet their specific requirements. Our high-growthconduct business 24 hours a day, seven days a week, from virtually any device; and value-added service offerings, including ChemPoint.com, MiniBulk, ChemCare, and Magnablendcustomers are key differentiators for us relativeincreasingly adopting this platform to our competitors and also enhance our profitability and growth prospects.
Pursue commercial excellence initiatives
We are currently focused on implementing a number of key commercial excellence programs including:
strengthening our sales planning and execution process by focusing on a centralized account planning process, improving value documentation and conducting quarterly business reviewstransact with customers;
attracting, retaining, mentoring and developing our sales force talent to take advantage of markets that are underpenetrated by us, enhancing product knowledge and end market expertise across our sales force and focusing our sales force on high-growth, high-value end markets; and
expanding our utilization of proprietary intelligent mobile sales force tools which provide market and customer insights, pricing analytics, to drive improved productivity and profitability for producers and us.
Continue to implement additional productivity improvements and operational excellence initiatives
We are committed to continued operational excellenceexpanding our offering of digital solutions and have implemented several initiativesbolstering our leadership position in the industry.
In addition, we will leverage new digital solutions to
further improve operating performancedeliver a truly superior experience to our supplier partners, improving their market reach and
margins. Some of the key operational excellence initiatives include: | • | | Optimizing our global sourcing and supply chain network.We are focusing on our procurement organization to reduce sourcing costs and implementing robust inventory planning and stocking systems,penetration and providing valuable market insights through data analytics. Also, we will continue our progress to digitize our distribution network, creating a more agile, transparent supply chain, resulting in improved capabilities and efficiency. Finally, we will leverage digital to empower our employees with valuable, timely insights resulting in better decisions, and we centralized and consolidated our indirect-spend, including third party transportation, all in an effort to reduce costs and improve the reliability and level of service we offer customers: |
| • | | Refocusing our EMEA business. We completed the commercial realignment of our EMEA business, from a country-based structure to a pan-European platform, with increased focus on key growth markets, local knowledge and local profitability. We rationalized underperforming sites and reduce overhead to drive improved profitability in EMEA; and |
| • | | Resizing our infrastructure. We resized our infrastructure and support costs in light of the historic decline in oil prices in 2015 and associated reduction in demand for chemicals in the fracking sector of oil production. |
Undertake selective acquisitions and ventures
We will continue to evaluate selective acquisitions and venturesautomate administrative functions in both developed and emerging marketsorder to complement our organic growth initiatives. Specifically, we seek acquisition and venture opportunities that will:
enhance employee productivity. expand our existing product portfolio and our value-added services capabilities;
increase our market share of key products where increased volume provides enhanced margin opportunities;
increase our market share in established markets, such as North America and Europe, to create operating leverage;
enable us to enter or expand our presence in developing markets; and
increase our presence in high-growth industries.
Company History
Our history dates back to 1924 when we were founded as a brokerage business. In 1986, we acquired McKesson Chemical Corporation, then the third largest U.S.US chemical distributor, solidifying our presence throughout the United States and making us the largest chemical distributor in North America. In 2001, we continued our expansion into Europe through the acquisition of Ellis & Everard, which specialized in the distribution of chemicals in the United Kingdom and Ireland and had additional facilities
in Europe and the Eastern United States. In 2007, we acquired ChemCentral, which enabled us to improve our market share and operational efficiencies in North America.
In 2007, we were acquired by investment funds advised by CVC Capital Partners Advisory
(U.S.)(US), Inc. (“CVC”) as well as investment funds associated with Goldman, Sachs & Co. and Parcom.
OnIn November
30, 2010, investment funds associated with Clayton, Dubilier & Rice, LLC (“CD&R”) acquired a
42.5%42.5 percent ownership interest in us.
Currently funds advised or managed by CD&R and CVC beneficially own approximately 46% of our company. CVC and CD&R are collectively referred to as the “Equity Sponsors”.In December 2010, we acquired Basic Chemicals Solutions, L.L.C., a global distributor and trader of commodity chemicals, which further strengthened our ability to provide value in the supply chain between chemical producers and end-users and reinforced our global sourcing capabilities. In January 2011, we completed ourthe acquisition of Quaron, a chemical distributor operating in Belgium and the Netherlands, which complemented our strong European foothold in specialty chemicals with expanded product portfolio and increased logistical capability. We continued our expansion into the emerging markets in 2011 through our acquisition of Eral-Protek, a leading chemical distributor in Turkey, and the acquisition of Arinos, a leading chemical distributor of specialty and commodity chemicals and high-value services in Brazil. In December 2012, we acquired Magnablend, whose specialty chemical and manufactured products broadened our oil and gasenergy offerings. In May 2013, we expanded our Mexican presence with the acquisition of Quimicompuestos, making us a leading chemical distributor in the Mexican market, which is increasingly connected to the North American market. In November 2014, we acquired D’Altomare Quimica Ltda, or D’Altomare,Ltda., a Brazilian distributor of specialty chemicals and ingredients, which will expandexpanded our geographic footprint and market presence in Brazil and across Latin America. OnBrazil. In April 10, 2015, we acquired Key Chemical, Inc., or Key, one of the largest distributors of fluoride to municipalities in the United States, which we expect to help us expandexpanded our offerings into the municipal and other industrial markets.
On June 23, 2015, we closed our initial public offering (“IPO”) in which we issued and sold 20.0 million shares of common stock at a public offering price of $22.00 per share. In addition, we completed a concurrent private placement of $350.0 million for shares of common stock (17.6 million shares) to Dahlia Investments Pte. Ltd., an indirect wholly owned subsidiary of Temasek Holdings (Private) Limited (“Temasek”). We received total net proceeds of approximately $760.0 million
in total from the IPO and the private placement after
deducting underwriting discounts and commissions and other offering expenses of approximately $30.0 million. These expenses were recorded against the proceeds received from the IPO. Certain selling stockholders sold an additional 25.3 million shares of common stock in the IPO and concurrent private placement. We did not receive any proceeds from the sale of these shares.
In July 2015, we acquired the assets of Chemical Associates, Inc.,
or Chemical Associates, a marketer, manufacturer, and distributor of oleochemicals, many of which are based on renewable and sustainable resources,
which we believe will help increasethereby enhancing the value Univar
can bring inbrings to a number of our key markets such as personal care, food, cleaning and sanitization, lubricants, and coatings and adhesives.
OnIn October
2, 2015, we entered into the agrochemical formulation market and expanded our capabilities in the third-party agriculture logistics market in Canada with the acquisition of
the Future
Transfer Co., Inc. BlueStar Distribution Inc., and BDI Distribution West Inc, or Future/BlueStar. OnGroup. In November
3, 2015, we acquired Arrow Chemical, Inc.,
expanding our existing offering withadding a complementary portfolio of active pharmaceutical ingredients (“APIs”) and other specialty ingredients essential to the formulation of generic and over-the-counter pharmaceuticals.
OnIn December
1, 2015, we acquired Weaver Town Oil Services, Inc., and Weavertown Transport Leasing, Inc., operating as the Weavertown Environmental Group,
or WEG, which
strengthensstrengthened our ChemCare
SMwaste management service offering with a broad range of complementary services, including industrial cleaning, waste management and transportation, site remediation, and 24/7 emergency response services.
OnIn December
17, 2015, we
also acquired Polymer Technologies Ltd.,
or Polymer Technologies, a U.K.-based developer and distributor of unique ultraviolet/electron beam curable chemistries used to formulate environmentally responsible paints, inks, and adhesives.
In March 2016, we acquired Bodine Services of the Midwest, further strengthening our ChemCare waste management, environmental maintenance and response service offering in key geographic markets. That same month, we acquired the assets of Nexus Ag Business, Inc., enhancing our existing macronutrient and crop protection inputs through a proprietary line of micronutrients, macronutrients and specialty fertilizers. Together with our leading distribution and services network in the region, this acquisition further strengthens our agriculture group’s ability to provide customers in Canada with a complete product service offering that covers the entire growing cycle from start to finish.
In September 2017, we acquired Tagma Brasil Ltda. (“Tagma”), expanding our agriculture business in one of the world’s fastest-growing agricultural markets. That same month, we acquired the assets of PVS Minibulk, Inc. (“PVS”), strengthening our MiniBulk business in the West Coast market.
In January 2018, we acquired Kemetyl Norge Industri AS (“Kemetyl”) as well as the assets of Kemetyl Aktiebolag, expanding our leading position in the pharmaceutical industry in Norway and Sweden. In May 2018, we acquired Earthoil Plantations Limited (“Earthoil”), expanding and strengthening our existing global natural beauty and personal care product line in EMEA.
In September 2018, we announced the signing of a definitive agreement to acquire Nexeo Solutions, Inc. (“Nexeo”). The transaction (“Nexeo Acquisition”) was unanimously approved by the Boards of Directors of both companies, and is anticipated to close in the first quarter of 2019, subject to the approval of Univar’s shareholders, as well as satisfaction of other customary conditions. On January 29, 2019, Nexeo’s key stockholders, TPG Global and First Pacific, provided consent for the proposed transaction.
During 2016 and 2017, we engaged in a series of secondary registrations of our stock. As a result, CVC divested its ownership interest in our company and both CD&R and Temasek continued to reduce their ownership stakes in our company. As of January 31, 2018, CD&R and Temasek owned 8.2% and 9.9%, respectively, of our issued and outstanding shares. As a result of Temasek's reduction in ownership below 10% , it is no longer considered a significant stockholder in 2018.
The below chart illustrates the change in our Significant Stockholders since the IPO date.
The
main focus of our marketing approach is to identify attractive end-user markets and provide customers in those markets all of their commodity and specialty chemical
or ingredient needs. We also offer value-added services as well as procurement solutions that leverage our chemical, supply chain and logistics expertise, networked inventory sourcing and producer relationships. We provide our customers with a “one-stop shop” for their commodity and specialty chemical needs and offer a reliable and stable source of quality
products.products and services.
We buy and inventory chemicals
and ingredients in large quantities such as barge loads, railcars or full truck loads from chemical producers and
we sell and distribute smaller quantities to our customers. Approximately
35%40 percent of the chemicals
and ingredients we purchase are in bulk form, and we repackage them into various size containers for sale and distribution.
Commodity chemicals
currentlyand ingredients represent
and have historically represented the largest portion of our business by sales and volume. Our commodity
chemicals portfolio includes acids and bases, surfactants, glycols, inorganic compounds, alcohols and general chemicals used extensively throughout
hundreds ofmost end markets. Our specialty chemicals
and ingredient sales represent an important, high-value, higher-growth portion of the chemical distribution market. We typically sell specialty
chemicalsproducts in lower volumes but at a higher profit than commodity
chemicals.products and our intent is to increase our presence in the specialty market. While many
chemical producers supply
thesespecialty products directly to customers, there is an increasing trend toward outsourcing the distribution of these specialized, lower volume
products.products and ingredients. We believe that customers and producers value Univar’s ability to supply both commodity and specialty products, particularly as the markets continue to consolidate.
We focus on sourcing
certain high volumehigh-volume products that we distribute to our customers.
We buy products globally at attractive pricing. We largelyGenerally, we sell chemicals
sourced throughand ingredients via our
industry focusedindustry-focused salesforce. However, a small proportion of the chemicals that we source are sold directly to certain
high volumehigh-volume customers through
our Basic Chemicals group.a dedicated sales team who handles these unique products and transactions. Our global sourcing capabilities
help us enhance our global market presence,
ensure safety of supply and
ourcompetitive pricing, and provide product expertise across all market segments.
We serve a diverse set of end markets and regions, with no end market accounting for more than
20%14 percent of our net sales over the past year.
Our most significant end markets in recent years have included cleaning and sanitization, coatings and adhesives, chemical manufacturing, food ingredients and oil and gas.Our key global end markets include:
| • | | Agricultural Sciences. We are a leading wholesale distributor of crop protection products to independent retailers and specialty applicators in Canada. To support this end market, we distribute herbicides, fungicides, insecticides, seed, micronutrients, horticultural products and feed,Agricultural and Environmental Sciences. Within the Agriculture industry we are a leading wholesale distributor of crop protection products to independent retailers and specialty applicators in Canada. To support this end market, we distribute herbicides, fungicides, insecticides, seed, micronutrients, macronutrients, horticultural products and
fertilizers among other products. In addition, we provide storage, packaging and logistics services for major crop protection companies, storing chemicals, feed-grade materials, seed and equipment. We supply pest control products to the public health, vegetation management, turf and ornamental, food processing and post-harvest storage, animal health and hay production markets. We operate a network of over 70 Univar ProCenter distribution centers in North America to serve this end market. |
| • | | Chemical Manufacturing.We distribute a full suite of chemical products in support of the chemical manufacturing industry (organic, inorganic, polymer chemistries and to a lesser extent oil refining). Our broad warehousing and delivery resources permit us to assure our chemical manufacturing customers efficient inventory management, just-in-time delivery, and custom blends and packages. Our industry expertise also assists our customers in making product selections which best suit the customer’s objectives and with chemical waste and wastewater issues. |
| • | | Cleaning and Sanitization. The cleaning and sanitization industry is made up of thousands of large and small formulators that require a multitude of chemical ingredients to make cleaning products and detergents for home and industrial use. We believe that we distribute chemicals manufactured by many of the industry’s leading producers of enzymes, surfactants, solvents, dispersants, thickeners, bleaching aides, builders, chelants, acids, alkalis and other chemicals that are used as processing aids in the manufacturing of cleaning products. |
| • | | Coatings and Adhesives. The coatings and adhesives industry is one of our largest customer end markets. We sell resins, pigments, solvents, thickeners, dispersants and other additives used to make paints, inks, and coatings. We have a large team of industry and product specialists with the market expertise that enables us to work closely with formulators and producers to offer new technologies, formulations and scale-up support. Our product line includes epoxy resins, polyurethanes, titanium dioxide, fumed silica, esters, plasticizers, silicones and specialty amines. |
| • | | Food Ingredients and Products. For the food and beverage industry, we inventory a diverse portfolio of commodity and specialty products that are sold as processing aids or food additives. We sell food ingredients such as thickeners, emulsifiers, sweeteners, preservatives, leavening agents and humectants, as well as texturizer and fat replacement products that include xanthan gum, locust bean gum, cellulosics and guar gum. We distribute acidulants such as citric acid, lactic acid and malic acid, as well as alkalis. Additional offerings include supplements and products such as proteins, vitamins and minerals. The major food and beverage markets we serve are meat processing, baked goods, dairy, grain mill products, processed foods, carbonated soft drinks, fruit drinks and alcoholic beverages. We manage our product portfolio to ensure quality standards, security of supply and cost competitiveness. We refresh our product offering with products that meet the key trends impacting the food industry. Our industry experts have developed marketing tools that simplify the ingredient selection process for our customers and provide product performance information and solutions. |
| • | | Mid/Downstream oil and gas. We provide chemicals and service to midstream pipeline and downstream refinery operators primarily in the US and Canada and to a lesser extent to oil sand markets in Western Canada. We offer an expansive product line with a team of highly skilled and uniquely dedicated specialists to stay on top of the latest trends, regulations and technologies. |
| • | | Mining. We support the mining industry primarily in the US and Canada. We offer a wide range of products to service the different stages of mining operations, e.g., crushing to smelting, such as caustic soda, hydrochloric acid, solvents, absorbents, catalysts, fuel additives, water soluble polymers, gas treating amines and other products. |
| • | | Personal Care. We are a full-line distributor in the personal care industry providing a wide variety of specialty and basic chemicals used in skin care products, shampoos, conditioners, styling, hair color, body washes, sun care, color cosmetics, and pet care products. The chemicals that we distribute include surfactants, emollients, emulsifiers, rheology modifiers, active ingredients, color, preservatives and processing aids. Our dedicated team of industry experts and technical marketers work with our customers to formulate traditional and cutting-edge personal care products. |
| • | | Pharmaceutical Ingredients and Products. We are uniquely positioned in the pharmaceutical ingredients industry, both small and large molecule, due to the combination of our product portfolio, logistics footprint and customized solutions to meet the needs of a highly regulated industry. We represent some of the world’s leading excipient, process, solvent and active pharmaceutical ingredient producers, as well as producers of chemicals used to support water treatment, filtering and purification systems, thus offering our customers a broad product offering in the pharmaceutical industry. We sell active ingredients such as aspirin, ascorbic acid, caffeine and ibuprofen, and excipients that include phosphates, polyethylene glycols, polysorbates, methylcellulose, stearyl alcohol and stearates. We also make and sell certain finished pharmaceutical products. |
| • | | Upstream oil and gas. We service the upstream oil and gas production market, especially the US shale hydraulic fracturing sector, by providing a variety of bulk chemicals to the drill site and also specialty blended products used to fracture rock and stimulate oil and gas production from the well. Outside the US, our service to this market is relatively small but includes Mexico, the North Sea in Europe and parts of Africa. During 2015, the number of operating hydraulic fracturing rigs in the US dropped significantly with the fall in oil prices, as has the size of this end market for us. |
In some geographic regionsaddition, we target other markets in additionprovide storage, packaging and logistics services for major crop protection companies. The Environmental Sciences group supplies pest control products and equipment to the end-userstructural pest control, public health, vegetation management, turf and ornamental, food processing and post-harvest storage, animal health and hay production markets. We operate a network of approximately 70 Univar ProCenter distribution centers in North America to serve this end market.
Chemical Manufacturing. We distribute a full suite of chemical products in support of the chemical manufacturing industry (organic, inorganic and polymer chemistries). Our broad warehousing and delivery resources permit us to assure our chemical manufacturing customers efficient inventory management, just-in-time delivery, and custom blends and packages. Our industry expertise also assists our customers in both selecting products that best suit their objectives and addressing chemical waste and wastewater issues.
Cleaning and Sanitization. The cleaning and sanitization industry is made up of thousands of large and small formulators that require a multitude of chemical ingredients to make cleaning products and detergents for home and industrial use. We distribute chemicals manufactured by many of the industry’s leading producers of enzymes, surfactants, solvents, dispersants, thickeners, bleaching aides, builders, sealants, acids, alkalis and other chemicals that are used as ingredients and processing aids in the manufacturing of cleaning products.
Coatings and Adhesives. The coatings and adhesives industry is one of our largest customer end markets. We sell resins, pigments, solvents, thickeners, dispersants and other additives used to make paints, inks, and coatings. We have a large, dedicated team of industry and product specialists with market expertise that enables us to work closely with formulators and producers to offer new technologies, new and improved formulations and to scale-up support. Our product line includes epoxy resins, polyurethanes, titanium dioxide, fumed silica, esters, plasticizers, silicones and specialty amines.
Food Ingredients and Products. For the food and beverage industry, we distribute a diverse portfolio of commodity and specialty products that are sold as food additives or processing aids. We sell food ingredients such as thickeners, emulsifiers, sweeteners, preservatives, leavening agents and humectants, as well as texturizer and fat replacement products that include xanthan gum, locust bean gum, cellulosics and guar gum. We also distribute acidulants such as citric acid, lactic acid and malic acid, as well as alkalis. Additional offerings include supplements and products such as proteins, vitamins and minerals. The major food and beverage markets described above.we serve are meat processing, baked goods, dairy, grain mill products, processed foods, carbonated soft drinks, fruit drinks and alcoholic beverages. We carefully manage our product portfolio to ensure quality standards, security of supply and cost competitiveness. We continuously refresh our product offering with products that meet key trends impacting the food industry. Our industry experts have developed marketing tools that simplify the ingredient selection process for our customers and provide valuable product performance information and technical solutions.
Energy. We provide chemicals and service to midstream pipeline and downstream refinery operators primarily in the US and Canada. We offer an expansive product line with a team of highly skilled and uniquely dedicated specialists to stay on top of the latest trends, technologies and regulations. We also service the upstream oil and gas production market, including the US shale hydraulic-fracturing sector, by providing a variety of bulk chemicals to drill sites, as well as specialty blended products used to fracture rock and stimulate oil and gas production from the well. Other markets served to a lesser extent include Mexico, Europe’s North Sea and parts of Africa.
Personal Care. We are a full-line distributor in the personal care industry providing a wide variety of specialty and basic chemicals and ingredients used in skin care products, shampoos, conditioners, styling products, hair color, body washes, sun care, color cosmetics, and pet care products. The products that we distribute include surfactants, emollients, emulsifiers, rheology modifiers, active ingredients, color, preservatives and processing aids. Our dedicated team of industry experts and technical marketers work with our customers to formulate traditional and cutting-edge products that address key trends in the personal care end markets.
Pharmaceutical Ingredients and Finished Products. We are uniquely positioned in the highly-regulated pharmaceutical ingredients industry due to the combination of our product portfolio, logistics footprint and customized solutions. We represent some of the world’s leading excipient, process, solvent and active pharmaceutical ingredient producers, as well as producers of chemicals used to support water treatment, productsfiltering and services are utilized bypurification systems, thus offering our customers a very broad product selection in many of our end markets,the pharmaceutical industry. We sell active ingredients such as aspirin, ascorbic acid, caffeine and we believeibuprofen, and excipients that this will continue to be a growth area for our business.include phosphates, polyethylene glycols, polysorbates, methylcellulose, stearyl alcohol and stearates. We also make and sell certain finished pharmaceutical products.
In addition to selling and distributing chemicals, we use our transportation and warehousing infrastructure,
andalong with our broad knowledge of chemicals and hazardous materials handling to provide important distribution and
value-addedspecialized services for
our producers and our customers. This intermediary role
Univar plays is increasingly important, in particular due to the recent trend of increased outsourcing of distribution by chemical producers to satisfy their need for supply chain efficiency. These services include:
Distribution
Services | • | | Inventory management. We manage our inventory in order to meet customer demands on short notice whenever possible. Our key role in the supply chain to chemical producers also enables us to obtain access to chemicals in times of short supply, when smaller chemical distributors may not able to obtain or maintain stock. Further, our global distribution network permits us to stock products locally to enhance “just-in-time” delivery, providing outsourced inventory management to our customers in a variety of end markets. |
| • | | Product knowledge and technical expertise.and specialized servicesInventory Management. We manage our inventory in order to meet customer demands on short notice whenever possible. Our value as channel partners of chemical producers also enables us to obtain access to chemicals in times of short supply, when smaller chemical distributors may not be able to obtain or maintain stock. Further, our global distribution network permits us to stock products locally to enhance “just-in-time” delivery, providing outsourced inventory management to our customers in a variety of end markets. Product Knowledge and Technical Expertise. We partner with our customers in their production processes. For example, we employ teams of food technologists, chemical engineers and petroleum engineers who have the technical expertise to assist in the formulation of products to meet specific customer performance requirements as well as provide customers with after-market support and consultation. Mixing, Blending and Repackaging. We provide a full suite of blending and repackaging services for our customers across diverse industries. Additionally, we can fulfill small orders through our repackaging services, enabling customers to maintain smaller inventories. E-commerce and Digital Marketing. MyUnivar.com is an e-commerce solution offering Univar’s full catalog of products, complete with invoicing, order status and tracking, as well as documentation of prior purchases. Customers of MyUnivar.com are provided with easy, two-click re-ordering and document access 24 hours a day, seven days a week, from any device. ChemPoint is our unique distribution business that provides digital promotion or e-marketing channels for specialty and fine chemicals. ChemPoint operates principally in North America and EMEA and is primarily focused on expanding market share of high-value and highly specialized chemicals for partnered producers. Chemical Waste Removal and Environmental Response Services. Our ChemCare waste management service collects both hazardous and non-hazardous waste products at customer locations in the United States and Canada, and then works with select vendors in the waste disposal business to safely transport these materials to licensed third party treatment, storage and disposal facilities. ChemCare reviews each waste profile, recommends disposal alternatives to the customer and offers transportation of the waste to the appropriate waste disposal company. Hazardous and non-hazardous waste management technologies provided from our approved treatment storage and disposal facility vendors include recycling, incineration, fuels blending, lab packing, landfill, deep well injection and waste-to-energy. Through our acquisitions of Bodine and Weavertown Environmental Group, we are also able to provide our customers with industrial cleaning, site remediation and emergency environmental response services. Specialized Formulation and Blending. Leveraging our technical expertise, we are able to utilize our blending and mixing capabilities to create specialty chemical formulations to meet specific customer performance demands for agriculture and energy products through our Future Group, Tagma, and Magnablend blending services. Producers Maintaining strong relationships with producers is important to our overall success, and we employ a team of food technologists and chemicals and petroleum engineers who have the technical expertise to assist in the formulation of chemicals to meet specific customer performance requirements as well as provide customers with after-market support and consultation. |
| • | | Mixing, blending and repackaging. We provide our customers with a full suite of blending and repackaging services. Additionally, we can fulfill small orders through our repackaging services, enabling customers to maintain smaller inventories. |
Value-Added Services
| • | | MiniBulk and Remote Monitoring. MiniBulk is a complete storage and delivery system that improves plant safety and productivity. MiniBulk is a safe and efficient handling and use system for customers receiving less than full truckload quantities of chemicals. Our trained specialists deliver products that minimize employee exposure to hazardous chemicals. In addition drum storage and disposal are eliminated and access to products is improved. Similarly, our remote telemetry systems permit around-the-clock access to inventory information. The result is better inventory management, elimination of manual measurement and better assurance of timely/automatic replenishment. |
| • | | Specialized Blending. Leveraging our technical expertise, we are able to utilize our blending and mixing capabilities to create specialty chemical formulations to meet specific customer performance demands for agriculture and oil and gas products through our Future Transfer and MagnablendSM blending services. |
| • | | ChemCare. Our ChemCare waste management service collects both hazardous and non-hazardous waste products at customer locations in the United States and Canada, and then works with select partners in the waste disposal business to safely transport these materials to licensed third party treatment, storage and disposal facilities. ChemCare reviews each waste profile, recommends disposal alternatives to the customer and offers transportation of the waste to the appropriate waste disposal company. Hazardous and non-hazardous waste management technologies provided from our approved treatment storage and disposal facility partners include recycling, incineration, fuels blending, lab packing, landfill, deep well injection and waste-to-energy. ChemCare also assists in the preparation of manifests, labels and reporting requirements and provides on-site project management for tank cleaning projects and site cleanups. |
| • | | ChemPoint.com. ChemPoint.com is our unique distribution platform that facilitates the marketing and sales of specialty and fine chemicals. ChemPoint.com operates principally in North America and EMEA. Our ChemPoint.com platform is primarily focused on connecting producers to customers who require a technical sales approach on relatively small volumes of high-value and highly-specialized chemicals. Through this platform, we also offer MarketConnect, our leading-edge, Web-based opportunity management system, which provides producers with market transparency to customers and allows them to review and participate in a high-value sales process. |
Producers
We source chemicals and ingredients from many of the premier global chemical and ingredient manufacturers. Among our largest producers worldwide areOur relationships with some of the world’s largest generalcommodity and specialty chemical and petrochemicalingredient producers with many of the relationships with these producers havinghave been in place for decades. We have both exclusive and nonexclusive arrangements with producers, depending on the type of chemicals involved. We typically maintain relationships with multiple producers of commodity chemicalsin order to protect against disruption in supply and distribution logistics, as well as to maintainensure competitive pricing discipline inof our supply. Specialty chemicals, which often require more in-depth technical application knowledge, tend to be sourced on an exclusive basis. Maintaining strong relationships with producers is important to our overall success. Our scale, geographic reach, diversified distribution channels and industry expertise enable us to develop strong, long-term relationships with producers, allowing us toand integrate our service and logistics capabilities into their business processes, promotingprocesses. This promotes collaboration on supply chain optimization, marketing and other revenue enhancement strategies. The producers we work with also benefit from the insight we provide into customer buying patterns and trends. Chemical producers have been using fewer independent distributors in an effort to develop more efficient marketing channels and to reduce their overall
costs. More and more, chemical and ingredient producers are depending on the sales forces and infrastructure of large chemical distributors to efficiently market, warehouse and deliver their chemicals and ingredients to end users.
Our
base of more than 8,000 chemical producerssupplier community is
highlywell diversified, with
The Dow Chemical Companyour largest producer representing approximately 13% of our
20152018 chemicals expenditures, and no other chemical producer accounting for more than
10%5% of the total. Our 10 largest producers accounted for approximately
36%27% of our total chemical purchases in
2015.2018.
We typically purchase our chemicals
and ingredients through purchase orders rather than long-term contracts, although we have exclusive supply arrangements for certain
specialty chemicals.chemicals and ingredients. We normally enter into framework supply contracts with key producers. These framework agreements generally operate on an annual basis either with pricing items fixed to an index or without fixed pricing terms, although they often include financial incentives if we meet or exceed specified purchase volumes. We also have a limited number of longer term agreements with certain producers of commodity chemicals. For all of these chemicals, once we purchase the products, we ship them either directly to a customer or, more commonly, to one of our distribution centers.
Our ability to earn volume-based incentives from producers is an important factor in achieving our financial results. We receive these volume-based incentives in the form of rebates that are payable only when our sales equal or exceed the relevant target. In order to record these incentives throughout the year, we estimate the amount of incentives we expect to receive in order to properly record our cost of sales during the period. Because our right to receive these incentives will depend on our purchases for the entire year, our accounting estimates depend on our ability to forecast our annual purchases accurately which ultimately will vary depending on our customers’ demand and consumption patterns which may be independent of our performance as a distributor.
We organize our business
regionally, mirroringto align with our
supply chaincustomers and
logistics networks. We also further focus our salesforce towards four primaryend markets needs by geography, product and service, and industry
groups: Specialty Chemicalsspecialization, including high-focus industries such as coatings and
Services; Basic Chemicals; Agricultural Sciences;adhesives, food ingredients, pharmaceutical ingredients and
Oil, Gasproducts, personal care, agricultural and
Mining.environmental sciences, and energy. We train our sales personnel so that they develop expertise in the industries that they
serve, such as coatings and adhesives, chemical manufacturing, food ingredients, cleaning and sanitization, pharmaceutical ingredients, personal care, oil and gas, and mining.serve. Our
salesforcesales force leverages our strong
supplierproducer relationships to provide superior product insight and expertise
to deliversupporting the delivery of critical-use specialty, organic and inorganic chemicals
and ingredients to customers.
In North America, we also have a salesforce that focuses on the Agricultural Sector. As part of our EMEA restructuring, we realigned our salesforce around a three-pronged approach to the market based on differing customer needs in bulk chemical distribution, local chemical distribution, and pan-European distribution to select focused industries, including food, coatings and adhesives, and personal care as part of our focus on higher-growth end markets. We believe that arrangingAligning our business
into geographical segments that mirrorto customers and end markets enables our
sales force and supply chain
and logistics networks and our sales infrastructure into industry groups that share our supply chain assets and capabilities enables us to
focus on key end markets and service offerings anddeliver valuable market insights to
align our industry expertise with our customers’ industry specific needs.We believe that our industry-focused model differentiates us in the market and provides superior technical support and innovation to meet customer needs, which increases our effectiveness as a sales channel for producers. We believe this industry-focused model enables us to provide application support forboth our customers and encourages customers to consolidate chemical purchasing with us, creating additional sales for us and producers. To fully penetrate various markets and industries, we also use outside sales representatives, telesales representatives and technically trained telemarketing personnel. In addition to pursuing producer diversification and volume-based pricing, we exercise discipline in pricing to customers in order to improve margins. We centrally establish and manage pricing guidelines for select products. Our product managers establish a price based on prices posted by chemical producers plus freight, storage and handling charges. Our field management and sales teams price our products based on order volume and local competitive conditions utilize proprietary tools to price the products. They are required to obtain authorization from the product manager to quote a price below the posted threshold.
Our industry-focused marketing groups are responsible for product management, account management, program marketing product portfolio management and corporate communication with an industry focus to provide superior value-added services. Our industry product management groups work to analyze and identify product and technology trends in the marketplace and develop programs to promote enhanced sales. We have established an international marketing group to focus on the European market and to enter into corporate contracts on behalf of local operating companies. We believe that our European presence and broad product portfolio position us better than our local competitors to meet the requirements of the European corporate market.
As of December 31, 2015, we had approximately 2,900 sales and marketing professionals, representing approximately 31% of our total workforce. Our sales and marketing professionals as of that date were located in the following regions: 1,400 in USA, 300 in Canada, 900 in EMEA and 300 in Rest of World.
We continue to refine our distribution business model to provide producers and our customers with the highest level of service, reliability and timeliness of deliveries while offering cost competitive products. We have multiple channels to market, including
both warehouse delivery, and direct-to-consumer delivery.
Additionally, through ChemPoint.com, we offer a unique distribution platform for specialty and fine chemicals primarily on an exclusive basis. The principal determinants of the way a customer is serviced include the size, scale and level of customization of a particular order, the nature of the product and the customer, and the location of the product inventories. For the year ended December 31,
2015,2018, warehouse distribution accounted for approximately
81%80% of our net sales while direct distribution accounted for approximately
17%18% of our net sales, with the remaining approximate 2% of net sales derived primarily from our waste management services.
Warehouse
Distributiondistribution
Our warehouse distribution
businesschannel is the core of our operations.
In our warehouse business, weWe purchase chemicals
and ingredients in truck load or larger quantities from
chemical producers based on contracted demands of our customers
orand our estimates of anticipated customer purchases. Once received,
chemicalsproducts are stored in one or more of our
over 850 distribution facilities,
depending on customer location, for sale and distribution in smaller, less-than-truckload quantities to our customers. Our warehouses have various facilities for services such as repackaging, blending and mixing to create specialized
chemical solutions needed by our customers in ready-to-use formulations.
Our warehouse
businessnetwork connects large
chemical producers with smaller volume customers whose consumption patterns tend to make them uneconomical to be served directly by producers. Thus, the core customer
forserviced via our
warehouse business modelwarehouses is a small or
medium volumemedium-volume consumer of
commoditychemicals and
specialty chemicals.ingredients. Since chemicals
and ingredients comprise only a fraction of the input costs for many of our customers’ products, our warehouse customers typically value quality, reliability of supply and ease of service. Our breadth of
chemical product offerings also allows us to provide customers with complete management solutions for their chemical needs as they are able to obtain small volumes of many different products from us more efficiently and economically than if they dealt directly with multiple chemical producers. Our network of warehouses allows us to service most customers from multiple locations and also enables us to move products efficiently and economically throughout our own warehouse system to service customers on a real-time basis. Further, by leveraging our geographic footprint and
state-of-the-art logistics platform, we are able to combine multiple customer orders along the same distribution routes to reduce delivery costs and facilitate customer inventory management. For example, we combine multiple less-than-truckload deliveries for different customers along the same route to better utilize our delivery assets while at the same time minimizing our customers’ inventories.
Our network of warehouses allows us to offer a delivery system that increases inventory visibility and improves plant safety and productivity. MiniBulk is a safe and efficient handling and use system for customers receiving less than full truckload quantities of chemicals. Our trained specialists deliver products to on-site storage containment systems that minimize employee exposure to hazardous chemicals. In addition, the need for drum storage and disposal are eliminated, thereby saving costs and improving access to product inventory. Our remote telemetry systems used in conjunction with MiniBulk storage solutions permit around-the-clock access to inventory information. The result is better inventory management, elimination of manual measurement and better assurance of timely replenishment.
With the leading market position in North America, our operations are capable of serving customers throughout the United States, including Hawaii and Alaska, and all major provinces and major manufacturing centers within Canada including remote areas such as the oil sands regions of Northern Canada. Our close
proximity to major transportation arteries allows us to service customers in the most remote locations throughout the United States, particularly those markets that chemical producers are not
able to serve profitably. In the USA, we rely
mainly on
a combination of our own fleet of distribution vehicles
and third-party carriers, while we primarily use third parties for the transportation of chemicals
and ingredients in
Canada, EMEA and Rest of World.
Direct
Distributiondistribution
Our direct distribution businesschannel provides point-to-point logistics for full truckloads or larger quantities of chemicals between producers and customers. In direct distribution, we sell and service large quantity purchases that are shipped directly from producers through our logistics infrastructure, which provides our customers with sourcing and logistics support services for inventory management and delivery, in many cases far more economically than the producer might provide. We believe that producers view us not as competitors, but as providers of a valuable service, brokeringsupporting these large orders through the utilization of our broad distribution network. We typically do not maintain inventory for direct distribution, but rather use our existing producer relationships and marketing expertise, ordering and logistics infrastructure to serve this demand, resulting in limited working capital investment for these sales. Our direct distribution service is valuable to major chemical producers as it allows them to deliver larger orders to customers utilizing our existing ordering, delivery and payment systems. This distribution channel primarily distributes bulk commodity chemicals utilizing
Insurance
The nature of our
own delivery vehiclesbusiness exposes us to operational risk, including damages to the environment and property, and injury to employees or the general public. Although we focus on operating safely and prudently, we occasionally receive claims, alleging damages, negligence or other wrongdoing in
North Americathe planning or performance of our services. Our liabilities resulting from these claims can be significant. Accruals for deductibles are based on claims and
third party carriers in Europe.Insurance
actuarial estimates of claims development and claims incurred but not recorded.
We havemaintain policies of insurance that provide coverage at levels which we consider adequatefor these types of claims (subject to limitations, exclusions, or deductibles) for our worldwide facilities and activities. OurTo mitigate aggregate loss potential above these retentions and deductibles, the company purchases insurance policies covercoverage from highly rated insurance companies. The company does not currently operate or participate in any captive insurance companies or other non-traditional risk transfer alternatives.
In the
following categoriesnormal course of
risk: property damage; business,
interruption; productas a financial guarantee of our performance, we also purchase surety bonds or issue letters of credit in connection with municipal contracts, import and
general liability;export activities, environmental
liability; directors’remediation, and
officers’ liability; crime; workers’ compensation; auto liability; railroad protective liability; excess liability; excess California earthquake; marine liability; marine cargo/stock throughput; aviation products liability; business travel accident; pension trustees liability; and employment practices liability.environmental permits.
The chemical
and ingredient production, distribution and sales markets are highly competitive. Most of the products that we distribute are made to
industry standard specifications and are either produced by or available from multiple
sources or the producers with which we work may also sell their products through a direct sales force or through multiple chemical distributors.sources.
Chemical
and ingredient distribution itself is a fragmented market in which only a small number of competitors have substantial international operations. Our principal large international competitor is Brenntag,
withwhich has a particularly strong position in Europe.
Many other chemical distributors operate on a regional, national or local basis and may have a strong relationship with local producers and customers that may give them a competitive advantage in their local market. Some of our competitors are either local or regional distributors with a broad product portfolio, while others are niche players which focus on a specific end market, either industry or product-based.
Chemical
and ingredient producers may also
choose tosell their products through a direct sales force or through multiple chemical distributors, limit their use of third party distributors, particularly with respect to higher margin products, or to partner with other chemical
and ingredient producers for
distribution, eachdistribution. Each of which could increase
our competition.
We compete
primarily on the basis of
service, on-time delivery, product breadth and availability, product and market knowledge and insights, safety and environmental compliance, global reach, product price,
diversification and flexibility in product offerings and supply availability, market insight and theas well as our ability to provide
certain additional value-added services.
The independent chemical distribution market in North America is fragmented. Our principal competitors in North America include Brenntag, Helm America, Hydrite Chemical, Prinova and Nexeo Solutions. In September 2018, we announced the signing of a definitive agreement to acquire Nexeo Solutions. The transaction was unanimously approved by the Boards of Directors of both companies, and is anticipated to close in the first quarter of 2019, subject to the approval of Univar's shareholders, as well as satisfaction of other customary conditions. On January 29, 2019, Nexeo’s key stockholders, TPG Global and First Pacific, provided consent for the proposed transaction.
We also compete with a number of smaller companies in certain niche markets.
The independent chemical distribution market in Europe historically has been highly fragmented. Consolidation among chemical distributors has increased, mirroring developments within the chemical sector as a whole.
Brenntag is our leading competitor in Europe due to its strong market position in Germany, which is the largest European chemical distribution market. Other regional competitors in Europe include Azelis, Helm and IMCD. We believe that we are the leading chemical distributor in the United Kingdom and Ireland.
In Rest of World, the markets for chemical distribution are much more fragmented and credible competitive information for smaller companies is not available. Our relative competitive position in the Rest of World markets is smaller than in North America or EMEA.
Our business is subject to a wide range of regulatory requirements in the jurisdictions in which we operate. Among other things, these laws and regulations relate to environmental protection, economic sanctions, product regulation, anti-terrorism concerns, management, storage, transport and disposal of hazardous chemicals and other dangerous goods, and occupational health and safety issues. Changes in and introductions of regulations have in the past caused us to devote significant management and capital resources to compliance programs and measures. New laws, regulations, or changing interpretations of existing laws or regulations, or a failure to comply with current laws, regulations or interpretations, may have a material adverse effect on our business, financial condition and results of operations. The following summary illustrates some of the significant regulatory and legal requirements applicable to our business.
Environmental,
Healthhealth and
Safety Matterssafety matters
We operate in a number of jurisdictions and are subject to
variousnumerous foreign, federal, state and local laws and regulations related to the protection of the environment, human health and safety, including laws regulating discharges of hazardous substances into the soil, air and water, blending, managing, handling, storing, selling, transporting and disposing of hazardous substances, investigation and remediation of contaminated properties and protecting the safety of our employees and others. Some of our operations are required to hold environmental permits and
licenses.licenses and certain of our services businesses are also impacted by these laws. The cost of complying with these environmental, health and safety laws, permits and licenses has, in some instances, been substantial.
Some of our historic operations, including those of companies we acquired, have resulted in contamination at a number of currently and formerly owned or operated sites. We are required to investigate and remediate at many of such sites. Contamination at these sites generally resulted from releases of chemicals and other hazardous substances. We have spent substantial sums on such investigation and remediation and expect to continue to incur such expenditures, or discover additional sites in need of investigation and remediation, until such investigation and remediation is deemed complete. Information on our environmental reserves is included in “Note
18:20: Commitments and contingencies” to our consolidated financial statements for the year ended December 31,
20152018 which are included in Item 8 of this Annual Report on Form
10K.10-K.
CERCLA. The U.S.US Comprehensive Environmental Response, Compensation, and Liability Act, or CERCLA, also known as Superfund, as well as similar laws in other jurisdictions, governs the remediation of contaminated sites and establishes liability for the release of hazardous substances at such sites. A party that transported waste, or arranged for the shipment of waste, to a waste disposal facility or other third party site that requires remediation can be liable for the cost of cleanup regardless of fault, the lawfulness of the disposal or the actions of other parties. Under CERCLA, the EPA or a delegated state agency can oversee or require remediation of such sites and seek cost recovery from any party whose wastes were disposed at, or who otherwise contributed to the contamination of, such sites. We are party to consent agreements with the EPA and state regulatory authorities with respect to environmental remediation at a number of such sites. We may be identified as a Potentially Responsible Party at additional third party sites or waste disposal facilities.
RCRA. The EPA regulates the generation, transport, treatment, storage and disposal of hazardous waste under the U.S.US Resource Conservation and Recovery Act, or RCRA. RCRA also sets forth a framework for managing non-hazardous waste. Most owners and operators of hazardous waste treatment, storage and disposal facilities must obtain a RCRA permit. RCRA also mandates certain operating, recordkeeping and reporting obligations for owners and operators of hazardous waste facilities. Our facilities generate various hazardous and non-hazardous wastes and we are a hazardous waste transporter and temporary storage facility. As a result of such activities, we are required to comply with RCRA requirements, including the maintenance of financial resources and security to address forced closures or accidental releases.
Clean Air Act. The U.S.US Clean Air Act and similar laws in other jurisdictions establish a variety of air pollution control measures, including limits for a number of airborne pollutants. These laws also establish controls for emissions from automobiles
and trucks, regulate hazardous air pollutants emitted from industrial sources and address the production of substances that deplete stratospheric ozone. Under the Clean Air Act, we are required to obtain permits for, and report on emissions of, certain air pollutants, or qualify for and maintain records substantiating that we qualify for an exemption. Owners and operators of facilities that handle certain quantities of flammable and toxic substances must implement and regularly update detailed risk management plans filed with and approved by the EPA. Failure to comply with the Clean Air Act may subject us to fines, penalties and other governmental and private actions.
Clean Water Act. Many of the jurisdictions in which we operate regulate water quality and contamination of water. In the United States, the EPA regulates discharges of pollutants into U.S.US waters, sets wastewater standards for industry and establishes water quality standards for surface waters, such as streams, rivers and lakes, under the U.S.US Clean Water Act. The discharge of any regulated pollutant from point sources (such as pipes and manmade ditches) into navigable waters requires a permit from the EPA or a delegated state agency. Several of our facilities have obtained permits for discharges of treated process wastewater directly to surface waters. In addition, several of our facilities discharge to municipal wastewater treatment facilities and therefore are required to obtain pretreatment discharge permits from local agencies. A number of our facilities also have storm water discharge permits.
Oil Pollution Prevention Regulations. The Oil Pollution Prevention regulations promulgated by the EPA under the authority of the Clean Water Act require that facilities storing oil in excess of threshold quantities or which have the ability to reach navigable water have a spill prevention, control and countermeasure, or SPCC, plan. Many of our facilities have SPCC plans or similar oil storage plans required in non-U.S.non-US jurisdictions.
Storage Requirements. Our warehouse facilities are required to comply with applicable permits and zoning requirements from local regulatory authorities and pursuant to leases. These requirements, which differ based on type of facility and location, define structural specifications and establish limits on building usage. Regulators typically have the authority to address non-compliance with storage requirements through fines, penalties and other administrative sanctions.
EPCRA. The U.S.US Emergency Planning and Community Right-To-Know Act, or EPCRA, establishes reporting rules for facilities that store or manage chemicals and requires such facilities to maintain certain safety data. EPCRA is intended to facilitate state and local planning for chemical emergencies. EPCRA requires state and local emergency planning and emergency response authorities to be informed of the presence of specified quantities of “extremely hazardous substances” at a facility and the release of listed hazardous substances above threshold quantities. Facilities that store or use significant amounts of toxic chemicals must also submit annual toxic chemical release reports containing information about the types and amounts of toxic chemicals that are released into the air, water and soil, as well as information on the quantities of toxic chemicals sent to other facilities. We store and handle a number of chemicals subject to EPCRA reporting and recordkeeping requirements.
TSCA and the Lautenberg Act. The U.S.US Toxic Substances Control Act, or TSCA,the recently enacted Lautenberg Act (collectively TSCA) and similar laws in other jurisdictions, are intended to ensure that chemicals do not pose unreasonable risks to human health or the environment. TSCA requires the EPA to maintain the TSCA registry listing chemicals manufactured or processed in the United States. Chemicals not listed on the TSCA registry cannot be imported into or sold in the United States until registered with the EPA. TSCA also sets forth specific reporting, recordkeeping and testing rules for chemicals, including requirements for the import and export of certain chemicals, as well as other restrictions relevant to our business. Pursuant to TSCA,these laws, the EPA from time to time issues Significant New Use Rules, or SNURs, when it identifies new uses of chemicals that could pose risks to human health or the environment and also requires pre-manufacture notification of new chemical substances that do not appear on the TSCA registry. When we import chemicals into the United States, we must ensure that chemicals appear on the TSCA registry prior to import, participate in the SNUR process when a chemical we import requires testing data and report to the EPA information relating to quantities, identities and uses of imported chemicals.
FIFRA and Other Pesticide and Biocide Regulations. We have a significant operation in the distribution and sale of pesticides and biocides. These products are regulated in many jurisdictions. In the United States, the Federal Insecticide, Fungicide, and Rodenticide Act, or FIFRA, authorizes the EPA to oversee and regulate the manufacture, distribution, sale and use of pesticides and biocides. We are required to register with the EPA and certain state regulatory authorities as a seller and repackager of pesticides and biocides. The EPA may cancel registration of any pesticide or biocide that does not comply with FIFRA, effectively prohibiting the manufacture, sale, distribution or use of such product in the United States. The EPA has established procedures and standards for the design of pesticide and biocide containers, as well as the removal of pesticides and biocides from such containers prior to disposal. Applicable regulations also prescribe specific labeling requirements and establish standards to prevent leaks and spills of pesticides and biocides from containment structures at bulk storage sites and dispensing operations. These standards apply to dealers who repackage pesticides, commercial applicators and custom blenders.
REACH. In Europe, our business is affected by legislation dealing with the Registration, Evaluation, Authorization and Restriction of Chemicals, or REACH. REACH requires manufacturers and importers of chemical substances to register such substances with the European Chemicals Agency, or the ECHA, and enables European and national authorities to track such
substances. Depending on the amount of chemical substances to be manufactured or imported, and the specific risks of each substance, REACH requires different sets of data to be included in the registration submitted to the ECHA. Registration of substances with the ECHA imposes significant recordkeeping requirements that can result in significant financial obligations for chemical distributors, such as us, to import products into Europe. REACH is accompanied by legislation regulating the classification, labeling and packaging of chemical substances and mixtures.
GHG Emissions. In the U.S.,US, various legislative and regulatory measures to address greenhouse gas, or GHG, emissions are in various phases of discussion or implementation. At the federal legislative level, Congress has previously considered legislation requiring a mandatory reduction of GHG emissions. Although Congressional passage of such legislation does not appear likely at this time, it could be adopted at a future date.It is also possible that Congress may pass alternative climate change bills that do not mandate a nationwide cap-and-trade program and instead focus on promoting renewable energy and energy efficiency. In the absence of congressional legislation curbing GHG emissions, the EPA is moving ahead administratively under its Clean Air Act authority.
The implementation of additional EPA regulations and/or the passage of federal or state climate change legislation will likely result in increased costs to operate and maintain our facilities. Increased costs associated with compliance with any future legislation or regulation of GHG emissions, if it occurs, may have a material adverse effect on our results of operations, financial condition and ability to make cash distributions.
Internationally, many of the countries in which we do business (but not the
U.S.)US) have ratified the Kyoto Protocol to the United Nations Framework Convention on Climate Change, or the Kyoto Protocol, and we have been subject to its requirements, particularly in the European Union. Many nations entered into the Copenhagen Accord, which may result in a new international climate change treaty in the future. If so, we may become subject to different and more restrictive regulation on climate change to the extent the countries in which we do business implement such a new treaty.
OSHA. We are subject to workplace safety laws in many jurisdictions, including the United States. The U.S.US Occupational Safety and Health Act, or OSHA, which addresses safety and health in workplace environments and establishes maximum workplace chemical exposure levels for indoor air quality. Chemical manufacturers and importers must employ a hazard communication program utilizing labels and other forms of warnings, as well as Material Safety Data Sheets, setting forth safety and hazardous materials information to employees and customers. Employers must provide training to ensure that relevant employees are equipped to properly handle chemicals. We train employees and visitors who have access to chemical handling areas. OSHA requires the use of personal protective equipment when other controls are not feasible or effective in reducing the risk of exposure to serious workplace injuries or illnesses resulting from contact with hazardous substances or other workplace hazards. Employers must conduct workplace assessments to determine what hazards require personal protective equipment, and must provide appropriate equipment to workers.
OSHA operates a process safety management rule, or PSM Rule, that requires employers to compile written process safety information, operating procedures and facility management plans, conduct hazard analyses, develop written action plans for employee participation in safety management and certify every three years that they have evaluated their compliance with process safety requirements. Employees must have access to safety analyses and related information, and employers must maintain and provide process-specific training to relevant employees. We handle several chemicals that are hazardous and listed under the PSM Rule, which imposes extensive obligations on our handling of these chemicals and results in significant costs on our operations.
OSHA’s Hazardous Waste Operations and Emergency Response rules require employers and employees to comply with certain safety standards when conducting operations involving the exposure or potential exposure to hazardous substances and wastes. These standards require hazardous substances preparedness training for employees and generally apply to individuals engaged in cleanup operations, facility operations entailing the treatment, storage and disposal of hazardous wastes, and emergency responses to uncontrolled releases of hazardous substances.
OSHA regulations require employers to develop and maintain an emergency action plan to direct employer and employee actions in the event of a workplace emergency. Under most circumstances, the plan must be maintained in writing, remain accessible at the workplace and be made available to employees for review.
Each of our business units has an obligation to report its Environmental Health and Safety, or EHS, risks and performance to an internal oversight function. EHS risks and performance are tracked through audits,
evaluations and reporting. We have implemented an internal integrated risk management audit system through which EHS risks are evaluated and improvement measures proposed. In addition, our sites undergo periodic external audits, including audits by governmental authorities and certification institutions.
Chemical Facility Anti-Terrorism Standards. The U.S.US Department of Homeland Security, or DHS, regulates certain high-risk chemical facilities through its Chemical Facility Anti-Terrorism Standards. These standards establish a Chemical Security Assessment Tool comprised of four elements, including facility user registration, top-screen evaluation, security vulnerability assessment and site security planning. The site security plan must address any vulnerabilities identified in the security vulnerability assessment, including access control, personnel credentialing, recordkeeping, employee training, emergency response, testing of security equipment, reporting of security incidents and suspicious activity, and deterring, detecting and delaying potential attacks. DHS must approve all security vulnerability assessments and site security plans. We handle a number of chemicals regulated by DHS.
FDA.The US Food & Drug Administration’s, or FDA’s, Food Safety Modernization Act, or FSMA, directs FDA to build an integrated national food safety system in partnership with state and local authorities. Univar facilities that handle FDA regulated products are required to implement a written preventive controls plan. This involves evaluating the hazards that could affect food safety and specifying what preventive steps, or controls, will be put in place to significantly minimize or prevent the hazards. Also, when we import FDA regulated products into the United States, we have an explicit responsibility to verify that our foreign suppliers have adequate preventive controls in place. Finally, the rule establishes requirements for companies involved in transporting FDA regulated products to use sanitary practices to ensure the safety of those products.
Other
Regulationsregulations
We are subject to other foreign, federal, state and local regulations. For example, many of the products we repackage, blend and distribute are subject to Food and Drug Administration regulations governing the handling of chemicals used in food, food processing or pharmaceutical applications. Compliance with these regulations requires testing, additional policies, procedures and documentation and segregation of products. In addition, we are subject to a variety of state and local regulations, including those relating to the fire protection standards, and local licensing and permitting of various aspects of our operations and facilities.
In the ordinary course of our business, we are subject to periodic lawsuits, investigations and claims. Although we cannot predict with certainty the ultimate resolution of pending or future lawsuits, investigations and claims asserted against us, we do not believe that any currently pending legal proceeding to which we are a party is likely to have a material adverse effect on our business, results of operations, cash flows or financial condition. See “Note
18:20: Commitments and
Contingencies”contingencies” in Item 8 of this Annual Report on Form 10-K for additional information.
In its 1986 purchase of McKesson Chemical Company from McKesson Corporation, or McKesson, our wholly owned subsidiary, Univar USA Inc., entered into an indemnification agreement with McKesson. Univar USA has an obligation to defend and indemnify McKesson for claims alleging injury from exposure to asbestos-containing products sold by McKesson Chemical Company, or the asbestos claims. Univar USA’s obligation to indemnify McKesson for settlements and judgments arising from asbestos claims is the amount which is in excess of applicable insurance coverage, if any, which may be available under McKesson’s historical insurance coverage. In addition, we are currently defending a small number of claims which name Univar USA as a defendant.
As of December 31,
2015,2018, Univar USA has accepted the tender of, and is defending McKesson in,
11eight pending separate-plaintiff claims in multi-plaintiff lawsuits filed in the State of Mississippi. These lawsuits have multiple plaintiffs, include a large number of defendants, and provide no specific information on the plaintiffs’ injuries and do not connect the plaintiffs’ injuries to any specific sources of asbestos. Additionally, the majority of the plaintiffs in these lawsuits have not put forth evidence that they have been seriously injured from exposure to asbestos. No new claims in Mississippi have been received since 2010. At the peak there were approximately 16,000 such claims pending against McKesson. To date, the costs for defending these cases have not been material, and the cases that have been finalized have either been dismissed or resolved with either minimal or no payments. Although we cannot predict the outcome of pending or future claims or lawsuits with
certainty, we believe the future defense and liability costs for the Mississippi cases will not be material. Univar USA has not recorded a reserve related to these lawsuits, as it has determined that losses are neither probable nor estimable.
As of December 31,
2015,2018, Univar USA was defending fewer than
185200 single-plaintiff asbestos claims against McKesson (or Univar USA as a successor in interest to McKesson Chemical Company) pending in
the states of Delaware, Florida, Illinois, Missouri, Ohio, Rhode Island, South Carolina and Texas.12 states. These cases differ from the Mississippi multi-plaintiff cases in that they are single-plaintiff cases with the plaintiff alleging substantial specific injuries from exposure to asbestos-containing products. These cases are similar to the Mississippi cases in that numerous defendants are named and that they provide little specific information connecting the plaintiffs’ injuries to any specific source of asbestos. Although we cannot predict the outcome of pending or future claims or lawsuits with certainty, we believe the liabilities for these cases will not be material. In
2015,2018, there were
7456 single-plaintiff lawsuits filed against McKesson and
49100 cases against McKesson which were resolved.
As of December 31, 2015, Univar USA had reserved $50,000 related to pending litigation.
Environmental
RemediationWe areremediation
The Company is subject to various
foreign, federal, state and local environmental laws and regulations that require environmental assessment or remediation efforts
or, collectively, environmental(collectively “environmental remediation
work,work”) at approximately 130 locations, some that are now or were previously
owned or Company-owned/occupied
by us and some that were never
owned or Company-owned/occupied
by us, or (“non-owned
sites.Oursites”).
The Company’s environmental remediation work at some sites is being conducted pursuant to governmental proceedings or investigations, while we,the Company, with appropriate state or federal agency oversight and approval, areis conducting the environmental remediation work at other sites voluntarily. We areThe Company is currently undergoing remediation efforts or areis in the
process of active review of the need for potential remediation efforts at approximately
103107 current or formerly
owned or Company-owned/occupied sites. In addition,
wethe Company may be liable for a share of the
clean-upcleanup of approximately
2723 non-owned sites. These non-owned sites are typically (a) locations of independent waste disposal or recycling operations with alleged or confirmed contaminated soil and/or groundwater to which
wethe Company may have shipped waste products or drums for re-conditioning, or (b) contaminated non-owned sites near historical sites owned or operated by
usthe Company or
ourits predecessors from which contamination is alleged to have arisen.
In determining the appropriate level of environmental reserves,
we considerthe Company considers several factors such as information obtained from investigatory studies; changes in the scope of remediation; the interpretation, application and enforcement of laws and regulations; changes in the costs of remediation programs; the development of alternative cleanup technologies and methods; and the relative level of
ourthe Company’s involvement at various sites for which
we arethe Company is allegedly associated. The level of annual expenditures for remedial, monitoring and investigatory activities will change in the future as major components of planned remediation activities are completed and the scope, timing and costs of existing activities are changed. Project lives, and therefore cash flows, range from 2 to 30 years, depending on the specific site and type of remediation project.
Although
we believethe Company believes that
ourits reserves are adequate for environmental contingencies, it is possible,
due to the uncertainties noted above, that additional reserves could be required in the future that could have a material effect on the overall financial position, results of operations, or cash flows in a particular period. This additional loss or range of losses cannot be recorded at this time, as it is not reasonably estimable.
Other Environmental Matters
On December 9, 2014, Univar USA Inc. was issued a violation notice from the Pollution Control Services Department of Harris County, Texas, or PCS. The notice relates to claims that the Company’s facility on Luthe Road in Houston, Texas operated with inadequate air emissions controls and improperly discharged certain waste without authorization. On March 6, 2015, PCS notified Univar USA Inc. that the matter was forwarded to the
Harris County District Attorney’s Office with a request for an enforcement action. No such action has commenced. The Company continues to investigate and evaluate the claims.
In April 2015, the Company’s subsidiary Magnablend Inc. (“Magnablend”) was advised that the United States Environmental Protection Agency (“EPA”) was considering bringing an enforcement action against Magnablend. The matter relates to a January 26, 2015 incident at Magnablend’s Waxahachie, Texas facility at which a 300 gallon plastic container of sodium chlorite burst as a result of a chemical reaction. This matter has now been resolved by Magnablend making a payment of $37,500 to the EPA.
Competition Claims
At the end of May 2013, the Autorité de la concurrence, France’s competition authority, fined us $19.91 million (€15.18 million) for alleged price fixing. The price fixing was alleged to have occurred prior to 2006. We will not appeal the fine which was paid in full as of December 31, 2013.
Customs
and International Trade LawsIn April 2012, the U.S. Department of Justice, or the DOJ, issued a civil investigative demand to us in connection with an investigation into our compliance with applicable customs and international trade laws and regulations relating to
In 2015, the
importationUS Department of
saccharin since December 27, 2002. At around the same time, we became awareJustice (“DOJ”), on behalf of
an investigation being conducted by U.S.US Customs and Border Patrol
or CBP, into our importation(“CBP”), filed a complaint against Univar USA Inc., (“Univar”) in the Court of
saccharin. On February 26, 2014, a Qui Tam relator who had sued usthe International Trade seeking approximately $84.0 million, plus additional interest and
two other defendants under seal dismissed its lawsuit.fees, in allegedly unpaid duties that applied to imports of saccharin from China. Univar denies that any such duties were due because Univar contends the saccharin it imported during the time in question was Taiwanese in origin. The
federal government,case has progressed through the
DOJ, declined to intervenediscovery phase and earlier this year Univar filed a motion for summary judgement, which the Court denied. The case is scheduled for trial in
that lawsuit in November 2013, and as a result, the DOJ’s inquiry related to the Qui Tam lawsuit is now finished. CBP continues its investigation on our importation of saccharin. On July 21, 2014, CBP sent us a “Pre-Penalty Notice” indicating the imposition of a penalty against us in the amount of approximately $84 million. We have responded to CBP that the proposed penalty is not justified and on October 1, 2014, the CBP issued a penalty notice toApril 2019. Univar
USA Inc. for $84 million. We havehas not recorded a liability related to this
investigation.Canadian Assessment
In 2007,matter. Although the outstanding shares of Univar N.V., at such time the ultimate parent of Univar, were acquired by investment funds advised by CVC. To facilitate the acquisition of Univar N.V. by CVC, a Canadian restructuring was completed. In February 2013, the Canada Revenue Agency (“CRA”) issued a Notice of Assessment for withholding tax of $29.4 million (Canadian). We filed our Notice of Objection to the Assessment in April 2013 and our Notice of Appeal of the Assessment in July 2013. In November 2013, the CRA’s Reply to our Notice of Appeal was filed with the Tax Court of Canada and litigated in June 2015. We have not yet received the Tax Court of Canada’s decision on the matter.
In September 2014, the CRA issued the 2008 and 2009 Notice of Reassessments for federal corporate income tax liabilities of $11.9 million (Canadian) and $11.0 million (Canadian), respectively, and a departure tax liability of $9.0 million (Canadian). We filed our Notice of Objection to the Reassessments in September 2014. In April 2015 we received the 2008 and 2009 Alberta Notice of Reassessments of $6.0 million (Canadian) and $5.8 million (Canadian), respectively. We filed our Notice of Objection to the Alberta Reassessments in June 2015. The Reassessments reflect the additional tax liability and interest relating to those tax years should the CRA be successful inCompany believes its assertion of the General Anti-Avoidance Rule relating to the Canadian restructuring described above. At December 31, 2015, the total federal and provincial tax liability assessed to date, including interest of $33.4 million (Canadian),position is $106.5 million (Canadian). In August 2014, we remitted a required deposit on the February 2013 Notice of Assessment relating to our 2007 tax year by issuing a Letter of Credit in the amount of $44.7 million (Canadian). The Letter of Credit amount reflects the proposed assessment of $29.4 million (Canadian) and accrued interest, and will expire in August 2016.
In February 2015, the CRA notified us that we will be required to remit a cash deposit of approximately $21.5 million (Canadian) in March 2015, representing one-half of the September 2014 Notice of Assessment tax liability relating to tax years 2008 and 2009, plus interest. In March 2015, we requested a judicial review of this additional cash deposit requirement at the Federal Court (Canada). The CRA subsequently advised that its decision was not final and requested that we withdraw our request for judicial review. We subsequently withdrew our request and provided the CRA with our submission to hold the collection of the assessments relating to tax years 2008 and 2009 in abeyance pendingdefensible, it cannot guarantee the outcome of the Tax Court of Canada’s decision on the General Anti-Avoidance Rule matter.
We have not recorded any liabilities for these matters in our financial statements, as we believe it is more likely than not that our position will be sustained.
this or other litigation.
We rely primarily on trademarks, copyrights and trade secret laws to establish and maintain our proprietary rights in our intellectual property including technology, creative works and products.
We currently own trademark registrations or pending applications in approximately
6786 countries for the Univar name and in approximately
4168 countries for the Univar hexagon logo. Each of the issued registrations is current and valid for the maximum available statutory duration and can be renewed prior to expiration of the relevant statutory period. We renew the registrations as they become due for both of these marks. We claim common law rights in the mark “Univar” and other Univar-owned trademarks in those jurisdictions that recognize trademark rights based on use without registration. Additionally, we currently own registrations and pending applications in the United States and various jurisdictions for numerous other trademarks that identify Univar as the source of products and services, including
“ChemPoint.com”, “ChemCare”,“ChemPoint.com,” “ChemCare,” and
“PESTWEB”.“PESTWEB.”
As of December 31, 2015,2018, we employed more than 9,2008,500 persons on a full timefull-time equivalent basis worldwide. Approximately 680
Available Information
We file our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports, as well as proxy statements and registration statements, with the Securities and Exchange Commission (the “SEC”). The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically. We make our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act available free of charge on or through our website at www.univar.com as soon as reasonably practicable after we file or furnish them to the SEC. The contents of our employees in the United Stateswebsite are represented by labor unions. Asnot, however, a part of December 31, 2015, approximately 25% ofthis Form 10-K or our labor force was covered by a collective bargaining agreement, including approximately 14% of our labor force in the United States, approximately 18% of our labor force in Canadaother SEC filings.
Item 1A. RISK FACTORS
Risks Related to Our Business
Business and approximately 48% of our labor force in Europe, and approximately 3% of our labor force was covered by a collective bargaining agreement that will expire within one year. We have experienced no recent material work stoppages. In addition, in several of our facilities located outside the United States, particularly those in Europe, employees are represented by works councils appointed pursuant to local law consisting of employee representatives who have certain rights to negotiate working terms and to receive notice of significant actions. These arrangements grant certain protections to employees and subject us to employment terms that are similar to collective bargaining agreements. We believe our relationship with our employees continues to be good.Economic Risks
We are affected by general economic conditions, particularly fluctuations in industrial production and consumption, and an economic downturn could adversely affect our operations and financial results.
We sell chemicals that are used in manufacturing processes and as components of or ingredients in other
products and, as a result, ourproducts. Our sales are correlated with and affected by fluctuations in the
levellevels of industrial production,
and manufacturing output, and general economic activity. Producers of commodity and specialty chemicals
in particular, are likely to reduce their output in periods of significant contraction in industrial and consumer demand, while demand for the products we distribute depends largely on trends in demand in the end markets our customers serve. A majority of our sales are in North America and Europe and our business is therefore susceptible to downturns in those economies as well as, to a lesser extent, the economies in the rest of
the world. Our profit margins, as well as overall demand for our products and services, could decline as a result of a large number of factors outside our control, including economic recessions, reduced customer demand (whether due to changes in industrial production processes, or consumer preferences, changes in laws and regulations affecting the chemicals industry and the manner in which they are enforced, or other factors), inflation, fluctuations in interest and currency exchange rates, and changes in the fiscal or monetary policies of governments in the regions in which we operate.
General economic conditions and macroeconomic trends, as well as the creditworthiness of our customers, could affect overall demand for chemicals. Any overall decline in the demand for chemicals could significantly reduce our sales and profitability. If the creditworthiness of our customers declines, we would face increased credit risk. In addition, volatility and disruption in financial markets could adversely affect our sales and results of operations by limiting our customers’ ability to obtain financing necessary to maintain or expand their own operations.
A historical feature of past economic weakness has been significant destocking of inventories, including inventories of chemicals used in industrial and manufacturing processes. It is possible that an improvement in our net sales in a particular period may be attributable in part to restocking of inventories by our customers and represent a level of sales or sales growth that will not be sustainable over the longer term. Further economic weakness could lead to insolvencies among our customers or producers, as well as among financial institutions that are counterparties on financial instruments or accounts that we hold. Any of these developments could have a material adverse effect on our business, financial condition and results of operations.
Disruptions in the supply of chemicals we distribute or in the operations of our customers could adversely affect our business.
Our business depends on access to adequate supplies of the chemicals our customers purchase from us. From time to time, we may be unable to
procurepurchase adequate quantities of certain chemicals
becauseat prices that would enable us to earn a profit, if at all due to supply disruptions. Causes of supply disruptions
due tomay include natural disasters (including hurricanes and other extreme weather), industrial accidents, scheduled production outages, producer breaches of contract,
producer disruptions, high demand leading to difficulties allocating appropriate quantities, port closures and other transportation disruptions and other circumstances beyond our
control, or we may be unable to purchase chemicals that we are obligated to deliver to our customers at prices that enable us to earn a profit.control. In addition, unpredictable events may have a significant impact on the industries in which many of our customers operate, reducing demand for products that we normally distribute in significant volumes.
As examples, the Gulf of Mexico oil disaster in 2010 had a major impact on our customers that manufactured and operated offshore drilling equipment and recent impacts on supply sources for hydrochloric acid have impacted our ability to meet all of our customers’ demands for this product. Significant disruptions of supply and
disruptions in customer industries could have a material adverse effect on our business, financial condition and results of operations.
Significant changes in the business strategies of producers could also disrupt our supply. Large chemical manufacturers may elect to sell certain products (or products in certain regions) directly to customers, instead of relying on distributors such as us. While we do not believe that our results depend materially on access to any individual producer’s products, a reversal of the trend toward more active use of distributors would likely result in increasing margin pressure or products becoming unavailable to us. Any of these developments could have a material adverse effect on our business, financial condition and results of operations.
To the extent we have contracts with producers and our customers, they are generally short term or terminable upon short notice or at will, and termination
or renegotiation of our relationships with producers and customers could negatively affect our business.
Our purchases and sales of chemicals are typically made pursuant to purchase orders rather than long-term contracts.
While some of our relationships for the distribution and sale of specialty chemicals have exclusivity or preference provisions, we may be unable to enforce these provisions effectively for legal or business reasons.Many of our contracts with both producers and our customers are terminable without cause upon 30 days’days' or less notice to us from the producer or customer. While some of our relationships for the distribution and sale of chemicals have exclusivity or preference provisions, we may not enforce these provisions effectively due to legal or business considerations. Our business relationships and reputation may suffer if we are unable to meet our delivery obligations to our customers which may occur because many producers are not subject to contracts or can terminate contracts on short notice. In addition, renegotiation of purchase or sales
terms to our disadvantage could reduce our sales margins. Any of these developments could adversely affect our business, financial condition and results of operations.
The prices and costs of the products we purchase may be subject to large and significant price increases. We might not be able to pass such cost increases through to our customers. We could experience financial losses if our inventories of one or more chemicals exceed our sales and the price of those chemicals decreases significantly while in our inventories or if our inventories fall short of our sales and the purchase price of those chemicals increases significantly.
We purchase and sell a wide variety of chemicals, the price and availability of which may fluctuate, and may be subject to large and significant price increases. Many of our contracts with producers include chemical prices that are not fixed or are tied to an index, which allows our producers to change the prices of the chemicals we purchase as the price of the chemicals fluctuates in the market. Our business is exposed to these fluctuations, as well as to fluctuations in our costs for transportation and distribution due to rising fuel prices or increases in charges from common carriers, rail companies and other third party transportation providers, as well as other factors.
Recently, we have faced increases in transportation costs as the availability of trucks and drivers has tightened among the common carriers we use to ship products. Changes in chemical prices affect our net sales and cost of goods sold, as well as our working capital requirements, levels of debt and financing costs. We might not always be able to reflect increases in our chemical costs, transportation costs and other costs in our own pricing. Any inability to pass cost increases onto customers may adversely affect our business, financial condition and results of operations.
In order to meet customer demand, we typically maintain significant inventories, and
we are therefore subject to a number of risks associated with our inventory levels, including the following:
declines in the prices of chemicals that are held by us;
the need to maintain a significant inventory of chemicals that may be in limited supply and therefore difficult to procure;
buying chemicals in bulk for the best pricing and thereby holding excess inventory;
responding to the unpredictablefluctuating demand for chemicals;
cancellation of customer orders; and
responding to customer requests for quickrapid delivery.
In order to manage our inventories successfully, we must estimate demand from our customers and purchase chemicals that substantially correspond to that demand. If we overestimate demand and purchase too much of a particular chemical, we face a risk that the price of that chemical will fall, leaving us with inventory that we cannot sell
profitably. In addition, we mayprofitably or have to write down such inventory
if we are unable to sell it forfrom its recorded value. If we underestimate demand and purchase insufficient quantities of a particular chemical and prices of that chemical rise, we could be forced to purchase that chemical at a higher price and forego profitability in order to meet customer demand. Our business, financial condition and results of operations could suffer a material adverse effect if either or both of these situations occur frequently or in large volumes.
Shortages in the hydrochloric acid supply sources in recent months demonstrate this risk and as a result we have been unable to meet all of our customers’ demands. We also face the risk of dissatisfied customers and damage to our reputation if we cannot meet customer demand for a particular chemical because we are short on inventories.
We could lose our customers and suffer damage to our reputation if we are unable to meet customer demand for a particular product.
In addition, particularly in cases of pronounced cyclicality in our end markets, it
It can be difficult to anticipate our customers’ requirements for particular chemicals,
and weparticularly in the cases on pronounced cyclicality in our end markets. We could be,
and often are, asked to deliver larger-than-expected quantities of a particular chemical on short notice. If for any reason we experience
widespread, systemic difficulties in filling customer orders, our
customersreputation and customer relationships could be harmed. Customers may
be dissatisfied and discontinue their relationship with us or we may be required to pay a higher price in order to obtain the needed chemical on short notice, thereby adversely affecting our margins.
Trends in oil, gas and mineral prices could adversely affect the level of exploration, development and production activity of certain of our customers and in turn the demand for our products and services.
Demand for our oil, gas and mining products and services is sensitive to the level of exploration, drilling, development and production activity of, and the corresponding capital spending by, oil, gas and mining companies and oilfield service providers. The level of exploration, drilling, development and production activity is directly affected by trends in oil, gas and mineral prices, which historically have been volatile and are likely to continue to be volatile. Many factors may affect these prices, including global market conditions, political conditions and weather. The unpredictability of these factors prevents any reasonable forecast on the movements of such prices.
Recently, there has been a significant decline in the prices of oil and gas. This, or any other
Any reduction in oil and gas prices, could depress the immediate levels of exploration, drilling, development and production activity by certain of our customers. Even the perception of longer-term lower oil and gas prices by certain of our customers could similarly reduce or delay major expenditures by these customers given the long-term nature of many large-scale development
projects. If any of these events were to occur, it could have an adverse effect on our business, results of operations and financial condition.
The markets in which we operate are highly competitive.
The chemical distribution market is highly competitive. Chemicals can be purchased from a variety of sources, including traders, brokers, wholesalers and other distributors, as well as directly from producers. Many of the products we distribute or finish are essentially fungible with products offered by our competition, including emerging competitors. The competitive pressure we face is particularly strong in sectors and markets where local competitors have strong positions or where new competitors can easily enter. Increased competition from distributors of products similar to or competitive with ours could result in price reductions, reduced margins and a loss of market share.
We expect to continue to experience significant and increasing levels of competition in the future. We must also compete with smaller companies that have been able to develop strong local or regional customer bases. In certain countries, some of our competitors are more established, benefit from greater name recognition and have greater resources within those countries than we do.
Consolidation of our competitors in the markets in which we operate could place us at a competitive disadvantage and reduce our profitability.
We operate in an industry, which is highly fragmented on a global scale, but in which there has been a trend toward consolidation in recent years. Consolidations of our competitors may jeopardize the strength of our positions in one or more of the markets in which we operate and any advantages we currently enjoy due to the comparative scale of our operations. Losing some of those advantages could adversely affect our business, financial condition and results of operations, as well as our growth potential.
We have in the past and may in the future make acquisitions, ventures and strategic investments, some of which may be significant in size and scope, which have involved in the past and will likely involve in the future numerous risks. We may not be able to address these risks without substantial expense, delay or other operational or financial problems.
We have made and may in the future make acquisitions of, or investments in, businesses or companies (including strategic partnerships with other companies). Acquisitions or investments have involved in the past and will likely involve in the future various risks, such as:
integrating the operations and personnel of any acquired business;
the potential disruption of our ongoing business, including the diversion of management attention;
the possible inability to obtain the desired financial and strategic benefits from the acquisition or investment;
customer attrition arising from preferences to maintain redundant sources of supply;
producer attrition arising from overlapping or competitive products;
assumption of contingent or unanticipated liabilities or regulatory liabilities;
dependence on the retention and performance of existing management and work force of acquired businesses for the future performance of these businesses;
regulatory risks associated with acquired businesses (including the risk that we may be required for regulatory reasons to dispose of a portion of our existing or acquired businesses); and
the risks inherent in entering geographic or product markets in which we have limited prior experience.
Future acquisitions and investments may need to be financed in part through additional financing from banks, through public offerings or private placements of debt or equity securities or through other arrangements, and could result in substantial cash expenditures. The necessary acquisition financing may not be available to us on acceptable terms if and when required, particularly because our current high leverage may make it difficult or impossible for us to secure additional financing for acquisitions.
To the extent that we make acquisitions that result in our recording significant goodwill or other intangible assets, the requirement to review goodwill and other intangible assets for impairment periodically may result in impairments that could have a material adverse effect on our financial condition and results of operations.
In connection with acquisitions, ventures or divestitures, we may become subject to liabilities.
In connection with any acquisitions or ventures, we may acquire liabilities or defects such as legal claims, including but not limited to third party liability and other tort claims; claims for breach of contract; employment-related claims; environmental
liabilities, conditions or damage; permitting, regulatory or other compliance with law issues; hazardous materials or liability for hazardous materials; or tax liabilities. If we acquire any of these liabilities, and they are not adequately covered by insurance or an enforceable indemnity or similar agreement from a creditworthy counterparty, we may be responsible for significant out-of-pocket expenditures. In connection with any divestitures, we may incur liabilities for breaches of representations and warranties or failure to comply with operating covenants under any agreement for a divestiture. In addition, we may indemnify a counterparty in a divestiture for certain liabilities of the subsidiary or operations subject to the divestiture transaction. These liabilities, if they materialize, could have a material adverse effect on our business, financial condition and results of operations.
Our balance sheet includes significant goodwill and intangible assets, the impairment of which could affect our future operating results.
We carry significant goodwill and intangible assets on our balance sheet. As of December 31,
2015,2018, our goodwill and intangible assets totaled approximately
$1.7$1.8 billion and
$0.5$0.2 billion, respectively, including approximately $1.2 billion in goodwill resulting from our 2007 acquisition by investment funds advised by CVC. We may also recognize additional goodwill and intangible assets in connection with future business acquisitions. Goodwill is not amortized for book
purposes and is testedpurposes. We test for impairment
annually using a fair value based
approach annually, or between annual testsapproach. We also test goodwill for impairment if an event occurs or circumstances change that indicate that the fair value of a reporting unit has more likely than not declined below its carrying value. The identification and measurement of impairment involves the estimation of the fair value of reporting units, which requires judgment and involves the use of significant estimates and assumptions by management. The estimates of fair value of reporting units are based on the best information available as of the date of the assessment and incorporate management assumptions about expected future cash flows and contemplate other valuation techniques. Our estimates of future cash flows may differ from actual cash flows that are subsequently realized due to many factors, including future worldwide economic conditions and the expected benefits of our initiatives, among other things. Intangible assets are amortized for book purposes over their respective useful lives and are tested for impairment if any event occurs or circumstances change that indicates that carrying value may not be recoverable. Although we currently do not expect that our goodwill and intangible assets will be further impaired, we cannot guarantee that a material impairment will not occur, particularly in the event of a substantial deterioration in our future prospects either in total or in a particular reporting unit. See “Note
12:13: Goodwill and intangible assets” in Item 8 of this Annual Report on Form 10-K for a discussion of our
20152018 impairment review.
In the past, we have taken goodwill impairment charges, including impairment charges of $169.4 million and $75.0 million, respectively, for our EMEA segment in 2011 and 2012, and impairment charges of $73.3 million for our Rest of Worldsegment in 2013. If our goodwill and intangible assets become impaired, it could have a material adverse effect on our financial condition and results of operations.
We have in the pastrequire significant working capital, and maywe expect our working capital needs to increase in the future, make acquisitions, ventureswhich could result in having lower cash available for, among other things, capital expenditures and strategic investments, someacquisition financing.
We require significant working capital to purchase chemicals from chemical producers and distributors and sell those chemicals efficiently and profitably to our customers. Our working capital needs may increase if the price of
which may be significant in sizeproducts we purchase and
scope, which have involvedinventory increase. Our working capital needs also increase at certain times of the year, as our customers’ requirements for chemicals increase. For example, our customers in the
pastagricultural sector require significant deliveries of chemicals within a growing season that can be very short and
will likely involvedepend on weather patterns in
the future numerous risks.a given year. We
need inventory on hand to have product available to ensure timely delivery to our customers. If our working capital requirements increase and we are unable to finance our working capital on terms and conditions acceptable to us, we may not be able to
address these risks without substantial expense, delay or other operational or financial problems.We have made and mayobtain chemicals to respond to customer demand, which could result in a loss of sales.
In addition, the amount of working capital we require to run our business is expected to increase in the future
due to expansions in our business activities. If our working capital needs increase, the amount of free cash we have at our disposal to devote to other uses will decrease. A decrease in free cash could, among other things, limit our flexibility, including our ability to make
acquisitions of, or investments in, businesses or companies (including strategic partnerships with other companies). Acquisitions or investments have involved in the pastcapital expenditures and
will likely involve in the future various risks, such as:integrating the operations and personnel of any acquired business;
the potential disruption of our ongoing business, including the diversion of management attention;
the possible inability to obtain the desired financial and strategic benefits from theacquire suitable acquisition or investment;
customer attrition arising from preferences to maintain redundant sources of supply;
supplier attrition arising from overlapping or competitive products;
assumption of contingent or unanticipated liabilities or regulatory liabilities;
dependence on the retention and performance of existing management and work force of acquired businesses for the future performance of these businesses;
regulatory risks associated with acquired businesses (including the risktargets that we may be required for regulatory reasons to dispose of a portion of our existing or acquired businesses); and
the risks inherent in entering geographic or product markets in which we have limited prior experience.
Future acquisitions and investments may need to be financed in part through additional financing from banks, through public offerings or private placements of debt or equity securities or through other arrangements, and could result in substantial cash expenditures. The necessary acquisition financing may not be available to us on acceptable terms if and when required, particularly because our current high leverage may make it difficult or impossible for us to secure additional financing for acquisitions.
To the extent that we make acquisitions that resultidentified. If increases in our recording significant goodwill or other intangible assets,working capital occur and have the requirement to review goodwill and other intangible assets for impairment periodically may result in impairments that could have a material adverse effect onof decreasing our financial condition and results of operations.
In connection with acquisitions, ventures or divestitures, we may become subject to liabilities.
In connection with any acquisitions or ventures, we may acquire liabilities or defects such as legal claims, including but not limited to third party liability and other tort claims; claims for breach of contract; employment-related claims; environmental liabilities, conditions or damage; permitting, regulatory or other compliance with law issues; hazardous materials or liability for hazardous materials; or tax liabilities. If we acquire any of these liabilities, and they are not adequately covered by insurance or an enforceable indemnity or similar agreement from a creditworthy counterparty, we may be responsible for significant out-of-pocket expenditures. In connection with any divestitures, we may incur liabilities for breaches of representations and warranties or failure to comply with operating covenants under any agreement for a divestiture. In addition, we may indemnify a counterparty in a divestiture for certain liabilities of the subsidiary or operations subject to the divestiture transaction. These liabilities, if they materialize,free cash, it could have a material adverse effect on our business, financial condition and results of operations.
We generatehave a significant portionhistory of net losses and may not sustain profitability in the future.
Although we achieved profitability in 2018 and 2017, we had a net loss of $68.4 million in 2016 and there can be no assurance that we will sustain profitability. We have incurred net losses in three of the last six fiscal years. Growth of our
revenues may slow or revenues may decline for a number of possible reasons, including slowing demand for our products and services, increasing competition or decreasing growth of our overall market. Our cost of goods sold could increase for a number of possible reasons, including increases in chemical prices and increases in chemical handling expenses due to regulatory action or litigation. In addition, our ability to generate profits could be impacted by our substantial indebtedness and the related interest expense. The interest payments on our indebtedness have exceeded operating income in two of our last six fiscal years. All of these factors could contribute to further net
sales internationallylosses and,
intend to continue to expand our international operations. We face particular challenges in emerging markets. Our results of operations could suffer if we are unable to
manage our international operations effectively ormeet these risks and challenges as
a result of various risks related to our international activities that are beyond our control.During the year ended December 31, 2015, approximately 40% of our net sales were generated outside of the United States. We intend to continue to expand our penetration in certain foreign markets and to enter new and emerging foreign markets. Expansion of our international business will require significant management attention and resources. The profitability of our international operations will largely depend on our continued success in the following areas:
securing key producer relationships to help establish our presence in international markets;
hiring and training personnel capable of supporting producers and our customers and managing operations in foreign countries;
localizingwe encounter them, our business processes to meet the specific needs and preferences of foreign producers and customers, which may differ in certain respects from our experience in North America and Europe;suffer.
building our reputation and awareness of our services among foreign producers and customers; and
implementing new financial, management information and operational systems, procedures and controls to monitor our operations in new markets effectively, without causing undue disruptions to our operations and customer and producer relationships.
In addition, we are subject to risks associated with operating in foreign countries, including:
varying and often unclear legal and regulatory requirements that may be subject to inconsistent or disparate enforcement, particularly regarding environmental, health and safety issues and security or other certification requirements, as well as other laws and business practices that favor local competitors, such as exposure to possible expropriation, nationalization, restrictions on investments by foreign companies or other governmental actions;
less stable supply sources;
competition from existing market participants that may have a longer history in and greater familiarity with the foreign markets where we operate;
tariffs, export duties, quotas and other barriers to trade; as well as possible limitations on the conversion of foreign currencies into U.S. dollars or remittance of dividends and other payments by our foreign subsidiaries;
divergent labor regulations and cultural expectations regarding employment;
different cultural expectations regarding industrialization, international business and business relationships;
foreign taxes and related regulations, including foreign taxes that we may not be able to offset against taxes imposed upon us in the United States, and foreign tax and other laws limiting our ability to repatriate earnings to the United States;
extended payment terms and challenges in our ability to collect accounts receivable;
changes in a specific country’s or region’s political or economic conditions;
compliance with anti-bribery laws such as the U.S. Foreign Corrupt Practices Act, the UK Bribery Act and similar anti-bribery laws in other jurisdictions, the violation of which could expose us to severe criminal or civil sanctions;
compliance with anti-boycott, privacy, economic sanctions, anti-dumping, antitrust, import and export laws and regulations by our employees or intermediaries acting on our behalf, the violation of which could expose us to significant fines, penalties or other sanctions; and
in 2013, we paid a fine of $19.9 million imposed by the Autorité de la concurrence, France’s competition authority, for alleged price fixing prior to 2006.
If we fail to address the challenges and risks associated with international expansion, we may encounter difficulties implementing our strategy, thereby impeding our growth and harming our operating results.
Our operations in the Asia-Pacific region, Latin America and the Middle East and Africa are at an early stage. It may prove difficult to achieve our goals and take advantage of growth and acquisition opportunities in these or in other emerging markets due to a lack of comprehensive market knowledge and network and legal restrictions. Our growth in emerging markets may also be limited by other factors such as significant government influence over local economies, foreign investment restrictions, substantial fluctuations in economic growth, high levels of inflation and volatility in currency values, exchange controls or restrictions on expatriation of earnings, high domestic interest rates, wage and price controls, changes in governmental economic or tax policies, imposition of trade barriers, unexpected changes in regulation and overall political social and economic instability. In addition, the heightened exposure to terrorist attacks or acts of war or civil unrest in certain geographies, if they occur, could result in damage to our facilities, substantial financial losses or injuries to our personnel.
Although we exercise what we believe to be an appropriate level of central control and active supervision of our operations around the world, our local subsidiaries retain significant operational flexibility. There is a risk that our operations around the world will experience problems that could damage our reputation, or that could otherwise have a material adverse effect on our business, financial condition and results of operations.
We may be unable to effectively implement our strategies or achieve our business goals.
The breadth and scope of our business poses several challenges, such as:
initiating or maintaining effective communication among and across all of our geographic business segments and industry groups;
identifying new products and product lines and integrating them into our distribution network;
allocating financial and other resources efficiently across all of our business segments and industry groups;
aligning organizational structure with management’s vision and direction;
communicating ownership and accounting over business activities and ensuring responsibilities are properly understood throughout the organization;
ensuring cultural and organizational changes are executed smoothly and efficiently and ensuring personnel resources are properly allocated to effect these changes; and
establishing standardized processes across geographic business segments and industry groups.
As a result of these and other factors such as these, we may be unable to effectively implement our strategies or achieve our business goals. Any failure to effectively implement our strategies may adversely impact our future prospects and our results of operations and financial condition.
Fluctuations in currency exchange rates may adversely affect our results of operations.
We sell products in over 150 countries and we generated approximately 40% of our 2015 net sales outside the United States. The revenues we receive from such foreign sales are often denominated in currencies other
than the U.S. dollar. We do not hedge our foreign currency exposure with respect to our investment in and earnings from our foreign businesses. Accordingly, we might suffer considerable losses if there is a significant adverse movement in exchange rates. For example, in 2015 the U.S. dollar appreciated in value compared to both the Canadian dollar and the euro. The results of operations in our Canada and EMEA segments were negatively impacted due to this appreciation. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this Annual Report on Form 10-K for additional information.
In addition, we report our consolidated results in U.S. dollars. The results of operations and the financial position of our local operations are generally reported in the relevant local currencies and then translated into U.S. dollars at the applicable exchange rates for inclusion in our consolidated financial statements, exposing us to currency translation risk. Consequently, any change in exchange rates between our foreign subsidiaries’ functional currencies and the U.S. dollar will affect our consolidated income statement and balance sheet when the results of those operating companies are translated into U.S. dollars for reporting purposes. Decreases in the value of our foreign subsidiaries’ functional currencies against the U.S. dollar will tend to reduce those operating companies’ contributions in dollar terms to our financial condition and results of operations. In 2015, our most significant currency exposures were to the euro, the Canadian dollar and the British pound sterling versus the U.S. dollar. The exchange rates between these and other foreign currencies and the U.S. dollar may fluctuate substantially and such fluctuations have had a significant effect on our results in recent periods. For additional details on our currency exposure and risk management practices, see “Quantitative and Qualitative Disclosures About Market Risk” in Item 7A of this Annual Report on Form 10-K.
The markets in which we operate are highly competitive.
The chemical distribution market is highly competitive. Chemicals can be purchased from a variety of sources, including traders, brokers, wholesalers and other distributors, as well as directly from producers. Many of the products we distribute are made to industry standard specifications, and are essentially fungible with products offered by our competition. The competitive pressure we face is particularly strong in sectors and markets where local competitors have strong positions. Increased competition from distributors of products similar to or competitive with ours could result in price reductions, reduced margins and a loss of market share.
We expect to continue to experience significant and increasing levels of competition in the future. We must also compete with smaller companies that have been able to develop strong local or regional customer bases. In certain countries, some of our competitors are more established, benefit from greater name recognition and have greater resources within those countries than we do.
Consolidation of our competitors in the markets in which we operate could place us at a competitive disadvantage and reduce our profitability.
We operate in an industry which is highly fragmented on a global scale, but in which there has been a trend toward consolidation in recent years. Consolidations of our competitors may jeopardize the strength of our positions in one or more of the markets in which we operate and any advantages we currently enjoy due to the comparative scale of our operations. Losing some of those advantages could adversely affect our business, financial condition and results of operations, as well as our growth potential.
We rely on our computer and data processing systems, and a large-scale malfunction could disrupt our business or create potential liabilities.
Our ability to keep our business operating effectively depends on the functional and efficient operation of our enterprise resource planning, telecommunications systems, inventory tracking, billing and other information systems and related records and information management policies. We rely on these systems to track transactions, billings, payments and inventory, as well as to make a variety of day-to-day business decisions. Our systems are aging and susceptible to malfunctions, lack of support, interruptions (including due to equipment
damage, power outages, computer viruses and a range of other hardware, software and network problems) and we may experience such malfunctions, interruptions or security breaches in the future. Our systems may also be older generations of software which are unable to perform as efficiently as, and fail to communicate well with, newer systems. As the development and implementation of our information technology systems continue, we may elect to modify, replace or discontinue certain technology initiatives, which would result in write-downs. For example, in 2013 we discontinued efforts to implement a global enterprise resource planning, or ERP, system. We recorded an impairment charge of $58.0 million in 2013 relating to this decision.
Although our systems are diversified, including multiple server locations and a range of software applications for different regions and functions, a significant or large-scale malfunction, interruption or security breach of our computer or data processing systems could adversely affect our ability to manage and keep our operations running efficiently and damage our reputation if we are unable to track transactions and receive products from producers or deliver products to our customers. A malfunction that results in a wider or sustained disruption to our business could have a material adverse effect on our business, financial condition and results of operations, as well as on the ability of management to align and optimize technology to implement business strategies. A security breach might also lead to potential claims from third parties or employees.
Data privacy is subject to frequently changing rules and regulations regarding the handling of personal data, such as the General Data Protection Regulation (“GDPR”) which was recently adopted by the European Union. These rules and regulations are frequently changing and are becoming increasingly complex and sometimes conflict among the various jurisdictions and countries in which we operate, which makes compliance challenging and expensive. Any breach in our information technology security systems could result in the disclosure or misuse of confidential or proprietary information, including sensitive customer, supplier, employee or investor information maintained in the ordinary course of our business. Any such event, or any failure to comply with the requirements of GDPR or other laws in this area, could cause damage to our reputation, loss of valuable information or loss of revenue and could result in legal liability, or regulatory or other penalties. In addition, we may incur large expenditures to investigate or remediate, to recover data, to repair or replace networks or information systems, or to protect against similar future events.
Further, a failure to comply with our records and information management and retention policies could lead to potential claims, liabilities or exposures.
Our business could be negatively affected by security threats, including cybersecurity threats
to us, and other disruptions.
We face various security threats, including cybersecurity threats to gain unauthorized access to sensitive information or to render data or systems unusable, threats to the security of our facilities, and threats from terrorist acts. The potential for such security threats subjects our operations to increased risks that could have a material adverse effect on our business. Under the oversight of our board of directors and the leadership and active participation of our senior management team, we are continuously working to improve our ability to respond to and recover from potential security threats through technological improvements and employee awareness training around cyber risks. In particular, our implementation ofresponding to these risks, we continue to implement various procedures and controls to monitor and mitigate security threats and to increase security for our information, facilities and infrastructure which may result in increased capital and operating costs. Moreover, thereWe may be the recipients of intelligence or other threat information that we are unable to share with investors and other stakeholders. There can be no assurance that such procedures, controls, and controlsintelligence will be sufficient to prevent security breaches from occurring. If any of these security breaches were to occur, they could lead to losses of sensitive information, critical infrastructure or capabilities essential to our operations and could have a material adverse effect on our reputation, financial position, results of operations or cash flows.flows, and could result in claims being brought against us. Cybersecurity attacks in particular are becoming more sophisticated and include, but are not limited to, malicious software, attempts to gain unauthorized access to data (either directly or through our vendors)business partners), and other electronic security breaches that could lead to disruptions in critical systems, unauthorized release of confidential or otherwise protected information, and corruption of data. In addition, if any information about our customers and producers retained by us were the subject of a successful cybersecurity attack against us, we could be subject to litigation or other claims by the affected customers and producers. We could also encounter violations of applicable law or reputational damage from the disclosure of confidential information belonging to us or our employees, customers or suppliers. In addition, the disclosure of non-public information could lead to the loss of our intellectual property and/or diminished competitive advantages. Should any of the foregoing events occur, we may be required to incur significant costs to protect against damage caused by these disruptions or security breaches in the future. In addition, evolving and expanding compliance and operational requirements under the privacy laws of the jurisdictions in which we operate, such as the EU General Data Protection Regulation, or GDPR, which took effect in May 2018, impose significant costs that are likely to
increase over time. These events could damage our reputation and lead to financial losses from expenses related to remediation actions, loss of business or potential liability.
We depend on transportation assets, some of which we do not own, in order to deliver products to our customers.
Although we maintain a significant portfolio of owned and leased transportation assets, including trucks, trailers
railcars and
barges,railcars, we also rely on transportation and warehousing provided by third parties (including common carriers and rail companies) to deliver products to our
customers, particularly outside the U.S. and Canada.customers. Our access to third party transportation is not guaranteed, and we may be unable to transport chemicals at economically attractive rates in certain circumstances, particularly in cases of adverse market conditions or disruptions to transportation infrastructure. We are also subject to increased costs that we may not always be able to recover from our customers, including
rising fuel prices, as well as
increases in the charges imposed by common carriers, leasing companies and other third parties involved in transportation. In particular, our
U.S. US operations rely to a significant extent on rail shipments, and we are therefore required to pay rail companies’ network access fees, which have increased significantly in recent years, while bulk shipping rates havefees. We can also recently been highly volatile. We have recently incurred such increased costs asexperience the availability of trucks and drivers has tightened among the common carriers we use to transport our products.tighten. We are also subject to the risks normally associated with product delivery, including inclement weather, disruptions in the transportation infrastructure, disruptions in our lease arrangements and the availability of fuel, as well as liabilities arising from accidents to the extent we are not adequately covered by insurance or misdelivery of products. Our business activities in the Gulf of Mexico, for example, have been impacted in recent years by hurricanes. Our failure to deliver products in a timely and accurate manner could harm our reputation and brand, which could adversely affect our business, financial condition and results of operations.
Our business exposes us to significant risks associated with hazardous materials and related activities, not all of which are covered by insurance.
Because we are engaged in the blending, managing, handling, storing, selling, transporting and disposing of chemicals, chemical waste products and other hazardous materials, product liability, health impacts, fire damage, safety and environmental risks are significant concerns for us. We maintain substantial reserves
relating to remediation activities at our owned sites and third party sites, which are subject to federal and state clean-up requirements, as described below in “—We are subject to extensive general and product-specific environmental, health and safety laws and regulations. Compliance with and changes to these environmental, health and safety laws, including laws relating to the investigation and remediation of contamination, could have a material adverse effect on our business, financial condition and results of
operations,operations.”
relating to remediation activities at our owned sites and third party sites which are subject to federal and state clean-up requirements. We are
also subject in the United States to federal legislation enforced by OSHA as well as to state safety and health laws. We are also exposed to present and future chemical exposure claims by employees, contractors on our premises, other persons located nearby, as well as related
workers’workers' compensation claims.
In the United States, we are subject to federal legislation enforced by OSHA as well as to state safety and health laws. We carry insurance to protect us against many accident-related risks involved in the conduct of our business and we maintain environmental damage and pollution insurance coverage in accordance with our assessment of the risks involved, the ability to bear those risks and the cost and availability of insurance. Each of these insurance policies is subject to exclusions, deductibles and coverage limits we believe are generally in accordance with industry standards and practices.
See “Business—Insurance” in Item 1 of this Annual Report on Form 10-K. We do not insure against all risks and may not be able to insure adequately against certain risks (whether relating to our or a third party’s activities or other matters) and may not have insurance coverage that will pay any particular claim. We also may be unable to obtain at commercially reasonable rates in the future adequate insurance coverage for the risks we currently insure against, and certain risks are or could become completely uninsurable or eligible for coverage only to a reduced extent. In particular, more stringent environmental, health or safety regulations may increase our costs for, or impact the availability of, insurance against accident-related risks and the risks of environmental damage or pollution. Our business, financial condition and results of operations could be materially impaired by accidents and other environmental risks that substantially reduce our revenues, increase our costs or subject us to other liabilities in excess of available insurance.
Accidents, safety failures, environmental damage, product quality issues, major or systemic delivery failures involving our distribution network or the products we carry, or adverse health effects or other harm related to hazardous materials we blend, manage, handle, store, sell, transport or dispose of could damage our reputation and result in substantial damages or remedial obligations.
Our business depends to a significant extent on our customers’ and producers’ trust in our reputation for reliability, quality, safety and environmental responsibility. Actual or alleged instances of safety deficiencies, mistaken or incorrect deliveries, inferior product quality, exposure to hazardous materials resulting in illness, injury or other harm to persons, property or natural resources, or of damage caused by us or our products, could damage our reputation and lead to customers and producers curtailing the volume of business they do with us. Also, there may be safety, personal injury or other environmental risks related to our products which are not known today. Any of these events, outcomes or allegations could also subject us to substantial legal claims, and
we could incur substantial expenses, including legal fees and other costs, in defending such legal claims, which could materially impact our financial position and results of operations.
Actual or alleged accidents or other incidents at our facilities or that otherwise involve our personnel or operations could also subject us to claims for damages by third parties. Because many of the chemicals that we handle are dangerous, we are subject to the ongoing risk of hazards, including leaks, spills, releases, explosions and fires, which may cause property damage, illness, physical injury or death. We sell products used in hydraulic fracturing, a process that involves injecting water, sand and chemicals
into subsurface rock formations to release and capture oil and natural gas. The use of such hydraulic fracturing fluids by our customers may result in releases that could impact the environment and third parties. Several of our distribution facilities, including our Los Angeles facility, one of our largest, are located near high-density population centers. If any such events occur, whether through our own fault, through preexisting conditions at our facilities, through the fault of a third party or through a natural disaster, terrorist incident or other event outside our control, our reputation could be damaged significantly. We could also become responsible, as a result of environmental or other laws or by court order, for substantial monetary damages or expensive investigative or remedial obligations related to such events, including but not limited to those resulting from third party lawsuits or environmental investigation and
clean-upcleanup obligations on and off-site. The amount of any costs, including fines, damages and/or investigative and remedial obligations, that we may become obligated to pay under such circumstances could substantially exceed any insurance we have to cover such losses.
Any of these risks, if they materialize, could significantly harm our reputation, expose us to substantial liabilities and have a material adverse effect on our business, financial condition and results of operations.
International Market Risk
We generate a significant portion of our net sales internationally and intend to continue to expand our international operations. We face particular challenges in emerging markets. Our results of operations could suffer if we are unable to manage our international operations effectively or as a result of various risks related to our international activities.
During the year ended December 31, 2018, approximately 40% of our net sales were generated outside of the United States. We intend to continue to expand our penetration in certain foreign markets and to enter new and emerging foreign markets. Expansion of our international business will require significant management attention and resources. The profitability of our international operations will largely depend on our continued success in the following areas:
securing key producer relationships to help establish our presence in international markets;
hiring and training personnel capable of supporting producers and our customers and managing operations in foreign countries;
localizing our business processes to meet the specific needs and preferences of foreign producers and customers, which may differ in certain respects from our experience in North America and Europe;
building our reputation and awareness of our services among foreign producers and customers; and
implementing new financial, management information and operational systems, procedures and controls to monitor our operations in new markets effectively, without causing undue disruptions to our operations and customer and producer relationships.
In addition, we are subject to risks associated with operating in foreign countries, including:
varying and often unclear legal and regulatory requirements that may be subject to inconsistent or disparate enforcement, particularly regarding environmental, health and safety issues and security or other certification requirements, as well as other laws and business practices that favor local competitors, such as exposure to possible expropriation, nationalization, restrictions on investments by foreign companies or other governmental actions;
less stable supply sources;
competition from existing market participants that may have a longer history in and greater familiarity with the foreign markets where we operate;
tariffs, export duties, quotas and other barriers to trade; as well as possible limitations on the conversion of foreign currencies into US dollars or remittance of dividends and other payments by our foreign subsidiaries;
possible future changes to tariffs associated with imports and exports from the US;
divergent labor regulations and cultural expectations regarding employment and agency;
different cultural expectations regarding industrialization, international business and business relationships;
foreign taxes and related regulations, including foreign taxes that we may not be able to offset against taxes imposed upon us in the United States, and foreign tax and other laws limiting our ability to repatriate earnings to the United States;
possible changes in foreign and domestic taxes and related regulations;
extended payment terms and challenges in our ability to collect accounts receivable;
changes in a specific country’s or region’s political or economic conditions;
compliance with anti-bribery laws such as the US Foreign Corrupt Practices Act, the UK Bribery Act and similar anti-bribery laws in other jurisdictions, the violation of which could expose us to severe criminal or civil sanctions; and
compliance with anti-boycott, privacy, economic sanctions, anti-dumping, antitrust, import and export laws and regulations by our employees or intermediaries acting on our behalf, the violation of which could expose us to significant fines, penalties or other sanctions.
If we fail to address the challenges and risks associated with international expansion, we may encounter difficulties implementing our strategy, thereby impeding our growth and harming our operating results.
Our operations in the Asia-Pacific region, Eastern Europe, Latin America and the Middle East and Africa are still developing. It may prove difficult to achieve our goals and take advantage of growth and acquisition opportunities in these or in other emerging markets due to a lack of comprehensive market knowledge and network and legal restrictions. Our growth in emerging markets may also be limited by other factors such as significant government influence over local economies, foreign investment restrictions, substantial fluctuations in economic growth, high levels of inflation and volatility in currency values, exchange controls or restrictions on expatriation of earnings, high domestic interest rates, wage and price controls, changes in governmental economic or tax policies, imposition of trade barriers, unexpected changes in regulation and overall political social and economic instability. In addition, the heightened exposure to terrorist attacks or acts of war or civil unrest in certain geographies, if they occur, could result in damage to our facilities, substantial financial losses or injuries to our personnel.
Although we exercise what we believe to be an appropriate level of central control and active supervision of our operations around the world, our local subsidiaries retain significant operational flexibility. There is a risk that our operations around the world will experience problems that could damage our reputation, or that could otherwise have a material adverse effect on our business, financial condition and results of operations.
We may be unable to effectively implement our strategies or achieve our business goals.
The breadth and scope of our business poses several challenges, such as:
initiating or maintaining effective communication among and across all of our geographic business segments and industry groups;
identifying new products and product lines and integrating them into our distribution network;
allocating financial and other resources efficiently across all of our business segments and industry groups;
aligning organizational structure with management’s vision and direction;
communicating ownership and accounting over business activities and ensuring responsibilities are properly understood throughout the organization;
ensuring cultural and organizational changes are executed smoothly and efficiently and ensuring personnel resources are properly allocated to effect these changes; and
establishing standardized processes across geographic business segments and industry groups.
As a result of these and other factors such as these, we may be unable to effectively implement our strategies or achieve our business goals. Any failure to effectively implement our strategies may adversely impact our future prospects and our results of operations and financial condition.
Fluctuations in currency exchange rates may adversely affect our results of operations.
We sell products in over 130 countries and we generated approximately 40% of our 2018 net sales outside the United States. The revenues we receive from such foreign sales are often denominated in currencies other than the US dollar. We do not hedge our foreign currency exposure with respect to our investment in and earnings from our foreign businesses. Accordingly, we might suffer considerable losses if there is a significant adverse movement in exchange rates.
In addition, we report our consolidated results in US dollars. The results of operations and the financial position of our local operations are generally reported in the relevant local currencies and then translated into US dollars at the applicable exchange rates for inclusion in our consolidated financial statements, exposing us to currency translation risk. Consequently, any change in exchange rates between our foreign subsidiaries’ functional currencies and the US dollar will affect our consolidated income statement and balance sheet when the results of those operating companies are translated into US dollars for reporting purposes. Decreases in the value of our foreign subsidiaries’ functional currencies against the US dollar will tend to reduce those operating companies’ contributions in dollar terms to our financial condition and results of operations. In 2018, our most significant currency exposures were to the euro, the Canadian dollar and the British pound sterling versus the US dollar. The exchange rates between
these and other foreign currencies and the US dollar may fluctuate substantially and such fluctuations have had a significant effect on our results in recent periods. For additional details on our currency exposure and risk management practices, see “Quantitative and Qualitative Disclosures About Market Risk” in Item 7A of this Annual Report on Form 10-K.
There is uncertainty surrounding the implementation and effect of Brexit, which may cause increased economic volatility and have a material adverse effect on our business, financial condition and results of operations.
On June 23, 2016, voters in the United Kingdom (“UK”) approved an advisory referendum to withdraw membership from the European Union (“EU”). The UK began the formal process for leaving the EU (referred to as “Brexit”) in March 2017 by serving notice to the European Council. Absent action by the UK to the contrary, Brexit is scheduled to take place on March 29, 2019. The long-term nature of the UK’s relationship with the EU is unclear and there is considerable uncertainty when any relationship will be agreed and implemented.
Approximately 2% and 21% of our net sales for the year ended December 31, 2018 were attributable to our operations in the UK and Continental Europe, respectively. Given our significant operations and presence in the UK and Continental Europe, there can be no assurance that Brexit will not have a material adverse effect on our business, financial condition and results of operations.
The political and economic instability created by Brexit has been widely reported in the press and financial media. Brexit may continue to cause volatility in global financial markets and uncertainty regarding the regulation of data protection in the UK. Brexit may also disrupt the free movement of goods, services and people between the UK, the EU and elsewhere. The effects of Brexit will depend on any agreements the UK makes to retain access to EU markets either during a transitional period or more permanently. Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the UK determines which EU laws to replace or replicate. Further, uncertainty around these and related issues could lead to adverse effects on the economy of the UK, the EU and the other economies in which we operate. All of these effects could cause disruptions and delays in importing products into the UK, uncertainty and potential increases in costs of importation (including duties) and increased credit risk due to adverse impacts on our customers. As a result, Brexit could have an adverse effect upon, and create uncertainty surrounding, our business in the UK and EU, our relationships with our existing and future customers, suppliers and employees and, ultimately, on our future business, financial results and operations.
While we are working with our customers and suppliers to anticipate and mitigate potential impacts of Brexit, we cannot predict whether our anticipation or efforts will prove adequate or that we will effectively execute any mitigation actions.
Litigation, Environmental and Tax Regulation Risk
Evolving environmental laws and regulations on hydraulic fracturing and other oil and gas production activities could have an impact on our financial performance.
Hydraulic fracturing is a common practice that is used to stimulate production of crude oil and/or natural gas from dense subsurface rock formations, and is primarily presently regulated by state agencies. Many states have adopted laws and/or regulations that require disclosure of the chemicals used in hydraulic fracturing, and are considering legal requirements that could impose more stringent permitting, disclosure and well construction requirements on oil and/or natural gas drilling activities as well as regulations relating to waste streams from such activities. The EPA is also moving forward with various related regulatory actions, including regulations requiring, among other matters, “green completions” of hydraulically-fractured wells. Similarly, existing and new regulations in the United States and elsewhere relating to oil and gas production could impact the sale of some of our products into these markets.
Our business exposes us to potential product liability claims and recalls, which could adversely affect our financial condition and performance.
The repackaging, blending, mixing, manufacture, sale and distribution of chemical products by us, including products used in hydraulic fracturing operations and products produced with food ingredients or with pharmaceutical and nutritional supplement applications, involve an inherent risk of exposure to product liability claims, product recalls, product seizures and related adverse publicity, including, without limitation, claims for exposure to our products, spills or escape of our products, personal injuries, food related claims and property damage or environmental claims. A product liability claim, judgment or recall against our customers could also result in substantial and unexpected expenditures for us, affect consumer confidence in our products and divert management’s attention from other responsibilities. Although we maintain product liability insurance, there can be no assurance that the type or level of coverage is adequate or that we will be able to continue to maintain our existing insurance or obtain comparable insurance at a reasonable cost, if at all. A product recall or a partially or completely uninsured judgment against us could have a material adverse effect on our business, financial condition and results of operation.
We are subject to extensive general and product-specific environmental, health and safety laws and regulations. Compliance with and changes to these environmental, health and safety laws, including laws relating to the investigation and remediation of contamination, could have a material adverse effect on our business, financial condition and results of operations.Because
We are subject to extensive environmental, health and safety laws and regulations in multiple jurisdictions because we blend, manage, handle, store, sell, transport and arrange for the disposal of chemicals, hazardous materials and hazardous
waste, we are subject to extensive environmental, health and safety laws and regulations in multiple jurisdictions.waste. These include laws and regulations governing our management, storage, transportation and disposal of chemicals; product regulation; air, water and soil contamination; and the investigation and cleanup of contaminated sites, including any spills or releases that may result from our management, handling, storage, sale, transportation of chemicals and other products. We hold a number of environmental permits and licenses. Compliance with these laws, regulations, permits and licenses requires that we expend significant amounts for ongoing compliance, investigation and remediation. If we fail to comply with such laws, regulations, permits or licenses we may be subject to fines and other civil, administrative or criminal sanctions, including the revocation of permits and licenses necessary to continue our business activities.
Previous operations, including those of acquired companies, have resulted in contamination at a number of current and former sites, which must be investigated and remediated. We are currently investigating and/or remediating contamination, or contributing to cleanup costs, at approximately 130 currently or formerly owned, operated or used sites or other sites impacted by our operations. We have spent substantial sums on such investigation and remediation and we expect to continue to incur such expenditures in the future. Based on current estimates, we believe that these ongoing investigation and remediation costs will not materially affect our business. There is no guarantee, however, that our estimates will be accurate, that new contamination will not be discovered or that new environmental laws or regulations will not require us to incur additional costs. Any such inaccuracies, discoveries or new laws or regulations, or the interpretation of existing laws and regulations, could have a material adverse effect on our business, financial condition and results of operations. As of December 31,
2015,2018, we reserved approximately
$113.2$83.5 million for probable and reasonably estimable losses associated with remediation at currently or formerly owned, operated or used sites or other sites impacted by our operations. We may incur losses in connection with investigation and remediation obligations that exceed our environmental reserve. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates—Environmental Liabilities” in Item 7 of this Annual Report on Form 10-K for additional information. We also may incur substantial costs, including fines, damages, criminal or civil sanctions and investigation and remediation costs, or experience interruptions in our operations, for violations under environmental, health and safety laws or permit requirements.
We could be held liable for the costs to investigate, remediate or otherwise address contamination at any real property we have ever owned, leased, operated or used or other sites impacted by our operations. Some environmental laws could impose on us the entire cost of cleanup of contamination present at a site even though we did not cause all of the contamination. These laws often identify parties who can be strictly and jointly and severally liable for remediation. The discovery of previously unknown contamination at current or former sites or the imposition of other environmental liabilities or obligations in the future, including additional investigation or remediation obligations with respect to contamination that has impacted other properties, could lead to additional costs or the need for additional reserves that have a material adverse effect on our business, financial condition and results of operations. In addition, we may be required to pay damages or civil judgments related to third party claims, including those relating to personal injury (including exposure to hazardous materials or chemicals we blend, handle, store, sell, transport or dispose of), product quality issues, property damage or contribution to remedial obligations.
We have been identified as potentially responsible parties
or Potentially Responsible Parties, at various third party sites at which we have arranged for the disposal of our hazardous wastes. We may be identified as a
Potentially Responsible Partypotentially responsibility party at additional sites beyond those for which we currently have financial obligations. Such developments could have a material adverse effect on our business, financial condition and results of
operations. See “Business—Regulatory Matters—Environmental, Health and Safety Matters” in Item 1 of this Annual Report on Form 10-K.
Certain agreements to which we are a party contain contractual provisions pursuant to which we agreed to indemnify other parties for contamination at certain real property. We have been, and may in the future be, subject to environmental indemnity claims asserted by other parties with respect to contamination at sites we have ever owned, leased, operated or used. We could incur significant costs in addressing existing and future environmental indemnification claims.
Societal concerns regarding the safety of chemicals in commerce and their potential impact on the environment have resulted in a growing trend towards increasing levels of product safety and environmental protection regulations. These concerns have led to, and could continue to result in, stringent regulatory intervention by governmental authorities. In addition, these concerns could influence public perceptions, impact the commercial viability of the products we sell and increase the costs to comply with increasingly complex regulations, which could have a negative impact on our business, financial condition and results of operations. Additional findings by government agencies that chemicals pose significant environmental, health or safety risks may lead to their prohibition in some or all of the jurisdictions in which we operate.
Environmental, health and safety laws and regulations vary significantly from country to country and change frequently. Future changes in laws and regulations, or the interpretation of existing laws and regulations, could have an adverse effect on us by adding restrictions, reducing our ability to do business, increasing our costs of doing business or reducing our profitability or reducing the demand for our products. See “Business—Regulatory Matters—Environmental, Health and Safety Matters” in Item 1 of this Annual Report on Form 10-K.
Current and future laws and regulations addressing greenhouse gas emissions enacted in the United States, Europe and other jurisdictions around the world could also have a material adverse effect on our business, financial condition and results of operation. Increased energy costs due to such laws and regulations, emissions associated with our customers’ products or development of alternative products having lower emissions of greenhouse gases and other pollutants could materially affect demand for our customers’ products and indirectly affect our business. Changes in and introductions of regulations have in the past caused us to devote significant management and capital resources to compliance programs and measures, and future regulations applicable to us would likely further increase these compliance costs and could have a material adverse effect on our business, financial condition and results of operations.
Our business is subject to additional general regulatory requirements and tax requirements, which increase our cost of doing business, could result in regulatory, unclaimed property or tax claims, and could restrict our business in the future.
Our general business operations are subject to a broad spectrum of general regulatory requirements, including antitrust regulations, food and drug regulations, human resources regulations, tax regulations, unclaimed property, banking and treasury regulations, among others. These regulations add cost to our conduct of business and could, in some instances, result in claims or enforcement actions or could reduce our ability to pursue business opportunities. Future changes could result in additional costs and restrictions to our business activities.
In 2013, we paid a fine imposed by the Autorité de la concurrence, France’s competition authority, for alleged price fixing prior to 2006. We are currently undergoing a multi-state unclaimed property audit, the timing and outcome of which cannot be predicted; we will incur significant professional fees in connection with the audit and if we are found not to be in compliance the auditing states may seek significant remittances and other penalties and interest.
We may not be able to repatriate our cash and undistributed earnings held in foreign jurisdictions without incurring additional tax liabilities.
As of December 31, 2015, we had $188.1 million of cash and cash equivalents on our balance sheet, $180.7 million of which was cash and cash equivalents held in foreign jurisdictions, most notably in Canada. Except as required under U.S. tax laws, we do not provide for U.S. taxes on approximately $583.3 million of cumulative undistributed earnings of foreign subsidiaries that have not been previously taxed, as we expect to invest such undistributed earnings indefinitely outside of the United States. We may not be able to repatriate cash and cash equivalents or undistributed earnings held in foreign jurisdictions without incurring additional tax liabilities and higher effective tax rates. Accordingly, our cash and cash equivalents or undistributed earnings held in foreign jurisdictions may effectively be trapped in such foreign jurisdictions unless we are willing to incur additional tax liabilities. In addition, there have been proposals to change U.S. tax laws that would significantly affect how U.S. multinational corporations are taxed on foreign earnings. Although we cannot predict whether or in what form this proposed legislation may pass, if enacted it could have a material adverse effect on our tax expense and cash flow.
We are subject to asbestos claims.
In connection with our purchase of McKesson Chemical Company in 1986, our wholly-owned subsidiary Univar USA Inc. is obligated to indemnify McKesson for claims alleging injury from exposure to asbestos-containing products by McKesson Chemical Company. As of December 31,
2015,2018, we are defending lawsuits by more than one hundred plaintiffs claiming asbestos related injuries, including a small number of which name us as a defendant. See “Business—Legal Proceedings—Asbestos Claims” in Item 1 of this Annual Report on Form 10-K. As of December 31,
2015,2018, Univar USA has not recorded a liability related to the pending litigation as any potential loss is neither probable nor estimable. Although our costs of defense to date have not been material, we cannot predict the ultimate outcome of these lawsuits, which, if determined adversely to us, may result in liability that would have a material adverse effect on our business, financial condition and results of operations. Furthermore, if the number of asbestos claims for which we are obligated to indemnify McKesson, or the number of asbestos claims naming us, were to increase substantially, particularly if the increase were associated with a significant increase in the average cost per lawsuit, our business, financial condition and results of operations could be materially adversely affected.
Our business is subject to many operational risks for which we might not be adequately
insured.insured or prevail in any claim dispute.
We are exposed to risks including, but not limited to, accidents, contamination and environmental damage, safety claims, natural disasters, terrorism, acts of war and civil unrest and other events that could potentially interrupt our business operations and/or result in significant costs. Although we attempt to cover these risks with insurance to the extent that we consider appropriate, we may incur losses that are not covered by insurance or exceed the maximum amounts covered by our insurance policies. Even if our insurance coverage is appropriate, our insurers may contest, and prevail in litigation regarding, and claims. We have incurred environmental risks and losses, often from our historic activities, for which we have no available or remaining insurance.
Damage to a major facility, whether or not insured, could impair our ability to operate our business in a geographic region and cause loss of business and related expenses. From time to time, insurance for chemical risks have not been available on commercially acceptable terms or, in some cases, not available at all. In the future we may not be able to maintain our current coverages.
In addition, premiums, whichDue to the variable condition of the insurance market, we have
increased significantlyexperienced and may experience in the
last several years,future, increased deductible retention levels and increased premiums. As we assume more risk through higher retention levels, we may
continue to increaseexperience more variability in
the future.our insurance reserves and expense. Increased insurance premiums or our incurrence of significant uncovered losses could have a material adverse effect on our business, financial condition and results of operations.
We have incurred environmental risks and losses, often from our historic activities, for which we have no available or remaining insurance.
We are exposed to ongoing litigation and other legal and regulatory actions and risks in the ordinary course of our business, and we could incur significant liabilities and substantial legal fees.
We are subject to the risk of litigation, other legal claims and proceedings, and regulatory enforcement actions in the ordinary course of our business. Also, there may be safety or personal injury risks related to our
products which are not known today. The results of legal proceedings cannot be predicted with certainty. We cannot guarantee that the results of current or future legal proceedings against McKesson and a few claims asserted directly against Univar USA Inc. will not materially harm our business, reputation or brand, nor can we guarantee that we will not incur losses in connection with current or future legal proceedings that exceed any provisions we may have set aside in respect of such proceedings or that exceed any applicable insurance coverage. We also cannot guarantee that any tax assessment previously made against us by the Canada Revenue Agency will not result in a material tax liability or that the issues raised by Customs and Border Patrol will not result in a material liability. The occurrence of any of these events could have a material adverse effect on our business, financial condition or results of operations. See “Business—Legal Proceedings” in Item 1 of this Annual Report on Form 10-K.
Many of the products we sell have “long-tail” exposures, giving rise to liabilities many years after their sale and use. Insurance purchased at the time of sale may not be available when costs arise in the future and producers may no longer be available to provide indemnification.
We require significant working capital,
Employee and
we expect our working capital needs to increase in the future, which could result in having lower cash available for, among other things, capital expenditures and acquisition financing.We require significant working capital to purchase chemicals from chemical producers and distributors and sell those chemicals efficiently and profitably to our customers. Our working capital needs also increase at certain times of the year, as our customers’ requirements for chemicals increase. For example, our customers in the agricultural sector require significant deliveries of chemicals within a growing season that can be very short and depend on weather patterns in a given year. We need inventory on hand to have product available to ensure timely delivery to our customers. If our working capital requirements increase and we are unable to finance our working capital on terms and conditions acceptable to us, we may not be able to obtain chemicals to respond to customer demand, which could result in a loss of sales.
In addition, the amount of working capital we require to run our business is expected to increase in the future due to expansions in our business activities. If our working capital needs increase, the amount of free cash we have at our disposal to devote to other uses will decrease. A decrease in free cash could, among other things, limit our flexibility, including our ability to make capital expenditures and to acquire suitable acquisition targets that we have identified. If increases in our working capital occur and have the effect of decreasing our free cash, it could have a material adverse effect on our business, financial condition and results of operations.
We have a history of net losses and may not sustain profitability in the future.
Although we achieved profitability in 2015, we may not be able to sustain or increase such profitability. We have incurred net losses in four of the last five fiscal years, including net losses of $82.3 million and $20.1 million in the years ended December 31, 2013 and 2014, respectively. Growth of our revenues may slow or revenues may decline for a number of possible reasons, including slowing demand for our products and services, increasing competition or decreasing growth of our overall market. Our cost of goods sold could increase for a number of possible reasons, including increases in chemical prices and increases in chemical handling expenses due to regulatory action or litigation. In addition, our ability to generate profits could be impacted by our substantial indebtedness and the related interest expense. The interest payments on our indebtedness have exceeded operating income in four of our last five fiscal years. All of these factors could contribute to further net losses and, if we are unable to meet these risks and challenges as we encounter them, our business may suffer.
Benefit Plan Risk
We depend on a limited number of key personnel who would be difficult to replace. If we lose the services of these individuals, or are unable to attract new talent, our business will be adversely affected.
We depend upon the ability and experience of a number of our executive management and other key personnel who have substantial experience with our operations, the chemicals and chemical distribution
industries and the selected markets in which we operate. The loss of the services of one or a combination of our senior executives or key employees could have a material adverse effect on our results of operations. We also might suffer an additional impact on our business if one of our senior executives or key employees is hired by a competitor. Our success also depends on our ability to continue to attract, manage and retain other qualified management and technical and clerical personnel as we grow. We may not be able to continue to attract or retain such personnel in the future.
A portion of our workforce is unionized and labor disruptions could decrease our profitability.
As of December 31, 2015, we had approximately 680 employees in the United States subject to various collective bargaining agreements, most of which have a three-year term. In addition, in several of our international facilities, particularly those in Europe, employees are represented by Works Councils appointed pursuant to local law consisting of employee representatives who have certain rights to negotiate working terms and to receive notice of significant actions. As of December 31, 2015, approximately 25% of our labor force is covered by a collective bargaining agreement, including approximately 14% of our labor force in the United States, approximately 18% of our labor force in Canada and approximately 48% of our labor force in Europe, and approximately 3% of our labor force is covered by a collective bargaining agreement that will expire within one year. These arrangements grant certain protections to employees and subject us to employment terms that are similar to collective bargaining agreements. We cannot guarantee that we will be able to negotiate these or other collective bargaining agreements or arrangements with Works Councils on the same or more favorable terms as the current agreements or arrangements, or at all, and without interruptions, including labor stoppages at the facility or facilities subject to any particular agreement or arrangement. A prolonged labor dispute, which could include a work stoppage, could have a material adverse effect on our business, financial condition and results of operations.
Negative developments affecting our pension plans and multi-employer pension plans in which we participate may occur.
We operate a number of pension plans for our employees and have obligations with respect to several multi-employer pension plans sponsored by labor unions in the United States. The terms of these plans vary from country to country. Generally, our defined benefit pension plans are funded with trust assets invested in a diversified portfolio of debt and equity securities and other investments. Among other factors, changes in interest rates, investment returns, the market value of plan assets and actuarial assumptions can (1) affect the level of plan funding; (2) cause volatility in the net periodic benefit cost; and (3) increase our future contribution requirements. In or following an economic environment characterized by declining investment returns and interest rates, we may be required to make additional cash contributions to our pension plans to satisfy our funding requirements and recognize further increases in our net periodic benefit cost. A significant decrease in investment returns or the market value of plan assets or a significant decrease in interest rates could increase our net periodic benefit costs and adversely affect our results of operations.
Our pension plans in the United States and certain other countries are not fully funded. The funded status of our pension plans is equal to the difference between the value of plan assets and projected benefit obligations. At December 31,
2015,2018, our pension plans had an underfunded status of
$244.5$212.4 million. This amount could increase or decrease depending on factors such as those mentioned above. Changes to the funded status of our pension plans as a result of updates to actuarial assumptions and actual experience that differs from our estimates will be recognized as gains or losses in the period incurred under our “mark to market” accounting policy, and could result in a requirement for additional funding which would have a direct effect on our cash position. Based on current projections of minimum funding requirements, we expect to make cash contributions of
$28.1$28.3 million to our defined benefit pension plans in
2016.2019. The timing for any such requirement in future years is uncertain given the implicit uncertainty regarding the future developments of factors mentioned above. The union sponsored multi-employer pension plans in which we participate are also underfunded, including the substantially underfunded
New England Teamsters
and Trucking Industry Pension Fund and Central States, Southeast and Southwest
Areas Pension Plan, which
hashave liabilities at a level
twice that of its assets. This requires us to make often substantial withdrawal liability payments when we close a facility covered by one of these plans, which could hinder our ability to make otherwise appropriate management decisions to operate as efficiently as possible.
Labeling regulations As of December 31, 2018, we had approximately 250 employees in multi-employer pension plans.
A portion of our workforce is unionized and labor disruptions could decrease our profitability.
As of December 31, 2018, we had approximately 590 employees in the United States subject to various collective bargaining agreements, most of which have a three-year term. In addition, in several of our international facilities, particularly those in Europe, employees are represented by works councils appointed pursuant to local law consisting of employee representatives who have certain rights to negotiate working terms and to receive notice of significant actions. As of December 31, 2018, approximately 26% of our labor force is covered by a collective bargaining agreement, including approximately 14% of our labor force in the United States, approximately 20% of our labor force in Canada and approximately 45% of our labor force in Europe, and approximately 2% of our labor force is covered by a collective bargaining agreement that will expire within one year. These arrangements grant certain protections to employees and subject us to employment terms that are similar to collective bargaining agreements. We cannot guarantee that we will be able to negotiate these or other collective bargaining agreements or arrangements with works councils on the same or more favorable terms as the current agreements or arrangements, or at all, and without interruptions, including labor stoppages at the facility or facilities subject to any particular agreement or arrangement. A prolonged labor dispute, which could include a work stoppage, could have ana material adverse effect on our business, financial condition and results of operations.
Changes in legislation, regulation and government policy may have a material adverse effect on our business in the future.
Elections in the United States and other democracies in which we conduct business could result in significant changes in, and uncertainty with respect to, legislation, regulation and government policy directly affecting our business or indirectly affecting us because of impacts on our customers and producers. Legislative and regulatory proposals that could have a material direct or indirect impact on us include, but are not limited to, disallowances of income tax deductions, taxes or other restrictions repatriating foreign earnings, restrictions on imports and exports, modifications to international trade policy, including withdrawal from trade agreements, environmental regulation, changes to immigration policy, changes to health insurance legislation and the imposition of tariffs and other taxes on imports. We are currently unable to predict whether such changes will occur and, if so, the ultimate impact on our business.
The United States has recently amended its Right-to-Know laws to require new content in labels affixed to chemical products being sold by chemical manufacturers To the extent that such changes have a negative impact on us, our producers or our customers, including as a result of related uncertainty, these changes may materially and chemical distributors. Recent OSHA publications have caused some lackadversely impact our business, financial condition, results of clarity on this issueoperations and the transition date for the sale of existing inventory. Although we believe we are properly complying with the transition rules, this lack of clarity in these regulations could impact the company in incremental labeling costs, delays or interruption in product supply and compliance issues.
cash flows.
Risks Related to Our Indebtedness
We and our subsidiaries may incur additional debt in the future, which could substantially reduce our profitability, limit our ability to pursue certain business opportunities and reduce the value of your investment.
As of December 31,
2015,2018, we had
$2,315.7$1,747.8 million of debt outstanding under our
$2,050$2,283.5 million
U.S.US dollar
and €250 million euro senior term loan facility (the
“Senior“New Senior Term Loan Facility”),
$378.0$134.7 million of debt outstanding under our
$1,300$1,300.0 million Senior ABL credit facility,
and $100$58.5 million
senior ABL term loan facility (the “Senior ABL Facility”), no borrowingsof debt outstanding under our
€200€200.0 million senior European ABL facility (the
“European“Euro ABL Facility”) with approximately
$489.0$620.3 million available for additional borrowing under these facilities and
$400.0$399.5 million outstanding under Univar USA Inc.’s 6.75% senior notes due 2023 (the “Unsecured Notes”). Subject to certain limitations set forth in the agreements that govern these facilities and notes, we or our subsidiaries may incur additional debt in the future, or other obligations that do not constitute indebtedness, which could increase the risks described below and lead to other risks. The amount of our debt or such other obligations could have important consequences for holders of our common stock, including, but not limited to:
our ability to satisfy obligations to lenders or noteholders may be impaired, resulting in possible defaults on and acceleration of our indebtedness;
our ability to obtain additional financing for refinancing of existing indebtedness, working capital, capital expenditures, including costs associated with our international expansion, product and service development, acquisitions, general corporate purposes and other purposes may be impaired;
our assets that currently serve as collateral for our debt may be insufficient, or may not be available, to support future financings;
a substantial portion of our cash flow from operations could be used to repay the principal and interest on our debt;
we may be increasingly vulnerable to economic downturns and increases in interest rates;
our flexibility in planning for and reacting to changes in our business and the markets in which we operate may be limited; and
we may be placed at a competitive disadvantage relative to other companies in our industry with less debt or comparable debt at more favorable interest rates.
The agreements governing our indebtedness contain operating covenants and restrictions that limit our operations and could lead to adverse consequences if we fail to comply with them.
The agreements governing our indebtedness contain certain operating covenants and other restrictions relating to, among other things, limitations on indebtedness (including guarantees of additional indebtedness) and liens, mergers, consolidations and dissolutions, sales of assets, investments and acquisitions, dividends and other
restricted payments, repurchase of shares of capital stock and options to purchase shares of capital stock and certain transactions with affiliates. In addition, our Senior ABL Facility and European ABL Facility include certain financial covenants.
The restrictions in the agreements governing our indebtedness may prevent us from taking actions that we believe would be in the best interest of our business, and may make it difficult for us to successfully execute our business strategy or effectively compete with companies that are not similarly restricted. We may also incur future debt obligations that might subject us to additional restrictive covenants that could affect our financial and operational flexibility.
Failure to comply with these financial and operating covenants could result from, among other things, changes in our results of operations, the incurrence of additional indebtedness, the pricing of our products, our success at implementing cost reduction initiatives, our ability to successfully implement our overall business strategy or changes in general economic conditions, which may be beyond our control. The breach of any of these covenants or restrictions could result in a default under the agreements that govern these facilities that would permit the lenders to declare all amounts outstanding thereunder to be due and payable, together with accrued and unpaid interest. If we are unable to repay such amounts, lenders having secured obligations could proceed against the collateral securing these obligations. The collateral includes the capital stock of our domestic subsidiaries, 65% of the capital stock of our foreign subsidiaries and substantially all of our and our subsidiaries’ other tangible and intangible assets, subject in each case to certain exceptions. This could have serious consequences on our financial condition and results of operations and could cause us to become bankrupt or otherwise insolvent. In addition, these covenants may restrict our ability to engage in transactions that we believe would otherwise be in the best interests of our business and stockholders.
Increases in interest rates would increase the cost of servicing our debt and could reduce our profitability.
Our debt outstanding under the Senior Term Loan Facility, Senior ABL Facility and European ABL Facility bears interest at variable rates. As a result, increases in interest rates would increase the cost of servicing our debt and could materially reduce our profitability and cash flows.
Some or all of the combined company’s variable-rate indebtedness may use the LIBOR as a benchmark for establishing the rate. LIBOR is the subject of recent national, international and other regulatory guidance and proposals for reform. These reforms and other pressures may cause LIBOR to disappear entirely or to perform differently than in the past. The consequence of these developments cannot be entirely predicted, but could include an increase in the cost of our variable rate indebtedness. For additional information on our indebtedness, debt service obligations and sensitivity to interest rate fluctuations, see “Qualitative and Quantitative Disclosures About Market Risk” in Item 7A of this Annual Report on Form 10-K.
We may have future capital needs and may not be able to obtain additional financing on acceptable terms, or at all.
We have historically relied on debt financing to fund our operations, capital expenditures and expansion. The market conditions and the macroeconomic conditions that affect the markets in which we operate could have a material adverse effect on our ability to secure financing on acceptable terms, if at all. We may be unable to secure additional financing on favorable terms or at all and our operating cash flow may be insufficient to satisfy our financial obligations under the indebtedness outstanding from time to time. The terms of additional financing may limit our financial and operating flexibility. Our ability to satisfy our financial obligations will depend upon our future operating performance, the availability of credit generally, economic conditions and financial, business and other factors, many of which are beyond our control. Furthermore, if financing is not available when needed, or is not available on acceptable terms, we may be unable to take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on our business, financial condition and results of operations.
If we raise additional funds through further issuances of equity, convertible debt securities or other securities convertible into equity, our existing stockholders could suffer significant dilution in their percentage ownership of our company, and any new securities we issue could have rights, preferences and privileges senior to those of holders of our common stock, including shares of common stock sold in this offering. If we are unable to obtain adequate financing or financing on terms satisfactory to us, if and when we require it, our ability to grow or support our business and to respond to business challenges could be significantly limited.
Risks Related to Our Common Stock
If securities or industry analysts do not publish research or publish misleading or unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our common stock may depend in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of these analysts downgrades our stock or publishes misleading or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock may decrease, which could cause our stock price or trading volume to decline.
Future sales of shares by existing stockholders
or the Temasek Investor could cause our stock price to decline.
Sales of substantial amounts of our common stock in the public market, or the perception that these sales could occur, could cause the market price of our common stock to decline. All of the 40,250,000 shares sold pursuant to our IPO in June 2015, the IPO4,500,000 shares we registered on July 29, 2016, the 20,943,741 shares we registered on August 15, 2016, the 12,500,000 shares we registered on December 12, 2016, the 15,000,000 shares we registered on January 31, 2017 and the 10,000,000 shares we registered on December 14, 2017 are immediately tradable without restriction under the Securities Act of 1933, as amended (the “Securities Act”), unless held by “affiliates”, as that term is defined in Rule 144 under the Securities Act. The remaining shares of outstanding common stock are restricted securities within the meaning of Rule 144 under the Securities Act, but will be eligible for resale subject, in certain cases, to applicable volume, means of sale, holding period and other limitations of Rule 144 or pursuant to an exception from registration under Rule 701 under the Securities Act. Act, subject to the terms of the lock-up agreements entered into by the Significant Stockholders, our directors and certain of our key executive officers. The underwriter may, at any time, release all or any portion of the shares subject to lock-up agreements entered into in connection with this offering.
We have also filed a registration statement under the Securities Act to register the shares of common stock to be issued under our equity compensation plans and, as a result, all shares of common stock acquired upon exercise of stock options granted under our plans
willare also
be freely tradable under
the Securities Act of 1933, or the Securities Act, unless purchased by our affiliates.
137,960,460 shares of our common stock are eligible for future sale, subject to the applicable volume, manner of sale, holding period and other limitations of Rule 144. In addition, certain of our significant stockholders may distribute
the shares that they hold to their investors who themselves may then sell into the public market. Such sales may not be subject to the volume, manner of sale, holding period and other limitations of Rule 144. As resale restrictions end, the market price of our common stock could decline if the holders of those shares sell them or are perceived by the market as intending to sell them. In the future, we may
also issue additional shares of common stock or other equity or debt securities convertible into common stock in connection with a financing, acquisition, litigation settlement or employee arrangement or otherwise. Any of these issuances could result in substantial dilution to our existing stockholders and could cause the trading price of our common stock to decline.
The Temasek Investor purchased $350 million of newly issued shares of our common stock from us concurrently with the IPO. The shares of our common stock sold in the concurrent private placement were not registered under the Securities Act. As a result, the shares of our common stock purchased by the Temasek Investor are restricted securities within the meaning of Rule 144 under the Securities Act, but will be eligible for resale subject to applicable restrictions under Rule 144 or pursuant to any other exemption from registration under the Securities Act. In addition, the Temasek Investor is a party to the Fourth Amended and Restated Stockholders’ Agreement of Univar Inc., (the “Amended and Restated Stockholders Agreement”) pursuant to which it was granted certain registration rights.
If securities or industry analysts do not publish research or publish misleading or unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our business. If there is no coverage of our company by securities or industry analysts, the trading price for our stock would be negatively impacted. Additionally, if one or more of these analysts downgrades our stock or publishes misleading or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price or trading volume to decline.
The Equity Sponsors and the Temasek Investor will control the direction of our business and
Significant stockholders have the right to nominate members of our Board of
Directors. IfDirectors and may exercise significant control over the
direction of our business. To the extent ownership of our common stock continues to be
highly concentrated,held by stockholders with these rights, it could prevent you and other stockholders from influencing significant corporate decisions.
The Equity Sponsors collectively
Investment funds associated with Clayton, Dubilier & Rice, LLC (“CD&R”) beneficially own approximately
46.0%8.2% of the outstanding shares of our common
stock and the Temasek Investor owns approximately 16.4% of the outstanding shares of our commonstock. As a result, the Equity Sponsors and the Temasek Investor willCD&R continues to exercise significant influence over all matters requiring stockholder approval for the foreseeable future, including approval of significant corporate transactions, which may reduce the market price of our common stock.
The
Under the Fourth Amended and Restated Stockholders' Agreement of Univar Inc. (the “Amended and Restated Stockholders’ Agreement allows each Equity SponsorAgreement”), CD&R is entitled to nominate sixup to three sponsor directors each as long as they own at least 50%and three independent directors under certain circumstances related to continued ownership of the shares of our common stock that the applicable Equity Sponsor owned on November 30, 2010, or anythey hold. CD&R continues to hold 11,561,039 shares, or other securities into which or for which such shares of common stock may have been converted or exchanged in connection with any exchange, reclassification, dividend, distribution, stock split, combination, subdivision, merger, spin-off, recapitalization, reorganization or similar transaction. In addition, the Amended and Restated Stockholders’ Agreement allows the Temasek Investorthem to continue to nominate a director for as long as it owns at least 10%members to our board of the outstanding shares of our common stock. This could allow the Equity Sponsors and the Temasek Investor to nominate the entire Board of Directors. In addition, we are a “controlled company” for the purposes of the NYSE rules, which provides us with exemptions from certain of the corporate governance standards imposed by the NYSE’s rules. directors.
These provisions allow
the Equity Sponsors and the Temasek InvestorCD&R to continue to exercise significant control over our corporate decisions,
and limit the ability of the publicincluding over matters which our other stockholders
might approve.have a right to vote. Our
Third Amended and Restated Certificate of Incorporation and our
Second Amended and Restated Bylaws also include a number of provisions that may discourage, delay or prevent a change in our management or control for so long as
the Equity Sponsors ownCD&R owns specified percentages of our common stock. See “—Anti-takeover provisions in our charter documents and Delaware law could discourage, delay or prevent a change in control of our company and may affect the trading price of our common stock.” These provisions not only could have a negative impact on the trading price of our common stock, but could also allow the
Equity SponsorsSignificant Stockholders to delay or prevent a corporate transaction that the public stockholders might approve.
Our
Third Amended and Restated Certificate of Incorporation provides that we
will waive any interest or expectancy in corporate opportunities presented to
the Equity Sponsors.CD&R.
Our
Third Amended and Restated Certificate of Incorporation provides that we, on our behalf and on behalf of our subsidiaries, renounce and waive any interest or expectancy in, or in being offered an opportunity to participate in, corporate opportunities that are from time to time presented to
the Equity Sponsors,CD&R, or their respective officers, directors, agents, stockholders, members, partners, affiliates or subsidiaries, even if the opportunity is one that we or our subsidiaries might reasonably be deemed to have pursued or had the ability or desire to pursue if granted the opportunity to do so. None of
the Equity SponsorsCD&R or
theirits respective agents, stockholders, members, partners, affiliates or subsidiaries will generally be liable to us or any of our subsidiaries for breach of any fiduciary or other duty, as a director or otherwise, by reason of the fact that such person pursues, acquires or participates in such corporate opportunity, directs such corporate opportunity to another person or fails to present such corporate opportunity, or information regarding such corporate opportunity, to us or our subsidiaries unless, in the case of any such person who is a director or officer, such corporate opportunity is expressly offered to such director or officer in writing solely in his or her capacity as a director or officer. Stockholders will be deemed to have notice of and consented to this provision of our
Third Amended and Restated Certificate of Incorporation. This will allow
the Equity SponsorsCD&R to compete with us. Strong competition for investment opportunities could result in fewer such opportunities for us. We likely will not always be able to compete successfully with our competitors and competitive pressures or other factors may also result in significant price competition, particularly during industry downturns, which could have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows.
Fulfilling our obligations incident to being a public company, including with respect to the requirements of and related rules under the Sarbanes-Oxley Act of 2002,
will beis expensive and time-consuming, and any delays or difficulties in satisfying these obligations could have a material adverse effect on our future results of operations and our stock price.
We are subject to the reporting and corporate governance requirements, the listing standards of the NYSE and the Sarbanes-Oxley Act of 2002
or the Sarbanes-Oxley Act,(the “Sarbanes-Oxley Act”), which apply to issuers of listed equity, which
impose certain compliance costs and obligations upon us. Meeting these standards requires a significant commitment of additional resources and management oversight, which increases our operating costs. These requirements also place additional demands on our finance and accounting staff and on our financial accounting and information systems. Other expenses associated with being a public company include increases in auditing, accounting and legal fees and expenses, investor relations expenses, increased directors’ fees and director and officer liability insurance costs, registrar and transfer agent fees and listing fees, as well as other expenses. As a public company, we are required, among other things, to:
prepare and file periodic reports, and distribute other shareholderstockholder communications, in compliance with the federal securities laws and the NYSE rules;
define and expand the roles and the duties of our Board of Directors and its committees; and
institute more comprehensive compliance, investor relations and internal audit functions.
In particular, the
The Sarbanes-Oxley Act requires us to document and test the effectiveness of our internal control over financial reporting in accordance with an established internal control framework, and to report on our conclusions as to the effectiveness of our internal controls. Likewise, our independent registered public accounting firm will be required to provide an attestation report on the effectiveness of our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act. In addition, we are required under the Securities Exchange Act of 1934, as amended,
or the Exchange Act,(the “Exchange Act”), to maintain disclosure controls and procedures and internal control over financial reporting. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. If we or our
independent auditors are unable to conclude that we have effective internal control over financial reporting, investors could lose confidence in the reliability of our financial statements. This could result in a decrease in the value of our common
shares.stock. Failure to comply with the Sarbanes-Oxley Act could potentially subject us to sanctions or investigations by the
Securities and Exchange Commission, or the SEC, the NYSE or other regulatory authorities, which would require additional financial and management resources.
Our ability to successfully implement our business plan and comply with Section 404 requires us to be able to prepare timely and accurate financial statements. Any delay in the implementation of, or disruption in the transition to, new or enhanced systems, procedures or controls, may cause our operations to suffer and we may be unable to conclude that our internal control over financial reporting is effective and to obtain an unqualified report on internal controls from our auditors. Moreover, we cannot be certain that these measures would ensure that we implement and maintain adequate controls over our financial processes and reporting in the future. Even if we were to conclude, and our auditors were to concur, that our internal control over financial reporting provided reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, because of its inherent limitations, internal control over financial reporting may not prevent or detect fraud or misstatements. This, in turn, could have an adverse impact on trading prices for our shares of common stock, and could adversely affect our ability to access the capital markets.
Anti-takeover provisions in our charter documents and Delaware law could discourage, delay or prevent a change in control of our company and may affect the trading price of our common stock.
Our
Third Amended and Restated Certificate of Incorporation and
Second Amended and Restated By-laws include a number of provisions that may discourage, delay or prevent a change in our management or control over us that stockholders may consider favorable. For example, our
Third Amended and Restated Certificate of Incorporation and
Second Amended and Restated By-laws:By-laws currently:authorize the issuance of “blank check” preferred stock that could be issued by our Board of Directors to thwart a takeover attempt;
establish a classified Board of Directors, as a result of which our board will be divided into three classes, with each class serving for staggered three-year terms, which prevents stockholders from electing an entirely new Board of Directors at an annual meeting;
limit the ability of stockholders to remove directors if the Equity Sponsors collectively cease to own more than 25% of our voting common stock;directors; and
provide that vacancies on the Board of Directors, including newly-created directorships, may be filled only by a majority vote of directors then in office;
prohibit stockholders from calling special meetings of stockholders if the Equity Sponsors collectively cease to own more than 50% of our voting common stock;
prohibit stockholder action by written consent, thereby requiring all actions to be taken at a meeting of the stockholders if the Equity Sponsors collectively cease to own more than 50% of our voting common stock;
establish advance notice requirements for nominations for election to our Board of Directors or for proposing matters that can be acted upon by stockholders at stockholder meetings; andmeetings.
require the approval of holders of at least 75% of the outstanding shares of our voting common stock to amend the Second Amended and Restated By-laws and certain provisions of the Third Amended and Restated Certificate of Incorporation if the Equity Sponsors collectively cease to own more than 50% of our common stock.
These provisions may prevent our stockholders from receiving the benefit from any premium to the market price of our common stock offered by a bidder in a takeover context. Even in the absence of a takeover attempt or before our Board becomes fully declassified, the existence of these provisions may adversely affect the prevailing market price of our common stock if the provisions are viewed as discouraging takeover attempts in the future. See “Description of Capital Stock—Anti-Takeover Effects of our Third Amended and Restated Certificate of Incorporation and Second Amended and Restated By-laws”By-laws.” Our Third Amended and Restated Certificate of Incorporation and Second Amended and Restated By-laws may also make it difficult for stockholders to replace or remove our management. These provisions may facilitate management entrenchment that may delay, deter, render more difficult or prevent a change in our control, which may not be in the best interests of our stockholders.
Our
Third Amended and Restated Certificate of Incorporation includes provisions limiting the personal liability of our directors for breaches of fiduciary duty under the
DGCL.Our Third AmendedGeneral Corporation Law of the State of Delaware and Restatedwe have entered into Indemnification Agreements, which provide further protections to our directors.
Our Certificate of Incorporation contains provisions permitted under the
DGCLGeneral Corporation Law of the State of Delaware (the “DGCL”) relating to the liability of directors. These provisions eliminate a director’s personal liability to the fullest extent permitted by the DGCL for monetary damages resulting from a breach of fiduciary duty, except in circumstances involving:
any breach of the director’s duty of loyalty;
acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law;
under Section 174 of the DGCL (unlawful dividends); or
any transaction from which the director derives an improper personal benefit.
The principal effect of the limitation on liability provision is that a stockholder will be unable to prosecute an action for monetary damages against a director unless the stockholder can demonstrate a basis for liability for which indemnification is not available under the DGCL. These provisions, however, should not limit or eliminate our rights or any stockholder’s rights to seek non-monetary relief, such as an injunction or rescission, in the event of a breach of a director’s fiduciary duty. These provisions will not alter a director’s liability under federal
securities laws. The inclusion of this provision in our Third Amended and Restated Certificate of Incorporation may discourage or deter stockholders or management from bringing a lawsuit against directors for a breach of their fiduciary duties, even though such an action, if successful, might otherwise have benefited us and our stockholders.
Our Third Amended
We have entered into indemnification agreements with each of our directors and Restatedcertain of our executive officers. The indemnification agreements provide our directors and certain of our executive officers with contractual rights to the indemnification and expense advancement rights provided under our By-laws, as well as contractual rights to additional indemnification as provided in the indemnification agreements.
Our Certificate of Incorporation designates the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.
Our
Third Amended and Restated Certificate of Incorporation provides that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed to us or our stockholders by any of our directors, officers, employees or agents, (iii) any action asserting a claim against us arising under the
General Corporation Law of the State of Delaware, or the DGCL, or (iv) any action asserting a claim against us that is governed by the internal affairs doctrine. By becoming a stockholder in our company, you will be deemed to have notice of and have consented to the provisions of our
Third Amended and Restated Certificate of Incorporation related to choice of forum. The choice of forum provision in our
amended and restated certificate of incorporation Third Amended and Restated Certificate of Incorporation may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.
We do not
currently intend to pay
cash dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.
We do not
currently intend to declare and pay
cash dividends on our common
stock for the foreseeable future.stock. We currently intend to invest our future earnings, if any, to fund our
growth.growth and repay outstanding indebtedness. Therefore, you are
not likelyunlikely to receive any dividends on your common stock
for the foreseeablein 2019 and we have no current plans to pay dividends in future
and theperiods. The success of an investment in shares of our common stock will
therefore depend
entirely upon any future appreciation in their value. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which our stockholders have purchased their shares.
See “Dividend Policy.”
Risks Related to the Nexeo Acquisition
The Nexeo Acquisition is subject to the approval of our shareholders as to our share issuance. Failure to obtain this approval would prevent completion of the Nexeo Acquisition.
Before the Nexeo Acquisition can be completed, our shareholders must approve our share issuance. There can be no assurance that this approval will be obtained. Failure to obtain the required approval may result in a material delay in, or the abandonment of, the acquisition. Any delay in completing the acquisition may materially adversely affect the timing and amount of cost savings and other benefits that are expected to be achieved from the acquisition.
Uncertainties associated with the Nexeo Acquisition may cause a loss of management personnel and other key employees which could adversely affect our future business and operations following the Nexeo Acquisition.
We are a “controlled company” withindependent on the meaningexperience and industry knowledge of our officers and other key employees to execute our business plans. Our success after the acquisition will depend in part upon our ability to retain key management personnel and other key employees. Current and prospective employees may experience uncertainty about their roles following the acquisition or other concerns regarding the timing and completion of the NYSE rulesacquisition or our operations following the acquisition, any of which may have an adverse effect on our ability to attract or retain key management and other key personnel. Accordingly, no assurance can be given that following the Nexeo Acquisition we will be able to attract or retain key management personnel and other key employees to the same extent that we have previously been able to attract or retain our employees.
The business relationships of Univar and Nexeo may be subject to disruption due to uncertainty associated with the Nexeo Acquisition, which could have a material adverse effect on our results of operations, cash flows and financial position following the acquisition.
Parties with which Univar or Nexeo do business may experience uncertainty associated with the Nexeo Acquisition, including with respect to current or future business relationships with Univar or Nexeo following the acquisition. Univar’s and Nexeo’s business relationships may be subject to disruption as customers, distributors, suppliers, vendors and others may attempt to negotiate changes in existing business relationships or consider entering into business relationships with parties other than Univar or Nexeo following the acquisition. These disruptions could have an adverse effect on our results of operations, cash flows and financial position, including an adverse effect on our ability to realize the expected cost savings and other benefits of the acquisition. The risk, and adverse effect, of any disruption could be exacerbated by a delay in completion of the acquisition or termination of the Business Combination Agreement.
Failure to complete the Nexeo Acquisition could negatively impact our stock price and have a material adverse effect on our results of operations, cash flows and financial position.
If the Nexeo Acquisition is not completed for any reason, including as a result of Univar or Nexeo stockholders failing to approve the applicable proposals, our ongoing business may be materially adversely affected and, without realizing any of the benefits of having completed the acquisition, we qualify for, and rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that arewould be subject to a number of risks, including the following:
we may experience negative reactions from the financial markets, including negative impacts on our stock price;
we may experience negative reactions from customers, distributors, regulators and employees;
we will still be required to pay certain significant costs relating to the Nexeo Acquisition, such
requirements.The Equity Sponsors collectively beneficially ownas legal, accounting, financial advisor and printing fees;
we may be required to pay one or more cash termination fees as required by the Business Combination Agreement;
matters relating to the Nexeo Acquisition (including integration planning) require substantial commitments of our time and resources, which could have resulted in the distraction of our management from ongoing business operations and pursuing other opportunities that could have been beneficial to us; and
litigation related to any failure to complete the Nexeo Acquisition or related to any enforcement proceeding commenced against us to perform our obligations under the Business Combination Agreement.
If the Nexeo Acquisition is not completed, the risks described above may materialize and they may have a material adverse effect on our results of operations, cash flows, financial position and stock prices.
Our current stockholders will generally have a reduced ownership and voting interest after the Nexeo Acquisition.
We expect to issue to Nexeo stockholders (or reserve for issuance) approximately
46.0% of the outstanding37 million shares of our common stock
andin the
Temasek Investor beneficially owns approximately 16.4% of the outstandingacquisition (including shares of our common
stock. The Equity Sponsorsstock issuable in connection with outstanding Nexeo stock options, restricted stock awards, performance share unit awards and
restricted share unit awards and assuming the
Temasek Investor are a “group” withinconversion of all the
meaningoutstanding Nexeo warrants into shares of
Nexeo common stock entitled to receive the
NYSE corporate governance rules and as a result we qualify as a “controlled company” within the meaning of the NYSE corporate governance rules. Under these rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including:the requirement that a majority of the Board of Directors consist of independent directors;
the requirement that we have a nominating and corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities, or otherwise have director nominees selected by vote of a majority of the independent directors;
the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and
the requirement for an annual performance evaluation of the nominating and corporate governance and compensation committees.
Accordingly, we rely on exemptions from certain corporate governance requirements.consideration). As a result we may notof these issuances, our stockholders will generally have a majority of independent directors, our compensation committeeless voting power after the acquisition than they now have.
The exchange ratio is fixed and nominating and corporate governance committee may not consist entirely of independent directors and the board committees maywill not be subject to annual performance evaluations. Consequently, you will not haveadjusted in the same protections afforded to stockholdersevent of companies that are subject to all applicableany change in our stock exchange corporate governance rules and requirements. Our status as a controlled company could makeprice. Because the market price of our common stock less attractivemay fluctuate, the value of the consideration we will pay is uncertain.
As consideration for the Nexeo Acquisition, each share of Nexeo common stock (other than dissenters’ shares or treasury shares held by Nexeo and any shares of Nexeo common stock owned by any Nexeo subsidiary, Univar or Univar subsidiary) will be converted into the right to some investorsreceive and exchanged for (1) 0.305 of a fully paid and non-assessable share of Univar common stock plus (2) $3.29 in cash. The cash consideration is subject to reduction by up to $0.41 per share based on the closing price of Univar common stock on the day prior to the completion of the acquisition. The cash consideration will be reduced on a linear basis from $3.29 to $2.88 per share of Nexeo common stock to the extent that the closing price of Univar common stock is between $25.34 and $22.18. If the closing price of Univar common stock is $22.18 per share or lower, the cash consideration will be $2.88 per share of Nexeo common stock. If the closing price of Univar common stock is $25.34 per share or higher, the cash consideration will be $3.29 per share of Nexeo common stock. Nexeo stockholders will receive cash in lieu of any fractional shares.
The exchange ratio will not be adjusted for changes in the market price of our common stock. Because the exchange ratio is fixed, the value of the stock portion of the consideration will depend on the market price of our common stock at the completion of the acquisition. The value of the stock portion of the consideration has fluctuated since the date of the announcement of the Business Combination Agreement and will continue to fluctuate from the date of this 10-K to the completion of the acquisition and thereafter.
We may be unable to integrate the business of Nexeo successfully or realize the anticipated benefits of the acquisition.
The Nexeo Acquisition involves the combination of two companies that currently operate as independent public companies. We will be required to devote significant management attention and resources to integrating the business practices and operations of Nexeo and Univar. Potential difficulties that we may encounter as part of the integration process include the following:
the inability to successfully combine the business of Nexeo in a manner that permits us to achieve, on a timely basis, or at all, the enhanced revenue opportunities and cost savings and other benefits anticipated to result from the Nexeo Acquisition;
complexities associated with managing the combined businesses, including difficulty addressing possible differences in corporate cultures and management philosophies and the challenge of integrating complex systems, technology, networks and other assets of each of the companies in a seamless manner that minimizes any adverse impact on customers, suppliers, employees and other constituencies; and
potential unknown liabilities, including shareholder lawsuits and other potential legal actions, and unforeseen increased expenses or delays associated with the Nexeo Acquisition.
Any of these issues could adversely affect our ability to maintain relationships with customers, suppliers, employees and other constituencies or achieve the anticipated benefits of the acquisition, or could reduce our earnings or otherwise harmadversely affect our business and financial results following the acquisition.
Our future results following the Nexeo Acquisition will suffer if we do not effectively manage our expanded operations.
Following the acquisition, the size of our business will increase significantly beyond its current size. Our future success will depend, in part, upon our ability to manage this expanded business, which will pose substantial challenges for us, including challenges related to the management and monitoring of new operations and associated increased costs and complexity. There can be no assurances that we will be successful or that we will realize the expected operating efficiencies, cost savings, revenue enhancements or other benefits currently anticipated from the acquisition.
In connection with the Nexeo Acquisition, we will incur additional indebtedness and may also assume certain of Nexeo’s outstanding indebtedness. Additional indebtedness would amplify the risks associated with our current indebtedness by increasing our interest expense and potentially reducing our flexibility to respond to changing business and economic conditions, which could have a material adverse effect on our results of operations, cash flows and financial position.
The increased indebtedness would increase our interest expense which could have the effect, among other things, of reducing our flexibility to respond to changing business and economic conditions. We will also incur various costs and expenses associated with the financing of the Nexeo Acquisition. The amount of cash required to pay interest on our increased indebtedness levels following completion of the Nexeo Acquisition and thus the demands on our cash resources will be greater than the amount of cash flows required to service our indebtedness prior to the Nexeo Acquisition. The increased levels of indebtedness following completion of the Nexeo Acquisition could also reduce funds available for working capital, capital expenditures, acquisitions and other general corporate purposes and may create competitive disadvantages for us relative to other companies with lower debt levels. If we do not achieve the expected benefits and cost savings from the Nexeo Acquisition, or if the financial performance of the combined company does not meet current expectations, then our ability to service our indebtedness may be adversely impacted. See “Risks Related to Our Indebtedness” above.
We may not successfully divest Nexeo’s plastics distribution business.
On February 8, 2019, Univar and Nexeo announced an agreement for Nexeo to divest its plastics distribution business to an affiliate of One Rock Capital Partners, LLC for an enterprise value of $640.0 million, subject to customary closing adjustments. The Company can provide no assurance this divestiture will occur timely or at all. If the divestiture of the plastics distribution business is delayed or unsuccessful, the Company could experience:
a loss of management personnel and other key employees of the plastics business;
disruption in the business relationships of the plastics business;
additional challenges and delays in successfully integrating the business of Nexeo, managing our newly-expanded operations or realizing the anticipated benefits of the Nexeo Acquisition; and
incurring larger amounts of indebtedness than anticipated.
Any of these risks, alone or in combination, could have a material adverse effect on our stock
price.ITEM 1B. | UNRESOLVED STAFF COMMENTS. |
price and otherwise adversely affect our business and financial results following the acquisition.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
ITEM 2. PROPERTIES
Our principal executive office is located in Downers Grove, Illinois under a lease expiring in June 2024. As of December 31,
2015,2018, we had
506278 locations in the United States in
4947 states. Of these locations, approximately
487265 are
warehouseswarehouse facilities responsible for storing and shipping of products and
1713 are
office space.We have 432 locations outside of the United States in 33 countries. Of these locations, 385 are warehouses responsible for storing and shipping of products and 48 arededicated office space. The facilities outside of the United States are located in:
Brazil (5 facilities)
Canada (169 facilities)
China (15 facilities)
France (32 facilities)
Germany (13 facilities)
Belgium (9 facilities)
Mexico (34 facilities)
Netherlands (20 facilities)
Sweden (14 facilities)
Turkey (12 facilities)
United Kingdom (39 facilities)
Almost all of ourOur warehouse facilities are nearly equally comprised of owned, leased and third party warehouses where activityand our office space is limited togenerally leased. Our facilities focus on the storing, repackaging and blending of chemicals and ingredients for distribution. Such facilities do not require substantial investments in equipment, and can be opened fairly quickly and replaced with little disruption. As such, we believe that none of our facilities on an individual basis is principal to the operation of our business. We select locations for our warehouses based on proximity to producers and our customers in order for us to fully utilize our facilities and maintain efficient distribution networks. We believe that our facilities are adequate and suitable for our current operations. We hold a relatively small number of surplus sites for potential disposition. Although we own several of our largest facilities, most of our facilities are leased. In some instances, our larger owned sites have been mortgaged under our secured credit facilities.
We have 354 locations outside of the United States in 30 countries. These facilities are focused on storing and shipping of products. Approximately half are owned or leased and half are third party warehouses. The majority of the facilities outside of the United States are found in the following countries:
Canada (126 facilities)
China (13 facilities)
France (22 facilities)
Germany (7 facilities)
Italy (8 facilities)
Mexico (26 facilities)
Netherlands (19 facilities)
Spain (7 facilities)
Sweden (17 facilities)
Turkey ( 9 facilities)
United Kingdom (40 facilities)
ITEM 3. LEGAL PROCEEDINGS
“Legal Proceedings” in Item 1 of this Annual Report on Form 10-K and Note
18,20, entitled “Commitments and
Contingencies”contingencies” in Item 8 of this Annual Report on Form 10-K, are incorporated herein by reference.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
PART II
| ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECUIRITESSECURITIES |
Market Information for Common Stock
Our common stock
has beenis listed on the New York Stock Exchange under the symbol “UNVR”
since June 18, 2015. Prior to that time, there was no public market for our stock. The following table sets forth for the indicated periods the high and low intra-day sales prices per share for our common stock on the New York Stock Exchange. | | | | | | | | |
| | | High | | | Low | |
Second Quarter 2015 (from June 18, 2015) | | $ | 27.75 | | | $ | 22.00 | |
Third Quarter 2015 | | | 26.75 | | | | 17.75 | |
Fourth Quarter 2015 | | | 22.09 | | | | 16.18 | |
.
As of December 31,
2015,2018, there were
462 stockholders of record of our common stock, and the closing price of our common stock was
$17.01$17.74 per share as reported on the New York Stock Exchange.
Stock Performance
The following graph shows a comparison of cumulative total shareholder return, calculated on a dividend reinvested basis, for the Company, the S&P 500 and the S&P 500 Chemical Index for the period beginning on June 17, 2015 through year ended December 31, 2018. The graph assumes $100 was invested in each of the Company's common stock, the S&P 500 and S&P 500 Chemical Index as of the market close on June 17, 2015. Note that historic stock price performance is not necessarily indicative of future stock price performance.
We have never declared or paid any cash dividend on our common stock. We
currently intend to retain any future earnings and
do not expectwe have no current plans to pay dividends in
the foreseeable future.future periods. In addition, our credit facilities contain restrictions on our ability to pay dividends.
ITEM 6. | SELECTED FINANCIAL DATA |
ITEM 6. SELECTED FINANCIAL DATA
The following table presents our summary consolidated financial data as of and for the periods indicated. The selected consolidated financial data as of December 31,
20152018 and
20142017 and for the years ended December 31,
2015, 20142018, 2017 and
20132016 have been derived from our audited consolidated financial statements included in Item 8 of this Annual Report on Form 10-K. The selected consolidated financial data as of December 31,
2013, 20122016, 2015 and
20112014 and for the
fiscal years ended December 31,
20122015 and
20112014 are derived from our audited consolidated financial statements which are not included in this Annual Report on Form 10-K. Our historical consolidated financial data may not be indicative of our future performance.
This “Selected Financial Data” should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this Annual Report on Form 10-K and our audited consolidated financial statements and related notes included in Item 8 of this Annual Report on Form 10-K.
| | | | | | | | | | | | | | | | | | | | |
| | | Fiscal Year Ended | |
| | | December 31,
2015 | | | December 31,
2014 | | | December 31,
2013 | | | December 31,
2012 | | | December 31,
2011 | |
| (in millions except per share data) | | (audited) | |
Consolidated Statements of Operations | | | | | | | | | | | | | | | | | | | | |
Net sales | | $ | 8,981.8 | | | $ | 10,373.9 | | | $ | 10,324.6 | | | $ | 9,747.1 | | | $ | 9,718.5 | |
Gross profit | | | 1,799.1 | | | | 1,930.7 | | | | 1,875.9 | | | | 1,822.5 | | | | 1,835.5 | |
Gross margin | | | 20.0 | % | | | 18.6 | % | | | 18.2 | % | | | 18.7 | % | | | 18.9 | % |
Income (loss) from continuing operations | | | 16.5 | | | | (20.1 | ) | | | (82.3 | ) | | | (197.4 | ) | | | (176.2 | ) |
Income (loss) from continuing operations per common share – diluted | | | 0.14 | | | | (0.20 | ) | | | (0.83 | ) | | | (2.01 | ) | | | (1.80 | ) |
| | | | | |
Consolidated Balance Sheet | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 188.1 | | | $ | 206.0 | | | $ | 180.4 | | | $ | 220.9 | | | $ | 96.3 | |
Total assets | | | 5,612.4 | | | | 6,067.7 | | | | 6,204.7 | | | | 6,513.8 | | | | 5,691.9 | |
Long-term obligations | | | 3,502.2 | | | | 4,300.7 | | | | 4,232.5 | | | | 4,508.7 | | | | 3,612.7 | |
Stockholders’ equity | | | 816.7 | | | | 248.1 | | | | 381.3 | | | | 526.4 | | | | 660.3 | |
| | | | | |
Other financial data: | | | | | | | | | | | | | | | | | | | | |
Cash provided by operating activities | | $ | 356.0 | | | $ | 126.3 | | | $ | 289.3 | | | $ | 15.5 | | | $ | 262.4 | |
Cash (used) by investing activities | | | (294.4 | ) | | | (148.2 | ) | | | (215.7 | ) | | | (657.1 | ) | | | (250.8 | ) |
Cash (used) provided by financing activities | | | (19.8 | ) | | | 84.1 | | | | (110.5 | ) | | | 753.8 | | | | (35.1 | ) |
Capital expenditures | | | 145.0 | | | | 113.9 | | | | 141.3 | | | | 170.1 | | | | 102.9 | |
Adjusted EBITDA(1) | | | 600.1 | | | | 641.7 | | | | 598.2 | | | | 607.2 | | | | 646.0 | |
Adjusted EBITDA margin(1) | | | 6.7 | % | | | 6.2 | % | | | 5.8 | % | | | 6.2 | % | | | 6.6 | % |
|
| | | | | | | | | | | | | | | | | | | |
| | Fiscal year ended December 31, |
| | 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
| (in millions, except per share data) | |
| Consolidated Statements of Operations | | | | | | | | | |
| Net sales | $ | 8,632.5 |
| | $ | 8,253.7 |
| | $ | 8,073.7 |
| | $ | 8,981.8 |
| | $ | 10,373.9 |
|
| Operating income | 387.4 |
| | 338.0 |
| | 138.4 |
| | 259.3 |
| | 315.7 |
|
| Net income (loss) | 172.3 |
| | 119.8 |
| | (68.4 | ) | | 16.5 |
| | (20.1 | ) |
| Income (loss) per common share – diluted | 1.21 |
| | 0.85 |
| | (0.50 | ) | | 0.14 |
| | (0.20 | ) |
| Consolidated Balance Sheet | | | | | | | | | |
| Cash and cash equivalents | $ | 121.6 |
| | $ | 467.0 |
| | $ | 336.4 |
| | $ | 188.1 |
| | $ | 206.0 |
|
| Total assets | 5,272.4 |
| | 5,732.7 |
| | 5,389.9 |
| | 5,612.4 |
| | 6,067.7 |
|
| Long-term liabilities | 2,746.1 |
| | 3,223.2 |
| | 3,240.5 |
| | 3,502.2 |
| | 4,300.7 |
|
| Stockholders’ equity | 1,191.7 |
| | 1,090.1 |
| | 809.9 |
| | 816.7 |
| | 248.1 |
|
| Other Financial Data | | | | | | | | | |
| Cash provided by operating activities | $ | 289.9 |
| | $ | 282.6 |
| | $ | 450.0 |
| | $ | 356.0 |
| | $ | 126.3 |
|
| Cash used by investing activities | (99.0 | ) | | (79.1 | ) | | (136.0 | ) | | (294.4 | ) | | (148.2 | ) |
| Cash (used) provided by financing activities | (518.3 | ) | | (112.4 | ) | | (166.5 | ) | | (19.8 | ) | | 84.1 |
|
| Capital expenditures | 94.6 |
| | 82.7 |
| | 90.1 |
| | 145.0 |
| | 113.9 |
|
Adjusted EBITDA (1) | 640.4 |
| | 593.8 |
| | 547.4 |
| | 573.3 |
| | 624.8 |
|
Adjusted EBITDA margin (1) | 7.4 | % | | 7.2 | % | | 6.8 | % | | 6.4 | % | | 6.0 | % |
| |
| (1) | For a complete discussion of the method of calculating Adjusted EBITDA and its usefulness, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this Annual Report on Form 10-K. We define Adjusted EBITDA margin as Adjusted EBITDA divided by net sales. The following is a quantitative reconciliation of Adjusted EBITDA to the most directly comparable GAAP financial performance measure, which is net income (loss): |
| | | | | | | | | | | | | | | | | | | | |
| | | Fiscal Year Ended | |
| | | December 31,
2015 | | | December 31,
2014 | | | December 31,
2013 | | | December 31,
2012 | | | December 31,
2011 | |
Net income (loss) | | $ | 16.5 | | | $ | (20.1 | ) | | $ | (82.3 | ) | | $ | (197.4 | ) | | $ | (176.2 | ) |
Income tax expense (benefit) | | | 10.2 | | | | (15.8 | ) | | | (9.8 | ) | | | 75.6 | | | | 15.9 | |
Interest expense, net | | | 207.0 | | | | 250.6 | | | | 294.5 | | | | 268.1 | | | | 273.6 | |
Loss on extinguishment of debt | | | 12.1 | | | | 1.2 | | | | 2.5 | | | | 0.5 | | | | 16.1 | |
Amortization | | | 88.5 | | | | 96.0 | | | | 100.0 | | | | 93.3 | | | | 90.0 | |
Depreciation | | | 136.5 | | | | 133.5 | | | | 128.1 | | | | 111.7 | | | | 108.4 | |
| | | | | | | | | | | | | | | | | | | | |
EBITDA | | $ | 470.8 | | | $ | 445.4 | | | $ | 433.0 | | | $ | 351.8 | | | $ | 327.8 | |
| | | | | | | | | | | | | | | | | | | | |
Impairment charges(a) | | | — | | | | 0.3 | | | | 135.6 | | | | 75.8 | | | | 173.9 | |
Other operating expenses, net(b) | | | 106.1 | | | | 197.1 | | | | 12.0 | | | | 177.7 | | | | 140.3 | |
Other expense (income), net(c) | | | 23.2 | | | | (1.1 | ) | | | 17.6 | | | | 1.9 | | | | 4.0 | |
| | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA | | $ | 600.1 | | | $ | 641.7 | | | $ | 598.2 | | | $ | 607.2 | | | $ | 646.0 | |
| | | | | | | | | | | | | | | | | | | | |
The following is a quantitative reconciliation of Adjusted EBITDA to the most directly comparable GAAP financial performance measure, which is net income (loss):
|
| | | | | | | | | | | | | | | | | | | |
| | Fiscal year ended December 31, |
| (in millions) | 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
| Net income (loss) | $ | 172.3 |
| | $ | 119.8 |
| | $ | (68.4 | ) | | $ | 16.5 |
| | $ | (20.1 | ) |
Impairment charges (1) | — |
| | — |
| | 133.9 |
| | — |
| | 0.3 |
|
| Pension mark to market loss | 34.2 |
| | 3.8 |
| | 68.6 |
| | 21.1 |
| | 117.8 |
|
| Pension curtailment and settlement gains | — |
| | (9.7 | ) | | (1.3 | ) | | (4.0 | ) | | — |
|
| Non-operating retirement benefits | (11.0 | ) | | (9.9 | ) | | (15.3 | ) | | (26.8 | ) | | (16.9 | ) |
| Stock-based compensation expense | 20.7 |
| | 19.7 |
| | 10.4 |
| | 7.5 |
| | 12.1 |
|
| Business transformation costs | — |
| | 23.4 |
| | 5.4 |
| | — |
| | — |
|
| Restructuring charges | 4.8 |
| | 5.5 |
| | 6.5 |
| | 33.8 |
| | 46.2 |
|
| Other employee termination costs | 16.4 |
| | 8.1 |
| | 1.5 |
| | — |
| | — |
|
| Loss (gain) on sale of property, plant and equipment and other assets | 2.0 |
| | (11.3 | ) | | (0.7 | ) | | (2.8 | ) | | 3.4 |
|
| Acquisition and integration related expenses | 22.0 |
| | 3.1 |
| | 5.5 |
| | 7.1 |
| | 3.7 |
|
| Other operating expenses | 7.6 |
| | 6.9 |
| | 8.6 |
| | 14.4 |
| | 8.0 |
|
| Other non-operating items | 3.1 |
| | 3.5 |
| | 0.1 |
| | 4.1 |
| | 2.9 |
|
| Foreign currency transactions | 6.7 |
| | 4.6 |
| | 0.6 |
| | 0.8 |
| | 0.6 |
|
| Foreign currency denominated loans revaluation | 0.8 |
| | 17.9 |
| | 13.7 |
| | (8.9 | ) | | (8.3 | ) |
| Undesignated foreign currency derivative instruments | (1.1 | ) | | (0.3 | ) | | 1.8 |
| | 4.8 |
| | 3.9 |
|
| Undesignated interest rate swap contracts | — |
| | 2.2 |
| | (10.1 | ) | | (2.0 | ) | | — |
|
| Ineffective portion of cash flow hedges | — |
| | — |
| | — |
| | 0.4 |
| | (0.2 | ) |
| Loss due to discontinuance of cash flow hedges | — |
| | — |
| | — |
| | 7.5 |
| | — |
|
| Debt refinancing costs | — |
| | 5.3 |
| | — |
| | 16.5 |
| | — |
|
| Loss on extinguishment of debt | 0.1 |
| | 3.8 |
| | — |
| | 12.1 |
| | 1.2 |
|
| Advisory fees to CVC and CD&R | — |
| | — |
| | — |
| | 2.8 |
| | 5.9 |
|
| Contract termination fee to CVC and CD&R | — |
| | — |
| | — |
| | 26.2 |
| | — |
|
| Depreciation and amortization | 179.5 |
| | 200.4 |
| | 237.9 |
| | 225.0 |
| | 229.5 |
|
| Interest expense, net | 132.4 |
| | 148.0 |
| | 159.9 |
| | 207.0 |
| | 250.6 |
|
| Tax expense (benefit) | 49.9 |
| | 49.0 |
| | (11.2 | ) | | 10.2 |
| | (15.8 | ) |
| Adjusted EBITDA | $ | 640.4 |
| | $ | 593.8 |
| | $ | 547.4 |
| | $ | 573.3 |
| | $ | 624.8 |
|
| | | | | | | | | | |
(a) | |
| (1) | The 2016 impairment charges primarily related to impairment of intangible assets and property, plant and equipment. See “Note 14: Impairment charges” in Item 8 of this Annual Report on Form 10-K for further information regarding the fiscal year ended December 31, 2018. The 2014 impairment charges primarily related to impairments of idle properties and equipment. The 2013 impairment charges primarily related to the write-off of goodwill related to the Rest of World segment as well as the write-off of capitalized software costs related to a global ERP system. The 2012 and 2011 impairment charges primarily related to the impairment of goodwill in the EMEA segment. |
The defined benefit pension and other postretirement benefit plan’s mark to market loss (gain) is measured and recognized in its entirety within the statement of operations annually on December 31. The adjustment primarily includes the difference between the expected return on plan assets and the actual return on plan assets as well as differences resulting from assumption changes and changes in plan experience between the prior pension measurement date and the current pension measurement date. For details of pension expense both within and excluded from Adjusted EBITDA, see the table below:
|
| | | | | | | | | | | | | | | | | | | |
| | Fiscal year ended December 31, |
| (in millions) | 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
| Service cost included in Adjusted EBITDA | $ | 2.7 |
| | $ | 2.5 |
| | $ | 2.5 |
| | $ | 5.5 |
| | $ | 7.1 |
|
| Pension expense included in Adjusted EBITDA | $ | 2.7 |
| | $ | 2.5 |
| | $ | 2.5 |
| | $ | 5.5 |
| | $ | 7.1 |
|
| | | | | | | | | | |
| Interest cost | $ | 42.7 |
| | $ | 47.2 |
| | $ | 50.4 |
| | $ | 51.1 |
| | $ | 55.2 |
|
| Expected return on plan assets | (56.4 | ) | | (56.9 | ) | | (61.2 | ) | | (66 | ) | | (60.2 | ) |
| Amortization of unrecognized prior service cost (credits) | 2.7 |
| | (0.2 | ) | | (4.5 | ) | | (11.9 | ) | | (11.9 | ) |
| Net pension benefit | $ | (11.0 | ) | | $ | (9.9 | ) | | $ | (15.3 | ) | | $ | (26.8 | ) | | $ | (16.9 | ) |
| | | | | | | | | | |
| Mark to market loss (gain) due to difference in asset returns | $ | 116.0 |
| | $ | (60.5 | ) | | $ | (45.2 | ) | | $ | 67.3 |
| | $ | (76.3 | ) |
| Mark to market (gain) loss due to assumption changes | (81.2 | ) | | 60.8 |
| | 103.9 |
| | (39.3 | ) | | 196.5 |
|
| Mark to market (gain) loss due to plan experience | (0.6 | ) | | 3.5 |
| | 9.9 |
| | (6.9 | ) | | (2.4 | ) |
| Mark to market loss | $ | 34.2 |
| | $ | 3.8 |
| | $ | 68.6 |
| | $ | 21.1 |
| | $ | 117.8 |
|
| | | | | | | | | | |
| Settlement | $ | — |
| | $ | (9.7 | ) | | $ | — |
| | $ | (1.4 | ) | | $ | — |
|
| Curtailment | — |
| | — |
| | (1.3 | ) | | (2.6 | ) | | — |
|
| Pension curtailment and settlement gains | $ | — |
| | $ | (9.7 | ) | | $ | (1.3 | ) | | $ | (4.0 | ) | | $ | — |
|
| | | | | | | | | | |
| Pension expense (income) excluded from Adjusted EBITDA | $ | 23.2 |
| | $ | (15.8 | ) | | $ | 52.0 |
| | $ | (9.7 | ) | | $ | 100.9 |
|
| Total pension expense (income) | $ | 25.9 |
| | $ | (13.3 | ) | | $ | 54.5 |
| | $ | (4.2 | ) | | $ | 108.0 |
|
(b) | Other operating expense, net primarily consists of pension mark to market adjustments, acquisition and integration related expenses, employee stock based compensation expense, redundancy and restructuring costs, advisory fees paid to stockholders, and other unusual and non-recurring expenses. See “Note: 4 Other operating expenses, net” in Item 8 of this Annual Report on Form 10-K for further information regarding the fiscal years ended December 31, 2015, 2014 and 2013. In the fiscal year ended December 31, 2012, the significant activity related to the pension mark to market loss of $83.6 million, acquisition and integration related expenses of $17.7 million primarily related to the Magnablend Inc. acquisition and the French penalty of $17.2 million. In the fiscal year ended December 31, 2011, the significant activity related to the pension mark to market loss of $49.1 million and acquisition and integration related expenses of $26.7 million related to three acquisitions. |
(c) | Other expense (income), net consists of gains and losses on foreign currency transactions, undesignated derivative instruments, ineffective portion of cash flow hedges, debt refinancing costs and other nonoperating activity. See “Note: 6 Other (expense) income, net” in Item 8 of this Annual Report on Form 10-K for further information regarding the fiscal years ended December 31, 2015, 2014 and 2013. |
| ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
We are a leading global chemical
and ingredients distributor and provider of
innovative value-addedspecialty services. We
sourcepurchase chemicals from
over 8,000thousands of chemical producers worldwide and
provide a comprehensive array of productswarehouse, repackage, blend, dilute, transport and
servicessell those chemicals to
over 160,000more than 100,000 customer locations
in over 150across approximately 130 countries. Our
specialized services include digital promotion or e-marketing of chemicals for our producers, chemical waste removal and ancillary services, on-site storage of chemicals for our customers, and support services for the agricultural end market. We derive competitive advantage from our scale,
and broad
geographic reach, combinedproduct offering, technical expertise, specialized services, long-standing relationships with
our deep product knowledge and end market expertiseleading chemical producers and our
differentiated value-added services, provide us with a distinct competitive advantage and enable us to offer customers a “one-stop shop” for their chemical needs. As a result, we believe we are strategically positioned for growth.industry leading safety record.
Our operations are structured into four operating segments that represent the geographic areas under which we operate and manage our business. These segments are Univar USA,
(“USA”), Univar Canada,
(“Canada”), Univar Europe and the Middle East and Africa,
(“EMEA”), and Rest of World,
(“Rest of World”), which includes developing businesses in Latin America (including Brazil and Mexico) and the Asia-Pacific region.
We monitor the results of our operating segments separately for the purposes of making decisions about resource allocation and performance assessment. We evaluate performance on the basis of gross profit, which we define as net sales less cost of goods sold (exclusive of depreciation), delivered gross profit, which we define as gross profit less outbound freight and handling expense, gross margin, which we define as gross profit divided by external net sales, delivered gross margin, which we define as delivered gross profit divided by external net sales as well as Adjusted EBITDA, which we define as our consolidated net income (loss), plus the sum of interest expense, net of interest income, income tax expense (benefit), depreciation, amortization, loss on
extinguishment of debt, other operating expenses,
net (which primarily consists of acquisition and integration related expenses, employee stock-based compensation expense, restructuring charges, other employee termination costs, business optimization, and other unusual or non-recurring expenses), impairment charges, and other expense, net (which primarily consists of pension mark to market adjustments,
acquisition and integration related expenses, employee stock-based compensation expense, redundancy and restructuring costs, advisory fees paid to stockholders, and other unusual or non-recurring expenses), impairment charges, loss on extinguishment of debt and other (expense) income, net (which consists of gains and losses on foreign currency transactions and undesignated derivative instruments, ineffective portion of cash flow hedges, debt refinancing costs,
non-operating retirement benefits, and other
nonoperatingnon-operating activity). We believe that Adjusted EBITDA is an important indicator of operating performance because:
we report Adjusted EBITDA to our lenders as required under the covenants of our credit agreements;
we consider gains (losses) on the acquisition, disposal and impairment of assets as resulting from investing decisions rather than ongoing operations;
Adjusted EBITDA excludes the effects of income taxes, as well as the effects of financing and investing activities by eliminating the effects of interest, depreciation and amortization expenses;expenses and therefore more closely measures our operational performance;
we use Adjusted EBITDA in setting performance incentive targets;
we consider gains (losses) on the acquisition, disposal and impairment of assets as resulting from investing decisions rather than ongoing operations;targets in order to align performance measurement with operational performance; and
other significant items, while periodically affecting our results, may vary significantly from period to period and have a disproportionate effect in a given period, which affects comparability of our results.
We set transfer prices between operating segments on an arms-length basis in a similar manner to transactions with third parties. We allocate corporate operating expenses that directly benefit our operating segments on a basis that reasonably approximates our estimates of the use of these services.
Other/Eliminations represents the elimination of inter-segment transactions as well as unallocated corporate costs consisting of costs specifically related to parent company operations that do not directly benefit segments, either individually or collectively. In the analysis of our results of operations, we discuss operating segment results for the current reporting period following our consolidated results of operations period-to-period comparison.
The following is management’s discussion and analysis of the financial condition and results of operations for the years ended December 31,
2015, 20142018, 2017 and
2013.2016. Information included in this section for reported sales volumes and pricing utilize an average price at the consolidated level and respective reporting segment levels. In certain reporting segments we utilized country and revenue stream information to provide a more accurate representation of changes to the business. This discussion should be read in conjunction with the consolidated financial statements, including the related notes, see Item 8 “Financial Statements” of this Annual Report on Form 10-K.
For reconciliations of Adjusted EBITDA to net income (loss), see “Selected Financial Data Selected” in Item 6 of this Annual Report on Form 10-K.
Key Factors Affecting Operating Results and Financial Condition
Key factors impacting our operating results and financial condition include the
following.following:Economic conditions, and industry trends and relationships with customers and suppliers
Chemical availability and prices, including volume-based pricing
Acquisitions, dispositions and strategic investments
Volume based pricingOperating efficiencies
Cost savings
Working capital requirements, interest rates and credit risk
Foreign currencies
For a
detailed overviewdescription of our business and how the above factors impact us, refer to Item 1 “Business” and Item 1A “Risk Factors” of this Annual Report on Form 10-K.
In addition to the factors listed above, seasonal changes may affect our business and results of operations. Our net sales are affected by the level of industrial production, which tends to decline in the fourth quarter of each year. Certain of our end markets
also experience seasonal fluctuations, which also affect our net sales and results of operations. For example, our sales to the agricultural end market, particularly in Canada, tend to peak in the second
and third quartersquarter in each year, depending in part on weather-related variations in demand for agricultural chemicals. Sales to other end markets such as paints and coatings
or water treatment may also be affected by changing seasonal weather conditions.
Non-GAAP Financial Measures
We believe that certain financial measures that do not comply with US GAAP provide relevant and meaningful information concerning the ongoing operating results of the Company. These financial measures include gross profit, gross margin, delivered gross profit and delivered gross margin (all exclusive of depreciation) and Adjusted EBITDA. Such non-GAAP financial measures are used from time to time herein but should not be viewed as a substitute for GAAP measures of performance.
We evaluate our results of operations on both an as reported and a constant currency basis. The constant currency presentation is a non-GAAP financial measure, which excludes the impact of fluctuations in foreign currency exchange rates. We believe providing constant currency information provides valuable supplemental information regarding our results of operations, consistent with how we evaluate our performance. We calculate constant currency percentages by converting our financial results in local currency for a period using the average exchange rate for the prior period to which we are comparing. This calculation may differ from similarly-titled measures used by other companies.
During
2015,2018, we
successfully executed our initial public offering, paid down existing debt, and refinanced our remaining debt, the effect of which was to lower our future interest expense and strengthenstrengthened our financial
condition.condition through the generation of strong operating cash flow which reduced our leverage. We continued to make progress in the implementation of our key strategic initiatives of Commercial Greatness, Operational Excellence, and One Univar, strengthened our management team and furthered the development of a performance-driven culture. From an operations standpoint, we advanced on each of our
strategic priorities which form the framework for our strategy to grow the
long termlong-term value of Univar for our equity and debt holders.
We:completedAs a restructuring ofresult, in 2018 we:
expanded our European operations which nearly doubled our segmentconsolidated Adjusted EBITDA margins;
grew Adjusted EBITDA and Adjusted EBITDA margin in 2015;
completedall operating segments, with the integrationexception of Canada, which was impacted by persistent weather challenges in agriculture;
improved USA sales force execution resulted in USA volume growth for the first time since 2014;
acquired Kemetyl and Earthoil, expanding our November 2014leading position in the pharmaceutical industry and strengthening our existing global natural beauty and personal care product line;
strengthened our balance sheet and lowered our leverage ratio; and
announced the acquisition of D’Altomare, a chemical distribution companyNexeo Solutions, Inc.,accelerating transformation and growth.
Advances in Brazil specializingour business were partially offset by:
lower volumes and revenue in the personal care end market, which contributed to achieving 40 percent growth in our Rest of WorldCanada segment Adjusted EBITDA;
completedas a series of productivity projects in our USA segment, including phased reductions in resource allocation to upstream oil and gas production, which lowered our cost structure and raised the level of operational excellence in our terminals and branch offices; and
significantly increased our cash flow generation and improved our net working capital productivity which enabled us to complete six acquisitions for future growth without increasing our debt.
These actions contributed to improved net income, cash flow and earnings per share from higher gross profit and Adjusted EBITDA margins in each segment of our business.
However, the resulting growth and improvement was masked by:
the substantial strengtheningresult of the U.S. dollar which had the effect of lowering the translated U.S. dollar value of our salesweather-impacted agriculture market and earnings in Europe, Canada, Mexico and Brazil, in particular;
the historic decline in oil prices which caused a substantial decline inlower demand for chemicals from the USA hydraulic fracturing segment of the upstream oil and gas production market; andCanadian energy sector.
sluggish demand late in the year for chemicals from the industrial production sectors of the economies we serve.
The following tables set forth, for the periods indicated, certain statements of operations data first on the basis of reported data and then as a percentage of total net sales for the relevant period. The financial data set forth below is not necessarily indicative of the results of future operations and should be read in conjunction with our historical consolidated financial statements and accompanying notes included elsewhere herein.
Year Ended December 31,
20152018 Compared to Year Ended December 31,
2014 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended | | | Favorable
(unfavorable) | | | % Change | | | Impact of
currency* | |
(in millions) | | December 31, 2015 | | | December 31, 2014 | | | | |
Net sales | | $ | 8,981.8 | | | | 100.0 | % | | $ | 10,373.9 | | | | 100.0 | % | | $ | (1,392.1 | ) | | | (13.4 | )% | | | (6.3 | )% |
Cost of goods sold (exclusive of depreciation) | | | 7,182.7 | | | | 80.0 | % | | | 8,443.2 | | | | 81.4 | % | | | 1,260.5 | | | | 14.9 | % | | | 6.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit | | | 1,799.1 | | | | 20.0 | % | | | 1,930.7 | | | | 18.6 | % | | | (131.6 | ) | | | (6.8 | )% | | | (6.8 | )% |
Operating expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Outbound freight and handling | | | 324.6 | | | | 3.6 | % | | | 365.5 | | | | 3.5 | % | | | 40.9 | | | | 11.2 | % | | | 5.4 | % |
Warehousing, selling and administrative | | | 874.4 | | | | 9.7 | % | | | 923.5 | | | | 8.9 | % | | | 49.1 | | | | 5.3 | % | | | 5.6 | % |
Other operating expenses, net | | | 106.1 | | | | 1.2 | % | | | 197.1 | | | | 1.9 | % | | | 91.0 | | | | 46.2 | % | | | 2.4 | % |
Depreciation | | | 136.5 | | | | 1.5 | % | | | 133.5 | | | | 1.3 | % | | | (3.0 | ) | | | (2.2 | )% | | | 6.8 | % |
Amortization | | | 88.5 | | | | 1.0 | % | | | 96.0 | | | | 0.9 | % | | | 7.5 | | | | 7.8 | % | | | 5.0 | % |
Impairment charges | | | — | | | | — | % | | | 0.3 | | | | — | % | | | 0.3 | | | | 100.0 | % | | | — | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total operating expenses | | | 1,530.1 | | | | 17.0 | % | | | 1,715.9 | | | | 16.5 | % | | | 185.8 | | | | 10.8 | % | | | 6.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating income | | | 269.0 | | | | 3.0 | % | | | 214.8 | | | | 2.1 | % | | | 54.2 | | | | 25.2 | % | | | (8.5 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other (expense) income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest income | | | 4.3 | | | | — | % | | | 8.2 | | | | 0.1 | % | | | (3.9 | ) | | | (47.6 | )% | | | (4.9 | )% |
Interest expense | | | (211.3 | ) | | | (2.4 | )% | | | (258.8 | ) | | | (2.5 | )% | | | 47.5 | | | | 18.4 | % | | | 1.3 | % |
Loss on extinguishment of debt | | | (12.1 | ) | | | (0.1 | )% | | | (1.2 | ) | | | — | % | | | (10.9 | ) | | | N/M | | | | N/M | |
Other (expense) income, net | | | (23.2 | ) | | | (0.3 | )% | | | 1.1 | | | | — | % | | | (24.3 | ) | | | N/M | | | | N/M | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total other expense | | | (242.3 | ) | | | (2.7 | )% | | | (250.7 | ) | | | (2.4 | )% | | | 8.4 | | | | 3.4 | % | | | 2.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) before income taxes | | | 26.7 | | | | 0.3 | % | | | (35.9 | ) | | | (0.3 | )% | | | 62.6 | | | | 174.4 | % | | | (35.9 | )% |
Income tax expense (benefit) | | | 10.2 | | | | 0.1 | % | | | (15.8 | ) | | | (0.2 | )% | | | (26.0 | ) | | | (164.6 | )% | | | 21.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 16.5 | | | | 0.2 | % | | $ | (20.1 | ) | | | (0.2 | )% | | | 36.6 | | | | 182.1 | % | | | (47.3 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended | | Favorable (unfavorable) | | % Change | | Impact of currency* |
| (in millions) | December 31, 2018 | | December 31, 2017 | |
| Net sales | $ | 8,632.5 |
| | 100.0 | % | | $ | 8,253.7 |
| | 100.0 | % | | $ | 378.8 |
| | 4.6 | % | | 0.5 | % |
| Cost of goods sold (exclusive of depreciation) | 6,732.4 |
| | 78.0 | % | | 6,448.2 |
| | 78.1 | % | | (284.2 | ) | | 4.4 | % | | (0.4 | )% |
| Operating expenses: | | | | | | | | | | | | | |
| Outbound freight and handling | 328.3 |
| | 3.8 | % | | 292.0 |
| | 3.5 | % | | (36.3 | ) | | 12.4 | % | | (0.7 | )% |
| Warehousing, selling and administrative | 931.4 |
| | 10.8 | % | | 919.7 |
| | 11.1 | % | | (11.7 | ) | | 1.3 | % | | (0.5 | )% |
| Other operating expenses, net | 73.5 |
| | 0.9 | % | | 55.4 |
| | 0.7 | % | | (18.1 | ) | | 32.7 | % | | (0.2 | )% |
| Depreciation | 125.2 |
| | 1.5 | % | | 135.0 |
| | 1.6 | % | | 9.8 |
| | (7.3 | )% | | (0.4 | )% |
| Amortization | 54.3 |
| | 0.6 | % | | 65.4 |
| | 0.8 | % | | 11.1 |
| | (17.0 | )% | | 0.2 | % |
| Total operating expenses | $ | 1,512.7 |
| | 17.5 | % | | $ | 1,467.5 |
| | 17.8 | % | | $ | (45.2 | ) | | 3.1 | % | | (0.5 | )% |
| Operating income | $ | 387.4 |
| | 4.5 | % | | $ | 338.0 |
| | 4.1 | % | | $ | 49.4 |
| | 14.6 | % | | 0.3 | % |
| Other (expense) income: | | | | | | | | | | | | | |
| Interest income | 3.2 |
| | — | % | | 4.0 |
| | — | % | | (0.8 | ) | | (20.0 | )% | | (5.0 | )% |
| Interest expense | (135.6 | ) | | (1.6 | )% | | (152.0 | ) | | (1.8 | )% | | 16.4 |
| | (10.8 | )% | | 0.1 | % |
| Loss on extinguishment of debt | (0.1 | ) | | — | % | | (3.8 | ) | | — | % | | 3.7 |
| | (97.4 | )% | | — | % |
| Other expense, net | (32.7 | ) | | (0.4 | )% | | (17.4 | ) | | (0.2 | )% | | (15.3 | ) | | 87.9 | % | | 2.9 | % |
| Total other expense | $ | (165.2 | ) | | (1.9 | )% | | $ | (169.2 | ) | | (2.0 | )% | | $ | 4.0 |
| | (2.4 | )% | | 0.3 | % |
| Income before income taxes | 222.2 |
| | 2.6 | % | | 168.8 |
| | 2.0 | % | | 53.4 |
| | 31.6 | % | | 0.9 | % |
| Income tax expense | 49.9 |
| | 0.6 | % | | 49.0 |
| | 0.6 | % | | (0.9 | ) | | 1.8 | % | | 0.9 | % |
| Net income | $ | 172.3 |
| | 2.0 | % | | $ | 119.8 |
| | 1.5 | % | | $ | 52.5 |
| | 43.8 | % | | 1.6 | % |
| | | | | | | | | | | | | | |
| |
| * | Foreign currency translation is included in the percentage change. Unfavorable impacts from foreign currency translation are designated with parentheses. |
| |
| | |
Net sales percentage change due to: | |
Acquisitions | 0.6 | | | 0.9 | % |
Reported sales volumes | | | (7.02.3 | )% |
Sales pricing and product mix | 5.8 | | | (1.0 | )% |
Foreign currency translation | 0.5 | | | (6.3 | )% |
| Total | 4.6 | | | | |
Total
| | | (13.4 | )% |
Net sales were
$8,981.8$8,632.5 million in the year ended December 31,
2015, a decrease2018, an increase of
$1,392.1$378.8 million, or
13.4%4.6%, from the year ended December 31,
2014. Foreign2017. On a constant currency
translation decreasedbasis, net sales
increased due to
the US dollar strengthening against all major currencies. The increase in net sales from acquisitions was primarily driven by the November 2014 D’Altomare acquisition in Brazil, and the July 2015 Chemical Associates and April 2015 Key Chemical acquisitions in the US. The decrease in net sales from reported sales volumes primarily resulted from reductions in sales of upstream oil and gas products driven by reduced market demand. The decrease in net sales from changes in sales pricing and product mix
was driven by the USA and Rest of Worldimprovements in all segments, partially offset by
increaseslower reported sales volumes in all segments except the USA for the year ended December 31, 2018 compared to the year ended December 31, 2017. Net sales also increased from the January 2018 Kemetyl and May 2018 Earthoil acquisitions in EMEA and the September 2017 Tagma acquisition in the
Canada and EMEA segments.Rest of World segment. Refer to the “Segment results” for the year ended December 31,
20152018 discussion for additional information.
Gross profit
(exclusive of depreciation) | |
| | |
Gross profit percentage change due to: | |
Acquisitions | 0.7 | | | 1.8 | % |
Reported sales volumes | | | (7.02.3 | )% |
Sales pricing, product costs and other adjustments | 6.4 | % |
| Foreign currency translation | 0.4 | % |
| Total | 5.2 | % |
Foreign currency translation
| | | (6.8 | )% |
| | | | |
Total
| | | (6.8 | )% |
Gross profit
decreased $131.6increased $94.6 million, or
6.8%5.2%, to
$1,799.1$1,900.1 million for the year ended December 31,
2015. Foreign currency translation decreased2018. The increase in gross profit
dueis attributable to
the strengthening of the US dollar against all major currencies, especially the euro, Canadian dollarhigher average selling prices resulting from changes in market and
Brazilian real.product mix and sales force execution. The increase in gross profit from acquisitions was driven by the
D’Altomare, Chemical AssociatesJanuary 2018 Kemetyl and
Key Chemical acquisitions. ExcludingMay 2018 Earthoil acquisitions in EMEA and the
impactSeptember 2017 Tagma acquisition in the Rest of
volumes, gross profit increased due to changes in sales pricing, product costs and other adjustments resulting from increases in all segments.World segment. Gross margin, which we define as gross profit divided by
external net sales, increased to
20.0%22.0% in the year ended December 31,
20152018 from
18.6%21.9% in the year ended December 31,
20142017, primarily due to favorable product mix
our EMEA restructuring program and
productivity initiatives.focused margin management efforts. Refer to the “Segment results” for the year ended December 31,
20152018 discussion for additional information.
Outbound freight and handling
Outbound freight and handling expenses
decreased $40.9increased $36.3 million, or
11.2%12.4%, to
$324.6$328.3 million for the year ended December 31,
2015. Foreign currency translation decreased outbound freight and handling expense by 5.4% or $19.7 million.2018. On a constant currency basis, outbound freight and handling expenses
decreased 5.8%increased $34.2 million, or
$21.2 million, which was11.7%, primarily
attributabledue to
lower reported sales volumes as well as lower dieselhigher delivery costs resulting from market capacity constraints and higher fuel costs, partially offset by
the impact of incremental costs from acquisitions and a continued tight third-party carrier market.lower reported sales volumes. Refer to the “Segment results” for the year ended December 31,
20152018 discussion for additional information.
Warehousing, selling and administrative
Warehousing, selling and administrative expenses
decreased $49.1increased $11.7 million, or
5.3%1.3%, to
$874.4$931.4 million for the year ended December 31,
2015. Foreign2018. On a constant currency
translation decreased warehousing, selling and administrative expenses by 5.6% or $73.8 million. Excluding foreign currency,basis, the
$7.2 million increase
of $24.7 million is
attributable to higher personnel expenses of $25.7 million primarily due to
annual compensation increasesfocused investments in resources and
acquisitions, increases in information technology expenses of $8.4 million relatedcapabilities to
internal projects focused on improving operationsmeet our sales force and digital initiative objectives and higher
consulting fees of $8.2 million.salary expense. These
increasescosts were partially offset by
cost containment efforts across all of our segments, lower
operating leasevariable compensation expense
of $13.9 million primarily due to certain operating leases being replaced by purchased assets as well as capital leases and lower
net periodic benefit cost related to our defined benefit and other postretirement benefit plans of $11.4 million. The remaining $7.7 million increase related to several insignificant components.employee health care costs in the current year. Refer to the “Segment results” for the year ended December 31,
20152018 discussion for additional information.
Other operating expenses, net
Other operating expenses, net
decreased $91.0increased $18.1 million, or
46.2%32.7%, to
$106.1$73.5 million for the year ended December 31,
2015.2018. The
decreaseincrease was primarily
dueattributable to
a pension mark to market losshigher acquisition and integration related expenses, the absence of
$21.1 million in the year ended December 31, 2015 compared to a mark to market lossgain on sale of
$117.8 million in the year ended December 31, 2014 relating to the annual remeasurement of our defined benefit plansproperty, plant and
equipment and higher other
postretirement benefit plans.employee termination costs. The
2015 mark to market loss primarily relates to lower than expected plan asset returns during the year ended December 31, 2015 partially offset by increases in the defined benefit pension plans discount rates from December 31, 2014 to December 31, 2015. The 2014 mark to market loss primarily relates to the decrease in the defined benefit pension plans discount rates from December 31, 2013 to December 31, 2014 and the adoption ofthe new US mortality table as of December 31, 2014. This lossincrease was partially offset by higher than expected plan asset returns during the year ended December 31, 2014. The decrease was also relatedreduction in costs incurred to pension curtailmentsupport the transformation of the US business and settlement gains of $4.0 million for the year ended December 31, 2015 related to the Company’s redundancy andlower restructuring initiatives. Refer to “Note 8: Employee benefit plans” in Item 8 of this Annual Report onForm 10-K for additional information.
The decrease was also related to a reduction of $12.4 million in redundancy and restructuring charges in the year ended December 31, 2015 compared to the year ended December 31, 2014, which primarily related to higher facility exit costs in the year ended December 31, 2014 largely due to changes in estimated sublease income. Refer to “Note 5: Redundancy and restructuring” in Item 8 of this Annual Report on Form 10-K for additional information. Also contributing to the decrease was $4.6 million of lower stock-based compensation expense in the year ended December 31, 2015 due to a majority of outstanding options vesting in 2014 with fewer grants in the year ended December 31, 2015.
The decrease was partially offset by a contract termination fee of $26.2 million related to terminating consulting agreements between us and CVC and CD&R related to the IPO in the year ended December 31, 2015. The remaining $0.5 million increase was related to several insignificant components. Foreign currency translation decreased other operating expenses, net by 2.4% or $4.7 million.charges. Refer to “Note 4: Other operating expenses, net” in Item 8 of this Annual Report on Form 10-K for additional information.
Depreciation and amortization
Depreciation expense
increased $3.0decreased $9.8 million, or
2.2%7.3%, to
$136.5$125.2 million for the year ended December 31,
2015. Foreign currency translation decreased depreciation expense by 6.8% or $9.1 million.2018. On a constant currency basis, the
increasedecrease of $10.4 million, or 7.7%, was primarily
relateddue to
increased purchasesassets reaching the end of
property, plant and equipment, capital lease asset additions and accelerated depreciation on various sites which were undergoing restructuring initiatives during the year ended December 31, 2015.their useful lives.
Amortization expense decreased
$7.5$11.1 million, or
7.8%17.0%, to
$88.5$54.3 million for the year ended December 31,
2015. Amortization expense decreased 5.0%2018. On a constant currency basis, the decrease of $11.0 million, or
$4.8 million due16.8%, was primarily attributable to
foreign currency translation andintangibles reaching the
additional decrease relates to the lower amortization levelsend of
existing customer relationship intangibles partially offset by amortization related to 2015 business acquisitions. Customer relationship intangible assets are amortized on an accelerated basis to mirror the economic pattern of benefit from such relationships.Impairment charges
There were no impairment charges in the year ended December 31, 2015. Impairment charges of $0.3 million were recorded in the year ended December 31, 2014 relating to ongoing restructuring initiatives.
their useful lives.
Interest expense decreased
$47.5$16.4 million, or
18.4%10.8%, to
$211.3$135.6 million for the year ended December 31,
20152018 primarily due to lower average outstanding
borrowings under short-term financing agreements, paying the remaining principal balance related to the $600.0 million of outstanding 10.5% senior subordinated notes due 2017 (the “2017 Subordinated Notes”) and the $50.0 million of outstanding 10.5% senior subordinated notes due 2018 (the “2018 Subordinated Notes” and, together with the 2017 Subordinated Notes, the “Senior Subordinated Notes”) during June 2015 and lower interest rates on our long-term debt as a result of the July 2015 debt refinancing transactions. Foreign currency translation decreased interest expense by 1.3% or $3.3 million. These decreases were partially offset by increased interest expense from capital lease obligations.borrowings. Refer to “Note
14:16: Debt” in Item 8 of our Annual Report on Form 10-K for additional information.
Loss on extinguishment of debt
Loss on extinguishment of debt increased $10.9 million to $12.1decreased $3.7 million for the year ended December 31, 2015.2018. The $12.1$0.1 million loss on extinguishment of debt for the year ended December 31, 2018 related to the amended Euro ABL Credit facility agreement. The $3.8 million loss on extinguishment of debt in the year ended December 31, 2015 related to the July 2015 debt refinancing transactions and the write off of unamortized debt issuance costs and debt discount related to the payment of the principal balance related to the Senior Subordinated Notes during June 2015. The $1.2 million loss in the year ended December 31, 20142017 related to the write off of unamortized debt
discount and debt issuance costs related to the
closureJanuary 2017 and November 2017 debt amendments of
then-existing European ABL facility during March 2014.the Senior Term B loan agreement. Refer to “Note
14:16: Debt” in Item 8 of
thisour Annual Report on Form 10-K for additional information.
Other
(expense) income,expense, net
Other
(expense) income,expense, net increased
$24.3$15.3 million,
from income of $1.1or 87.9%, to $32.7 million for the year ended December 31,
2014 to an expense of $23.2 million for the year ended December 31, 2015.2018. The increase was primarily
driven by debt refinancing costs of $16.5 millionrelated to the increase in pension mark to market loss and the
discontinuanceabsence of
cash flow hedgespension curtailment and settlement gains. The increase was partially offset by the reduced exposure to exchange movements on foreign currency denominated loans due to the Euro Term B loan repayment in November 2017. Also contributing to the decrease was the absence of
$7.5 million. Refer to “Note 14: Debt”debt amendment fees for the January 2017 and
“Note 16: Derivatives” in Item 8November 2017 amendments of
this Annual Report on Form 10-K for additional information, respectively.the Senior Term B loan agreement. Refer to “Note 6: Other
(expense) income,expense, net” in Item 8 of this Annual Report on Form 10-K for additional information.
Income tax expense
(benefit)Income tax expense increased
$26.0$0.9 million,
from an income tax benefit of $15.8or 1.8%, to $49.9 million in the year ended December 31,
2014 to an income2018. The Company’s effective tax
expense of $10.2 million inrate for the year ended December 31,
2015. The increase is2018 of 22.5% was higher than the recently reduced US federal statutory rate of 21.0%, primarily due to
the addition of state taxes and the higher tax rates incurred on the company’s earnings outside the US, including the expected net impact of the 2017 US Tax Cuts and Jobs Act (the “Tax Act”) on foreign net earnings. These increases in the effective tax rate were partially offset by the release of valuation allowances on certain tax attributes. Included in the $49.9 million of tax expense for year ended December 31, 2018 was a
lower$15.3 million benefit related to the release of
unrealizedvaluation allowance on foreign tax attributes, a $2.7 million benefit in recognition of previously unrecognized tax benefits due to the statute of
limitationslimitation expiration,
$6.8 million of
$15.9adjustments to provisional amounts for certain enactment-date effects of the Tax Act, and a $1.6 million
an increase in earnings resulting in an increasenet benefit related to prior year estimates of
$21.9 million, an increase in the
expiration of tax attributes of $7.9 millionimpact from the 2017 US Tax Cuts and
an increase in non-deductible stock compensation of $3.2 million, offset by a decrease in foreign losses for which a tax benefit may not be recognized of $14.2 million and an increase in valuation allowance release of $8.8 million.Jobs Act.
Our Adjusted EBITDA
and gross profit (exclusive of depreciation) by operating segment and in aggregate is summarized in the following tables:
| | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | | USA | | | Canada | | | EMEA | | | Rest of
World | | | Other/
Elimin-
ations(1) | | | Consolidated | |
| | | Year ended December 31, 2015 | |
Net sales: | | | | | | | | | | | | | | | | | | | | | | | | |
External customers | | $ | 5,351.5 | | | $ | 1,376.6 | | | $ | 1,780.1 | | | $ | 473.6 | | | $ | — | | | $ | 8,981.8 | |
Inter-segment | | | 112.7 | | | | 8.6 | | | | 4.0 | | | | 0.1 | | | | (125.4 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total net sales | | | 5,464.2 | | | | 1,385.2 | | | | 1,784.1 | | | | 473.7 | | | | (125.4 | ) | | | 8,981.8 | |
Cost of goods sold (exclusive of depreciation) | | | 4,365.9 | | | | 1,161.0 | | | | 1,398.6 | | | | 382.6 | | | | (125.4 | ) | | | 7,182.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit | | | 1,098.3 | | | | 224.2 | | | | 385.5 | | | | 91.1 | | | | — | | | | 1,799.1 | |
Outbound freight and handling | | | 216.9 | | | | 39.3 | | | | 59.6 | | | | 8.8 | | | | — | | | | 324.6 | |
Warehousing, selling and administrative (operating expenses) | | | 492.6 | | | | 87.8 | | | | 226.0 | | | | 54.1 | | | | 13.9 | | | | 874.4 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA | | $ | 388.8 | | | $ | 97.1 | | | $ | 99.9 | | | $ | 28.2 | | | $ | (13.9 | ) | | $ | 600.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other operating expenses, net | | | | | | | | | | | | | | | | | | | | | | | 106.1 | |
Depreciation | | | | | | | | | | | | | | | | | | | | | | | 136.5 | |
Amortization | | | | | | | | | | | | | | | | | | | | | | | 88.5 | |
Interest expense, net | | | | | | | | | | | | | | | | | | | | | | | 207.0 | |
Loss on extinguishment of debt | | | | | | | | | | | | | | | | | | | | | | | 12.1 | |
Other expense, net | | | | | | | | | | | | | | | | | | | | | | | 23.2 | |
Income tax expense | | | | | | | | | | | | | | | | | | | | | | | 10.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | | | | | | | | | | | | | | | | | | | | $ | 16.5 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | | USA | | | Canada | | | EMEA | | | Rest of
World | | | Other/
Elimin-
ations(1) | | | Consolidated | |
| | | Year ended December 31, 2014 | |
Net sales: | | | | | | | | | | | | | | | | |
External customers | | $ | 6,081.4 | | | $ | 1,512.1 | | | $ | 2,230.1 | | | $ | 550.3 | | | $ | — | | | $ | 10,373.9 | |
Inter-segment | | | 121.8 | | | | 10.0 | | | | 4.5 | | | | — | | | | (136.3 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total net sales | | | 6,203.2 | | | | 1,522.1 | | | | 2,234.6 | | | | 550.3 | | | | (136.3 | ) | | | 10,373.9 | |
Cost of goods sold (exclusive of depreciation) | | | 5,041.0 | | | | 1,271.5 | | | | 1,797.9 | | | | 469.1 | | | | (136.3 | ) | | | 8,443.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit | | | 1,162.2 | | | | 250.6 | | | | 436.7 | | | | 81.2 | | | | — | | | | 1,930.7 | |
Outbound freight and handling | | | 233.3 | | | | 46.4 | | | | 75.5 | | | | 10.3 | | | | — | | | | 365.5 | |
Warehousing, selling and administrative (operating expenses) | | | 490.9 | | | | 97.4 | | | | 276.2 | | | | 53.3 | | | | 5.7 | | | | 923.5 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA | | $ | 438.0 | | | $ | 106.8 | | | $ | 85.0 | | | $ | 17.6 | | | $ | (5.7 | ) | | $ | 641.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other operating expenses, net | | | | | | | | | | | | | | | | | | | | | | | 197.1 | |
Depreciation | | | | | | | | | | | | | | | | | | | | | | | 133.5 | |
Amortization | | | | | | | | | | | | | | | | | | | | | | | 96.0 | |
Impairment charges | | | | | | | | | | | | | | | | | | | | | | | 0.3 | |
Interest expense, net | | | | | | | | | | | | | | | | | | | | | | | 250.6 | |
Loss on extinguishment of debt | | | | | | | | | | | | | | | | | | | | | | | 1.2 | |
Other income, net | | | | | | | | | | | | | | | | | | | | | | | (1.1 | ) |
Income tax benefit | | | | | | | | | | | | | | | | | | | | | | | (15.8 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | | | | | | | | | | | | | $ | (20.1 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | USA | | Canada | | EMEA | | Rest of World | | Other/ Elimin- ations(1) | | Consolidated |
| | Year ended December 31, 2018 |
| Net sales: | | | | | | | | | | | |
| External customers | $ | 4,961.0 |
| | $ | 1,302.3 |
| | $ | 1,975.7 |
| | $ | 393.5 |
| | $ | — |
| | $ | 8,632.5 |
|
| Inter-segment | 126.6 |
| | 9.3 |
| | 4.0 |
| | 0.2 |
| | (140.1 | ) | | — |
|
| Total net sales | $ | 5,087.6 |
| | $ | 1,311.6 |
| | $ | 1,979.7 |
| | $ | 393.7 |
| | $ | (140.1 | ) | | $ | 8,632.5 |
|
| Cost of goods sold (exclusive of depreciation) | 3,959.3 |
| | 1,080.1 |
| | 1,525.6 |
| | 307.5 |
| | (140.1 | ) | | 6,732.4 |
|
| Outbound freight and handling | 215.6 |
| | 42.5 |
| | 62.4 |
| | 7.8 |
| | — |
| | 328.3 |
|
| Warehousing, selling and administrative | 536.3 |
| | 84.3 |
| | 240.5 |
| | 45.1 |
| | 25.2 |
| | 931.4 |
|
| Adjusted EBITDA | $ | 376.4 |
| | $ | 104.7 |
| | $ | 151.2 |
| | $ | 33.3 |
| | $ | (25.2 | ) | | $ | 640.4 |
|
| Other operating expenses, net | | | | | | | | | | | 73.5 |
|
| Depreciation | | | | | | | | | | | 125.2 |
|
| Amortization | | | | | | | | | | | 54.3 |
|
| Interest expense, net | | | | | | | | | | | 132.4 |
|
| Loss on extinguishment of debt | | | | | | | | | | | 0.1 |
|
| Other expense, net | | | | | | | | | | | 32.7 |
|
| Income tax expense | | | | | | | | | | | 49.9 |
|
| Net income | | | | | | | | | | | $ | 172.3 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | USA | | Canada | | EMEA | | Rest of World | | Other/ Elimin-ations(1) | | Consolidated |
| | Year ended December 31, 2018 |
| Gross profit: | | | | | | | |
| Net sales | $ | 5,087.6 |
| | $ | 1,311.6 |
| | $ | 1,979.7 |
| | $ | 393.7 |
| | $ | (140.1 | ) | | $ | 8,632.5 |
|
| Cost of goods sold (exclusive of depreciation) | 3,959.3 |
| | 1,080.1 |
| | 1,525.6 |
| | 307.5 |
| | (140.1 | ) | | 6,732.4 |
|
| Gross profit (exclusive of depreciation) | $ | 1,128.3 |
| | $ | 231.5 |
| | $ | 454.1 |
| | $ | 86.2 |
| | $ | — |
| | $ | 1,900.1 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | USA | | Canada | | EMEA | | Rest of World | | Other/ Elimin- ations(1) | | Consolidated |
| | Year ended December 31, 2017 |
| Net sales: | | | | | | | |
| External customers | $ | 4,657.1 |
| | $ | 1,371.5 |
| | $ | 1,821.2 |
| | $ | 403.9 |
| | $ | — |
| | $ | 8,253.7 |
|
| Inter-segment | 121.9 |
| | 9.1 |
| | 4.5 |
| | 0.5 |
| | (136.0 | ) | | — |
|
| Total net sales | $ | 4,779.0 |
| | $ | 1,380.6 |
| | $ | 1,825.7 |
| | $ | 404.4 |
| | $ | (136.0 | ) | | $ | 8,253.7 |
|
| Cost of goods sold (exclusive of depreciation) | 3,706.8 |
| | 1,143.0 |
| | 1,411.7 |
| | 322.7 |
| | (136.0 | ) | | 6,448.2 |
|
| Outbound freight and handling | 192.8 |
| | 37.3 |
| | 55.7 |
| | 6.2 |
| | — |
| | 292.0 |
|
| Warehousing, selling and administrative | 529.4 |
| | 86.2 |
| | 229.1 |
| | 46.8 |
| | 28.2 |
| | 919.7 |
|
| Adjusted EBITDA | $ | 350.0 |
| | $ | 114.1 |
| | $ | 129.2 |
| | $ | 28.7 |
| | $ | (28.2 | ) | | $ | 593.8 |
|
| Other operating expenses, net | | | | | | | | | | | 55.4 |
|
| Depreciation | | | | | | | | | | | 135.0 |
|
| Amortization | | | | | | | | | | | 65.4 |
|
| Interest expense, net | | | | | | | | | | | 148.0 |
|
| Loss on extinguishment of debt | | | | | | | | | | | 3.8 |
|
| Other expense, net | | | | | | | | | | | 17.4 |
|
| Income tax expense | | | | | | | | | | | 49.0 |
|
| Net income | | | | | | | | | | | $ | 119.8 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | USA | | Canada | | EMEA | | Rest of World | | Other/ Elimin-ations(1) | | Consolidated |
| | Year ended December 31, 2017 |
| Gross profit: | | | | | | | |
| Net sales | $ | 4,779.0 |
| | $ | 1,380.6 |
| | $ | 1,825.7 |
| | $ | 404.4 |
| | $ | (136.0 | ) | | $ | 8,253.7 |
|
| Cost of goods sold (exclusive of depreciation) | 3,706.8 |
| | 1,143.0 |
| | 1,411.7 |
| | 322.7 |
| | (136.0 | ) | | 6,448.2 |
|
| Gross profit (exclusive of depreciation) | $ | 1,072.2 |
| | $ | 237.6 |
| | $ | 414.0 |
| | $ | 81.7 |
| | $ | — |
| | $ | 1,805.5 |
|
| |
| (1) | Other/Eliminations represents the elimination of intersegment transactions as well as unallocated corporate costs consisting of costs specifically related to parent company operations that do not directly benefit segments, either individually or collectively. |
USA. | | | | | | | | | | |
Net sales percentage change due to: | | | Gross profit percentage change due to: | |
Acquisitions | | | 0.6 | % | | Acquisitions | | | 0.9 | % |
Reported sales volumes | | | (7.6 | )% | | Reported sales volumes | | | (7.6 | )% |
Sales pricing and product mix | | | (5.0 | )% | | Sales pricing, product costs and other adjustments | | | 1.2 | % |
| | | | | | | | | | |
Total | | | (12.0 | )% | | Total | | | (5.5 | )% |
|
| | | | | | |
| Net sales percentage change due to: | | Gross profit percentage change due to: |
| Reported sales volumes | 0.9 | % | | Reported sales volumes | 0.9 | % |
| Sales pricing and product mix | 5.6 | % | | Sales pricing, product costs and other adjustments | 4.3 | % |
| Total | 6.5 | % | | Total | 5.2 | % |
External sales in the USA segment were $5,351.5$4,961.0 million, a decreasean increase of $729.9$303.9 million, or 12.0%6.5%, in the year ended December 31, 2015. 2018, primarily due to higher average selling prices resulting from chemical price inflation on certain products and the Company’s efforts to improve its sales force effectiveness as well as higher reported sales volumes, primarily in bulk commodity chemicals.
Gross profit increased $56.1 million, or 5.2%, to $1,128.3 million in the year ended December 31, 2018. Gross profit increased due to changes in product mix, higher sales volumes and a net benefit from miscellaneous operating items. Gross margin decreased from 23.0% in the year ended December 31, 2017 to 22.7% during the year ended December 31, 2018 due to product mix.
Outbound freight and handling expenses increased $22.8 million, or 11.8%, to $215.6 million in the year ended December 31, 2018 primarily due to higher delivery costs resulting from market capacity constraints and higher fuel costs.
Operating expenses increased $6.9 million, or 1.3%, to $536.3 million in the year ended December 31, 2018 primarily due to focused investments in resources and capabilities to meet our sales force and digital initiative objectives, higher environmental remediation expense and higher bad debt charges. These costs were partially offset by lower employee health care costs, lower variable compensation expense and strong cost containment. Operating expenses as a percentage of external sales decreased from 11.4% in the year ended December 31, 2017 to 10.8% in the year ended December 31, 2018.
Adjusted EBITDA increased by $26.4 million, or 7.5%, to $376.4 million in the year ended December 31, 2018. Adjusted EBITDA margin increased from 7.5% in the year ended December 31, 2017 to 7.6% in the year ended December 31, 2018 primarily as a result of lower operating expenses as a percentage of sales, partially offset by lower gross margin and higher outbound freight and handling expenses as a percentage of sales.
Canada.
|
| | | | | | |
| Net sales percentage change due to: | | Gross profit percentage change due to: |
| Reported sales volumes | (8.9 | )% | | Reported sales volumes | (6.4 | )% |
| Sales pricing and product mix | 3.7 | % | | Sales pricing, product costs and other adjustments | 3.7 | % |
| Foreign currency translation | 0.2 | % | | Foreign currency translation | 0.1 | % |
| Total | (5.0 | )% | | Total | (2.6 | )% |
External sales in the Canada segment were $1,302.3 million, a decrease of $69.2 million, or 5.0%, in the year ended December 31, 2018. On a constant currency basis, external net sales decreased due to lower sales volumes attributable to the weather-impacted agriculture market as well as volume reductions in the industrial chemical business due to lower demand from Canada’s energy sector in the second half of the year. Average selling prices increased as a result of chemical price inflation in certain products, changes in market and product mix and sales force execution for the year ended December 31, 2018 to the year ended December 31, 2017.
Gross profit decreased $6.1 million, or 2.6%, to $231.5 million in the year ended December 31, 2018. On a constant currency basis, gross profit decreased due to lower sales volumes in agriculture and the industrial chemical business. Gross margin increased from 17.3% in the year ended December 31, 2017 to 17.8% in the year ended December 31, 2018 due to the lower contribution from agriculture sales in 2018 and margin management efforts.
Outbound freight and handling expenses increased $5.2 million, or 13.9%, to $42.5 million primarily due to higher delivery costs per ton resulting from tight market conditions.
Operating expenses decreased by $1.9 million, or 2.2%, to $84.3 million in the year ended December 31, 2018 and increased as a percentage of external sales from 6.3% in the year ended December 31, 2017 to 6.5% in the year ended December 31, 2018. On a constant currency basis, operating expenses decreased $2.0 million, or 2.3%, primarily due to lower variable compensation expense and cost containment efforts.
Adjusted EBITDA decreased by $9.4 million, or 8.2%, to $104.7 million in the year ended December 31, 2018. On a constant currency basis, Adjusted EBITDA decreased $9.6 million, or 8.4%, attributable to reduced demand resulting from a weather-impacted agriculture market, partially offset by growth in the industrial chemical business. Adjusted EBITDA margin decreased from 8.3% in the year ended December 31, 2017 to 8.0% in the year ended December 31, 2018, reflecting the lower contribution from agriculture sales in 2018.
EMEA.
|
| | | | | | |
| Net sales percentage change due to: | | Gross profit percentage change due to: |
| Acquisitions | 2.3 | % | | Acquisitions | 2.0 | % |
| Reported sales volumes | (7.1 | )% | | Reported sales volumes | (7.1 | )% |
| Sales pricing and product mix | 10.2 | % | | Sales pricing, product costs and other adjustments | 11.4 | % |
| Foreign currency translation | 3.1 | % | | Foreign currency translation | 3.4 | % |
| Total | 8.5 | % | | Total | 9.7 | % |
External sales in the EMEA segment were $1,975.7 million, an increase of $154.5 million, or 8.5%, in the year ended December 31, 2018. On a constant currency basis, external net sales increased primarily due to higher average selling prices from chemical price inflation, mix improvement and sales force execution. Lower volumes are largely attributable to certain product shortages and a reduction of direct commodity sales. The increase in external net sales from acquisitions was primarily due to the July 2015 Chemical AssociatesJanuary 2018 Kemetyl and April 2015 Key Chemical acquisitions. The decrease in external net sales from reported sales volumes was primarily due to a reduction in sales of upstream oil and gas products driven by reduced market demand. The reduction in external net sales from changes in sales pricing and product mix was primarily driven by lower average selling prices primarily resulting from market driven deflationary pressures on upstream oil and gas product offerings and oil derived products as well as higher sales of lower priced oil and gas products. May 2018 Earthoil acquisitions.
Gross profit decreased $63.9increased $40.1 million, or 5.5%9.7%, to $1,098.3$454.1 million in the year ended December 31, 2015. 2018. On a constant currency basis, gross profit increased from higher average selling prices attributable to favorable product mix and margin management initiatives. The increase in gross profit from acquisitions was primary due to the Chemical AssociatesJanuary 2018 Kemetyl and Key Chemical acquisitions. Excluding the impact of volumes, gross profitMay 2018 Earthoil acquisitions. Gross margin increased due to changes in sales pricing, product costs and other adjustments primarily due to growth in the gross margin rates on several of our industrial chemicals driven by focused margin management efforts and the successful implementation of productivity initiativesfrom 22.7% in the year ended December 31, 2015. Gross margin increased from 19.1%2017 to 23.0% in the year ended December 31, 20142018 primarily due to 20.5% during the year ended December 31, 2015.change in product mix and price inflation.
Outbound freight and handling expenses decreased $16.4increased $6.7 million, or 7.0%12.0%, to $216.9$62.4 million primarily due to incremental expenses related to our Kemetyl acquisition and overall higher costs to deliver.
Operating expenses increased $11.4 million, or 5.0%, to $240.5 million in the year ended December 31, 20152018, and decreased as a percentage of external sales from 12.6% in the year ended December 31, 2017 to 12.2% in the year ended December 31, 2018. On a constant currency basis, operating expenses increased $3.9 million, or 1.7%, which was primarily due to lower reported sales volumes as well as lower diesel fuel costsincremental expenses related to our Kemetyl acquisition and higher salary expense, partially offset by additionallower environmental remediation expenses from acquisitions. Operating expensesand lower bad debt charges.
Adjusted EBITDA increased
$1.7by $22.0 million, or
0.3%17.0%, to
$492.6$151.2 million in the year ended December 31,
2015 due to higher personnel expenses of $13.02018. On a constant currency basis, Adjusted EBITDA increased $17.9 million,
or 13.9%, primarily due to
annual compensation increasesincreased gross margin and
acquisitionslower operating expenses as
well as higher consulting feesa percentage of
$6.8 million and higher information technology expenses of $4.5 million related to internal projects focused on improving operations. These increases weresales, partially offset by
lower lease expensehigher outbound freight and handling expenses as a percentage of
$10.3 million primarily due to certain operating leases being replaced by purchased assets as well as capital leases, lower pension expensesales. The pharmaceutical finished goods product line represented approximately 30% of
$4.4 million related to higher expected returns on assetsAdjusted EBITDA in the EMEA segment for the year ended December 31, 2018. Adjusted EBITDA margin increased from 7.1% in the year ended December 31,
2015, and lower pallets and supplies costs of $1.9 million due2017 to
lower volumes. The remaining $6.0 million offsetting decrease related to several insignificant components. Operating expenses as a percentage of external sales increased from 8.1%7.7% in the year ended December 31,
2014 to 9.2% in the year ended December 31, 2015.Adjusted EBITDA decreased by $49.2 million, or 11.2%, to $388.8 million in the year ended December 31, 2015. Acquisitions contributed $4.0 million2018.
Rest of additional Adjusted EBITDA in the year ended December 31, 2015. Adjusted EBITDA margin increased from 7.2% in the year ended December 31, 2014 to 7.3% in the year ended December 31, 2015 primarily as a result of improved gross margin partially offset by higher operating expenses as a percentage of external net sales.CanadaWorld
. | | | | | | | | | | |
Net sales percentage change due to: | | | Gross profit percentage change due to: | |
Acquisitions | | | 0.2 | % | | Acquisitions | | | 1.1 | % |
Reported sales volumes | | | (0.7 | )% | | Reported sales volumes | | | (0.7 | )% |
Sales pricing and product mix | | | 5.9 | % | | Sales pricing, product costs and other adjustments | | | 3.2 | % |
Foreign currency translation | | | (14.4 | )% | | Foreign currency translation | | | (14.1 | )% |
| | | | | | | | | | |
Total | | | (9.0 | )% | | Total | | | (10.5 | )% |
|
| | | | | | |
| Net sales percentage change due to: | | Gross profit percentage change due to: |
| Acquisitions | 2.6 | % | | Acquisitions | 6.0 | % |
| Reported sales volumes | (18.5 | )% | | Reported sales volumes | (17.0 | )% |
| Sales pricing and product mix | 18.6 | % | | Sales pricing, product costs and other adjustments | 24.0 | % |
| Foreign currency translation | (5.3 | )% | | Foreign currency translation | (7.5 | )% |
| Total | (2.6 | )% | | Total | 5.5 | % |
External sales in the CanadaRest of World segment were $1,376.6$393.5 million, a decrease of $135.5$10.4 million, or 9.0%2.6%, in the year ended December 31, 2015. Foreign currency translation decreased external2018. External sales dollarsincreased from higher average selling prices attributable to market price inflation, shortages on certain products, changes in product mix and improved sales force effectiveness. Reported sales volumes were lower due to certain product shortages as well as the US dollar strengthened against the Canadian dollar when comparing the year ended December 31, 2015 to the year ended December 31, 2014. On a constant currency basis, external sales dollars increased $81.7 million or 5.4%. Company’s continued focus on margin management efforts. The increase in external net sales from acquisitions was due to the October 2015 acquisition of Future/BlueStar. The decrease in external net sales from reported sales volumes was primarily due to decreases in sales of oil and gas products mostly driven by reduced market demand and lower methanol sales due to warmer weather conditions. These decreases were partially offset by increases in agricultural sales, which were primarily driven by favorable weather conditions, increases in mining driven by the stabilization of mineral and gold prices and increased sales to commodity and manufacturing based end markets, driven by the strengthening of the US dollar against the Canadian dollar increasing manufacturing activity within Canada’s eastern region. The increase in external net sales from changes in sales pricing and product mix was primarily driven by higher average selling prices resulting from margin management efforts. September 2017 Tagma acquisition.
Gross profit decreased $26.4increased $4.5 million, or 10.5%5.5%, to $224.2$86.2 million in the year ended December 31, 2015. 2018 due to higher average selling prices resulting from higher chemical prices discussed above.The increase in gross profit from acquisitions was due to the acquisition of Future/BlueStar. Excluding the impact of volumes, gross profit increased due to changes in sales pricing, product costs and other adjustments primarily due to the positive impacts from margin management efforts across several industry sectors during the year ended December 31, 2015. September 2017 Tagma acquisition. Gross margin decreasedincreased from 16.6%20.2% in the year ended December 31, 20142017 to 16.3%21.9% in the
year ended December 31,
20152018 primarily due to
the factors discussed above and a shift towards higher
sales of lower margin
products.products and services.
Outbound freight and handling expenses decreased $7.1increased $1.6 million, or 15.3%25.8%, to $39.3 million primarily due to foreign currency translation and lower reported sales volumes. Operating expenses decreased by $9.6 million, or 9.9%, to $87.8$7.8 million in the year ended December 31, 2015 and remained at 6.4% as a percentage of external sales in the year ended December 31, 2015. Foreign currency translation2018.
Operating expenses decreased
operating expenses by 14.3% or $13.9 million. On a constant currency basis, operating expenses increased $4.3$1.7 million, or
4.4%, and the increase primarily related3.6% to
increased personnel expenses of $7.5 million driven by annual compensation increases and higher headcount related to business needs partially offset by lower pension expense of $2.4 million resulting from the soft freeze of the Canadian pension plan. The remaining $0.8 million decrease related to several insignificant components.Adjusted EBITDA decreased by $9.7 million, or 9.1%, to $97.1$45.1 million in the year ended December 31, 2015. Foreign2018 and decreased as a percentage of external sales from 11.6% in the year ended December 31, 2017 to 11.5% in the year ended December 31, 2018. On constant currency translation decreased basis, operating expenses increased $1.4 million, or 3.0%, primarily due to higher variable compensation expense.
Adjusted EBITDA
increased by
14.4%$4.6 million, or
$15.4 million.16.0%, to $33.3 million in the year ended December 31, 2018. On a constant currency basis, Adjusted EBITDA increased
$5.7$7.2 million, or
5.3%25.1%, primarily due to
increased external sales generating increased gross profit. Acquisitions contributed $0.8 milliona shift towards higher margin products and services and market price inflation, partially offset by higher outbound freight and handling expenses as a percentage of
additional Adjusted EBITDA in the year ended December 31, 2015.sales. Adjusted EBITDA margin
remained atincreased from 7.1% in the year ended December 31,
2015.EMEA.
| | | | | | | | | | |
Net sales percentage change due to: | | | Gross profit percentage change due to: | |
Reported sales volumes | | | (9.1 | )% | | Reported sales volumes | | | (9.1 | )% |
Sales pricing and product mix | | | 3.7 | % | | Sales pricing, product costs and other adjustments | | | 13.7 | % |
Foreign currency translation | | | (14.8 | )% | | Foreign currency translation | | | (16.3 | )% |
| | | | | | | | | | |
Total | | | (20.2 | )% | | Total | | | (11.7 | )% |
External sales in the EMEA segment were $1,780.1 million, a decrease of $450.0 million, or 20.2%,2017 to 8.5% in the year ended December 31, 2015. Foreign currency translation decreased external sales dollars primarily resulting from the US dollar strengthening against the euro and British pound when comparing the year ended December 31, 2015 to the year ended December 31, 2014. The decrease in external net sales from reported sales volumes was primarily due to the continuing implementation of restructuring initiatives focused on our product mix enrichment strategy. The increase in external net sales from changes in sales pricing and product mix was primarily driven by a shift in product mix towards products with higher average selling prices. Gross profit decreased $51.2 million, or 11.7%, to $385.5 million in the year ended December 31, 2015. Excluding the impact of volumes, gross profit increased due to changes in sales pricing, product costs and other adjustments primarily due to the continuing implementation of our product mix enrichment strategy including higher sales in the pharmaceutical product and ingredients end-market. Gross margin increased from 19.6% in the year ended December 31, 2014 to 21.7% in the year ended December 31, 2015 primarily due to the factors impacting gross profit discussed above.
Outbound freight and handling expenses decreased $15.9 million, or 21.1%, to $59.6 million primarily due to foreign currency translation and lower reported sales volumes. Operating expenses decreased $50.2 million, or 18.2%, to $226.0 million in the year ended December 31, 2015, but increased as a percentage of external sales from 12.4% in the year ended December 31, 2014 to 12.7% in the year ended December 31, 2015. Foreign currency translation decreased operating expenses by 16.7% or $46.2 million. On a constant currency basis, operating expenses decreased $4.0 million, or 1.4%, which was primarily related to lower pension expense of $5.0 million related to higher expected asset returns, lower lease expense of $2.0 million due to certain operating leases being replaced by capital leases and lower personnel expenses of $1.4 million due to reduced headcount from redundancy and restructuring initiatives. The remaining $4.4 million increase related to several insignificant components.
Adjusted EBITDA increased by $14.9 million, or 17.5%, to $99.9 million in the year ended December 31, 2015. Foreign currency translation decreased Adjusted EBITDA by 15.7% or $13.3 million. On a constant currency basis, Adjusted EBITDA increased $28.2 million, or 33.2%, due to increased gross profit as well as slight reductions in operating expenses. Adjusted EBITDA margin increased from 3.8% in the year ended December 31, 2014 to 5.6% in the year ended December 31, 2015 primarily as a result of the increase in gross margin.
Rest of World.
| | | | | | | | | | |
Net sales percentage change due to: | | | Gross profit percentage change due to: | |
Acquisitions | | | 10.5 | % | | Acquisitions | | | 26.2 | % |
Reported sales volumes | | | (2.0 | )% | | Reported sales volumes | | | (2.0 | )% |
Sales pricing and product mix | | | (2.6 | )% | | Sales pricing, product costs and other adjustments | | | 17.6 | % |
Foreign currency translation | | | (19.8 | )% | | Foreign currency translation | | | (29.6 | )% |
| | | | | | | | | | |
Total | | | (13.9 | )% | | Total | | | 12.2 | % |
External sales in the Rest of World segment were $473.6 million, a decrease of $76.7 million, or 13.9%, in the year ended December 31, 2015. Foreign currency translation decreased external sales dollars when comparing the year ended December 31, 2015 to the year ended December 31, 2014 primarily due to the US dollar strengthening against the Mexican peso and Brazilian real. The increase in external net sales from acquisitions was primarily due to the November 2014 acquisition of D’Altomare. The decrease in external net sales from reported sales volumes was primarily due to decreases in the Asia Pacific region partially offset by increases in Mexico. The decrease in external net sales from changes in sales pricing and product mix was primarily due to lower average selling prices resulting from market driven deflationary pressures on upstream oil and gas product offerings and oil derived products. Gross profit increased $9.9 million, or 12.2%, to $91.1 million in the year ended December 31, 2015. The increase in gross profit from acquisitions was driven by the November 2014 acquisition of D’Altomare. Excluding the impact of volumes, gross profit increased due to changes in sales pricing, product costs and other adjustments primarily due to focused margin management efforts. Gross margin increased from 14.8% in the year ended December 31, 2014 to 19.2% in the year ended December 31, 2015 (17.7% excluding D’Altomare in the year ended December 31, 2015) primarily due to the factors impacting gross profit discussed above.
Outbound freight and handling expenses decreased $1.5 million, or 14.6%, to $8.8 million in the year ended December 31, 2015. Foreign currency translation decreased outbound freight and handling expenses by 21.4% or $2.2 million. On a constant currency basis, outbound freight and handling expenses increased $0.7 million or 6.8%, which was primarily due to D’Altomare. Operating expenses increased $0.8 million, or 1.5%, to $54.1 million in the year ended December 31, 2015 and increased as a percentage of external sales from 9.7% in the year ended December 31, 2014 to 11.4% in the year ended December 31, 2015. D’Altomare contributed additional operating expenses of $10.4 million in the year ended December 31, 2015. Foreign currency translation decreased operating expenses by 25.3% or $13.5 million. Excluding the impact of D’Altomare and foreign currency translation, operating expenses increased $3.9 million primarily due to higher personnel expenses of $2.7 million driven by annual compensation increases and higher variable compensation. The remaining $1.2 million increase related to several insignificant components.
Adjusted EBITDA increased by $10.6 million, or 60.2%, to $28.2 million in the year ended December 31, 2015. D’Altomare contributed additional Adjusted EBITDA of $9.8 million in the year ended December 31, 2015. Foreign currency translation decreased Adjusted EBITDA by 47.7% or $8.4 million. On a constant currency basis and excluding D’Altomare, Adjusted EBITDA increased $9.2 million primarily due to increased gross profit. Adjusted EBITDA margin increased from 3.2% in the year ended December 31, 2014 to 6.0% in the year ended December 31, 2015 (5.0% excluding D’Altomare in the year ended December 31, 2015). The increase is a result of the increase in gross margin.
2018.
Year Ended December 31,
20142017 Compared to Year Ended December 31,
2013 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year ended | | | Favorable
(unfavorable) | | | %
Change | | | Impact of
currency* | |
(in millions) | | December 31, 2014 | | | December 31, 2013 | | | | |
Net sales | | $ | 10,373.9 | | | | 100.0 | % | | $ | 10,324.6 | | | | 100.0 | % | | $ | 49.3 | | | | 0.5 | % | | | (1.4 | )% |
Cost of goods sold (exclusive of depreciation) | | | 8,443.2 | | | | 81.4 | % | | | 8,448.7 | | | | 81.8 | % | | | 5.5 | | | | 0.1 | % | | | 1.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit | | | 1,930.7 | | | | 18.6 | % | | | 1,875.9 | | | | 18.2 | % | | | 54.8 | | | | 2.9 | % | | | (1.1 | )% |
Operating expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Outbound freight and handling | | | 365.5 | | | | 3.5 | % | | | 326.0 | | | | 3.2 | % | | | (39.5 | ) | | | (12.1 | )% | | | 1.2 | % |
Warehousing, selling and administrative | | | 923.5 | | | | 8.9 | % | | | 951.7 | | | | 9.2 | % | | | 28.2 | | | | 3.0 | % | | | 1.1 | % |
Other operating expenses, net | | | 197.1 | | | | 1.9 | % | | | 12.0 | | | | 0.1 | % | | | (185.1 | ) | | | N/M | | | | N/M | |
Depreciation | | | 133.5 | | | | 1.3 | % | | | 128.1 | | | | 1.2 | % | | | (5.4 | ) | | | (4.2 | )% | | | 0.6 | % |
Amortization | | | 96.0 | | | | 0.9 | % | | | 100.0 | | | | 1.0 | % | | | 4.0 | | | | 4.0 | % | | | 0.7 | % |
Impairment charges | | | 0.3 | | | | — | % | | | 135.6 | | | | 1.3 | % | | | 135.3 | | | | 99.8 | % | | | — | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total operating expenses | | | 1,715.9 | | | | 16.5 | % | | | 1,653.4 | | | | 16.0 | % | | | (62.5 | ) | | | (3.8 | )% | | | 1.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating income | | | 214.8 | | | | 2.1 | % | | | 222.5 | | | | 2.2 | % | | | (7.7 | ) | | | (3.5 | )% | | | (1.7 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other (expense) income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest income | | | 8.2 | | | | 0.1 | % | | | 11.0 | | | | 0.1 | % | | | (2.8 | ) | | | (25.5 | )% | | | (1.8 | )% |
Interest expense | | | (258.8 | ) | | | (2.5 | )% | | | (305.5 | ) | | | (3.0 | )% | | | 46.7 | | | | 15.3 | % | | | 0.1 | % |
Loss on extinguishment of debt | | | (1.2 | ) | | | — | % | | | (2.5 | ) | | | — | % | | | 1.3 | | | | 52.0 | % | | | — | % |
Other income (expense), net | | | 1.1 | | | | — | % | | | (17.6 | ) | | | (0.2 | )% | | | 18.7 | | | | 106.3 | % | | | 2.8 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total other expense | | | (250.7 | ) | | | (2.4 | )% | | | (314.6 | ) | | | (3.0 | )% | | | 63.9 | | | | 20.3 | % | | | 0.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loss before income taxes | | | (35.9 | ) | | | (0.3 | )% | | | (92.1 | ) | | | (0.9 | )% | | | 56.2 | | | | 61.0 | % | | | (3.4 | )% |
Income tax benefit | | | (15.8 | ) | | | (0.2 | )% | | | (9.8 | ) | | | (0.1 | )% | | | 6.0 | | | | 61.2 | % | | | 2.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | $ | (20.1 | ) | | | (0.2 | )% | | $ | (82.3 | ) | | | (0.8 | )% | | | 62.2 | | | | 75.6 | % | | | (3.5 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended | | Favorable (unfavorable) | | % Change | | Impact of currency* |
| (in millions) | December 31, 2017 | | December 31, 2016 | |
| Net sales | $ | 8,253.7 |
| | 100.0 | % | | $ | 8,073.7 |
| | 100.0 | % | | $ | 180.0 |
| | 2.2 | % | | 0.5 | % |
| Cost of goods sold (exclusive of depreciation) | 6,448.2 |
| | 78.1 | % | | 6,346.6 |
| | 78.6 | % | | (101.6 | ) | | 1.6 | % | | (0.5 | )% |
| Operating expenses: | | | | | | | | | | | | | |
| Outbound freight and handling | 292.0 |
| | 3.5 | % | | 286.6 |
| | 3.5 | % | | (5.4 | ) | | 1.9 | % | | (0.6 | )% |
| Warehousing, selling and administrative | 919.7 |
| | 11.1 | % | | 893.1 |
| | 11.1 | % | | (26.6 | ) | | 3.0 | % | | (0.6 | )% |
| Other operating expenses, net | 55.4 |
| | 0.7 | % | | 37.2 |
| | 0.5 | % | | (18.2 | ) | | 48.9 | % | | 0.8 | % |
| Depreciation | 135.0 |
| | 1.6 | % | | 152.3 |
| | 1.9 | % | | 17.3 |
| | (11.4 | )% | | (0.4 | )% |
| Amortization | 65.4 |
| | 0.8 | % | | 85.6 |
| | 1.1 | % | | 20.2 |
| | (23.6 | )% | | (0.3 | )% |
| Impairment charges | — |
| | — | % | | 133.9 |
| | 1.7 | % | | 133.9 |
| | (100.0 | )% | | — | % |
| Total operating expenses | $ | 1,467.5 |
| | 17.8 | % | | $ | 1,588.7 |
| | 19.7 | % | | $ | 121.2 |
| | (7.6 | )% | | (0.5 | )% |
| Operating income | $ | 338.0 |
| | 4.1 | % | | $ | 138.4 |
| | 1.7 | % | | $ | 199.6 |
| | 144.2 | % | | 1.7 | % |
| Other (expense) income: | | | | | | | | | | | | | |
| Interest income | 4.0 |
| | — | % | | 3.9 |
| | — | % | | 0.1 |
| | 2.6 | % | | 2.6 | % |
| Interest expense | (152.0 | ) | | (1.8 | )% | | (163.8 | ) | | (2.0 | )% | | 11.8 |
| | (7.2 | )% | | 0.1 | % |
| Loss on extinguishment of debt | (3.8 | ) | | — | % | | — |
| | — | % | | (3.8 | ) | | 100.0 | % | | — | % |
| Other expense, net | (17.4 | ) | | (0.2 | )% | | (58.1 | ) | | (0.7 | )% | | 40.7 |
| | (70.1 | )% | | 0.9 | % |
| Total other expense | $ | (169.2 | ) | | (2.0 | )% | | $ | (218.0 | ) | | (2.7 | )% | | $ | 48.8 |
| | (22.4 | )% | | 0.4 | % |
| Income (loss) before income taxes | 168.8 |
| | 2.0 | % | | (79.6 | ) | | (1.0 | )% | | 248.4 |
| | NM |
| | 3.9 | % |
| Income tax expense (benefit) | 49.0 |
| | 0.6 | % | | (11.2 | ) | | (0.1 | )% | | (60.2 | ) | | NM |
| | 0.9 | % |
| Net income (loss) | $ | 119.8 |
| | 1.5 | % | | $ | (68.4 | ) | | (0.8 | )% | | $ | 188.2 |
| | NM |
| | 4.7 | % |
| | | | | | | | | | | | | | |
| |
| * | Foreign currency translation is included in the percentage change. Unfavorable impacts from foreign currency translation are designated with parentheses. |
| |
| | |
Net sales percentage change due to: | |
Acquisitions | 0.1 | | | 0.8 | % |
Reported sales volumes | (5.8 | | 1.4 | )% |
Sales pricing and product mix | 7.4 | | | (0.3 | )% |
Foreign currency translation | | | (1.4 | )% |
| | | | |
Total
| | | 0.5 | % |
| Total | 2.2 | % |
Net sales were
$10,373.9$8,253.7 million in the year ended December 31,
2014,2017, an increase of
$49.3$180.0 million, or
0.5%2.2%, from the year ended December 31,
2013.2016. The increase in net sales from acquisitions was driven by the
May 2013September 2017 Tagma acquisition
in the Rest of
QuimicompuestosWorld segment, the March 2016 Nexus Ag acquisition in
Mexico.Canada, and the March 2016 Bodine acquisition in the USA. The
increasedecrease in net sales from reported sales volumes was driven by the USA,
and Canada segments partially offset by decreases in the EMEA, and Rest of World
segments.segments, partially offset by higher sales volumes in the Canada segment. The
reductionincrease in net sales from changes in sales pricing and product mix was driven by
the USA segment partially offset by increases in the Canada, EMEA and Restall of
Worldour segments. Foreign currency translation
decreased increased net sales primarily due to the US dollar strengtheningweakening against the Canadian dollar.dollar, euro, and Brazilian real, partially offset by the strengthening of the US dollar against the British pound and the Mexican peso. Refer to the “Segment results” for the year ended December 31, 20142017 discussion for additional information.
Gross profit
(exclusive of depreciation) | |
| | |
Gross profit percentage change due to: | |
Acquisitions | 0.2 | | | 0.5 | % |
Reported sales volumes | (5.8 | | 1.4 | )% |
Sales pricing, product costs and other adjustments | 9.5 | | | 2.1 | % |
Foreign currency translation | 0.6 | | | (1.1 | )% |
| Total | 4.5 | | | | |
Total
| | | 2.9 | % |
Gross profit increased
$54.8$78.4 million, or
2.9%4.5%, to
$1,930.7$1,805.5 million for the year ended December 31,
2014.2017. The increase in gross profit from acquisitions was driven by the
May 2013September 2017 Tagma acquisition
in the Rest of
Quimicompuestos. ExcludingWorld segment, the
impact of volumes,March 2016 Bodine acquisition in the USA, and the March 2016 Nexus Ag acquisition in Canada. The decrease in gross profit
increased due tofrom reported sales volumes was driven by the USA, EMEA, and Rest of World segments, partially offset by higher sales volumes in the Canada segment. The increase in gross profit from changes in sales pricing, product costs and other adjustments
resulting from increases inwas driven by the
Canada,USA, EMEA, and Rest of World segments, partially offset by a decrease in the
USACanada segment. Foreign currency translation
decreasedincreased gross profit
primarily due to the
weakening of the US dollar
strengthening against the Canadian
dollar.dollar, euro, and Brazilian real, partially offset by the strengthening of the US dollar against the British pound and the Mexican peso. Gross margin,
which we define as gross profit divided by external net sales, increased to
18.6%21.9% in the year ended December 31,
20142017 from
18.2%21.4% in the year ended December 31,
20132016, primarily due to
improved gross margins in the USA, Canadafavorable product mix and
EMEA segments.focused margin management efforts. Refer to the “Segment results” for the year ended December 31,
20142017 discussion for additional information.
Outbound freight and handling
Outbound freight and handling expenses increased
$39.5$5.4 million, or
12.1%1.9%, to
$365.5$292.0 million for the year ended December 31,
2014, which was primarily attributable to the increase in reported sales volumes, increased expense due to a tighter third-party carrier market and incremental costs from the Quimicompuestos acquisition.2017. Foreign currency translation
decreasedincreased outbound freight and handling expense by
1.2%0.6% or
$3.8$1.7 million.
On a constant currency basis, outbound freight and handling expenses increased 1.3% or $3.7 million, primarily due to higher delivery costs resulting from changes in product mix, market capacity constraints, and increasing fuel prices, partially offset by lower reported sales volumes. Refer to the “Segment results” for the year ended December 31,
20142017 discussion for additional information.
Warehousing, selling and administrative
Warehousing, selling and administrative expenses decreased $28.2increased $26.6 million, or 3.0%, to $923.5$919.7 million for the year ended December 31, 2014. The decrease was primarily attributable to management’s focus on cost control and the realization of the benefits of previously implemented productivity initiatives. This decrease was partially offset by an additional $5.4 million in warehousing, selling and administrative expenses in the year ended December 31, 2014 due to Quimicompuestos.2017. Foreign currency translation decreased warehousing, selling and administrative expenses by 1.1%0.6% or $10.3$5.2 million. On a constant currency basis, and excluding Quimicompuestos, the decrease relates to reductions in professional fees from outside services of $10.0$21.4 million and reduced temporary and contract labor expense of $3.2 million due to lower spending on productivity initiatives, uninsured losses and settlements of $7.8 million due to the impact of settlements during the year ended December 31, 2013. The decrease in warehousing, selling and administrative expenses also reflects the impact of reducing legal accruals for contingencies from prior acquisitions where our liability has been extinguished, lower repairs and maintenance of $3.7 millionincrease is primarily related to reductions in corporate maintenance, lower information technology spending of $2.9 million due to higher spending during the year ended December 31, 2013 related to the implementationpersonnel costs of an enterprise resource planning (“ERP”) system $28.8 million primarily driven by higher variable compensation expenseand less bad debthigher environmental remediation expense of $1.8$4.6 million, primarily related to less bad debt expenses in EMEA during the year ended December 31, 2014. These decreases were partially offset by increases$3.8 million in personnel relatedlower lease expense, $2.4 million in lower bad debt charges, $1.0 million in lower legal expenses of $3.7and $0.6 million which were primarily related to increased headcount and variable compensation expense increasing due to improved 2014 financial performance compared to 2013.in lower insurance expense. The remaining $2.4$4.2 million increasedecrease related to several insignificant components. Refer to the “Segment results” for the year ended December 31, 20142017 discussion for additional information.
Other operating expenses, net
Other operating expenses, net increased
$185.1$18.2 million,
or 48.9%, to
$197.1$55.4 million for the year ended December 31,
2014. The increase was due to a pension mark to market loss of $117.8 million in the year ended December 31, 2014 compared to a mark to market gain of $73.5 million in the year ended December 31, 2013 relating to the annual remeasurement of our defined benefit plans and other postretirement benefit plans. The 2014 mark to market loss primarily relates to the decrease in the defined benefit pension plans discount rates from December 31, 2013 to December 31, 2014 and the adoption of the new US mortality table as of December 31, 2014. This loss was partially offset by higher than expected plan asset returns during the year ended December 31, 2014. Refer to “Note 8: Employee benefit plans” in Item 8 of this Annual Report on Form 10-K for additional information.2017. The increase in other operating expenses, net was
also attributablerelated to
a $24.5$18.0 million
gain dueof costs incurred to
fair value adjustments insupport the
year ended December 31, 2013 compared to a $1.0 million gain due to fair value adjustments in the year ended December 31, 2014 resulting from the remeasurementtransformation of the
fair valueUS business, $9.3 million of
the contingent consideration liability associated with our 2012 acquisitionhigher stock-based compensation, and $6.6 million of
Magnablend (resulting from a reduced probability of Magnablend achieving its performance targets that would trigger contingent consideration payments). These increases werehigher other employee termination costs. The increase was partially offset by
lower redundancya higher gain on sale of property, plant and
restructuring chargesequipment of
$19.6$10.6 million
mainlydriven by the sale and subsequent leaseback of an operating facility in the
USACanada segment, $2.4 million in lower acquisition and
EMEA segments. Referintegration related expenses and $1.0 million in lower restructuring charges. The remaining $1.7 million decrease related to
“Note 5: Redundancy and Restructuring” in Item 8 of this Annual Report on Form 10-K for additional information. The increases were also partially offset by lower consulting fees of $7.8 million during the year ended December 31, 2014 primarily due to increased expenditures during the year ended December 31, 2013 associated with the implementation of several
regional initiatives aimed at streamlining our cost structure and improving our operations.insignificant components. Foreign currency translation decreased other operating expenses, net by
$0.8 million. The remaining $1.5$0.3 million,
decrease related to several insignificant components.or 0.8%. Refer to “Note 4: Other operating expenses, net” in Item 8 of this Annual Report on Form 10-K for additional information.
Depreciation and amortization
Depreciation expense increased $5.4decreased $17.3 million, or 4.2%11.4%, to $133.5$135.0 million for the year ended December 31, 2014. Quimicompuestos contributed additional2017. Foreign currency translation increased depreciation expense by $0.6 million, or 0.4%. On a constant currency basis, the decrease of $1.5$17.9 million, or 11.8%, was primarily due to assets reaching the end of their useful lives and due to the second quarter 2016 reassessment of useful lives of certain internally developed software which were fully depreciated by May 2017.
Amortization expense decreased $20.2 million, or 23.6%, to $65.4 million for the year ended December 31,
2014. The remaining increase in depreciation2017. Amortization expense
increased $0.3 million, or 0.3%, due to foreign currency translation. On a constant currency basis, the decrease of $20.5 million, or 23.9%, was primarily
driven by the third quarter 2016 impairment charge which reduced the intangible asset base along with lower expense related to
accelerated depreciation on various sites which are undergoing restructuring initiatives. Foreign currency translation decreased depreciation expense by 0.6% or $0.8 million.Amortization expense decreased $4.0 million, or 4.0%, to $96.0 million forintangibles reaching the end of their useful life.
Impairment charges
There were no impairment charges in the year ended December 31,
2014. Amortization expense decreased 0.7% or $0.7 million due to foreign currency translation and the lower amortization levels of existing customer relationship intangibles partially offset by an increase in amortization expense due to the amortization of additional intangible assets associated with Quimicompuestos. Customer relationships are amortized on an accelerated basis to mirror the economic pattern of benefit from such relationship.Impairment charges
2017. Impairment charges of $0.3$133.9 million were recorded in the year ended December 31, 2014 relating2016 of which $133.6 million was due to ongoing restructuring initiatives, a decreasethe impairment of $135.3 million.
Impairment charges of $135.6 million were recorded in the year ended December 31, 2013. The impairment charges primarily represented the write-off of goodwillcertain intangible assets and fixed assets related to the Restupstream oil and gas customers in the USA segment. The Company also recorded a non-cash, long-lived asset impairment charge of World reporting unit as well as the write off of capitalized software development costs$0.3 million related to a global ERP system. The impairmentassets held-for-sale. Refer to “Note 14: Impairment charges” in Item 8 of goodwill was triggered by a deterioration in general economic conditions within some of the reporting unit’s significant locations and revised financial projectionsthis Annual Report on Form 10-K for the Company. The impairment of the global ERP system was triggered by our decision to abandon its implementation.
additional information.
Interest expense decreased $46.7$11.8 million, or 15.3%7.2%, to $258.8$152.0 million for the year ended December 31, 20142017 primarily as a result of a decrease in fixed interest rates due to the March 2013 refinancing of the Senior Subordinated Notes and the recognition of $27.1 million in fees associated with the March 2013 early payment on the 2018 Subordinated Notes of $350.0 million. In addition, $9.3 million of the decrease was due to lower average outstanding borrowings, under short-term financing agreements. Interest expenseas well as lower interest rates related to tax contingencies was a gainthe January 2017 and November 2017 amendments of $4.7 million and a charge of $0.1 million for a net gain of $4.6 million in the year ended December 31, 2014 compared to a charge of $1.0 million in the year ended December 31, 2013. The net gain in the year ended December 31, 2014 related to accrued interest expense being released as the statute of limitations related to certain tax contingencies expired during the year ended December 31, 2014.Senior Term B loan agreement. Foreign currency translation decreased interest expense by 0.1% or $0.4$0.2 million. These decreases were partially offset byRefer to “Note 16: Debt” in Item 8 of this Annual Report on Form 10-K for additional information.
Loss on extinguishment of debt
Loss on extinguishment of debt increased
interest expense generated from interest rate swap contracts of $5.6 million.Other (expense) income, net
Other (expense) income, net increased $18.7 million, or 106.3%, from an expense of $17.6$3.8 million for the year ended December 31, 20132017. The $3.8 million loss on extinguishment of debt in the year ended December 31, 2017 related to incomethe write off of $1.1unamortized debt discount and debt issuance costs related to the January 2017 and November 2017 debt amendments of the Senior Term B loan agreement. Refer to “Note 16: Debt” in Item 8 of this Annual Report on Form 10-K for additional information.
Other expense, net
Other expense, net decreased $40.7 million, or 70.1%, to $17.4 million for the year ended December 31,
20142017. The decrease was primarily
asrelated to the $64.8 million decrease in pension mark to market loss, the $8.4 million increase in pension curtailment and settlement gains driven by a
result of foreign currency transaction gains of $7.7$9.7 million
settlement gain in the year ended December 31,
20142017 related to a lump sum offering in a US defined benefit plan, and offset by a $5.4 million decrease in other non-operating retirement benefits. The decrease was partially offset by an increase of $12.3 million change in mark to market for interest rate swaps resulting from a gain of $10.1 million during the year ended December 31, 2016 compared to
foreign currency transaction losses of $11.0a $2.2 million
loss in the year ended December 31,
2013, which are primarily2017. Also offsetting the decrease was $5.3 million in fees related to the
strengtheningJanuary 2017 and November 2017 amendments of the
US dollar compared to the euro and Canadian dollar during the year ending December 31, 2014. In addition, there were lower debt refinancing fees of $6.2Senior Term B loan agreement, $4.2 million in
the year ended December 31, 2014.higher foreign currency denominated loan revaluation losses and $4.0 million in higher foreign currency transactions. The
aforementioned increases to other (expense) income, net were partially offset by an increase of $3.7remaining $1.3 million
of losseschange is related to
undesignated foreign currency derivative instruments.several insignificant components. Refer to “Note 16: Debt” and “Note 18: Derivatives” in Item 8 of this Annual Report on Form 10-K for additional information. Refer to “Note 6: Other
(expense) income,expense, net” in Item 8 of this Annual Report on Form 10-K for additional information.
Income tax
benefitexpense (benefit)
Income tax expense increased $60.2 million from an income tax benefit increased $6.0of $11.2 million or 61.2%,in the year ended December 31, 2016 to $15.8an income tax expense of $49.0 million in the year ended December 31, 2017. The increase in income tax expense was
primarily the result of an increase in overall earnings before income taxes from a loss of $79.6 million incurred for the year ended December 31, 2016, as compared to an income of $168.8 million for the year ended December 31,
2014.2017. The direct and indirect impacts from the Tax Cuts and Jobs Act (the “Tax Act”) also contributed to the total expense by $36.6 million. The increase
primarily is due to ourin income tax expense was partially offset by a release of
a net $18.4valuation allowances based on current estimated earnings and future profitability of $25.9 million
in unrealized tax benefits due tofor the
statute of limitations expiration related to certain tax contingencies as well as a decrease of $11.6 million in foreign losses not benefitted for which a tax benefit may not be recognized.year ended December 31, 2017.
Our Adjusted EBITDA
and gross profit (exclusive of depreciation) by operating segment and in aggregate is summarized in the following tables:
| | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | | USA | | | Canada | | | EMEA | | | Rest of
World | | | Other/
Elimin-
ations(1) | | | Consolidated | |
| | | Year ended December 31, 2014 | |
Net sales: | | | | | | | | | | | | | | | | | | | | | | | | |
External customers | | $ | 6,081.4 | | | $ | 1,512.1 | | | $ | 2,230.1 | | | $ | 550.3 | | | $ | — | | | $ | 10,373.9 | |
Inter-segment | | | 121.8 | | | | 10.0 | | | | 4.5 | | | | — | | | | (136.3 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total net sales | | | 6,203.2 | | | | 1,522.1 | | | | 2,234.6 | | | | 550.3 | | | | (136.3 | ) | | | 10,373.9 | |
Cost of goods sold (exclusive of depreciation) | | | 5,041.0 | | | | 1,271.5 | | | | 1,797.9 | | | | 469.1 | | | | (136.3 | ) | | | 8,443.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit | | | 1,162.2 | | | | 250.6 | | | | 436.7 | | | | 81.2 | | | | — | | | | 1,930.7 | |
Outbound freight and handling | | | 233.3 | | | | 46.4 | | | | 75.5 | | | | 10.3 | | | | — | | | | 365.5 | |
Warehousing, selling and administrative (operating expenses) | | | 490.9 | | | | 97.4 | | | | 276.2 | | | | 53.3 | | | | 5.7 | | | | 923.5 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA | | $ | 438.0 | | | $ | 106.8 | | | $ | 85.0 | | | $ | 17.6 | | | $ | (5.7 | ) | | $ | 641.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other operating expenses, net | | | | | | | | | | | | | | | | | | | | | | | 197.1 | |
Depreciation | | | | | | | | | | | | | | | | | | | | | | | 133.5 | |
Amortization | | | | | | | | | | | | | | | | | | | | | | | 96.0 | |
Impairment charges | | | | | | | | | | | | | | | | | | | | | | | 0.3 | |
Loss on extinguishment of debt | | | | | | | | | | | | | | | | | | | | | | | 1.2 | |
Interest expense, net | | | | | | | | | | | | | | | | | | | | | | | 250.6 | |
Other income, net | | | | | | | | | | | | | | | | | | | | | | | (1.1 | ) |
Income tax benefit | | | | | | | | | | | | | | | | | | | | | | | (15.8 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | | | | | | | | | | | | | | | | | | | | | $ | (20.1 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | | USA | | | Canada | | | EMEA | | | Rest of
World | | | Other/
Elimin-
ations(1) | | | Consolidated | |
| | | Year ended December 31, 2013 | |
Net sales: | | | | | | | | | | | | | | | | | | | | | | | | |
External customers | | $ | 5,964.5 | | | $ | 1,558.7 | | | $ | 2,326.8 | | | $ | 474.6 | | | $ | — | | | $ | 10,324.6 | |
Inter-segment | | | 116.5 | | | | 8.0 | | | | 4.0 | | | | — | | | | (128.5 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total net sales | | | 6,081.0 | | | | 1,566.7 | | | | 2,330.8 | | | | 474.6 | | | | (128.5 | ) | | | 10,324.6 | |
Cost of goods sold (exclusive of depreciation) | | | 4,953.4 | | | | 1,316.6 | | | | 1,902.9 | | | | 404.3 | | | | (128.5 | ) | | | 8,448.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit | | | 1,127.6 | | | | 250.1 | | | | 427.9 | | | | 70.3 | | | | — | | | | 1,875.9 | |
Outbound freight and handling | | | 201.3 | | | | 41.6 | | | | 76.1 | | | | 7.0 | | | | — | | | | 326.0 | |
Warehousing, selling and administrative (operating expenses) | | | 492.6 | | | | 102.4 | | | | 299.3 | | | | 48.3 | | | | 9.1 | | | | 951.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA | | $ | 433.7 | | | $ | 106.1 | | | $ | 52.5 | | | $ | 15.0 | | | $ | (9.1 | ) | | $ | 598.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other operating expenses, net | | | | | | | | | | | | | | | | | | | | | | | 12.0 | |
Depreciation | | | | | | | | | | | | | | | | | | | | | | | 128.1 | |
Amortization | | | | | | | | | | | | | | | | | | | | | | | 100.0 | |
Impairment charges | | | | | | | | | | | | | | | | | | | | | | | 135.6 | |
Loss on extinguishment of debt | | | | | | | | | | | | | | | | | | | | | | | 2.5 | |
Interest expense, net | | | | | | | | | | | | | | | | | | | | | | | 294.5 | |
Other expense, net | | | | | | | | | | | | | | | | | | | | | | | 17.6 | |
Income tax benefit | | | | | | | | | | | | | | | | | | | | | | | (9.8 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | | | | | | | | | | | | | | | | | | | | | $ | (82.3 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | USA | | Canada | | EMEA | | Rest of World | | Other/ Elimin- ations(1) | | Consolidated |
| | Year ended December 31, 2017 |
| Net sales: | | | | | | | | | | | |
| External customers | $ | 4,657.1 |
| | $ | 1,371.5 |
| | $ | 1,821.2 |
| | $ | 403.9 |
| | $ | — |
| | $ | 8,253.7 |
|
| Inter-segment | 121.9 |
| | 9.1 |
| | 4.5 |
| | 0.5 |
| | (136.0 | ) | | — |
|
| Total net sales | $ | 4,779.0 |
| | $ | 1,380.6 |
| | $ | 1,825.7 |
| | $ | 404.4 |
| | $ | (136.0 | ) | | $ | 8,253.7 |
|
| Cost of goods sold (exclusive of depreciation) | 3,706.8 |
| | 1,143.0 |
| | 1,411.7 |
| | 322.7 |
| | (136.0 | ) | | 6,448.2 |
|
| Outbound freight and handling | 192.8 |
| | 37.3 |
| | 55.7 |
| | 6.2 |
| | — |
| | 292.0 |
|
| Warehousing, selling and administrative | 529.4 |
| | 86.2 |
| | 229.1 |
| | 46.8 |
| | 28.2 |
| | 919.7 |
|
| Adjusted EBITDA | $ | 350.0 |
| | $ | 114.1 |
| | $ | 129.2 |
| | $ | 28.7 |
| | $ | (28.2 | ) | | $ | 593.8 |
|
| Other operating expenses, net | | | | | | | | | | | 55.4 |
|
| Depreciation | | | | | | | | | | | 135.0 |
|
| Amortization | | | | | | | | | | | 65.4 |
|
| Interest expense, net | | | | | | | | | | | 148.0 |
|
| Loss on extinguishment of debt | | | | | | | | | | | 3.8 |
|
| Other expense, net | | | | | | | | | | | 17.4 |
|
| Income tax expense | | | | | | | | | | | 49.0 |
|
| Net income | | | | | | | | | | | $ | 119.8 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | USA | | Canada | | EMEA | | Rest of World | | Other/ Elimin-ations(1) | | Consolidated |
| | Year ended December 31, 2017 |
| Gross profit: | | | | | | | |
| Net sales | $ | 4,779.0 |
| | $ | 1,380.6 |
| | $ | 1,825.7 |
| | $ | 404.4 |
| | $ | (136.0 | ) | | $ | 8,253.7 |
|
| Cost of goods sold (exclusive of depreciation) | 3,706.8 |
| | 1,143.0 |
| | 1,411.7 |
| | 322.7 |
| | (136.0 | ) | | 6,448.2 |
|
| Gross profit (exclusive of depreciation) | $ | 1,072.2 |
| | $ | 237.6 |
| | $ | 414.0 |
| | $ | 81.7 |
| | $ | — |
| | $ | 1,805.5 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | USA | | Canada | | EMEA | | Rest of World | | Other/ Elimin- ations(1) | | Consolidated |
| | Year ended December 31, 2016 |
| Net sales: | | | | | | | | | | | |
| External customers | $ | 4,706.7 |
| | $ | 1,261.0 |
| | $ | 1,704.2 |
| | $ | 401.8 |
| | $ | — |
| | $ | 8,073.7 |
|
| Inter-segment | 104.4 |
| | 8.3 |
| | 4.5 |
| | — |
| | (117.2 | ) | | — |
|
| Total net sales | $ | 4,811.1 |
| | $ | 1,269.3 |
| | $ | 1,708.7 |
| | $ | 401.8 |
| | $ | (117.2 | ) | | $ | 8,073.7 |
|
| Cost of goods sold (exclusive of depreciation) | 3,769.7 |
| | 1,047.4 |
| | 1,324.6 |
| | 322.1 |
| | (117.2 | ) | | 6,346.6 |
|
| Outbound freight and handling | 191.5 |
| | 34.1 |
| | 54.9 |
| | 6.1 |
| | — |
| | 286.6 |
|
| Warehousing, selling and administrative | 523.5 |
| | 85.4 |
| | 219.3 |
| | 46.8 |
| | 18.1 |
| | 893.1 |
|
| Adjusted EBITDA | $ | 326.4 |
| | $ | 102.4 |
| | $ | 109.9 |
| | $ | 26.8 |
| | $ | (18.1 | ) | | $ | 547.4 |
|
| Other operating expenses, net | | | | | | | | | | | 37.2 |
|
| Depreciation | | | | | | | | | | | 152.3 |
|
| Amortization | | | | | | | | | | | 85.6 |
|
| Impairment charges | | | | | | | | | | | 133.9 |
|
| Interest expense, net | | | | | | | | | | | 159.9 |
|
| Other expense, net | | | | | | | | | | | 58.1 |
|
| Income tax benefit | | | | | | | | | | | (11.2 | ) |
| Net loss | | | | | | | | | | | $ | (68.4 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | USA | | Canada | | EMEA | | Rest of World | | Other/ Elimin-ations(1) | | Consolidated |
| | Year ended December 31, 2016 |
| Gross profit: | | | | | | | |
| Net sales | $ | 4,811.1 |
| | $ | 1,269.3 |
| | $ | 1,708.7 |
| | $ | 401.8 |
| | $ | (117.2 | ) | | $ | 8,073.7 |
|
| Cost of goods sold (exclusive of depreciation) | 3,769.7 |
| | 1,047.4 |
| | 1,324.6 |
| | 322.1 |
| | (117.2 | ) | | 6,346.6 |
|
| Gross profit (exclusive of depreciation) | $ | 1,041.4 |
| | $ | 221.9 |
| | $ | 384.1 |
| | $ | 79.7 |
| | $ | — |
| | $ | 1,727.1 |
|
| |
| (1) | Other/Eliminations represents the elimination of intersegment transactions as well as unallocated corporate costs consisting of costs specifically related to parent company operations that do not directly benefit segments, either individually or collectively. |
USA. | | | | | | | | | | |
Net sales percentage change due to: | | | Gross profit percentage change due to: | |
Reported sales volumes | | | 4.1 | % | | Reported sales volumes | | | 4.1 | % |
Sales pricing and product mix | | | (2.1 | )% | | Sales pricing, product costs and other adjustments | | | (1.0 | )% |
| | | | | | | | | | |
Total | | | 2.0 | % | | Total | | | 3.1 | % |
|
| | | | | | |
| Net sales percentage change due to: | | Gross profit percentage change due to: |
| Acquisitions | 0.1 | % | | Acquisitions | 0.1 | % |
| Reported sales volumes | (7.1 | )% | | Reported sales volumes | (7.1 | )% |
| Sales pricing and product mix | 5.9 | % | | Sales pricing, product costs and other adjustments | 10.0 | % |
| Total | (1.1 | )% | | Total | 3.0 | % |
External sales in the USA segment were $6,081.4$4,657.1 million, an increasea decrease of $116.9$49.6 million, or 2.0%1.1%, in the year ended December 31, 2014.2017 due to lower sales volumes, partially offset by higher average selling prices resulting from the Company's efforts to improve its sales force effectiveness, favorable changes in product mix and increases in certain chemical prices. The increase in external net sales from reported sales volumesacquisitions was primarily due to increased sales of hydrochloric acid and caustic soda. The reduction in external net sales from changes in sales pricing and product mix was primarily driven by a shift towards products with lower average selling prices.the March 2016 Bodine acquisition. Gross profit increased $34.6$30.8 million, or 3.1%3.0%, to $1,162.2$1,072.2 million in the year ended December 31, 2014. Excluding the impact of volumes, gross2017. Gross profit decreased due to changes inincreased from sales pricing, product costs and other adjustments primarily due to an increasehigher average selling prices and changes in product mix towards lowerto higher margin products partially offset by higher inventory write-downs of guarproducts. The increase in gross profit from acquisitions was due to the March 2016 Bodine acquisition. Gross margin increased from 22.1% in the year
ended December 31, 2016 to 23.0% during the year ended December 31,
2013 driven by a reduction in guar’s market prices. Gross margin increased from 18.9% in the year ended December 31, 2013 to 19.1% during the year ended December 31, 20142017 primarily due to
average purchasing costs decreasing at a faster rate than average selling prices and the
prior year impact of the guar write-downs.factors impacting gross profit discussed above.
Outbound freight and handling expenses increased
$32.0$1.3 million, or
15.9%0.7%, to
$233.3$192.8 million in the year ended December 31,
20142017 primarily due to
the increase in reported sales volumes as well as increased deliveries to remote locationshigher delivery costs resulting from market capacity constraints and
the tighter third-party carrier market.increasing fuel prices. Operating expenses
decreased $1.7increased $5.9 million, or
0.3%1.1%, to
$490.9$529.4 million in the year ended December 31,
2014 due2017 of which $19.5 million is attributable to
higher personnel costs primarily driven by higher variable compensation expense partially offset by lower
corporate cost allocations of $6.8 million insalaries expense. Additionally, the
year ended December 31, 2014 resulting from a reduction in overall corporate costs as well as a transfer of certain corporate personnel to the USA segment. The decreaseincrease in operating expenses
wasis also due to
lower outside professional feeshigher environmental remediation expense of
$4.1 million in the year ended December 31, 2014 resulting from costs incurred in the year ended December 31, 2013 for a sales and operations planning project, lower uninsured losses and settlements of $2.9 million due to higher settlement expenses incurred during the year ended December 31, 2013, increased container recovery of $1.9 million related to implementation of improved tracking of containers and lower external legal fees of $1.5 million due to higher recovery of legal fees from insurance.$3.0 million. These
reductionsincreases were partially offset by
higher personnel$3.8 million of lower lease expenses,
of $9.1$3.8 million
resulting from higher headcount, higher temporary laborin lower bad debt charges and
contract labor of $2.6$2.3 million
due to hiring of additional temporary salespeople, higher travelin lower maintenance and
entertainment expenses of $2.4 million resulting from lower travel levels in the year ended December 31, 2013, increased taxes other than income taxes of $1.8 million related to higher property taxes and increased pallets and supplies expense of $1.7 million related to increased sales volumes.repair expenses. The remaining
$2.1$6.7 million decrease related to several insignificant components. Operating expenses as a percentage of external sales
decreasedincreased from
8.3%11.1% in the year ended December 31,
20132016 to
8.1%11.4% in the year ended December 31,
2014.2017.
Adjusted EBITDA increased by
$4.3$23.6 million, or
1.0%7.2%, to
$438.0$350.0 million in the year ended December 31,
2014.2017. Adjusted EBITDA margin
decreasedincreased from
7.3%6.9% in the year ended December 31,
20132016 to
7.2%7.5% in the year ended December 31,
20142017 primarily as a result of
higher gross margin, partially offset by increased
freight and handling expenses.operating expenses as a percentage of sales.
Canada. | | | | | | | | | | |
Net sales percentage change due to: | | | Gross profit percentage change due to: | |
Reported sales volumes | | | 0.7 | % | | Reported sales volumes | | | 0.7 | % |
Sales pricing and product mix | | | 3.3 | % | | Sales pricing, product costs and other adjustments | | | 6.7 | % |
Foreign currency translation | | | (7.0 | )% | | Foreign currency translation | | | (7.2 | )% |
| | | | | | | | | | |
Total | | | (3.0 | )% | | Total | | | 0.2 | % |
|
| | | | | | |
| Net sales percentage change due to: | | Gross profit percentage change due to: |
| Acquisitions | 0.3 | % | | Acquisitions | 0.3 | % |
| Reported sales volumes | 4.8 | % | | Reported sales volumes | 4.8 | % |
| Sales pricing and product mix | 1.5 | % | | Sales pricing, product costs and other adjustments | (0.2 | )% |
| Foreign currency translation | 2.2 | % | | Foreign currency translation | 2.2 | % |
| Total | 8.8 | % | | Total | 7.1 | % |
External sales in the Canada segment were $1,512.1$1,371.5 million, a decreasean increase of $46.6$110.5 million, or 3.0%8.8%, in the year ended December 31, 2014.2017. Foreign currency translation increased external sales dollars as the US dollar weakened against the Canadian dollar comparing the year ended December 31, 2017 to the year ended December 31, 2016. On a constant currency basis, external sales dollars increased $82.9 million or 6.6%. The increase in external net sales from acquisitions was due to the March 2016 Nexus Ag acquisition. The increase in external net sales was driven by higher reported sales volumes was primarily due to increases in sales of oil and gas, coatings and adhesives, and food ingredient products, partially offset by decreases in agricultural and forestry products.across all regions. The increase in external net sales from changes in sales pricing and product mix was primarily driven by increasedhigher average selling prices.prices in key industrial chemical products. Gross profit increased $15.7 million, or 7.1%, to $237.6 million in the year ended December 31, 2017. The increase in gross profit from acquisitions was due to the March 2016 Nexus Ag acquisition. Gross profit decreased from sales pricing, product costs, and other adjustments due to change in market and product mix, partially offset by margin management efforts during the year ended December 31, 2017. Gross margin decreased from 17.6% in the year ended December 31, 2016 to 17.3% in the year ended December 31, 2017.
Outbound freight and handling expenses increased $3.2 million, or 9.4%, to $37.3 million primarily due to higher reported sales volumes and higher delivery costs resulting from changes in product mix. Operating expenses increased by $0.8 million, or 0.9%, to $86.2 million in the year ended December 31, 2017 and decreased as a percentage of external sales from 6.8% in the year ended December 31, 2016 to 6.3% in the year ended December 31, 2017. Foreign currency translation increased operating expenses by $1.8 million, or 2.1%. On a constant currency basis, operating expenses decreased $1.0 million, or 1.2%, primarily related to several insignificant components.
Adjusted EBITDA increased by $11.7 million, or 11.4%, to $114.1 million in the year ended December 31, 2017. Foreign currency translation increased Adjusted EBITDA by $2.2 million, or 2.1%. On a constant currency basis, Adjusted EBITDA increased $9.5 million, or 9.3%, primarily due to increased gross profit. Adjusted EBITDA margin increased from 8.1% in the year ended December 31, 2016 to 8.3% in the year ended December 31, 2017 primarily as a result of lower operating expenses as a percentage of sales, partially offset by lower gross margin.
EMEA.
|
| | | | | | |
| Net sales percentage change due to: | | Gross profit percentage change due to: |
| Reported sales volumes | (5.4 | )% | | Reported sales volumes | (5.4 | )% |
| Sales pricing and product mix | 12.0 | % | | Sales pricing, product costs and other adjustments | 12.5 | % |
| Foreign currency translation | 0.3 | % | | Foreign currency translation | 0.7 | % |
| Total | 6.9 | % | | Total | 7.8 | % |
External sales in the EMEA segment were $1,821.2 million, an increase of $117.0 million, or 6.9%, in the year ended December 31, 2017 primarily due to higher average selling prices driven by mix improvement, margin management initiatives and chemical price inflation for certain products, partially offset by lower volumes. Foreign currency translation increased external sales dollars as the US dollar
strengthenedweakened against the
Canadianeuro, partially offset by the US dollar
strengthening against the British pound, when comparing the year ended December 31,
20142017 to the year ended December 31,
2013. On a constant currency basis, external sales dollars increased $62.8 million or 4.0%.2016. Gross profit increased
$0.5$29.9 million, or
0.2%7.8%, to
$250.6$414.0 million in the year ended December 31,
2014. Excluding the impact of volumes, gross2017. Gross profit increased due to changes in sales pricing, product costs and other adjustments primarily due to
the positive impacts from increased
average selling prices during the year ended December 31, 2014,sales of higher margin pharmaceutical finished goods as well as
higherthe continued impact of favorable product
settlement costs and
guar inventory write-downs incurred during the year ended December 31, 2013.end market mix. Gross margin increased from
16.0%22.5% in the year ended December 31,
20132016 to
16.6%22.7% in the year ended December 31,
20142017 primarily due to the factors impacting gross profit discussed above.
Outbound freight and handling expenses increased
$4.8$0.8 million, or
11.5%1.5%, to
$46.4$55.7 million primarily due to
the increase in reported sales volumes as well as increased deliverieshigher delivery costs per ton due to
customers in remote locations.lower bulk volume sales. Operating expenses
decreased by $5.0increased $9.8 million, or
4.9%4.5%, to
$97.4$229.1 million in the year ended December 31,
20142017, and decreased as a percentage of external sales from
6.6%12.9% in the year ended December 31,
20132016 to
6.4%12.6% in the year ended December 31,
2014.2017. Foreign currency translation
decreasedincreased operating expenses by
6.9%1.0% or
$7.1$2.1 million. On a constant currency basis, operating expenses increased
$2.1$7.7 million, or
2.1%3.5%,
which was driven by higher personnel costs of $5.4 million primarily
relateddue to higher
personnel expensesvariable compensation expense, higher environmental remediation expense of
$1.0$1.8 million,
resulting from annual compensation increases and
increases$1.4 million in
headcount and higher
outside storage fees of $0.9 million related to increased sales volumes. Thisbad debt charges. The increase was partially offset by
lower corporate cost allocationsa decrease of
$0.7$1.0 million
due to lower overall corporate costs.in lease expenses. The remaining
$0.9offsetting $0.1 million increase related to several
other insignificant components.
Adjusted EBITDA increased by
$0.7$19.3 million, or
0.7%17.6%, to
$106.8$129.2 million in the year ended December 31,
2014.2017. Foreign currency translation decreased Adjusted EBITDA by
7.3%0.1% or
$7.7$0.2 million. On a constant currency basis, Adjusted EBITDA increased
$8.4$19.5 million,
or 17.7%, which can be attributed to increased gross profit due to
improved sales force execution and margin management initiatives together with increased
external sales
generating increased gross profit.of pharmaceutical finished goods compared to the year ended December 31, 2016. The pharmaceutical finished goods product line represented approximately 30% of Adjusted EBITDA in the EMEA segment for the year ended December 31, 2017. Adjusted EBITDA margin increased from
6.8%6.4% in the year ended December 31,
20132016 to 7.1% in the year ended December 31,
20142017 primarily due to
increases inhigher gross
margin.EMEAmargin and lower outbound freight and handling expenses and operating expenses as a percentage of sales.
Rest of World. | | | | | | | | | | |
Net sales percentage change due to: | | | Gross profit percentage change due to: | |
Reported sales volumes | | | (4.0 | )% | | Reported sales volumes | | | (4.0 | )% |
Sales pricing and product mix | | | 0.4 | % | | Sales pricing, product costs and other adjustments | | | 6.4 | % |
Foreign currency translation | | | (0.6 | )% | | Foreign currency translation | | | (0.3 | )% |
| | | | | | | | | | |
Total | | | (4.2 | )% | | Total | | | 2.1 | % |
|
| | | | | | |
| Net sales percentage change due to: | | Gross profit percentage change due to: |
| Acquisitions | 1.0 | % | | Acquisitions | 2.6 | % |
| Reported sales volumes | (16.3 | )% | | Reported sales volumes | (16.3 | )% |
| Sales pricing and product mix | 13.9 | % | | Sales pricing, product costs and other adjustments | 13.2 | % |
| Foreign currency translation | 1.9 | % | | Foreign currency translation | 3.0 | % |
| Total | 0.5 | % | | Total | 2.5 | % |
External sales in the EMEARest of World segment were $2,230.1$403.9 million, a decreasean increase of $96.7$2.1 million, or 4.2%0.5%, in the year ended December 31, 2014.2017. Foreign currency translation increased external sales dollars primarily due to the US dollar weakening against the Brazilian real, partially offset by the US dollar strengthening against the Mexican peso in the year ended December 31, 2017 as compared to the year ended December 31, 2016. The increase in external net sales from acquisitions was due to the September 2017 Tagma acquisition. The decrease in external net sales from reported sales volumes was primarily due to the expiration of two high-volume customer contracts which were not renewed by us due to the low margins on those contracts. weak industrial demand and in particular lower demand in upstream oil and gas products and solvents in Mexico.The increase in external net sales from changes in sales pricing and product mix was primarily driven by a shift indue to favorable product mix towards products with and higher average selling prices. Foreign currency translation decreased external sales dollars primarilyprices resulting from the US dollar strengthening against the euro when comparing the year ended December 31, 2014Company's efforts to the year ended December 31, 2013. improve its sales force effectiveness and higher chemical prices due to product shortages. Gross profit increased $8.8$2.0 million, or 2.1%2.5%, to $436.7$81.7 million in the year ended December 31, 2014. Excluding the impact of volumes,2017. The increase in gross profit increasedfrom acquisitions
was due to changes inthe September 2017 Tagma acquisition. Gross profit increased from sales pricing, product costs and other adjustments primarily due to the expiration of two lower margin customer contracts as well as average purchasing costs decreasing at a faster rate thanfavorable product mix and higher average selling prices, onoffset by lower volumes across the remaining products.region for the year ended December 31, 2017. Gross margin increased from 18.4%19.8% in the year ended December 31, 20132016 to 19.6%20.2% in the year ended December 31, 20142017 primarily due to the factors impacting gross profit discussed above. Outbound freight and handling expenses
decreased $0.6increased $0.1 million, or
0.8%1.6%, to
$75.5 million primarily due to the decrease in reported sales volumes. Operating expenses decreased $23.1 million, or 7.7%, to $276.2$6.2 million in the year ended December 31,
20142017. Foreign currency translation increased outbound freight and
decreasedhandling expenses by 1.6% or $0.1 million. On a constant currency basis, outbound freight and handling expenses remained flat compared to prior year primarily due to lower reported sales volumes. Operating expenses remained flat at $46.8 million and 11.6% as a percentage of external sales
from 12.9% inwhen comparing the year ended December 31,
20132017 to
12.4% in the year ended December 31,
2014. The decrease primarily related to realizing the benefits of previously implemented productivity initiatives.2016. Foreign currency translation
decreasedincreased operating expenses by
0.8%2.8% or
$2.5$1.3 million. On
a constant currency basis,
the decrease resulted from lower outside professional fees of $5.0operating expenses decreased $1.3 million,
or 2.8% due
to higher fees related to margin improvement initiative spending during the year ended December 31, 2013, lower corporate costs of $4.3 million due to lower overall corporate costs, a $3.4 million reduction in uninsured losses and settlements due to higher settlement costs incurred during the year ended December 31, 2013 related to a customer dispute, lower temporary and contract labor of $3.2 million resulting from lower recruiting and training costs, lower bad debts of $2.8 million in 2014 resulting from implementing working capital initiatives and lower spending on information technology of $2.1 million resulting from higher than average spending during the year ended December 31, 2013 related to the implementation of an ERP system. The remaining $0.2 million increase related to several insignificant components.
Adjusted EBITDA increased by
$32.5$1.9 million, or
61.9%7.1%, to
$85.0$28.7 million in the year ended December 31,
2014 due to increased gross profit and decreased operating expenses.2017. Foreign currency translation increased Adjusted EBITDA by
2.7%3.7% or
$1.4$1.0 million.
On a constant currency basis, Adjusted EBITDA increased $0.9 million, or 3.4%, primarily due to increased gross profit. Adjusted EBITDA margin increased from
2.3%6.7% in the year ended December 31,
20132016 to
3.8%7.1% in the year ended December 31,
2014 as a result of the increase in gross margin and a decrease in operating expenses as a percentage of external sales.Rest of World.
| | | | | | | | | | |
Net sales percentage change due to: | | | Gross profit percentage change due to: | |
Acquisitions | | | 16.7 | % | | Acquisitions | | | 14.1 | % |
Reported sales volumes | | | (10.8 | )% | | Reported sales volumes | | | (10.8 | )% |
Sales pricing and product mix | | | 13.7 | % | | Sales pricing, product costs and other adjustments | | | 13.2 | % |
Foreign currency translation | | | (3.6 | )% | | Foreign currency translation | | | (1.0 | )% |
| | | | | | | | | | |
Total | | | 16.0 | % | | Total | | | 15.5 | % |
External sales in the Rest of World segment were $550.3 million, an increase of $75.7 million, or 16.0%, in the year ended December 31, 2014. The increase in external net sales from acquisitions was driven by the May 2013 acquisition of Quimicompuestos in Mexico. The decrease in external net sales from reported sales volumes was2017 primarily due to decreases in the Asia Pacific region related to competitive pressures and weaker demand. The increase in external net sales from changes in sales pricing and product mix was primarily driven by a
market shift in product mix toward products with higher average selling prices in the Asia Pacific region and Brazil. Foreign currency translation decreased external sales dollars when comparing the year ended December 31, 2014 to the year ended December 31, 2013 primarily due to the US dollar strengthening against the Mexican peso and Brazilian real. Gross profit increased $10.9 million, or 15.5%, to $81.2 million in the year ended December 31, 2014. The increase in gross profit from acquisitions was driven by the May 2013 acquisition of Quimicompuestos. Excluding the impact of volumes, gross profit increased due to changes in sales pricing, product costs and other adjustments primarily due to improved margins in the Asia Pacific region resulting from an increased mix of specialty products partially offset by lower margins in Brazil resulting from competitive pressures. Gross margin remained at 14.8% in the year ended December 31, 2014 (15.1% excluding Quimicompuestos due to lower margins resulting from the oil and gas market).
Outbound freight and handling expenses increased $3.3 million, or 47.1%, to $10.3 million in the year ended December 31, 2014 primarily related to an increase from Quimicompuestos partially offset by the decrease in reported sales volumes. Operating expenses increased $5.0 million, or 10.4%, to $53.3 million in the year ended December 31, 2014 and decreased as a percentage of external sales from 10.2% in the year ended December 31, 2013 to 9.7% in the year ended December 31, 2014. Quimicompuestos contributed additional operating expenses of $5.4 million in the year ended December 31, 2014. Foreign currency translation decreased operating expenses by 1.9% or $0.9 million. On a constant currency basis and excluding the impact of Quimicompuestos, the increase of $0.5 million in operating expenses was primarily related to higher personnel expenses of $1.7 million due to increased headcount, which was partially offset by reduced corporate cost allocations of $1.2 million.
Adjusted EBITDA was $17.6 million in the year ended December 31, 2014, an increase of $2.6 million, or 17.3% (an increase of $2.1 million excluding Quimicompuestos) primarily resulting from increased gross profit. Adjusted EBITDA margin remained at 3.2% for the year ended December 31, 2014 (3.6% excluding Quimicompuestos).
margin.
Liquidity and Capital Resources
Our primary source of liquidity is cash generated from our operations as well as borrowings under our credit facilities.
During the year ended December 31, 2015, we restructured a significant portion of our long term debt obligations. These debt refinancings extended our debt maturity profile and reduced our future interest payments. Refer to “Note 14: Debt” in Item 8 of this Annual Report on Form 10-K for further information on these debt refinancings As of December 31,
2015,2018, our total liquidity was approximately
$677.1$734.7 million, comprised of
$489.0$613.1 million available under our credit facilities and
$188.1$121.6 million of cash and cash equivalents. Our primary liquidity and capital resource needs are to service our debt and to finance working capital, capital expenditures, other liabilities,
and cost of
acquisitions.acquisitions and general corporate purposes. We believe that funds provided by these sources will be adequate to meet our liquidity and capital resource needs for at least the next 12 months under current operating conditions. We have significant working capital needs, although we have implemented several initiatives to improve our working capital and reduce the related financing requirements. The nature of our business, however, requires that we maintain inventories that enable us to deliver products to fill customer orders. As of December 31,
2015,2018, we maintained inventories of
$803.4$803.3 million, equivalent to approximately
47.047.2 days of sales (which we calculate on the basis of cost of goods sold for the trailing 90-day period).
Historically, our maintenance capital expenditures have largely tracked our depreciation expense. In executing our growth strategies, our capital expenditures increased moderately and we had annual capital expenditures in the range of 1.1% to 1.6% of net sales over the 2013 to 2015 period. In general, our sustaining capital expenditures represent less than 2% of net sales.
The funded status of our defined benefit pension plans is the difference between our plan assets and projected benefit obligations. Our pension plans in the
U.S.US and certain other countries had an underfunded status of
$244.5$212.4 million,
$304.2$226.7 million and
$239.1$271.8 million at December 31,
2015, 20142018, 2017 and
2013,2016, respectively. During
2015, 2018, we made contributions of $59.6$38.7 million. Based on current projections of minimum funding requirements, we expect to make cash contributions of $28.1$28.3 million to our defined benefit pension plans in 2016.2019. The timing for any such requirement in future years is uncertain given the implicit uncertainty regarding the future developments of factors described in “Risk Factors” in Item 1A of this Annual Report on Form 10-K and “Note 8:9: Employee benefit plans” in Item 8 of this Annual Report on Form 10-K.
We may not be able
As a result of the US Tax Act, the Company recorded provisional amounts in 2017 including a one-time repatriation tax of $76.5 million. The Company elected to
repatriate ourpay this repatriation tax in cash
and undistributed earnings heldover eight years in
foreign jurisdictions without incurring additional tax liabilities.accordance with the laws prescribed under US Tax Reform. See also
“Risk Factors”“Note 7: Income taxes” in Item
1A8 of this Annual Report on Form 10-K for more information.
We may from time to time repurchase our debt or take other steps to reduce our debt. These actions may include open market repurchases, negotiated repurchases or opportunistic refinancing of debt. The amount of debt, if any, that may be repurchased or refinanced will depend on market conditions, trading levels of our debt, our cash position, compliance with debt covenants and other considerations. Our affiliates may also purchase our debt from time to time, through open market purchases or other transactions.
During the years ended December 31, 2016 and December 31, 2017, we restructured a significant portion of our long-term debt obligations. These debt amendments extended our debt maturity profile and reduced our future interest payments. Refer to “Note 16: Debt” in Item 8 of this Annual Report on Form 10-K for further information.
In connection with the Nexeo Acquisition, the Company intends to finance the cash portion of the transaction and refinance Nexeo’s existing debt with a combination of available cash and debt financing, for which the Company has received commitments. The Company entered into a commitment letter, dated September 17, 2018, with Goldman Sachs Bank USA, pursuant to which Goldman committed to provide $1.3 billion of incremental term loans.
Univar and Nexeo have announced an agreement for Nexeo to divest its plastics distribution business to an affiliate of One Rock Capital Partners, LLC for an enterprise value of $640.0 million, subject to customary closing adjustments. If this divestiture is successful, the Company anticipates using the net proceeds to reduce our indebtedness.
While additional indebtedness would increase our interest expense and cash outflow and, at least in the short term, increase our leverage ratio, the Company believes our increased revenues from the Nexeo Acquisition and any proceeds received from the
divestiture of Nexeo’s plastics business, will be at least sufficient to adequately service our debt and reduce our leverage ratio nearly to 2018 levels.
In February 2019, S&P Global Ratings raised their corporate credit rating on Univar to BB from BB- with a “stable” outlook and Moody’s Investors Service, Inc. raised their corporate credit rating on Univar to Ba3 from B1 with a “stable” outlook. In addition, Fitch initiated a corporate credit rating on Univar of BB with a “positive” outlook.
The following table presents a summary of our cash flow activity for the periods set forth below:
| | | | | | | | | | | | |
| | | Fiscal Year Ended | |
| (in millions) | | December 31,
2015 | | | December 31,
2014 | | | December 31,
2013 | |
Net cash provided by operating activities | | $ | 356.0 | | | $ | 126.3 | | | $ | 289.3 | |
Net cash (used) by investing activities | | | (294.4 | ) | | | (148.2 | ) | | | (215.7 | ) |
Net cash (used) provided by financing activities | | | (19.8 | ) | | | 84.1 | | | | (110.5 | ) |
|
| | | | | | | | | | | |
| | Fiscal Year Ended December 31, |
| (in millions) | 2018 | | 2017 | | 2016 |
| Net cash provided by operating activities | $ | 289.9 |
| | $ | 282.6 |
| | $ | 450.0 |
|
| Net cash used by investing activities | (99.0 | ) | | (79.1 | ) | | (136.0 | ) |
| Net cash used by financing activities | (518.3 | ) | | (112.4 | ) | | (166.5 | ) |
Cash Provided by Operating Activities
Year Ended December 31, 2018 Compared to Year Ended December 31, 2017
Cash provided by operating activities increased
$229.7$7.3 million from
$126.3$282.6 million for the year ended December 31,
20142017 to
$356.0$289.9 million for the year ended December 31,
2015.2018. The increase is primarily due to a net increase in the change in net working capital, net income, exclusive of non-cash items, and pensions and other postretirement benefit liabilities, partially offset by increased cash outflows related to other operating activities.
The Company adopted ASC 606 as of January 1, 2018, and although there was no impact to total operating cash flows, there were a certain number of presentation changes to specific line items in the consolidated balance sheet and within operating activities in the consolidated statement of cash flows. See “Note 2: Significant accounting policies,” for the impact to the consolidated balance sheet and statement of operations as of December 31, 2018.
Excluding the presentation changes from the adoption of ASC 606, the change in trade working capital, which includes trade accounts receivable, net, inventories, and trade accounts payable, was a cash inflow of $43.8 million (or a cash inflow of $14.2 million including the impacts of ASC 606) for the period ended December 31, 2018 compared to the period ended December 31, 2017. Inventory cash inflows are primarily related to prior year cash outflows that produced higher inventories as a result of drought conditions in Canada that led to a soft agriculture season. Cash inflows related to trade accounts receivable, net are primarily due to prior year cash outflows as result of higher sales and the timing of customer payments. The trade accounts payable cash outflows primarily related to prior year cash inflows due to higher purchases and timing of payments.
The change in pensions and other postretirement benefit liabilities provided cash of $36.4 million primarily due to reductions in the return on plan assets and increases in actuarial losses when comparing the year ended December 31, 2018 to the year ended December 31, 2017. Refer to “Note 9: Employee benefit plans” in Item 8 of this Annual Report on Form 10-K for additional information.
The remaining cash outflow associated with operating activities of $109.1 million (or a cash outflow of $80.6 million including the impacts of ASC 606) is primarily related to reductions in current year customer prepayments in the Company’s agriculture business, higher compensation payments during the prior year, and prior year changes in the fair value of interest rate swaps.
Year Ended December 31, 2017 Compared to Year Ended December 31, 2016
Cash provided by operating activities decreased $167.4 million from $450.0 million for the year ended December 31, 2016 to $282.6 million for the year ended December 31, 2017.
Cash provided by operating activities increased by
$60.4$66.4 million due to an increase in net income exclusive of non-cash items in the year ended December 31,
20152017 compared to the year ended December 31,
2014.2016. Refer to “Results of Operations” above for additional information.
The
increase in cash flows from changes in operating assets and liabilities include an increase of $318.3 million due to changeschange in trade
working capital; which includes trade accounts
receivables,receivable, net, inventories and trade accounts
payable. In the year ended December 31, 2015, tradepayable; resulted in an increased use of cash of $176.8 million. Trade accounts
receivables,receivable, net
inventories and trade accounts payable providedused cash
because net sales during the three months ended December 31, 2015 were lower than net sales during the three months ended December 31, 2014 primarily due to sales declines within the oil and gas markets. In addition, inventory levels were higher than normal as of
December 31, 2014 to support our customer driven initiative related to improving on-time delivery.The increase in cash flows from changes in operating assets and liabilities also related to accrued interest expenses increasing $14.4$58.5 million in the year ended December 31, 2015 compared to an increase2017 and provided cash of $0.4$70.2 million in the year ended December 31, 2014 resulting in a net increase of $14.0 million to cash provided by operations.2016. The increase in accrued interest expensescurrent year cash outflows is due to the July 2015 debt refinancing transactions alteringhigher sales and the timing of interest payments.
The increase incustomer payments compared to the prior year ended December 31, 2016.
Inventories used cash flows from changes in operating assets and liabilities also includes an increase in other payables of $9.3$47.7 million in the year ended December 31, 2015 compared to a decrease2017 and provided cash of $8.9$42.0 million in the year ended December 31, 2014,2016. The current year use of cash is primarily due to higher inventories as a result of drought conditions in Canada that led to a soft agriculture season. Trade accounts payable provided cash inflows of $53.6 million and $12.0 million for the years ended December 31, 2017 and December 31, 2016, respectively. The cash inflows related to trade accounts payable are primarily due to higher purchases and timing of payments.
Cash provided by operating activities related to pensions and other postretirement benefit liabilities decreased $78.7 million, which
is a net increaseconsisted of
$18.2 million. The increase relates to more in-progress productivity projects duringcash outflows of $51.8 million for the year ended December 31,
20152017 and cash inflows of $26.9 million for the year ended December 31, 2016. The difference in the cash flows between the two respective periods is primarily due to reductions in the actuarial losses and increases in the return on plan assets when
comparedcomparing the year ended December 31, 2017 to the year ended December 31,
2014.The increase in cash flows from changes in operating assets and liabilities was partially offset by changes in redundancy and restructuring liabilities. The redundancy and restructuring liabilities increased $32.2 million during the year ended December 31, 2014, which was primarily due to higher facility exit costs and employee termination costs. In the year ended December 31, 2015, the redundancy and restructuring liabilities decreased $1.9 million as payments were higher than new charges. As a result, cash provided by operating activities decreased by $34.1 million in the year ended December 31, 2015. Another factor offsetting the higher cash provided by changes in operating assets and liabilities was a reduction in pension and other postretirement benefit obligations of $52.0 million in the year ended December 31, 2015 compared to an increase in the obligations of $72.8 million in the year ended December 31, 2014, which is a net decrease of $124.8 million.2016. Refer to “Note 8:9: Employee benefit plans” in Item 8 of this Annual Report on Form 10-K for additional information. Cash provided by operations also decreased due to $11.0 million of higher variable compensation payments and decreased $7.6 million due to lower rebates driven by lower purchasing volumes during the year ended December 31, 2015.
The remaining decrease of $3.7 million related to several insignificant components.
Cash provided by operating activities decreased $163.0 million from $289.3 million for the year ended December 31, 2013 to $126.3 million for the year ended December 31, 2014. The decrease in cash provided by operating activities was also due to a $48.8 million decrease from changes in prepaid expenses and other current assets. In the year ended December 31, 2017, prepaid expenses and other current assets used cash of $8.7 million primarily due to a decreaseincreases in supplier prepayments and sales tax receivables. In the year ended December 31, 2016, prepaid expenses and other current assets provided cash of $304.0$40.1 million primarily due to working capital changesreductions in prepaid expenses related to rebates, deposits and several other insignificant components and the relativelyrealization of an income tax refund in the amount of $14.1 million.
The remaining cash inflow associated with operating activities of $70.5 million is related to other, net, which consists of cash inflows of $44.6 million for the year ended December 31, 2017 and cash outflows of $25.9 million for the year ended December 31, 2016. The cash inflows for the year ended December 31, 2017 were primarily related to increases in accrued compensation, debt refinancing costs and several other insignificant components. The cash outflows for the year ended December 31, 2016 were primarily related to reductions in restructuring reserves, reductions in environmental reserves, increases in derivative assets and reductions in miscellaneous other liabilities, which were partially offset by increases in customer prepayments, sales taxes payable and several other insignificant components.
Cash Used by Investing Activities
Year Ended December 31, 2018 Compared to Year Ended December 31, 2017
Cash used by investing activities increased $19.9 million from $79.1 million for the year ended December 31, 2017 to $99.0 million for the year ended December 31, 2018. The increase primarily relates to lower working capital requirementsproceeds from the sale of property, plant and equipment of $14.7 million, primarily attributable to the prior year sale and subsequent leaseback of an operating facility within the Canadian business segment. Capital expenditures increased by $11.9 million in the year ended December 31, 2013 resulting from higher than normal working capital levels in 2012 caused by a temporary slowdown in the working capital cycle due to the implementation of an ERP system in EMEA. In addition, as of December 31, 2014, we have increased inventory levels to support our customer driven initiative related to improving on-time delivery. Another factor contributing to lower cash provided by operating activities was the decrease of $23.3 million related to prepaid expenses and other current assets primarily consisting of receiving less cash from taxing authorities related to timing of income tax payments in the year ended December 31, 20142018 compared to the year ended December 31, 2013. These decreases2017. The increase in capital expenditures is primarily due to a land purchase within the Canadian business segment.
Partially offsetting the increase in cash used by investing activities were lower acquisition costs of $5.8 million. In 2017, cash outflows of $24.4 million were related to the acquisitions of Tagma Brazil, certain assets of PVS, and Nexus Ag purchase accounting adjustments. The 2018 net cash outflows of $18.6 million were related to cash outflows from the Earthoil and Kemetyl acquisitions, partially offset by an increase of $131.7cash inflows due to Tagma purchase accounting adjustments.
Year Ended December 31, 2017 Compared to Year Ended December 31, 2016
Cash used by investing activities decreased $56.9 million
in net income exclusive of non-cash items primarily consisting of a decrease of $43.9from $136.0 million
in interest expense, net, an increase of $43.5 million in Adjusted EBITDA and an increase of $18.7 million in other nonoperating income for the year ended December 31,
20142016 to $79.1 million for the year ended December 31, 2017. The decrease primarily relates to lower acquisition costs of $29.2 million in the year ended December 31, 2017 compared to the year ended December 31,
2013. Another factor offsetting2016. We completed two acquisitions in each of the
lower cash provided by operating activities in the yearyears ended December 31,
2014 relates to the cash payments of $19.9 million related to the French penalty during the year ended2017 and December 31,
2013. Refer to “Results of Operations” above for additional information. The remaining increase of $12.7 million related to several insignificant components.Cash (Used) by Investing Activities
Cash used by investing activities increased $146.2 million from $148.2 million for the year ended December 31, 2014 to $294.4 million for the year ended December 31, 2015. The increase primarily related to six acquisitions in the year ended 2015 compared to one acquisition in the year ended December 31, 2014.2016. Refer to “Note 17:19: Business combinations” in Item 8 of this Annual Report on Form 10-K for additional information. In addition, there was higher spending on capital expendituresProceeds from the sale of $31.1property, plant and equipment increased by $19.8 million in the year ended December 31, 20152017 compared to the year ended December 31, 2014.2016, which was primarily due to the sale and subsequent leaseback of an operating facility within the Canadian business segment. In addition, capital expenditures decreased by $7.4 million in the year ended December 31, 2017 compared to the year ended December 31, 2016. The increasesdecrease in capital expenditures is primarily due to timing of capital projects. The remaining decrease in cash used by investing activities of $0.5 million did not contain any significant activity.
Cash Used by Financing Activities
Year Ended December 31, 2018 Compared to Year Ended December 31, 2017
Cash used by financing activities increased $405.9 million from $112.4 million for the year ended December 31, 2017 to $518.3 million for the year ended December 31, 2018. The increase in cash used by financing activities is primarily due to an early repayment of $530.0 million on the Company’s Senior Term B Loan during the period ended December 31, 2018. The
early repayment of the Company’s Senior Term B Loan was partially offset by increased borrowings on the ABL facilities to fund the early payments and address seasonal working capital needs.
Cash used by financing activities also increased by $30.6 million due to fewer stock option exercises for the period ended December 31, 2018 compared to the period ended December 31, 2017. Partially offsetting the increased use of cash due to the exercise of stock options was cash provided of $4.4 million related to taxes paid for the net share settlements of stock-based compensation awards.
The change in short-term financing, net resulted in cash inflows of $22.7 million primarily due to repayments during the period ended December 31, 2017.
Additionally, there were cash inflows of $3.3 million pertaining to acquisition related contingent consideration payments, which primarily related to purchasing assets that replaced operating leasescash outflow of $3.7 million for the period ended December 31, 2017. The Company reclassified the 2017 contingent consideration payments due to the adoption of ASU 2016-15 “Statement of Cash Flows” (Topic 230) - “Classification of Certain Cash Receipts and increased information technology spend relatedCash Payments.” Refer to internal projects focused on improving operations. We expect our capital expenditures“Note 2: Significant accounting policies” in Item 8 of this Form 10-K for additional information.
Year Ended December 31, 2017 Compared to Year Ended December 31, 2016
Cash used by financing activities decreased $54.1 million from $166.5 million for the year ended December 31, 2016 to
be lower than the year ended December 31, 2015.Cash used by investing activities decreased $67.5 million from $215.7$112.4 million for the year ended December 31, 20132017. A decrease in cash used by financing activities of $79.0 million was due to $148.2a net change in the cash used by the ABL facilities of $63.6 million and $142.6 million for the yearyears ended December 31, 2014.2017 and December 31, 2016, respectively. The decrease primarily consisted of lower spending on acquisitionschange in the yearoutstanding ABL facilities is due to changes in borrowings related to working capital funding requirements. Partially offsetting the decrease in cash used by financing activities are $13.3 million of cash outflows due to repayments of term debt; primarily inclusive of the Term B Loan and Euro Tranche Term Loan. The January 19, 2017 and November 28, 2017 agreements to amend the Senior Term B loan resulted in a net cash outflow of $4.4 million and $3.3 million of financing fees, respectively. Refer to “Note 16: Debt” in Item 8 of this Annual Report on Form 10-K for additional information. Increased payments related to capital leases resulted in increased cash usage due to financing activities of $3.1 million.
Cash used by financing activities also decreased by $19.6 million due to a net increase in stock option exercises of $36.5 million and $16.9 million for the years ended December 31,
2014 compared2017 and December 31, 2016, respectively. Partially offsetting the increase in cash due to the exercise of stock options was cash used for taxes paid related to net share settlements of stock-based compensation awards of $8.5 million, which was related to the year ended December 31,
2013. In2017. The change in short-term financing, net resulted in an increased usage of cash related to financing activities of $17.6 million due to increased repayments. Short-term financing, net used cash of $22.2 million and $4.6 million for the
yearyears ended December 31,
2014, we paid, net of cash acquired, $42.2 million to acquire D’Altomare in Brazil2017 and
in the year ended December 31,
2013, we paid, net of cash acquired, $88.7 million to acquire Quimicompuestos in Mexico. In addition, there was a reduction in capital expenditures of $27.4 million resulting from our decision to discontinue an ERP implementation during the second quarter of 2013. Capital expenditures during the year ended December 31, 2014 are approximately 1% of net sales, which historically has been our maintenance capital expenditure level.Cash (Used) Provided by Financing Activities
Cash used by financing activities increased $103.9 million from cash provided of $84.1 million for the year ended December 31, 2014 to cash used of $19.8 million for the year ended December 31, 2015.2016, respectively. The remaining increase in cash used by financing activities was primarily due to the July 2015 refinancing. As part of the refinancing activity, the former senior term loan facilities were paid in full and replaced with the new Senior Term Loan Facility and the Unsecured Notes. The pay-off amount related to the former facility was $80.9$2.0 million more than the new debt balance related to the new Senior Term Loan Facility and Unsecured Notes. Furthermore, financing fees paid increased by $23.3 million due to the July 2015 debt refinancing activity in the year ended December 31, 2015 being moredid not contain any significant than the March 2014 debt refinancing activity.
Also contributing to the increase in cash used by financing activities was a $96.5 million smaller increase in our outstanding balances within our ABL facilities during the year ended December 31, 2015 compared to the year ended December 31, 2014. The reduced increase in the ABL balances during the year ended December 31, 2015 primarily related to improved cash flows from operations in the year ended December 31, 2015 compared to December 31, 2014.
The increase in cash used by financing activities was partially offset by closing our IPO and a concurrent private placement of equity during the year ended December 31, 2015. The proceeds, net of fees, related to the IPO and concurrent private placement of equity were $763.6 million. Concurrent with the IPO and private placement of equity, we paid the remaining principal balance of $650.0 million related to the Senior Subordinated Notes. This resulted in a net cash inflow from financing activities of $113.6 million. The remaining increase of $16.8 million primarily related to increased payments on capital leases and several other insignificant components.
Cash provided by financing activities increased $194.6 million from cash used of $110.5 million for the year ended December 31, 2013 to cash provided of $84.1 million for the year ended December 31, 2014. The increase in cash provided by financing activities was primarily due to the increase in our outstanding balances within our ABL facilities of $122.2 million in the year ended December 31, 2014 compared to a decrease of $91.3 million in the year ended December 31, 2013, which resulted in a net increase of $213.5 million. The increase was due to higher working capital needs during the year ended December 31, 2014 compared to the year ended December 31, 2013 due to increased inventories related to our customer driven initiative related to improving on-time delivery. Cash provided by financing activities increased $31.8 million related to changes in short-term financing due to a shift in borrowing more under ABL facilities, which have lower interest rates, versus bank overdrafts in the year ended December 31, 2014 compared to the year ended December 31, 2013. In addition, financing fees paid decreased by $7.1 million due to lower debt refinancing activity in the year ended December 31, 2014 compared to the year ended December 31, 2013. These increases were partially offset by a net cash inflow of $73.6 million in the year ended December 31, 2013 related to the additional borrowings of $423.6 million from the refinancing of the Senior Term Loan Facilities partially offset by the prepayment of $350.0 million related to the 2018 Subordinated Notes. The remaining increase of $15.8 million related to several insignificant components.
Contractual Obligations and Commitments
The following table summarizes our contractual obligations that require us to make future cash payments as of December 31,
2015.2018. The future contractual requirements include payments required for our operating and capital leases,
forward currency contracts, indebtedness and
any other long-term liabilities reflected on our balance sheet.
| | | | | | | | | | | | | | | | | | | | |
| | | Payment Due by Period
(in millions) | |
| | | Total | | | Less
than
1 year | | | 1-3
years | | | 3-5 years | | | More
than
5 years | |
Short-term financing(1) | | $ | 33.5 | | | $ | 33.5 | | | $ | — | | | $ | — | | | $ | — | |
Capital leases(1) | | | 57.3 | | | | 20.0 | | | | 16.3 | | | | 11.7 | | | | 9.3 | |
Long-term debt, including current maturities(1) | | | 3,093.7 | | | | 39.9 | | | | 129.9 | | | | 324.4 | | | | 2,599.5 | |
Interest(2) | | | 893.9 | | | | 147.0 | | | | 274.4 | | | | 262.2 | | | | 210.3 | |
Minimum operating lease payments | | | 285.4 | | | | 62.8 | | | | 91.7 | | | | 67.5 | | | | 63.4 | |
Estimated environmental liability payments(3) | | | 115.5 | | | | 35.5 | | | | 26.1 | | | | 17.5 | | | | 36.4 | |
| | | | | | | | | | | | | | | | | | | | |
Total(4)(5)(6) | | $ | 4,479.3 | | | $ | 338.7 | | | $ | 538.4 | | | $ | 683.3 | | | $ | 2,918.9 | |
| | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| | Payment Due by Period |
| (in millions) | Total | | 2019 | | 2020 - 2021 | | 2022 - 2023 | | Thereafter |
Short-term financing (1) | $ | 8.1 |
| | $ | 8.1 |
| | $ | — |
| | $ | — |
| | $ | — |
|
Capital leases (1) | 54.8 |
| | 21.7 |
| | 21.6 |
| | 10.4 |
| | 1.1 |
|
Long-term debt, including current maturities (1) | 2,340.5 |
| | — |
| | 134.7 |
| | 458.0 |
| | 1,747.8 |
|
Interest (2) | 581.3 |
| | 110.3 |
| | 220.8 |
| | 209.0 |
| | 41.2 |
|
| Minimum operating lease payments | 196.2 |
| | 54.9 |
| | 70.4 |
| | 40.9 |
| | 30.0 |
|
Estimated environmental liability payments (3) | 88.6 |
| | 32.1 |
| | 19.1 |
| | 13.5 |
| | 23.9 |
|
Total (4)(5) | $ | 3,269.5 |
| | $ | 227.1 |
| | $ | 466.6 |
| | $ | 731.8 |
| | $ | 1,844.0 |
|
| | | | | | | | | | |
| |
| (1) | See “Note 14:16: Debt” in Item 8 of this Annual Report on Form 10-K for additional information. |
| |
| (2) | Interest payments on debt are calculated for future periods using interest rates in effect as of December 31, 2015.2018. Projected interest payments include the related effects of interest rate swap agreements. Certain of these projected interest payments may differ in the future based on changes in floating interest rates, foreign currency fluctuations or other factors or events. The projected interest payments only pertain to obligations and agreements outstanding at December 31, 2015.2018. See “Note 14:16: Debt” and “Note 16:18: Derivatives” in Item 8 of this Annual Report on Form 10-K for further discussion regarding our debt instruments and related interest rate agreements, respectively. |
| |
| (3) | Included in the less than one year category is $14.3$11.4 million related to environmental liabilities for which the timing is uncertain. The timing of payments is unknown and could differ based on future events. For more information see “Note 18:20: Commitments and contingencies” in Item 8 of this Annual Report on Form 10-K. |
| |
| (4) | Due to the high degree of uncertainty related to the timing of future cash outflows associated with unrecognized income tax benefits, we are unable to reasonably estimate beyond one year when settlement will occur with the respective taxing authorities and have excluded such liabilities from this table. At December 31, 2015,2018, we reported a liability for unrecognized tax benefits of $5.2$0.4 million. For more information see “Note 7: Income taxes” in Item 8 of this Annual Report on Form 10-K. |
| |
| (5) | This table excludes our pension and postretirement medical benefit obligations. Based on current projections of minimum funding requirements, we expect to make cash contributions of $28.1$28.3 million to our defined benefit pension plans in the year ended December 31, 2016.2019. The timing for any such requirement in future years is uncertain given the implicit uncertainty regarding the future developments of factors described in “Risk Factors” in Item 1A of this Annual Report on Form 10-K and “Note 8:9: Employee benefit plans” in Item 8 of this Annual Report on Form 10-K. |
(6) | Pursuant to the terms of the purchase agreements related to the Future/BlueStar, Arrow Chemical, WEG and Polymer Technologies acquisitions, we are conditionally obligated to make earn-out payments up to $14.4 million excluding Future/Bluestar, which has no fixed maximum payout. These earn-out payments are excluded from the table as there is a high degree of uncertainty regarding the future performance of the acquired companies and thus the payout amounts. Refer to “Note 17: Business combinations” in Item 8 of this Annual Report on Form 10-K for additional information. |
We expect that we will be able to fund our remaining obligations and commitments with cash flow from operations. To the extent we are unable to fund these obligations and commitments with cash flow from operations; we intend to fund these obligations and commitments with proceeds from available borrowing capacity under our Senior ABL Facility or under future financings.
Off-Balance Sheet Arrangements
We have few off-balance sheet arrangements. In recent years, our principal off-balance sheet arrangements have consisted primarily of operating leases for facility space,
rail cars and some equipment
leasing and we expectleasing. As of January 1, 2019, operating leases will be recognized on the balance sheet due to
continue these practices.the adoption of ASU 2016-02, refer to “Note 2: Significant accounting policies” in Item 8 of this Annual Report on Form 10-K. For additional information
on theseregarding operating leases, see “Note
18:20: Commitments and contingencies” in Item 8 of this Annual Report on Form 10-K. We do not use special purpose entities that would create off-balance sheet financing.
Critical Accounting Estimates
Preparation of our financial statements in accordance with GAAP requires management to make a number of significant estimates and assumptions that form the basis for our determinations as to the carrying values of assets and liabilities and the reported amounts of revenues and expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We consider an accounting estimate to be critical if that estimate requires that we make assumptions about matters that are highly uncertain at the time we make that estimate and if different estimates that we could reasonably have used or changes in accounting estimates that are reasonably likely to occur could materially affect our consolidated financial statements. We believe that the following critical accounting estimates reflect our more significant estimates and assumptions used in the preparation of our consolidated financial statements. Our significant accounting policies are described in “Note 2: Significant accounting policies” in Item 8 of this Annual Report on Form 10-K.
We recognize net salesrevenue when persuasive evidenceperformance obligations under the terms of an arrangement exists, delivery of products has occurredthe contract are satisfied, which generally occurs when goods are transferred to a customer or as services are provided to customers,a customer. Revenue is measured as the sales price is fixedamount of consideration the Company expects to receive in exchange for transferring goods or determinable and collectability is reasonably assured.providing services to customers. Net sales includes product sales, billings for freight and handling charges and fees earned for services provided, net of any discounts, expected returns, customer rebates, variable consideration and sales or other revenue-based tax.taxes. We recognize product sales and billings for freight and handling charges when products are considered delivered to the customer under the terms of the sale. Fee
We are required to estimate variable consideration and customer returns related to revenue transactions, which limits reported revenues
are recognized when services are completed.Our sales to customers in the agriculture end markets principally in Canada, often provide for a form of inventory protection through credit and re-bill as well as understandings pursuant to which certain price changes from chemical producers may be passed through to the customer. These arrangements require us to make estimates of potential returns of unused chemicals as well as revenue deferral to the extent the sales price is not considered determinable. The estimates used to determine the amount of revenue associated with product likelyconsideration that is ultimately expected to be returned arecollected from customers. Specific to the crop sciences revenue stream, transaction prices may move during an agricultural growing season and changes may affect the amount of consideration the Company will receive. We estimates the revenue deferral related to variable consideration, transaction price, and customer returns based on pastthe combination of historical experience, adjusted for any current market conditions.
conditions and the impact of weather on the current agriculture season.
Goodwill is tested for impairment annually, or between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Goodwill is tested for impairment at a reporting unit level using either a two-stepqualitative assessment, commonly referred to as a “step zero” test, or a quantitative assessment,
commonly referred to as a “step one” test. Under the first stepFor each of the reporting units, the Company has the option to perform either the step zero or the step one test.
The step zero goodwill impairment test our estimateutilizes qualitative factors to determine whether it is more likely than not that the fair value of the reporting units is less than its carrying value. Qualitative factors include: macroeconomic conditions; legal and regulatory environment; industry and market considerations; overall financial performance and cost factors to determine whether a reporting unit is at risk for goodwill impairment. In the event a reporting unit fails the step zero goodwill impairment test, it is necessary to perform the step one goodwill impairment test.
The step one goodwill impairment test compares the estimated fair value of each reporting unit
is compared with
itsthe reporting unit’s carrying value (including goodwill). If the fair value of the reporting unit is less than its carrying value,
an indication of goodwill impairment exists for the reporting unit
and we must perform step twowill recognize an impairment for the lesser of
either the
impairment test (measurement). Step two ofamount by which the
impairment test, if necessary, would require the identification and estimation ofreporting unit's carrying amount exceeds the fair value of the reporting
unit’s individual assets, including currently unrecognized intangible assets, and liabilities in order to calculate the implied fair value of the reporting unit’s goodwill. Under step two, an impairment loss is recognized to the extent the carrying amount ofunit or the reporting unit’s goodwill
exceeds theimplied faircarrying value. See “Note 12:13: Goodwill and intangible assets” in Item 8 of this Annual Report on Form 10-K for additional information related to goodwill.
At October 1,
2015,2018, we performed our annual impairment review
via step one and concluded the fair value
substantially exceeded the carrying value for all reporting units with goodwill balances. There were no events or circumstances from the date of
the assessment through December 31,
20152018 that would affect this conclusion.
Determining the fair value of a reporting unit requires judgment and involves the use of significant estimates and assumptions by management. The inputs that create the most sensitivity in our goodwill valuation model are the discount rate, terminal growth rate, estimated cash flow projections and market multiples. We can provide no assurance that a material impairment charge will not occur in a future period. Our estimates of future cash flows may differ from actual cash flows that are subsequently realized due to many factors, including future worldwide economic conditions and the expected benefits of our initiatives. Any of these potential factors, or other unexpected factors, may cause us to re-evaluate the carrying value of goodwill.
Environmental Liabilities
As more fully described in “Note 2: Significant accounting policies” and “Note
18:20: Commitments and contingencies” in Item 8 of this Annual Report on Form 10-K, we recognize environmental contingency liabilities for probable and reasonably estimable losses associated with environmental remediation. The estimated environmental contingency liability includes incremental direct costs of investigations, remediation efforts and post-remediation monitoring. The total environmental reserve at December 31,
2015,2018, and
20142017 was
$113.2$83.5 million and
$120.3$89.2 million, respectively.
Our environmental reserves are subject to numerous uncertainties that affect our ability to accurately estimate our costs, or our share of costs if multiple parties are responsible. These uncertainties involve the legal, regulatory and enforcement parameters governing environmental assessment and remediation, the nature and extent of contamination at these sites, the extent and cost of assessment and remediation efforts required, the choice of remediation and, in the case of sites with multiple responsible parties, the number and financial strength of other potentially responsible parties. In addition, our determination as to whether a loss is probable may change, particularly as new facts emerge as to the nature or extent of any non-compliance with environmental laws and the costs of assessment and remediation. Our revisions to the environmental reserve estimates have ranged between
$1.9$12.3 million to
$11.3$12.6 million between
20152017 and
2013.2018.
Defined Benefit Pension and Other Postretirement Obligations
As described more fully in “Note 2: Significant accounting policies” and “Note
8:9: Employee benefit plans” in Item 8 of this Annual Report on Form 10-K, we sponsor defined benefit pension plans in the
U.S.US and various other countries. We determine these pension costs and obligations using actuarial methodologies that use several statistical and judgmental factors. These assumptions include discount rates, rates for expected return on assets,
mortality rates, retirement rates and for some plans rates for compensation increases,
mortality rates and retirement rates, as determined by us within certain guidelines. Actual experience different from those estimated and changes in assumptions can result in the recognition of gains and losses in earnings as our accounting policy is to recognize changes in the fair value of plan assets or each plan’s projected benefit obligation in the fourth quarter of each year (the “mark to market” adjustment)
., unless an earlier remeasurement is required.
For the year ended December 31, 2018, we increased our average pension discount rate by 46 basis points, resulting in a decrease in our pension plan benefit obligation of $81.1 million. For the year ended December 31, 2017, our average pension discount rate decreased by 42 basis points, resulting in an increase in our pension plan benefit obligation of $63.2 million. Our expected long-term rate of return on pension plan assets is 5.54% and 6.02% for 2018 and 2017, respectively. Actual returns can vary from the expected long-term rate each year. Actual (losses) returns for 2018 and 2017 were ($59.6) million, or (5.4)%, and $117.4 million or 11.7%, respectively. Our expected return on plan assets is calculated using the actual fair value of plan assets. Due to the phasing out of benefits under our postretirement benefit plan, changes in assumptions have an immaterial effect on that obligation.
The following table demonstrates the isolated effectimpact of a one percentage-point decrease25 basis point reduction in the average pension discount rate on our expected return onpension plan assets, a one-percentage point increase in our annual ratebenefit obligation as of compensation, andthe year ended December 31, 2018.
|
| | | |
| (in millions) | 2018 Pension Benefit Obligation |
| 25 basis point decrease in discount rate | $ | 40.8 |
|
The following table demonstrates the impact of a 25 basis point decrease in our assumed discount rate
and separately
a 100 basis point decrease in our expected return on plan assets on our
20162019 defined benefit pension cost (credit)
: | | | | |
| | | 2016 Net Benefit Cost
(Income) | |
| | | (Dollars in millions) | |
Assumed discount rate | | $ | (1.0 | ) |
Annual rate of compensation increase | | | 0.6 | |
Expected return on plan assets | | | 9.2 | |
.
|
| | | |
(in millions) | 2019 Net Benefit Cost (Credit) |
| 25 basis point decrease in assumed discount rate | $ | (1.3 | ) |
| 100 basis point decrease in expected return on plan assets | 9.0 |
|
The Company is subject to income taxes in the jurisdictions in which
we sellit sells products and earn revenues, including the United States, Canada and various Latin American, Asian-Pacific and European jurisdictions. By their nature, a number of
ourthe Company's tax positions require
us to apply significant judgment in order to properly evaluate and quantify
our tax positions and to determine
ourthe provision for income taxes. GAAP sets forth a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon examination, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. GAAP specifically prohibits the use of a valuation allowance as a substitute for derecognition of tax positions and also requires expanded disclosures. See “Note 7: Income taxes” in Item 8 of this Annual Report on Form 10-K.
Although
we believe we havethe Company believes it has adequately reserved for
our uncertain tax positions, the final outcome of these tax matters may be different than
ourthe provision.
We adjust ourThe Company adjusts its reserves for tax positions in light of changing facts and circumstances, such as the closing of a tax audit, the refinement of an estimate or changes in tax laws. To the extent that the final tax outcome of these matters is different than the amounts recorded, the differences are recorded as adjustments to the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate. The interest and penalties related to these reserves are recorded as a component of interest expense and warehousing, selling and administrative expenses, respectively.
Our
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act. The legislation significantly changes US tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. The Tax Act permanently reduced the US corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of US GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. The SAB 118 measurement period ends when a company has obtained, prepared, and analyzed the information needed to complete the accounting requirements under ASC 740, “Income Taxes”, but no later than one year from the enactment date of December 22, 2017. In 2017 and the first nine months of 2018, the Company recorded provisional amounts for certain enactment-date effects of the Act by applying the guidance in SAB 118 because the Company had not yet completed its enactment-date accounting for these effects. At December 31, 2018, the Company has now completed its accounting for all the enactment-date income tax effects of the Act. During 2018, the Company recognized adjustments of $6.8 million related to the provisional amounts recorded at December 31, 2017 and included these adjustments as a component of income tax expense from continuing operations.
Effective in 2018, the Company is subject to global intangible low tax income (“GILTI”) which is a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. Due to the complexity of the GILTI tax rules, companies are allowed to make an accounting policy choice of either (1) treating taxes due on future US inclusions in taxable income related to GILTI as a current-period expense when incurred or (2) factoring such amounts into a company’s measurement of its deferred taxes. The Company is electing to treat taxes due on future US inclusions in taxable income related to GILTI as a current-period expense when incurred and, therefore, there is no impact to the deferred tax rate in 2018.
The Company's future effective tax rates could be adversely affected by changes in the valuation of our deferred tax assets or liabilities, or changes in tax laws, regulations, accounting principles or interpretations thereof. In addition,
we arethe Company is subject to examination of
our income tax returns by various tax authorities.
WeThe Company regularly
assessassesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of
ourits provisions for income taxes.
We recognize
The Company recognizes deferred tax assets and liabilities for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts using enacted tax rates in effect for the year the differences are expected to reverse. Significant judgment in the forecasting of taxable income using historical and projected future operating results is required in determining our provision for income tax and the related asset and liabilities.
In the event that the actual outcome of future tax consequences differs from our estimates and assumptions due to changes or future events such as tax legislation, geographic mix of the earnings, completion of tax audits or earnings repatriation plans, the resulting change to the provision for income taxes could have a material effect on the consolidated statements of operations and consolidated balance sheets.
We have placed
The Company recorded a valuation allowance on certain deferred tax assets, including certain of
ourits foreign net operating loss carry
forwards. We intend to maintain the valuation allowances until sufficient positive evidence exists to support the reversal of the valuation allowances.forwards, foreign tax credits and deferred interest expense.
In evaluating
ourthe Company’s ability to realize
ourits deferred tax assets, in full or in part,
we considerthe Company considered all available positive and negative evidence, including
ourits past operating results,
our forecast of future market growth, forecasted earnings, future taxable income and prudent and feasible tax planning strategies.
The assumptions utilized in determining future taxable income require significant judgment and are consistent with the plans and estimates
we arethe Company is using to manage the underlying businesses.
We believeThe Company believes it is more likely than not that the remaining deferred tax assets recorded on
ourthe balance sheet will ultimately be realized. In the event
we were to determinethe Company determined that
weit would not be able to realize all or part of
ourits net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to earnings in the period in which
we makethe Company makes such determination.
Recently Issued and Adopted Accounting Pronouncements
See “Note 2: Significant accounting policies” in Item 8 of this Annual Report on Form 10-K.
Accounting Pronouncements Issued But Not Yet Adopted
See “Note 2: Significant accounting policies” in Item 8 of this Annual Report on Form 10-K.
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Financial Risk Management Objectives and Policies
Our principal financial instruments, other than derivatives, comprise credit facilities and other long-term debt as well as cash and cash equivalents. We have various other financial instruments, such as accounts receivable and accounts payable, which arise directly from our operations. We make use of various financial instruments under a financial policy. We use derivative financial instruments to reduce exposure to fluctuations in foreign exchange rates and interest rates in certain limited circumstances described below. While these derivative financial instruments are subject to market risk, principally based on changes in currency exchange and interest rates, the impact of these changes on our financial position and results of operations is generally offset by a corresponding change in the financial or operating items we are seeking to hedge. We follow a strict policy that prohibits trading in financial instruments other than to acquire and manage these hedging positions. We do not hold or issue derivative or other financial instruments for speculative purposes, or to hedge translation risk.
The principal risks arising from our financial instruments are interest rate risk, product price risk, foreign currency risk and credit risk. Our board of directors reviews and approves policies designed to manage each of these risks, which are summarized below. We also monitor the market-price risk arising from all financial instruments. The interest rate risk to which we are subject at year end is discussed below. Our accounting policies for derivative financial instruments are set out in our summary of significant accounting policies at “Note 2: Significant accounting policies” in Item 8 of this Annual Report on Form 10-K.
Our exposure to market risk for changes in interest rates relates primarily to our long-term debt obligations. Under our hedging policy, we seek to maintain an appropriate amount of fixed-rate debt obligations, either directly or effectively through interest rate derivative contracts that fix the interest rate payable on all or a portion of our floating rate debt obligations. We assess the anticipated mix of the fixed versus floating amount of debt
once a year, in connection with our annual budgeting process, with the purpose of hedging variability of interest expense and interest payments on our variable rate bank debt and maintaining a mix of both fixed and floating rate debt. As of December 31, 2015,2018, approximately 77%81% of our debt was fixed rate after consideration of interest rate swap contracts.
The interest rates related to our long-term debt decreased since December 31,
20142016 due to the
July 2015January 2017 and November 2017 debt
refinancing.amendments. Refer to “Note
14:16: Debt” in Item 8 of this Annual Report on Form 10-K for additional information. As a result, the impact on our earnings before taxes has materially changed when considering a change in variable interest rates.
Below is a chart showing the sensitivity of both a 100 basis point and 200 basis point increase in interest rates (including the impact of derivatives), with other variables held constant on our earnings before tax.
| | | | |
(in millions) | | Year Ended
December 31,
2015 | |
100 basis point increase in variable interest rates | | $ | 9.3 | |
200 basis point increase in variable interest rates | | | 16.5 | |
|
| | | |
| (in millions) | Year Ended December 31, 2018 |
| 100 basis point increase in variable interest rates | $ | 4.4 |
|
| 200 basis point increase in variable interest rates | 9.0 |
|
Because we conduct our business on an international basis in multiple currencies, we may be adversely affected by foreign exchange rate fluctuations. Although we report financial results in
U.S.US dollars, a substantial portion of our net sales and expenses are denominated in currencies other than the
U.S.US dollar, particularly the euro, the Canadian dollar and European currencies other than the euro, including the British pound sterling. Fluctuations in exchange rates could therefore significantly affect our reported results from period to period as we translate results in local currencies into
U.S.US dollars. We have not used derivative instruments to hedge the translation risk related to earnings of foreign subsidiaries.
Additionally, our investments in EMEA, Canada and Rest of World are subject to foreign currency risk. Currency fluctuations result in non-cash gains and losses that do not impact income before income taxes, but instead are recorded as accumulated other comprehensive loss in equity in our consolidated balance sheet. We do not hedge our investment in
non-U.S.non-US entities because those investments are viewed as long-term in nature.
In addition, there are certain situations where we invoice sales
The majority of our currency risk arising on cash, accounts receivable, accounts payable and
incur costsloan balances denominated in currencies other than those
currencies in which we record the financial results for
thata business
operation; however, theseoperation stem from exposures
are typically of short duration and not material to our overall results. In any event, we tend to hedge this transaction risk either through specific hedges for significant transactions or through hedging on a portfolio basis to address currency transaction mismatches embedded in the large number of smaller transactions.In 2015, we issued a euro-denominated Term B Loan under our Senior Term Loan Facility in the amount of €250.0 million which is held by Univar USA, a US dollar denominated entity. The issuance of this loan increased our exposure to changes in the value of the euro against the US dollar. The Euro Term B Loan has a variable interest rate based on short-term Eurodollar LIBOR interest rates. In addition, our subsidiaries may advance or accept intercompany loans in currencies other than the business unit’s currency for financial reporting purposes. Our policy is not to hedge these balance sheet revaluations due to the long-term nature of the underlying obligations.
Due to the geographic diversity of our business operations and the local currencies used to record financial results, we are exposed to a wide number of foreign currency relationships. The majority of these relationships are based on the U.S.US dollar, euro or British pound sterling. The following table illustrates the sensitivity of our 20152018 consolidated earnings and accumulated other comprehensive loss, netbefore income taxes (including the impact of foreign currency derivative
instruments, before income taxes instruments), to a 10% increase in the value of the U.S.US dollar, euro, and, British poundspound sterling with all other variables held constant.
| | | | | | | | |
Year ended December 31, 2015 | | Effect on
income | | | Effect on
accumulated
other
comprehensive
loss | |
| | | (in millions) | |
10% strengthening of U.S. dollar | | $ | 20.7 | | | $ | (13.8 | ) |
10% strengthening of Euro | | | (30.1 | ) | | | — | |
10% strengthening of British pound | | | 0.7 | | | | 11.9 | |
|
| | | |
| (in millions) | Year ended December 31, 2018 |
| 10% strengthening of US dollar | $ | (1.8 | ) |
| 10% strengthening of Euro | 0.6 |
|
| 10% strengthening of British pound | (0.3 | ) |
Our business model is to buy and sell at “spot” prices in quantities approximately equal to estimated customer demand. We do not take significant “long” or “short” positions in the products we sell in an attempt to speculate on changes in product prices. As a result, we are not significantly exposed to changes in product selling prices or costs and our exposure to product price risk is not material. Because we maintain inventories in order to serve the needs of our customers, we are subject to the risk of reductions in market prices for chemicals we hold in inventory, but we actively manage this risk
on a centralized basis and have reduced our exposure by improving sales forecasting and reducing the period of projected sales for which inventories are held, as well as incorporating low working capital targets within employee incentive plans.
We have a credit policy in place and monitor exposure to credit risk on an ongoing basis. We perform credit evaluations on all customers requesting credit above a specified exposure level. In the normal course of business, we provide credit to our customers, perform ongoing credit evaluations of these customers and maintain reserves for potential credit losses. In certain situations, we will require upfront cash payment, collateral and/or personal guarantees based on the credit worthiness of the customers. We typically have limited risk from a concentration of credit risk as no individual customer represents greater than 10% of the outstanding accounts receivable balance.
Investments, if any, are only in liquid securities and only with counterparties with appropriate credit ratings. Transactions involving derivative financial instruments are with counterparties with which we have a signed netting agreement and which have appropriate credit ratings. We do not expect any counterparty to fail to meet its obligations.
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
To the Stockholders and the Board of Directors
and Stockholdersof Univar Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Univar Inc. as of December 31, 20152018 and 2014,2017, and the related consolidated statements of operations, comprehensive loss,income (loss), changes in stockholders’stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2015. 2018 and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2018 and 2017, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013 framework and our report dated February 21, 2019 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
thesethe Company’s financial statements based on our audits.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. We were not engagedmisstatement, whether due to
perform an audit of the Company’s internal control over financial reporting.error or fraud. Our audits included
considerationperforming procedures to assess the risks of
internal control overmaterial misstatement of the financial
reporting as a basis for designing auditstatements, whether due to error or fraud, and performing procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includesrespond to those risks. Such procedures included examining, on a test basis, evidence
supportingregarding the amounts and disclosures in the financial
statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management,
andas well as evaluating the overall
presentation of the financial
statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Univar Inc. at December 31, 2015 and 2014, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.
We have served as the Company’s auditor since 2010.
Chicago, Illinois
March 3, 2016
February 21, 2019
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Univar Inc.
Opinion on Internal Control over Financial Reporting
We have audited Univar Inc.’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Univar Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2018 consolidated financial statements of Univar Inc. and our report dated February 21, 2019, expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Assessment of Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and applicable rules and regulation of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitation of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Chicago, Illinois
February 21, 2019
CONSOLIDATED STATEMENTS OF OPERATIONS
| | | | | | | | | | | | | | | | |
| | | | | | Year ended December 31, | |
(in millions, except per share data) | | Note | | | 2015 | | | 2014 | | | 2013 | |
Net sales | | | | | | $ | 8,981.8 | | | $ | 10,373.9 | | | $ | 10,324.6 | |
Cost of goods sold (exclusive of depreciation) | | | | | | | 7,182.7 | | | | 8,443.2 | | | | 8,448.7 | |
| | | | | | | | | | | | | | | | |
Gross profit | | | | | | | 1,799.1 | | | | 1,930.7 | | | | 1,875.9 | |
Operating expenses: | | | | | | | | | | | | | | | | |
Outbound freight and handling | | | | | | | 324.6 | | | | 365.5 | | | | 326.0 | |
Warehousing, selling and administrative | | | | | | | 874.4 | | | | 923.5 | | | | 951.7 | |
Other operating expenses, net | | | 4 | | | | 106.1 | | | | 197.1 | | | | 12.0 | |
Depreciation | | | | | | | 136.5 | | | | 133.5 | | | | 128.1 | |
Amortization | | | | | | | 88.5 | | | | 96.0 | | | | 100.0 | |
Impairment charges | | | 11, 12 | | | | — | | | | 0.3 | | | | 135.6 | |
| | | | | | | | | | | | | | | | |
Total operating expenses | | | | | | | 1,530.1 | | | | 1,715.9 | | | | 1,653.4 | |
| | | | | | | | | | | | | | | | |
Operating income | | | | | | | 269.0 | | | | 214.8 | | | | 222.5 | |
| | | | | | | | | | | | | | | | |
Other (expense) income: | | | | | | | | | | | | | | | | |
Interest income | | | | | | | 4.3 | | | | 8.2 | | | | 11.0 | |
Interest expense | | | | | | | (211.3 | ) | | | (258.8 | ) | | | (305.5 | ) |
Loss on extinguishment of debt | | | 14 | | | | (12.1 | ) | | | (1.2 | ) | | | (2.5 | ) |
Other (expense) income, net | | | 6 | | | | (23.2 | ) | | | 1.1 | | | | (17.6 | ) |
| | | | | | | | | | | | | | | | |
Total other expense | | | | | | | (242.3 | ) | | | (250.7 | ) | | | (314.6 | ) |
| | | | | | | | | | | | | | | | |
Income (loss) before income taxes | | | | | | | 26.7 | | | | (35.9 | ) | | | (92.1 | ) |
Income tax expense (benefit) | | | 7 | | | | 10.2 | | | | (15.8 | ) | | | (9.8 | ) |
| | | | | | | | | | | | | | | | |
Net income (loss) | | | | | | $ | 16.5 | | | $ | (20.1 | ) | | $ | (82.3 | ) |
| | | | | | | | | | | | | | | | |
Income (loss) per common share: | | | | | | | | | | | | | | | | |
Basic | | | 3 | | | $ | 0.14 | | | $ | (0.20 | ) | | $ | (0.83 | ) |
Diluted | | | 3 | | | | 0.14 | | | | (0.20 | ) | | | (0.83 | ) |
Weighted average common shares outstanding: | | | | | | | | | | | | | | | | |
Basic | | | 3 | | | | 119.6 | | | | 99.7 | | | | 99.3 | |
Diluted | | | 3 | | | | 120.1 | | | | 99.7 | | | | 99.3 | |
|
| | | | | | | | | | | | | |
| | | | Year ended December 31, |
| (in millions, except per share data) | Note | | 2018 | | 2017 | | 2016 |
| Net sales | | | $ | 8,632.5 |
| | $ | 8,253.7 |
| | $ | 8,073.7 |
|
| Cost of goods sold (exclusive of depreciation) | | | 6,732.4 |
| | 6,448.2 |
| | 6,346.6 |
|
| Operating expenses: | | | | | | | |
| Outbound freight and handling | | | 328.3 |
| | 292.0 |
| | 286.6 |
|
| Warehousing, selling and administrative | | | 931.4 |
| | 919.7 |
| | 893.1 |
|
| Other operating expenses, net | 4 | | 73.5 |
| | 55.4 |
| | 37.2 |
|
| Depreciation | | | 125.2 |
| | 135.0 |
| | 152.3 |
|
| Amortization | | | 54.3 |
| | 65.4 |
| | 85.6 |
|
| Impairment charges | 14 | | — |
| | — |
| | 133.9 |
|
| Total operating expenses | | | $ | 1,512.7 |
| | $ | 1,467.5 |
| | $ | 1,588.7 |
|
| Operating income | | | $ | 387.4 |
| | $ | 338.0 |
| | $ | 138.4 |
|
| Other (expense) income: | | | | | | | |
| Interest income | | | 3.2 |
| | 4.0 |
| | 3.9 |
|
| Interest expense | | | (135.6 | ) | | (152.0 | ) | | (163.8 | ) |
| Loss on extinguishment of debt | 16 | | (0.1 | ) | | (3.8 | ) | | — |
|
| Other expense, net | 6 | | (32.7 | ) | | (17.4 | ) | | (58.1 | ) |
| Total other expense | | | $ | (165.2 | ) | | $ | (169.2 | ) | | $ | (218.0 | ) |
| Income (loss) before income taxes | | | 222.2 |
| | 168.8 |
| | (79.6 | ) |
| Income tax expense (benefit) | 7 | | 49.9 |
| | 49.0 |
| | (11.2 | ) |
| Net income (loss) | | | $ | 172.3 |
| | $ | 119.8 |
| | $ | (68.4 | ) |
| Income (loss) per common share: | | | | | | | |
| Basic | 8 | | $ | 1.22 |
| | $ | 0.85 |
| | $ | (0.50 | ) |
| Diluted | 8 | | 1.21 |
| | 0.85 |
| | (0.50 | ) |
| Weighted average common shares outstanding: | | | | | | | |
| Basic | 8 | | 141.2 |
| | 140.2 |
| | 137.8 |
|
| Diluted | 8 | | 142.2 |
| | 141.4 |
| | 137.8 |
|
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
LOSS | | | | | | | | | | | | | | | | |
| | | | | | Year ended December 31, | |
(in millions) | | Note | | | 2015 | | | 2014 | | | 2013 | |
Net income (loss) | | | | | | $ | 16.5 | | | $ | (20.1 | ) | | $ | (82.3 | ) |
Other comprehensive (loss) income, net of tax: | | | | | | | | | | | | | | | | |
Foreign currency translation | | | 10 | | | | (212.6 | ) | | | (118.3 | ) | | | (70.5 | ) |
Pension and other postretirement benefits adjustment | | | 10 | | | | (7.3 | ) | | | (7.3 | ) | | | (7.0 | ) |
Derivative financial instruments | | | 10 | | | | 3.7 | | | | (0.9 | ) | | | (2.8 | ) |
| | | | | | | | | | | | | | | | |
Total other comprehensive loss, net of tax | | | | | | | (216.2 | ) | | | (126.5 | ) | | | (80.3 | ) |
| | | | | | | | | | | | | | | | |
Comprehensive loss | | | | | | $ | (199.7 | ) | | $ | (146.6 | ) | | $ | (162.6 | ) |
| | | | | | | | | | | | | | | | |
INCOME (LOSS)
|
| | | | | | | | | | | | | |
| | | | Year ended December 31, |
| (in millions) | Note | | 2018 | | 2017 | | 2016 |
| Net income (loss) | | | $ | 172.3 |
| | $ | 119.8 |
| | $ | (68.4 | ) |
| Other comprehensive income (loss), net of tax: | | | | | | | |
Impact due to adoption of ASU 2017-12 (1) | | | 0.5 |
| | — |
| | — |
|
| Foreign currency translation | 11 | | (97.0 | ) | | 107.1 |
| | 36.3 |
|
| Pension and other postretirement benefits adjustment | 11 | | 0.1 |
| | (2.4 | ) | | (1.8 | ) |
| Derivative financial instruments | 11 | | 1.7 |
| | 6.7 |
| | — |
|
| Total other comprehensive (loss) income, net of tax | | | $ | (94.7 | ) | | $ | 111.4 |
| | $ | 34.5 |
|
| Comprehensive income (loss) | | | $ | 77.6 |
| | $ | 231.2 |
| | $ | (33.9 | ) |
| | | | | | | | |
| |
| (1) | Adjusted due to the adoption of Accounting Standards Update (“ASU”) 2017-12 “Targeted Improvements to Accounting for Hedging Activities” on January 1, 2018. Refer to “Note 2: Significant accounting policies” for more information. |
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | | |
| | | | | | December 31, | |
(in millions, except per share data) | | Note | | | 2015 | | | 2014
As
Adjusted* | |
Assets | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | |
Cash and cash equivalents | | | | | | $ | 188.1 | | | $ | 206.0 | |
Trade accounts receivable, net | | | | | | | 1,026.2 | | | | 1,277.5 | |
Inventories | | | | | | | 803.4 | | | | 942.7 | |
Prepaid expenses and other current assets | | | | | | | 178.6 | | | | 158.5 | |
Deferred tax assets | | | 7 | | | | — | | | | 37.1 | |
| | | | | | | | | | | | |
Total current assets | | | | | | | 2,196.3 | | | | 2,621.8 | |
| | | | | | | | | | | | |
Property, plant and equipment, net | | | 11 | | | | 1,082.5 | | | | 1,032.3 | |
Goodwill | | | 12 | | | | 1,745.1 | | | | 1,767.6 | |
Intangible assets, net | | | 12 | | | | 518.9 | | | | 574.9 | |
Deferred tax assets | | | 7 | | | | 3.5 | | | | 15.5 | |
Other assets | | | | | | | 66.1 | | | | 55.6 | |
| | | | | | | | | | | | |
Total assets | | | | | | $ | 5,612.4 | | | $ | 6,067.7 | |
| | | | | | | | | | | | |
Liabilities and stockholders’ equity | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | |
Short-term financing | | | 14 | | | $ | 33.5 | | | $ | 61.1 | |
Trade accounts payable | | | | | | | 836.0 | | | | 991.9 | |
Current portion of long-term debt | | | 14 | | | | 59.9 | | | | 80.7 | |
Accrued compensation | | | | | | | 62.8 | | | | 73.7 | |
Other accrued expenses | | | 13 | | | | 301.3 | | | | 308.1 | |
Deferred tax liabilities | | | 7 | | | | — | | | | 3.4 | |
| | | | | | | | | | | | |
Total current liabilities | | | | | | | 1,293.5 | | | | 1,518.9 | |
| | | | | | | | | | | | |
Long-term debt | | | 14 | | | | 3,057.4 | | | | 3,730.6 | |
Pension and other postretirement benefit liabilities | | | 8 | | | | 251.8 | | | | 304.5 | |
Deferred tax liabilities | | | 7 | | | | 58.0 | | | | 119.7 | |
Other long-term liabilities | | | | | | | 135.0 | | | | 145.9 | |
Commitment and contingencies | | | 18 | | | | — | | | | — | |
Stockholders’ equity: | | | | | | | | | | | | |
Preferred stock, 200.0 million shares authorized at $0.01 par value with no shares issued or outstanding as of December 31, 2015 and 2014 | | | | | | | — | | | | — | |
Common stock, 2.0 billion shares authorized at $0.01 par value with 138.0 million shares issued and outstanding at December 31, 2015; 370.2 million shares authorized at $0.000000028 par value with 100.2 million shares issued and outstanding at December 31, 2014 | | | | | | | 1.4 | | | | — | |
Additional paid-in capital | | | | | | | 2,224.7 | | | | 1,457.6 | |
Accumulated deficit | | | | | | | (985.0 | ) | | | (1,001.3 | ) |
Accumulated other comprehensive loss | | | 10 | | | | (424.4 | ) | | | (208.2 | ) |
| | | | | | | | | | | | |
Total stockholders’ equity | | | | | | | 816.7 | | | | 248.1 | |
| | | | | | | | | | | | |
Total liabilities and stockholders’ equity | | | | | | $ | 5,612.4 | | | $ | 6,067.7 | |
| | | | | | | | | | | | |
* | Adjusted due to the adoption of ASU 2015-03 and ASU 2015-15. Refer to “Note 2: Significant accounting policies” for additional information. |
|
| | | | | | | | | |
| | | | December 31, |
| (in millions, except per share data) | Note | | 2018 | | 2017 |
| Assets | | | | | |
| Current assets: | | | | | |
| Cash and cash equivalents | | | $ | 121.6 |
| | $ | 467.0 |
|
| Trade accounts receivable, net | | | 1,094.7 |
| | 1,062.4 |
|
| Inventories | | | 803.3 |
| | 839.5 |
|
| Prepaid expenses and other current assets | | | 169.1 |
| | 149.6 |
|
| Total current assets | | | $ | 2,188.7 |
| | $ | 2,518.5 |
|
| Property, plant and equipment, net | 12 | | 955.8 |
| | 1,003.0 |
|
| Goodwill | 13 | | 1,780.7 |
| | 1,818.4 |
|
| Intangible assets, net | 13 | | 238.1 |
| | 287.7 |
|
| Deferred tax assets | 7 | | 24.8 |
| | 22.8 |
|
| Other assets | | | 84.3 |
| | 82.3 |
|
| Total assets | | | $ | 5,272.4 |
| | $ | 5,732.7 |
|
| Liabilities and stockholders’ equity | | | | | |
| Current liabilities: | | | | | |
| Short-term financing | 16 | | $ | 8.1 |
| | $ | 13.4 |
|
| Trade accounts payable | | | 925.4 |
| | 941.7 |
|
| Current portion of long-term debt | 16 | | 21.7 |
| | 62.0 |
|
| Accrued compensation | | | 93.6 |
| | 100.7 |
|
| Other accrued expenses | 15 | | 285.8 |
| | 301.6 |
|
| Total current liabilities | | | $ | 1,334.6 |
| | $ | 1,419.4 |
|
| Long-term debt | 16 | | 2,350.4 |
| | 2,820.0 |
|
| Pension and other postretirement benefit liabilities | 9 | | 254.4 |
| | 257.1 |
|
| Deferred tax liabilities | 7 | | 42.9 |
| | 35.4 |
|
| Other long-term liabilities | | | 98.4 |
| | 110.7 |
|
| Total liabilities | | | $ | 4,080.7 |
| | $ | 4,642.6 |
|
| Stockholders’ equity: | | | | | |
| Preferred stock, 200.0 million shares authorized at $0.01 par value with no shares issued or outstanding as of December 31, 2018 and 2017 | | | — |
| | — |
|
| Common stock, 2.0 billion shares authorized at $0.01 par value with 141.7 million and 141.1 million shares issued and outstanding at December 31, 2018 and December 31, 2017, respectively | | | 1.4 |
| | 1.4 |
|
| Additional paid-in capital | | | 2,325.0 |
| | 2,301.3 |
|
| Accumulated deficit | | | (761.5 | ) | | (934.1 | ) |
| Accumulated other comprehensive loss | 11 | | (373.2 | ) | | (278.5 | ) |
| Total stockholders’ equity | | | $ | 1,191.7 |
| | $ | 1,090.1 |
|
| Total liabilities and stockholders’ equity | | | $ | 5,272.4 |
| | $ | 5,732.7 |
|
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS | | | | | | | | | | | | | | | | |
| | | | | | Year ended December 31, | |
(in millions) | | Note | | | 2015 | | | 2014 | | | 2013 | |
Operating activities: | | | | | | | | | | | | | | | | |
Net income (loss) | | | | | | $ | 16.5 | | | $ | (20.1 | ) | | $ | (82.3 | ) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | | | | | 225.0 | | | | 229.5 | | | | 228.1 | |
Impairment charges | | | 11, 12 | | | | — | | | | 0.3 | | | | 135.6 | |
Amortization of deferred financing fees and debt discount | | | | | | | 12.2 | | | | 16.5 | | | | 22.7 | |
Amortization of pension credit from accumulated other comprehensive loss | | | 8 | | | | (11.9 | ) | | | (11.9 | ) | | | (11.6 | ) |
Loss on extinguishment of debt | | | 14 | | | | 12.1 | | | | 1.2 | | | | 2.5 | |
Contingent consideration fair value adjustment | | | 15 | | | | — | | | | (1.0 | ) | | | (24.7 | ) |
Deferred income taxes | | | 7 | | | | (7.4 | ) | | | (19.6 | ) | | | (34.4 | ) |
Recognition of previously uncertain tax benefits | | | | | | | — | | | | (18.4 | ) | | | — | |
Stock-based compensation expense | | | 9 | | | | 7.5 | | | | 12.1 | | | | 15.1 | |
Other | | | | | | | (2.0 | ) | | | 3.3 | | | | 0.5 | |
Changes in operating assets and liabilities: | | | | | | | | | | | | | | | | |
Trade accounts receivable, net | | | | | | | 198.7 | | | | (63.2 | ) | | | 9.3 | |
Inventories | | | | | | | 82.3 | | | | (90.9 | ) | | | 41.6 | |
Prepaid expenses and other current assets | | | | | | | (29.6 | ) | | | (8.2 | ) | | | 15.1 | |
Trade accounts payable | | | | | | | (104.1 | ) | | | 12.7 | | | | 111.7 | |
Pensions and other postretirement benefit liabilities | | | | | | | (52.0 | ) | | | 72.8 | | | | (133.8 | ) |
Other, net | | | | | | | 8.7 | | | | 11.2 | | | | (6.1 | ) |
| | | | | | | | | | | | | | | | |
Net cash provided by operating activities | | | | | | | 356.0 | | | | 126.3 | | | | 289.3 | |
| | | | | | | | | | | | | | | | |
Investing activities: | | | | | | | | | | | | | | | | |
Purchases of property, plant and equipment | | | | | | | (145.0 | ) | | | (113.9 | ) | | | (141.3 | ) |
Proceeds from sale of property, plant and equipment | | | | | | | 9.5 | | | | 8.9 | | | | 11.6 | |
Purchases of businesses, net of cash acquired | | | 17 | | | | (153.4 | ) | | | (42.2 | ) | | | (86.0 | ) |
Other | | | | | | | (5.5 | ) | | | (1.0 | ) | | | — | |
| | | | | | | | | | | | | | | | |
Net cash used by investing activities | | | | | | | (294.4 | ) | | | (148.2 | ) | | | (215.7 | ) |
| | | | | | | | | | | | | | | | |
Financing activities: | | | | | | | | | | | | | | | | |
Proceeds from sale of common stock | | | | | | | 765.3 | | | | 3.0 | | | | 3.3 | |
Proceeds from the issuance of long-term debt | | | 14 | | | | 2,806.6 | | | | 177.5 | | | | 519.0 | |
Payments on long-term debt | | | 14 | | | | (3,547.8 | ) | | | (79.2 | ) | | | (579.4 | ) |
Short-term financing, net | | | 14 | | | | (11.5 | ) | | | (8.2 | ) | | | (40.0 | ) |
Financing fees paid | | | 14 | | | | (28.7 | ) | | | (5.4 | ) | | | (12.5 | ) |
Shares repurchased | | | | | | | (3.6 | ) | | | (8.0 | ) | | | (1.8 | ) |
Stock option exercises | | | 9 | | | | 3.0 | | | | 6.2 | | | | 0.9 | |
Other | | | | | | | (3.1 | ) | | | (1.8 | ) | | | — | |
| | | | | | | | | | | | | | | | |
Net cash (used by) provided by financing activities | | | | | | | (19.8 | ) | | | 84.1 | | | | (110.5 | ) |
| | | | | | | | | | | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | | | | | | | (59.7 | ) | | | (36.6 | ) | | | (3.6 | ) |
| | | | | | | | | | | | | | | | |
Net (decrease) increase in cash and cash equivalents | | | | | | | (17.9 | ) | | | 25.6 | | | | (40.5 | ) |
Cash and cash equivalents at beginning of period | | | | | | | 206.0 | | | | 180.4 | | | | 220.9 | |
| | | | | | | | | | | | | | | | |
Cash and cash equivalents at end of period | | | | | | $ | 188.1 | | | $ | 206.0 | | | $ | 180.4 | |
| | | | | | | | | | | | | | | | |
Supplemental disclosure of cash flow information | | | | | | | | | | | | | | | | |
Cash paid during the period for: | | | | | | | | | | | | | | | | |
Income taxes | | | | | | $ | 38.2 | | | $ | 23.7 | | | $ | 24.1 | |
Interest, net of capitalized interest | | | | | | | 169.7 | | | | 238.5 | | | | 274.0 | |
Non-cash activities: | | | | | | | | | | | | | | | | |
Additions of property, plant and equipment included in trade accounts payable and other accrued expenses | | | | | | | 10.1 | | | | 9.3 | | | | 7.2 | |
Additions of property, plant and equipment under a capital lease obligation | | | | | | | 67.7 | | | | 2.6 | | | | — | |
|
| | | | | | | | | | | | | |
| | | | Year ended December 31, |
| (in millions) | Note | | 2018 | | 2017 | | 2016 |
| Operating activities: | | | | | | | |
| Net income (loss) | | | $ | 172.3 |
| | $ | 119.8 |
| | $ | (68.4 | ) |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | | |
| Depreciation and amortization | | | 179.5 |
| | 200.4 |
| | 237.9 |
|
| Impairment charges | 14 | | — |
| | — |
| | 133.9 |
|
| Amortization of deferred financing fees and debt discount | | | 7.6 |
| | 7.9 |
| | 7.9 |
|
| Amortization of pension cost (credits) from accumulated other comprehensive loss | 9 | | 2.7 |
| | (0.2 | ) | | (4.5 | ) |
| Loss on extinguishment of debt | 16 | | 0.1 |
| | 3.8 |
| | — |
|
| Loss (gain) on sale of property, plant and equipment and other assets | 4 | | 2.0 |
| | (11.3 | ) | | (0.7 | ) |
| Deferred income taxes | 7 | | 2.8 |
| | 11.7 |
| | (31.6 | ) |
| Stock-based compensation expense | 10 | | 20.7 |
| | 19.7 |
| | 10.4 |
|
| Other | | | 0.7 |
| | (0.7 | ) | | (0.2 | ) |
| Changes in operating assets and liabilities: | | |
| | | | |
| Trade accounts receivable, net | | | (62.1 | ) | | (58.5 | ) | | 70.2 |
|
| Inventories | | | 14.4 |
| | (47.7 | ) | | 42.0 |
|
| Prepaid expenses and other current assets | | | (19.3 | ) | | (8.7 | ) | | 40.1 |
|
| Trade accounts payable | | | 9.3 |
| | 53.6 |
| | 12.0 |
|
| Pensions and other postretirement benefit liabilities | | | (15.4 | ) | | (51.8 | ) | | 26.9 |
|
| Other, net | | | (25.4 | ) | | 44.6 |
| | (25.9 | ) |
| Net cash provided by operating activities | | | $ | 289.9 |
| | $ | 282.6 |
| | $ | 450.0 |
|
| Investing activities: | | | | | | | |
| Purchases of property, plant and equipment | | | $ | (94.6 | ) | | $ | (82.7 | ) | | $ | (90.1 | ) |
| Proceeds from sale of property, plant and equipment and other assets | | | 14.5 |
| | 29.2 |
| | 9.4 |
|
| Purchases of businesses, net of cash acquired | 19 | | (18.6 | ) | | (24.4 | ) | | (53.6 | ) |
| Other | | | (0.3 | ) | | (1.2 | ) | | (1.7 | ) |
| Net cash used by investing activities | | | $ | (99.0 | ) | | $ | (79.1 | ) | | $ | (136.0 | ) |
| Financing activities: | | | | | | | |
| Proceeds from the issuance of long-term debt | 16 | | $ | 41.7 |
| | $ | 4,477.8 |
| | $ | — |
|
| Payments on long-term debt and capital lease obligations | 16 | | (561.9 | ) | | (4,585.7 | ) | | (178.2 | ) |
| Short-term financing, net | 16 | | 0.5 |
| | (22.2 | ) | | (4.6 | ) |
| Financing fees paid | 16 | | (1.1 | ) | | (7.7 | ) | | — |
|
| Taxes paid related to net share settlements of stock-based compensation awards | | | (4.1 | ) | | (8.5 | ) | | — |
|
| Stock option exercises | 10 | | 5.9 |
| | 36.5 |
| | 16.9 |
|
| Contingent consideration payments | | | (0.4 | ) | | (3.7 | ) | | (0.4 | ) |
| Other | | | 1.1 |
| | 1.1 |
| | (0.2 | ) |
| Net cash used by financing activities | | | $ | (518.3 | ) | | $ | (112.4 | ) | | $ | (166.5 | ) |
| Effect of exchange rate changes on cash and cash equivalents | | | $ | (18.0 | ) | | $ | 39.5 |
| | $ | 0.8 |
|
| Net (decrease) increase in cash and cash equivalents | | | (345.4 | ) | | 130.6 |
| | 148.3 |
|
| Cash and cash equivalents at beginning of period | | | 467.0 |
| | 336.4 |
| | 188.1 |
|
| Cash and cash equivalents at end of period | | | $ | 121.6 |
| | $ | 467.0 |
| | $ | 336.4 |
|
| Supplemental disclosure of cash flow information: | | | | | | | |
| Cash paid during the period for: | | | | | | | |
| Income taxes | | | $ | 65.0 |
| | $ | 29.9 |
| | $ | 14.9 |
|
| Interest, net of capitalized interest | | | 128.2 |
| | 140.2 |
| | 148.9 |
|
| Non-cash activities: | | | | | | | |
| Additions of property, plant and equipment included in trade accounts payable and other accrued expenses | | | $ | 14.6 |
| | $ | 7.4 |
| | $ | 11.5 |
|
| Additions of property, plant and equipment under a capital lease obligation | | | 23.6 |
| | 19.9 |
| | 29.6 |
|
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | |
(in millions, except per share data) | | Common
stock
(shares) | | | Common
stock | | | Additional
paid-in
capital | | | Accumulated
deficit | | | Accumulated
other
comprehensive
income (loss) | | | Total | |
Balance, January 1, 2013 | | | 99.8 | | | $ | — | | | $ | 1,426.5 | | | $ | (898.7 | ) | | $ | (1.4 | ) | | $ | 526.4 | |
Net loss | | | — | | | | — | | | | — | | | | (82.3 | ) | | | — | | | | (82.3 | ) |
Foreign currency translation adjustment, net of tax $11.4 | | | — | | | | — | | | | — | | | | — | | | | (70.5 | ) | | | (70.5 | ) |
Pension and other postretirement benefits adjustment, net of tax $4.6 | | | — | | | | — | | | | — | | | | — | | | | (7.0 | ) | | | (7.0 | ) |
Derivative financial instruments, net of tax $1.6 | | | — | | | | — | | | | — | | | | — | | | | (2.8 | ) | | | (2.8 | ) |
Share issuances | | | 0.2 | | | | — | | | | 3.3 | | | | — | | | | — | | | | 3.3 | |
Share repurchases | | | (0.1 | ) | | | — | | | | (1.8 | ) | | | — | | | | — | | | | (1.8 | ) |
Stock option exercises | | | 0.1 | | | | — | | | | 0.9 | | | | — | | | | — | | | | 0.9 | |
Stock-based compensation | | | — | | | | — | | | | 15.1 | | | | — | | | | — | | | | 15.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2013 | | | 100.0 | | | $ | — | | | $ | 1,444.0 | | | $ | (981.0 | ) | | $ | (81.7 | ) | | $ | 381.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | | — | | | | — | | | | — | | | | (20.1 | ) | | | — | | | | (20.1 | ) |
Foreign currency translation adjustment, net of tax $9.3 | | | — | | | | — | | | | — | | | | — | | | | (118.3 | ) | | | (118.3 | ) |
Pension and other postretirement benefits adjustment, net of tax $4.6 | | | — | | | | — | | | | — | | | | — | | | | (7.3 | ) | | | (7.3 | ) |
Derivative financial instruments, net of tax $0.5 | | | — | | | | — | | | | — | | | | — | | | | (0.9 | ) | | | (0.9 | ) |
Share issuances | | | 0.2 | | | | — | | | | 3.0 | | | | — | | | | — | | | | 3.0 | |
Share repurchases | | | (0.4 | ) | | | — | | | | (7.8 | ) | | | (0.2 | ) | | | — | | | | (8.0 | ) |
Stock option exercises | | | 0.3 | | | | — | | | | 6.2 | | | | — | | | | — | | | | 6.2 | |
Stock-based compensation | | | 0.1 | | | | — | | | | 12.1 | | | | — | | | | — | | | | 12.1 | |
Excess tax benefit from stock-based compensation | | | — | | | | — | | | | 0.1 | | | | — | | | | — | | | | 0.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2014 | | | 100.2 | | | $ | — | | | $ | 1,457.6 | | | $ | (1,001.3 | ) | | $ | (208.2 | ) | | $ | 248.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | — | | | | — | | | | — | | | | 16.5 | | | | — | | | | 16.5 | |
Foreign currency translation adjustment, net of tax $7.4 | | | — | | | | — | | | | — | | | | — | | | | (212.6 | ) | | | (212.6 | ) |
Pension and other postretirement benefits adjustment, net of tax $4.6 | | | — | | | | — | | | | — | | | | — | | | | (7.3 | ) | | | (7.3 | ) |
Derivative financial instruments, net of tax $(2.1) | | | — | | | | — | | | | — | | | | — | | | | 3.7 | | | | 3.7 | |
Share issuances | | | 37.7 | | | | — | | | | 761.5 | | | | — | | | | — | | | | 761.5 | |
Change in par value of common stock to $0.01 | | | — | | | | 1.4 | | | | (1.4 | ) | | | — | | | | — | | | | — | |
Share repurchases | | | (0.2 | ) | | | — | | | | (3.4 | ) | | | (0.2 | ) | | | — | | | | (3.6 | ) |
Stock option exercises | | | 0.2 | | | | — | | | | 3.0 | | | | — | | | | — | | | | 3.0 | |
Stock-based compensation | | | 0.1 | | | | — | | | | 7.5 | | | | — | | | | — | | | | 7.5 | |
Usage of excess tax benefit from stock-based compensation | | | — | | | | — | | | | (0.1 | ) | | | — | | | | — | | | | (0.1 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2015 | | | 138.0 | | | $ | 1.4 | | | $ | 2,224.7 | | | $ | (985.0 | ) | | $ | (424.4 | ) | | $ | 816.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | |
| (in millions, except per share data) | Common stock (shares) | | Common stock | | Additional paid-in capital | | Accumulated deficit | | Accumulated other comprehensive income (loss) | | Total |
| Balance, January 1, 2016 | 138.0 |
| | $ | 1.4 |
| | $ | 2,224.7 |
| | $ | (985.0 | ) | | $ | (424.4 | ) | | $ | 816.7 |
|
| Net loss | — |
| | — |
| | — |
| | (68.4 | ) | | — |
| | (68.4 | ) |
| Foreign currency translation adjustment, net of tax $23.9 | — |
| | — |
| | — |
| | — |
| | 36.3 |
| | 36.3 |
|
| Pension and other postretirement benefits adjustment, net of tax $1.5 | — |
| | — |
| | — |
| | — |
| | (1.8 | ) | | (1.8 | ) |
| Stock option exercises | 0.8 |
| | — |
| | 16.9 |
| | — |
| | — |
| | 16.9 |
|
| Stock-based compensation | — |
| | — |
| | 10.4 |
| | — |
| | — |
| | 10.4 |
|
| Other | — |
| | — |
| | (0.2 | ) | | — |
| | — |
| | (0.2 | ) |
| Balance, December 31, 2016 | 138.8 |
| | $ | 1.4 |
| | $ | 2,251.8 |
| | $ | (1,053.4 | ) | | $ | (389.9 | ) | | $ | 809.9 |
|
| Impact due to adoption of ASU, net of tax $0.2 (1) | — |
| | — |
| | 0.7 |
| | (0.5 | ) | | — |
| | 0.2 |
|
| Net income | — |
| | — |
| | — |
| | 119.8 |
| | — |
| | 119.8 |
|
| Foreign currency translation adjustment, net of tax ($2.1) | — |
| | — |
| | — |
| | — |
| | 107.1 |
| | 107.1 |
|
| Pension and other postretirement benefits adjustment, net of tax $0.6 | — |
| | — |
| | — |
| | — |
| | (2.4 | ) | | (2.4 | ) |
| Derivative financial instruments, net of tax ($4.3) | — |
| | — |
| | — |
| | — |
| | 6.7 |
| | 6.7 |
|
| Restricted stock units vested | 0.8 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Tax withholdings related to net share settlements of stock-based compensation awards | (0.3 | ) | | — |
| | (8.5 | ) | | — |
| | — |
| | (8.5 | ) |
| Stock option exercises | 1.8 |
| | — |
| | 36.5 |
| | — |
| | — |
| | 36.5 |
|
Employee stock purchase plan (2) | — |
| | — |
| | 1.1 |
| | — |
| | — |
| | 1.1 |
|
| Stock-based compensation | — |
| | — |
| | 19.7 |
| | — |
| | — |
| | 19.7 |
|
| Balance, December 31, 2017 | 141.1 |
| | $ | 1.4 |
| | $ | 2,301.3 |
| | $ | (934.1 | ) | | $ | (278.5 | ) | | $ | 1,090.1 |
|
Impact due to adoption of ASU, net of tax ($0.3) (3) | — |
| | — |
| | — |
| | 0.3 |
| | 0.5 |
| | 0.8 |
|
| Net income | — |
| | — |
| | — |
| | 172.3 |
| | — |
| | 172.3 |
|
| Foreign currency translation adjustment, net of tax $2.4 | — |
| | — |
| | — |
| | — |
| | (97.0 | ) | | (97.0 | ) |
| Pension and other postretirement benefits adjustment, net of tax ($0.1) | — |
| | — |
| | — |
| | — |
| | 0.1 |
| | 0.1 |
|
| Derivative financial instruments, net of tax ($0.4) | — |
| | — |
| | — |
| | — |
| | 1.7 |
| | 1.7 |
|
| Restricted stock units vested | 0.4 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Tax withholdings related to net share settlements of stock-based compensation awards | (0.1 | ) | | — |
| | (4.1 | ) | | — |
| | — |
| | (4.1 | ) |
| Stock option exercises | 0.3 |
| | — |
| | 5.9 |
| | — |
| | — |
| | 5.9 |
|
| Employee stock purchase plan | — |
| | — |
| | 1.1 |
| | — |
| | — |
| | 1.1 |
|
| Stock-based compensation | — |
| | — |
| | 20.7 |
| | — |
| | — |
| | 20.7 |
|
| Other | — |
| | — |
| | 0.1 |
| | — |
| | — |
| | 0.1 |
|
| Balance, December 31, 2018 | 141.7 |
| | $ | 1.4 |
| | $ | 2,325.0 |
| | $ | (761.5 | ) | | $ | (373.2 | ) | | $ | 1,191.7 |
|
| |
| (1) | Adjusted due to the adoption of ASU 2016-09 “Improvement to Employee Share-Based Payment Accounting” on January 1, 2017. |
| |
| (2) | During November 2016, our Board of Directors approved the Univar Employee Stock Purchase Plan, or ESPP, authorizing the issuances of up to 2.0 million shares of the Company's common stock effective January 1, 2017. The total number of shares issued under the plan for the first two offering periods from January through December 2017 was 39,418 shares. |
| |
| (3) | Adjusted due to the adoption of ASU 2014-09 “Revenue from Contracts with Customers” and ASU 2017-12 “Targeted Improvements to Accounting for Hedging Activities” on January 1, 2018. Refer to “Note 2: Significant accounting policies” for more information. |
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31,
20152018 AND
20142017 AND
FOR THE YEARS ENDED DECEMBER 31,
2015, 20142018, 2017 AND
20132016
Headquartered in Downers Grove, Illinois, Univar Inc. (“Company” or “Univar”) is a leading global
chemical and ingredients distributor
and provider of
commodity and specialty
chemicals.services. The Company’s operations are structured into four operating segments that represent the geographic areas under which the Company manages its business:
Univar USA (“USA”)
Univar Canada (“Canada”)
Univar Europe, the Middle East and Africa (“EMEA”)
Rest of the World (“Rest of World”)
Rest of World includes certain developing businesses in Latin America (including Brazil and Mexico) and the Asia-Pacific region.
Initial public offering
On June 23, 2015, the Company closed its initial public offering (“IPO”) in which the Company issued and sold 20.0 million shares of common stock at a public offering price of $22.00 per share. In addition, the Company completed a concurrent private placement of $350.0 million for shares of common stock (17.6 million shares) to Dahlia Investments Pte. Ltd., an indirect wholly owned subsidiary of Temasek Holdings (Private) Limited (“Temasek”). The Company received total net proceeds of approximately $760.0 million after deducting underwriting discounts and commissions and other offering expenses of approximately $30.0 million. These expenses were recorded against the proceeds received from the IPO.
Certain selling stockholders sold an additional 25.3 million shares of common stock in the IPO and concurrent private placement. The Company did not receive any proceeds from the sale of these shares.
In connection with the IPO and pursuant to Rule 424(b), the Company filed its final prospectus with the Securities and Exchange Commission on June 19, 2015.
2. Significant accounting policies The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). Unless otherwise indicated, all financial data presented in these consolidated financial statements are expressed in US dollars.
The consolidated financial statements include the financial statements of the Company and its subsidiaries. Subsidiaries are consolidated if the Company has a controlling financial interest, which may exist based on ownership of a majority of the voting interest, or based on the Company’s determination that it is the primary beneficiary of a variable interest
entity.entity (“VIE”). The Company did not have any material interests in
variable interest entities (“VIEs”)VIEs during the years presented in these consolidated financial statements. All intercompany balances and transactions are eliminated in consolidation.
The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions
that affectaffecting the amounts reported and disclosed in the financial statements and accompanying notes. Actual results could differ materially from these estimates.
Recently issued and adopted accounting pronouncements
In
AprilMay 2014, the Financial Accounting Standards Board
(FASB) issued Accounting Standards Update (“
ASU”FASB”)
2014-08 “Reporting Discontinued Operations and Disclosure of Disposals of Components of an Entity,” which changes the criteria for reporting discontinued operations. This guidance is applied prospectively and is effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. The Company adopted the standard for its year and interim periods beginning after December 15, 2014, making this change effective as of January 1, 2015. The adoption of ASU 2014-08 had no impact on our financial results or disclosures for the year ended December 31, 2015.In April 2015, the FASB issued ASU 2015-03 “Interest-Imputation of Interest (Simplifying the Presentation of Debt Issuance Costs)” (Subtopic 835-30). The core principle of the guidance is that debt issuance costs related to a recognized debt liability will no longer be presented as an asset, but rather be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs is not affected by the ASU. In August 2015, the FASB issued ASU 2015-15 “Interest—Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements—Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting” as a supplement to ASU 2015-03, which provided clarification to the presentation of debt issuance costs related to line-of-credit arrangements. The ASU permits an entity to defer and present debt issuance costs related to line-of-credit arrangements as an asset and subsequently amortize the deferred issuance costs over the term of the line-of-credit arrangement. This guidance is effective and will be applied retrospectively for fiscal years, and interim periods within those years, beginning after December 15, 2015. Early adoption is permitted.
The Company early adopted the guidance as of December 31, 2015 and adjusted the previously reported periods. The adoption of ASU 2015-03 and ASU 2015-15 resulted in a decrease of $8.9 million in other assets and long-term debt within the December 31, 2014 consolidated balance sheet. The adoption resulted in a decrease of $12.3 million in other assets and long-term debt within the December 31, 2013 consolidated balance sheet.
In September 2015, the FASB issued ASU 2015-16 “Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments.” The core principle of the guidance is that the ASU eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. This ASU requires acquirers to recognize measurement-period adjustments during the period in which they determine the amounts, including the effect on earnings of any amounts they would have recorded in previous periods if the accounting had been completed at the acquisition date. The ASU does not change the criteria for determining whether an adjustment qualifies as a measurement-period adjustment and does not change the length of the measurement period. This guidance is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. Early adoption is permitted and the Company has elected to adopt the ASU as of December 31, 2015. The ASU is applied prospectively to adjustments to provisional amounts that occur after the effective date. That is, the ASU applies to open measurement periods, regardless of the acquisition date. The Company believes the guidance will not have a material impact on its consolidated financial statements.
In November 2015, the FASB issued ASU 2015-17 “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes.” The core principle of the guidance is that the ASU requires all deferred tax
assets and liabilities to be classified as noncurrent on the balance sheet instead of separating deferred taxes into current and noncurrent amounts. In addition, valuation allowances are no longer required to be allocated between current and noncurrent deferred tax assets as they will also be classified as noncurrent. The ASU does not impact the requirement to offset deferred tax asset and deferred tax liabilities for each taxpaying component within a jurisdiction. This guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted and the Company has elected to adopt the ASU on a prospective basis as of December 31, 2015. Prior periods were not retrospectively adjusted. Other than the revised balance sheet presentation of deferred tax assets and liabilities, the adoption of the ASU did not have an effect on the Company’s consolidated financial statements.
Accounting pronouncements issued but not yet adopted
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” (Topic 606), which supersedes. On January 1, 2018, the revenue recognition requirements inCompany adopted the new Accounting Standards Codification (“ASC”) 605, “Revenue Recognition.”Topic 606, Revenue from Contracts with Customers and all the related amendments (“new revenue standard”) to all contracts using the modified retrospective method. The core principleCompany recognized the cumulative effect of initially applying the guidance is thatnew revenue standard as an entity should recognize revenueadjustment to depict the transferopening balance of promised goods or services to customers in an amount that reflects the consideration to which the entity expectsaccumulated deficit. The comparative information has not been restated and continues to be entitledreported under the accounting standards in exchangeeffect for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. periods.
In August 2015,2017, the FASB issued ASU 2015-142017-12 “Derivatives and Hedging” (Topic 815) - “Targeted Improvements to Accounting for Hedging Activities.” The ASU better aligns hedge accounting with the Company’s risk management activities, simplifies the application of hedge accounting, and improves transparency as to the scope and results of hedging programs. The Company early adopted the new pronouncement effective January 1, 2018, using the modified retrospective approach by recognizing the cumulative effect of initially applying the new pronouncement as an adjustment to the opening balance of accumulated deficit. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.
The cumulative effect of the changes made to the January 1, 2018 consolidated balance sheet for the adoption of ASU 2014-09 “Revenue from Contracts with CustomersCustomers” (Topic 606): Deferral of the Effective Date” and ASU 2017-12 “Derivatives and Hedging” (Topic 815) - “Targeted Improvements to Accounting for Hedging Activities” is as a revision to ASU 2014-09, which revised the effective date to fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted but not prior to periods beginning after December 15, 2016 (i.e. the original adoption date per ASU 2014-09). follows:
|
| | | | | | | | | | | | | | | | |
| (in millions) | | Balance at December 31, 2017 | | Adjustments due to ASU 2014-09 | | Adjustments due to ASU 2017-12 | | Balance at January 1, 2018 |
| Assets | | | | | | | | |
| Trade accounts receivable, net | | $ | 1,062.4 |
| | $ | 41.3 |
| | $ | — |
| | $ | 1,103.7 |
|
| Inventories | | 839.5 |
| | (2.1 | ) | | — |
| | 837.4 |
|
| Prepaid expenses and other current assets | | 149.6 |
| | 1.8 |
| | — |
| | 151.4 |
|
| Liabilities | | | | | | | | |
| Trade accounts payable | | $ | 941.7 |
| | $ | 7.0 |
| | $ | — |
| | $ | 948.7 |
|
| Other accrued expenses | | 301.6 |
| | 33.2 |
| | — |
| | 334.8 |
|
| Equity | | | | | | | | |
| Accumulated deficit | | $ | (934.1 | ) | | $ | 0.8 |
| | $ | (0.5 | ) | | $ | (933.8 | ) |
| Accumulated other comprehensive loss | | (278.5 | ) | | — |
| | 0.5 |
| | (278.0 | ) |
The
guidance is to be applied using one of two retrospective application methods. The Company is currently evaluatingfollowing tables summarize the impact of
adopting the
adoptionnew revenue standard upon the Company’s consolidated balance sheet and statement of
this accounting standard update on its internal processes, operating resultsoperations as of and
financial reporting. The impact is currently not known or reasonably estimable.for the year ended December 31, 2018:
|
| | | | | | | | | | | | |
| | | Year ended December 31, 2018 |
| (in millions) | | As reported | | Balances without adoption of ASC 606 | | Effect of change higher/(lower) |
| Net sales | | $ | 8,632.5 |
| | $ | 8,626.4 |
| | $ | 6.1 |
|
| Cost of goods sold (exclusive of depreciation) | | 6,732.4 |
| | 6,726.7 |
| | 5.7 |
|
| | | | | | | |
| Income tax expense | | $ | 49.9 |
| | $ | 49.8 |
| | $ | 0.1 |
|
| Net income | | 172.3 |
| | 172.0 |
| | 0.3 |
|
|
| | | | | | | | | | | | |
| | | December 31, 2018 |
| (in millions) | | As reported | | Balances without adoption of ASC 606 | | Effect of change higher/(lower) |
| Assets | | | | | | |
| Trade accounts receivable, net | | $ | 1,094.7 |
| | $ | 1,047.8 |
| | $ | 46.9 |
|
| Inventories | | 803.3 |
| | 814.4 |
| | (11.1 | ) |
| Prepaid expenses and other current assets | | 169.1 |
| | 163.9 |
| | 5.2 |
|
| Liabilities | | | | | | |
| Trade accounts payable | | $ | 925.4 |
| | $ | 919.2 |
| | $ | 6.2 |
|
| Other accrued expenses | | 285.8 |
| | 252.1 |
| | 33.7 |
|
| Equity | | | | | | |
| Accumulated deficit | | $ | (761.5 | ) | | $ | (762.6 | ) | | $ | 1.1 |
|
In August 2014,March 2017, the FASB issued ASU 2014-15 “Disclosure2017-07 “Compensation - Retirement Benefits” (Topic 715) - “Improving the Presentation of Uncertainties about an Entity’s AbilityNet Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” On January 1, 2018, the Company adopted the amendments to Continue asASC Topic 715 that improves the presentation of net periodic pension and postretirement benefit costs, by separating the presentation of service costs from other components of net periodic costs. The interest cost, expected return on assets, and amortization of prior service costs have been reclassified from warehousing, selling, and administrative expenses to other expense, net. The mark to market, curtailment, and settlement expenses have been reclassified from other operating expenses, net to other expense, net.
Adoption of ASU 2017-07 resulted in a
Going Concern.” The core principle of the guidance is that an entity’s management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are available to be issued. When management identifies conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern, management should consider whether its plans that are intended to mitigate those relevant conditions or events that will alleviate the substantial doubt are adequately disclosed in the footnotesretrospective presentation change to the
financial statements. This guidance will be effectivenet periodic cost for the
annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early adoption is permitted. The Company believes the guidance will not have a material impact on its consolidated financial statements.In February 2015, the FASB issued ASU 2015-02 “Amendments to the Consolidation Analysis” (Topic 810). The core principle of the guidance is to provide amendments to the current consolidation guidance. The revised consolidation guidance, among other things, modifies the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities, eliminates the presumption that a general partner should consolidate a limited partnership and modifies the consolidation analysis of reporting entities that are involved with VIEs through fee arrangements and related party relationships. This guidance is effective and will be applied for fiscal years, and interim periods within those years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. The Company believes the guidance will not have a material impact on its consolidated financial statements.
In April 2015, the FASB issued ASU 2015-04 “Compensation-Retirement Benefits (Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets)” (Topic 715). The core principle of the guidance is that it provides a practical expedient for companies to measure interim remeasurements for significant events that occur on other than a month-end date. The guidance permits entities to
remeasure defined benefit plan assetspension and obligations usingother postretirement employee benefits (“OPEB”) plans within the month-end date that is closest to the date of the significant event. The decision to apply the practical expedient to interim remeasurements for significant events can be made for each significant event. This guidance is effective and will be applied prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2015. Early adoption is permitted. The Company believes the guidance will not have a material impact on its consolidated financial statements.
income statement as follows:
|
| | | | | | | | | | | | |
| | | Year ended December 31, 2017 |
| (in millions) | | As revised | | Previously reported | | Effect of change higher/(lower) |
| Warehousing, selling and administrative | | $ | 919.7 |
| | $ | 909.8 |
| | $ | 9.9 |
|
| Other operating expenses, net | | 55.4 |
| | 49.5 |
| | 5.9 |
|
| Other expense, net | | (17.4 | ) | | (33.2 | ) | | (15.8 | ) |
In
April 2015, the FASB issued ASU 2015-05 “Intangibles-Goodwill and Other-Internal-use software (Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement” (Subtopic 350-40). The ASU provides customers with guidance on determining whether a cloud computing arrangement contains a software license that should be accounted for as internal-use software. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. This guidance is effective and will be applied for fiscal years, and interim periods within those years, beginning after December 15, 2015. Early adoption is permitted. An entity can elect to adopt the amendments either prospectively to all arrangements entered into or materially modified after the effective date or retrospectively. The Company believes the guidance will not have a material impact on its consolidated financial statements.In July 2015, the FASB issued ASU 2015-11 “Simplifying the Measurement of Inventory” (Topic 330). The core principle of the guidance is that an entity should measure inventory at the “lower of cost and net realizable value” and options that currently exist for “market value” will be eliminated. The ASU defines net realizable value as the “estimated selling prices in the ordinary course of business, less reasonably predictable cost of completion, disposal, and transportation.” This guidance will be effective and applied prospectively for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this accounting standard update on its internal processes, operating results and financial reporting. The impact is currently not known or reasonably estimable.
In JanuaryAugust 2016, the FASB issued ASU 2016-01 “Financial Instrument – Recognition2016-15 “Statement of Cash Flows” (Topic 230) - “Classification of Certain Cash Receipts and Measurement of Financial Assets and Financial Liabilities” (Subtopic 825-10). The core principle of the guidance is that an entity should classify equity securities with readily determinable fair values as “trading” or “available-for-sale” and requires equity securities to be measured at fair value with changes in the fair value recognized through net income. For equity investments that do not have readily determinable fair values, remeasurement is required at fair value either upon the occurrence of an observable price change or upon identification of impairment.Cash Payments.” The ASU defines an equity investment as “investments in partnerships, unincorporated joint venturesclarifies and limited liability companiesprovides specific guidance on eight cash flow classification issues that dowere not result in consolidation and are not accounted for underaddressed within the equity method”. This guidance is applied as a cumulative-effect adjustment toprevious guidance. The Company adopted the balance sheetASU as of January 1, 2018 and accordingly restated the beginningconsolidated statement of cash flows for the fiscal year of adoption and is effective for fiscal years beginning afterended December 15,31, 2017 including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluatingto conform with the impactcurrent period presentation under this new guidance. As a result of the adoption, the Company reclassified $3.7 million of this accounting standard update on its internal processes,cash outflows previously reported as operating results andactivities to financing activities within the consolidated statement of cash flows related to contingent consideration payments for the year ended December 31, 2017.
The Company also adopted the following standards during 2018, none of which had a material impact to the financial reporting. The impact is currentlystatements or financial statement disclosures:
|
| | |
| Standard | | Effective date |
| 2018-07 | Compensation - Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment Accounting | July 1, 2018 |
| 2017-09 | Compensation - Stock Compensation - Scope of Modification Accounting | January 1, 2018 |
| 2017-04 | Intangibles - Goodwill and Other - Simplifying the Test for Goodwill Impairment | January 1, 2018 |
| 2017-01 | Business Combinations - Clarifying the Definition of a Business | January 1, 2018 |
| 2016-18 | Statement of Cash Flows - Restricted Cash | January 1, 2018 |
| 2016-16 | Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory | January 1, 2018 |
| 2016-01 | Financial Instrument - Recognition and Measurement of Financial Assets and Financial Liabilities | January 1, 2018 |
Accounting pronouncements issued but not known or reasonably estimable.yet adopted
In February 2016, the FASB issued ASU 2016-02 “Leases” (Topic 842), which supersedes the lease recognition requirements in ASC Topic 840, “Leases.” The core principal of the guidance is that an entity should recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. The standard will be effective for fiscal years beginning after December 15, 2018, including interim periods within such fiscal years. Early adoption is permitted. The guidance is to be applied using a modified retrospective transition method with the option to elect a package of practical expedients. The Company has established a project team to evaluate and implement the standard. The project team is currently evaluatingin the final stages of implementing the standard to meet the ASU’s reporting and disclosure requirements.
Upon the January 1, 2019 adoption of this standard, the consolidated balance sheet will include a right of use asset and liability related to certain operating lease arrangements. The Company has elected to apply the transition requirements at the January 1, 2019, effective date rather than at the beginning of the earliest comparative period presented. This approach allows for a cumulative effect adjustment in the period of adoption, and prior periods will not be restated. The Company will elect the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows us to carryforward the historical lease classification. The Company will make an accounting policy election to keep leases with an initial term of 12 months or less off of the balance sheet. The Company will recognize those lease payments in the consolidated statements of operations on a straight-line basis over the lease term. The Company estimates the impact of the additional lease assets and liabilities to range from $140 million to $190 million.
In January 2018, the FASB issued ASU 2018-02 “Income Statement - Reporting Comprehensive Income” (Topic 220) “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” (“AOCI”), which gives entities the option to reclassify certain tax effects, that the FASB refers to as having been stranded, resulting from the Tax Cuts and Jobs Act from AOCI to retained earnings. The new guidance may be applied retrospectively to each period in which the effect of the Tax Cuts and Jobs Act is recognized, or in the period of adoption. The Company must adopt this guidance for fiscal years beginning
after December 15, 2018 and interim periods within those fiscal years. The Company expects to record an adjustment to the accumulated deficit and accumulated other comprehensive loss financial statement line items in the range of $3.0 million to $4.0 million on the January 1, 2019 adoption of this accounting standard update on its internal processes, operating resultsthe ASU.
In August 2018, the FASB issued ASU 2018-13 “Fair Value Measurement” (Topic 820) - “Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” The ASU amends the requirements related to fair value disclosures to include new disclosure requirements and eliminates or modifies certain historic disclosures. The ASU amendment was part of the FASB’s disclosure framework project that is designed to increase the effectiveness of companies’ disclosures to the users of the financial reporting.statements and footnotes. This guidance will be effective for fiscal years beginning after December 15, 2019, including interim periods within such fiscal years. Early adoption is permitted. The impactCompany is currently determining the impact to the Company’s disclosure requirements, which will be reflected in the footnote disclosures subsequent to the ASU adoption on January 1, 2020.
In August 2018, the FASB issued ASU 2018-14 “Compensation - Retirement Benefits - Defined Benefit Plans - General” (Subtopic 715-20) - “Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans.” The ASU amends the requirements related to defined benefit pension and other postretirement plan disclosures to include new disclosure requirements and eliminates or clarifies certain historic disclosures. The ASU amendment was part of the FASB’s disclosure framework project that is designed to increase the effectiveness of companies’ disclosures to the users of the financial statements and footnotes. This guidance will be effective for fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company is currently determining the impact to the Company’s disclosure requirements, which will be reflected in the footnote disclosures subsequent to the ASU adoption on January 1, 2021.
The Company has not
knownyet adopted the following standards, none of which is expected to have a material impact to the financial statements or
reasonably estimable.financial statement disclosures:
|
| | |
| Standard | | Expected adoption date |
| 2018-18 | Collaborative Arrangements (Topic 808) - Clarifying the Interaction between Topic 808 and Topic 606 | January 1, 2020 |
| 2018-17 | Consolidation (Topic 810) - Targeted Improvements to Related Party Guidance for Variable Interest Entities | January 1, 2020 |
| 2018-16 | Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes | January 1, 2019 |
| 2018-15 | Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force) | January 1, 2020 |
| 2016-13 | Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments | January 1, 2020 |
Cash and cash equivalents
Cash and cash equivalents include
all highly-liquid investments with an original maturity
at the time of purchase of three months or less that are readily convertible into known amounts of cash. Cash at banks earn interest at floating rates based on daily bank deposit rates.
Trade accounts receivable, net
Trade accounts receivable are stated at the invoiced amount, net of an allowance for doubtful accounts.
In the normal course of business, the Company provides credit to its customers, performs ongoing credit evaluations of these customers and maintains reserves for potential credit losses. In certain situations, the Company will require up-front cash payment, collateral and/or personal guarantees based on the credit worthiness of the customer.
The allowance for doubtful accounts was
$14.4$11.2 million and
$11.8$13.0 million at December 31,
20152018 and
2014,2017, respectively. The allowance for doubtful accounts is estimated based on
prior experience, as well as an individual assessment of collectability based on factors that include current ability to pay, bankruptcy and payment
history.history, as well as a general reserve related to prior experience.
Inventories consist primarily of products purchased for resale and are stated at the lower of cost or market.net realizable value. Inventory cost is determined bybased on the weighted average cost method. Inventory cost includes purchase price from suppliersproducers net of any rebates received, inbound freight and handling, and direct labor and other costs incurred to blend and repackage product and excludes depreciation expense. The Company recognized $0.8$1.9 million, $0.8$3.3 million and $7.3$6.6 million of lower of cost or marketnet
realizable value adjustments to certain of its inventories in the
yearyears ended December 31,
2015, 20142018, 2017 and
2013,2016, respectively. The expense related to these adjustments is included in cost of goods sold
(exclusive of depreciation) in the consolidated statements of operations.
Supplier
The Company has arrangements with certain
suppliersproducers that provide
cash discounts when certain measures are achieved, generally related to purchasing volume. Volume rebates are generally earned and realized when the related products are purchased during the year. The reduction in cost of goods sold
(exclusive of depreciation) is recorded when the related products, on which the rebate was earned, are sold.
As the right to receive discount incentives is contingent on purchases during the entire year, the Company's accounting estimates for producer incentives is dependent on the ability to accurately forecast annual purchases. Discretionary rebates are recorded when received. The unpaid portion of rebates from
suppliersproducers is recorded in prepaid expenses and other current assets in the consolidated balance sheets.
Property, plant and equipment, net
Property, plant and equipment are carried at historical cost, net of accumulated depreciation. Expenditures for improvements that
increase asset valuesadd functionality and/or extend useful
liveslife are capitalized. The Company capitalizes interest costs on significant capital projects, as an increase to property, plant and equipment. Repair and maintenance costs are expensed as incurred. Depreciation is recorded on a straight-line basis over the estimated useful
liveslife of each asset from the time the asset is ready for its intended purpose, with consideration of
any expected residual
value.values. Depreciation expense is recorded to depreciation within the consolidated statement of operations.
The estimated useful lives of
property, plant
property and equipment are as follows:
| | |
| |
Buildings | | | 10-50 years | |
Main components of tank farms | | | 5-40 years | |
Containers | | | 2-15 years | |
Machinery and equipment | | | 5-20 years | |
Furniture, fixtures and others | | | 5-20 years | |
Information technology | | | 3-10 years | |
The Company evaluates the
useful life and carrying value of property, plant and equipment for impairment if an event occurs or circumstances change that would indicate the carrying value may not be recoverable. If an asset is tested for possible impairment, the Company compares the carrying amount of the related asset group to future undiscounted net cash flows expected to be generated by that asset group. If the carrying amount of the asset group is not recoverable on an undiscounted cash flow basis, an impairment loss is recognized to the extent that the carrying amount exceeds its estimated fair value.
Leasehold improvements are capitalized and amortized over the lesser of the term of the applicable lease, including renewable periods if reasonably assured, or the useful life of the improvement.
Assets under capital leases where ownership transfers to the Company at the end of the lease term or the lease agreement contains a bargain purchase option are depreciated over the useful life of the asset. For remaining assets under capital leases, the assets are depreciated over the lesser of the term of the applicable lease, including renewable periods if reasonably assured, or the useful life of the asset with consideration of any expected residual value.
Refer to “Note
11:12: Property, plant and equipment, net” for further information.
Goodwill and intangible assets
Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in business combinations.
Goodwill is tested for impairment annually on October 1, or between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Goodwill is tested for impairment at a reporting unit level using either a two-stepqualitative assessment, commonly referred to as a “step zero” test, or a quantitative assessment, commonly referred to as a “step one” test. Under the first stepFor each of the reporting units, the Company has the option to perform either the step zero or the step one test. The Company’s reporting units are identical to the identified four operating segments: USA, Canada, EMEA, and Rest of World.
The Company elected the step one test to evaluate goodwill for impairment for each of the reporting units during 2018 and the step zero test in 2017. The step one goodwill impairment test compares the Company’s estimate ofestimated fair value of each reporting unit is compared with itsthe reporting unit’s carrying value (including goodwill). If the fair value of the reporting unit is less than its carrying value, the reporting
unit will recognize an indication of goodwill impairment exists for the lesser of either the amount by which the reporting unit and the Company must perform step two of the impairment test (measurement). Step two of the impairment test, if necessary, would require the identification and estimation ofunit's carrying amount exceeds the fair value of the reporting unit or the reporting unit’s individual assets, including currently unrecognized intangible assets and liabilities in ordergoodwill carrying value.
The step zero goodwill impairment test utilizes qualitative factors to
calculatedetermine whether it is more likely than not that the
implied fair value of the reporting
unit’s goodwill. Under step two, an impairment lossunits is
recognizedless than its carrying value. Qualitative factors include: macroeconomic conditions; legal and regulatory environment; industry and market considerations; overall financial performance and cost factors to
the extent the carrying amount of the reporting unit’s goodwill exceeds the implied fair value.To determine fair value, the Company relies on two valuation techniques: the income approach and the market approach. The results of these two approaches are given equal weighting in determining the fair value of each reporting unit.
The income approach iswhether a valuation technique used to convert future expected cash flows to a present value. The income approach is dependent on several management assumptions, including estimates of future sales growth, gross margins, operating costs, terminal growth rates, capital expenditures, changes in working capital requirements and the weighted average cost of capital (discount rate). Expected cash flows used under the income approach are developed in conjunction with the Company’s budgeting and forecasting process and are based on the latest three-year projections approved by management. Based on the use of unobservable inputs, as described above, the fair value measurement is classified as Level 3 under the fair-value hierarchy.
The discount rates used in the income approach are an estimate, based in part, on the rate of return that a market participant would expect of each reporting unit. The discount rates are based on short-term interest rates and the yields of long-term corporate and government bonds, as well as the typical capital structure of companies in the industry. The discount rates used for each reporting unit may vary depending on the risk inherent in the cash flow projections, as well as the risk level that would be perceived by a market participant.
A terminal value is included at the end of the projection period used in the discounted cash flow analysis in order to reflect the remaining value that each reporting unit is expectedat risk for goodwill impairment. In the event a reporting unit fails the step zero goodwill impairment test, it is necessary to generate. The terminal value representsperform the present value subsequent to the last year of the projection period of cash flows into perpetuity. The terminal growth rate is a key assumption used in determining the terminal value as it represents the annual growth of all subsequent cash flows into perpetuity.
The market approach measures fair value based on prices generated by market transactions involving identical or comparable assets or liabilities. Under the market approach, the Company estimates fair value by applying earnings before interest, taxes, depreciation and amortization (“EBITDA”) market multiples of the Company itself and other comparable companies to each reporting unit. Comparable companies are identified based on a review of publicly traded companies in the Company’s line of business. The comparable companies were selected after consideration of several factors, including whether the companies are subject to similar financial and business risks.
step one goodwill impairment test.
Intangible assets consist of customer and
supplierproducer relationships and contracts, intellectual property trademarks, trade names, non-compete agreements and exclusive distribution rights. Intangible assets have finite lives and are amortized over their respective useful lives of 2 to 20 years. Amortization of intangible assets is based on the pattern in which the economic benefits of the intangible assets are consumed or otherwise used
upup; which is based on the undiscounted cash flows, or when not reliably determined, on a straight-line basis. Intangible assets are tested for impairment if an event occurs or circumstances change that indicates the carrying value may not be recoverable.
Refer to “Note 14: Impairment charges” for further information.
Customer relationship intangible assets represent the fair value allocated in purchase price accounting for the ongoing relationships with an existing customer base acquired in a business combination. The fair value of customer relationships is determined using the excess earnings methodology, an income based approach. The excess earnings methodology provides an estimate of the fair value of customer relationship assets by deducting economic costs, including operating expenses and contributory asset charges, from revenue expected to be generated by the
asset.assets. These estimated cash flows are then discounted to the present value equivalent.
Refer to “Note
12:13: Goodwill and intangible assets” for further information.
Short-term financing includes bank overdrafts and short-term lines of credit. Refer to “Note
14:16: Debt” for further information.
Long-term debt consists of loans with original maturities greater than one year. Fees paid in connection with the execution of line-of-credit arrangements are included in other assets and fees paid in connection with the execution of a recognized debt liability as a direct deduction from the carrying amount of that debt liability. These fees are amortized using the effective interest method over the term of the related debt or expiration of the line-of-credit arrangement. Refer to “Note
14:16: Debt” for further information.
The Company is subject to income taxes in the US and numerous foreign jurisdictions. Significant judgment in the forecasting of taxable income using historical and projected future operating results is required in determining the Company’s provision for income taxes and the related assets and liabilities. The provision for income taxes includes income taxes paid, currently payable or receivable and those deferred.
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the “Tax Act”). The legislation significantly changes US tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. The Tax Act permanently reduces the US corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of US GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. The SAB 118 measurement period ends when a company has obtained, prepared, and analyzed the information needed to complete the accounting requirements under ASC 740, "Income Taxes", but no later than one year from the enactment date of December 22, 2017. In 2017 and the first nine months of 2018, the Company recorded provisional amounts for certain enactment-date effects of the Act by applying the guidance in SAB 118 because the Company had not yet completed its enactment-date accounting for these effects. At December 31, 2018, the Company has now completed its accounting for all the enactment-date income tax effects of the Act. As further discussed in “Note 7: Income taxes”, during 2018 the Company recognized adjustments of $6.8 million to the provisional amounts recorded at December 31, 2017 and included these adjustments as a component of income tax expense from continuing operations.
Effective in 2018, the Company is subject to global intangible low tax income (“GILTI”) which is a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. Due to the complexity of the GILTI tax rules, companies are allowed to make an accounting policy choice of either (1) treating taxes due on future US inclusions in taxable income related to GILTI as a current-period expense when incurred or (2) factoring such amounts into a company’s measurement of its deferred
taxes. The Company is electing to treat taxes due on future US inclusions in taxable income related to GILTI as a current-period expense when incurred and, therefore, there is no impact to the deferred tax rate in 2018.
In the event that the actual outcome of future tax consequences differs from the Company’s estimates and assumptions due to changes or future events such as tax legislation, geographic mix of the earnings, completion of tax audits or earnings repatriation plans, the resulting change to the provision for income taxes could have a material effect on the consolidated statement of operations and consolidated balance
sheet.sheets.
Deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect
when the differences reverse. Deferred tax assets are also recognized for the estimated future effects of tax loss carryforwards. The effect on deferred taxes of changes in tax rates is recognized in the period in which the revised tax rate is enacted.
The Company records valuation allowances to reduce deferred tax assets to the extent it believes it is more likely than not that a portion of such assets will not be realized. In making such determinations, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and the ability to carry back losses to prior years. Realization is dependent upon generating sufficient taxable income prior to expiration of tax attribute carryforwards. Although realization is not assured, management believes it is more likely than not that all of the deferred tax assets will be realized, or if not, a valuation allowance has been recorded. The Company continues to monitor the value of its deferred tax assets, as the amount of the deferred tax assets considered realizable, could be reduced in the near term if estimates of future taxable income during the carryforward periods are reduced, or current tax planning strategies are not implemented.
US GAAP prescribes a recognition threshold and measurement attribute for the accounting and financial statement disclosure of tax positions taken or expected to be taken in a tax return. The evaluation of a tax position is a two-step process. The first step requires the Company to determine whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position. The second step requires the Company to recognize in the financial statements each tax position that meets the more likely than not criteria, measured at the amount of benefit that has a greater than fifty percent likelihood of being realized.
The Company recognizes interest and penalties related to unrecognized tax benefits within interest expense and warehousing, selling and administrative, respectively, in the accompanying consolidated statements of operations. Accrued interest and penalties are included within either other accrued expenses or other long-term liabilities in the consolidated balance sheets.
Refer to “Note 7: Income taxes” for further information.
Pension and other postretirement benefit plans
The Company sponsors several defined benefit and defined contribution plans. The Company’s contributions to defined contribution plans are charged to income during the period of the employee’s service.
The benefit obligation and cost of defined benefit pension plans and other postretirement benefits are calculated based
uponon actuarial valuations, which involves making assumptions about discount rates, expected rates of return on assets, future salary increases, future health care costs, mortality rates and future pension increases. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty.
The projected benefit obligation is calculated separately for each plan based on the estimated future benefit employees have earned in return for their service based on the employee’s expected date of retirement. Those benefits are discounted to determine the present value of the benefit obligations using the projected unit-credit method. A liability is recognized on the balance sheet for each plan
with ato the extent the projected benefit obligation
is in excess of
the fair value of plan
assets at fair value.assets. An asset is recorded for each plan
withto the extent the fair value of plan assets
at fair valueis in excess of the projected benefit obligation.
The Company recognizes
the actuarial gains or losses,
that arise during the period within other operating expenses, net in the consolidated statement of operations. Thisknown as “mark to market”
adjustment is recognizedadjustments, at each December 31.
This adjustmentThe mark to market adjustments primarily
includesinclude gains and losses resulting from changes in discount rates and the difference between the expected rate of return on plan assets and actual plan asset returns.
Curtailment and settlement gains and losses are recognized in other operating expenses, net in the statement of operations.Curtailment losses must be recognized in the statement of operations when it is probable that a curtailment will occur and its effects are reasonably estimable. However, a curtailment gain is recognized in the statement of operations when the related employees terminate or the plan suspension or amendment is adopted, whichever is applicable. Settlement gains and losses are recognized in the period in which the settlement occurs, regardless of how probable it is at an earlier date that the settlement will occur and despite the fact that the probable gain or loss may be reasonably estimable before the settlement actually takes place. The Company recognizes prior service costs or credits in other comprehensive loss during the period of occurrence, and subsequently amortizes these items over the remaining service period as components of net periodic benefit cost within other expense, net in the consolidated statement of operations.
Service costs are recognized within warehousing, selling, and administrative expenses in the consolidated statement of operations. All other components of net periodic benefit cost are classified as
warehousing, selling and administrative expenses in the consolidated statements of operations. The Company recognizes prior service costs or credits that arise during the period in other
comprehensive loss, and amortizes these items in subsequent periods as components of net periodic benefit cost.expense, net.
The fair value of plan assets is used to calculate the expected return on assets component of the net periodic benefit cost.
Refer to “Note
8:9: Employee benefit plans” for further information.
All leases that are determined not to meet any of the capital lease criteria are classified as operating leases. Operating lease
paymentscosts are recognized as an expense in the statement of operations on a straight-line basis over the lease term.
The Company leases certain vehicles and equipment that qualify for capital lease classification. Assets under capital leases are carried at historical cost, net of accumulated depreciation and are included in property, plant and equipment, net in the consolidated balance
sheet.sheets. Depreciation expense related to the capital lease assets is included in depreciation expense in the consolidated statement of operations. Refer to “Note
11:12: Property, plant and equipment, net” for further information.
The present value of minimum lease payments under a capital lease is included in current portion of long-term debt and long-term debt in the consolidated balance
sheet.sheets. The capital lease obligation is
amortizedaccreted utilizing the effective interest method and interest expense related to the capital lease obligation is included in interest expense in the consolidated statement of operations. Refer to “Note
18:20: Commitments and contingencies” for further information.
A loss contingency is recorded if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. The Company evaluates, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of the ultimate loss. Changes in these factors and related estimates could materially affect the Company’s financial position and results of operations. Legal expenses are recorded as legal services are provided. Refer to “Note
18:20: Commitments and contingencies” for further information.
Environmental liabilities
Environmental contingencies are recognized for probable and reasonably estimable losses associated with environmental remediation. Incremental direct costs of the investigation, remediation effort and post-remediation monitoring are included in the estimated environmental contingencies. Expected cash outflows related to environmental remediation for the next 12 months and amounts for which the timing is uncertain are reported as current within other accrued expenses in the consolidated balance sheets. The long-term portion of environmental liabilities is reported within other long-term liabilities in the consolidated balance sheets on an undiscounted basis, except for sites for which the amount and timing of future cash payments are fixed or reliably determinable. Environmental remediation expenses are included within warehousing, selling and administrative
expenses in the consolidated statements of operations, unless associated with disposed operations, in which case such expenses are included in other operating expenses, net.
Environmental costs are capitalized if the costs extend the life of the property, increase its capacity and/or mitigate or prevent contamination from future operations.
Refer to “Note
18:20: Commitments and contingencies” for further information.
Revenue recognition
The Company recognizes net sales
Revenue is recognized when
persuasive evidenceperformance obligations under the terms of
an arrangement exists, delivery of products has occurredthe contract are satisfied, which generally occurs when goods are transferred to a customer or
as services are provided to
customers,a customer. Revenue is measured as the
sales price is fixedamount of consideration the Company expects to receive in exchange for transferring goods or
determinable and collectability is reasonably assured.providing services to customers. Net sales includes product sales, billings for freight and handling charges and fees earned for services provided, net of
any discounts,
expected returns, customer rebates,
variable consideration and sales or other revenue-based
tax.taxes. The Company recognizes product sales and billings for freight and handling charges when products are considered delivered to the customer under the terms of the sale.
Fee revenues are recognized when services are completed.The Company’s sales
Refer to
customers in the agriculture end-market, principally in Canada, often provide“Note 3: Revenue” for
a form of inventory protection through credit and re-bill as well as understandings pursuant to which certain price changes from chemical producers may be passed through to the customer. These arrangements require us to make estimates of potential returns of unused chemicals as well as revenue deferral to the extent the sales price is not considered determinable. The estimates used to determine the amount of revenue associated with product likely to be returned are based on past experience adjusted for any current market conditions.further information.
Foreign currency translation
The functional currency of the Company’s subsidiaries is the local currency, unless the primary economic environment requires the use of another currency. Transactions denominated in foreign currencies are
translated intorecorded in the functional currency of each subsidiary at the rate of exchange on the date of
transaction.the transactions. Monetary assets and liabilities denominated in foreign currencies are
translatedremeasured into the functional currency of each subsidiary at period-end exchange rates. These foreign currency transaction gains and losses are recognized in other (expense) income, net in the consolidated statements of operations.
Foreign currency gains and losses relating to intercompany borrowings that are considered a part of the Company’s investment in a foreign subsidiary are reflected as a component of currency translation within accumulated other comprehensive loss in stockholders’ equity.
In the years ended December 31, 2015, 2014 and 2013,The following table provides information pertaining to total foreign currency
(losses) gains
or losses related to such intercompany
borrowings were $(11.2) million, $(7.1) million and $7.5 million, respectively.borrowings:
|
| | | | |
| (in millions) | | Foreign Currency Gains / (Losses) |
| Year ended December 31, 2018 | | $ | — |
|
| Year ended December 31, 2017 | | 4.8 |
|
| Year ended December 31, 2016 | | (34.8 | ) |
Assets and liabilities of foreign subsidiaries are translated into US dollars at period-end exchange rates. Income and expense accounts of foreign subsidiaries are translated
into US dollars at the average exchange rates for the period. The net exchange gains and losses arising on this translation are reflected as a component of currency translation within accumulated other comprehensive loss in stockholders’ equity.
Refer to “Note 11: Accumulated other comprehensive loss” for further information.
Stock-based compensation plans
The Company measures the total amount of employee stock-based compensation expense for a grant based on the grant date fair value of each award and recognizes the stock-based compensation expense
for each separately vesting tranche of an award on a straight-line basis over the requisite service
period for each separately vesting tranche of an award.period. Stock-based compensation is based on
awards expectedunvested outstanding awards. The Company has elected to
vest and, therefore, has been reduced by estimated forfeitures.recognize forfeitures when realized. Stock-based compensation expense is classified within other operating expenses, net in the consolidated statements of operations. Refer to “Note
9:10: Stock-based compensation” for further information.
The Company does not hold any treasury shares, as all shares of common stock are retired upon repurchase. Furthermore, when share repurchases occur and the common stock is retired, the excess of
the repurchase price over par is allocated between additional paid-in capital and accumulated deficit such that the portion allocated to additional paid-in-capital
beingis limited to the additional paid-in-capital created from that particular share issuance (i.e. the book value of those shares) plus any resulting leftover additional paid-in-capital from previous share repurchases in instances where the repurchase price was lower than the original issuance price.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. US GAAP specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs have created the following fair-value hierarchy:
|
| | |
| Level 1 | | Quoted prices foridentical instruments in active markets. |
| |
Level 2
| | |
| Level 2 | Quoted prices forsimilar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuation in which all significant inputs and significant value drivers are observable in active markets. |
| |
Level 3
| | |
| Level 3 | Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers areunobservable. |
When available, the Company uses quoted market prices to determine fair value and classifies such items as Level 1. In cases where a market price is not available, the Company will make use of observable market-based inputs to calculate fair value, in which case the items are classified as Level 2. If quoted or observable market prices are not available, fair value is based uponon internally developed valuation techniques that use, where possible, current market-based or independently sourced market
information. Items valued using internally generated valuation techniques are classified according to the lowest level input that is significant to the valuation, and may be classified as Level 3 even though there may be significant inputs that are readily observable. Refer to “Note
15:17: Fair value measurements” for further information.
Certain financial instruments, such as derivative financial instruments, are required to be measured at fair value on a recurring basis. Other financial instruments, such as the Company’s own debt, are not required to be measured at fair value on a recurring basis. The Company elected to not make an irrevocable election to measure financial instruments and certain other items at fair value.
The Company uses derivative financial instruments, such as foreign currency contracts, interest rate swaps and interest rate caps, to manage its risks associated with foreign currency and interest rate fluctuations. Derivative financial instruments are recorded in either
prepaidsprepaid expenses and other current assets, other assets, other accrued expenses or other long-term liabilities in the
condensed consolidated balance sheets at fair value. The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. The fair value of interest rate swaps is determined by estimating the net present value of amounts to be paid under the agreement offset by the net present value of the expected cash inflows based on market rates and associated yield curves. For derivative contracts with the same counterparty where the Company has a master netting arrangement with the counterparty, the fair value of the asset/liability is presented on a net basis within the consolidated balance sheets. Refer to “Note
15:17: Fair value measurements” for additional information relating to the gross and net balances of derivative contracts. Changes in the fair value of derivative
financial instruments are recognized in the consolidated statements of operations, unless specific hedge accounting criteria are met. Cash flows associated with derivative financial instruments are recognized in the operating section of the consolidated statements of cash flows.
For the purpose of hedge accounting, derivatives are classified as either fair value hedges, where the instrument hedges the exposure to changes in the fair value of a recognized asset or
liability,liability; or cash flow hedges, where the instrument hedges the exposure to variability in cash flows that are either attributable to a particular risk associated with a recognized asset or liability or a highly probable forecasted transaction. Gains and losses on derivatives that meet the conditions for fair value hedge accounting are recognized immediately in the consolidated statements of operations, along with the offsetting gain or loss on the related hedged item. For derivatives that meet the conditions for cash flow hedge accounting, the effective
and ineffective portion of the gain or loss on the derivative is recognized in accumulated other comprehensive loss on the consolidated balance
sheet and the ineffective portion is recognized immediately in other (expense) income, net within the consolidated statement of operations.sheets. Amounts in accumulated other comprehensive loss are reclassified to the consolidated statement of operations in the same period in which the hedged transactions affect earnings.
For both fair value hedges and cash flow hedges, the gains and losses related to the derivative instruments are recognized within the same financial statement line item within the consolidated statement of operations as the gains and losses associated with the hedged items.
For derivative instruments designated as hedges, the Company formally documents the hedging relationship to the hedged item and its risk management strategy. The Company assesses the effectiveness of its hedging instruments at inception and on an ongoing basis. Hedge accounting is discontinued when the hedging instrument is sold, expired, terminated or exercised, or no longer qualifies for hedge accounting.
Refer to “Note
16:18: Derivatives” for further information.
Basic earnings per share is based on the weighted average number of common shares outstanding during each period, which excludes nonvestednon-vested restricted stock units, non-vested restricted stock and stock options. Diluted earnings per share is based on the weighted average number of common shares and dilutive common share equivalents outstanding during each period. The Company reflects common share equivalents relating to stock options, and nonvestednon-vested restricted stock and non-vested restricted stock units in its computation of diluted weighted average shares outstanding, unless the effect of inclusion is anti-dilutive. The effect of dilutive securities is calculated using the treasury stock method.
The Company has issued certain restricted stock awards, which are unvested stock-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents. These restricted shares are considered participating securities. Accordingly, the Company calculates net income applicable to common stock using the two-class method, whereby net income is allocated between common stock and participating securities.
Refer to “Note
3:8: Earnings per share” for further information.
3. Earnings per shareRevenue
On January 1, 2018, the Company adopted the new revenue standard using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018
are presented under the new revenue standard, while prior period amounts are not adjusted and continue to be reported in accordance with historic accounting under ASC Topic 605. The Company recorded a net decrease to the opening accumulated deficit of $0.8 million as of January 1, 2018 due to the cumulative impact of adopting the new revenue standard.
The Company disaggregates revenues from contracts with customers by both geographic segments and revenue contract types. Geographic reportable segmentation is pertinent to understanding Univar’s revenues, as it aligns to how the Company reviews the financial performance of its operations. Revenue contract types are differentiated by the type of good or service Univar offers customers, since the contractual terms necessary for revenue recognition are unique to each of the identified revenue contract types.
The following table presentsdisaggregates external customer net sales by major stream:
|
| | | | | | | | | | | | | | | | | | | | |
| (in millions) | | USA | | Canada | | EMEA | | Rest of World | | Consolidated |
| | | Year Ended December 31, 2018 |
| Chemical Distribution | | $ | 4,775.2 |
| | $ | 877.6 |
| | $ | 1,974.4 |
| | $ | 383.8 |
| | $ | 8,011.0 |
|
| Crop Sciences | | — |
| | 381.6 |
| | — |
| | — |
| | 381.6 |
|
| Services | | 185.8 |
| | 43.1 |
| | 1.3 |
| | 9.7 |
| | 239.9 |
|
| Total external customer net sales | | $ | 4,961.0 |
| | $ | 1,302.3 |
| | $ | 1,975.7 |
| | $ | 393.5 |
| | $ | 8,632.5 |
|
Revenue is recognized when performance obligations under the
basicterms of the contract are satisfied, which generally occurs when goods or services are transferred to a customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. Payment terms and
diluted earnings per share computations: | | | | | | | | | | | | |
| | | Year ended December 31, | |
(in millions, except per share data) | | 2015 | | | 2014 | | | 2013 | |
Basic: | | | | | | | | | | | | |
Net income (loss) | | $ | 16.5 | | | $ | (20.1 | ) | | $ | (82.3 | ) |
Weighted average common shares outstanding | | | 119.6 | | | | 99.7 | | | | 99.3 | |
| | | | | | | | | | | | |
Basic income (loss) per common share | | $ | 0.14 | | | $ | (0.20 | ) | | $ | (0.83 | ) |
| | | | | | | | | | | | |
Diluted: | | | | | | | | | | | | |
Net income (loss) | | $ | 16.5 | | | $ | (20.1 | ) | | $ | (82.3 | ) |
Weighted average common shares outstanding | | | 119.6 | | | | 99.7 | | | | 99.3 | |
Effect of dilutive securities: | | | | | | | | | | | | |
Stock compensation plans(1) | | | 0.5 | | | | — | | | | — | |
| | | | | | | | | | | | |
Weighted average common shares outstanding – diluted | | | 120.1 | | | | 99.7 | | | | 99.3 | |
| | | | | | | | | | | | |
Diluted income (loss) per common share | | $ | 0.14 | | | $ | (0.20 | ) | | $ | (0.83 | ) |
| | | | | | | | | | | | |
(1) | Stock options to purchase approximately 2.0 million, 5.0 million and 5.2 million shares of common stock and restricted stock of 0.0 million, 0.4 million and 0.4 million were outstanding during the years ended December 31, 2015, 2014 and 2013, respectively, but were not included in the calculation of diluted income (loss) per share as the impact of these stock options and restricted stock would have been anti-dilutive. |
conditions vary by regions where the Company performs business and contract types. The term between invoicing and when payment is due is generally one year or less. As of December 31, 2018, none of the Company’s contracts contained a significant financing component.
Revenue for bill-and-hold arrangements is recognized if the Company has a substantive customer request, the materials are properly segregated and designated as belonging to the customer, materials are ready to be transferred to the customer and Univar is unable to direct the materials to service another customer. The Company has certain contractual relationships designated as an agency relationship, which requires the Company to recognize revenues on a net basis.
Chemical Distribution
The Company generates revenue when control for products is transferred to customers. Certain customers may receive discounts off the transaction price, primarily due to price and volume incentives, or return product for non-conformance, which are accounted for as variable consideration. The Company estimates the change in the transaction price that is expected to be provided to customers based on historical experience, which impacts revenues recognized.
Crop Sciences
The Company generates revenue when control for products is transferred to customers. The amount of consideration recorded varies due to price movements and rights granted to customers to return product. Customer payment terms often extend through a growing season, which may be up to six months.
Transaction prices may move during an agricultural growing season and changes may affect the amount of consideration the Company will receive. Transaction prices are also affected by special offers or volume discounts. The Company estimates the expected changes in the transaction price based on the combination of historical experience and the impact of weather on the current agriculture season. The adjustments to the transaction price are recognized as variable consideration and impacts revenues recognized.
When customers are provided rights to return eligible products, the Company estimates the expected returns based on the combination of historical experience and the impact of weather on the current agriculture season, which affects the revenues recognized.
Services
The Company generates revenue from services as they are performed and economic value is transferred to customers. Univar's services provided to customers are primarily related to waste management services and warehousing services. Waste management services is primarily related to plant maintenance, environmental contracting, environmental consulting and the collection and disposal of both hazardous and non-hazardous waste products. Warehousing services is primarily inclusive of blending, warehousing, logistics and distribution services for customers. Waste management and warehousing services are recognized over time as the performance obligations are satisfied.
Costs to obtain or fulfill contracts with customers
Univar expenses costs to obtain contracts when the contract term and benefit period is expected to be one year or less. Contract costs where the contract term and benefit period is expected to be more than a year are capitalized and amortized over the performance obligation period. Capitalized contract costs of $1.2 million and $5.9 million are included in other current assets and other assets as of December 31, 2018.
Deferred revenue
Deferred revenues are recognized as a contract liability when customers provide Univar with consideration prior to the Company satisfying a performance obligation. The following table provides information pertaining to the deferred revenue balance and account activity:
|
| | | | |
| (in millions) | | |
| Deferred revenue as of January 1, 2018 | | $ | 100.9 |
|
| Deferred revenue as of December 31, 2018 | | 45.6 |
|
| Revenue recognized that was included in the deferred revenue balance at the beginning of the period | | 100.3 |
|
The deferred revenue balances are all expected to have a duration of one year or less and are recorded within the other accrued expenses line item of the consolidated balance sheet.
4. Other operating expenses, net Other operating expenses, net consisted of the following items:
| | | | | | | | | | | | |
| | | Year ended December 31, | |
(in millions) | | 2015 | | | 2014 | | | 2013 | |
Pension mark to market loss (gain). | | $ | 21.1 | | | $ | 117.8 | | | $ | (73.5 | ) |
Pension curtailment and settlement gains | | | (4.0 | ) | | | — | | | | — | |
Acquisition and integration related expenses | | | 7.1 | | | | 3.7 | | | | 5.0 | |
Contingent consideration fair value adjustments | | | — | | | | (1.0 | ) | | | (24.7 | ) |
Stock-based compensation expense | | | 7.5 | | | | 12.1 | | | | 15.1 | |
Redundancy and restructuring | | | 33.8 | | | | 46.2 | | | | 65.8 | |
Advisory fees to CVC and CD&R(1) | | | 2.8 | | | | 5.9 | | | | 5.2 | |
Contract termination fee to CVC and CD&R | | | 26.2 | | | | — | | | | — | |
French penalty(2) | | | — | | | | — | | | | (4.8 | ) |
Other | | | 11.6 | | | | 12.4 | | | | 23.9 | |
| | | | | | | | | | | | |
Total other operating expenses, net | | $ | 106.1 | | | $ | 197.1 | | | $ | 12.0 | |
| | | | | | | | | | | | |
(1) | Significant stockholders are CVC Capital Partners (“CVC”) and Clayton, Dubilier & Rice, LLC (“CD&R”). |
(2) | The Company’s French penalty accrual of $7.7 million at December 31, 2011 was increased during 2012 and then reduced to $0.0 million at December 31, 2013 after the fine of $19.91 million (€15.18 million) was paid. Refer to “Note 18: Commitments and contingencies” for further information on the French penalty. |
|
| | | | | | | | | | | |
| | Year ended December 31, |
| (in millions) | 2018 | | 2017 | | 2016 |
| Stock-based compensation expense | $ | 20.7 |
| | $ | 19.7 |
| | $ | 10.4 |
|
| Business transformation costs | — |
| | 23.4 |
| | 5.4 |
|
| Restructuring charges | 4.8 |
| | 5.5 |
| | 6.5 |
|
| Other employee termination costs | 16.4 |
| | 8.1 |
| | 1.5 |
|
| Loss (gain) on sale of property, plant and equipment and other assets | 2.0 |
| | (11.3 | ) | | (0.7 | ) |
| Acquisition and integration related expenses | 22.0 |
| | 3.1 |
| | 5.5 |
|
| Other | 7.6 |
| | 6.9 |
| | 8.6 |
|
| Total other operating expenses, net | $ | 73.5 |
| | $ | 55.4 |
| | $ | 37.2 |
|
5. Redundancy and restructuringRedundancy and restructuringRestructuring charges
Restructuring charges relate to the implementation of several regional strategic initiatives aimed at streamlining the Company’s cost structure and improving its
operations primarily within the USA and EMEA operating segments.operations. These actions primarily resulted in workforce reductions, lease termination costs and other facility rationalization costs.
The redundancy and restructuringRestructuring charges are
includedrecorded in other operating expenses, net
withinin the consolidated statement of operations.
2018 Restructuring
During the year ended December 31, 2018, the Company recorded restructuring charges of $3.2 million in USA, consisting of $3.1 million in employee termination costs and $0.1 million in other exit costs for employees impacted by a decision to consolidate departments. Additionally, the Company recorded restructuring charges of $0.9 million in Other, relating to employee termination costs. The Company expects to incur approximately $4.7 million of additional employee termination and other exit costs over the next two years and expects this program to be substantially completed by 2020.
Also during the year ended December 31, 2018, the Company recorded restructuring charges of $0.9 million in EMEA relating to employee termination costs. The Company does not expect to incur material costs in the future related to this restructuring program. The actions associated with this program are expected to be completed by the end of 2019.
During the year ended December 31, 2018, the Company recorded restructuring charges of $0.7 million for the Rest of World segment, consisting of $0.4 million in employee termination costs, $0.2 million in facility exit costs and $0.1 million in other exit costs. The actions associated with this program were completed as of December 31, 2018.
The cost information above does not contain any estimates for programs that may be developed and implemented in future periods.
2014 to 2017 Restructuring
Between 2014 through 2017, management implemented several regional strategic initiatives aimed at streamlining the Company’s cost structure and improving its operations. Total cumulative charges recorded through December 31, 2018 for USA related to these restructuring programs were $39.5 million, which included $16.5 million in employee termination costs, $21.3 million in facility exit costs, and $1.7 million in other exit costs. The Company did not record restructuring charges for the programs during 2018. The actions associated with the restructuring programs were completed as of June 30, 2018, although administratively cash payments will be made into the future. During the year ended December 31, 2018, the Company reduced its estimate in the amount of $0.9 million within facility exit costs relating to a favorable lease buyout for USA.
Total cumulative charges recorded through December 31, 2018 for Canada were $5.7 million related to employee termination costs. There were no restructuring charges recorded for the programs during 2018. As of June 30, 2018, the actions associated with the restructuring programs were completed.
Total cumulative charges recorded through December 31, 2018 for EMEA were $32.8 million, which included $22.5 million in employee termination costs, $3.7 million in facility exit costs, and $6.6 million in other exit costs. During 2018, the Company did not record restructuring charges for the programs. The actions associated with the restructuring programs were completed as of June 30, 2018.
Total cumulative charges recorded through December 31, 2018 for ROW were $6.4 million, which included $6.2 million in employee termination costs and $0.2 million in facility exit costs. The Company did not record restructuring charges for these programs during 2018. As of June 30, 2018, the Company completed this program.
Total cumulative charges recorded through December 31, 2018 for Other were $6.6 million, which included $5.8 million in employee termination costs and $0.8 million in other exit costs. There were no restructuring charges recorded for these programs during 2018. As of June 30, 2018, the Company completed this program.
The following tables summarize activity related to accrued liabilities associated with redundancy and restructuring:
| | | | | | | | | | | | | | | | | | | | |
(in millions) | | January 1,
2015 | | | Charge to
earnings | | | Cash paid | | | Non-cash
and other | | | December 31,
2015 | |
Employee termination costs | | $ | 27.8 | | | $ | 28.3 | | | $ | (22.9 | ) | | $ | (2.2 | ) | | $ | 31.0 | |
Facility exit costs | | | 20.4 | | | | 2.4 | | | | (7.2 | ) | | | (0.1 | ) | | | 15.5 | |
Other exit costs | | | 0.3 | | | | 3.0 | | | | (3.2 | ) | | | — | | | | 0.1 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 48.5 | | | $ | 33.7 | | | $ | (33.3 | ) | | $ | (2.3 | ) | | $ | 46.6 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
(in millions) | | January 1,
2014 | | | Charge to
earnings | | | Cash paid | | | Non-cash
and other | | | December 31,
2014 | |
Employee termination costs | | $ | 26.7 | | | $ | 25.1 | | | $ | (21.7 | ) | | $ | (2.3 | ) | | $ | 27.8 | |
Facility exit costs(1) | | | 7.8 | | | | 14.9 | | | | (2.1 | ) | | | (0.2 | ) | | | 20.4 | |
Other exit costs | | | 0.3 | | | | 6.2 | | | | (5.9 | ) | | | (0.3 | ) | | | 0.3 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 34.8 | | | $ | 46.2 | | | $ | (29.7 | ) | | $ | (2.8 | ) | | $ | 48.5 | |
| | | | | | | | | | | | | | | | | | | | |
(1) | During the year ended December 31, 2014, facility exit costs were revised by $8.8 million due to changes in estimated sub-lease income and were included in other operating expenses, net in the consolidated statement of operations. |
Redundancy and restructuring
|
| | | | | | | | | | | | | | | | | | | |
| (in millions) | January 1,
2018 | | Charge to earnings | | Cash paid | | Non-cash and other | | December 31, 2018 |
| Employee termination costs | $ | 3.0 |
| | $ | 5.3 |
| | $ | (3.4 | ) | | $ | (0.7 | ) | | $ | 4.2 |
|
| Facility exit costs | 10.2 |
| | (0.7 | ) | | (4.4 | ) | | (0.1 | ) | | 5.0 |
|
| Other exit costs | (0.5 | ) | | 0.2 |
| | (0.1 | ) | | 0.6 |
| | 0.2 |
|
| Total | $ | 12.7 |
| | $ | 4.8 |
| | $ | (7.9 | ) | | $ | (0.2 | ) | | $ | 9.4 |
|
|
| | | | | | | | | | | | | | | | | | | |
| (in millions) | January 1,
2017 | | Charge to earnings | | Cash paid | | Non-cash and other | | December 31, 2017 |
| Employee termination costs | $ | 6.9 |
| | $ | 2.9 |
| | $ | (7.2 | ) | | $ | 0.4 |
| | $ | 3.0 |
|
| Facility exit costs | 13.2 |
| | 2.8 |
| | (5.5 | ) | | (0.3 | ) | | 10.2 |
|
| Other exit costs | — |
| | (0.2 | ) | | (0.3 | ) | | — |
| | (0.5 | ) |
| Total | $ | 20.1 |
| | $ | 5.5 |
| | $ | (13.0 | ) | | $ | 0.1 |
| | $ | 12.7 |
|
Restructuring liabilities of
$34.6$5.9 million and
$32.3$5.8 million were classified as current in other accrued expenses in the consolidated balance
sheetsheets as of December 31,
20152018 and
2014,2017, respectively. The long-term portion of
redundancy and restructuring liabilities of
$12.1$3.5 million and
$16.2$6.9 million were recorded in other long-term liabilities in the consolidated balance
sheetsheets as of December 31,
20152018 and
2014,2017, respectively and primarily consists of facility exit costs that are expected to be paid within the next five years.
While the Company believes the recorded
redundancy and restructuring liabilities are adequate, revisions to current estimates may be recorded in future periods based on new information as it becomes available.
6. Other (expense) income,expense, net Other
(expense) income,expense, net consisted of the following
gains (losses)
: | | | | | | | | | | | | |
| | | Year ended December 31, | |
(in millions) | | 2015 | | | 2014 | | | 2013 | |
Foreign currency transactions | | $ | (0.8 | ) | | $ | (0.6 | ) | | $ | (0.9 | ) |
Foreign currency denominated loans revaluation | | | 8.9 | | | | 8.3 | | | | (10.1 | ) |
Undesignated foreign currency derivative instruments(1) | | | (4.8 | ) | | | (3.9 | ) | | | (0.2 | ) |
Undesignated interest rate swap contracts(1) | | | 2.0 | | | | — | | | | — | |
Ineffective portion of cash flow hedges(1) | | | (0.4 | ) | | | 0.2 | | | | (0.2 | ) |
Loss due to discontinuance of cash flow hedges(1) | | | (7.5 | ) | | | — | | | | — | |
Debt refinancing costs(2) | | | (16.5 | ) | | | — | | | | (6.2 | ) |
Other | | | (4.1 | ) | | | (2.9 | ) | | | — | |
| | | | | | | | | | | | |
Total other (expense) income, net | | $ | (23.2 | ) | | $ | 1.1 | | | $ | (17.6 | ) |
| | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | Year ended December 31, |
| (in millions) | 2018 | | 2017 | | 2016 |
Pension mark to market loss (1)(2) | $ | (34.2 | ) | | $ | (3.8 | ) | | $ | (68.6 | ) |
Pension curtailment and settlement gains (1) | — |
| | 9.7 |
| | 1.3 |
|
Non-operating retirement benefits (1) | 11.0 |
| | 9.9 |
| | 15.3 |
|
| Foreign currency transactions | (6.7 | ) | | (4.6 | ) | | (0.6 | ) |
| Foreign currency denominated loans revaluation | (0.8 | ) | | (17.9 | ) | | (13.7 | ) |
Undesignated foreign currency derivative instruments (3) | 1.1 |
| | 0.3 |
| | (1.8 | ) |
Undesignated interest rate swap contracts (3) | — |
| | (2.2 | ) | | 10.1 |
|
Debt refinancing costs (4) | — |
| | (5.3 | ) | | — |
|
| Other | (3.1 | ) | | (3.5 | ) | | (0.1 | ) |
| Total other expense, net | $ | (32.7 | ) | | $ | (17.4 | ) | | $ | (58.1 | ) |
| | | | | | |
| |
| (1) | Refer to “Note 16:9: Employee benefit plans” for more information. |
| |
| (2) | Includes mark to market loss related to defined benefit pension plans and other postretirement benefit plan. |
| |
| (3) | Refer to “Note 18: Derivatives” for more information. |
(2) | |
| (4) | Refer to “Note 14:16: Debt” for more information. |
Current income tax expense represents the amounts expected to be reported on the Company’s income tax returns, and deferred tax expense or benefit represents the change in net deferred tax assets and liabilities. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities as measured by the enacted tax rates that will be in effect when these differences reverse. Valuation allowances are recorded as appropriate to reduce deferred tax assets to the amount considered likely to be realized.
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the “Tax Act”). The legislation significantly changes US tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. The Tax Act permanently reduces the US corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of US GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. The SAB 118 measurement period ends when a company has obtained, prepared, and analyzed the information needed to complete the accounting requirements under ASC 740, "Income Taxes", but no later than one year from the enactment date of December 22, 2017. In 2017 and the first nine months of 2018, the Company recorded provisional amounts for certain enactment-date effects of the Act by applying the guidance in SAB 118 because the Company had not yet completed its enactment-date accounting for these effects. At December 31, 2018, the Company has now completed its accounting for all the enactment-date income tax effects of the Act. As further discussed below, during 2018 the Company recognized adjustments of $6.8 million related to the provisional amounts recorded at December 31, 2017 and included these adjustments as a component of income tax expense from continuing operations. The main components of the SAB 118 adjustment of $6.8 million are increases due to additional transition tax of $13.0 million and deemed dividends of $9.2 million (tax) offset by a benefit for additional foreign tax credits utilized of $1.3 million (increase in foreign tax credit generated of $26.3 million offset by an increase in valuation allowance of $25.0 million), and a decrease in the valuation allowance on deferred interest expense of $13.8 million due to an increase in interest expense deduction.
Effective in 2018, the Company is subject to global intangible low tax income (“GILTI”) which is a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. Due to the complexity of the GILTI tax rules, companies are allowed to make an accounting policy choice of either (1) treating taxes due on future US inclusions in taxable income related to GILTI as a current-period expense when incurred or (2) factoring such amounts into a company’s measurement of its deferred taxes. The Company is electing to treat taxes due on future US inclusions in taxable income related to GILTI as a current-period expense when incurred and, therefore, there is no impact to the deferred tax rate in 2018.
For financial reporting purposes, income (loss) before income taxes includes the following components:
| | | | | | | | | | | | |
| | | Year ended December 31, | |
(in millions) | | 2015 | | | 2014 | | | 2013 | |
Income (loss) before income taxes | | | | | | | | | | | | |
United States | | $ | (13.0 | ) | | $ | (6.4 | ) | | $ | 5.5 | |
Foreign | | | 39.7 | | | | (29.5 | ) | | | (97.6 | ) |
| | | | | | | | | | | | |
Total income (loss) before income taxes | | $ | 26.7 | | | $ | (35.9 | ) | | $ | (92.1 | ) |
| | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | Year ended December 31, |
| (in millions) | 2018 | | 2017 | | 2016 |
| Income (loss) before income taxes | | | | | |
| United States | $ | 36.6 |
| | $ | 1.5 |
| | $ | (131.3 | ) |
| Foreign | 185.6 |
| | 167.3 |
| | 51.7 |
|
| Total income (loss) before income taxes | $ | 222.2 |
| | $ | 168.8 |
| | $ | (79.6 | ) |
The expense (benefit) for income taxes is summarized as follows:
| | | | | | | | | | | | |
| | | Year ended December 31, | |
(in millions) | | 2015 | | | 2014 | | | 2013 | |
Current: | | | | | | | | | | | | |
Federal | | $ | 0.6 | | | $ | (18.6 | ) | | $ | 1.0 | |
State | | | 2.5 | | | | 5.4 | | | | 7.0 | |
Foreign | | | 14.5 | | | | 17.0 | | | | 16.6 | |
| | | | | | | | | | | | |
Total current | | | 17.6 | | | | 3.8 | | | | 24.6 | |
| | | | | | | | | | | | |
Deferred: | | | | | | | | | | | | |
Federal | | | (12.3 | ) | | | (11.3 | ) | | | (34.0 | ) |
State | | | 1.7 | | | | (1.0 | ) | | | (0.4 | ) |
Foreign | | | 3.2 | | | | (7.3 | ) | | | — | |
| | | | | | | | | | | | |
Total deferred | | | (7.4 | ) | | | (19.6 | ) | | | (34.4 | ) |
| | | | | | | | | | | | |
Total income tax expense (benefit) | | $ | 10.2 | | | $ | (15.8 | ) | | $ | (9.8 | ) |
| | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | Year ended December 31, |
| (in millions) | 2018 | | 2017 | | 2016 |
| Current: | | | | | |
| Federal | $ | 13.8 |
| | $ | 6.8 |
| | $ | (0.1 | ) |
| State | 2.1 |
| | 2.0 |
| | 0.1 |
|
| Foreign | 31.2 |
| | 28.5 |
| | 20.4 |
|
| Total current | $ | 47.1 |
| | $ | 37.3 |
| | $ | 20.4 |
|
| Deferred: | | | | | |
| Federal | $ | 6.5 |
| | $ | 26.5 |
| | $ | (15.1 | ) |
| State | (0.5 | ) | | — |
| | (3.0 | ) |
| Foreign | (3.2 | ) | | (14.8 | ) | | (13.5 | ) |
| Total deferred | $ | 2.8 |
| | $ | 11.7 |
| | $ | (31.6 | ) |
| Total income tax expense (benefit) | $ | 49.9 |
| | $ | 49.0 |
| | $ | (11.2 | ) |
The reconciliation between the US statutory tax rate and the Company’s effective tax rate is presented as follows:
| | | | | | | | | | | | |
| | | Year ended December 31, | |
(in millions) | | 2015 | | | 2014 | | | 2013 | |
US federal statutory income tax expense (benefit) applied to income (loss) before income taxes | | $ | 9.3 | | | $ | (12.6 | ) | | $ | (32.2 | ) |
State income taxes, net of federal benefit | | | 3.3 | | | | 1.8 | | | | 4.8 | |
Foreign tax rate differential | | | (6.5 | ) | | | (4.2 | ) | | | (7.0 | ) |
Non-taxable interest income | | | (14.1 | ) | | | (13.8 | ) | | | (14.7 | ) |
Valuation allowance release on expired or utilized tax attributes | | | (9.0 | ) | | | (0.2 | ) | | | (0.3 | ) |
Expiration of tax attributes | | | 8.1 | | | | 0.2 | | | | 0.3 | |
Foreign losses not benefited | | | 7.5 | | | | 21.7 | | | | 33.3 | |
Effect of flow-through entities | | | 4.2 | | | | 3.6 | | | | (10.8 | ) |
Non-deductible stock-based compensation | | | 3.5 | | | | 0.3 | | | | 0.8 | |
Non-deductible expense | | | 3.5 | | | | 2.9 | | | | 7.2 | |
Recognition of previously uncertain tax benefits | | | (2.5 | ) | | | (18.4 | ) | | | — | |
Adjustment to prior year tax due to changes in estimates | | | 1.6 | | | | 0.2 | | | | (7.7 | ) |
Change in statutory income tax rates | | | 1.1 | | | | 0.4 | | | | 3.8 | |
Deemed dividends from foreign subsidiaries | | | 0.6 | | | | 0.4 | | | | 0.3 | |
Non-deductible interest expense | | | 0.5 | | | | 1.1 | | | | 2.2 | |
Withholding and other taxes based on income | | | 0.5 | | | | 0.9 | | | | 0.8 | |
Foreign exchange rate remeasurement | | | (0.4 | ) | | | 0.7 | | | | — | |
Goodwill impairment | | | — | | | | — | | | | 26.0 | |
Tax deductible goodwill | | | — | | | | — | | | | (6.7 | ) |
French indirect tax penalty | | | — | | | | — | | | | (1.8 | ) |
Changes in contingent consideration | | | — | | | | (0.3 | ) | | | (8.6 | ) |
Other | | | (1.0 | ) | | | (0.5 | ) | | | 0.5 | |
| | | | | | | | | | | | |
Total income tax expense (benefit) | | $ | 10.2 | | | $ | (15.8 | ) | | $ | (9.8 | ) |
| | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | Year ended December 31, |
| (in millions) | 2018 | | 2017 | | 2016 |
| US federal statutory income tax expense (benefit) applied to income (loss) before income taxes | $ | 46.7 |
| | $ | 59.1 |
| | $ | (27.8 | ) |
| State income taxes, net of federal benefit | 1.1 |
| | 1.4 |
| | (2.9 | ) |
| Foreign tax rate differential | 8.1 |
| | (18.0 | ) | | (5.8 | ) |
| Non-taxable interest income | (0.7 | ) | | (11.4 | ) | | (10.8 | ) |
| Valuation allowance, net | (11.6 | ) | | (18.1 | ) | | (24.7 | ) |
| Expiration of tax attributes | — |
| | 0.1 |
| | 4.4 |
|
| Foreign losses not benefited | — |
| | 0.7 |
| | 8.0 |
|
| Effect of flow-through entities | (0.6 | ) | | 8.9 |
| | (9.0 | ) |
| Net stock-based compensation | — |
| | (3.7 | ) | | 1.7 |
|
| Non-deductible expense | 4.8 |
| | 3.5 |
| | 3.4 |
|
| Unrecognized tax benefits | (2.7 | ) | | (1.7 | ) | | (1.4 | ) |
| Change in statutory income tax rates | — |
| | (17.5 | ) | | 2.7 |
|
| Deemed dividends from foreign subsidiaries | 9.0 |
| | 17.6 |
| | 1.4 |
|
| Global intangible low-taxed income | 19.9 |
| | — |
| | — |
|
| Non-deductible interest expense | — |
| | 0.1 |
| | 2.6 |
|
| Revaluation due to Section 987 tax law change | — |
| | — |
| | 45.0 |
|
| Section 965 repatriation tax | 13.0 |
| | 76.5 |
| | — |
|
| Foreign tax credit | (38.3 | ) | | (47.6 | ) | | — |
|
| Other | 1.2 |
| | (0.9 | ) | | 2.0 |
|
| Total income tax expense (benefit) | $ | 49.9 |
| | $ | 49.0 |
| | $ | (11.2 | ) |
The consolidated deferred tax assets and liabilities are detailed as follows:
| | | | | | | | |
| | | December 31, | |
(in millions) | | 2015 | | | 2014 | |
Deferred tax assets: | | | | | | | | |
Net operating loss carryforwards | | $ | 122.1 | | | $ | 107.2 | |
Environmental reserves | | | 46.4 | | | | 47.5 | |
Interest | | | 95.1 | | | | 87.2 | |
Tax credit and capital loss carryforwards | | | 10.1 | | | | 16.6 | |
Pension | | | 95.9 | | | | 106.5 | |
Flow-through entities | | | 39.4 | | | | 39.5 | |
Stock options | | | 11.7 | | | | 13.3 | |
Inventory | | | 5.0 | | | | 7.3 | |
Other temporary differences | | | 33.8 | | | | 44.4 | |
| | | | | | | | |
Gross deferred tax assets | | | 459.5 | | | | 469.5 | |
Valuation allowance | | | (193.0 | ) | | | (204.1 | ) |
| | | | | | | | |
Deferred tax assets, net of valuation allowance | | | 266.5 | | | | 265.4 | |
| | | | | | | | |
Deferred tax liabilities: | | | | | | | | |
Property, plant and equipment, net | | | (179.0 | ) | | | (176.6 | ) |
Intangible assets | | | (138.1 | ) | | | (155.5 | ) |
Other temporary differences | | | (3.9 | ) | | | (3.8 | ) |
| | | | | | | | |
Deferred tax liabilities | | | (321.0 | ) | | | (335.9 | ) |
| | | | | | | | |
Net deferred tax liability | | $ | (54.5 | ) | | $ | (70.5 | ) |
| | | | | | | | |
|
| | | | | | | |
| | December 31, |
| (in millions) | 2018 | | 2017 |
| Deferred tax assets: | | | |
| Net operating loss carryforwards | $ | 49.4 |
| | $ | 68.6 |
|
| Environmental reserves | 22.9 |
| | 25.3 |
|
| Interest | 25.9 |
| | 35.7 |
|
| Tax credit and capital loss carryforwards | 57.8 |
| | 37.2 |
|
| Pension | 66.3 |
| | 68.2 |
|
| Flow-through entities | 2.7 |
| | 2.5 |
|
| Compensation | 12.2 |
| | 13.7 |
|
| Inventory | 4.5 |
| | 4.2 |
|
| Property, plant and equipment, net | 4.8 |
| | 3.3 |
|
| Other temporary differences | 17.0 |
| | 15.1 |
|
| Gross deferred tax assets | $ | 263.5 |
| | $ | 273.8 |
|
| Valuation allowance | (106.3 | ) | | (117.2 | ) |
| Deferred tax assets, net of valuation allowance | $ | 157.2 |
| | $ | 156.6 |
|
| Deferred tax liabilities: | | | |
| Property, plant and equipment, net | $ | (102.3 | ) | | $ | (98.7 | ) |
| Intangible assets | (63.6 | ) | | (64.6 | ) |
| Other temporary differences | (9.4 | ) | | (5.9 | ) |
| Deferred tax liabilities | $ | (175.3 | ) | | $ | (169.2 | ) |
| Net deferred tax liability | $ | (18.1 | ) | | $ | (12.6 | ) |
The changes in the valuation allowance were as follows:
| | | | | | | | |
| | | December 31, | |
(in millions) | | 2015 | | | 2014 | |
Beginning balance | | $ | 204.1 | | | $ | 201.1 | |
Increase related to foreign net operating loss carryforwards | | | 5.5 | | | | 15.0 | |
Decrease related to expiration of tax attributes | | | (7.0 | ) | | | (0.2 | ) |
Foreign currency | | | (9.8 | ) | | | (12.6 | ) |
Increase (decrease) related to other items | | | 0.2 | | | | 0.8 | |
| | | | | | | | |
Ending balance | | $ | 193.0 | | | $ | 204.1 | |
| | | | | | | | |
|
| | | | | | | |
| | December 31, |
| (in millions) | 2018 | | 2017 |
| Beginning balance | $ | 117.2 |
| | $ | 167.9 |
|
| Change related to current net operating losses generated | — |
| | 0.7 |
|
| Change related to current utilization of net operating loss carryforwards | (3.7 | ) | | (12.3 | ) |
| Change related to future utilization of net operating loss carryforwards | (17.4 | ) | | (17.8 | ) |
| Change related to generation/expiration of tax attributes | 21.3 |
| | 29.9 |
|
| Change related to foreign currency | (1.3 | ) | | 7.1 |
|
| Change related to utilization of deferred interest expense | (9.7 | ) | | (26.3 | ) |
| Change related to tax rate change | 0.1 |
| | (31.6 | ) |
| Change related to other items | (0.2 | ) | | (0.4 | ) |
| Ending balance | $ | 106.3 |
| | $ | 117.2 |
|
As of December 31,
2015,2018, the total remaining tax benefit of available federal, state and foreign net operating loss carryforwards recognized on the balance sheet amounted to
$33.0$33.4 million (tax benefit of operating losses of
$122.1$49.4 million reduced by a valuation allowance of
$89.1$16.0 million). Total net operating losses at December 31,
20152018 and
20142017 amounted to
$428.3$186.4 million and
$393.9$261.9 million, respectively. If not utilized,
$115.3$19.0 million of the available loss carryforwards will expire between
20162019 and
2020;2023; subsequent to
2020, $98.02023, $0.1 million will expire. The remaining losses of
$215.0$167.3 million have an unlimited life.
The US federal and certain state net operating loss carryforwards are subject to limitations under Section 382 of the Internal Revenue Code and applicable state tax law. In certain foreign jurisdictions, net operating loss carryforwards may be subject to certain restrictions due to direct or indirect changes in control of the Company.As the result of intercompany dividend payments from Canada to the US in prior years, the Company has carryforward foreign tax credits. These unused foreign tax credits are subject to a ten-year carryforward life. As of December 31, 2015,2018, the Company also has foreign tax credit carryforwards of $55.3 million that if not utilized will expire in 2027.
The Tax Act provided for a one-time deemed mandatory repatriation of post-1986 undistributed foreign subsidiary earnings and profits (“E&P”) through the year ended December 31, 2017. The Company reported $577.2 million of undistributed foreign E&P subject to the deemed mandatory repatriation and recognized $89.5 million of income tax expense in the 2017 US Company tax return. As a result of the one-time deemed mandatory repatriation, the Company generated foreign income tax credit (“FTC”) previously paid and allocable to the deemed repatriated foreign source income of $166.4 million. These income taxes were required to be reduced in the same proportion as the foreign source income generating the deemed income taxes paid as required under the
Tax Act, resulting in a net deemed income tax paid of $73.7 million. In addition, $0.3 million of withholding taxes incurred during the period were creditable. As such, the Company is eligible to claim a foreign tax credit relating to the foreign source income that generated the deemed income taxes paid and, accordingly, reported $74.0 million as a deferred tax asset generated at filing of the 2017 US tax return.
The FTC of $74.0 million generated in 2017 was not fully utilized due to adjustments required to be made against the foreign source income and an overall domestic loss, which limited the amount of
unusedthe overall FTC utilization to $14.9 million in 2017. After the utilization of a net operating loss carry forward, general business credits and $14.9 million of foreign tax credits,
total $3.9 million. If the
unused credits are not utilized, $3.9Company will pay additional US federal cash tax of approximately $14.9 million
ofon the
unused foreign tax credits will expire in 2016. No benefit relating to the futureutilization of the unused foreign tax credits was recorded during the perioddeemed mandatory repatriation, payable over eight years. At year ended December 31, 2015.
Except as required under2018, the provisional FTC carryforward and related valuation allowance is estimated to be $55.3 million down from $59.1 million ($74.0 million generated in 2017 less $14.9 million utilization in 2017) reported with the filing of 2017 US tax law,return. The net change of $3.8 million in FTC balance is a combination of 2018 FTC utilization of $5.4 million (overall domestic loss recapture) less $1.6 million increase in FTC due to additional cash tax payments support collected from foreign tax authorities. The Company does not expect future earnings of the appropriate character of taxable income which would allow it to utilize its excess FTC balance in future tax years, in addition to other required adjustments which reduce the amount of future foreign source income available to be offset by an FTC. Therefore, the Company will maintain a valuation allowance on the remaining provisional $55.3 million FTC.
Difference Attributable to Foreign Investments
As a result of the deemed mandatory repatriation provisions in the Tax Act, the Company has $493.2 million of undistributed earnings that has either been previously taxed or would qualify for the 100 percent dividends received deduction provided for in the Tax Act, and earnings that would not result in any significant foreign taxes. As a result, the Company does not
provide for US taxes on approximately $583.3 million of cumulative undistributedintend to distribute earnings
of foreign subsidiaries that have not been previously taxed sincein a taxable manner. Therefore, the Company
intends to invest such undistributed earnings indefinitely outside of the US. Determination of the unrecognizedhas not recognized a deferred tax liability
that would be incurred if such amounts were not indefinitely reinvested is not practicable.on its investment in foreign subsidiaries.
Tax Contingencies
The changes in unrecognized tax benefits included in other long-term liabilities, excluding interest and penalties, are as follows:
| | | | | | | | |
| | | Year ended
December 31, | |
(in millions) | | 2015 | | | 2014 | |
Beginning balance | | $ | 8.5 | | | $ | 40.3 | |
Reductions for tax positions of prior years | | | — | | | | (0.2 | ) |
Reductions due to the statute of limitations expiration | | | (2.3 | ) | | | (30.7 | ) |
Foreign exchange | | | (1.0 | ) | | | (0.9 | ) |
| | | | | | | | |
Ending balance | | $ | 5.2 | | | $ | 8.5 | |
| | | | | | | | |
The Company’s unrecognized tax benefit consists largely of foreign interest expense liabilities as of December 31, 2015. The Company believes that it is reasonably possible that approximately $1.3 million of its currently remaining unrecognized tax benefits may be recognized by the end of 2016 as a result of an audit or a lapse of the statute of limitations.
|
| | | | | | | |
| | Year ended December 31, |
| (in millions) | 2018 | | 2017 |
| Beginning balance | $ | 3.1 |
| | $ | 4.3 |
|
| Increase for tax positions of prior years | — |
| | — |
|
| Reductions due to the statute of limitations expiration | (2.7 | ) | | (1.5 | ) |
| Foreign exchange | — |
| | 0.3 |
|
| Ending balance | $ | 0.4 |
| | $ | 3.1 |
|
The Company has net
$5.2$0.4 million and
$8.5$3.1 million of unrecognized tax benefits at December 31,
20152018 and
2014,2017, respectively. As of December 31,
2015,2018, the total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate for continuing
and discontinued operations was
$5.2$0.4 million. No remaining unrecognized tax benefits relate to tax positions for which ultimate deductibility is highly certain, but for which there is uncertainty as to the timing of such deductibility. Recognition of these tax benefits, if any, would not have an impact on the effective tax rate.
The total liability included in other long-term liabilities associated with the interest and penalties was
$0.0$0.5 million and
$0.6$0.4 million at December 31,
20152018 and
2014,2017, respectively. The Company recorded
$(0.6) million, $0.1 million,
$0.4 million and
$0.5$0.3 million in interest expense related to unrecognized tax benefits in the consolidated statements of operations for the years ended December 31,
2015, 20142018, 2017 and
2013,2016, respectively.
The Company files income tax returns in the US and various state and foreign jurisdictions. As of December 31,
2015,2018, the
Company’s tax years for 2012 through 2014 areCompany is subject to
examination by the tax authorities. With limited exceptions or limitations on adjustment due to net operating loss carrybacks or utilization, as of December 31, 2015, the Company generally is no longer subject to US federal, state,various local or foreign examinations by
the tax
authorities for years before 2012.In 2007,authorities.
8. Earnings per share
The following table presents the
outstanding shares of Univar N.V., the ultimate parent of the Univar group, were acquired by investment funds advised by CVC. To facilitate the acquisition of Univar N.V. by CVC, a Canadian restructuring was completed. In February 2013, the Canada Revenue Agency (“CRA”) issued a Notice of Assessment for withholding tax of $29.4 million (Canadian). The Company filed its Notice of Objection to the Assessment in April 2013basic and
its Notice of Appeal of the Assessment in July 2013. In November 2013, the CRA’s Reply to the Company’s Notice of Appeal was filed with the Tax Court of Canada and litigated in June 2015. The Company has not yet received the Tax Court of Canada’s decision on the matter.In September 2014, the CRA issued the 2008 and 2009 Notice of Reassessments for federal corporate income tax liabilities of $11.9 million (Canadian) and $11.0 million (Canadian), respectively, and a departure tax liability of $9.0 million (Canadian). The Company filed its Notice of Objection to the Reassessments in September 2014. In April 2015 the Company received the 2008 and 2009 Alberta Notice of Reassessments of $6.0 million (Canadian) and $5.8 million (Canadian), respectively. The Company filed its Notice of Objection to the Alberta Reassessments in June 2015. The Reassessments reflect the additional tax liability and interest relating to those tax years should the CRA be successful in its assertion of the General Anti-Avoidance Rule relating to the Canadian restructuring described above. At December 31, 2015, the total federal and provincial tax liability assessed to date, including interest of $33.4 million (Canadian), is $106.5 million (Canadian). In August 2014, the Company remitted a required deposit on the February 2013 Notice of Assessment relating to the Company’s 2007 tax year by issuing a Letter of Credit in the amount of $44.7 million (Canadian). The Letter of Credit amount reflects the proposed assessment of $29.4 million (Canadian) and accrued interest, and will expire in August 2016.
In February 2015, the CRA notified the Company it would be required to remit a cash deposit of approximately $21.5 million (Canadian) in March 2015, representing one-half of the September 2014 Notice of Assessment tax liability relating to tax years 2008 and 2009, plus interest. In March 2015, the Company requested a judicial review of this additional cash deposit requirement at the Federal Court (Canada). The CRA subsequently advised that its decision was not final and requested the Company to withdraw its request for judicial review. The Company subsequently withdrew its request and provided the CRA with its submission to hold the collection of the assessments relating to tax years 2008 and 2009 in abeyance pending the outcome of the Tax Court of Canada’s decision on the General Anti-Avoidance Rule matter. To date, the Company has not received a response to its submission from the CRA.
The Company has not recorded any liabilities for these matters in its financial statements, as it believes it is more likely than not that the Company’s position will be sustained.
8.diluted earnings per share computations:
|
| | | | | | | | | | | |
| | Year ended December 31, |
| (in millions, except per share data) | 2018 | | 2017 | | 2016 |
| Basic: | | | | | |
| Net income (loss) | $ | 172.3 |
| | $ | 119.8 |
| | $ | (68.4 | ) |
| Less: earnings allocated to participating securities | 0.3 |
| | 0.2 |
| | — |
|
| Earnings allocated to common shares outstanding | $ | 172.0 |
| | $ | 119.6 |
| | $ | (68.4 | ) |
| Weighted average common shares outstanding | 141.2 |
| | 140.2 |
| | 137.8 |
|
| Basic income (loss) per common share | $ | 1.22 |
| | $ | 0.85 |
| | $ | (0.50 | ) |
| Diluted: | | | | | |
| Net income (loss) | $ | 172.3 |
| | $ | 119.8 |
| | $ | (68.4 | ) |
| Less: earnings allocated to participating securities | — |
| | — |
| | — |
|
| Earnings allocated to common shares outstanding | $ | 172.3 |
| | $ | 119.8 |
| | $ | (68.4 | ) |
| Weighted average common shares outstanding | 141.2 |
| | 140.2 |
| | 137.8 |
|
| Effect of dilutive securities: | | | | | |
Stock compensation plans (1) | 1.0 |
| | 1.2 |
| | — |
|
| Weighted average common shares outstanding – diluted | 142.2 |
| | 141.4 |
| | 137.8 |
|
Diluted income (loss) per common share (2) | $ | 1.21 |
| | $ | 0.85 |
| | $ | (0.50 | ) |
| | | | | | |
| |
| (1) | Stock options to purchase approximately 1.6 million, 0.8 million, and 3.3 million shares of common stock were outstanding during the years ended December 31, 2018, 2017 and 2016, respectively, but were not included in the calculation of diluted income (loss) per share as the impact of these stock options would have been anti-dilutive. |
| |
| (2) | As a result of changes in the number of shares outstanding during the year and rounding, the sum of the quarters’ earnings per share may not equal the earnings per share for any year-to-date period. |
9. Employee benefit plans
Defined benefit pension plans
The Company sponsors defined benefit plans that provide pension benefits for employees upon retirement in certain jurisdictions including the US, Canada, United Kingdom and several other European countries.
On July 1, 2015, the defined benefit plan in Canada was amended, such that the remaining members accruing benefits under the defined benefit provisions will cease future accrual of credited service under the defined benefit provision. These members will commence participation under a defined contribution benefit plan for service as of July 1, 2015. Future salary increases will continue to be reflected in their legacy defined pension benefits for the foreseeable future.
The US, Canada and United Kingdom defined benefit pension plans are closed to new entrants.
On July 1, 2015, the accrual of future service credits ceased in Canada although future salary increases continue for remaining participants. Benefits accrued by participants in the United Kingdom plan were frozen as of December 1,
2010. Benefits2010 and benefits accrued by participants in the US plans were frozen as of December 31, 2009. These amendments to freeze benefits were made in conjunction with a benefit plan review which provides for enhanced benefits under defined contribution plans available to all employees in the
US, Canada and United
Kingdom and the US.Kingdom.
The following summarizes the Company’s defined benefit pension plans’ projected benefit obligations, plan assets and funded status:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Domestic | | | Foreign | | | Total | |
| | | Year ended
December 31, | | | Year ended
December 31, | | | Year ended
December 31, | |
(in millions) | | 2015 | | | 2014 | | | 2015 | | | 2014 | | | 2015 | | | 2014 | |
Change in projected benefit obligations: | | | | | | | | | | | | | | | | | | | | | | | | |
Actuarial present value of benefit obligations at beginning of year | | $ | 728.8 | | | $ | 615.0 | | | $ | 614.1 | | | $ | 567.0 | | | $ | 1,342.9 | | | $ | 1,182.0 | |
Service cost | | | — | | | | — | | | | 5.4 | | | | 7.0 | | | | 5.4 | | | | 7.0 | |
Interest cost | | | 30.8 | | | | 31.6 | | | | 20.1 | | | | 23.2 | | | | 50.9 | | | | 54.8 | |
Benefits paid | | | (30.1 | ) | | | (28.0 | ) | | | (29.6 | ) | | | (21.5 | ) | | | (59.7 | ) | | | (49.5 | ) |
Settlement | | | — | | | | — | | | | (19.0 | ) | | | — | | | | (19.0 | ) | | | — | |
Curtailment | | | — | | | | — | | | | (2.6 | ) | | | — | | | | (2.6 | ) | | | — | |
Actuarial (gain) loss | | | (37.6 | ) | | | 110.2 | | | | (5.1 | ) | | | 85.7 | | | | (42.7 | ) | | | 195.9 | |
Foreign exchange and other | | | — | �� | | | — | | | | (51.6 | ) | | | (47.3 | ) | | | (51.6 | ) | | | (47.3 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Actuarial present value of benefit obligations at end of year | | $ | 691.9 | | | $ | 728.8 | | | $ | 531.7 | | | $ | 614.1 | | | $ | 1,233.6 | | | $ | 1,342.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Change in the fair value of plan assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Plan assets at beginning of year | | $ | 522.1 | | | $ | 476.6 | | | $ | 516.6 | | | $ | 466.3 | | | $ | 1,038.7 | | | $ | 942.9 | |
Actual return on plan assets | | | (13.9 | ) | | | 58.0 | | | | 12.6 | | | | 78.6 | | | | (1.3 | ) | | | 136.6 | |
Contributions by employer | | | 19.5 | | | | 15.5 | | | | 40.1 | | | | 31.3 | | | | 59.6 | | | | 46.8 | |
Benefits paid | | | (30.1 | ) | | | (28.0 | ) | | | (29.6 | ) | | | (21.5 | ) | | | (59.7 | ) | | | (49.5 | ) |
Settlement | | | — | | | | — | | | | (17.6 | ) | | | — | | | | (17.6 | ) | | | — | |
Foreign exchange and other | | | — | | | | — | | | | (40.6 | ) | | | (38.1 | ) | | | (40.6 | ) | | | (38.1 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Plan assets at end of year | | | 497.6 | | | | 522.1 | | | | 481.5 | | | | 516.6 | | | | 979.1 | | | | 1,038.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Funded status at end of year | | $ | (194.3 | ) | | $ | (206.7 | ) | | $ | (50.2 | ) | | $ | (97.5 | ) | | $ | (244.5 | ) | | $ | (304.2 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Domestic | | Foreign | | Total |
| | Year ended December 31, | | Year ended December 31, | | Year ended December 31, |
| (in millions) | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
| Change in projected benefit obligations: | | | | | | | | | | | |
| Actuarial present value of benefit obligations at beginning of year | $ | 721.9 |
| | $ | 719.7 |
| | $ | 612.0 |
| | $ | 555.5 |
| | $ | 1,333.9 |
| | $ | 1,275.2 |
|
| Service cost | — |
| | — |
| | 2.7 |
| | 2.5 |
| | 2.7 |
| | 2.5 |
|
| Interest cost | 27.3 |
| | 30.8 |
| | 15.4 |
| | 16.2 |
| | 42.7 |
| | 47.0 |
|
| Benefits paid | (37.5 | ) | | (34.2 | ) | | (26.7 | ) | | (27.9 | ) | | (64.2 | ) | | (62.1 | ) |
| Plan amendments | — |
| | — |
| | 2.5 |
| | 2.7 |
| | 2.5 |
| | 2.7 |
|
| Settlement | (38.5 | ) | | (44.3 | ) | | — |
| | — |
| | (38.5 | ) | | (44.3 | ) |
| Actuarial (gain) loss | (47.5 | ) | | 49.9 |
| | (33.6 | ) | | 13.3 |
| | (81.1 | ) | | 63.2 |
|
| Foreign exchange and other | — |
| | — |
| | (34.8 | ) | | 49.7 |
| | (34.8 | ) | | 49.7 |
|
| Actuarial present value of benefit obligations at end of year | $ | 625.7 |
| | $ | 721.9 |
| | $ | 537.5 |
| | $ | 612.0 |
| | $ | 1,163.2 |
| | $ | 1,333.9 |
|
| | | | | | | | | | | | |
| Change in the fair value of plan assets: | | | | | | | | | | | |
| Plan assets at beginning of year | $ | 532.3 |
| | $ | 509.1 |
| | $ | 574.9 |
| | $ | 494.3 |
| | $ | 1,107.2 |
| | $ | 1,003.4 |
|
| Actual (loss) return on plan assets | (39.9 | ) | | 80.0 |
| | (19.7 | ) | | 37.4 |
| | (59.6 | ) | | 117.4 |
|
| Contributions by employer | 12.2 |
| | 12.1 |
| | 26.5 |
| | 26.1 |
| | 38.7 |
| | 38.2 |
|
| Benefits paid | (37.5 | ) | | (34.2 | ) | | (26.7 | ) | | (27.9 | ) | | (64.2 | ) | | (62.1 | ) |
| Settlement | (38.5 | ) | | (34.7 | ) | | — |
| | (1.3 | ) | | (38.5 | ) | | (36.0 | ) |
| Foreign exchange and other | — |
| | — |
| | (32.8 | ) | | 46.3 |
| | (32.8 | ) | | 46.3 |
|
| Plan assets at end of year | $ | 428.6 |
| | $ | 532.3 |
| | $ | 522.2 |
| | $ | 574.9 |
| | $ | 950.8 |
| | $ | 1,107.2 |
|
| Funded status at end of year | $ | (197.1 | ) | | $ | (189.6 | ) | | $ | (15.3 | ) | | $ | (37.1 | ) | | $ | (212.4 | ) | | $ | (226.7 | ) |
Net amounts related to the Company’s defined benefit pension plans recognized in the consolidated balance sheets consist of:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Domestic | | | Foreign | | | Total | |
| | | December 31, | | | December 31, | | | December 31, | |
(in millions) | | 2015 | | | 2014 | | | 2015 | | | 2014 | | | 2015 | | | 2014 | |
Overfunded net benefit obligation in other assets | | $ | — | | | $ | — | | | $ | 9.5 | | | $ | — | | | $ | 9.5 | | | $ | — | |
Current portion of net benefit obligation in other accrued expenses | | | (3.3 | ) | | | (3.3 | ) | | | (1.9 | ) | | | (2.2 | ) | | | (5.2 | ) | | | (5.5 | ) |
Long-term portion of net benefit obligation in pension and other postretirement benefit liabilities | | | (191.0 | ) | | | (203.4 | ) | | | (57.8 | ) | | | (95.3 | ) | | | (248.8 | ) | | | (298.7 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net liability recognized at end of year | | $ | (194.3 | ) | | $ | (206.7 | ) | | $ | (50.2 | ) | | $ | (97.5 | ) | | $ | (244.5 | ) | | $ | (304.2 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Domestic | | Foreign | | Total |
| | December 31, | | December 31, | | December 31, |
| (in millions) | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
| Overfunded net benefit obligation in other assets | $ | — |
| | $ | — |
| | $ | 46.1 |
| | $ | 33.9 |
| | $ | 46.1 |
| | $ | 33.9 |
|
| Current portion of net benefit obligation in other accrued expenses | (3.5 | ) | | (3.5 | ) | | (2.0 | ) | | (2.1 | ) | | (5.5 | ) | | (5.6 | ) |
| Long-term portion of net benefit obligation in pension and other postretirement benefit liabilities | (193.6 | ) | | (186.1 | ) | | (59.4 | ) | | (68.9 | ) | | (253.0 | ) | | (255.0 | ) |
| Net liability recognized at end of year | $ | (197.1 | ) | | $ | (189.6 | ) | | $ | (15.3 | ) | | $ | (37.1 | ) | | $ | (212.4 | ) | | $ | (226.7 | ) |
The following table summarizes defined benefit pension plans with accumulated benefit obligations in excess of plan assets:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Domestic | | | Foreign | | | Total | |
| | | December 31, | | | December 31, | | | December 31, | |
(in millions) | | 2015 | | | 2014 | | | 2015 | | | 2014 | | | 2015 | | | 2014 | |
Accumulated benefit obligation | | $ | 691.9 | | | $ | 728.8 | | | $ | 71.4 | | | $ | 580.3 | | | $ | 763.3 | | | $ | 1,309.1 | |
Fair value of plan assets | | | 497.6 | | | | 522.1 | | | | 36.3 | | | | 516.6 | | | | 533.9 | | | | 1,038.7 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Domestic | | Foreign | | Total |
| | December 31, | | December 31, | | December 31, |
| (in millions) | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
| Accumulated benefit obligation | $ | 625.7 |
| | $ | 721.9 |
| | $ | 187.7 |
| | $ | 211.4 |
| | $ | 813.4 |
| | $ | 933.3 |
|
| Fair value of plan assets | 428.6 |
| | 532.3 |
| | 147.7 |
| | 169.3 |
| | 576.3 |
| | 701.6 |
|
The following table summarizes defined benefit pension plans with projected benefit obligations in excess of plan assets:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Domestic | | | Foreign | | | Total | |
| | | December 31, | | | December 31, | | | December 31, | |
(in millions) | | 2015 | | | 2014 | | | 2015 | | | 2014 | | | 2015 | | | 2014 | |
Projected benefit obligation | | $ | 691.9 | | | $ | 728.8 | | | $ | 207.7 | | | $ | 614.1 | | | $ | 899.6 | | | $ | 1,342.9 | |
Fair value of plan assets | | | 497.6 | | | | 522.1 | | | | 148.0 | | | | 516.6 | | | | 645.6 | | | | 1,038.7 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Domestic | | Foreign | | Total |
| | December 31, | | December 31, | | December 31, |
| (in millions) | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
| Projected benefit obligation | $ | 625.7 |
| | $ | 721.9 |
| | $ | 209.1 |
| | $ | 240.3 |
| | $ | 834.8 |
| | $ | 962.2 |
|
| Fair value of plan assets | 428.6 |
| | 532.3 |
| | 147.7 |
| | 169.3 |
| | 576.3 |
| | 701.6 |
|
The total accumulated benefit obligation for domestic defined benefit pension plans as of December 31,
20152018 and
20142017 was
$691.9$625.7 million and
$728.8$721.9 million, respectively, and for foreign defined benefit pension benefit plans as of December 31,
20152018 and
20142017 was
$505.2$187.7 million and
$580.3$211.4 million, respectively.
The following table summarizes the components of net periodic benefit cost
(credit)(income) recognized in the consolidated statements of operations related to defined benefit pension plans:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Domestic | | | Foreign | | | Total | |
| | | Year ended December 31, | | | Year ended December 31, | | | Year ended December 31, | |
(in millions) | | 2015 | | | 2014 | | | 2013 | | | 2015 | | | 2014 | | | 2013 | | | 2015 | | | 2014 | | | 2013 | |
Service cost | | $ | — | | | $ | — | | | $ | — | | | $ | 5.4 | | | $ | 7.0 | | | $ | 9.0 | | | $ | 5.4 | | | $ | 7.0 | | | $ | 9.0 | |
Interest cost | | | 30.8 | | | | 31.6 | | | | 28.6 | | | | 20.1 | | | | 23.2 | | | | 21.8 | | | | 50.9 | | | | 54.8 | | | | 50.4 | |
Expected return on plan assets | | | (35.8 | ) | | | (32.1 | ) | | | (30.7 | ) | | | (30.2 | ) | | | (28.1 | ) | | | (25.7 | ) | | | (66.0 | ) | | | (60.2 | ) | | | (56.4 | ) |
Amortization of unrecognized prior service costs | | | — | | | | — | | | | — | | | | — | | | | — | | | | 0.2 | | | | — | | | | — | | | | 0.2 | |
Settlement(1) | | | — | | | | — | | | | — | | | | (1.4 | ) | | | — | | | | — | | | | (1.4 | ) | | | — | | | | — | |
Curtailment(1) | | | — | | | | — | | | | — | | | | (2.6 | ) | | | — | | | | — | | | | (2.6 | ) | | | — | | | | — | |
Actuarial (gain) loss | | | 12.1 | | | | 84.3 | | | | (66.2 | ) | | | 12.5 | | | | 35.2 | | | | (6.3 | ) | | | 24.6 | | | | 119.5 | | | | (72.5 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net periodic benefit (credit) cost | | $ | 7.1 | | | $ | 83.8 | | | $ | (68.3 | ) | | $ | 3.8 | | | $ | 37.3 | | | $ | (1.0 | ) | | $ | 10.9 | | | $ | 121.1 | | | $ | (69.3 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Domestic | | Foreign | | Total |
| | Year ended December 31, | | Year ended December 31, | | Year ended December 31, |
| (in millions) | 2018 | | 2017 | | 2016 | | 2018 | | 2017 | | 2016 | | 2018 | | 2017 | | 2016 |
Service cost (1) | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2.7 |
| | $ | 2.5 |
| | $ | 2.5 |
| | $ | 2.7 |
| | $ | 2.5 |
| | $ | 2.5 |
|
Interest cost (2) | 27.3 |
| | 30.8 |
| | 32.0 |
| | 15.4 |
| | 16.2 |
| | 18.3 |
| | 42.7 |
| | 47.0 |
| | 50.3 |
|
Expected return on plan assets (2) | (31.3 | ) | | (30.9 | ) | | (32.5 | ) | | (25.1 | ) | | (26.0 | ) | | (28.7 | ) | | (56.4 | ) | | (56.9 | ) | | (61.2 | ) |
Amortization of unrecognized prior service cost (credits) (2) | — |
| | — |
| | — |
| | 2.7 |
| | (0.2 | ) | | — |
| | 2.7 |
| | (0.2 | ) | | — |
|
Settlement (3) | — |
| | (9.7 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (9.7 | ) | | — |
|
Curtailment (3) | — |
| | — |
| | — |
| | — |
| | — |
| | (1.3 | ) | | — |
| | — |
| | (1.3 | ) |
Actuarial loss (2) | 23.7 |
| | 0.8 |
| | 20.3 |
| | 11.2 |
| | 3.2 |
| | 48.5 |
| | 34.9 |
| | 4.0 |
| | 68.8 |
|
| Net periodic benefit cost (income) | $ | 19.7 |
| | $ | (9.0 | ) | | $ | 19.8 |
| | $ | 6.9 |
| | $ | (4.3 | ) | | $ | 39.3 |
| | $ | 26.6 |
| | $ | (13.3 | ) | | $ | 59.1 |
|
| | | | | | | | | | | | | | | | | | |
| |
| (1) | TheService cost is included in warehouse, selling and administrative expenses. |
| |
| (2) | These amounts are included in other expense, net. |
| |
| (3) | In 2017, the settlement andgain is related to a lump sum offering accepted by participants in the USA segment. In 2016, the curtailment gains aregain is a result of the restructuring activities in the EMEA segment. Settlement and curtailment gains are included in other expense, net. |
The following summarizes pre-tax amounts included in accumulated other comprehensive loss at December 31, 2018 related to pension plan amendments:
|
| | | |
| (in millions) | Defined benefit pension plans |
| Net prior service cost | $ | (1.2 | ) |
The following table summarizes the amounts in accumulated other comprehensive loss at December 31, 2018 that are expected to be amortized as components of net periodic benefit cost (income) during the next fiscal year related to pension amendments:
|
| | | |
| (in millions) | Defined benefit pension plans |
| Prior service cost | $ | (0.1 | ) |
Other postretirement benefit plan
Other postretirement benefits relate to a health care plan for retired employees in the US. In 2009, the Company approved a plan to phase out the benefits provided under this plan by 2020. As a result of this change, the benefit obligation was reduced by $76.8 million and a curtailment gain of $73.1 million was recognized in accumulated other comprehensive loss and
iswas being amortized to the consolidated statements of operations over the average future service period, which
has approximately three months remainingwas fully amortized as of December 31,
2015.2016.
The following summarizes the Company’s other postretirement benefit plan’s accumulated postretirement benefit obligation, plan assets and funded status:
| | | | | | | | |
| | | Other postretirement
benefits | |
| | | Year ended December 31, | |
(in millions) | | 2015 | | | 2014 | |
Change in accumulated postretirement benefit obligations: | | | | | | | | |
Actuarial present value of benefit obligations at beginning of year | | $ | 6.7 | | | $ | 7.9 | |
Service cost | | | 0.1 | | | | 0.1 | |
Interest cost | | | 0.2 | | | | 0.4 | |
Contributions by participants | | | 0.5 | | | | 1.0 | |
Benefits paid | | | (0.6 | ) | | | (1.0 | ) |
Actuarial gain | | | (3.5 | ) | | | (1.7 | ) |
| | | | | | | | |
Actuarial present value of benefit obligations at end of year | | $ | 3.4 | | | $ | 6.7 | |
| | | | | | | | |
Change in the fair value of plan assets: | | | | | | | | |
Plan assets at beginning of year | | $ | — | | | $ | — | |
Contributions by employer | | | 0.1 | | | | — | |
Contributions by participants | | | 0.5 | | | | 1.0 | |
Benefits paid | | | (0.6 | ) | | | (1.0 | ) |
| | | | | | | | |
Plan assets at end of year | | | — | | | | — | |
| | | | | | | | |
Funded status at end of year | | $ | (3.4 | ) | | $ | (6.7 | ) |
| | | | | | | | |
|
| | | | | | | |
| | Other postretirement benefits |
| | Year ended December 31, |
| (in millions) | 2018 | | 2017 |
| Change in accumulated postretirement benefit obligations: | | | |
| Actuarial present value of benefit obligations at beginning of year | $ | 2.5 |
| | $ | 2.8 |
|
| Service cost | — |
| | — |
|
| Interest cost | — |
| | 0.2 |
|
| Contributions by participants | 0.5 |
| | 0.4 |
|
| Benefits paid | (0.5 | ) | | (0.7 | ) |
| Actuarial gain | (0.7 | ) | | (0.2 | ) |
| Actuarial present value of benefit obligations at end of year | $ | 1.8 |
| | $ | 2.5 |
|
| Change in the fair value of plan assets: | | | |
| Plan assets at beginning of year | $ | — |
| | $ | — |
|
| Contributions by employer | — |
| | 0.3 |
|
| Contributions by participants | 0.5 |
| | 0.4 |
|
| Benefits paid | (0.5 | ) | | (0.7 | ) |
| Plan assets at end of year | $ | — |
| | $ | — |
|
| Funded status at end of year | $ | (1.8 | ) | | $ | (2.5 | ) |
Net amounts related to the Company’s other postretirement benefit plan recognized in the consolidated balance sheets consist of: | | | | | | | | |
| | | Other postretirement
benefits | |
| | | December 31, | |
(in millions) | | 2015 | | | 2014 | |
Current portion of net benefit obligation in other accrued expenses | | $ | (0.4 | ) | | $ | (0.9 | ) |
Long-term portion of net benefit obligation in pension and other postretirement benefit liabilities | | | (3.0 | ) | | | (5.8 | ) |
| | | | | | | | |
Net liability recognized at end of year | | $ | (3.4 | ) | | $ | (6.7 | ) |
| | | | | | | | |
|
| | | | | | | |
| | Other postretirement benefits |
| | December 31, |
| (in millions) | 2018 | | 2017 |
| Current portion of net benefit obligation in other accrued expenses | $ | (0.4 | ) | | $ | (0.4 | ) |
| Long-term portion of net benefit obligation in pension and other postretirement benefit liabilities | (1.4 | ) | | (2.1 | ) |
| Net liability recognized at end of year | $ | (1.8 | ) | | $ | (2.5 | ) |
The following table summarizes the components of net periodic benefit creditincome recognized in the consolidated statements of operations related to other postretirement benefit plans: | | | | | | | | | | | | |
| | | Other postretirement
benefits | |
| | | Year ended December 31, | |
(in millions) | | 2015 | | | 2014 | | | 2013 | |
Service cost | | $ | (0.1 | ) | | $ | (0.1 | ) | | $ | (0.1 | ) |
Interest cost | | | (0.2 | ) | | | (0.4 | ) | | | (0.3 | ) |
Amortization of unrecognized prior service credits | | | 11.9 | | | | 11.9 | | | | 12.0 | |
Actuarial gain | | | 3.5 | | | | 1.7 | | | | 1.0 | |
| | | | | | | | | | | | |
Net periodic benefit credit | | $ | 15.1 | | | $ | 13.1 | | | $ | 12.6 | |
| | | | | | | | | | | | |
The following summarizes pre-tax amounts included in accumulated other comprehensive loss related to other postretirement benefit plans:
| | | | | | | | |
| | | Other postretirement
benefits | |
| | | December 31, | |
(in millions) | | 2015 | | | 2014 | |
Net prior service credit | | $ | 3.9 | | | $ | 15.8 | |
The following table summarizes the amounts in accumulated other comprehensive loss at December 31, 2015 that are expected to be amortized as components of net periodic benefit credit during the next fiscal year related to other postretirement benefit plans:
| | | | |
(in millions) | | Other
postretirement
benefits | |
Prior service credit | | $ | 3.9 | |
|
| | | | | | | | | | | |
| | Other postretirement benefits |
| | Year ended December 31, |
| (in millions) | 2018 | | 2017 | | 2016 |
Service cost (1) | $ | — |
| | $ | — |
| | $ | — |
|
Interest cost (2) | — |
| | 0.2 |
| | 0.1 |
|
Amortization of unrecognized prior service credits (2) | — |
| | — |
| | (4.5 | ) |
Actuarial gain (2) | (0.7 | ) | | (0.2 | ) | | (0.2 | ) |
| Net periodic benefit income | $ | (0.7 | ) | | $ | — |
| | $ | (4.6 | ) |
| | | | | | |
| |
| (1) | Service cost is included in warehouse, selling and administrative expenses. |
| |
| (2) | These amounts are included in other expense, net. |
Defined benefit pension plans
The significant weighted average actuarial assumptions used in determining the benefit obligations and net periodic benefit cost
(credit)(income) for the Company’s defined benefit plans are as follows:
| | | | | | | | | | | | | | | | |
| | | Domestic | | | Foreign | |
| | | December 31, | | | December 31, | |
| | | 2015 | | | 2014 | | | 2015 | | | 2014 | |
Actuarial assumptions used to determine benefit obligations at end of period: | | | | | | | | | | | | | | | | |
Discount rate | | | 4.74 | % | | | 4.31 | % | | | 4.25 | % | | | 3.51 | % |
Expected annual rate of compensation increase | | | N/A | | | | N/A | | | | 2.86 | % | | | 2.80 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Domestic | | | Foreign | |
| | | Year ended December 31, | | | Year ended December 31, | |
| | | 2015 | | | 2014 | | | 2013 | | | 2015 | | | 2014 | | | 2013 | |
Actuarial assumptions used to determine net periodic benefit cost (credit) for the period: | | | | | | | | | | | | | | | | | | | | | | | | |
Discount rate | | | 4.31 | % | | | 5.25 | % | | | 4.33 | % | | | 3.51 | % | | | 4.29 | % | | | 3.93 | % |
Expected rate of return on plan assets | | | 7.50 | % | | | 7.50 | % | | | 7.50 | % | | | 6.07 | % | | | 6.06 | % | | | 6.13 | % |
Expected annual rate of compensation increase | | | N/A | | | | N/A | | | | N/A | | | | 2.80 | % | | | 2.82 | % | | | 3.04 | % |
|
| | | | | | | | | | | |
| | Domestic | | Foreign |
| | December 31, | | December 31, |
| | 2018 | | 2017 | | 2018 | | 2017 |
| Actuarial assumptions used to determine benefit obligations at end of period: | | | | | | | |
| Discount rate | 4.47 | % | | 3.87 | % | | 2.92 | % | | 2.61 | % |
| Expected annual rate of compensation increase | N/A |
| | N/A |
| | 2.85 | % | | 2.87 | % |
|
| | | | | | | | | | | | | | | | | |
| | Domestic | | Foreign |
| | Year ended December 31, | | Year ended December 31, |
| | 2018 | | 2017 | | 2016 | | 2018 | | 2017 | | 2016 |
| Actuarial assumptions used to determine net periodic benefit cost (income) for the period: | | | | | | | | | | | |
| Discount rate | 3.87 | % | | 4.39 | % | | 4.74 | % | | 2.61 | % | | 2.84 | % | | 3.65 | % |
| Expected rate of return on plan assets | 6.75 | % | | 7.00 | % | | 7.50 | % | | 4.43 | % | | 5.01 | % | | 6.18 | % |
| Expected annual rate of compensation increase | N/A |
| | N/A |
| | N/A |
| | 2.87 | % | | 2.87 | % | | 2.86 | % |
Discount rates are used to measure benefit obligations and the interest cost component of net periodic benefit cost
(credit)(income). The Company selects its discount rates based on the consideration of equivalent yields on high-quality fixed income investments at each measurement date. Discount rates are based on a benefit cash flow-matching approach and represent the rates at which the Company’s benefit obligations could effectively be settled as of the measurement date.
For domestic defined benefit plans, the discount rates are based on a hypothetical bond portfolio approach. The hypothetical bond portfolio is constructed to comprise AA-rated corporate bonds whose cash flow from coupons and maturities match the expected future plan benefit payments.
The discount rate for the foreign defined benefit plans are based on a yield curve approach. For plans in countries with a sufficient corporate bond market, the expected future benefit payments are matched with a yield
curve derived from AA-rated corporate bonds, subject to minimum amounts outstanding and meeting other selection criteria. For plans in countries without a sufficient corporate bond market, the yield curve is constructed based on prevailing government yields and an estimated credit spread to reflect a corporate risk premium.
The expected long-term rate of return on plan assets reflects management’s expectations on long-term average rates of return on funds invested to provide for benefits included in the benefit obligations. The long-term rate of return assumptions are based on the outlook for equity and fixed income returns, with consideration of historical returns, asset allocations, investment strategies and premiums for active management when appropriate. Assumptions reflect the expected rates of return at the beginning of the year.
The Company adopted new US mortality tables in the year ended December 31, 2014 for purposes of determining the Company’s mortality assumption used in the US defined benefit plans’ liability calculation. The new assumptions considered the Society of Actuary’s recent mortality experience study and reflect a version of the table and future improvements produced. The updated mortality assumption resulted in an increase of approximately $32.0 million or 4.5% to the benefit obligation as of December 31, 2014 after reflecting the discount rate change.
Other postretirement benefit plan
For the other postretirement benefit plan, the discount rate used to determine the benefit obligation at December 31,
20152018 and
20142017 was
4.54%4.63% and
3.80%3.98%, respectively. The discount rate used to determine net periodic benefit credit for the year ended December 31,
2015, 20142018, 2017 and
20132016 was
3.80%3.98%,
4.02%4.37% and
3.23%4.54%, respectively. Health care cost increases did not have a significant impact on the Company’s postretirement benefit obligations in the years presented as a result of the 2009 plan to phase out the health care benefits provided under the US plan.
Plan assets for defined benefit plans are invested in global equity and debt securities through professional investment managers with the objective to achieve targeted risk adjusted returns and to maintain liquidity sufficient to fund current benefit payments. Each funded defined benefit plan has an investment policy that is administered by plan trustees with the objective of meeting targeted asset allocations based on the circumstances of that particular plan. The investment strategy followed by the Company varies by country
depending on the circumstances of the underlying plan. Less mature plan benefit obligations are funded by using more equity securities as they are expected to achieve long-term growth while exceeding inflation. More mature plan benefit obligations are funded using a higher allocation of fixed income securities as they are expected to produce current income with limited volatility. The Company has adopted a dynamic investment strategy whereby as the plan funded status improves, the investment strategy is migrated to more liability matching assets, and return seeking assets are reduced. Risk management practices include the use of multiple asset classes for diversification purposes. Specific guidelines for each asset class and investment manager are implemented and monitored.
The weighted average target asset allocation for defined benefit pension plans in the year ended December 31,
20152018 is as follows:
| | | | | | | | |
| | | Domestic | | | Foreign | |
Asset category: | | | | | | | | |
Equity securities | | | 50.0 | % | | | 39.3 | % |
Debt securities | | | 45.0 | % | | | 45.7 | % |
Other | | | 5.0 | % | | | 15.0 | % |
| | | | | | | | |
Total | | | 100.0 | % | | | 100.0 | % |
| | | | | | | | |
|
| | | | | |
| | Domestic | | Foreign |
| Asset category: | | | |
| Equity securities | 50.0 | % | | 28.2 | % |
| Debt securities | 45.0 | % | | 66.1 | % |
| Other | 5.0 | % | | 5.7 | % |
| Total | 100.0 | % | | 100.0 | % |
Plan asset valuation methodologies are described below:
|
| |
Fair value methodology | | Description |
| Cash | | This represents cash at banks. The amount of cash in the bank account represents the fair value. |
| |
| Investment funds | | Values are based on the net asset value of the units held at year end. The net asset values are based on the fair value of the underlying assets of the funds, minus their liabilities, and then divided by the number of units outstanding at the valuation date. The funds are traded on private markets that are not active; however, the unit price is based primarily on observable market data of the fund’s underlying assets. |
| |
| Insurance contracts | | The fair value is based on the present value of the accrued benefit. |
Domestic defined benefit plan assets
The Company classified its domestic plan assets according to the fair value hierarchy described in “Note 2: Significant accounting policies.” The following summarizes the fair value of domestic plan assets by asset category and level within the fair value hierarchy.
| | | | | | | | | | | | |
| | | December 31, 2015 | |
(in millions) | | Total | | | Level 1 | | | Level 2 | |
Cash | | $ | 2.3 | | | $ | 2.3 | | | $ | — | |
Investments funds(1) | | | 495.3 | | | | — | | | | 495.3 | |
| | | | | | | | | | | | |
Total | | $ | 497.6 | | | $ | 2.3 | | | $ | 495.3 | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | December 31, 2018 |
| (in millions) | Total | | Level 1 | | Level 2 |
| Cash | $ | 2.4 |
| | $ | 2.4 |
| | $ | — |
|
Investments funds (1) | 426.2 |
| | — |
| | 426.2 |
|
| Total | $ | 428.6 |
| | $ | 2.4 |
| | $ | 426.2 |
|
| | | | | | |
| |
| (1) | This category includes investments in 29.6%in US equities, 19.4%in non-US equities, 46.3%in US corporate bonds and 4.7% in other investments. |
|
| | | | | | | | | | | |
| | December 31, 2017 |
| (in millions) | Total | | Level 1 | | Level 2 |
| Cash | $ | 2.6 |
| | $ | 2.6 |
| | $ | — |
|
Investments funds (1) | 529.7 |
| | — |
| | 529.7 |
|
| Total | $ | 532.3 |
| | $ | 2.6 |
| | $ | 529.7 |
|
| | | | | | |
| |
| (1) | This category includes investments in 30.3%30.8% in US equities, 19.6%19.7% in non-US equities, 45.1%44.5% in US corporate bonds and 5.0% in other investments. |
| | | | | | | | | | | | |
| | | December 31, 2014 | |
(in millions) | | Total | | | Level 1 | | | Level 2 | |
Cash | | $ | 2.1 | | | $ | 2.1 | | | $ | — | |
Investments funds(1) | | | 520.0 | | | | — | | | | 520.0 | |
| | | | | | | | | | | | |
Total | | $ | 522.1 | | | $ | 2.1 | | | $ | 520.0 | |
| | | | | | | | | | | | |
(1) | This category includes investments in 31.0% in US equities, 18.1% in non-US equities, 45.9% in US corporate bonds and 5.0% in other investments. |
Foreign defined benefit plan assets
The Company classified its foreign plan assets according to the fair value hierarchy described in “Note 2: Significant accounting policies.” The following summarizes the fair value of foreign plan assets by asset category and level within the fair value hierarchy:
| | | | | | | | | | | | | | | | |
| | | December 31, 2015 | |
(in millions) | | Total | | | Level 1 | | | Level 2 | | | Level 3 | |
Cash | | $ | 7.6 | | | $ | 7.6 | | | $ | — | | | $ | — | |
Investments: | | | | | | | | | | | | | | | | |
Investment funds(1) | | | 460.1 | | | | — | | | | 460.1 | | | | — | |
Insurance contracts | | | 13.8 | | | | — | | | | — | | | | 13.8 | |
| | | | | | | | | | | | | | | | |
Total investments | | | 473.9 | | | | — | | | | 460.1 | | | | 13.8 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 481.5 | �� | | $ | 7.6 | | | $ | 460.1 | | | $ | 13.8 | |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| | December 31, 2018 |
| (in millions) | Total | | Level 1 | | Level 2 | | Level 3 |
| Cash | $ | 9.7 |
| | $ | 9.7 |
| | $ | — |
| | $ | — |
|
| Investments: | | | | | | | |
Investment funds (1) | 494.0 |
| | — |
| | 494.0 |
| | — |
|
| Insurance contracts | 18.5 |
| | — |
| | — |
| | 18.5 |
|
| Total investments | $ | 512.5 |
| | $ | — |
| | $ | 494.0 |
| | $ | 18.5 |
|
| Total | $ | 522.2 |
| | $ | 9.7 |
| | $ | 494.0 |
| | $ | 18.5 |
|
| | | | | | | | |
| |
| (1) | This category includes investments in 11.6%8.0% in US equities, 29.7%17.5% in non-US equities, 4.1% in US corporate bonds, 24.2%34.2% in non-US corporate bonds, 0.3% in US government bonds, 17.7%36.3% in non-US government bonds and 12.4%4.0% in other investments. |
The following table presents changes in the foreign plan assets valued using significant unobservable inputs (Level 3):
| | | | |
(in millions) | | Insurance
contracts | |
Balance at January 1, 2015 | | $ | 14.8 | |
Actual return to plan assets: | | | | |
Related to assets still held at year end | | | 0.6 | |
Purchases, sales and settlements, net | | | (0.1 | ) |
Foreign exchange | | | (1.5 | ) |
| | | | |
Balance at December 31, 2015 | | $ | 13.8 | |
| | | | |
|
| | | |
| (in millions) | Insurance contracts |
| Balance at January 1, 2018 | $ | 18.2 |
|
| Actual return to plan assets: | |
| Related to assets still held at year end | 0.7 |
|
| Purchases, sales and settlements, net | 0.4 |
|
| Foreign exchange | (0.8 | ) |
| Balance at December 31, 2018 | $ | 18.5 |
|
The following summarizes the fair value of foreign plan assets by asset category and level within the fair value hierarchy:
| | | | | | | | | | | | | | | | |
| | | December 31, 2014 | |
(in millions) | | Total | | | Level 1 | | | Level 2 | | | Level 3 | |
Cash | | $ | 1.9 | | | $ | 1.9 | | | $ | — | | | $ | — | |
Investments: | | | | | | | | | | | | | | | | |
Investment funds(1) | | | 499.9 | | | | — | | | | 499.9 | | | | — | |
Insurance contracts | | | 14.8 | | | | — | | | | — | | | | 14.8 | |
| | | | | | | | | | | | | | | | |
Total investments | | | 514.7 | | | | — | | | | 499.9 | | | | 14.8 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 516.6 | | | $ | 1.9 | | | $ | 499.9 | | | $ | 14.8 | |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| | December 31, 2017 |
| (in millions) | Total | | Level 1 | | Level 2 | | Level 3 |
| Cash | $ | 4.0 |
| | $ | 4.0 |
| | $ | — |
| | $ | — |
|
| Investments: | | | | | | | |
Investment funds (1) | 552.7 |
| | — |
| | 552.7 |
| | — |
|
| Insurance contracts | 18.2 |
| | — |
| | — |
| | 18.2 |
|
| Total investments | $ | 570.9 |
| | $ | — |
| | $ | 552.7 |
| | $ | 18.2 |
|
| Total | $ | 574.9 |
| | $ | 4.0 |
| | $ | 552.7 |
| | $ | 18.2 |
|
| | | | | | | | |
| |
| (1) | This category includes investments in 11.1%11.0% in US equities, 35.9%22.0% in non-US equities, 3.6% in US corporate bonds, 9.5%29.2% in non-US corporate bonds, 0.7% in US government bonds, 28.8%32.0% in non-US government bonds and 10.4%5.8% in other investments. |
The following table presents changes in the foreign plan assets valued using significant unobservable inputs (Level 3):
| | | | |
(in millions) | | Insurance
contracts | |
Balance at January 1, 2014 | | $ | 14.2 | |
Actual return on plan assets: | | | | |
Related to assets still held at year end | | | 2.0 | |
Purchases, sales and settlements, net | | | 0.6 | |
Foreign exchange | | | (2.0 | ) |
| | | | |
Balance at December 31, 2014 | | $ | 14.8 | |
| | | | |
|
| | | |
| (in millions) | Insurance contracts |
| Balance at January 1, 2017 | $ | 15.6 |
|
| Actual return on plan assets: | |
| Related to assets still held at year end | 0.1 |
|
| Purchases, sales and settlements, net | 0.3 |
|
| Foreign exchange | 2.2 |
|
| Balance at December 31, 2017 | $ | 18.2 |
|
The Company expects to contribute approximately
$0.0$13.4 million and
$28.1$14.9 million to its domestic and foreign defined benefit pension plan funds in
2016,2019, respectively, including direct payments to plan participants in unfunded plans. The Company does not plan on making any discretionary contributions in
2016.2019. In many countries, local pension protection laws have been put in place, which have introduced minimum funding requirements for qualified pension plans. As a result, the Company’s required funding of contributions to its pension plans may vary in the future.
The following table shows benefit payments that are projected to be paid from plan assets in each of the next five years and in aggregate for five years thereafter:
| | | | | | | | | | | | | | | | |
| | | Defined benefit pension plans | | | Other
postretirement
benefits | |
(in millions) | | Domestic | | | Foreign | | | Total | | |
2016 | | $ | 32.4 | | | $ | 17.5 | | | $ | 49.9 | | | $ | 0.5 | |
2017 | | | 34.0 | | | | 19.3 | | | | 53.3 | | | | 0.5 | |
2018 | | | 35.5 | | | | 19.3 | | | | 54.8 | | | | 0.6 | |
2019 | | | 37.2 | | | | 22.8 | | | | 60.0 | | | | 0.6 | |
2020 | | | 38.4 | | | | 21.0 | | | | 59.4 | | | | 0.1 | |
2021 through 2025 | | | 210.5 | | | | 114.9 | | | | 325.4 | | | | 0.4 | |
|
| | | | | | | | | | | | | | | |
| | Defined benefit pension plans | | Other postretirement benefits |
| (in millions) | Domestic | | Foreign | | Total | |
| 2019 | $ | 33.9 |
| | $ | 16.2 |
| | $ | 50.1 |
| | $ | 0.5 |
|
| 2020 | 35.0 |
| | 16.4 |
| | 51.4 |
| | 0.1 |
|
| 2021 | 35.9 |
| | 17.3 |
| | 53.2 |
| | 0.1 |
|
| 2022 | 36.8 |
| | 19.4 |
| | 56.2 |
| | 0.1 |
|
| 2023 | 37.8 |
| | 19.7 |
| | 57.5 |
| | 0.1 |
|
| 2024 through 2028 | 198.9 |
| | 112.3 |
| | 311.2 |
| | 0.3 |
|
Defined contribution plans
The Company provides defined contribution plans to assist eligible employees in providing for retirement or other future needs. Under such plans, company contribution expense amounted to
$31.4$32.0 million,
$30.8$30.0 million and
$28.9$33.4 million in the years ended December 31,
2015, 20142018, 2017 and
2013,2016, respectively.
The Company has
1817 union bargaining agreements in the US that stipulate contributions to one of three union pension trusts. These bargaining agreements are generally negotiated on three-year cycles and cover employees in driver and material handler positions at 16 represented locations.
The risks of participating in these multi-employer plans are different from single-employer plans in the following aspects:
| a. | Assets contributed to the multi-employer plan by the Company may be used to provide benefits to employees of other participating employers. |
| b. | If the Company stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers. |
| c. | If the Company chooses to stop participating in some of its multi-employer plans, it may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability. |
Assets contributed to the multi-employer plan by the Company may be used to provide benefits to employees of other participating employers.
If the Company stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.
If the Company chooses to stop participating in some of its multi-employer plans, it may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.
The Company’s participation in these plans for the annual period ended December 31,
20152018 is outlined in the table below. The “EIN/Pension Plan Number” column provides the Employee Identification Number (EIN) and the three-digit plan number. Unless otherwise noted, the most recent Pension Protection Act (PPA) zone status available in
20152018 and
20142017 is for the plan’s year end at December 31,
20142017 and December 31,
2013,2016, respectively. The zone status is based on information that the Company received from the plan and is certified by the plan’s actuary. Among other factors, plans in the “red zone” are less than 65 percent funded, plans in the “yellow zone” are less than 80 percent funded and plans in the “green zone” are at least 80 percent funded. The “FIP/RP Status Pending/Implemented” column indicates plans for which a financial improvement plan (FIP) or a rehabilitation plan (RP) is either pending or has been implemented. The last column lists the expiration dates of the collective-bargaining agreement(s) to which the plans are subject. There are no minimum contributions required for future periods by the collective-bargaining agreements, statutory obligations or other contractual obligations.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Pension fund | | EIN/Pension
plan number | | PPA zone status | | FIP/RP
status
pending/
implemented | | | Contributions(1) | | | Surcharge
imposed | | Expiration
dates of
collective
bargaining
agreement(s) |
| | | | | Year ended
December 31, | | | |
| | | 2015 | | 2014 | | | 2015 | | | 2014 | | | 2013 | | | |
Western Conference of Teamsters Pension Plan | | 91-6145047/001 | | Green | | Green | | | No | | | $ | 1.4 | | | $ | 1.4 | | | $ | 1.4 | | | No | | January 31, 2016 to
September 30, 2018 |
Central States, Southeast and Southwest Areas Pension Plan | | 36-6044243/001 | | Red as of
January 1,
2014 | | Red | | | Implemented | | | | 1.1 | | | | 1.1 | | | | 1.1 | | | No | | February 28, 2016
toMarch 31, 2019 |
New England Teamsters and Trucking Industry Pension Fund | | 04-6372430/001 | | Red as of
October 1,
2014 | | Red as of
October 1,
2013 | | | Implemented | | | | 0.1 | | | | 0.1 | | | | 0.1 | | | No | | June 30, 2017 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Total
contributions: |
| | $ | 2.6 | | | $ | 2.6 | | | $ | 2.6 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Pension fund | EIN/Pension plan number | | PPA zone status | | FIP/RP status pending/ implemented | | Contributions (1) | | Surcharge imposed | | Expiration dates of collective bargaining agreement(s) |
Year ended December 31, | |
| 2018 | | 2017 | | 2018 | | 2017 | | 2016 | |
| Western Conference of Teamsters Pension Plan | 91-6145047/001 | | Green | | Green | | No | | $ | 1.5 |
| | $ | 1.5 |
| | $ | 1.7 |
| | No | | January 31, 2019 to September 30, 2021 |
| Central States, Southeast and Southwest Areas Pension Plan | 36-6044243/001 | | Red as of January 1, 2017 | | Red as of
January 1,
2016 | | Implemented | | 1.0 |
| | 1.1 |
| | 1.1 |
| | No | | March 31, 2019 to November 30, 2022 |
| New England Teamsters and Trucking Industry Pension Fund | 04-6372430/001 | | Red as of October 1, 2016 | | Red as of
October 1,
2016 | | Implemented | | 0.2 |
| | 0.1 |
| | 0.1 |
| | No | | June 30, 2020 |
| | | | | | | | Total contributions: | | $ | 2.7 |
| | $ | 2.7 |
| | $ | 2.9 |
| | | | |
| | | | | | | | | | | | | | | | | | |
| |
| (1) | The plan contributions by the Company did not represent more than five percent of total contributions to the plans as indicated in the plans’ most recently available annual report. |
9.
10. Stock-based compensation In
June 2015,May 2017, the Company replaced and succeeded the Univar Inc.
20112015 Stock Incentive Plan (the
“2011“2015 Plan”) with the Univar Inc.
20152017 Omnibus Equity Incentive Plan (the
“2015“2017 Plan”). The
20112015 Plan
will havehad no further awards granted and any available reserves under the
20112015 Plan were
terminatedtransferred and
not transferred toavailable for issuance under the
20152017 Plan. There were no changes to the outstanding awards related to the
2015 and the Univar Inc. 2011
Plan.Stock Incentive Plan (the “2011 Plan;” and, together with the 2015 Plan and the 2017 Plan (the “Plans”).
The
20152017 Plan allows the Company to issue awards to employees, consultants, and directors of the Company and its subsidiaries. Awards may be made in the form of stock options, stock purchase rights, restricted stock, restricted stock units, performance shares, performance units, stock appreciation rights, dividend equivalents, deferred share units or other stock-based awards.
As of December 31,
2015, under the 2011 Plan2018, there were
5.09.9 million shares authorized
related to outstanding stock options and restricted stock and under the
2015 plan there were 4.0 million shares authorized.Plans.
For the years ended December 31,
2015, 20142018, 2017 and
2013,2016, respectively, the Company recognized total stock-based compensation expense within other operating expenses, net of
$7.5$20.7 million,
$12.1$19.7 million and
$15.1$10.4 million, and a net tax
benefitexpense (benefit) relating to stock-based compensation expense of
$2.6$(2.6) million,
$4.2$(3.7) million and
$4.1$0.1 million.
The 2018 grants included provisions for stock option grants, restricted stock units and performance-based restricted stock units such that once an employee meets the retirement eligibility requirements, any remaining unvested share-based awards will continue to vest regardless of termination of service. Consequently, the requisite service period for the award is satisfied upon retirement eligibility. The Company expenses the grant date fair value of each award on a straight-line basis over the requisite service period for each separately vesting tranche of an award; however, expense recognition is accelerated for retirement eligible individuals who meet the requirements for vesting upon retirement.
Stock options granted under the
2011 and 2015 Plans expire ten years after the grant date and generally become exercisable over a four-year period or less, based on continued employment, with annual vesting. The exercise price of a stock option is determined at the time of each grant and in no case will the exercise price be less than the fair value of the underlying common stock on the date of grant. Participants have no stockholder rights until the time of exercise. The Company will issue new shares upon exercise of stock options granted under the
Plan.Plans.
The following reflects stock option activity under the
2011 and 2015 Plans:
| | | | | | | | | | | | | | | | |
| | | Number of
stock
options | | | Weighted-
average
exercise price | | | Weighted-
average
remaining
contractual
term (in years) | | | Aggregate
intrinsic value
(in millions) | |
Outstanding at January 1, 2015 | | | 4,883,752 | | | $ | 19.57 | | | | | | | | | |
Granted | | | 950,505 | | | | 21.45 | | | | | | | | | |
Exercised | | | (156,128 | ) | | | 19.28 | | | | | | | | | |
Forfeited | | | (590,103 | ) | | | 20.64 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Outstanding at December 31, 2015 | | | 5,088,026 | | | | 19.81 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Exercisable at December 31, 2015 | | | 3,409,317 | | | | 19.59 | | | | 6.3 | | | $ | 1.3 | |
| | | | | | | | | | | | | | | | |
Expected to vest after December 31, 2015(1) | | | 1,510,838 | | | | 20.24 | | | | 8.3 | | | | 0.6 | |
| | | | | | | | | | | | | | | | |
(1) | The expected to vest stock options are the result of applying the pre-vesting forfeiture rate assumptions to nonvested stock options outstanding. |
|
| | | | | | | | | | | | |
| | Number of stock options | | Weighted- average exercise price | | Weighted- average remaining contractual term (in years) | | Aggregate intrinsic value (in millions) |
| Outstanding at January 1, 2018 | 2,608,609 |
| | $ | 22.92 |
| | | | |
| Granted | 899,361 |
| | 26.92 |
| | | | |
| Exercised | (282,170 | ) | | 20.89 |
| | | | |
| Forfeited | (181,646 | ) | | 26.77 |
| | | | |
| Outstanding at December 31, 2018 | 3,044,154 |
| | $ | 24.06 |
| | | | |
| Exercisable at December 31, 2018 | 1,796,819 |
| | $ | 21.90 |
| | 5.1 | | $ | 0.4 |
|
| Expected to vest after December 31, 2018 | 1,247,335 |
| | $ | 27.17 |
| | 8.7 | | $ | (11.8 | ) |
As of December 31,
2015,2018, the Company has unrecognized stock-based compensation expense related to
nonvestednon-vested stock options of approximately
$4.6$3.1 million, which will be recognized over a weighted-average period of
1.90.9 years.
Restricted stock
Restricted
Non-vested restricted stock
awardedprimarily relates to
employees vests over a four-year period, based on continued employment, with annual vesting. Restricted stock awarded toawards for members of the Company’s Board of Directors
vestswhich vest over 12 months. The
pricegrant date fair value of restricted stock is
determined atbased on the
timemarket price of
each grant and in no case will be less than the fair value of the underlying commonUnivar stock on
the date of grant. Nonvestedthat date. Non-vested shares of restricted stock may not be sold or transferred and are subject to
forfeiture.forfeiture until vesting. Both vested and
nonvestednon-vested shares of restricted stock are included in the Company’s shares outstanding. Dividend equivalents are available for
nonvestednon-vested shares of restricted stock if dividends are declared by the Company during the vesting period.
The following table reflects restricted stock activity under the
2011 and 2015 Plans:
| | | | | | | | |
| | | Restricted
stock | | | Weighted
average
grant-date
fair value | |
Nonvested at January 1, 2015 | | | 352,737 | | | $ | 20.35 | |
Granted | | | 54,552 | | | | 27.00 | |
Vested | | | (151,173 | ) | | | 20.66 | |
Forfeited | | | (18,897 | ) | | | 18.54 | |
| | | | | | | | |
Nonvested at December 31, 2015 | | | 237,219 | | | | 21.83 | |
| | | | | | | | |
|
| | | | | | |
| | Restricted stock | | Weighted average grant-date fair value |
| Non-vested at January 1, 2018 | 52,835 |
| | $ | 28.56 |
|
| Granted | 28,863 |
| | 28.50 |
|
| Vested | (48,966 | ) | | 28.42 |
|
| Forfeited | (3,952 | ) | | 30.37 |
|
| Non-vested at December 31, 2018 | 28,780 |
| | $ | 28.50 |
|
As of December 31,
2015,2018, the Company has unrecognized stock-based compensation expense related to
nonvestednon-vested restricted stock awards of approximately
$1.6$0.3 million, which will be recognized over a weighted-average period of
0.80.3 years.
The weighted-average grant-date fair value of restricted stock was $18.54$29.92 and $18.15 in 2014. In 2013, there were no2017 and 2016, respectively.
Restricted stock units (RSUs)
RSUs awarded to employees generally vest in three or four equal annual installments, subject to continued employment. Each RSU converts into one share of Univar common stock on the applicable vesting date. RSUs may not be sold, pledged or otherwise transferred until they vest and are subject to forfeiture. The grant date fair value is based on the market price of Univar stock on that date.
The following table reflects RSUs activity under the Plans:
|
| | | | | | |
| | Number of Restricted Stock Unit | | Weighted- average grant-date fair value |
| Non-vested at January 1, 2018 | 778,419 |
| | $ | 21.65 |
|
| Granted | 480,269 |
| | 26.16 |
|
| Vested | (365,346 | ) | | 22.67 |
|
| Forfeited | (92,142 | ) | | 20.81 |
|
| Non-vested at December 31, 2018 | 801,200 |
| | $ | 23.98 |
|
As of December 31, 2018, the Company has unrecognized stock-based compensation expense related to non-vested RSUs awards of approximately $7.6 million, which will be recognized over a weighted-average period of 1.0 years.
Performance-based restricted stock units (PRSUs)
The Company awarded performance based shares to certain employees. These awards vest upon the passage of time and the achievement of performance criteria. For grants
with Company based performance criteria, the vesting period is over three years with some shares vesting over each annual period. We review progress toward the attainment of
restricted stock.the performance criteria each quarter during the vesting period. When it is probable the minimum performance criteria for the award will be achieved, we begin recognizing the expense equal to the proportionate share of the total fair value. The total expense recognized over the duration of performance awards will equal the date of grant multiplied by the number of shares ultimately awarded based on the level of attainment of the performance criteria. For grants with market performance criteria, the fair value is determined on the grant date and is calculated using the same inputs for expected volatility, and risk-free rate as stock options, with a duration of two years. The total expense recognized over the duration of the award will equal the fair value, regardless if the market performance criteria is met.
The following table reflects PRSUs activity under the Plans:
|
| | | | | | |
| | Number of Performance-Based Restricted Stock Unit | | Weighted- average grant-date fair value |
| Non-vested at January 1, 2018 | 10,500 |
| | $ | 30.98 |
|
| Granted | 257,638 |
| | 27.01 |
|
| Vested | — |
| | — |
|
| Forfeited | (11,570 | ) | | 26.82 |
|
| Non-vested at December 31, 2018 | 256,568 |
| | $ | 27.18 |
|
As of December 31, 2018, the Company has unrecognized stock-based compensation expense related to non-vested PRSUs awards of approximately $3.8 million, which will be recognized over a weighted-average period of 1.9 years.
Employee stock purchase plan
During November 2016, our Board of Directors approved the Univar Employee Stock Purchase Plan, or ESPP, authorizing the issuances of up to 2.0 million shares of the Company’s common stock effective January 1, 2017. The ESPP allows qualified participants to purchase the Company’s common stock at 95% of its market price during the last day of two offering periods in each calendar year. The first offering period is January through June, and the second from July through December. Our stock purchase plan is designed to attract and retain employees while also aligning employees’ interests with the interests of our stockholders.
As of December 31, 2018, the total number of shares issued under the plan for the two offering periods in 2018 was 56,749 shares.
Stock-based compensation fair value assumptions
The fair value of the Company’s common stock was used to establish the exercise price of stock options granted, grant date fair value of restricted stock
and RSUs awards and as an input in the valuation of stock option awards
and performance-based RSUs at each grant date. Prior to the Company’s
June 2015 IPO, as discussed in
Note 1,“Note 1: Nature of operations”, the Company obtained contemporaneous quarterly valuations performed by an unrelated valuation specialist in support of each award. The fair value of the Company’s common stock was determined utilizing both income and market approaches, discounted for the lack of marketability. A discounted cash flow analysis was used to estimate fair value under the income approach. The market approach consisted of an analysis of multiples of comparable companies whose securities are traded publicly as well as other indicated market values of the Company by third parties. After the IPO, the fair value of the Company’s stock that is factored into the fair value of stock options and utilized for restricted stock,
RSUs and performance-based RSUs with internally developed performance conditions is based on the grant date closing price on the New York Stock Exchange.
In 2016, the Monte Carlo simulation was used to calculate the fair value of performance-based RSUs with market conditions. The length of each performance period was used as the expected term in the simulation for each respective tranche. The weighted average grant-date fair value of performance-based RSUs with market conditions was $10.49 for the year ended December 31, 2016. The weighted-average assumptions under the Monte Carlo simulation model were as follows:
|
| | |
| Year ended December 31, 2016 |
Risk-free interest rate (1) | 1.0 | % |
Expected dividend yield (2) | — |
|
Expected volatility (3) | 45.0 | % |
| |
| |
| (1) | The risk-free interest rate is based on the US Treasury yield for a period in years over which performance condition is satisfied. |
| |
| (2) | The Company currently has no expectation of paying cash dividends on its common stock. |
| |
| (3) | As the Company does not have sufficient historical volatility data, the expected volatility is based on the average historical data of a peer group of public companies over a period equal to the expected term of the performance-based RSUs. |
The Black-Scholes-Merton option valuation model was used to calculate the fair value of stock options. The weighted average grant-date fair value of stock options was
$6.78, $7.21$8.69 and
$5.87$8.40 for the years ended December 31,
2015, 20142018 and
2013,2017, respectively.
The weighted average grant-date fair value is not provided for the year ended December 31, 2016, as there were no stock options granted during the period. The weighted-average assumptions used under the Black-Scholes-Merton option valuation model were as follows:
| | | | | | | | | | | | |
| | | Year ended December 31, | |
| | | 2015 | | | 2014 | | | 2013 | |
Risk-free interest rate(1) | | | 1.7 | % | | | 1.8 | % | | | 1.5 | % |
Expected dividend yield(2) | | | — | % | | | — | % | | | — | % |
Expected volatility(3) | | | 28.3 | % | | | 34.5 | % | | | 35.7 | % |
Expected term (years)(4) | | | 6.2 | | | | 6.0 | | | | 6.1 | |
|
| | | | | | | | |
| | Year ended December 31, |
| | 2018 | | 2017 | | 2016 |
Risk-free interest rate (1) | 2.7 | % | | 2.1 | % | | — | % |
Expected dividend yield (2) | — |
| | — |
| | — |
|
Expected volatility (3) | 23.2 | % | | 25.5 | % | | — | % |
Expected term (years) (4) | 6.0 |
| | 5.9 |
| | 0.0 |
|
| | | | | | |
| |
| (1) | The risk-free interest rate is based on the US Treasury yield for a term consistent with the expected term of the stock options at the time of grant. |
| |
| (2) | The Company currently has no expectation of paying cash dividends on its common stock. |
| |
| (3) | As the Company does not have sufficient historical volatility data, the expected volatility is based on the average historical data of a peer group of public companies over a period equal to the expected term of the stock options. |
| |
| (4) | As the Company does not have sufficient historical exercise data under the 2011 and 2015 Plans, the expected term is based on the average of the vesting period of each tranche and the original contract term of 10 years. |
Additional stock-based compensation information
The following table provides additional stock-based compensation information:
| | | | | | | | | | | | |
| | | Year ended December 31, | |
(in millions) | | 2015 | | | 2014 | | | 2013 | |
Total intrinsic value of stock options exercised | | $ | 0.4 | | | $ | 1.1 | | | $ | 0.1 | |
Fair value of restricted stock vested | | | 2.9 | | | | 3.0 | | | | 1.8 | |
10.
|
| | | | | | | | | | | |
| | Year ended December 31, |
| (in millions) | 2018 | | 2017 | | 2016 |
| Total intrinsic value of stock options exercised | $ | 2.4 |
| | $ | 16.7 |
| | $ | 4.0 |
|
| Fair value of restricted stock, RSUs and PRSUs vested | 11.8 |
| | 22.8 |
| | 2.7 |
|
11. Accumulated other comprehensive loss The following table presents the changes in accumulated other comprehensive
lossincome (loss) by component, net of tax.
| | | | | | | | | | | | | | | | |
(in millions) | | Losses on
cash flow
hedges | | | Defined
benefit
pension items | | | Currency
translation
items | | | Total | |
Balance as of December 31, 2013 | | $ | (2.8 | ) | | $ | 17.6 | | | $ | (96.5 | ) | | $ | (81.7 | ) |
Other comprehensive loss before reclassifications | | | (4.7 | ) | | | — | | | | (118.3 | ) | | | (123.0 | ) |
Amounts reclassified from accumulated other comprehensive loss | | | 3.8 | | | | (7.3 | ) | | | — | | | | (3.5 | ) |
| | | | | | | | | | | | | | | | |
Net current period other comprehensive loss | | | (0.9 | ) | | | (7.3 | ) | | | (118.3 | ) | | | (126.5 | ) |
| | | | | | | | | | | | | | | | |
Balance as of December 31, 2014 | | $ | (3.7 | ) | | $ | 10.3 | | | $ | (214.8 | ) | | $ | (208.2 | ) |
| | | | | | | | | | | | | | | | |
Other comprehensive loss before reclassifications | | | (3.0 | ) | | | — | | | | (212.6 | ) | | | (215.6 | ) |
Amounts reclassified from accumulated other comprehensive loss | | | 6.7 | | | | (7.3 | ) | | | — | | | | (0.6 | ) |
| | | | | | | | | | | | | | | | |
Net current period other comprehensive (loss) income | | | 3.7 | | | | (7.3 | ) | | | (212.6 | ) | | | (216.2 | ) |
| | | | | | | | | | | | | | | | |
Balance as of December 31, 2015 | | $ | — | | | $ | 3.0 | | | $ | (427.4 | ) | | $ | (424.4 | ) |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| (in millions) |
Cash flow hedges | | Defined benefit pension items | | Currency translation items | | Total |
| Balance as of December 31, 2016 | $ | — |
| | $ | 1.2 |
| | $ | (391.1 | ) | | $ | (389.9 | ) |
| Other comprehensive income (loss) before reclassifications | 4.4 |
| | (2.2 | ) | | 107.1 |
| | 109.3 |
|
| Amounts reclassified from accumulated other comprehensive loss | 2.3 |
| | (0.2 | ) | | — |
| | 2.1 |
|
| Net current period other comprehensive income (loss) | $ | 6.7 |
| | $ | (2.4 | ) | | $ | 107.1 |
| | $ | 111.4 |
|
| Balance as of December 31, 2017 | $ | 6.7 |
| | $ | (1.2 | ) | | $ | (284.0 | ) | | $ | (278.5 | ) |
Impact due to adoption of ASU 2017-12 (1) | $ | 0.5 |
| | $ | — |
| | $ | — |
| | $ | 0.5 |
|
| Other comprehensive income (loss) before reclassifications | 8.3 |
| | (2.0 | ) | | (97.0 | ) | | (90.7 | ) |
| Amounts reclassified from accumulated other comprehensive loss | (6.6 | ) | | 2.1 |
| | — |
| | (4.5 | ) |
| Net current period other comprehensive income (loss) | $ | 2.2 |
| | $ | 0.1 |
| | $ | (97.0 | ) | | $ | (94.7 | ) |
| Balance as of December 31, 2018 | $ | 8.9 |
| | $ | (1.1 | ) | | $ | (381.0 | ) | | $ | (373.2 | ) |
| | | | | | | | |
| |
| (1) | Adjusted due to the adoption of ASU 2017-12 “Targeted Improvements to Accounting for Hedging Activities” on January 1, 2018. Refer to “Note 2: Significant accounting policies” for more information. |
The following is a summary of the amounts reclassified from accumulated other comprehensive loss to net income (loss).
| | | | | | | | | | |
(in millions) | | Year ended
December 31,
2015(1) | | | Year ended
December 31,
2014(1) | | | Location of impact on
statement of operations |
Amortization of defined benefit pension items: | | | | | | | | | | |
Prior service credits | | $ | (11.9 | ) | | $ | (11.9 | ) | | Warehousing, selling and administrative |
Tax expense | | | 4.6 | | | | 4.6 | | | Income tax expense (benefit) |
| | | | | | | | | | |
Net of tax | | | (7.3 | ) | | | (7.3 | ) | | |
Cash flow hedges: | | | | | | | | | | |
Interest rate swap contracts | | | 3.1 | | | | 5.9 | | | Interest expense |
Interest rate swap contracts – loss due to discontinuance of hedge accounting | | | 7.5 | | | | — | | | Other (expense) income, net |
Tax benefit | | | (3.9 | ) | | | (2.1 | ) | | Income tax expense (benefit) |
| | | | | | | | | | |
Net of tax | | | 6.7 | | | | 3.8 | | | |
| | | | | | | | | | |
Total reclassifications for the period | | $ | (0.6 | ) | | $ | (3.5 | ) | | |
| | | | | | | | | | |
|
| | | | | | | | | |
| (in millions) | Year ended December 31, 2018 (1) | | Year ended December 31, 2017 (1) | | Location of impact on statement of operations |
| Amortization of defined benefit pension items: | | | | | |
| Prior service cost (credits) | $ | 2.7 |
| | $ | (0.2 | ) | | Other expense, net |
| Tax benefit | (0.6 | ) | | — |
| | Income tax expense (benefit) |
| Net of tax | $ | 2.1 |
| | $ | (0.2 | ) | | |
| Cash flow hedges: | | | | | |
| Interest rate swap contracts | $ | (8.1 | ) | | $ | 3.8 |
| | Interest expense |
| Tax expense (benefit) | 1.5 |
| | (1.5 | ) | | Income tax expense (benefit) |
| Net of tax | $ | (6.6 | ) | | $ | 2.3 |
| | |
| Total reclassifications for the period | $ | (4.5 | ) | | $ | 2.1 |
| | |
| | | | | | |
| |
| (1) | Amounts in parentheses indicate credits to net income (loss).in the consolidated statement of operations. |
Refer to “Note
8:9: Employee benefit plans” for additional information regarding the amortization of defined benefit pension items, “Note
16:18: Derivatives” for cash flow hedging activity and “Note 2: Significant accounting policies” for foreign currency gains and losses relating to intercompany borrowings of a long-term nature that are reflected in currency translation items.
11.
12. Property, plant and equipment, net Property, plant and equipment, net consisted of the following:
| | | | | | | | |
| | | December 31, | |
(in millions) | | 2015 | | | 2014 | |
Land and buildings | | $ | 778.0 | | | $ | 784.2 | |
Tank farms | | | 239.9 | | | | 212.2 | |
Machinery, equipment and other | | | 716.1 | | | | 626.3 | |
Less: Accumulated depreciation | | | (723.5 | ) | | | (644.8 | ) |
| | | | | | | | |
Subtotal | | | 1,010.5 | | | | 977.9 | |
Work in progress | | | 72.0 | | | | 54.4 | |
| | | | | | | | |
Property, plant and equipment, net | | $ | 1,082.5 | | | $ | 1,032.3 | |
| | | | | | | | |
|
| | | | | | | |
| | December 31, |
| (in millions) | 2018 | | 2017 |
| Land and buildings | $ | 790.9 |
| | $ | 809.6 |
|
| Tank farms | 276.0 |
| | 277.4 |
|
| Machinery, equipment and other | 836.7 |
| | 820.2 |
|
| Less: Accumulated depreciation | (970.1 | ) | | (927.2 | ) |
| Subtotal | $ | 933.5 |
| | $ | 980.0 |
|
| Work in progress | 22.3 |
| | 23.0 |
|
| Property, plant and equipment, net | $ | 955.8 |
| | $ | 1,003.0 |
|
Included within property, plant and equipment, net are assets related to capital leases where the Company is the lessee. The below table summarizes the cost and accumulated depreciation related to these assets:
| | | | | | | | |
(in millions) | | December 31,
2015 | | | December 31,
2014 | |
Capital lease assets, at cost | | $ | 63.5 | | | $ | 2.6 | |
Less: accumulated depreciation | | | (7.5 | ) | | | — | |
| | | | | | | | |
Capital lease assets, net | | $ | 56.0 | | | $ | 2.6 | |
| | | | | | | | |
During 2013, an impairment charge of $58.0 million was recorded which related to the write-off of capitalized software costs, previously included in work in progress, in connection with the Company’s decision to abandon the implementation of a global enterprise resource planning system.
|
| | | | | | | |
| | December 31, |
| (in millions) | 2018 | | 2017 |
| Capital lease assets, at cost | $ | 89.4 |
| | $ | 86.0 |
|
| Less: accumulated depreciation | (37.4 | ) | | (27.0 | ) |
| Capital lease assets, net | $ | 52.0 |
| | $ | 59.0 |
|
Capitalized interest on capital projects was
$0.9 million, $0.5 millionnil and
$2.4$0.1 million in the years ended December 31,
2015, 20142018 and
2013,2017, respectively.
12.
13. Goodwill and intangible assets The following is a summary of the activity in goodwill by segment.
| | | | | | | | | | | | | | | | | | | | |
(in millions) | | USA | | | Canada | | | EMEA | | | Rest of
World | | | Total | |
Balance, January 1, 2014 | | $ | 1,254.0 | | | $ | 534.4 | | | $ | — | | | $ | — | | | $ | 1,788.4 | |
Additions | | | — | | | | — | | | | — | | | | 26.6 | | | | 26.6 | |
Foreign exchange | | | — | | | | (45.7 | ) | | | — | | | | (1.7 | ) | | | (47.4 | ) |
| | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2014 | | | 1,254.0 | | | | 488.7 | | | | — | | | | 24.9 | | | | 1,767.6 | |
Additions | | | 52.1 | | | | 10.9 | | | | 2.2 | | | | — | | | | 65.2 | |
Purchase price adjustments | | | — | | | | — | | | | — | | | | (0.6 | ) | | | (0.6 | ) |
Foreign exchange | | | — | | | | (78.9 | ) | | | (0.1 | ) | | | (8.1 | ) | | | (87.1 | ) |
| | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2015 | | $ | 1,306.1 | | | $ | 420.7 | | | $ | 2.1 | | | $ | 16.2 | | | $ | 1,745.1 | |
| | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| (in millions) | USA | | Canada | | EMEA | | Rest of World | | Total |
| Balance, January 1, 2017 | $ | 1,325.2 |
| | $ | 438.4 |
| | $ | 1.1 |
| | $ | 19.7 |
| | $ | 1,784.4 |
|
| Additions | — |
| | — |
| | — |
| | 4.1 |
| | 4.1 |
|
| Purchase price adjustments | — |
| | 0.5 |
| | — |
| | — |
| | 0.5 |
|
| Foreign exchange | — |
| | 29.8 |
| | 0.1 |
| | (0.5 | ) | | 29.4 |
|
| Balance, December 31, 2017 | $ | 1,325.2 |
| | $ | 468.7 |
| | $ | 1.2 |
| | $ | 23.3 |
| | $ | 1,818.4 |
|
| Additions | — |
| | — |
| | 7.6 |
| | — |
| | 7.6 |
|
| Purchase price adjustments | — |
| | — |
| | — |
| | (3.2 | ) | | (3.2 | ) |
| Other adjustments | — |
| | (2.4 | ) | | — |
| | — |
| | (2.4 | ) |
| Foreign exchange | — |
| | (36.4 | ) | | (0.5 | ) | | (2.8 | ) | | (39.7 | ) |
| Balance, December 31, 2018 | $ | 1,325.2 |
| | $ | 429.9 |
| | $ | 8.3 |
| | $ | 17.3 |
| | $ | 1,780.7 |
|
The Company’s reporting units are identical to the identified four operating segments: USA, Canada, EMEA, and Rest of World. Additions to goodwill in
2015 related to various acquisitions. Additions to goodwill in 20142018 related to the acquisition of
D’Altomare Quimica Ltda.Kemetyl and Earthoil. Additions to goodwill in 2017 related to the acquisition of Tagma. The purchase price adjustments in
20152018 relate to the
D’AltomareTagma acquisition. Refer to “Note
17:19: Business
Combinations”combinations” for further information.
Other adjustments to goodwill in 2018 relate to immaterial dispositions. Accumulated impairment losses on goodwill were
$331.9$246.3 million at January 1,
2014.2017. Accumulated impairment losses on goodwill were
$261.4$255.6 million and
$296.6$271.3 million at December 31,
20152018 and
2014,2017, respectively.
As of October 1,
2015,2018, the Company performed its annual impairment review and concluded the fair value
substantially exceeded the carrying value for all reporting units with goodwill balances. There were no events or circumstances from the date of the assessment through December 31,
20152018 that would affect this conclusion.
Determining the fair value of a reporting unit requires judgment and involves the use of significant estimates and assumptions by management. The Company can provide no assurance that a material impairment charge will not occur in a future period. The
Company’s estimates of future cash flows may differ from actual cash flows that are subsequently realized due to many factors, including future worldwide economic conditions and the expected benefits of the Company’s initiatives. Any of these potential factors, or other unexpected factors, may cause the Company to re-evaluate the carrying value of goodwill.
On September 1, 2013, the Company determined it was more likely than not that the fair value of the Rest of World reporting unit was less than its carrying amount based on the deterioration in general economic conditions within some of the reporting unit’s significant locations and revised financial projections. As a result, the Company performed step one of the goodwill impairment test for the Rest of World reporting unit as of September 1, 2013. The reporting unit’s carrying value exceeded its fair value in the step one test. Thus, the Company performed step two of the goodwill impairment test in order to calculate the implied fair value of the reporting unit’s goodwill and recorded an impairment charge of $73.3 million.
The gross carrying amounts and accumulated amortization of the Company’s intangible assets were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2015 | | | December 31, 2014 | |
(in millions) | | Gross | | | Accumulated
amortization | | | Net | | | Gross | | | Accumulated
amortization | | | Net | |
Intangible assets (subject to amortization): | | | | | | | | | | | | | | | | | | | | | | | | |
Customer relationships | | $ | 930.1 | | | $ | (446.6 | ) | | $ | 483.5 | | | $ | 930.7 | | | $ | (390.8 | ) | | $ | 539.9 | |
Other | | | 170.5 | | | | (135.1 | ) | | | 35.4 | | | | 161.6 | | | | (126.6 | ) | | | 35.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total intangible assets | | $ | 1,100.6 | | | $ | (581.7 | ) | | $ | 518.9 | | | $ | 1,092.3 | | | $ | (517.4 | ) | | $ | 574.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2018 | | December 31, 2017 |
| (in millions) | Gross | | Accumulated amortization | | Net | | Gross | | Accumulated amortization | | Net |
| Intangible assets (subject to amortization): | | | | | | | | | | | |
| Customer relationships | $ | 846.1 |
| | $ | (620.3 | ) | | $ | 225.8 |
| | $ | 853.5 |
| | $ | (582.1 | ) | | $ | 271.4 |
|
| Other | 175.1 |
| | (162.8 | ) | | 12.3 |
| | 177.8 |
| | (161.5 | ) | | 16.3 |
|
| Total intangible assets | $ | 1,021.2 |
| | $ | (783.1 | ) | | $ | 238.1 |
| | $ | 1,031.3 |
| | $ | (743.6 | ) | | $ | 287.7 |
|
Other intangible assets consist of intellectual property trademarks, trade names,
supplierproducer relationships and contracts, non-compete agreements and exclusive distribution rights.
The estimated annual amortization expense in each of the next five years is as follows:
| | | | |
(in millions) | | | |
2016 | | $ | 88.5 | |
2017 | | | 79.3 | |
2018 | | | 66.4 | |
2019 | | | 60.2 | |
2020 | | | 56.1 | |
13.
|
| | | |
| (in millions) | |
| 2019 | $ | 47.7 |
|
| 2020 | 43.3 |
|
| 2021 | 39.1 |
|
| 2022 | 31.6 |
|
| 2023 | 26.4 |
|
14. Impairment charges
During the year ended December 31, 2016, the Company revised its business operating plan for servicing upstream oil and gas customers in its USA operating segment. In light of the 2016 prolonged drop in oil prices, and consequential decrease in demand for certain products including high-value specialized blended products used in hydraulic fracking operations, the Company narrowed its product line and service offering by curtailing certain highly specialized products and services that were being produced and sold to oil and gas customers. As a result, the Company ceased operations at three production facilities. The Company determined that these decisions resulted in a triggering event with respect to long lived assets in an asset group, resulting in the assessment of recoverability of these long lived assets. The Company performed step one of the impairment test and determined the carrying amount of the asset group exceeded the sum of the expected undiscounted future cash flows. Thus, the Company proceeded to step two of the impairment test where it was required to determine the fair value of the asset group and recognize an impairment loss if the carrying value exceeded the fair value. As a result of the impairment test, the Company recorded a non-cash, long-lived asset impairment charge of $113.7 million related to intangible assets and $16.5 million related to property, plant and equipment within its consolidated statements of operations. The Company also recorded a non-cash, long-lived asset impairment charge of $0.3 million related to assets held-for-sale.
The fair value of the asset group was determined using an income approach, which was comprised of multiple significant unobservable inputs including: (1) the estimate of future cash flows; (2) the amount of capital expenditures required to maintain the existing cash flows; and (3) a terminal period growth rate equal to the expected rate of inflation. Accordingly, estimated fair value of the asset group is considered to be a Level 3 measurement in the fair value hierarchy.
In addition to the charges discussed above, the Company also impaired $3.4 million of inventory deemed to be unsaleable in connection with the facility closures.
15. Other accrued expensesOther
As of December 31, 2018, there were no components within other accrued expenses that were greater than five percent of total current liabilities. As of December 31, 2017, other accrued expenses that were greater than five percent of total current liabilities consisted of customer prepayments and deposits, which were
$60.1 million and $83.2 million as of December 31, 2015 and 2014, respectively.14.$97.7 million.
Short-term financing consisted of the following:
| | | | | | | | |
| | | December 31, | |
(in millions) | | 2015 | | | 2014 | |
Amounts drawn under credit facilities | | $ | 13.4 | | | $ | 32.7 | |
Bank overdrafts | | | 20.1 | | | | 28.4 | |
| | | | | | | | |
Total | | $ | 33.5 | | | $ | 61.1 | |
| | | | | | | | |
|
| | | | | | | |
| | December 31, |
| (in millions) | 2018 | | 2017 |
| Amounts drawn under credit facilities | $ | 4.7 |
| | $ | 9.1 |
|
| Bank overdrafts | 3.4 |
| | 4.3 |
|
| Total | $ | 8.1 |
| | $ | 13.4 |
|
The weighted average interest rate on short-term financing was
2.4%3.0% and
2.7%4.1% as of December 31,
20152018 and
2014,2017, respectively.
As of December 31,
20152018 and
2014,2017, the Company had
$172.4$139.4 million and
$184.7$147.0 million, respectively, in outstanding letters of credit and guarantees.
Long-term debt consisted of the following:
| | | | | | | | |
(in millions) | | December 31,
2015 | | | December 31,
2014
As Adjusted* | |
Senior Term Loan Facilities: | | | | | | | | |
Term B Loan due 2022, variable interest rate of 4.25% at December 31, 2015 | | $ | 2,044.9 | | | $ | — | |
Euro Tranche Term Loan due 2022, variable interest rate of 4.25% at December 31, 2015 | | | 270.8 | | | | — | |
Term B Loan due 2017, variable interest rate of 5.00% at December 31, 2014 (terminated July 2015) | | | — | | | | 2,683.2 | |
Euro Tranche Term Loan due 2017, variable interest rate of 5.25% at December 31, 2014 (terminated July 2015) | | | — | | | | 154.6 | |
Asset Backed Loan (ABL) Facilities: | | | | | | | | |
North American ABL Facility due 2020, variable interest rate of 2.13% at December 31, 2015 | | | 278.0 | | | | — | |
North American ABL Term Loan due 2018, variable interest rate of 3.36% at December 31, 2015 | | | 100.0 | | | | — | |
European ABL Facility due 2019 (“Euro ABL due 2019”), variable interest rate of 2.01% at December 31, 2014 | | | — | | | | 36.3 | |
North American ABL Facility due 2018, variable interest rate of 2.10% at December 31, 2014 (terminated July 2015) | | | — | | | | 266.0 | |
North American ABL Term Loan due 2016, variable interest rate of 3.51% at December 31, 2014 (terminated July 2015) | | | — | | | | 50.0 | |
Unsecured Notes: | | | | | | | | |
Unsecured Notes due 2023, fixed interest rate of 6.75% | | | 400.0 | | | | — | |
Senior Subordinated Notes: | | | | | | | | |
Senior Subordinated Notes due 2017, fixed interest rate of 10.50% (terminated June 2015) | | | — | | | | 600.0 | |
Senior Subordinated Notes due 2018, fixed interest rate of 10.50% (terminated June 2015) | | | — | | | | 50.0 | |
Capital lease obligations | | | 57.3 | | | | 2.6 | |
| | | | | | | | |
Total long-term debt before discount | | | 3,151.0 | | | | 3,842.7 | |
Less: unamortized debt issuance costs and discount on debt | | | (33.7 | ) | | | (31.4 | ) |
| | | | | | | | |
Total long-term debt | | | 3,117.3 | | | | 3,811.3 | |
Less: current maturities | | | (59.9 | ) | | | (80.7 | ) |
| | | | | | | | |
Total long-term debt, excluding current maturities | | $ | 3,057.4 | | | $ | 3,730.6 | |
| | | | | | | | |
* | Adjusted due to the adoption of ASU 2015-03 and ASU 2015-15. Refer to “Note 2: Significant accounting policies” for additional information. |
|
| | | | | | | |
| | December 31, |
| (in millions) | 2018 | | 2017 |
| Senior Term Loan Facilities: | | | |
| Term B Loan due 2024, variable interest rate of 4.77% and 4.07% at December 31, 2018 and December 31, 2017, respectively | $ | 1,747.8 |
| | $ | 2,277.8 |
|
| Asset Backed Loan (ABL) Facilities: | | | |
| North American ABL Facility due 2020, variable interest rate of 4.19% and 5.00% at December 31, 2018 and December 31, 2017, respectively | 134.7 |
| | 155.0 |
|
| North American ABL Term Loan due 2018, fully paid off at December 31, 2018 and variable interest rate of 4.44% at December 31, 2017 | — |
| | 16.7 |
|
| Euro ABL Facility due 2023, variable interest rate of 1.75% at December 31, 2018 | 58.5 |
| | — |
|
| Senior Unsecured Notes: | | | |
| Senior Unsecured Notes due 2023, fixed interest rate of 6.75% at December 31, 2018 and December 31, 2017 | 399.5 |
| | 399.5 |
|
| Capital lease obligations | 54.8 |
| | 60.9 |
|
| Total long-term debt before discount | $ | 2,395.3 |
| | $ | 2,909.9 |
|
| Less: unamortized debt issuance costs and discount on debt | (23.2 | ) | | (27.9 | ) |
| Total long-term debt | $ | 2,372.1 |
| | $ | 2,882.0 |
|
| Less: current maturities | (21.7 | ) | | (62.0 | ) |
| Total long-term debt, excluding current maturities | $ | 2,350.4 |
| | $ | 2,820.0 |
|
The weighted average interest rate on long-term debt was 4.29% and 4.50% as of December 31, 2018 and 2017, respectively.
As of December 31,
2015,2018, future contractual maturities of long-term debt
excludingincluding capital lease obligations are as follows:
| | | | |
(in millions) | | | |
2016 | | $ | 39.9 | |
2017 | | | 89.9 | |
2018 | | | 40.0 | |
2019 | | | 23.2 | |
2020 | | | 301.2 | |
|
| | | |
| (in millions) | |
| 2019 | $ | 21.7 |
|
| 2020 | 147.0 |
|
| 2021 | 9.3 |
|
| 2022 | 7.6 |
|
| 2023 | 460.8 |
|
| Thereafter | 1,748.9 |
|
| Total | $ | 2,395.3 |
|
Long-term debt restructurings
On July 28, 2015,
In December 2018, the Company entered into
an amended Euro ABL Credit facility agreement which replaced the existing €200 million Euro ABL Credit facility agreement, dated March 24, 2014. The amended agreement extends the maturity date from March 22, 2019 to December 19, 2023. The Euro ABL is a
new five year $1.4 billion North American Asset Backed Loan Facility (“new NA ABL Facility”) and terminated its existing $1.4 billion North American ABL Facility including the repaymentrevolving credit facility pursuant to which certain of the
existing North American ABL Term Loan. The new NA ABL Facility has a $1.0 billion revolving loan tranche available to certain USCompany's European subsidiaries
a $300.0 million revolving loan tranche for certain Canadian subsidiaries and a $100.0 million ABL Term Loan (“new ABL Term Loan”(the “Borrowers”)
. The Company may elect to allocate the total $1.3 billion in revolving tranches between the US and Canadian borrowers. Under the two revolving tranches, the borrowers may request loan advances and make loan repayments until the maturity
date of July 28, 2020. The new ABL Term Loan and each revolving loan advance under the facility have a variable interest rate based on the current benchmark rate elected by the borrower plus a credit spread. The credit spread is determined by the elected benchmark rate and the average availability of the facility. The unused line fee for the revolver tranches under the new NA ABL Facility ranges from 0.25% to 0.375% per annum for the US and Canadian borrowers depending on the average daily outstanding amount. The new NA ABL Term Loan is payable in installments of $16.7 million per quarter commencing December 31, 2016 with a final maturity date of July 28, 2018.On July 1, 2015, the Company entered into a new Senior Term B loan agreement with a US dollar denominated tranche of $2,050.0 million and a new euro denominated tranche of €250.0 million. In addition, on July 1, 2015, the Company issued $400.0 million in unsecured notes (“Unsecured Notes”). The proceeds from the new Senior Term B loan agreement and Unsecured Notes as well as additional borrowings under the Company’s North American ABL Facility were used to repay in full the existing $2,669.2 million US dollar denominated Term B Loan and €126.8 million ($141.2 million) euro denominated Term B Loan.
The new Senior Term B loan agreement has a $2,050.0 million US dollar loan tranche and a €250.0 million euro loan tranche. Both tranches have a variable interest rate based on LIBOR with a LIBOR floor of 1.00% and a credit spread of 3.25%. The US dollar tranche and euro tranche are payable in installments of $5.1 million and €0.6 million per quarter, respectively, commencing December 31, 2015 with the remaining balances due on the maturity date of July 1, 2022. The Company can prepay either loan tranche in whole or part without penalty after January 1, 2016.
The new $400.0 million issuance of Unsecured Notes has a fixed interest rate of 6.75% payable semi-annually. Principal is due upon the maturity date of July 15, 2023. The Company can prepay the Unsecured Notes in whole or part at a premium above par on or after July 15, 2018 and without a premium on or after July 15, 2020.
As a result of the July 2015 debt refinancing activity, the Company recognized debt refinancing costs of $16.5 million in other (expense) income, net in the consolidated statements of operations during the year ended December 31, 2015. Refer to “Note 6: Other (expense) income, net” for further information. In addition, the Company recognized a loss on extinguishment of debt of $4.8 million in the year ended December 31, 2015.
On June 23, 2015, as part of the use of proceeds from the IPO and concurrent private placement discussed in Note 1, the Company paid the remaining principal balance of $650.0 million related to the Senior Subordinated
Notes. As a result, the Company recognized a loss on extinguishment of debt of $7.3 million related to the unamortized debt discount and debt issuance costs in the consolidated statements of operations in the year ended December 31 2015.
On March 24, 2014, certain of the Company’s European subsidiaries (the “Borrowers”) entered into a five year €200 million Euro ABL Credit facility. The Euro ABL is a revolving credit facility pursuant to which the Borrowers may request loan advances and make loan repayments until the maturity date of March 22, 2019.date. Loan advances may be made in multiple currencies. Each loan advance under this facility has a variable interest rate based on the current benchmark rate (IBOR) for that currency plus a credit spread. The credit spread is determined by a pricing grid that is based on average availability of the facility. The unused line fee ranges from 0.25% to 0.50%0.375% per annum depending on the average unused commitment as a percentage of the total commitment.
Simultaneously
During 2018, Univar made three early repayments totaling $530.0 million against the balance of its Term B Loan due 2024. The repayments utilized a combination of existing cash balances and ABL Facilities and resulted in cash balances being remitted to the US from non-US subsidiaries. These early repayments have no impact on the Company’s leverage ratio but are expected to reduce net interest expense.
On November 28, 2017, the Company entered into a Second Amendment of the Senior Term B loan facility which amended the Company's First Amendment, dated January 19, 2017. The new Senior Term B loan agreement has a $2,283.5 million US dollar loan tranche. The proceeds from the new Senior Term B loan agreement were used to repay in full the $2,183.5 million US dollar denominated Term B Loan and €80.9 million ($95.8 million) euro denominated Term B Loan.
The amendment also lowered the interest rate credit spread on the loan by 25 basis points from 2.75% to 2.50% and extended the loan by two years. An additional reduction of 25 basis points is available if the Company's total net leverage (Total Net Debt to Adjusted EBITDA) reaches or falls below 4.00. The New Senior Term Facilities is payable in installments of $5.7 million commencing December 31, 2017 with the executionremaining balances due on the maturity date of July 1, 2024. The Company can repay the loan in whole or part without penalty.
On January 19, 2017, the Company, entered into an amended Senior Term B loan agreement which replaced the existing US dollar denominated loans, dated July 1, 2015, with new US dollar denominated loans in aggregate of $2,200.0 million. The Amendment also reduced the interest rate credit spread on the US dollar denominated loans by 50 basis points from 3.25% to 2.75% and removed the 1.00% LIBOR floor. The additional proceeds of $175.6 million received from the US dollar denominated loans were used to prepay a portion of the Euro ABL due 2019, certain of the Company’s European subsidiaries terminated a €68 million secured asset-based lending credit facility maturing December 31, 2016. denominated Term B Loans.
As a result of
this termination,the January and November 2017 debt refinancing activity, the Company recognized
a loss on extinguishmentdebt refinancing costs of
$1.2$5.3 million
in other expense, net in the consolidated
statementstatements of operations
induring the year ended December 31,
2014.On March 27, 2013, the Company made a $350.0 million prepayment on the $400.0 million principal balance of the Senior Subordinated Notes due 2018. As a result of this prepayment, the Company wrote off a total of $6.1 million of unamortized deferred financing fees and discount, and paid a $21.0 million prepayment premium, both of which are included in interest expense. The interest rate on the remaining $650.0 million Senior Subordinated Notes was reduced from a 12.00%2017. Refer to a 10.50% per annum fixed rate.
On March 25, 2013, the Company modified its North American ABL Facility to increase the committed amount from $1.1 billion to $1.3 billion and extend the maturity date of the revolving credit lines from November 30, 2015 to March 23, 2018. As a result of this refinancing,“Note 6: Other expense, net” for further information. In addition, the Company recognized a loss on extinguishment of debt of $2.5$3.8 million in the year ended December 31, 2013. In addition, on March 25, 2013,2017.
On July 28, 2015, the Company entered into a
$100.0 millionnew five year $1.4 billion North American Asset Backed Loan Facility (“NA ABL Facility”) and terminated its existing $1.4 billion North American ABL Facility including the repayment of the existing North American ABL Term
Loan. The NA ABL Facility has a $1.0 billion revolving loan tranche available to certain US subsidiaries, a $300.0 million revolving loan tranche for certain Canadian subsidiaries and a $100.0 million ABL Term Loan
which matures(“ABL Term Loan”). The ABL Term Loan was paid off as of December 31, 2018. The Company may elect to allocate the total $1.3 billion in revolving tranches between the US and Canadian borrowers. Under the two revolving tranches, the borrowers may request loan advances and make loan repayments until the maturity date of July 28, 2020. The ABL Term Loan and each revolving loan advance under the facility have a variable interest rate based on
March 25, 2016.On February 22, 2013, the Company amended termscurrent benchmark rate elected by the borrower plus a credit spread. The credit spread is determined by the elected benchmark rate and the average availability of the Term B Loanfacility. The unused line fee for the revolver tranches under the NA ABL Facility ranges from 0.25% to borrow an additional $250.0 million0.375% per annum for the US and Canadian borrowers depending on the existing Term B Loan, which is payable in installments of $7.0 million per quarter, with the remaining principal balance due on June 30, 2017. In addition, the Company issued a new Euro-denominated tranche in the amount of €130.0 million.average daily outstanding amount. The Euro TrancheNA ABL Term Loan is payable in installments of €0.3$16.7 million per quarter commencing December 31, 2016 with a final amortization payment on March 31, 2018, with the remaining principal balance dueloan commitment expiring on June 30, 2017. As a result of this refinancing,July 28, 2018.
In addition, on July 1, 2015, the Company
recognized expensesissued $400.0 million in Senior Unsecured Notes (“Unsecured Notes”). The Unsecured Notes have a fixed interest rate of
$6.2 million for third party6.75% payable semi-annually. Principal is due upon the maturity date of July 15, 2023. The Company can prepay the Senior Unsecured Notes in whole or part at a premium above par on or after July 15, 2018 and
arranger fees in other income (expenses), net in the consolidated statement of operations in the year ended December 31, 2013.without a premium on or after July 15, 2020.
Borrowing availability and assets pledged as collateral
As of December 31,
2015,2018, availability of the entire $1.3 billion in North American ABL Facility credit commitments is determined based on the periodic reporting of available qualifying collateral, as defined in the North American ABL Facility credit agreement. At December 31,
20152018 and
2014, $375.02017, $562.6 million and
$577.4$548.3 million were available under the North American ABL Facility, respectively. An unused line fee of 0.375%
and 0.50% was in effect at December 31,
20152018 and
2014, respectively.2017.
As of December 31,
2015,2018, availability of the entire €200 million Euro ABL due
20192023 is determined based on the periodic reporting of available qualifying collateral, as defined in the Euro ABL credit agreement.
The Euro ABL due 2019 is secured by the accounts receivable and inventory of the Borrowers and certain additional collateral. At December 31,
20152018 and
2014, $114.02017, $57.7 million and
$99.2$133.1 million were available under the Euro ABL, respectively. An unused line fee of
0.375% and 0.50% was in effect at December 31,
20152018 and
2014.2017.
The North American ABL Facility
and North American ABL Term Loan areis secured by substantially all of the assets of the US and Canadian operating subsidiaries of the Company. The Senior Term Loan Facilities are also secured by substantially all of the assets of the US operating and management subsidiaries. With respect to shared collateral, the North American ABL Facility
North American ABL Term Loan and the Senior Term Loan Facilities are secured by accounts receivable and inventories of the US operating subsidiaries of the Company. The obligations under the North American ABL Facility
and North American ABL Term Loan areis secured by a first priority lien on such accounts receivable and inventory, and the obligations under the Senior Term Loan Facilities are secured by a second priority lien on such accounts receivable and inventory. Under the North American ABL Facility, Canadian entities secure the obligations of the Canadian borrower. In addition, 65% of the shares of all first-tier foreign subsidiaries owned by the US subsidiaries have been pledged as security to the lenders in respect of all obligations. The Euro ABL is primarily secured by accounts receivable and inventories of the Company’s subsidiaries in Belgium, France,
Germany, the Netherlands,
Switzerland and United Kingdom.
Assets pledged under the North American ABL Facility,
North American ABL Term Loan, Senior Term Loan Facilities and the Euro ABL are as follows:
| | | | | | | | |
| | | December 31, | |
(in millions) | | 2015 | | | 2014 | |
Cash | | $ | 68.1 | | | $ | 91.1 | |
Trade accounts receivable, net | | | 857.8 | | | | 1,054.6 | |
Inventories | | | 691.9 | | | | 805.7 | |
Prepaids and other current assets | | | 105.0 | | | | 142.1 | |
Property, plant and equipment, net | | | 894.6 | | | | 821.9 | |
| | | | | | | | |
Total | | $ | 2,617.4 | | | $ | 2,915.4 | |
| | | | | | | | |
|
| | | | | | | |
| | December 31, |
| (in millions) | 2018 | | 2017 |
| Cash | $ | 45.5 |
| | $ | 313.6 |
|
| Trade accounts receivable, net | 906.1 |
| | 881.0 |
|
| Inventories | 674.0 |
| | 702.0 |
|
| Prepaid expenses and other current assets | 96.9 |
| | 93.3 |
|
| Property, plant and equipment, net | 743.0 |
| | 780.0 |
|
| Total | $ | 2,465.5 |
| | $ | 2,769.9 |
|
Under certain limited circumstances, the Company’s subsidiaries noted as borrowers and guarantors under the
new NA ABL Facility and NA ABL Term Loan are subject to comply with a fixed charge coverage ratio maintenance covenant. Such covenant is calculated based on the consolidated financial results of the Company. As of December 31,
20152018 and
2014,2017, such covenant was not in effect but the Company would have been in compliance if it was then in effect. The Company and its subsidiaries are also subject to a significant number of non-financial covenants in each of the credit facilities and the Senior
SubordinatedUnsecured Notes that restrict the operations of the Company and its subsidiaries, including, without limitation, requiring that the net proceeds from certain dispositions and capital market debt issuances must be used as mandatory prepayments and restrictions on the incurrence of financial indebtedness outside of these facilities (including restrictions on secured indebtedness), prepaying subordinated debt, making dividend payments, making certain investments, making certain asset dispositions, certain transactions with affiliates and certain mergers and acquisitions.
15.
17. Fair value measurements The Company classifies its financial instruments according to the fair value hierarchy described in “Note 2: Significant accounting policies.”
Items measured at fair value on a recurring basis
The following table presents the Company’s assets and liabilities measured on a recurring basis on a gross basis:
| | | | | | | | | | | | | | | | |
| | | Level 2 | | | Level 3 | |
| | | December 31, | | | December 31, | |
(in millions) | | 2015 | | | 2014 | | | 2015 | | | 2014 | |
Financial current assets: | | | | | | | | | | | | | | | | |
Forward currency contracts | | $ | 0.2 | | | $ | 0.5 | | | $ | — | | | $ | — | |
Financial noncurrent assets: | | | | | | | | | | | | | | | | |
Interest rate swap contracts | | | — | | | | 1.6 | | | | — | | | | — | |
Financial current liabilities: | | | | | | | | | | | | | | | | |
Forward currency contracts | | | 0.2 | | | | 0.9 | | | | — | | | | — | |
Interest rate swap contracts | | | 5.3 | | | | 7.3 | | | | — | | | | — | |
Financial noncurrent liabilities: | | | | | | | | | | | | | | | | |
Interest rate swap contracts | | | 0.5 | | | | — | | | | — | | | | — | |
Contingent consideration | | | — | | | | — | | | | 8.7 | | | | — | |
|
| | | | | | | | | | | | | | | |
| | Level 2 | | Level 3 |
| | December 31, | | December 31, |
| (in millions) | 2018 | | 2017 | | 2018 | | 2017 |
| Financial current assets: | | | | | | | |
| Forward currency contracts | $ | 0.3 |
| | $ | 0.3 |
| | $ | — |
| | $ | — |
|
| Interest rate swap contracts | 12.4 |
| | 1.2 |
| | — |
| | — |
|
| Financial non-current assets: | | | | | | | |
| Interest rate swap contracts | 1.5 |
| | 10.6 |
| | — |
| | — |
|
| Financial current liabilities: | | | | | | | |
| Forward currency contracts | 0.2 |
| | 0.4 |
| | — |
| | — |
|
| Financial non-current liabilities: | | | | | | | |
| Contingent consideration | — |
| | — |
| | — |
| | 0.4 |
|
The net amounts
related to foreign currency contracts included in prepaid and other current assets were
$0.2$0.3 million and
$0.1$0.2 million as of December 31,
20152018 and
2014,2017, respectively. The net amounts
related to foreign currency contracts included in other accrued expenses were $0.2 million and
$0.5$0.3 million as of December 31,
20152018 and
2014,2017, respectively.
The following table is a reconciliation of the fair value measurements that use significant unobservable inputs (Level 3), which are contingent consideration liabilities (i.e. earn-outs) related to prior acquisitions. Refer to “Note
17:19: Business
Combinations”combinations” for further information discussing the business acquisitions resulting in contingent consideration liabilities, the terms of the earn-outs, the unobservable inputs factored into the fair value determination and the estimated impact on the consolidated financial statements related to changes in the unobservable inputs.
| | | | | | | | |
(in millions) | | 2015 | | | 2014 | |
Fair value as of January 1 | | $ | — | | | $ | 1.0 | |
Additions | | | 8.8 | | | | — | |
Fair value adjustments | | | — | | | | (1.0 | ) |
Foreign currency | | | (0.1 | ) | | | — | |
| | | | | | | | |
Fair value as of December 31 | | $ | 8.7 | | | $ | — | |
| | | | | | | | |
|
| | | | | | | |
| (in millions) | 2018 | | 2017 |
| Fair value as of January 1 | $ | 0.4 |
| | $ | 7.5 |
|
| Additions | — |
| | 0.4 |
|
| Fair value adjustments | 1.0 |
| | (3.0 | ) |
| Foreign currency | — |
| | 0.1 |
|
| Payments | (1.4 | ) | | (3.7 | ) |
| Gain on settlement | — |
| | (0.9 | ) |
| Fair value as of December 31 | $ | — |
| | $ | 0.4 |
|
The fair value adjustment in
20142018 related to
the reduction of the contingent consideration liability associated with the 2012 Magnablend acquisition.Tagma’s improved financial performance and subsequent payout. The
2017 fair value reduction was
based on actual 2014primarily due to declined financial performance
which resulted in no payout. The fairand payouts. Fair value
adjustment isadjustments are recorded within other operating expenses, net in the consolidated statement of operations.
Changes in the fair value of contingent consideration are recorded in the other, net line item of the operating activities within the consolidated statement of cash flows. Cash payments up to the amount of the original acquisition value are recorded within financing activities of the consolidated statement of cash flows. The portion of contingent consideration cash payments in excess of the original acquisition value are recorded within operating activities of the consolidated statement of cash flows.
Financial instruments not carried at fair value
The estimated fair value of financial instruments not carried at fair value in the consolidated balance sheets were as follows:
| | | | | | | | | | | | | | | | |
| | | December 31, 2015 | | | December 31, 2014 | |
(in millions) | | Carrying
amount | | | Fair
value | | | Carrying
amount
As
Adjusted* | | | Fair
value | |
Financial liabilities: | | | | | | | | | | | | | | | | |
Long-term debt including current portion (Level 2) | | $ | 3,117.3 | | | $ | 3,056.5 | | | $ | 3,811.3 | | | $ | 3,780.4 | |
* | Adjusted due to the adoption of ASU 2015-03 and ASU 2015-15. “Refer to Note 2: Significant accounting policies” for additional information. |
|
| | | | | | | | | | | | | | | |
| | December 31, 2018 | | December 31, 2017 |
| (in millions) | Carrying amount | | Fair value | | Carrying amount | | Fair value |
| Financial liabilities: | | | | | | | |
| Long-term debt including current portion (Level 2) | $ | 2,372.1 |
| | $ | 2,314.3 |
| | $ | 2,882.0 |
| | $ | 2,939.7 |
|
The fair values of the long-term debt, including the current portions, were based on current market quotes for similar borrowings and credit risk adjusted for liquidity, margins, and amortization, as necessary.
Fair value of other financial instruments
The carrying value of cash and cash equivalents, trade accounts receivable, trade accounts payable and short-term financing included in the consolidated balance sheets approximates fair value due to their short-term nature.
16.
The objective of the interest rate swap contracts is to offset the variability of cash flows in LIBOR indexed debt interest payments attributable to changes in the aforementioned benchmark interest rate related to the Term B Loan due 2024.
At December 31,
2015 and 2014,2018, the Company had interest rate swap contracts in place with a total notional amount of $2.0
billion. In 2017, we entered into interest rate swap contracts with a remaining notional amount of $1.5 billion whereby a fixed rate of interest (weighted average of
1.64%1.70%) is paid and a variable rate of interest
(greater of 1.25% or three-month(three-month LIBOR) is received
as calculated on the notional amount.
In December 2018, the Company entered into interest rate swap contracts with a total notional amount of $500.0 million effective June 2019 whereby a fixed rate of interest (weighted average of 2.73%) is paid and a variable rate of interest (three-month LIBOR) is received as calculated on the notional amount. The objectiveinitial interest rate swap contracts that were replaced with the 2017 contracts currently outstanding initially included a LIBOR floor of 1.00%. The LIBOR floor was removed on February 1, 2017, as part of the amendment to the interest rate swap contracts. The contracts were amended as a result of the amendment to the Term B Loan agreement with US dollar denominated tranche on January 19, 2017. Refer to “Note 16: Debt” for additional information. As a result of the interest rate swap contracts was to offsetamendment, in 2017 the variabilityCompany realized a gain of cash flows$1.4 million in three-month LIBOR indexed debt interest payments, subject to a 1.50% floor, attributable to changesother expense, net in the aforementioned benchmark interest rate related toconsolidated statement of operations.
As of July 6, 2017, the Term B Loan due 2017. The interest rate floor related to the Term B Loan due 2017 (1.50%) is not identical toCompany designated the interest rate floorswaps as a cash flow hedge in an effort to reduce the mark-to-market volatility recognized within the consolidated statement of the interest rate swap contracts (1.25%), which resulted in hedge ineffectiveness.Upon initiation of the interest rate swap contracts, changes in the cash flows of each interest rate swap were expected to be highly effective in offsetting the changes in interest payments on a principal balance equal to the notional amount of the derivative, attributable to the hedged risk. The effective portion of the gains and losses related to the interest rate swap contracts were initially recorded in accumulated other comprehensive loss and then reclassified into earnings consistent with the underlying hedged item (interest payments).operations. As of December 31, 2015, the interest rate swap contracts no longer qualify for hedge accounting because the forecasted transactions as originally contemplated are not probable of occurring due to the July 1, 2015 Senior Term Loan Facility refinancing transactions. The forecasted transactions represented debt with interest payments with a variable interest rate based on three-month LIBOR and a credit spread of 3.50%, with a LIBOR floor of 1.50% whereas the new debt has interest payments with a variable interest rate based on LIBOR and a credit spread of 3.25% with a LIBOR floor of 1.00%. Refer to “Note 14: Debt” for more information related to the refinancing transactions.
As a result of discontinuing hedge accounting, a net loss of $4.7 million, net of tax of $2.8 million, related to2018, the interest rate swaps included in accumulated other comprehensive loss was recognized in other (expense) income, net and income tax expense (benefit) inheld by the consolidated statements of operationsCompany continue to qualify for hedge accounting. Prior to the year ended December 31, 2015. Futurehedge accounting designation, changes in fair value of the interest rate swap contracts arewere recognized directly in other (expense) income,expense, net in the consolidated statement of operations. Refer to “Note 6: Other (expense) income,expense, net” for additional information. With the adoption of ASU 2017-12, the Company recognizes
the changes in fair value of the interest rate swap contracts, whether it is due to effectiveness or ineffectiveness, in other comprehensive income and subsequently is reclassified to the income statement when the hedged item impacts earnings. During the year ended December 31, 2018, there were $8.1 million in gains on our interest rate swap contracts that were reclassified to interest expense in the consolidated statement of operations. As of December 31, 2018, we estimate that $12.4 million of derivative gains included in accumulated other comprehensive loss will be reclassified into the consolidated statement of operations within the next 12 months. The activity related to our cash flow hedges is included in “Note 11: Accumulated other comprehensive loss.”
The fair value of interest rate swaps is recorded
either in
prepaidsprepaid expenses and other current assets, other assets, other accrued expenses or other long-term liabilities in the consolidated balance sheets.
Refer to “Note 15: Fair value measurements” for further information.As of December 31, 2018 and December 31, 2017, a current asset of $12.4 million and $1.2 million was included in other current assets. As of December 31, 2018 and December 31, 2017, a non-current asset of $1.5 million and $10.6 million was included in other assets, respectively.
The Company had interest rate swap contracts with a total notional amount of $1.0 billion which expired during June 2017.
Interest rate caps
During 2013, the
The Company had
two interest rate caps
in place, each with a notional amount of
$250.0 million. To the extent the quarterly LIBOR exceeded 2.25%, the Company would have received payment based on the notional amount and$800 million which expired during June 2017. As of June 30, 2017, the interest rate
spread. Thecap premiums had been fully amortized through interest expense within the consolidated statements of operations. At December 31, 2018 and December 31, 2017, the Company
did not apply hedge accounting for thehad no interest rate caps
which expired on December 31, 2013. The fair value adjustments were included in other (expense) income, net in the statements of operations. Refer to “Note 6: Other (expense) income, net” for more information.outstanding.
Foreign currency derivatives
The Company uses forward currency contracts to hedge earnings from the effects of foreign exchange relating to certain of the Company’s intercompany and third-party receivables and payables denominated in a foreign currency. These derivative instruments are not formally designated as hedges by the Company and the terms of these instruments range from one to three months. Forward currency contracts are recorded at fair value in either prepaid expenses and other current assets or other accrued expenses in the consolidated balance sheets, reflecting their short-term nature. Refer to “Note
15:17: Fair value measurements” for additional information. The fair value adjustments and gains and losses are included in other
(expense) income,expense, net within the consolidated statements of operations. Refer to “Note 6: Other
(expense) income,expense, net” for more information. The total notional amount of undesignated forward currency contracts were
$107.5$108.1 million and
$127.4$134.0 million as of December 31,
20152018 and
2014,2017, respectively.
17.
19. Business combinations Year ended December 31, 2015In the year ended December2018
2018 Acquisitions
Acquisition of Earthoil
On May 31,
2015, the Company completed six acquisitions for a total purchase price of $171.1 million.On April 10, 2015,2018, the Company completed an acquisition of 100% of the equity interest in Key Chemical, Inc., (“Key”), oneEarthoil Plantations Limited, a supplier of pure, organic, fair trade essential and cold-pressed vegetable seed oils used in the naturals, organic beauty, and personal care markets. The acquisition expands and strengthens Univar’s existing global natural beauty and personal care product line.
The total purchase price of the
largest distributorsacquisition was $13.3 million. The purchase price allocation includes goodwill of
fluoride to municipalities in$3.7 million and intangibles of $6.1 million. During the
US, whichsecond quarter of 2018, the Company
expects to help expandrecorded an initial purchase price of $13.7 million and included goodwill of $2.5 million and intangibles of $6.1 million. During the
Company’s offerings into municipal and other industrial markets.On July 16, 2015,third quarter of 2018, the Company entered intorecorded a definitive asset purchase agreementprice adjustment of $0.4 million on this acquisition which resulted in an increase of $1.2 million to goodwill. The adjustments were primarily attributable to a $1.7 million increase in other accrued expenses associated with Chemical Associates, Inc. (“Chemical Associates”) to sell the Chemical Associates business to the Company. Chemical Associates specializes in blending, mixing, and packaging of formulated oleochemical products and serves customers throughout the US and can supply packaged and bulk quantities.
On October 2, 2015, the Company completed an acquisition of 100% of the equity interest in Future Transfer Co., Inc.; BlueStar Distribution Inc.; and BDI Distribution West Inc. (“Future/BlueStar”). Future/BlueStar specializes in logistics, warehousing, packaging, and formulation services to the agriculture industry in Canada.
On November 3, 2015, the Company completed an acquisition of 100% of the equity interest in Arrow Chemical, Inc. (“Arrow Chemical”), an importer and distributor of active pharmaceutical ingredients (API) and other specialty chemistries in the US market.
On December 1, 2015, the Company completed an acquisition of 100% of the equity interest in Weaver Town Oil Services, Inc., and Weavertown Transport Leasing, Inc., operating as the Weavertown Environmental Group (“WEG”), a premier provider of environmental and facilities maintenance services in the US. The Company plans to integrate the WEG business with its ChemCare waste management service.
On December 16, 2015, the Company completed an acquisition of 100% of the equity interest in Polymer Technologies Ltd. (“Polymer”), a UK-based distributor of specialty chemicals for use in the radiation cured coatings industry. Polymer develops and markets chemicals which are used to formulate environmentally friendly paints, inks and adhesives.
Summarized financial information
The initial accounting for these acquisitions has only been preliminarily determined subject to final working capital adjustments and valuations of intangible assets and property, plant and equipment. As of December 31, 2015, the purchase price allocation for the acquisitions is as follows:
| | | | | | | | | | | | |
(in millions) | | WEG | | | Other | | | Total | |
Purchase price: | | | | | | | | | | | | |
Cash consideration | | $ | 66.5 | | | $ | 95.0 | | | $ | 161.5 | |
Contingent consideration | | | 3.0 | | | | 5.8 | | | | 8.8 | |
Other liability consideration | | | — | | | | 0.8 | | | | 0.8 | |
| | | | | | | | | | | | |
| | | 69.5 | | | | 101.6 | | | | 171.1 | |
Allocation: | | | | | | | | | | | | |
Cash and cash equivalents | | | 1.1 | | | | 7.0 | | | | 8.1 | |
Trade accounts receivable, net | | | 7.7 | | | | 12.1 | | | | 19.8 | |
Inventories | | | 0.5 | | | | 6.3 | | | | 6.8 | |
Prepaid expenses and other current assets | | | 0.4 | | | | 1.4 | | | | 1.8 | |
Property, plant and equipment, net | | | 13.3 | | | | 14.1 | | | | 27.4 | |
Definite-lived intangible assets | | | 25.1 | | | | 31.1 | | | | 56.2 | |
Deferred tax assets, net | | | — | | | | 0.2 | | | | 0.2 | |
Goodwill | | | 23.4 | | | | 41.8 | | | | 65.2 | |
Trade accounts payable | | | (1.5 | ) | | | (7.6 | ) | | | (9.1 | ) |
Other accrued expenses | | | (0.5 | ) | | | (1.7 | ) | | | (2.2 | ) |
Deferred tax liabilities | | | — | | | | (3.1 | ) | | | (3.1 | ) |
| | | | | | | | | | | | |
| | $ | 69.5 | | | $ | 101.6 | | | $ | 171.1 | |
| | | | | | | | | | | | |
adjustments.
The
consolidated financial statements include the results of acquired companies from the acquisition date. Net sales and net income of acquired companies included in the consolidated statement of operations for the year ended December 31, 2015, were $38.3 million and $1.9 million, respectively.Transaction costs
Costs of approximately $2.0 million directly attributable to the acquisitions, consisting primarily of legal and consultancy fees, were expensed as incurred in other operating expenses, net in the consolidated statements of operations.
Goodwill and intangible assets
Substantially all of the goodwill recognized above was attributed to the expected synergies from combining the assets and activities of the acquisitions with those of the Company’s USA, Canada and EMEA segments. The goodwill arising on the Future/BlueStar and Polymer acquisitions is not tax-deductible and the goodwill arising on the Key, Chemical Associates, Arrow Chemical and WEG acquisitions is tax-deductible.
The intangible assets subject to amortization recognized consisted of the following:
| | | | | | | | |
(in millions) | | Fair value | | | Weighted average amortization
period in years | |
WEG | | | | | | | | |
Customer relationships | | $ | 24.2 | | | | 12.0 | |
Other | | | 0.9 | | | | 3.0 | |
Other acquisitions | | | | | | | | |
Customer relationships | | | 17.8 | | | | 10.2 | |
Other | | | 13.3 | | | | 8.9 | |
| | | | | | | | |
Total | | $ | 56.2 | | | | | |
| | | | | | | | |
Contingent consideration liabilities
Pursuant to the terms of the purchase agreements related to the Future/BlueStar, Arrow Chemical, WEG and Polymer acquisitions, the Company is conditionally obligated to make earn-out payments based on the acquired companies’ performance in fiscal years subsequent to the acquisition year (earn-out period). The earn-out period for these acquisitions ranges from 2 to 3 years. As part of the allocation of the purchase price, the Company recognized $3.0 million and $5.8 million for WEG and the remaining acquisitions, respectively, in other long-term liabilities related to the fair value of the contingent considerations on the date of acquisition.
With the exception of Polymer, the earn-out payment formulas are based on measures of gross profit. Polymer’s earn-out formula is based on a measure of sales. The maximum amount that the Company is contractually obligated to pay under these earn-out arrangements is $10.0 million for WEG and $4.4 million for Arrow Chemical and Polymer. There is no maximum for the earn-out payable to Future/BlueStar, which was deemed to have a fair value of $2.8 million as of the acquisition date.
The contingent consideration arrangements were recognized at their fair value based on a real options approach, which took into account management’s best estimate of the acquired companies’ performance during the earn-out periods, as well as achievement risk.
Since the acquisitions including continent consideration arrangements had closed within 3 months prior to December 31, 2015, there were no significant changes in the fair value measurements of these liabilities. As of December 31, 2015, noncurrent liability was $8.8 million.
Supplemental pro forma information (unaudited)
The following table presents summarized pro forma results of the Company and the acquired entities had the acquisition dates of all 2015 business combinations been January 1, 2014:
| | | | | | | | |
(in millions, except per share data) | | 2015 | | | 2014 | |
Net sales | | $ | 9,078.3 | | | $ | 10,524.4 | |
Net income (loss) | | | 23.6 | | | | (7.7 | ) |
Income (loss) per common share – diluted | | $ | 0.20 | | | $ | (0.08 | ) |
The supplemental pro forma information presents the combined operating results of the Company and the businesses acquired, adjusted to exclude acquisition-related costs, to include the additional depreciation and amortization expense associated with the effect of fair value adjustments recognized, and to include interest expense and amortization of debt issuance costs related to the Company’s borrowings used to fund the acquisitions.
Year ended December 31, 2014
Acquisition of D’Altomare Quimica Ltda.
On November 3, 2014, the Company completed an acquisition of 100% of the equity interest in D’Altomare, a Brazilian distributor of specialty chemicals and ingredients. This acquisition expands the Company’s geographic footprint and market presence in Brazil and across Latin America. The acquisition purchase price and operating results subsequent to the acquisition date did not have a significant impact on the consolidated financial statementsstatement of the Company.
Year ended December 31, 2013
The accounting for this acquisition has only been preliminarily determined.
Acquisition of
QuimicompuestosKemetyl Industrial Chemicals
On
May 16, 2013,January 4, 2018, the Company completed an acquisition of 100% of the equity interest in
Quimicompuestos, a leading distributor of commodity chemicals in Mexico. The acquisition provides the Company with a strong platform for future growth in Mexico and enables the Company to offer its customers and suppliers the complete end to end value proposition with both specialty chemical and commodity offerings. The final fair values of assets acquired and liabilities assumed for Quimicompuestos are as follows: | | | | |
(in millions) | | | |
Purchase price: | | | | |
Cash consideration | | $ | 92.2 | |
Fair value of contingent consideration | | | 0.2 | |
| | | | |
| | | 92.4 | |
Allocation: | | | | |
Cash and cash equivalents | | | 3.5 | |
Trade accounts receivable | | | 31.2 | |
Inventories | | | 12.9 | |
Prepaid expenses and other current assets | | | 9.0 | |
Property, plant and equipment, net | | | 18.6 | |
Definite lived intangible assets | | | 30.6 | |
Deferred tax assets | | | 0.7 | |
Goodwill | | | 35.0 | |
Trade accounts payable | | | (25.3 | ) |
Accrued compensation and other accrued expenses | | | (15.0 | ) |
Deferred tax liabilities | | | (8.8 | ) |
| | | | |
| | $ | 92.4 | |
| | | | |
Pursuant to the terms of the purchase agreement, the Company was conditionally obligated to make an earnout payment of $5.0 million based on Quimicompuestos’ performance in 2013. As part of the allocation of the purchase price, the Company recognized $0.2 million in other accrued expenses related to the fair value of Quimicompuestos’ contingent consideration on the date of acquisition. The contingent consideration was recognized at fair value based on a real options approach, which took into account management’s best estimate of Quimicompuestos’ performance in 2013,Kemetyl Norge Industri AS as well as achievement risk. Fora definitive asset purchase agreement with Kemetyl Aktiebolag. Kemetyl is among the leading distributors of chemical products in the Nordic region and provides bulk and specialty chemicals, such as isopropanol, glycols, metal salts, minerals and polyacrylamides, to customers in Sweden and Norway. The addition of Kemetyl will allow Univar to expand its leading position in the pharmaceutical industry.
The purchase price of these acquisitions was $7.5 million (net of cash acquired of $0.7 million). The purchase price allocation includes goodwill of $3.9 million and intangibles of $3.6 million. During the third quarter of 2018, the Company recorded an initial purchase price of $8.9 million and included goodwill of $5.3 million and intangibles of $3.7 million. During the third and fourth quarter of 2018, the Company recorded purchase price adjustments of $1.4 million on these acquisitions which resulted in a decrease of $1.4 million to goodwill recorded during the first quarter of 2018. The adjustments were primarily attributable to final working capital adjustments.
The operating results subsequent to the acquisition date did not have a significant impact on the consolidated financial statement of the Company. The accounting for these acquisitions has only been preliminarily determined.
Year ended December 31, 2017
In the year ended December 31, 2013, Quimicompuestos did not achieve2017, the required performance target, whichCompany completed two acquisitions.
On September 21, 2017, the Company completed an acquisition of 100% of the equity interest in Tagma Brasil Ltda., a leading Brazilian provider of customized formulation and packaging services for crop protection chemicals that include herbicides, insecticides, fungicides and surfactants. This acquisition expands Univar's agriculture business in one of the world's fastest-growing agricultural markets.
On September 29, 2017, the Company completed a definitive asset purchase agreement with PVS Minibulk, Inc., a provider of Minibulk services for inorganic chemicals in California, Oregon, and Washington. This acquisition expands and strengthens Univar's MiniBulk business in the West Coast market as the Company has the opportunity to service PVS customers and integrate them into the Univar business.
The purchase price of these acquisitions was $21.7 million (net of cash acquired of $0.2 million). The purchase price allocation includes goodwill of $1.0 million and intangibles of $5.3 million. Purchase price adjustments on the 2017 acquisitions resulted in
no earnout payment.Costsa decrease of $7.5$3.2 million directlyto goodwill recorded in 2018. The adjustments were primarily attributable to net cash proceeds of $2.2 million and $1.1 million increase in the value allocated to intangible assets.
The operating results subsequent to the acquisition
consisting of legal and consultancy fees, were expensed as incurred in other operating expenses, net withindates did not have a significant impact on the consolidated
statements of operations.Substantially allfinancial statement of the goodwill recognized above was attributed to the expected synergies from combining the assets and activities of Quimicompuestos with thoseCompany. The initial purchase price of the Company’s Rest2017 acquisitions was $23.9 million (net of World segment.cash acquired of $0.2 million). The goodwill
arisingaccounting for these acquisitions was complete as of September 30, 2018.
As of March 31, 2017, the purchase price allocation for the Bodine and Nexus Ag 2016 acquisitions were finalized. Purchase price adjustments on
prior acquisitions resulted in additional cash payments of $0.5 million during the
Quimicompuestos acquisition is not tax-deductible. The intangible assets recognized primarily consisted of customer relationships of $19.9 million, which are being amortized on an accelerated basis over a period of 11 years, and non-compete agreements of $10.0 million, which are being amortized on a straight line basis over a period of 3 years. The weighted average amortization period for intangibles related to the acquisition is 8.2 years.The consolidated financial statements include the results of Quimicompuestos from the acquisition date. Had the acquisition occurred on January 1, 2012, there would not have been a significant change to the Company’s net sales and net loss. Additionally, net sales and net income contributed by Quimicompuestos to the Company post-acquisition were not significant in the yearthree months ended DecemberMarch 31, 2013.
18.2017.
20. Commitments and contingencies Rental and lease commitments primarily relate to land, buildings and fleet. Operating lease expense for the years ended December 31,
2015, 20142018, 2017 and
20132016 were
$93.7$64.1 million,
$107.4$76.7 million and
$104.4$83.3 million, respectively.
As of December 31,
2015,2018, minimum rental commitments under non-cancelable operating leases with lease terms in excess of one year
and capital lease obligations are as follows:
| | | | | | | | |
(in millions) | | Minimum rental
commitments | | | Capital lease
commitments | |
2016 | | $ | 62.8 | | | $ | 20.0 | |
2017 | | | 50.6 | | | | 9.0 | |
2018 | | | 41.1 | | | | 7.3 | |
2019 | | | 37.1 | | | | 6.3 | |
2020 | | | 30.4 | | | | 5.4 | |
More than five years | | | 63.4 | | | | 9.3 | |
| | | | | | | | |
Total | | $ | 285.4 | | | $ | 57.3 | |
| | | | | | | | |
|
| | | |
| (in millions) | Minimum rental commitments |
| 2019 | $ | 54.9 |
|
| 2020 | 40.4 |
|
| 2021 | 30.0 |
|
| 2022 | 24.6 |
|
| 2023 | 16.3 |
|
| Thereafter | 30.0 |
|
| Total | $ | 196.2 |
|
In the ordinary course of business the Company is subject to pending or threatened claims, lawsuits, regulatory matters and administrative proceedings from time to time. Where appropriate the Company has recorded provisions in the consolidated financial statements for these matters. The liabilities for injuries to persons or property are in some instances covered by liability insurance, subject to various deductibles and self-insured retentions.
The Company is not aware of any claims, lawsuits, regulatory matters or administrative proceedings, pending or threatened, that are likely to have a material effect on its overall financial position, results of operations, or cash flows. However, the Company cannot predict the outcome of any claims or litigation or the potential for future claims or litigation.
The Company is subject to liabilities from claims alleging personal injury from exposure to asbestos. The claims result primarily from an indemnification obligation related to Univar USA Inc.’s
(“Univar”) 1986 purchase of McKesson Chemical Company from McKesson Corporation (“McKesson”).
Univar USA’sUnivar’s obligation to indemnify McKesson for settlements and judgments arising from asbestos claims is the amount which is in excess of applicable insurance coverage, if any, which may be available under McKesson’s historical insurance coverage. Univar
USA is also a defendant in a small number of asbestos claims. As of December 31,
2015,2018, there were fewer than
185200 asbestos-related claims for which the Company has liability for defense and indemnity
pursuant to the indemnification obligation. Historically, the vast majority of the claims against both McKesson and Univar USA have been dismissed without payment. While the Company is unable to predict the outcome of these matters, it does not believe, based upon current available facts, that the ultimate resolution of any of these matters will have a material effect on its overall financial position, results of operations, or cash flows. However, the Company cannot predict the outcome of any present or future claims or litigation and adverse developments could negatively impact earnings or cash flows in a particular future period.
The Company is subject to various federal, state and local environmental laws and regulations that require environmental assessment or remediation efforts (collectively “environmental remediation work”) at approximately 130 locations, some that are now or were previously Company-owned/occupied and some that were never Company-owned/occupied (“non-owned sites”).
The Company’s environmental remediation work at some sites is being conducted pursuant to governmental proceedings or investigations, while the Company, with appropriate state or federal agency oversight and approval, is conducting the environmental remediation work at other sites voluntarily. The Company is currently undergoing remediation efforts or is in the process of active review of the need for potential remediation efforts at approximately
103107 current or formerly Company-owned/occupied sites. In addition, the Company may be liable for a share of the clean-up of approximately
2723 non-owned sites. These non-owned sites are typically (a) locations of independent waste disposal or recycling operations with alleged or confirmed contaminated soil and/or groundwater to which the Company may have shipped waste products or drums for re-conditioning, or (b) contaminated non-owned sites near historical sites owned or operated by the Company or its predecessors from which contamination is alleged to have arisen.
In determining the appropriate level of environmental reserves, the Company considers several factors such as information obtained from investigatory studies; changes in the scope of remediation; the interpretation, application and enforcement of laws and regulations; changes in the costs of remediation programs; the development of alternative cleanup technologies and methods; and the relative level of the Company’s involvement at various sites for which the Company is allegedly associated. The level of annual expenditures for remedial, monitoring and investigatory activities will change in the future as major components of planned remediation activities are completed and the scope, timing and costs of existing activities are changed. Project lives, and therefore cash flows, range from 2 to 30 years, depending on the specific site and type of remediation project.
On December 9, 2014, the Company was issued a violation notice from the Pollution Control Services Department of Harris County, Texas (“PCS”). The notice relates to claims that the Company’s facility on Luthe Road in Houston, Texas operated with inadequate air emissions controls and improperly discharged certain waste without authorization. On March 6, 2015, PCS notified the Company that the matter was forwarded to the Harris County District Attorney’s Office with a request for an enforcement action. No such action has commenced. The Company continues to investigate and evaluate the claims.
In April 2015, the Company’s subsidiary Magnablend Inc. (“Magnablend”) was advised that the United States Environmental Protection Agency (“EPA”) was considering bringing an enforcement action against Magnablend. The matter relates to a January 26, 2015 incident at Magnablend’s Waxahachie, Texas facility at which a 300 gallon plastic container of sodium chlorite burst as a result of a chemical reaction. This matter has now been resolved by Magnablend making a payment of $37,500 to the EPA.
As of December 31, 2015, the Company has not recorded a liability related to the PCS investigation described above as any potential loss is neither probable nor estimable at this stage in either investigation.
Although the Company believes that its reserves are adequate for environmental contingencies, it is possible, due to the uncertainties noted
above,above; that additional reserves could be required in the future that could have a material effect on the overall financial position, results of operations, or cash flows in a particular period. This additional loss or range of losses cannot be recorded at this time, as it is not reasonably estimable.
Changes in total environmental liabilities are as follows:
| | | | | | | | |
(in millions) | | 2015 | | | 2014 | |
Environmental liabilities at January 1 | | $ | 120.3 | | | $ | 137.0 | |
Revised obligation estimates | | | 11.3 | | | | 1.9 | |
Environmental payments | | | (17.8 | ) | | | (17.5 | ) |
Foreign exchange | | | (0.6 | ) | | | (1.1 | ) |
| | | | | | | | |
Environmental liabilities at December 31 | | $ | 113.2 | | | $ | 120.3 | |
| | | | | | | | |
|
| | | | | | | |
| (in millions) | 2018 | | 2017 |
| Environmental liabilities at January 1 | $ | 89.2 |
| | $ | 95.8 |
|
| Revised obligation estimates | 12.6 |
| | 12.3 |
|
| Environmental payments | (18.1 | ) | | (19.3 | ) |
| Foreign exchange | (0.2 | ) | | 0.4 |
|
| Environmental liabilities at December 31 | $ | 83.5 |
| | $ | 89.2 |
|
Environmental liabilities of
$35.5$32.1 million and
$31.1$29.1 million were classified as current in other accrued expenses in the consolidated balance sheets as of December 31,
20152018 and
2014,2017, respectively. The long-term portion of environmental liabilities is recorded in other long-term liabilities in the consolidated balance sheets. The total discount on environmental liabilities was
$2.3 million and $2.2$5.0 million at December 31,
20152018 and
2014,2017, respectively. The discount rate used in the present value calculation was
2.3%2.7% and
2.2%2.4% as of December 31,
20152018 and
2014,2017, respectively, which represent risk-free rates.
The Company manages estimated cash flows by project. These estimates are subject to change if there are modifications to the scope of the remediation plan or if other factors, both external and internal, change the timing of the remediation activities. The Company periodically reviews the status of all existing or potential environmental liabilities and adjusts its accruals based on all available, relevant information. Based on current estimates, the expected payments for environmental remediation for the next five years and thereafter at December 31,
20152018 are as follows, with projects for which timing is uncertain included in the
20162019 estimated amount of
$14.3$11.4 million:
| | | | |
(in millions) | | | |
2016 | | $ | 35.5 | |
2017 | | | 15.4 | |
2018 | | | 10.7 | |
2019 | | | 9.1 | |
2020 | | | 8.4 | |
Thereafter | | | 36.4 | |
| | | | |
Total | | $ | 115.5 | |
| | | | |
Competition
At the end of May 2013, the Autorité de la concurrence, France’s competition authority, fined the Company $19.91 million (€15.18 million) for alleged price fixing. The price fixing was alleged to have occurred prior to 2006. The Company will not appeal the fine which was paid in full during the year ended December 31, 2013.
|
| | | |
| (in millions) | |
| 2019 | $ | 32.1 |
|
| 2020 | 10.3 |
|
| 2021 | 8.8 |
|
| 2022 | 7.0 |
|
| 2023 | 6.5 |
|
| Thereafter | 23.9 |
|
| Total | $ | 88.6 |
|
Customs and International Trade Laws
In
April 2012,2015, the US Department of Justice (“DOJ”)
issued a civil investigative demand to the Company in connection with an investigation into the Company’s compliance with applicable customs and international trade laws and regulations relating to the importation, on behalf of
saccharin from 2002 through 2012. The Company also became aware in 2010 of an investigation being conducted by US Customs and Border Patrol (“CBP”)
into theCompany’s importation of saccharin. Finally, the Company learned that, filed a civil plaintiff had sued the Company and two other defendants in a Qui Tam proceeding, such filing having been made under seal in 2012, and this plaintiff had requested that the DOJ intervene in its lawsuit.
The US government, through the DOJ, declined to intervene in the Qui Tam proceeding in November 2013 and, as a result, the DOJ’s inquiry related to the Qui Tam lawsuit and its initial investigation demand are now finished. On February 26, 2014, the Qui Tam plaintiff also voluntarily dismissed its lawsuit against the Company. CBP, however, continued its investigation on the importation of saccharin by the Company’s subsidiary, Univar USA Inc. On July 21, 2014, CBP sent the Company a “Pre-Penalty Notice” indicating the imposition of a penaltycomplaint against Univar USA Inc. in the amount of approximately $84.0 million. Univar USA Inc. responded to CBP that the proposed penalty was not justified. On October 1, 2014, the CBP issued a penalty notice to Univar USA Inc. for $84.0 million and has reaffirmed this penalty notice. On August 6, 2015, the DOJ filed a complaint on CBP’s behalf against Univar USA Inc., in the Court of the International Trade seeking approximately $84.0 million, plus additional interest and fees, in allegedly unpaid duties penalties, interest, coststhat applied to imports of saccharin from China. Univar denies that any such duties were due because Univar contends the saccharin it imported during the time in question was Taiwanese in origin. The case has progressed through the discovery phase and attorneys’ fees.earlier this year Univar filed a motion for summary judgement, which the Court denied. The Company continues to defend this matter vigorously.case is scheduled for trial in April 2019. Univar USA Inc. has not recorded a liability related to this investigation asmatter. Although the Company believes a lossits position is not probable.
19.defensible, it cannot guarantee the outcome of this or other litigation.
21. Related party transactionsCD&R and CVC charged
As of January 31, 2018, Temasek reduced its ownership stakes in the Company a total of $2.8 million, $5.9 million and $5.2 million in the years ended December 31, 2015, 2014 and 2013, respectively, for advisory services provided tobelow 10%. As such, transactions between the Company pertaining strategic consulting. In addition, duringand Temasek are not considered related party in 2018.
During the year ended December 31,
2015, there was a contract termination fee of $26.2 million related to terminating consulting agreements between2016, CVC divested its entire investment in the Company
and CVC and CD&R as a result of the IPO. Refer to Note 1 for additional information. These amounts were recorded in
other operating expenses, net. Refer to “Note 4: Other operating expenses, net” for additional information.conjunction with secondary public offering.
The following table summarizes the Company’s sales and purchases with related parties within the ordinary course of business:
| | | | | | | | | | | | |
| | | Year ended December 31, | |
(in millions) | | 2015 | | | 2014 | | | 2013 | |
CVC: | | | | | | | | | | | | |
Sales to affiliate companies | | $ | 1.9 | | | $ | 9.1 | | | $ | 10.5 | |
Purchases from affiliate companies | | | 8.8 | | | | 10.2 | | | | 19.0 | |
CD&R: | | | | | | | | | | | | |
Sales to affiliate companies | | | 29.7 | | | | 20.9 | | | | 3.5 | |
Purchases from affiliate companies | | | 19.9 | | | | 21.6 | | | | 0.4 | |
Temasek: | | | | | | | | | | | | |
Sales to affiliate companies | | | 19.8 | | | | — | | | | — | |
Purchases from affiliate companies | | | 0.1 | | | | — | | | | — | |
|
| | | | | | | | | | | |
| | Year ended December 31, |
| (in millions) | 2018 | | 2017 | | 2016 |
| CD&R: | | | | | |
| Sales to affiliate companies | $ | 4.5 |
| | $ | 5.3 |
| | $ | 7.7 |
|
| Purchases from affiliate companies | 0.1 |
| | 6.0 |
| | 16.5 |
|
| Temasek: | | | | | |
| Sales to affiliate companies | — |
| | 10.1 |
| | 14.4 |
|
| Purchases from affiliate companies | — |
| | 0.7 |
| | 10.1 |
|
CVC (1): | | | | | |
| Sales to affiliate companies | — |
| | — |
| | 0.5 |
|
| Purchases from affiliate companies | — |
| | — |
| | — |
|
| | | | | | |
| |
| (1) | Sales and purchases related information for CVC is disclosed until August 31, 2016. |
The following table summarizes the Company’s receivables due from and payables due to related parties:
| | | | | | | | |
| | | December 31, | |
(in millions) | | 2015 | | | 2014 | |
Due from affiliates | | $ | 4.1 | | | $ | 3.9 | |
Due to affiliates | | | 6.6 | | | | 1.7 | |
The Senior Subordinated Notes were held by indirect stockholders of the Company and were therefore considered due to related parties. Refer to “Note 14: Debt” for further information regarding the Senior Subordinated Notes.
20.
|
| | | | | | | |
| | December 31, |
| (in millions) | 2018 | | 2017 |
| Due from affiliates | $ | 0.7 |
| | $ | 1.0 |
|
| Due to affiliates | 0.2 |
| | 0.2 |
|
Management monitors the operating results of its operating segments separately for the purpose of making decisions about resource allocation and performance assessment. Management evaluates performance on the basis of Adjusted EBITDA. Adjusted EBITDA is defined as consolidated net income (loss), plus the sum of: interest expense, net of interest income; income tax expense (benefit); depreciation; amortization; other operating expenses, net; impairment charges; loss on extinguishment of debt; and other
(expense) income,expense, net.
Transfer prices between operating segments are set on an arms-length basis in a similar manner to transactions with third parties. Corporate operating expenses that directly benefit segments have been allocated to the operating segments. Allocable operating expenses are identified through a review process by management. These costs are allocated to the operating segments on a basis that reasonably approximates the use of services. This is typically measured on a weighted distribution of margin, asset, headcount or time spent.
Other/Eliminations represents the elimination of inter-segment transactions as well as unallocated corporate costs consisting of costs specifically related to parent company operations that do not directly benefit segments, either individually or collectively.
Financial information for the Company’s segments is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | | USA | | | Canada | | | EMEA | | | Rest of
World | | | Other/
Eliminations | | | Consolidated | |
Year ended December 31, 2015 | | | | | | | | | | | | | | | | | | | | | | | | |
Net sales | | | | | | | | | | | | | | | | | | | | | | | | |
External customers | | $ | 5,351.5 | | | $ | 1,376.6 | | | $ | 1,780.1 | | | $ | 473.6 | | | $ | — | | | $ | 8,981.8 | |
Inter-segment | | | 112.7 | | | | 8.6 | | | | 4.0 | | | | 0.1 | | | | (125.4 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total net sales | | | 5,464.2 | | | | 1,385.2 | | | | 1,784.1 | | | | 473.7 | | | | (125.4 | ) | | | 8,981.8 | |
Cost of goods sold (exclusive of depreciation) | | | 4,365.9 | | | | 1,161.0 | | | | 1,398.6 | | | | 382.6 | | | | (125.4 | ) | | | 7,182.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit | | | 1,098.3 | | | | 224.2 | | | | 385.5 | | | | 91.1 | | | | — | | | | 1,799.1 | |
Outbound freight and handling | | | 216.9 | | | | 39.3 | | | | 59.6 | | | | 8.8 | | | | — | | | | 324.6 | |
Warehousing, selling and administrative | | | 492.6 | | | | 87.8 | | | | 226.0 | | | | 54.1 | | | | 13.9 | | | | 874.4 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA | | $ | 388.8 | | | $ | 97.1 | | | $ | 99.9 | | | $ | 28.2 | | | $ | (13.9 | ) | | $ | 600.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other operating expenses, net | | | | | | | | | | | | | | | | | | | | | | | 106.1 | |
Depreciation | | | | | | | | | | | | | | | | | | | | | | | 136.5 | |
Amortization | | | | | | | | | | | | | | | | | | | | | | | 88.5 | |
Loss on extinguishment of debt | | | | | | | | | | | | | | | | | | | | | | | 12.1 | |
Interest expense, net | | | | | | | | | | | | | | | | | | | | | | | 207.0 | |
Other expense, net | | | | | | | | | | | | | | | | | | | | | | | 23.2 | |
Income tax expense | | | | | | | | | | | | | | | | | | | | | | | 10.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | | | | | | | | | | | | | | | | | | | | $ | 16.5 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 3.962.0 | | | $ | 1,709.7 | | | $ | 947.2 | | | $ | 233.6 | | | $ | (1,240.1 | ) | | $ | 5,612.4 | |
Property, plant and equipment, net | | | 714.9 | | | | 133.3 | | | | 167.7 | | | | 20.3 | | | | 46.3 | | | | 1,082.5 | |
Capital expenditures | | | 106.8 | | | | 16.1 | | | | 17.2 | | | | 3.4 | | | | 1.5 | | | | 145.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | | USA | | | Canada | | | EMEA | | | Rest of
World | | | Other/
Eliminations | | | Consolidated | |
Year ended December 31, 2014 | | | | | | | | | | | | | | | | | | | | | | | | |
Net sales: | | | | | | | | | | | | | | | | | | | | | | | | |
External customers | | $ | 6,081.4 | | | $ | 1,512.1 | | | $ | 2,230.1 | | | $ | 550.3 | | | $ | — | | | $ | 10,373.9 | |
Inter-segment | | | 121.8 | | | | 10.0 | | | | 4.5 | | | | — | | | | (136.3 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total net sales | | | 6,203.2 | | | | 1,522.1 | | | | 2,234.6 | | | | 550.3 | | | | (136.3 | ) | | | 10,373.9 | |
Cost of goods sold (exclusive of depreciation) | | | 5,041.0 | | | | 1,271.5 | | | | 1,797.9 | | | | 469.1 | | | | (136.3 | ) | | | 8,443.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit | | | 1,162.2 | | | | 250.6 | | | | 436.7 | | | | 81.2 | | | | — | | | | 1,930.7 | |
Outbound freight and handling | | | 233.3 | | | | 46.4 | | | | 75.5 | | | | 10.3 | | | | — | | | | 365.5 | |
Warehousing, selling and administrative | | | 490.9 | | | | 97.4 | | | | 276.2 | | | | 53.3 | | | | 5.7 | | | | 923.5 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA | | $ | 438.0 | | | $ | 106.8 | | | $ | 85.0 | | | $ | 17.6 | | | $ | (5.7 | ) | | $ | 641.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other operating expenses, net | | | | | | | | | | | | | | | | | | | | | | | 197.1 | |
Depreciation | | | | | | | | | | | | | | | | | | | | | | | 133.5 | |
Amortization | | | | | | | | | | | | | | | | | | | | | | | 96.0 | |
Impairment charges | | | | | | | | | | | | | | | | | | | | | | | 0.3 | |
Loss on extinguishment of debt | | | | | | | | | | | | | | | | | | | | | | | 1.2 | |
Interest expense, net | | | | | | | | | | | | | | | | | | | | | | | 250.6 | |
Other income, net | | | | | | | | | | | | | | | | | | | | | | | (1.1 | ) |
Income tax benefit | | | | | | | | | | | | | | | | | | | | | | | (15.8 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | | | | | | | | | | | | | | | | | | | | | $ | (20.1 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total assets (as adjusted*) | | $ | 4,130.4 | | | $ | 1,986.5 | | | $ | 1,059.2 | | | $ | 310.8 | | | $ | (1,419.2 | ) | | $ | 6,067.7 | |
Property, plant and equipment, net | | | 621.6 | | | | 135.8 | | | | 189.4 | | | | 25.1 | | | | 60.4 | | | | 1,032.3 | |
Capital expenditures | | | 73.1 | | | | 9.3 | | | | 24.9 | | | | 5.1 | | | | 1.5 | | | | 113.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | | USA | | | Canada | | | EMEA | | | Rest of
World | | | Other/
Eliminations | | | Consolidated | |
Year ended December 31, 2013 | | | | | | | | | | | | | | | | | | | | | | | | |
Net sales: | | | | | | | | | | | | | | | | | | | | | | | | |
External customers | | $ | 5,964.5 | | | $ | 1,558.7 | | | $ | 2,326.8 | | | $ | 474.6 | | | $ | — | | | $ | 10,324.6 | |
Inter-segment | | | 116.5 | | | | 8.0 | | | | 4.0 | | | | — | | | | (128.5 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total net sales | | | 6,081.0 | | | | 1,566.7 | | | | 2,330.8 | | | | 474.6 | | | | (128.5 | ) | | | 10,324.6 | |
Cost of goods sold (exclusive of depreciation) | | | 4,953.4 | | | | 1,316.6 | | | | 1,902.9 | | | | 404.3 | | | | (128.5 | ) | | | 8,448.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit | | | 1,127.6 | | | | 250.1 | | | | 427.9 | | | | 70.3 | | | | — | | | | 1,875.9 | |
Outbound freight and handling | | | 201.3 | | | | 41.6 | | | | 76.1 | | | | 7.0 | | | | — | | | | 326.0 | |
Warehousing, selling and administrative | | | 492.6 | | | | 102.4 | | | | 299.3 | | | | 48.3 | | | | 9.1 | | | | 951.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA | | $ | 433.7 | | | $ | 106.1 | | | $ | 52.5 | | | $ | 15.0 | | | $ | (9.1 | ) | | $ | 598.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other operating expenses, net | | | | | | | | | | | | | | | | | | | | | | | 12.0 | |
Depreciation | | | | | | | | | | | | | | | | | | | | | | | 128.1 | |
Amortization | | | | | | | | | | | | | | | | | | | | | | | 100.0 | |
Impairment charges | | | | | | | | | | | | | | | | | | | | | | | 135.6 | |
Loss on extinguishment of debt | | | | | | | | | | | | | | | | | | | | | | | 2.5 | |
Interest expense, net | | | | | | | | | | | | | | | | | | | | | | | 294.5 | |
Other expense, net | | | | | | | | | | | | | | | | | | | | | | | 17.6 | |
Income tax benefit | | | | | | | | | | | | | | | | | | | | | | | (9.8 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | | | | | | | | | | | | | | | | | | | | | $ | (82.3 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total assets (as adjusted*) | | $ | 4,127.2 | | | $ | 1,780.2 | | | $ | 1,441.6 | | | $ | 268.9 | | | $ | (1,413.2 | ) | | $ | 6,204.7 | |
Property, plant and equipment, net | | | 621.9 | | | | 147.6 | | | | 226.7 | | | | 26.0 | | | | 74.9 | | | | 1,097.1 | |
Capital expenditures | | | 59.9 | | | | 15.8 | | | | 23.8 | | | | 3.0 | | | | 38.8 | | | | 141.3 | |
* | Adjusted due to the adoption of ASU 2015-03 and ASU 2015-15. Refer to “Note 2: Significant accounting policies” for additional information. |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | USA | | Canada | | EMEA | | Rest of World | | Other/ Eliminations | | Consolidated |
| | Year ended December 31, 2018 |
| Net sales: | | | | | | | | | | | |
| External customers | $ | 4,961.0 |
| | $ | 1,302.3 |
| | $ | 1,975.7 |
| | $ | 393.5 |
| | $ | — |
| | $ | 8,632.5 |
|
| Inter-segment | 126.6 |
| | 9.3 |
| | 4.0 |
| | 0.2 |
| | (140.1 | ) | | — |
|
| Total net sales | $ | 5,087.6 |
| | $ | 1,311.6 |
| | $ | 1,979.7 |
| | $ | 393.7 |
| | $ | (140.1 | ) | | $ | 8,632.5 |
|
| Cost of goods sold (exclusive of depreciation) | 3,959.3 |
| | 1,080.1 |
| | 1,525.6 |
| | 307.5 |
| | (140.1 | ) | | 6,732.4 |
|
| Outbound freight and handling | 215.6 |
| | 42.5 |
| | 62.4 |
| | 7.8 |
| | — |
| | 328.3 |
|
| Warehousing, selling and administrative | 536.3 |
| | 84.3 |
| | 240.5 |
| | 45.1 |
| | 25.2 |
| | 931.4 |
|
| Adjusted EBITDA | $ | 376.4 |
| | $ | 104.7 |
| | $ | 151.2 |
| | $ | 33.3 |
| | $ | (25.2 | ) | | $ | 640.4 |
|
| Other operating expenses, net | | | | | | | | | | | 73.5 |
|
| Depreciation | | | | | | | | | | | 125.2 |
|
| Amortization | | | | | | | | | | | 54.3 |
|
| Interest expense, net | | | | | | | | | | | 132.4 |
|
| Loss on extinguishment of debt | | | | | | | | | | | 0.1 |
|
| Other expense, net | | | | | | | | | | | 32.7 |
|
| Income tax expense | | | | | | | | | | | 49.9 |
|
| Net income | | | | | | | | | | | $ | 172.3 |
|
| Total assets | $ | 3,114.8 |
| | $ | 1,519.9 |
| | $ | 973.0 |
| | $ | 212.5 |
| | $ | (547.8 | ) | | $ | 5,272.4 |
|
| Property, plant and equipment, net | 597.6 |
| | 141.3 |
| | 156.7 |
| | 30.2 |
| | 30.0 |
| | 955.8 |
|
| Capital expenditures | 42.9 |
| | 22.3 |
| | 15.4 |
| | 3.5 |
| | 10.5 |
| | 94.6 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | USA | | Canada | | EMEA | | Rest of World | | Other/ Eliminations | | Consolidated |
| | Year ended December 31, 2017 |
| Net sales: | | | | | | | | | | | |
| External customers | $ | 4,657.1 |
| | $ | 1,371.5 |
| | $ | 1,821.2 |
| | $ | 403.9 |
| | $ | — |
| | $ | 8,253.7 |
|
| Inter-segment | 121.9 |
| | 9.1 |
| | 4.5 |
| | 0.5 |
| | (136.0 | ) | | — |
|
| Total net sales | $ | 4,779.0 |
| | $ | 1,380.6 |
| | $ | 1,825.7 |
| | $ | 404.4 |
| | $ | (136.0 | ) | | $ | 8,253.7 |
|
| Cost of goods sold (exclusive of depreciation) | 3,706.8 |
| | 1,143.0 |
| | 1,411.7 |
| | 322.7 |
| | (136.0 | ) | | 6,448.2 |
|
| Outbound freight and handling | 192.8 |
| | 37.3 |
| | 55.7 |
| | 6.2 |
| | — |
| | 292.0 |
|
| Warehousing, selling and administrative | 529.4 |
| | 86.2 |
| | 229.1 |
| | 46.8 |
| | 28.2 |
| | 919.7 |
|
| Adjusted EBITDA | $ | 350.0 |
| | $ | 114.1 |
| | $ | 129.2 |
| | $ | 28.7 |
| | $ | (28.2 | ) | | $ | 593.8 |
|
| Other operating expenses, net | | | | | | | | | | | 55.4 |
|
| Depreciation | | | | | | | | | | | 135.0 |
|
| Amortization | | | | | | | | | | | 65.4 |
|
| Interest expense, net | | | | | | | | | | | 148.0 |
|
| Loss on extinguishment of debt | | | | | | | | | | | 3.8 |
|
| Other expense, net | | | | | | | | | | | 17.4 |
|
| Income tax expense | | | | | | | | | | | 49.0 |
|
| Net income | | | | | | | | | | | $ | 119.8 |
|
| Total assets | $ | 3,526.8 |
| | $ | 2,091.3 |
| | $ | 935.1 |
| | $ | 237.5 |
| | $ | (1,058.0 | ) | | $ | 5,732.7 |
|
| Property, plant and equipment, net | 636.1 |
| | 147.7 |
| | 158.0 |
| | 33.5 |
| | 27.7 |
| | 1,003.0 |
|
| Capital expenditures | 47.5 |
| | 17.1 |
| | 14.6 |
| | 2.4 |
| | 1.1 |
| | 82.7 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | USA | | Canada | | EMEA | | Rest of World | | Other/ Eliminations | | Consolidated |
| | Year ended December 31, 2016 |
| Net sales: | | | | | | | | | | | |
| External customers | $ | 4,706.7 |
| | $ | 1,261.0 |
| | $ | 1,704.2 |
| | $ | 401.8 |
| | $ | — |
| | $ | 8,073.7 |
|
| Inter-segment | 104.4 |
| | 8.3 |
| | 4.5 |
| | — |
| | (117.2 | ) | | — |
|
| Total net sales | $ | 4,811.1 |
| | $ | 1,269.3 |
| | $ | 1,708.7 |
| | $ | 401.8 |
| | $ | (117.2 | ) | | $ | 8,073.7 |
|
| Cost of goods sold (exclusive of depreciation) | 3,769.7 |
| | 1,047.4 |
| | 1,324.6 |
| | 322.1 |
| | (117.2 | ) | | 6,346.6 |
|
| Outbound freight and handling | 191.5 |
| | 34.1 |
| | 54.9 |
| | 6.1 |
| | — |
| | 286.6 |
|
| Warehousing, selling and administrative | 523.5 |
| | 85.4 |
| | 219.3 |
| | 46.8 |
| | 18.1 |
| | 893.1 |
|
| Adjusted EBITDA | $ | 326.4 |
| | $ | 102.4 |
| | $ | 109.9 |
| | $ | 26.8 |
| | $ | (18.1 | ) | | $ | 547.4 |
|
| Other operating expenses, net | | | | | | | | | | | 37.2 |
|
| Depreciation | | | | | | | | | | | 152.3 |
|
| Amortization | | | | | | | | | | | 85.6 |
|
| Impairment charges | | | | | | | | | | | 133.9 |
|
| Interest expense, net | | | | | | | | | | | 159.9 |
|
| Other expense, net | | | | | | | | | | | 58.1 |
|
| Income tax benefit | | | | | | | | | | | (11.2 | ) |
| Net loss | | | | | | | | | | | $ | (68.4 | ) |
| Total assets | $ | 3,676.8 |
| | $ | 1,856.2 |
| | $ | 857.4 |
| | $ | 211.3 |
| | $ | (1,211.8 | ) | | $ | 5,389.9 |
|
| Property, plant and equipment, net | 671.1 |
| | 148.3 |
| | 144.8 |
| | 18.2 |
| | 37.1 |
| | 1,019.5 |
|
| Capital expenditures | 56.5 |
| | 17.4 |
| | 12.2 |
| | 2.8 |
| | 1.2 |
| | 90.1 |
|
Business line information
Over 95% of the
The Company’s net sales from external customers relate to its
industrial chemical
distribution business.
Commodity chemicals and ingredients represent the largest portion of our business by sales and volume. Other sales to external customers
primarily relate to
pest control products and equipment related to the pest management industry and services for collecting and arranging for the transportation of hazardous and
nonhazardousnon-hazardous waste.
No single customer accounted for more than 10% of net sales in any of the years presented.
The Company is exposed to credit loss and loss of liquidity availability if the financial institutions or counterparties issuing us debt securities fail to perform. We minimize exposure to these credit risks by dealing with a diversified group of investment grade financial institutions. We manage credit risk by monitoring the credit ratings and market indicators of credit risk of our lending counterparties. We do not anticipate any
nonperformancenon-performance by any of the counterparties.
The Company has portions of its labor force that are a part of collective bargaining agreements. A work stoppage or other limitation on operations could occur as a result of disputes under existing collective bargaining agreements with labor unions or government based work counsels or in connection with negotiation of new collective bargaining agreements. As of December 31, 2015 and 2014, approximately 25 percent and 26 percent of the Company’s labor force is covered by a collective bargaining agreement, respectively. As of December 31, 2015, approximately 3 percent of the Company’s labor force is covered by a collective bargaining agreement that will expire within one year.
21.
23. Quarterly financial information (unaudited) The following tables contain selected unaudited statement of operations information for each quarter of the year ended December 31,
20152018 and
2014.2017. The tables include all adjustments, consisting only of normal recurring adjustments, that is necessary for fair presentation of the consolidated financial position and operating results for the quarters presented. Our business is affected by seasonality, which historically has resulted in higher sales volume during our second and third quarter.
Unaudited quarterly results for the year ended December 31,
20152018 are as follows:
| | | | | | | | | | | | | | | | |
| | | Year ended December 31, 2015 | |
(in millions, except per share data) | | March 31 | | | June 301 | | | September 302 | | | December 313 | |
Net sales | | $ | 2,299.1 | | | $ | 2,510.1 | | | $ | 2,206.3 | | | $ | 1,966.3 | |
Gross profit | | | 461.6 | | | | 467.2 | | | | 450.5 | | | | 419.8 | |
Net income (loss) | | | 19.7 | | | | (12.4 | ) | | | 12.1 | | | | (2.9 | ) |
Income (loss) per share: | | | | | | | | | | | | | | | | |
Basic and diluted | | $ | 0.20 | | | $ | (0.12 | ) | | $ | 0.09 | | | $ | (0.02 | ) |
Shares used in computation of income (loss) per share: | | | | | | | | | | | | | | | | |
Basic | | | 99.9 | | | | 102.8 | | | | 137.6 | | | | 137.6 | |
Diluted. | | | 100.4 | | | | 102.8 | | | | 138.4 | | | | 137.6 | |
|
| | | | | | | | | | | | | | | |
| (in millions, except per share data) | March 31 | | June 30 | | September 30 | | December 31 (1) |
| Net sales | $ | 2,158.0 |
| | $ | 2,372.6 |
| | $ | 2,130.7 |
| | $ | 1,971.2 |
|
| Operating income | 107.9 |
| | 117.4 |
| | 99.6 |
| | 62.5 |
|
| Net income | 65.4 |
| | 56.1 |
| | 49.6 |
| | 1.2 |
|
| Income per share: | | | | | | | |
Basic and diluted (2) | $ | 0.46 |
| | $ | 0.40 |
| | $ | 0.35 |
| | $ | 0.01 |
|
| Shares used in computation of income (loss) per share: | | | | | | | |
| Basic | 140.9 |
| | 141.1 |
| | 141.2 |
| | 141.4 |
|
| Diluted | 142.0 |
| | 142.0 |
| | 142.3 |
| | 142.2 |
|
(1) | Included in the second quarter of 2015 was a contract termination fee of $26.2 million related to terminating consulting agreements between the Company and CVC and CD&R as a result of the IPO. In addition, there was a loss on extinguishment of debt of $7.3 million related to the write-off of unamortized debt issuance costs and debt discount related to the Company paying the remaining principal balance related to the Senior Subordinated Notes. Refer to “Note 14: Debt” for further information. Also, there was a loss due to discontinuance of cash flow hedges of $7.5 million related to the interest rate swap contracts. Refer to “Note 16: Derivatives” for further information. |
(2) | Included in the third quarter of 2015 was a loss on extinguishment of $4.8 million and debt refinancing expenses of $16.5 million related to the July 2015 debt refinancing transactions. Refer to “Note 14: Debt” for further information. |
(3)(1) | Included in the fourth quarter of 20152018 was a loss of $21.1$34.2 million relating to the annual mark to market adjustment on the defined benefit pension and postretirement plans. Refer to “Note 8:9: Employee benefit plans” for further information. |
| |
| (2) | As a result of changes in the number of shares outstanding during the year and rounding, the sum of the quarters’ earnings per share may not equal the earnings per share for any year-to-date period. |
Unaudited quarterly results for the year ended December 31,
20142017 are as follows:
| | | | | | | | | | | | | | | | |
| | | Year ended December 31, 2014 | |
(in millions, except share and per share data) | | March 31 | | | June 30 | | | September 30 | | | December 311 | |
Net sales | | $ | 2,516.4 | | | $ | 2,861.4 | | | $ | 2,608.9 | | | $ | 2,387.2 | |
Gross profit | | | 472.4 | | | | 500.5 | | | | 493.1 | | | | 464.7 | |
Net income (loss) | | | (2.8 | ) | | | 19.5 | | | | 45.8 | | | | (82.6 | ) |
Income (loss) per share: | | | | | | | | | | | | | | | | |
Basic and diluted | | $ | (0.02 | ) | | $ | 0.20 | | | $ | 0.46 | | | $ | (0.83 | ) |
Shares used in computation of income (loss) per share: | | | | | | | | | | | | | | | | |
Basic | | | 99.6 | | | | 99.7 | | | | 99.7 | | | | 99.8 | |
Diluted | | | 99.6 | | | | 100.4 | | | | 100.5 | | | | 99.8 | |
|
| | | | | | | | | | | | | | | |
| (in millions, except per share data) | March 31 | | June 30 | | September 30 | | December 31 (1) |
| Net sales | $ | 1,998.8 |
| | $ | 2,247.0 |
| | $ | 2,048.7 |
| | $ | 1,959.2 |
|
| Operating income | 67.5 |
| | 83.7 |
| | 88.2 |
| | 98.6 |
|
| Net income | 22.6 |
| | 31.3 |
| | 38.9 |
| | 27.0 |
|
| Income per share: | | | | | | | |
| Basic and diluted | $ | 0.16 |
| | $ | 0.22 |
| | $ | 0.28 |
| | $ | 0.19 |
|
| Shares used in computation of income (loss) per share: | | | | | | | |
| Basic | 139.4 |
| | 140.1 |
| | 140.4 |
| | 140.7 |
|
| Diluted | 140.8 |
| | 141.3 |
| | 141.4 |
| | 141.8 |
|
| |
| (1) | Included in the fourth quarter of 20142017 was a loss of $117.8$3.8 million relating to the annual mark to market adjustment on the defined benefit pension and postretirement plans. Refer to the “Note 8:9: Employee benefit plans” for further information. Also, included in the fourth quarter of 2014 was a net gain of $18.4 million relating to the release of unrealized tax benefits due to the statute of limitations expiration. Refer to “Note 7: Income taxes” for further information. |
22.
Nexeo Solutions
On March 1, 2016,September 17, 2018, the Company completedentered into a Business Combination Agreement to merge with Nexeo Solutions, Inc. in a cash and stock transaction valued at approximately $2.0 billion, including assumption of Nexeo’s debt and other obligations, or $11.65 per share. The merger agreement provides for each share of Nexeo stock issued and outstanding to be converted into 0.305 shares of Univar common stock and $3.29 in cash, subject to adjustment at closing. The combined Company is expected to accelerate transformation and growth with the largest North American sales force in chemical and ingredients distribution, the broadest product offering, and the most efficient supply chain network in the industry.
On October 16, 2018, the Company filed its notification form under the Hart-Scott-Rodino Act with the Federal Trade Commission (“FTC”).
On November 5, 2018, the Company filed the initial Registration Statement on Form S-4 with the SEC, related to the Nexeo Acquisition. On January 9, 2019, the Company filed Amendment No. 2 to the Registration Statement which referenced an acquisition of 100%updated valuation of the equity interest in Bodine Services of Decatur, Inc.; Bodine Environmental Services, Inc.; and affiliated entities, operating as Bodine Servicesstock portion of the Midwest (“Bodine”),merger consideration based on the $19.15 closing price of Univar common stock on January 7, 2019, valued at approximately $1.7 billion in the aggregate. The per share value of Nexeo common stock implied by the merger consideration is $8.72, representing cash consideration of $2.88 and stock consideration with an implied value of $5.84. This Registration Statement became effective on January 29, 2019.
The Nexeo Acquisition was unanimously approved by the Boards of Directors of both companies, and is anticipated to close in the first quarter of 2019, subject to the approval of Univar's shareholders, as well as satisfaction of other customary conditions. On January 29, 2019, Nexeo’s key stockholders, TPG Global and First Pacific, provided consent for the proposed transaction, and as of February 19, 2019, all requisite regulatory approvals and clearances of the proposed transaction had been obtained.
Univar intends to finance the cash portion of the transaction and refinance Nexeo’s existing debt with a regional providercombination of environmentalavailable cash and facilities maintenance servicesdebt financing, for which it has received commitments. Univar entered into a commitment letter, dated as of
September 17, 2018, with Goldman Sachs Bank USA, pursuant to which Goldman committed to provide $1.3 billion of incremental term loans.
The Merger Agreement contains certain termination rights for both Nexeo and Univar. If Nexeo or Univar terminates the Merger Agreement, Nexeo may be obligated to pay Univar, or Univar may be obligated to pay Nexeo, a termination fee of $35.0 million. Furthermore, if the Univar board changes its recommendation in certain circumstances specified in the Merger Agreement in response to an unsolicited proposal for an estimated purchase pricealternative transaction or following an intervening event, Univar may be obligated to pay Nexeo a termination fee of $45.5$128.0 million. The acquisition is not expected
On February 8, 2019, Univar and Nexeo announced an agreement for Nexeo to
have a significant impact on the consolidated financial statementsdivest its plastics distribution business to an affiliate of
the Company.ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DICLOSURE |
One Rock Capital Partners, LLC for an enterprise value of $640.0 million, subject to customary closing adjustments.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. | CONTROLS AND PROCEDURES |
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of December 31,
2015,2018, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 as amended). Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission
(SEC)(“SEC”), and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control
over Financial Reporting
There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) of the Exchange Act during the period covered by this Annual Report on Form 10-K that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
The Annual Report on Form 10-K does not include a report of management’s assessment regarding
Our management is responsible for establishing and maintaining adequate internal control over financial reporting or an attestation reportfor the company. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures of company assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use, or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.
Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the criteria set forth in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on the Company’s assessment, management has concluded that its internal control over financial reporting was effective as of December 31, 2018 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. The Company’s independent registered public accounting firm, dueErnst & Young LLP, has issued an audit report on the Company’s internal control over financial reporting, which appears in Part II, Item 8 of this Form 10-K.
ITEM 9B. OTHER INFORMATION
On February 14, 2019, George J. Fuller, SVP Local Chemical Distribution USA, announced his intention to a transition period established byretire from the rulesCompany, effective March 5, 2019.
On February 20, 2019, the Company replaced its Code of Conduct with the Code Handbook. The Code Handbook reflects the values of the
SEC for newly public companies.ITEM 9B. | OTHER INFORMATION |
None.
Company, both before and after the Nexeo Acquisition. The Code Handbook is easier to understand and to implement as it contains practical examples. The Code Handbook does not meaningfully change any standard of conduct expected from our employees, executives or directors.
PART III
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERANCE |
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information about our directors is incorporated by reference from the discussion under the heading “Proposal 1: Election of Directors” to be included in the Proxy Statement. Information about compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, is incorporated by reference from the discussion under the heading “Section 16(a) Beneficial Ownership Reporting Compliance” to be included in the Proxy Statement. Information about our Audit Committee, including the members of the Committee, and our Audit Committee financial experts, is incorporated by reference from the discussion under the heading “Governance of the Company,” and headings “What is the composition of the Board of Directors and how often are members elected?,
” “What is the Board’s Leadership Structure?,” “Who are this year’s nominees?
,”
, “What are the committees of the Board?,”
“Class II Directors Term Expiring“Directors Continuing in
2017”, and “Class III Directors Term Expiring in 2018, “Office,” to be included in the Proxy Statement. Information about our Code of Conduct is incorporated by reference from the discussion under the heading “What are the Company’s Corporate
Governance Guidelines and Ethics Policies?” to be included in the Proxy Statement. The most up-to-date version of the Code of Conduct is on the Company’s website at all times along with any notices of changes. Information regarding our executive officers is presented under the heading “Executive Officers of the Registrant pursuant to Instruction 3 to Regulation S-K, Item 401(b)” to be included in the Proxy Statement and is incorporated herein by reference.
ITEM 11. | EXECUTIVE COMPENSATION |
ITEM 11. EXECUTIVE COMPENSATION
Information appearing under the headings entitled “Executive Compensation” and “Compensation, Discussion and Analysis” to be included in the Proxy Statement is incorporated herein by reference. However, pursuant to Instructions to Item 407(e)(5) of Securities and Exchange Commission Regulation S-K, the material appearing under the heading “Compensation Committee Report” shall not be deemed to be “filed” with the Commission.
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information appearing under the heading entitled “Stock Ownership
Information” and “Equity Compensation Plan Information” to be included in the Proxy Statement is incorporated herein by reference.
A total of
86.0approximately 12.8 million shares of Common Stock held by
the Equity Sponsors and the Temasek Investor,persons who are deemed to be “affiliates” of the Company, have been excluded from the computation of market value of our common stock on the cover page of this Form 10-K. This total represents that portion of the shares reported as beneficially owned by our directors
and executive officers
and pre-IPO equity sponsors as of June 30,
20152018 which are actually issued and outstanding.
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Refer to the information under the captions entitled “How does the Board determine which directors are considered independent?” and “What relationships and policies does the Company have with respect to transactions with related persons?,” to be included in the Proxy Statement, all of which information is incorporated herein by reference.
ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Refer to the information under the caption entitled “What fees did the Company pay to Ernst & Young LLP for audit and other services for the fiscal years ended December 31,
20152018 and to Ernst & Young LLP for audit and other services for the fiscal year
2014?2017?” to be included in the Proxy Statement, all of which information is incorporated herein by reference.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements
Reference is made to the information set forth in Part II, Item 8 of this Annual Report on Form 10-K, which information is incorporated herein by reference.
(a)(2) Financial Statement Schedules
These schedules are omitted because they are not required or because the information is set forth in the financial statements or the notes thereto.
(a)(3) Exhibits
| | |
Exhibit
Number | | Exhibit Description |
| |
3.1 | |
| | ThirdAgreement and Plan of Merger, dated September 17, 2018, by and among Nexeo, Univar, Pilates Merger Sub I Corp and Pilates Merger Sub II LLC, incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K of Univar Inc., filed on September 18, 2018. |
| | |
| | Fourth Amended and Restated Certificate of Incorporation of Univar Inc., incorporated by reference to Exhibit 3.1 to the Registration StatementCurrent Report on Form S-88-K of Univar Inc., filed JuneAugust 23, 2015. |
| 2018. |
| | |
| | Second Amended and Restated Bylaws of Univar Inc., incorporated by reference to Exhibit 3.13.2 to the Registration Statement on Form S-8 of Univar Inc., filed June 23, 2015. |
| |
| | Amendment to the Second Amended and Restated Bylaws of Univar Inc., incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K of Univar Inc., filed August 23, 2018. |
| | | |
| | Form of Common Stock Certificate, incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-1 of Univar Inc., filed on June 8, 2015. |
| |
4.2* | | Fourth Amended and Restated Stockholders’ Agreement. |
| Agreement, incorporated by reference to Exhibit 4.2 to the Form 10-K of Univar Inc., filed on March 3, 2016. |
| | |
| | Indenture, dated as of July 1, 2015, between Univar USA Inc., the guarantors listed on the signature pages thereto and Wilmington Trust, National Association, incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-k8-K of Univar Inc., filed on July 7, 2015. |
| |
| | First Supplemental Indenture, dated as of July 1, 2015, between Univar USA Inc., the guarantors listed on the signature pages thereto and Wilmington Trust, National Association, incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-k8-K of Univar Inc., filed on July 7, 2015. |
| |
| | Form of 6.75% Senior Note due 2023 (included in Exhibit 4.34.4 hereto), incorporated by reference to Exhibit 4.34.2 to the Current Report on Form 8-k8-K of Univar Inc., filed on July 7, 2015. |
| |
| | European ABL Facility Agreement, dated as of March 24, 2014, as amended and restated on December 19, 2018, by and among Univar B.V., the other borrowers from time to time party thereto, Univar Inc., as guarantor, J.P. Morgan Securities LLC,JPMorgan Chase Bank, N.A., as sole lead arranger and joint bookrunner, Bank of America, N.A., as joint bookrunner and syndication agent, and J.P. Morgan Europe Limited, as administrative agent and collateral agent, incorporated by reference to Exhibit 10.16 to the Registration Statement on Form S-1 of Univar Inc., filed on August 14, 2014.agent. |
| |
| | Agreement in Relation to Technical Correction Amendment to the European ABL Facility Agreement, dated as of May 27, 2015, among Univar B.V. and J.P. Morgan Europe Limited, in its capacity as administrative agent, incorporated by reference to Exhibit 10.64 to the Registration Statement on Form S-1 of Univar Inc., filed on June 8, 2015. |
| |
10.3 | | ABL Credit Agreement, dated as of July 28, 2015 between Univar Inc. and certain of its subsidiaries, the several banks and financial institutions from time to time party thereto and Bank of America, N.A., incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-k8-K of Univar Inc., filed on July 30, 2015. |
| |
10.4 | | ABL Collateral Agreement, dated as of July 28, 2015, made by Univar Inc., Univar USA Inc. and the guarantors listed on the signature pages thereto in favor of Bank of America, N.A, as collateral agent for the banks and other financial institutions that are parties to the Credit Agreement, incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-k8-K of Univar Inc., filed on July 30, 2015. |
| |
10.5 | | Notice and Confirmation of Grant of Security Interest in Copyrights, dated July 28, 2015, made by Univar USA Inc. in favor of Bank of America, N.A., as collateral agent for the banks and other financial institutions that are parties to the Credit Agreement, incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-k8-K of Univar Inc., filed on July 30, 2015. |
| |
|
| | |
10.6 | | Notice and Confirmation of Grant of Security Interest in Trademarks, dated July 28, 2015, made by Univar USA Inc., Magnablend, Inc. and ChemPoint.com Inc. in favor of Bank of America, N.A., as collateral agent for the banks and other financial institutions that are parties to the Credit Agreement, incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-k8-K of Univar Inc., filed on July 30, 2015. |
| | |
| |
10.7 | | Notice and Confirmation of Grant of Security Interest in Patents, dated July 28, 2015, made by Magnablend, Inc. in favor of Bank of America, N.A., as collateral agent for the banks and other financial institutions that are parties to the Credit Agreement, incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-k8-K of Univar Inc., filed on July 30, 2015. |
| | |
| | Second Amendment to Credit Agreement, dated as of November 28, 2017 between Univar USA Inc., Univar Inc., the several banks and financial institutions from time to time party thereto and Bank of America, N.A., incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Univar Inc., filed November 29, 2017. |
| | |
| | First Amendment to Credit Agreement and Amended Credit Agreement, dated as of January 19, 2017 between Univar USA Inc., Univar Inc., the several banks and financial institutions from time to time party thereto and Bank of America, N.A., incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Univar Inc., filed on January 20, 2017. |
| | |
| | Credit Agreement, dated as of July 1, 2015 between Univar USA Inc., Univar Inc., the several banks and financial institutions from time to time party thereto and Bank of America, N.A., incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-k8-K of Univar Inc., filed on July 7, 2015. |
| | |
10.9 | | Term Loan Guarantee and Collateral Agreement, dated as of July 1, 2015, made by Univar Inc., Univar USA Inc. and the guarantors listed on the signature pages thereto in favor of Bank of America, N.A, as collateral agent for the banks and other financial institutions that are parties to the Credit Agreement, incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-k8-K of Univar Inc., filed on July 7, 2015. |
| | |
10.10 | | Notice and Confirmation of Grant of Security Interest in Copyrights, dated July 1, 2015, made by Univar USA Inc. in favor of Bank of America, N.A., as collateral agent for the banks and other financial institutions that are parties to the Credit Agreement, incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-k8-K of Univar Inc., filed on July 7, 2015. |
| |
10.11 | | Notice and Confirmation of Grant of Security Interest in Trademarks, dated July 1, 2015, made by |
| | 2016 Univar USA Inc., Magnablend, Inc. and ChemPoint.com Inc. in favor of Bank of America, N.A., as collateral agent for the banks and other financial institutions that are parties to the Credit Agreement,Management Incentive Plan, incorporated by reference to Exhibit 10.410.18 to the Current Report on Form 8-k10-K of Univar Inc., filed on July 7, 2015.February 28, 2017. |
| |
10.12 | | Notice and Confirmation of Grant of Security Interest in Patents, dated July 1, 2015, made by Magnablend, Inc. in favor of Bank of America, N.A., as collateral agent for the banks and other financial institutions that are parties to the Credit Agreement, incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-k of Univar Inc., filed on July 7, 2015. |
| |
10.13 | | Univar Expense Reimbursement Agreement, dated as of December 31, 2013, by and between Univar N.V. and Univar Inc., incorporated by reference to Exhibit 10.20 to the Registration Statement on Form S-1 of Univar Inc., filed on August 14, 2014. |
| |
10.14 | | Expense Reimbursement Agreement, dated as of December 31, 2013, by and among CVC Capital Partners Advisory Company (Luxembourg) S.à.r.l., Clayton, Dubilier & Rice, LLC, Univar USA Inc. and Univar Inc., incorporated by reference to Exhibit 10.21 to the Registration Statement onForm S-1 of Univar Inc., filed on August 14, 2014. |
| |
10.15† | | Letter Agreement, dated January 31, 2013, by and among Univar N.V., CD&R Univar Holdings, L.P. and Mark J. Byrne, incorporated by reference to Exhibit 10.22 to the Registration Statement on Form S-1 of Univar Inc., filed on August 14, 2014. |
| |
10.16† | | Employment Agreement, dated as of April 19, 2012, by and between Univar Inc. and J. Erik Fyrwald, incorporated by reference to Exhibit 10.23 to the Registration Statement on Form S-1 of Univar Inc., filed on August 14, 2014. |
| |
10.17†* | | Employment Agreement, dated as of December 17, 2013, by and between Univar Inc. and Stephen N. Landsman. |
| |
10.18†* | | Employment Agreement, dated as of June 14, 2013, by and between Univar Inc. and Warren T. Hill. |
| |
10.19†* | | Release, dated as of August 25, 2015, by and between Univar Inc. and Warren T. Hill. |
| |
10.20†* | | Employment Agreement, dated as of December 17, 2013, by and between Univar Inc. and Jason A. Grapski. |
| | |
| |
10.21†* | | Univar Inc. Management Incentive Plan. |
| |
10.22† | | Univar Inc. 2011 Stock Incentive Plan, effective as of March 28, 2011, incorporated by reference to Exhibit 10.32 to the Registration Statement on Form S-1 of Univar Inc., filed on August 14, 2014. |
| | |
10.23† | | Amendment No. 1 to the Univar Inc. 2011 Stock Incentive Plan, dated as of November 30, 2012, incorporated by reference to Exhibit 10.33 to the Registration Statement on Form S-1 of Univar Inc., filed on August 14, 2014. |
| | |
10.24† | | Form of Employee Stock Option Agreement, incorporated by reference to Exhibit 10.34 to the Registration Statement on Form S-1 of Univar Inc., filed on August 14, 2014. |
| |
10.25† | | Employee Restricted Stock Agreement, dated as of November 30, 2012, by and between Univar Inc. and J. Erik Fyrwald, incorporated by reference to Exhibit 10.11 to the Registration Statement on Form S-1 of Univar Inc., filed on August 14, 2014. |
| |
10.26† | | Amended and Restated Stockholders Agreement, dated as of November 30, 2010, among Ulysses Luxembourg S.à.r.l., Ulysses Participation S.à.r.l., Parcom Buy Out Fund II B.V., GSMP V Onshore US. Ltd., GSMP V Offshore US. Ltd., GSMP V Institutional US, Ltd., Société Générale Bank & Trust and the other stockholders party thereto, incorporated by reference to Exhibit 10.36 to the Registration Statement on Form S-1 of Univar Inc., filed on May 26, 2015. |
| |
10.27†* | | Univar USA Inc. Supplemental Valued Investment Plan, dated as of May 29, 2014.2014, incorporated by reference to Exhibit 10.27 to the Form 10-K of Univar Inc., filed on March 3, 2016 |
| | |
10.28†* | | First Amendment to the Univar USA Inc. Supplemental Valued Investment Plan, dated as of May 31, 2016, incorporated by reference to Exhibit 10.24 to the Form 10-K of Univar Inc. filed on February 28, 2017. |
| | |
| | Second Amendment to the Univar USA Inc. Supplemental Valued Investment Plan, dated as of June 27, 2016, incorporated by reference to Exhibit 10.25 to the Form 10-K of Univar Inc. filed on February 28, 2017. |
| | |
| | Univar Canada Ltd. Supplemental Benefits Plan, dated as of June 12, 2007.1, 2007, incorporated by reference to Exhibit 10.28 to the Form 10-K of Univar Inc., filed on March 3, 2016. |
| | |
10.29† | | Univar USA Inc. Supplemental Benefits Retirement Plan, dated as of July 1, 2004, incorporated by reference to Exhibit 10.45 to the Registration Statement on Form S-1 of Univar Inc., filed on August 14, 2014. |
| | |
10.30†* | | First Amendment to the Univar USA Inc. Supplemental Retirement Plan, dated as of May 17, 2005.2005, incorporated by reference to Exhibit 10.30 to the Form 10-K of Univar Inc., filed on March 3, 2016. |
| | |
10.31†* | | Second Amendment to the Univar USA Inc. Supplemental Retirement Plan, dated as of August 24, 2006.2006, incorporated by reference to Exhibit 10.31 to the Form 10-K of Univar Inc., filed on March 3, 2016. |
| | |
|
| | |
10.32†* | | Third Amendment to the Univar USA Inc. Supplemental Retirement Plan, dated as of June 11, 2007.2007, incorporated by reference to Exhibit 10.32 to the Form 10-K of Univar Inc., filed on March 3, 2016. |
| | |
10.33† | | Fourth Amendment to the Univar USA Inc. Supplemental Retirement Plan, dated as of December 6, 2007, incorporated by reference to Exhibit 10.46 to the Registration Statement on Form S-1 of Univar Inc., filed on August 14, 2014. |
| | |
10.34†* | | Fifth Amendment to the Univar USA Inc. Supplemental Retirement Plan, dated as of December 6, 2007.2007, incorporated by reference to Exhibit 10.34 to the Form 10-K of Univar Inc., filed on March 3, 2016. |
| | |
10.35†* | | Sixth Amendment to the Univar USA Inc. Supplemental Retirement Plan, dated as of December 19, 2007.2007, incorporated by reference to Exhibit 10.35 to the Form 10-K of Univar Inc., filed on March 3, 2016. |
| | |
10.36†* | | Seventh Amendment to the Univar USA Inc. Supplemental Retirement Plan, dated as of June 19, 2008.2008, incorporated by reference to Exhibit 10.36 to the Form 10-K of Univar Inc., filed on March 3, 2016. |
| | |
10.37†* | | Eighth Amendment to the Univar USA Inc. Supplemental Retirement Plan, dated as of December 23, 2008.2008, incorporated by reference to Exhibit 10.37 to the Form 10-K of Univar Inc., filed on March 3, 2016. |
| | |
10.38†* | | Ninth Amendment to the Univar USA Inc. Supplemental Retirement Plan, dated as of December 21, 2009.2009, incorporated by reference to Exhibit 10.38 to the Form 10-K of Univar Inc., filed on March 3, 2016. |
| | |
10.39† | | Univar Inc. 2015 Omnibus Equity Incentive Plan is incorporated by reference to Exhibit 10.3 to the Registration Statement on Form S-8 of Univar Inc., filed June 23, 2015. |
| | |
10.40† | | Employment Agreement, dated as of December 8, 2014, by and between Univar Inc. and Carl J. Lukach, incorporated by reference to Exhibit 10.48 to the Registration Statement on Form S-1 of Univar Inc., filed on May 26, 2015. |
| | |
| |
10.41† | | Amended and Restated Employment Agreement, dated as of February 1, 2014, by and between Univar Inc. and Mark J. Byrne, incorporated by reference to Exhibit 10.51 to the Registration Statement on Form S-1 of Univar Inc., filed on May 26, 2015. |
| |
10.42† | | Consulting Agreement, dated as of February 1, 2015, by and between Univar Inc. and Mark J. Byrne, incorporated by reference to Exhibit 10.52 to the Registration Statement on Form S-1 of Univar Inc., filed on May 26, 2015. |
| |
10.43† | | Employment Agreement, dated as of January 10, 2011, by and between Univar Europe Limited and David Jukes, incorporated by reference to Exhibit 10.53 to the Registration Statement on Form S-1 of Univar Inc., filed on May 26, 2015. |
| |
10.44 | | Indemnification Agreement, dated as of November 30, 2010, by and among CVC European Equity Partners IV (A) L.P., CVC European Equity Partners IV (B) L.P., CVC European Equity Partners IV (C) L.P., CVC European Equity Partners IV (D) L.P., CVC European Equity Partners IV (E) L.P., CVC European Equity Partners Tandem Fund (A) L.P., CVC European Equity Partners Tandem Fund (B) L.P., CVC European Equity Partners Tandem Fund (C) L.P., CVC European Equity IV (AB) Limited, CVC European Equity IV (CDE) Limited, CVC European Equity Tandem GP Limited, CVC Capital Partners Advisory Company (Luxembourg) S.à.r.l, Univar Inc. and Univar USA Inc., incorporated by reference to Exhibit 10.54 to the Registration Statement on Form S-1 of Univar Inc., filed on May 26, 2015. |
| | |
10.45 | | Indemnification Agreement, dated as of November 30, 2010, by and among CD&R Univar Holdings, L.P., Clayton, Dubilier & Rice Fund VIII, L.P., CD&R Friends & Family Fund VIII, L.P., CD&R Advisor Univar Co-Investor, L.P., CD&R Univar Co-Investor, L.P., CD&R Univar Co-Investor II, L.P., CD&R Univar NEP VIII Co-Investor, LLC, CD&R Univar NEP IX Co-Investor, LLC, Clayton, Dubilier & Rice, LLC, Univar Inc. and Univar USA Inc., incorporated by reference to Exhibit 10.55 to the Registration Statement on Form S-1 of Univar Inc., filed on May 26, 2015. |
| | |
10.46 | | Form of Director Indemnification Agreement, incorporated by reference to Exhibit 10.56 to the Registration Statement on Form S-1 of Univar Inc., filed on June 8, 2015. |
| | |
10.47* | | Termination Agreement by and among Univar Inc., Univar USA Inc. and Clayton, Dubilier & Rice, LLC.LLC, incorporated by reference to Exhibit 10.47 to the Form 10-K of Univar Inc., filed on March 3, 2016. |
| | |
10.48* | | Termination Agreement by and among Univar, Inc., Univar USA, Inc., CVC European Equity IV (AB) Limited, CVC European Equity IV (CDE) Limited and CVC Europe Equity Tandem GP Limited.Limited, incorporated by reference to Exhibit 10.48 to the Form 10-K of Univar Inc., filed on March 3, 2016. |
| | |
10.49* | | Termination Agreement by and among Univar, Inc., Univar USA, Inc., and CVC Capital Partners Advisory Company (Luxembourg) S.à.r.l..r.l, incorporated by reference to Exhibit 10.49 to the Form 10-K of Univar Inc., filed on March 3, 2016. |
| | |
10.50† | | Sponsor Support Agreement, dated September 17, 2018, by and among Univar and certain affiliates of TPG Capital, LLC, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Univar Inc., filed on September 18, 2018. |
| | |
| | Sponsor Agreement, dated September 17, 2018, by and among Univar and First Pacific Advisors, LLC and certain of its affiliates, incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K of Univar Inc., filed on September 18, 2018. |
| | |
| | 2014 Form of Employee Stock Option Agreement, incorporated by reference to Exhibit 10.62 to the Registration Statement on Form S-1 of Univar Inc., filed on May 26, 2015. |
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|
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10.51† | | 2014 Form of Employee Restricted Stock Agreement, incorporated by reference to Exhibit 10.63 to the Registration Statement on Form S-1 of Univar Inc., filed on May 26, 2015. |
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10.52 | | Stock Purchase Agreement dated June 1, 2015, among Univar Inc., Dahlia Investments Pte. Ltd., and Univar N.V., incorporated by reference to Exhibit 10.65 to the Registration Statement on Form S-1 of Univar Inc., filed on June 8, 2015. |
| | |
10.53† | | Univar Inc. Employee Stock Purchase Plan is incorporated by reference to Exhibit 10.4 to the Registration Statement on Form S-8 of Univar Inc., filed June 23, 2015. |
| | |
10.54† | | Form of Employee Stock Option Agreement for awards granted between June 23, 2015 and February 1, 2017, 2015 Omnibus Equity Incentive Plan, incorporated by reference to Exhibit 10.5 to the Registration Statement on Form S-8 of Univar Inc., filed June 23, 2015. |
| | |
| |
10.55† | | Form of Employee Restricted Stock Unit Agreement for awards granted between June 23, 2015 and February 1, 2017, 2015 Omnibus Equity Incentive Plan, incorporated by reference to Exhibit 10.6 to the Registration Statement on Form S-8 of Univar Inc., filed June 23, 2015. |
| | |
10.56† | | Form of Director Restricted Stock Agreement, 2015 Omnibus Equity Incentive Plan, incorporated by reference to Exhibit 10.7 to the Registration Statement on Form S-8 of Univar Inc., filed June 23, 2015. |
| | |
| | Employment Agreement, dated May 3, 2016, by and between Univar Inc. and Mr. Newlin incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Univar Inc., filed on May 3, 2016. |
| | |
| | Employee Restricted Stock Unit Agreement, dated as of May 3, 2016, by and between Univar Inc. and Mr. Newlin, incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K of Univar Inc. filed on May 3, 2016. |
| | |
| | Amendment to Employee Restricted Stock Unit Agreement, dated December 23, 2016, by and between Univar Inc. and Mr. Newlin, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Univar Inc. filed on December 23, 2016. |
| | |
| | Employee Restricted Stock Unit Agreement, dated as of January 30, 2017, by and between Univar Inc. and Mr. Newlin, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Univar Inc. filed on January 30, 2017. |
| | |
| | Form of Employee Stock Option Agreement for awards granted after February 1, 2017, 2015 Omnibus Equity Incentive Plan, incorporated by reference to Exhibit 10.67 to the Form 10-K of Univar Inc. filed on February 28, 2017. |
| | |
| | Form of Employee Restricted Stock Unit Agreement for awards granted after February 1, 2017, 2015 Omnibus Equity Incentive Plan, incorporated by reference to Exhibit 10.68 to the Form 10-K of Univar Inc. filed on February 28, 2017. |
| | |
| | Amendment to Employee Restricted Stock Agreement, dated as of February 3, 2014, by and between Univar Inc. and David Jukes, incorporated by reference to Exhibit 10.51 to the Form 10-K of Univar Inc., filed on February 28, 2018. |
| | |
| | Form of Employee Stock Option Agreement for awards granted after April 13, 2017, 2015 Omnibus Equity Incentive Plan, incorporated by reference to Exhibit 10.1 to the Form 10-Q of Univar Inc. filed on May 5, 2017. |
| | |
| | Form of Employee Restricted Stock Unit Agreement for awards granted after April 13, 2017, 2015 Omnibus Equity Incentive Plan, incorporated by reference to Exhibit 10.2 to the Form 10-Q of Univar Inc. filed on May 5, 2017. |
| | |
| | Form of Employee Stock Option Agreement, 2017 Omnibus Equity Incentive Plan, incorporated by reference to Exhibit 10.3 to the Form 10-Q of Univar Inc. filed on May 5, 2017. |
| | |
| | Form of Employee Restricted Stock Unit Agreement, 2017 Omnibus Equity Incentive Plan, incorporated by reference to Exhibit 10.4 to the Form 10-Q of Univar Inc. filed on May 5, 2017. |
| | |
| | Form of Director Restricted Stock Agreement, 2017 Omnibus Equity Incentive Plan, incorporated by reference to Exhibit 10.5 to the Form 10-Q of Univar Inc. filed on May 5, 2017. |
| | |
| | Univar Inc. 2017 Omnibus Equity Incentive Plan, incorporated by reference to Exhibit 10.6 to the Form 10-Q of Univar Inc. filed on May 5, 2017. |
| | |
| | Univar Inc. Executive Annual Bonus Plan, incorporated by reference to Exhibit 10.7 to the Form 10-Q of Univar Inc. filed on May 5, 2017. |
|
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10.57†* | | Univar Inc. Omnibus Waiver regarding Whistleblower Protections, dated as of May 3, 2017, incorporated by reference to Exhibit 10.8 to the Form 10-Q of Univar Inc. filed on May 5, 2017. |
| | |
| | Form of Employee Performance Restricted Stock Unit Agreement, 2017 Omnibus Equity Incentive Plan, incorporated by reference to Exhibit 10.1 to the Form 10-Q of Univar Inc. filed on August 4, 2017. |
| | |
| | Form of Employee Stock Option Agreement for awards granted on or after February 7, 2018, 2017 Omnibus Equity Incentive Plan, incorporated by reference to Exhibit 10.2 to the Form 10-Q of Univar Inc., filed on May 10, 2018. |
| | |
| | Stock Option Agreement, dated as of February 7, 2018, by and between Univar Inc. and Stephen D. Newlin. 2017 Omnibus Equity Incentive Plan, incorporated by reference to Exhibit 10.3 to the Form 10-Q of Univar Inc., filed on May 10, 2018. |
| | |
| | Form of Employee Restricted Stock Unit Agreement for awards granted on or after February 7, 2018, 2017 Omnibus Equity Incentive Plan, incorporated by reference to Exhibit 10.4 to the Form 10-Q of Univar Inc., filed on May 10, 2018. |
| | |
| | Restricted Stock Unit Agreement, dated as of February 7, 2018, by and between Univar Inc. and Stephen D. Newlin, 2017 Omnibus Equity Incentive Plan, incorporated by reference to Exhibit 10.5 to the Form 10-Q of Univar Inc., filed on May 10, 2018 |
| | |
| | Form of Employee Performance-Based Restricted Stock Unit Agreement for awards granted on or after February 7, 2018, 2017 Omnibus Equity Incentive Plan., incorporated by reference to Exhibit 10.6 to the Form 10-Q of Univar Inc., filed on May 10, 2018. |
| | Performance-Based Restricted Stock Unit Agreement dated as of February 7, 2018, by and between Univar Inc. and Stephen D. Newlin, 2017 Omnibus Equity Incentive Plan, incorporated by reference to Exhibit 10.7 to the Form 10-Q of Univar Inc., filed on May 10, 2018. |
| | |
| | Form of Director Deferred Share Unit Agreement for awards granted on or after February 7, 2018, 2017 Omnibus Equity Incentive Plan, incorporated by reference to Exhibit 10.8 to the Form 10-Q of Univar Inc., filed on May 10, 2018. |
| | |
| | Form of Director Restricted Stock Agreement for awards granted on or after February 7, 2018, 2017 Omnibus Equity Incentive Plan., incorporated by reference to Exhibit 10.9 to the Form 10-Q of Univar Inc., filed on May 10, 2018. |
| | Employment Agreement, dated as of October 15, 2010,November 1, 2017, by and between Univar Canada Ltd.Inc., and Michael Hildebrand.David Jukes, incorporated by reference to Exhibit 10.1 to the Form 10-Q of Univar Inc. filed on November 3, 2017. |
| | |
| | Offer Letter, dated April 19, 2016, by and between Univar Europe Limited and David Jukes, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Univar Inc., filed April 19, 2016. |
| | |
| | Amended Agreement, dated as of April 18, 2016, by and between Univar Europe Limited and David Jukes, incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K of Univar Inc., filed on April 19, 2016. |
| | |
| | Employment Agreement, dated as of January 10, 2011, by and between Univar Europe Limited and David Jukes, incorporated by reference to Exhibit 10.53 to Registration Statement on Form S-1 of Univar Inc., filed on May 26, 2015. |
| | |
| | Offer Letter, dated February 1, 2018, by and between Univar Inc. and David Jukes, incorporated by reference to Exhibit 10.1 to the Form 10-Q of Univar Inc., filed on May 10, 2018. |
| | |
| | Employment Agreement, effective as of January 1, 2017 by and between Univar Europe Limited and Nick Powell, incorporated by reference to Exhibit 10.65 to the Form 10-K of Univar Inc., filed on February 28, 2018. |
| | |
| | Form of Severance and Change in Control Agreement by and Between Univar Inc. and Certain Executives, incorporated by reference to Exhibit 10.3 to the Form 10-Q of Univar Inc., filed on November 6, 2018. |
| | |
| | Code Handbook |
| | |
| | List of Subsidiaries |
| | |
| | Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm |
| | |
| | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | |
| | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | |
| | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| | |
|
| | |
| | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| | |
101.1101.INS | | XBRL Instance Document |
| | |
| 101.SCH | | XBRL Taxonomy Extension Schema Document |
| | |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document |
| | |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document |
| | |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document |
| | |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document |
|
| |
| † | Identifies each management compensation plan or arrangement. |
ITEM 16. FORM 10-K SUMMARY
None.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
| By: /s/ CARL J. LUKACH |
Carl J. Lukach,Executive Vice President and
Chief Financial Officer |
Dated March 3, 2016February 21, 2019
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
|
| | |
By: /s/ DAVID C. JUKES | | By: /s/ CARL J. ERIK FYRWALDJ. Erik Fyrwald,LUKACH
|
David C. Jukes, President and Chief Executive Officer Director (Principal(Principal Executive Officer)
| | Carl J. Lukach, Executive Vice President and
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer) |
| By: /s/ STEPHEN D. NEWLIN | | By: /s/ WILLIAM S. STAVROPOULOS William S. Stavropoulos,
|
Stephen D. Newlin, Executive Chairman of the Board |
| |
By: /s/ CARL J. LUKACH
Carl J. Lukach,Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
| | William S. Stavropoulos, Lead Director |
| By: /s/ RHONDA GERMANY BALLINTYN | | By: /s/ DANIEL P. DOHENY |
Rhonda Germany Ballintyn, Director | | Daniel P. Doheny, Director |
| By: /s/ MARK J. BYRNE | | By: /s/ EDWARD J. MOONEY |
Mark J. Byrne,Director | | Edward J. Mooney, Director |
| |
By: /s/ RICHARD P. FOX | | By: /s/ KERRY PREETE |
Richard P. Fox,Director | | By: /s/ LARS HAEGG
Lars Haegg,
Kerry Preete, Director |
| |
By: /s/ RICHARD A. JALKUT
Richard A. Jalkut,Director
| | By: /s/ GEORGE K. JAQUETTE
George K. Jaquette,Director
|
| |
By: /s/ STEPHEN D. NEWLIN
Stephen D. Newlin,Director
| | By: /s/ CHRISTOPHER D. PAPPAS | | By: /s/ JOAN BRACA |
Christopher D. Pappas,Director |
| |
By: /s/ CHRISTOPHER J. STADLER
Christopher J. Stadler,Director
| | By: /s/ JULIET TEO
Juliet Teo,
Joan Braca, Director |
| |
By: /s/ DAVID H. WASSERMAN | | By: /s/ ROBERT L. WOOD |
David H. Wasserman,Director | | Robert L. Wood, Director |
148
