UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________________________
Form 10-Q
_________________________________________________________ | | | | | |
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20212022
OR | | | | | |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-37443
__________________________________________________________
Univar Solutions Inc.
(Exact name of registrant as specified in its charter)
__________________________________________________________ | | | | | | | | |
| Delaware | | 26-1251958 |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | | | | | | | | | | | | | |
| 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
__________________________________________________________
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | | | | | | | |
| Title of each class | | Trading symbol(s) | | Name of each exchange on which registered |
| Common Stock ($0.01 par value) | | UNVR | | New York Stock Exchange |
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
| Large accelerated filer | ☒ | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ | 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 Exchange Act). Yes ☐ No ☒
At OctoberJuly 21, 2021, 170,957,7622022, 166,794,124 shares of the registrant’s common stock, $0.01 par value, were outstanding.
Univar Solutions Inc.
Form 10-Q
For the quarterly period ended SeptemberJune 30, 20212022
TABLE OF CONTENTS
PART I.
FINANCIAL INFORMATION
Item 1. Financial Statements
Univar Solutions Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
| | | | | | | Three months ended September 30, | | Nine months ended September 30, | | | Three months ended June 30, | | Six months ended June 30, |
| (in millions, except per share data) | (in millions, except per share data) | | Note | | 2021 | | 2020 | | 2021 | | 2020 | (in millions, except per share data) | | 2022 | | 2021 | | 2022 | | 2021 |
| Net sales | Net sales | | 5 | | $ | 2,487.9 | | | $ | 2,009.2 | | | $ | 7,037.4 | | | $ | 6,229.6 | | Net sales | | $ | 3,016.6 | | | $ | 2,394.1 | | | $ | 5,899.2 | | | $ | 4,549.5 | |
| Cost of goods sold (exclusive of depreciation) | Cost of goods sold (exclusive of depreciation) | | 1,871.5 | | | 1,513.2 | | | 5,276.1 | | | 4,711.9 | | Cost of goods sold (exclusive of depreciation) | | 2,280.6 | | | 1,791.6 | | | 4,433.7 | | | 3,404.6 | |
| Operating expenses: | Operating expenses: | | Operating expenses: | |
| Outbound freight and handling | Outbound freight and handling | | $ | 105.8 | | | $ | 85.9 | | | $ | 295.0 | | | $ | 258.1 | | Outbound freight and handling | | $ | 125.7 | | | $ | 97.8 | | | $ | 241.6 | | | $ | 189.2 | |
| Warehousing, selling and administrative | Warehousing, selling and administrative | | 299.7 | | | 245.5 | | | 875.7 | | | 770.5 | | Warehousing, selling and administrative | | 318.7 | | | 307.2 | | | 613.0 | | | 576.0 | |
Other operating expenses, net (1) | Other operating expenses, net (1) | | 6 | | 17.7 | | | 20.3 | | | 91.8 | | | 75.5 | | Other operating expenses, net (1) | | 5.3 | | | 29.9 | | | 21.0 | | | 74.1 | |
| Depreciation | Depreciation | | 36.7 | | | 41.6 | | | 117.8 | | | 123.7 | | Depreciation | | 32.2 | | | 37.3 | | | 65.1 | | | 81.1 | |
| Amortization | Amortization | | 12.4 | | | 14.7 | | | 38.7 | | | 45.3 | | Amortization | | 12.0 | | | 13.2 | | | 23.8 | | | 26.3 | |
| Impairment charges | Impairment charges | | 14 | | 0.9 | | | 20.7 | | | 3.0 | | | 37.6 | | Impairment charges | | — | | | 2.1 | | | — | | | 2.1 | |
| Total operating expenses | Total operating expenses | | $ | 473.2 | | | $ | 428.7 | | | $ | 1,422.0 | | | $ | 1,310.7 | | Total operating expenses | | $ | 493.9 | | | $ | 487.5 | | | $ | 964.5 | | | $ | 948.8 | |
| Operating income | Operating income | | $ | 143.2 | | | $ | 67.3 | | | $ | 339.3 | | | $ | 207.0 | | Operating income | | $ | 242.1 | | | $ | 115.0 | | | $ | 501.0 | | | $ | 196.1 | |
| Other (expense) income: | Other (expense) income: | | | | | | | | | Other (expense) income: | | | | | | | | |
| Interest income | Interest income | | $ | 1.5 | | | $ | 0.5 | | | $ | 2.6 | | | $ | 1.7 | | Interest income | | $ | 1.0 | | | $ | 0.7 | | | $ | 2.1 | | | $ | 1.1 | |
| Interest expense | Interest expense | | (23.7) | | | (28.2) | | | (77.1) | | | (87.4) | | Interest expense | | (24.3) | | | (26.4) | | | (46.5) | | | (53.4) | |
| (Loss) gain on sale of business | | 4 | | — | | | (9.3) | | | 88.2 | | | (17.9) | | |
| Loss on extinguishment of debt | | 13 | | (0.1) | | | — | | | (2.3) | | | (1.8) | | |
Other income (expense), net (1) | | 8 | | 1.2 | | | 1.3 | | | 35.4 | | | (1.0) | | |
| Gain on sale of business | | Gain on sale of business | | — | | | 87.6 | | | — | | | 88.2 | |
| | Other income, net | | Other income, net | | 2.7 | | | 3.3 | | | 10.4 | | | 32.0 | |
| Total other (expense) income | Total other (expense) income | | $ | (21.1) | | | $ | (35.7) | | | $ | 46.8 | | | $ | (106.4) | | Total other (expense) income | | $ | (20.6) | | | $ | 65.2 | | | $ | (34.0) | | | $ | 67.9 | |
| Income before income taxes | Income before income taxes | | $ | 122.1 | | | $ | 31.6 | | | $ | 386.1 | | | $ | 100.6 | | Income before income taxes | | $ | 221.5 | | | $ | 180.2 | | | $ | 467.0 | | | $ | 264.0 | |
| Income tax expense | Income tax expense | | 10 | | 37.7 | | | 2.7 | | | 82.3 | | | 14.0 | | Income tax expense | | 58.6 | | | 27.0 | | | 123.3 | | | 44.6 | |
| Net income | Net income | | $ | 84.4 | | | $ | 28.9 | | | $ | 303.8 | | | $ | 86.6 | | Net income | | $ | 162.9 | | | $ | 153.2 | | | $ | 343.7 | | | $ | 219.4 | |
| | Income per common share: | Income per common share: | | Income per common share: | |
| Basic income per common share | Basic income per common share | | 11 | | $ | 0.49 | | | $ | 0.17 | | | $ | 1.79 | | | $ | 0.51 | | Basic income per common share | | $ | 0.97 | | | $ | 0.90 | | | $ | 2.03 | | | $ | 1.29 | |
| Diluted income per common share | Diluted income per common share | | 11 | | $ | 0.49 | | | $ | 0.17 | | | $ | 1.78 | | | $ | 0.51 | | Diluted income per common share | | $ | 0.96 | | | $ | 0.90 | | | $ | 2.02 | | | $ | 1.29 | |
| | Weighted average common shares outstanding: | Weighted average common shares outstanding: | | Weighted average common shares outstanding: | |
| Basic | Basic | | 11 | | 170.9 | | | 169.0 | | | 170.1 | | | 168.9 | | Basic | | 168.4 | | | 169.9 | | | 169.0 | | | 169.6 | |
| Diluted | Diluted | | 11 | | 171.9 | | | 169.8 | | | 170.9 | | | 169.7 | | Diluted | | 169.7 | | | 170.9 | | | 170.5 | | | 170.4 | |
|
(1)
For the three and nine months ended September 30, 2020, the fair value adjustment for warrants was reclassified to other income (expense), net, from other operating expenses, net, to conform to the current year presentation. Refer to “Note 2: Significant accounting policies” for more information.
The accompanying notes are an integral part of these condensed consolidated financial statements.
Univar Solutions Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three months ended September 30, | | Nine months ended September 30, |
| (in millions) | | Note | | 2021 | | 2020 | | 2021 | | 2020 |
| Net income | | | | $ | 84.4 | | | $ | 28.9 | | | $ | 303.8 | | | $ | 86.6 | |
| | | | | | | | | | |
| Other comprehensive (loss) income, net of tax: | | | | | | | | | | |
| | | | | | | | | | |
| Foreign currency translation | | 12 | | $ | (29.2) | | | $ | 14.3 | | | $ | 9.7 | | | $ | (60.1) | |
| Pension and other postretirement benefits adjustment | | 12 | | (0.1) | | | — | | | (2.7) | | | 0.1 | |
| Derivative financial instruments | | 12 | | 3.7 | | | 2.6 | | | 11.8 | | | (18.8) | |
| Total other comprehensive (loss) income, net of tax | | | | $ | (25.6) | | | $ | 16.9 | | | $ | 18.8 | | | $ | (78.8) | |
| Comprehensive income | | | | $ | 58.8 | | | $ | 45.8 | | | $ | 322.6 | | | $ | 7.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, |
| (in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| Net income | | $ | 162.9 | | | $ | 153.2 | | | $ | 343.7 | | | $ | 219.4 | |
| Other comprehensive (loss) income, net of tax: | | | | | | | | |
| | | | | | | | |
| Foreign currency translation | | $ | (55.3) | | | $ | 38.1 | | | $ | (38.1) | | | $ | 38.9 | |
| Pension and other postretirement benefits adjustment, net of tax of $0.1 for the three months ended and $0.1 for the six months ended June 30, 2022 and $0.0 for the three months ended and $0.5 for the six months ended June 30, 2021 | | (0.2) | | | (0.2) | | | (0.3) | | | (2.6) | |
| Derivative financial instruments, net of tax of $(6.7) for the three months ended and $(19.2) for the six months ended June 30, 2022 and $(0.5) for the three months ended and $(2.7) for the six months ended June 30, 2021 | | 19.3 | | | 1.5 | | | 55.7 | | | 8.1 | |
| Total other comprehensive (loss) income, net of tax | | $ | (36.2) | | | $ | 39.4 | | | $ | 17.3 | | | $ | 44.4 | |
| Comprehensive income | | $ | 126.7 | | | $ | 192.6 | | | $ | 361.0 | | | $ | 263.8 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Univar Solutions Inc.
Condensed Consolidated Balance Sheets
(Unaudited) | | (in millions, except per share data) | | Note | | September 30,
2021 | | December 31,
2020 | |
| (in millions, except share data) | | (in millions, except share data) | | June 30,
2022 | | December 31,
2021 |
| Assets | Assets | | | | | | | Assets | | | | |
| Current assets: | Current assets: | | Current assets: | |
| Cash and cash equivalents | Cash and cash equivalents | | $ | 220.8 | | | $ | 386.6 | | Cash and cash equivalents | | $ | 234.8 | | | $ | 251.5 | |
| Trade accounts receivable, net of allowance for doubtful accounts of $15.8 and $17.2 at September 30, 2021 and December 31, 2020, respectively | | 14 | | 1,561.9 | | | 1,239.8 | | |
| Trade accounts receivable, net of allowance for doubtful accounts of $13.5 and $15.8 at June 30, 2022 and December 31, 2021, respectively | | Trade accounts receivable, net of allowance for doubtful accounts of $13.5 and $15.8 at June 30, 2022 and December 31, 2021, respectively | | 1,824.6 | | | 1,539.5 | |
| Inventories | Inventories | | 840.6 | | | 674.0 | | Inventories | | 1,205.7 | | | 932.2 | |
| | Prepaid expenses and other current assets | Prepaid expenses and other current assets | | 163.5 | | | 151.5 | | Prepaid expenses and other current assets | | 223.0 | | | 169.1 | |
| Total current assets | Total current assets | | $ | 2,786.8 | | | $ | 2,451.9 | | Total current assets | | $ | 3,488.1 | | | $ | 2,892.3 | |
| Property, plant and equipment, net | Property, plant and equipment, net | | 14 | | $ | 1,001.6 | | | $ | 1,065.7 | | Property, plant and equipment, net | | $ | 1,018.0 | | | $ | 1,031.0 | |
| Goodwill | Goodwill | | 14 | | 2,274.9 | | | 2,270.4 | | Goodwill | | 2,303.3 | | | 2,310.4 | |
| Intangible assets, net | Intangible assets, net | | 14 | | 212.0 | | | 251.9 | | Intangible assets, net | | 188.4 | | | 211.7 | |
| Deferred tax assets | Deferred tax assets | | 27.5 | | | 29.6 | | Deferred tax assets | | 25.3 | | | 29.4 | |
| Other assets | Other assets | | 284.6 | | | 285.5 | | Other assets | | 353.5 | | | 303.0 | |
| Total assets | Total assets | | $ | 6,587.4 | | | $ | 6,355.0 | | Total assets | | $ | 7,376.6 | | | $ | 6,777.8 | |
| Liabilities and stockholders’ equity | Liabilities and stockholders’ equity | | | | | Liabilities and stockholders’ equity | | | | |
| Current liabilities: | Current liabilities: | | Current liabilities: | |
| Short-term financing | Short-term financing | | 13 | | $ | — | | | $ | 2.1 | | Short-term financing | | $ | 3.3 | | | $ | — | |
| Trade accounts payable | Trade accounts payable | | 944.9 | | | 765.1 | | Trade accounts payable | | 1,145.3 | | | 1,009.3 | |
| Current portion of long-term debt | Current portion of long-term debt | | 13 | | 80.1 | | | 163.5 | | Current portion of long-term debt | | 38.7 | | | 41.5 | |
| Accrued compensation | Accrued compensation | | 158.1 | | | 102.2 | | Accrued compensation | | 132.3 | | | 196.4 | |
| | Other accrued expenses | Other accrued expenses | | 14 | | 372.6 | | | 374.1 | | Other accrued expenses | | 394.4 | | | 420.4 | |
| Total current liabilities | Total current liabilities | | $ | 1,555.7 | | | $ | 1,407.0 | | Total current liabilities | | $ | 1,714.0 | | | $ | 1,667.6 | |
| Long-term debt | Long-term debt | | 13 | | $ | 2,198.8 | | | $ | 2,477.1 | | Long-term debt | | $ | 2,484.2 | | | $ | 2,223.5 | |
| Pension and other postretirement benefit liabilities | Pension and other postretirement benefit liabilities | | 285.1 | | | 308.8 | | Pension and other postretirement benefit liabilities | | 200.1 | | | 211.7 | |
| Deferred tax liabilities | Deferred tax liabilities | | 55.9 | | | 39.3 | | Deferred tax liabilities | | 83.7 | | | 56.1 | |
| Other long-term liabilities | Other long-term liabilities | | 327.2 | | | 330.5 | | Other long-term liabilities | | 315.6 | | | 326.4 | |
| Total liabilities | Total liabilities | | $ | 4,422.7 | | | $ | 4,562.7 | | Total liabilities | | $ | 4,797.6 | | | $ | 4,485.3 | |
| Commitments and contingencies | | Commitments and contingencies | | | | |
| Stockholders’ equity: | Stockholders’ equity: | | | | | Stockholders’ equity: | |
| Preferred stock, 200.0 million shares authorized at $0.01 par value with no shares issued or outstanding at September 30, 2021 and December 31, 2020 | | $ | — | | | $ | — | | |
| Common stock, 2.0 billion shares authorized at $0.01 par value with 171.0 million and 169.3 million shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively | | 1.7 | | | 1.7 | | |
| Preferred stock, $0.01 par value, 200,000,000 shares authorized, no shares issued or outstanding at June 30, 2022 and December 31, 2021 | | Preferred stock, $0.01 par value, 200,000,000 shares authorized, no shares issued or outstanding at June 30, 2022 and December 31, 2021 | | $ | — | | | $ | — | |
| Common stock, $0.01 par value, 2,000,000,000 shares authorized, 172,453,073 and 171,199,938 shares issued at June 30, 2022 and December 31, 2021, respectively | | Common stock, $0.01 par value, 2,000,000,000 shares authorized, 172,453,073 and 171,199,938 shares issued at June 30, 2022 and December 31, 2021, respectively | | 1.7 | | | 1.7 | |
| Additional paid-in capital | Additional paid-in capital | | 3,033.1 | | | 2,983.3 | | Additional paid-in capital | | 3,078.7 | | | 3,048.5 | |
| Treasury stock at cost, 5,319,870 and 1,832,385 shares at June 30, 2022 and December 31, 2021, respectively | | Treasury stock at cost, 5,319,870 and 1,832,385 shares at June 30, 2022 and December 31, 2021, respectively | | (154.6) | | | (50.0) | |
| Accumulated deficit | Accumulated deficit | | (501.8) | | | (805.6) | | Accumulated deficit | | (1.3) | | | (345.0) | |
| Accumulated other comprehensive loss | Accumulated other comprehensive loss | | 12 | | (368.3) | | | (387.1) | | Accumulated other comprehensive loss | | (345.5) | | | (362.7) | |
| Total stockholders’ equity | Total stockholders’ equity | | $ | 2,164.7 | | | $ | 1,792.3 | | Total stockholders’ equity | | $ | 2,579.0 | | | $ | 2,292.5 | |
| Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | | $ | 6,587.4 | | | $ | 6,355.0 | | Total liabilities and stockholders’ equity | | $ | 7,376.6 | | | $ | 6,777.8 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Univar Solutions Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited) | | | | | | | Nine months ended September 30, | | | Six months ended June 30, |
| (in millions) | (in millions) | | Note | | 2021 | | 2020 | (in millions) | | 2022 | | 2021 |
| Operating activities: | Operating activities: | | | | | | | Operating activities: | | | | |
| Net income | Net income | | $ | 303.8 | | | $ | 86.6 | | Net income | | $ | 343.7 | | | $ | 219.4 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | |
| Adjustments to reconcile net income to net cash used by operating activities: | | Adjustments to reconcile net income to net cash used by operating activities: | |
| Depreciation and amortization | Depreciation and amortization | | 156.5 | | | 169.0 | | Depreciation and amortization | | 88.9 | | | 107.4 | |
| Impairment charges | Impairment charges | | 14 | | 3.0 | | | 37.6 | | Impairment charges | | — | | | 2.1 | |
| Amortization of deferred financing fees and debt discount | Amortization of deferred financing fees and debt discount | | 4.9 | | | 4.7 | | Amortization of deferred financing fees and debt discount | | 2.9 | | | 3.4 | |
| | (Gain) loss on sale of business | | 4 | | (88.2) | | | 17.9 | | |
| Gain on sale of business | | Gain on sale of business | | — | | | (88.2) | |
| Gain on sale of property, plant and equipment | Gain on sale of property, plant and equipment | | 6 | | (6.3) | | | (8.3) | | Gain on sale of property, plant and equipment | | (2.2) | | | (3.1) | |
| Loss on extinguishment of debt | | 13 | | 2.3 | | | 1.8 | | |
| | Deferred income taxes | Deferred income taxes | | 15.8 | | | 5.2 | | Deferred income taxes | | 12.5 | | | (2.0) | |
| Stock-based compensation expense | Stock-based compensation expense | | 6 | | 16.0 | | | 10.9 | | Stock-based compensation expense | | 21.7 | | | 9.2 | |
Fair value adjustment for warrants (1) | Fair value adjustment for warrants (1) | | 15 | | (33.8) | | | (6.4) | | Fair value adjustment for warrants (1) | | — | | | (33.8) | |
| Other | Other | | — | | | 2.7 | | Other | | 0.8 | | | 1.4 | |
| Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | | Changes in operating assets and liabilities: | |
| Trade accounts receivable, net | Trade accounts receivable, net | | (364.2) | | | (126.2) | | Trade accounts receivable, net | | (317.4) | | | (321.0) | |
| Inventories | Inventories | | (184.8) | | | 89.6 | | Inventories | | (288.4) | | | (122.6) | |
| Prepaid expenses and other current assets | Prepaid expenses and other current assets | | (24.5) | | | (19.2) | | Prepaid expenses and other current assets | | (37.4) | | | (42.7) | |
| Trade accounts payable | Trade accounts payable | | 207.1 | | | (123.4) | | Trade accounts payable | | 157.5 | | | 207.4 | |
| Pensions and other postretirement benefit liabilities | | (25.3) | | | (16.8) | | |
| Other, net (1) | Other, net (1) | | 132.8 | | | (44.1) | | Other, net (1) | | (68.8) | | | 54.5 | |
| Net cash provided by operating activities | | $ | 115.1 | | | $ | 81.6 | | |
| Net cash used by operating activities | | Net cash used by operating activities | | $ | (86.2) | | | $ | (8.6) | |
| Investing activities: | Investing activities: | | | | | Investing activities: | | | | |
| Purchases of property, plant and equipment | Purchases of property, plant and equipment | | $ | (68.9) | | | $ | (82.1) | | Purchases of property, plant and equipment | | $ | (64.8) | | | $ | (38.9) | |
| | Proceeds from sale of property, plant and equipment | | 13.7 | | | 17.7 | | |
| Proceeds (payments) from sale of business | | 4 | | 136.5 | | | (2.0) | | |
| Purchases of businesses, net of cash acquired | | Purchases of businesses, net of cash acquired | | (3.8) | | | — | |
| Proceeds from sale of property, plant and equipment and other assets | | Proceeds from sale of property, plant and equipment and other assets | | 3.2 | | | 8.5 | |
| Proceeds from sale of business | | Proceeds from sale of business | | — | | | 136.3 | |
| Other | Other | | (2.3) | | | (7.8) | | Other | | — | | | (2.3) | |
| Net cash provided (used) by investing activities | | $ | 79.0 | | | $ | (74.2) | | |
| Net cash (used) provided by investing activities | | Net cash (used) provided by investing activities | | $ | (65.4) | | | $ | 103.6 | |
| Financing activities: | Financing activities: | | | | | Financing activities: | | | | |
| Proceeds from issuance of long-term debt, net | Proceeds from issuance of long-term debt, net | | 13 | | $ | 995.0 | | | $ | — | | Proceeds from issuance of long-term debt, net | | $ | — | | | $ | 995.0 | |
| Payments on long-term debt and finance lease obligations | Payments on long-term debt and finance lease obligations | | 13 | | (1,389.0) | | | (196.8) | | Payments on long-term debt and finance lease obligations | | (68.0) | | | (1,330.0) | |
| Net proceeds under revolving credit facilities | | 13 | | 13.5 | | | 137.2 | | |
| Proceeds under revolving credit facilities | | Proceeds under revolving credit facilities | | 925.6 | | | 1,352.2 | |
| Payments under revolving credit facilities | | Payments under revolving credit facilities | | (609.5) | | | (1,326.7) | |
| | Financing fees paid | | (1.0) | | | — | | |
| Taxes paid related to net share settlements of stock-based compensation awards | Taxes paid related to net share settlements of stock-based compensation awards | | (2.6) | | | (2.0) | | Taxes paid related to net share settlements of stock-based compensation awards | | (7.5) | | | (2.5) | |
| Purchases of treasury stock | | Purchases of treasury stock | | (104.6) | | | — | |
| Stock option exercises | Stock option exercises | | 8.5 | | | 0.7 | | Stock option exercises | | 16.0 | | | 7.8 | |
| Proceeds from the exercise of warrants | Proceeds from the exercise of warrants | | 15 | | 27.1 | | | — | | Proceeds from the exercise of warrants | | — | | | 27.1 | |
| Other | Other | | 1.1 | | | 2.0 | | Other | | 2.7 | | | 7.4 | |
| Net cash used by financing activities | | $ | (347.4) | | | $ | (58.9) | | |
| Net cash provided (used) by financing activities | | Net cash provided (used) by financing activities | | $ | 154.7 | | | $ | (269.7) | |
| Effect of exchange rate changes on cash and cash equivalents | Effect of exchange rate changes on cash and cash equivalents | | $ | (12.5) | | | $ | (5.1) | | Effect of exchange rate changes on cash and cash equivalents | | $ | (19.8) | | | $ | (4.9) | |
| Net decrease in cash and cash equivalents | Net decrease in cash and cash equivalents | | (165.8) | | | (56.6) | | Net decrease in cash and cash equivalents | | (16.7) | | | (179.6) | |
| Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | | 386.6 | | | 330.3 | | Cash and cash equivalents at beginning of period | | 251.5 | | | 386.6 | |
| Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | | $ | 220.8 | | | $ | 273.7 | | Cash and cash equivalents at end of period | | $ | 234.8 | | | $ | 207.0 | |
| Supplemental disclosure of cash flow information: | Supplemental disclosure of cash flow information: | | | | | Supplemental disclosure of cash flow information: | | | | |
| Cash paid during the period for: | Cash paid during the period for: | | Cash paid during the period for: | |
| Income taxes | Income taxes | | $ | 56.3 | | | $ | 40.9 | | Income taxes | | $ | 120.3 | | | $ | 35.2 | |
| Interest, net of capitalized interest | Interest, net of capitalized interest | | 61.5 | | | 73.1 | | Interest, net of capitalized interest | | 37.5 | | | 46.0 | |
| Non-cash activities: | Non-cash activities: | | Non-cash activities: | |
| | Additions of property, plant and equipment included in trade accounts payable and other accrued expenses | Additions of property, plant and equipment included in trade accounts payable and other accrued expenses | | $ | 5.0 | | | $ | 4.1 | | Additions of property, plant and equipment included in trade accounts payable and other accrued expenses | | $ | 3.0 | | | $ | 5.3 | |
| Additions of property, plant and equipment under a finance lease obligation | Additions of property, plant and equipment under a finance lease obligation | | 14.0 | | | 35.6 | | Additions of property, plant and equipment under a finance lease obligation | | 9.3 | | | 8.0 | |
| Additions of assets under an operating lease obligation | Additions of assets under an operating lease obligation | | 43.5 | | | 31.4 | | Additions of assets under an operating lease obligation | | 42.1 | | | 25.8 | |
|
(1)
For the nine months ended September 30, 2020, the amount included in fair value adjustment for warrants, which was previously included in other, net, is now presented separately to conform to the current year presentation. Refer to “Note 2: Significant accounting policies” for more information.
The accompanying notes are an integral part of these condensed consolidated financial statements.
Univar Solutions Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited) | | (in millions) | (in millions) | Common
stock
(shares) | | Common
stock | | Additional
paid-in
capital | | Accumulated
deficit | | Accumulated
other
comprehensive
loss | | Total | (in millions) | Common
stock outstanding
(shares) | | Common
stock | | Additional
paid-in
capital | | Treasury Stock | | Accumulated
deficit | | Accumulated
other
comprehensive
loss | | Total |
| Balance, January 1, 2021 | 169.3 | | | $ | 1.7 | | | $ | 2,983.3 | | | $ | (805.6) | | | $ | (387.1) | | | $ | 1,792.3 | | |
| Balance, January 1, 2022 | | Balance, January 1, 2022 | 169.4 | | | $ | 1.7 | | | $ | 3,048.5 | | | $ | (50.0) | | | $ | (345.0) | | | $ | (362.7) | | | $ | 2,292.5 | |
| Net income | Net income | — | | | — | | | — | | | 303.8 | | | — | | | 303.8 | | Net income | — | | | — | | | — | | | — | | | 343.7 | | | — | | | 343.7 | |
| Foreign currency translation adjustment | — | | | — | | | — | | | — | | | 9.7 | | | 9.7 | | |
| Pension and other postretirement benefits adjustment, net of tax $0.5 | — | | | — | | | — | | | — | | | (2.7) | | | (2.7) | | |
| Derivative financial instruments, net of tax $(4.4) | — | | | — | | | — | | | — | | | 11.8 | | | 11.8 | | |
| Common stock issued upon the exercise of warrants | 1.0 | | | — | | | 26.8 | | | — | | | — | | | 26.8 | | |
| Other comprehensive income, net of tax | | Other comprehensive income, net of tax | — | | | — | | | — | | | — | | | — | | | 17.3 | | | 17.3 | |
| | Restricted stock units vested | Restricted stock units vested | 0.4 | | | — | | | — | | | — | | | — | | | — | | Restricted stock units vested | 0.8 | | | — | | | — | | | — | | | — | | | — | | | — | |
| Tax withholdings related to net share settlements of stock-based compensation awards | Tax withholdings related to net share settlements of stock-based compensation awards | (0.1) | | | — | | | (2.6) | | | — | | | — | | | (2.6) | | Tax withholdings related to net share settlements of stock-based compensation awards | (0.3) | | | — | | | (7.5) | | | — | | | — | | | — | | | (7.5) | |
| Stock option exercises | Stock option exercises | 0.4 | | | — | | | 8.5 | | | — | | | — | | | 8.5 | | Stock option exercises | 0.7 | | | — | | | 16.0 | | | — | | | — | | | — | | | 16.0 | |
| Employee stock purchase plan | Employee stock purchase plan | — | | | — | | | 0.8 | | | — | | | — | | | 0.8 | | Employee stock purchase plan | — | | | — | | | 0.8 | | | — | | | — | | | — | | | 0.8 | |
| Stock-based compensation expense | Stock-based compensation expense | — | | | — | | | 16.0 | | | — | | | — | | | 16.0 | | Stock-based compensation expense | — | | | — | | | 21.7 | | | — | | | — | | | — | | | 21.7 | |
| Purchases of treasury stock | | Purchases of treasury stock | (3.5) | | | — | | | — | | | (104.6) | | | — | | | — | | | (104.6) | |
| Other | Other | — | | | — | | | 0.3 | | | — | | | — | | | 0.3 | | Other | — | | | — | | | (0.9) | | | — | | | — | | | — | | | (0.9) | |
| Balance, September 30, 2021 | 171.0 | | | $ | 1.7 | | | $ | 3,033.1 | | | $ | (501.8) | | | $ | (368.3) | | | $ | 2,164.7 | | |
| Balance, June 30, 2022 | | Balance, June 30, 2022 | 167.1 | | | $ | 1.7 | | | $ | 3,078.6 | | | $ | (154.6) | | | $ | (1.3) | | | $ | (345.4) | | | $ | 2,579.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Common
stock outstanding
(shares) | | Common
stock | | Additional
paid-in
capital | | Treasury Stock | | Accumulated
deficit | | Accumulated
other
comprehensive
loss | | Total |
| Balance, April 1, 2022 | 169.5 | | | $ | 1.7 | | | $ | 3,062.5 | | | $ | (74.0) | | | $ | (164.2) | | | $ | (309.2) | | | $ | 2,516.8 | |
| Net income | — | | | — | | | — | | | — | | | 162.9 | | | — | | | 162.9 | |
| Other comprehensive income, net of tax | — | | | — | | | — | | | — | | | — | | | (36.2) | | | (36.2) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Restricted stock units vested | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Tax withholdings related to net share settlements of stock-based compensation awards | — | | | — | | | (0.3) | | | — | | | — | | | — | | | (0.3) | |
| Stock option exercises | 0.4 | | | — | | | 7.6 | | | — | | | — | | | — | | | 7.6 | |
| Employee stock purchase plan | — | | | — | | | 0.8 | | | — | | | — | | | — | | | 0.8 | |
| Stock-based compensation expense | — | | | — | | | 7.8 | | | — | | | — | | | — | | | 7.8 | |
| Purchases of treasury stock | (2.8) | | | — | | | — | | | (80.6) | | | — | | | — | | | (80.6) | |
| Other | — | | | — | | | 0.2 | | | — | | | — | | | — | | | 0.2 | |
| Balance, June 30, 2022 | 167.1 | | | $ | 1.7 | | | $ | 3,078.6 | | | $ | (154.6) | | | $ | (1.3) | | | $ | (345.4) | | | $ | 2,579.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Common
stock
(shares) | | Common
stock | | Additional
paid-in
capital | | Accumulated
deficit | | Accumulated
other
comprehensive
loss | | Total |
| Balance, July 1, 2021 | 170.9 | | | $ | 1.7 | | | $ | 3,025.8 | | | $ | (586.2) | | | $ | (342.7) | | | $ | 2,098.6 | |
| Net income | — | | | — | | | — | | | 84.4 | | | — | | | 84.4 | |
| Foreign currency translation adjustment | — | | | — | | | — | | | — | | | (29.2) | | | (29.2) | |
| Pension and other postretirement benefits adjustment | — | | | — | | | — | | | — | | | (0.1) | | | (0.1) | |
| Derivative financial instruments, net of tax $(1.7) | — | | | — | | | — | | | — | | | 3.7 | | | 3.7 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Tax withholdings related to net share settlements of stock-based compensation awards | — | | | — | | | (0.1) | | | — | | | — | | | (0.1) | |
| Stock option exercises | 0.1 | | | — | | | 0.7 | | | — | | | — | | | 0.7 | |
| | | | | | | | | | | |
| Stock-based compensation expense | — | | | — | | | 6.8 | | | — | | | — | | | 6.8 | |
| Other | — | | | — | | | (0.1) | | | — | | | — | | | (0.1) | |
| Balance, September 30, 2021 | 171.0 | | | $ | 1.7 | | | $ | 3,033.1 | | | $ | (501.8) | | | $ | (368.3) | | | $ | 2,164.7 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Univar Solutions Inc. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Common
stock outstanding
(shares) | | Common
stock | | Additional
paid-in
capital | | Treasury Stock | | Accumulated
deficit | | Accumulated
other
comprehensive
loss | | Total |
| Balance, January 1, 2021 | 169.3 | | | $ | 1.7 | | | $ | 2,983.3 | | | $ | — | | | $ | (805.6) | | | $ | (387.1) | | | $ | 1,792.3 | |
| Net income | — | | | — | | | — | | | — | | | 219.4 | | | — | | | 219.4 | |
| Other comprehensive income, net of tax | — | | | — | | | — | | | — | | | — | | | 44.4 | | | 44.4 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Common stock issued upon the exercise of warrants | 1.0 | | | — | | | 26.8 | | | — | | | — | | | — | | | 26.8 | |
| Restricted stock units vested | 0.4 | | | — | | | — | | | — | | | — | | | — | | | — | |
| Tax withholdings related to net share settlements of stock-based compensation awards | (0.1) | | | — | | | (2.5) | | | — | | | — | | | — | | | (2.5) | |
| Stock option exercises | 0.3 | | | — | | | 7.8 | | | — | | | — | | | — | | | 7.8 | |
| Employee stock purchase plan | — | | | — | | | 0.8 | | | — | | | — | | | — | | | 0.8 | |
| Stock-based compensation expense | — | | | — | | | 9.2 | | | — | | | — | | | — | | | 9.2 | |
| Other | — | | | — | | | 0.4 | | | — | | | — | | | — | | | 0.4 | |
| Balance, June 30, 2021 | 170.9 | | | $ | 1.7 | | | $ | 3,025.8 | | | $ | — | | | $ | (586.2) | | | $ | (342.7) | | | $ | 2,098.6 | |
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Common
stock
(shares) | | Common
stock | | Additional
paid-in
capital | | Accumulated
deficit | | Accumulated
other
comprehensive
loss | | Total |
| Balance, January 1, 2020 | 168.7 | | | $ | 1.7 | | | $ | 2,968.9 | | | $ | (858.5) | | | $ | (379.3) | | | $ | 1,732.8 | |
| Net income | — | | | — | | | — | | | 86.6 | | | — | | | 86.6 | |
| Foreign currency translation adjustment, net of tax $(4.7) | — | | | — | | | — | | | — | | | (60.1) | | | (60.1) | |
| Pension and other postretirement benefits adjustment | — | | | — | | | — | | | — | | | 0.1 | | | 0.1 | |
| Derivative financial instruments, net of tax $8.5 | — | | | — | | | — | | | — | | | (18.8) | | | (18.8) | |
| Restricted stock units vested | 0.4 | | | — | | | — | | | — | | | — | | | — | |
| Tax withholdings related to net share settlements of stock-based compensation awards | (0.1) | | | — | | | (2.0) | | | — | | | — | | | (2.0) | |
| Stock option exercises | 0.1 | | | — | | | 0.7 | | | — | | | — | | | 0.7 | |
| Employee stock purchase plan | — | | | — | | | 0.7 | | | — | | | — | | | 0.7 | |
| Stock-based compensation expense | — | | | — | | | 10.9 | | | — | | | — | | | 10.9 | |
| Other | — | | | — | | | 0.1 | | | — | | | — | | | 0.1 | |
| Balance, September 30, 2020 | 169.1 | | | $ | 1.7 | | | $ | 2,979.3 | | | $ | (771.9) | | | $ | (458.1) | | | $ | 1,751.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Common
stock
(shares) | | Common
stock | | Additional
paid-in
capital | | Accumulated
deficit | | Accumulated
other
comprehensive
loss | | Total |
| Balance, July 1, 2020 | 169.0 | | | $ | 1.7 | | | $ | 2,977.3 | | | $ | (800.8) | | | $ | (475.0) | | | $ | 1,703.2 | |
| Net income | — | | | — | | | — | | | 28.9 | | | — | | | 28.9 | |
| Foreign currency translation adjustment | — | | | — | | | — | | | — | | | 14.3 | | | 14.3 | |
| | | | | | | | | | | |
| Derivative financial instruments, net of tax $(0.8) | — | | | — | | | — | | | — | | | 2.6 | | | 2.6 | |
| Restricted stock units vested | 0.1 | | | — | | | — | | | — | | | — | | | — | |
| Tax withholdings related to net share settlements of stock-based compensation awards | — | | | — | | | (0.6) | | | — | | | — | | | (0.6) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Stock-based compensation expense | — | | | — | | | 2.6 | | | — | | | — | | | 2.6 | |
| | | | | | | | | | | |
| Balance, September 30, 2020 | 169.1 | | | $ | 1.7 | | | $ | 2,979.3 | | | $ | (771.9) | | | $ | (458.1) | | | $ | 1,751.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Common
stock outstanding
(shares) | | Common
stock | | Additional
paid-in
capital | | Treasury Stock | | Accumulated
deficit | | Accumulated
other
comprehensive
loss | | Total |
| Balance, April 1, 2021 | 169.6 | | | $ | 1.7 | | | $ | 2,988.8 | | | $ | — | | | $ | (739.4) | | | $ | (382.1) | | | $ | 1,869.0 | |
| Net income | — | | | — | | | — | | | — | | | 153.2 | | | — | | | 153.2 | |
| Other comprehensive income, net of tax | — | | | — | | | — | | | — | | | — | | | 39.4 | | | 39.4 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Common stock issued upon the exercise of warrants | 1.0 | | | — | | | 26.8 | | | — | | | — | | | — | | | 26.8 | |
| Restricted stock units vested | 0.1 | | | — | | | — | | | — | | | — | | | — | | | — | |
| Tax withholdings related to net share settlements of stock-based compensation awards | — | | | — | | | (0.4) | | | — | | | — | | | — | | | (0.4) | |
| Stock option exercises | 0.2 | | | — | | | 6.3 | | | — | | | — | | | — | | | 6.3 | |
| Employee stock purchase plan | — | | | — | | | 0.8 | | | — | | | — | | | — | | | 0.8 | |
| Stock-based compensation expense | — | | | — | | | 3.3 | | | — | | | — | | | — | | | 3.3 | |
| | | | | | | | | | | | | |
| Other | — | | | — | | | 0.2 | | | — | | | — | | | — | | | 0.2 | |
| Balance, June 30, 2021 | 170.9 | | | $ | 1.7 | | | $ | 3,025.8 | | | $ | — | | | $ | (586.2) | | | $ | (342.7) | | | $ | 2,098.6 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Univar Solutions Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Nature of operations
Headquartered in Downers Grove, Illinois, Univar Solutions Inc. (“Univar Solutions,” “Company,” “we,” “our” and “us”) is a leading global chemical and ingredient distributor and provider of value-added services to customers across a wide range of industries. The Company’s operations are structured into 4 reportable segments that represent the geographic areas under which the Company manages its business:
•Univar Solutions USA (“USA”)
•Univar Solutions Europe and the Middle East and Africa (“EMEA”)
•Univar Solutions Canada (“Canada”)
•Univar Solutions Latin America (“LATAM”)
LATAM includes certain developing businesses in Latin America and the Asia-Pacific region.
2. Significant accounting policies
Basis of presentation
The condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) as applicable tounaudited interim financial reporting. These condensed consolidated financial statements, in the Company’s opinion, include all adjustments consisting of normal recurring accruals necessary for a fair presentation of the condensed consolidated balance sheets, statements of operations, comprehensive income, cash flows and changes in stockholders’ equity. The results of operations for the periods presented are not necessarily indicative of the operating results that may be expected for the full year. The accompanying condensed consolidated financial statements of Univar Solutions includes the combined results of all directlyInc. (the “Company,” “we,” “our” and indirectly controlled companies, which“us”) have been adjustedprepared pursuant to accountthe rules and regulations of the Securities and Exchange Commission (“SEC”) for the elimination of intercompany balancesinterim reporting. Accordingly, certain information and transactions.
The preparation offootnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”) have been condensed or omitted. These unaudited interim condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and accompanying notes. Actual results could differ materially from these estimates. These condensed consolidated financial statements and related footnotes are unaudited and should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.2021.
Beginning withIn the first quarteropinion of 2021,management, the Company recorded the change in theunaudited interim condensed consolidated financial statements include all normal and recurring adjustments necessary for a fair valuepresentation of the warrants related toCompany’s financial position, results of operations and cash flows for the 2019 Nexeo acquisition in other income (expense), net to properly reflectperiods presented. The results of operations for the non-operating natureinterim periods presented are not necessarily indicative of the warrant liability. The Company reclassifiedresults of operations to be expected for the changefull year.
Proceeds and repayments under the revolving credit facilities for 2021, previously reported net in the fair value of the warrants in itsour interim condensed consolidated statement of operations for the three and nine months ended September 30, 2020 from other operating expenses, net to other income (expense), netcash flows, are now presented separately to conform to the current period presentation. In addition, on ourAdditionally, certain other immaterial amounts in the prior period interim condensed consolidated statement of cash flows for the nine months ended September 30, 2020, the change in the fair value is now presented separately as fair value adjustments for warrants, which was previously included in other, net,financial statements and notes have been reclassified to conform to the current yearperiod presentation.
Recently adopted accounting pronouncements
In January 2021, the Company adopted ASU 2019-12 “Income Taxes” (Topic 740) – “Simplifying the Accounting for Income Taxes,” which clarifies and simplifies the accounting for income taxes by eliminating certain exceptions for intra-period tax allocation principles, updating the methodology for calculating income tax rates in an interim period and aligning the recognition of deferred taxes for outside basis differences in an investment, among other updates. The adoption did not have a material impact to the Company’s financial statements and disclosures.
Accounting pronouncements issued and not yet adopted
In March 2020,October 2021, the FASBFinancial Accounting Standards Board (“FASB”) issued ASU 2020-04 “Reference Rate Reform”2021-08 “Business Combinations” (Topic 848)805) – “Facilitation of“Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” This ASU requires an entity to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606 (Revenue from Contracts with Customers). The Company expects to adopt this guidance effective January 1, 2023 and it is not expected to have a material impact upon the Effects of Reference Rate Reform on Financial Reporting,” which provides optional expedients and exceptions for applying US GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform from currently referenced rates, such as LIBOR, to alternative rates. Company's consolidated financial statements.
In JanuaryNovember 2021, the FASB issued ASU 2021-01 “Reference Rate Reform”2021-10 “Government Assistance” (Topic 848) that clarifies832) – “Disclosures by Business Entities about Government Assistance,” which aims to increase the scopetransparency of government assistance and grants. The ASU 2020-04. The ASU’s were effective beginning March 12, 2020,requires additional annual disclosures pertaining to the types of received government assistance, accounting for the transactions and the related impacts on the reported financial results. The Company may electexpects to apply the amendments prospectively throughadopt this guidance effective December 31, 2022. The Company2022 and is currently determining the impacts of the guidance on its consolidated financial statements.statements and disclosures.
3.2. Business combinations
Sweetmix Distribuidora de Materias Primas Industriais Ltda (“Sweetmix”)
On December 18, 2020,1, 2021, the Company completed the acquisition of the specialty silicone solutions business of Zhuhai Techi Chem Silicone Industry Corporation (“Techi Chem”),acquired Sweetmix, a leading distributor of specialty silicone solutions used primarily for thefood ingredients and coatings, adhesives, sealants and elastomers (“CASE”) market withinspecialty chemical distribution company in Brazil. The acquisition price, including 2022 measurement period adjustments, was $53.0 million, with $32.5 million of which was paid in cash (net of cash acquired of $1.2 million) upon closing, with the China marketplace.remaining $19.3 million to be paid over the next five years. The goalCompany believes that the acquisition of the Techi Chem acquisition is to enhanceSweetmix significantly enhances the Company’s ability to bring differential value to customersspecialty food ingredients product offering in Latin America and suppliers withinalso enhances the Company's position in the local CASE market.
The purchase priceDuring the first six months of this acquisition was $6.8 million, comprised of $4.6 million cash paid and a $2.2 million contingent consideration component. Refer to “Note 15: Fair value measurements” for further information on the contingent consideration liability. As of December 31, 2020,2022, the Company recorded a preliminaryupdated the purchase price allocation consistingto reflect intangible asset fair value adjustments, purchase price adjustments and the deferred tax impacts of goodwill of $3.5 million, intangible assets of $2.7 million, inventories of $1.0 millionthe recognized adjustments. The preliminary values and other currentmeasurement period adjustments related to the significant assets and deferred tax liabilities of $(0.4) million. are shown below:
| | | | | | | | | | | | | | | | | | | | |
| (in millions) | | December 1, 2021 | | Measurement Period Adjustments | | June 30, 2022 |
| Cash and cash equivalents | | $ | 1.2 | | | $ | — | | | $ | 1.2 | |
| Trade accounts receivable, net | | 15.6 | | | — | | | 15.6 | |
| Inventories | | 8.5 | | | — | | | 8.5 | |
| Prepaid expenses and other current assets | | 2.6 | | | — | | | 2.6 | |
| Goodwill | | 33.8 | | | (1.0) | | | 32.8 | |
| Intangible assets, net | | 13.3 | | | 1.7 | | | 15.0 | |
| Trade accounts payable | | (16.6) | | | — | | | (16.6) | |
| Deferred tax liabilities | | (4.5) | | | (0.6) | | | (5.1) | |
| Other non-significant assets and liabilities, net | | (1.0) | | | — | | | (1.0) | |
| Purchase consideration | | $ | 52.9 | | | $ | 0.1 | | | $ | 53.0 | |
| Less: Cash and cash equivalents | | (1.2) | | | — | | | (1.2) | |
| Purchase consideration, net of cash | | $ | 51.7 | | | $ | 0.1 | | | $ | 51.8 | |
The goodwill is included in the LATAMLatin America (“LATAM”) segment and is primarily attributable to expected synergies. The Company does not expect the goodwill to be deductible for income tax purposes. The identified intangible assets were relatedrelate to customer relationships which haveand will be amortized over a weighted-average amortization period of eight years. The operating results subsequent to the acquisition date did not have a significant impact on the consolidated financial statements of the Company.
As of March 31, 2021, the Company updated the purchase price allocation for the Techi Chem acquisition to reflect final deferred income tax adjustments, resulting in a $0.7 million decrease to goodwill. Theinitial accounting for this acquisition was complete as of March 31, 2021.is preliminary and subject to additional measurement period adjustments related to taxes.
4.3. Dispositions
On April 1, 2021, the Company completed the sale of its Distrupol business within the EMEAEurope and the Middle East and Africa (“EMEA”) segment for total cash proceeds of $136.7 million, subject to certain post-closing adjustments.million. In the second quarter of 2021, the Company recorded a $87.6 million pre-tax gain on sale of business in the condensed consolidated statement of operations, net of a release of cumulative foreign currency translation losses of $18.1 million (refer to “Note 12: Accumulated other comprehensive loss” for more information).million. The sale of the Distrupol business is exempt from tax under local country subsidiary participation exemptions. The impact of the sale on US income taxes was not material. The sale of this business does not meet the criteria to be classified as a discontinued operation in the Company’s financial statements because the disposition does not represent a strategic shift that had, or will have, a major effect on the Company’s operations and financial results.
The following summarizes theCompany recorded $3.9 million income before income taxes for the six months ended June 30, 2021 attributable to the Distrupol business:Distrupol.
| | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, 2020 | | Nine months ended September 30, |
| (in millions) | | | 2021 | | 2020 |
| Income before income taxes | | $ | 2.8 | | | $ | 3.9 | | | $ | 8.0 | |
On November 30, 2020, the Company completed the sale of its Canadian Agriculture services business for total4. Goodwill and intangibles, net cash proceeds of $39.3 million after closing transaction-related expenses. In the fourth quarter of 2020, the Company recorded a $31.5 million pre-tax loss on sale of business in the condensed consolidated statement of operations. In the first quarter of 2021, the Company recognized a favorable adjustment of $0.7 million, decreasing the loss on sale recorded in the fourth quarter of 2020. The sale of this business did not meet the criteria to be classified as a discontinued operation in the Company’s financial statements because the disposition did not represent a strategic shift that had, or will have, a major effect on the Company's operations and financial results.
Goodwill
The following summarizesis a summary of the income before income taxes attributable to the Canadian Agriculture services business:activity in goodwill by segment. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | USA | | EMEA | | Canada | | LATAM | | Total |
| Balance, January 1, 2022 | | $ | 1,812.6 | | | $ | 7.4 | | | $ | 431.4 | | | $ | 59.0 | | | $ | 2,310.4 | |
| | | | | | | | | | |
| Purchase price adjustments | | — | | | — | | | — | | | (1.0) | | | (1.0) | |
| | | | | | | | | | |
| | | | | | | | | | |
| Foreign exchange | | — | | | (0.7) | | | (7.9) | | | 2.5 | | | (6.1) | |
| Balance, June 30, 2022 | | $ | 1,812.6 | | | $ | 6.7 | | | $ | 423.5 | | | $ | 60.5 | | | $ | 2,303.3 | |
| | | | | | | | | | | | | | |
| (in millions) | | Three months ended September 30, 2020 | | Nine months ended September 30, 2020 |
| Income (loss) before income taxes | | $ | (0.1) | | | $ | 3.0 | |
On September 1, 2020, the Company completed the sale of its industrial spill and emergency response businesses to EnviroServe Inc. for total net cash proceeds of $6.2 million after transaction-related expenses. In the third quarter of 2020, the Company recorded a $9.3 million pre-tax loss on sale of business in the condensed consolidated statement of operations. In the fourth quarter of 2020 and the first quarter of 2021, we recorded estimated and final net working capital adjustments of $1.2 million and $0.1 million, respectively, increasing the loss on sale recorded in the third quarter of 2020. The sale of these businesses did not meet the criteria to be classified as a discontinued operation in the Company’s financial statements because
the dispositions did not represent a strategic shift that had, or will have, a major effect on the Company's operationsIntangible assets, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | June 30, 2022 | | December 31, 2021 |
| (in millions) | | Gross | | Accumulated Amortization | | Net | | Gross | | Accumulated Amortization | | Net |
| Customer relationships | | $ | 933.6 | | | $ | (748.6) | | | $ | 185.0 | | | $ | 940.1 | | | $ | (732.8) | | | $ | 207.3 | |
| Other | | 167.3 | | | (163.9) | | | 3.4 | | | 168.9 | | | (164.5) | | | 4.4 | |
| Total intangible assets | | $ | 1,100.9 | | | $ | (912.5) | | | $ | 188.4 | | | $ | 1,109.0 | | | $ | (897.3) | | | $ | 211.7 | |
Other intangible assets consist of intellectual property trademarks, trade names, producer relationships and financial results.contracts, non-compete agreements and exclusive distribution rights.
The following summarizesestimated annual amortization expense in each of the loss before income taxes attributable to these businesses:next five years is as follows:
| | (in millions) | (in millions) | | Three months ended September 30, 2020 | | Nine months ended September 30, 2020 | (in millions) | |
| Loss before income taxes | | $ | (0.8) | | | $ | (26.9) | | |
| 2022 | | 2022 | $ | 47.4 | |
| 2023 | | 2023 | 42.3 | |
| 2024 | | 2024 | 32.3 | |
| 2025 | | 2025 | 28.9 | |
| 2026 | | 2026 | 24.0 | |
5. Revenue
The Company disaggregates revenues from contracts with customers by both geographic reportable segments and revenue contract types. Geographic reportable segmentation is pertinent to understanding Univar Solutions’the Company'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 Solutionsthe Company offers customers, since the contractual terms necessary for revenue recognition are unique to each of the identified revenue contract types.
The following tables disaggregate external customer net sales by major stream:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | USA | | EMEA | | Canada | | LATAM | | Consolidated |
| (in millions) | | Three months ended September 30, 2021 |
| Chemical Distribution | | $ | 1,548.5 | | | $ | 480.2 | | | $ | 222.1 | | | $ | 163.4 | | | $ | 2,414.2 | |
| | | | | | | | | | |
| Services | | 68.3 | | | 0.1 | | | 1.2 | | | 4.1 | | | 73.7 | |
| Total external customer net sales | | $ | 1,616.8 | | | $ | 480.3 | | | $ | 223.3 | | | $ | 167.5 | | | $ | 2,487.9 | |
| | | | | | | | | | |
| | USA | | EMEA | | Canada | | LATAM | | Consolidated |
| (in millions) | | Three months ended September 30, 2020 |
| Chemical Distribution | | $ | 1,179.0 | | | $ | 399.1 | | | $ | 179.8 | | | $ | 117.8 | | | $ | 1,875.7 | |
| Crop Sciences | | — | | | — | | | 43.9 | | | — | | | 43.9 | |
| Services | | 75.4 | | | 0.3 | | | 11.2 | | | 2.7 | | | 89.6 | |
| Total external customer net sales | | $ | 1,254.4 | | | $ | 399.4 | | | $ | 234.9 | | | $ | 120.5 | | | $ | 2,009.2 | |
| | | USA | | EMEA | | Canada | | LATAM | | Consolidated | | Three months ended June 30, | | Six months ended June 30, |
| (in millions) | (in millions) | | Nine months ended September 30, 2021 | (in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| Chemical Distribution | | $ | 4,199.4 | | | $ | 1,489.9 | | | $ | 674.7 | | | $ | 444.2 | | | $ | 6,808.2 | | |
| | USA | | USA | | | | | | | | |
| Chemical distribution | | Chemical distribution | | $ | 1,900.2 | | | $ | 1,428.7 | | | $ | 3,677.3 | | | $ | 2,650.9 | |
| Services | Services | | 210.6 | | | 0.3 | | | 9.9 | | | 8.4 | | | 229.2 | | Services | | 70.0 | | | 71.5 | | | 136.1 | | | 142.3 | |
| Total external customer net sales | Total external customer net sales | | $ | 4,410.0 | | | $ | 1,490.2 | | | $ | 684.6 | | | $ | 452.6 | | | $ | 7,037.4 | | Total external customer net sales | | $ | 1,970.2 | | | $ | 1,500.2 | | | $ | 3,813.4 | | | $ | 2,793.2 | |
| | USA | | EMEA | | Canada | | LATAM | | Consolidated | |
| (in millions) | | Nine months ended September 30, 2020 | |
| Chemical Distribution | | $ | 3,546.6 | | | $ | 1,268.3 | | | $ | 560.1 | | | $ | 319.9 | | | $ | 5,694.9 | | |
| Crop Sciences | | — | | | — | | | 255.7 | | | — | | | 255.7 | | |
| EMEA | | EMEA | | | | | | | | |
| Chemical distribution | | Chemical distribution | | $ | 547.1 | | | $ | 504.0 | | | $ | 1,109.3 | | | $ | 1,009.7 | |
| Services | Services | | 234.7 | | | 1.0 | | | 36.4 | | | 6.9 | | | 279.0 | | Services | | 0.1 | | | — | | | 0.1 | | | 0.2 | |
| Total external customer net sales | Total external customer net sales | | $ | 3,781.3 | | | $ | 1,269.3 | | | $ | 852.2 | | | $ | 326.8 | | | $ | 6,229.6 | | Total external customer net sales | | $ | 547.2 | | | $ | 504.0 | | | $ | 1,109.4 | | | $ | 1,009.9 | |
| Canada | | Canada | | | | | | | | |
| Chemical distribution | | Chemical distribution | | $ | 298.2 | | | $ | 233.9 | | | $ | 591.6 | | | $ | 452.6 | |
| Services | | Services | | — | | | 4.7 | | | — | | | 8.7 | |
| Total external customer net sales | | Total external customer net sales | | $ | 298.2 | | | $ | 238.6 | | | $ | 591.6 | | | $ | 461.3 | |
| LATAM | | LATAM | | | | | | | | |
| Chemical distribution | | Chemical distribution | | $ | 196.8 | | | $ | 148.8 | | | $ | 377.5 | | | $ | 280.8 | |
| Services | | Services | | 4.2 | | | 2.5 | | | 7.3 | | | 4.3 | |
| Total external customer net sales | | Total external customer net sales | | $ | 201.0 | | | $ | 151.3 | | | $ | 384.8 | | | $ | 285.1 | |
| Consolidated | | Consolidated | | | | | | | | |
| Chemical distribution | | Chemical distribution | | $ | 2,942.3 | | | $ | 2,315.4 | | | $ | 5,755.7 | | | $ | 4,394.0 | |
| Services | | Services | | 74.3 | | | 78.7 | | | 143.5 | | | 155.5 | |
| Total external customer net sales | | Total external customer net sales | | $ | 3,016.6 | | | $ | 2,394.1 | | | $ | 5,899.2 | | | $ | 4,549.5 | |
Deferred revenue
Deferred revenues are recognized as contract liabilities when customers provide Univar Solutionsthe Company with consideration prior to the Company satisfying the performance obligations and are recognized in revenue when the performance obligations are met. Deferred revenues relate to revenues that are expected to be recognized within one year and are recorded within the other accrued expenses line items of the condensed consolidated balance sheets. Deferred revenues as of SeptemberJune 30, 20212022 and December 31, 20202021 were $5.2$5.7 million and $5.8$17.6 million, respectively.
Revenue recognized through the ninesix months ended SeptemberJune 30, 20212022 and 20202021 from amounts included in contract liabilities at the beginning of the period were $4.7$16.4 million and $64.8$4.6 million, respectively. The year-over-year decrease in revenue recognized from contract liabilities is primarily due to the prior year wind down of the Canadian Agriculture wholesale distribution business, which was operationally completed by December 31, 2020.
6. Supplemental financial information
Other operating expenses, net
Other operating expenses, net consisted of the following: | | | | | Three months ended September 30, | | Nine months ended September 30, | | | Three months ended June 30, | | Six months ended June 30, |
| (in millions) | (in millions) | | 2021 | | 2020 | | 2021 | | 2020 | (in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| Acquisition and integration related expenses | Acquisition and integration related expenses | | $ | 12.0 | | | $ | 14.1 | | | $ | 44.8 | | | $ | 45.9 | | Acquisition and integration related expenses | | $ | — | | | $ | 16.4 | | | $ | — | | | $ | 32.8 | |
| Stock-based compensation expense | Stock-based compensation expense | | 6.8 | | | 2.6 | | | 16.0 | | | 10.9 | | Stock-based compensation expense | | 7.8 | | | 3.3 | | | 21.7 | | | 9.2 | |
Restructuring charges (1) | | 0.1 | | | 0.9 | | | 0.2 | | | 9.7 | | |
| | Other employee severance costs | Other employee severance costs | | 1.8 | | | 2.9 | | | 6.7 | | | 11.2 | | Other employee severance costs | | — | | | 2.0 | | | — | | | 4.9 | |
| Other facility closure costs | | 0.6 | | | 0.2 | | | 1.1 | | | 2.2 | | |
| Multi-employer pension plan exit liability (2) | Multi-employer pension plan exit liability (2) | | — | | | — | | | 31.2 | | | — | | Multi-employer pension plan exit liability (2) | | — | | | 12.8 | | | — | | | 31.2 | |
| Gain on sale of property, plant and equipment | Gain on sale of property, plant and equipment | | (3.2) | | | (0.8) | | | (6.3) | | | (8.3) | | Gain on sale of property, plant and equipment | | (1.3) | | | (2.0) | | | (2.2) | | | (3.1) | |
| Other | Other | | (0.4) | | | 0.4 | | | (1.9) | | | 3.9 | | Other | | (1.2) | | | (2.6) | | | 1.5 | | | (0.9) | |
Total other operating expenses, net (3) | Total other operating expenses, net (3) | | $ | 17.7 | | | $ | 20.3 | | | $ | 91.8 | | | $ | 75.5 | | Total other operating expenses, net (3) | | $ | 5.3 | | | $ | 29.9 | | | $ | 21.0 | | | $ | 74.1 | |
|
(1)Refer to “Note 7: Restructuring charges” for more information.
(2)Refer to “Note 9: Employee benefit plans” for more information.
(3)For the three and nine months ended September 30, 2020, the fair value adjustment for warrants was reclassified to other income (expense), net, from other operating expenses, net, to conform to the current year presentation. Refer to “Note 2: Significant accounting policies” for more information.
7. Restructuring charges
Restructuring charges relate to the implementation of several regional strategic initiatives aimed at streamlining the Company’s cost structure and improving its operations. These actions primarily resulted in workforce reductions and other facility rationalization costs. Restructuring charges are recorded in other operating expenses, net in the condensed consolidated statement of operations.
2020 Restructuring
During the fourth quarter of 2020, the Company approved a plan to wind down its Canadian Agriculture wholesale distribution business as part of an in-depth review of the changing dynamics within the agriculture industry. The actions associated with this program were substantially complete as of December 31, 2020. During 2021, the Company adjusted its previously disclosed estimate and recorded an additional charge to earnings of $0.2 million within employee termination costs.
As a result of this plan, we recorded the following charges:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | Three months ended September 30, 2021 | | Nine months ended September 30, 2021 | | Cumulative costs | | Anticipated total costs |
| Canada: | | | | | | | | |
| Employee termination costs | | $ | 0.1 | | | $ | 0.2 | | | $ | 1.9 | | | $ | 1.9 | |
| Other exit costs | | — | | | — | | | 2.2 | | | 2.2 | |
| Total | | $ | 0.1 | | | $ | 0.2 | | | $ | 4.1 | | | $ | 4.1 | |
The following table summarizes activity related to accrued liabilities associated with restructuring:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | January 1, 2021 | | Charge to earnings | | Cash paid | | Non-cash and other | | September 30, 2021 |
| Employee termination costs | | $ | 3.2 | | | $ | 0.2 | | | $ | (4.2) | | | $ | 1.1 | | | $ | 0.3 | |
| Facility exit costs | | 1.4 | | | — | | | — | | | (1.2) | | | 0.2 | |
| Other exit costs | | 2.5 | | | — | | | (2.0) | | | (0.1) | | | 0.4 | |
| Total | | $ | 7.1 | | | $ | 0.2 | | | $ | (6.2) | | | $ | (0.2) | | | $ | 0.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | January 1, 2020 | | Charge to earnings | | Cash paid | | Non-cash and other | | December 31, 2020 |
| Employee termination costs | | $ | 3.7 | | | $ | 11.7 | | | $ | (12.4) | | | $ | 0.2 | | | $ | 3.2 | |
| Facility exit costs | | 1.9 | | | — | | | (0.5) | | | — | | | 1.4 | |
| Other exit costs | | 0.2 | | | 2.2 | | | — | | | 0.1 | | | 2.5 | |
| Total | | $ | 5.8 | | | $ | 13.9 | | | $ | (12.9) | | | $ | 0.3 | | | $ | 7.1 | |
Restructuring liabilities of $0.9 million and $6.6 million were classified as current in other accrued expenses in the condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020, respectively. The long-term portion of restructuring liabilities of $0.5 million were recorded in other long-term liabilities in the condensed consolidated balance sheets as of December 31, 2020.
The cost information above does not contain any estimates for programs that may be developed and implemented in future periods. While the Company believes the recorded restructuring liabilities are adequate, revisions to current estimates may be recorded in future periods based on new information as it becomes available.
8. Other income, (expense), net
Other income, (expense), net consisted of the following: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended September 30, | | Nine months ended September 30, |
| (in millions) | | 2021 | | 2020 | | 2021 | | 2020 |
| Foreign currency transactions | | $ | (0.5) | | | $ | 0.3 | | | $ | (5.8) | | | $ | (6.1) | |
| Foreign currency denominated loan revaluations | | (0.9) | | | 0.2 | | | (1.0) | | | — | |
Undesignated foreign currency derivative instruments(1) | | (1.0) | | | 0.5 | | | (2.8) | | | 0.6 | |
Undesignated interest rate and cross currency swap contracts (1) | | 0.4 | | | (0.1) | | | 1.4 | | | (6.1) | |
Non-operating retirement benefits (2) | | 3.8 | | | 2.2 | | | 14.5 | | | 6.5 | |
Debt refinancing costs (3) | | (0.1) | | | — | | | (7.0) | | | (0.1) | |
Fair value adjustment for warrants (4) | | — | | | (1.1) | | | 33.8 | | | 6.4 | |
| Other | | (0.5) | | | (0.7) | | | 2.3 | | | (2.2) | |
| Total other income (expense), net | | $ | 1.2 | | | $ | 1.3 | | | $ | 35.4 | | | $ | (1.0) | |
| | | | | | | | |
(1)Refer to “Note 16: Derivatives” for more information.
(2)Refer to “Note 9: Employee benefit plans” for more information.
(3)Refer to “Note 13: Debt” for more information.
(4)For the three and nine months ended September 30, 2020, the fair value adjustment for warrants was reclassified to other income (expense), net, from other operating expenses, net, to conform to the current year presentation. Refer to “Note 2: Significant accounting policies” for more information.
9. Employee benefit plans
The following table summarizes the components of net periodic benefit income recognized in the condensed consolidated statements of operations:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Domestic - Defined Benefit Pension Plans | | Foreign - Defined Benefit Pension Plans |
| | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended September 30, | | Nine months ended September 30, |
| (in millions) | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
Service cost (1) | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 0.4 | | | $ | 0.5 | | | $ | 1.3 | | | $ | 1.4 | |
Interest cost (2) | | 4.9 | | | 5.8 | | | 14.5 | | | 17.4 | | | 2.5 | | | 3.2 | | | 7.5 | | | 9.3 | |
Expected return on plan assets (2) | | (7.3) | | | (7.1) | | | (21.9) | | | (21.4) | | | (3.8) | | | (4.1) | | | (11.4) | | | (11.9) | |
Prior service (credit) cost (2) | | — | | | — | | | — | | | — | | | (0.1) | | | — | | | (3.2) | | | 0.1 | |
| Net periodic benefit income | | $ | (2.4) | | | $ | (1.3) | | | $ | (7.4) | | | $ | (4.0) | | | $ | (1.0) | | | $ | (0.4) | | | $ | (5.8) | | | $ | (1.1) | |
| | | | | | | | | | | | | | | | |
(1)Service cost is included in warehouse, selling and administrative expenses.
(2)These amounts are included in other income (expense), net, and represent non-operating retirement benefits.
Multi-employer pension plan withdrawal liability
During the first and second quarters of 2021, the Company recognized discounted withdrawal liabilities of $18.4 million and $12.8 million, respectively, related to operating sites exiting the Central States multi-employer pension plan. While the $31.2 million recognized during the nine months ended September 30, 2021 represents the Company’s best estimate of the withdrawal liability at this time, actual costs could differ based on final funding assessments. Any changes to this estimate will be recorded in the period identified. The Company estimates its cash obligation to be approximately $1.9 million annually for each of the next 20 years. The net present value of the withdrawal liability was determined using a risk-free interest rate. Amounts associated with the withdrawal liability are included in other operating expenses, net in the condensed consolidated statements of operations and other accrued expenses and other long-term liabilities in the condensed consolidated balance sheets.
10. Income taxes
The income tax expense and effective income tax rate for the three and nine months ended September 30, 2021 and 2020 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| (dollars in millions) | | 2021 | | 2020 | | 2021 | | 2020 |
| Income tax expense | | $ | 37.7 | | | $ | 2.7 | | | $ | 82.3 | | | $ | 14.0 | |
| Effective income tax rate | | 30.9 | % | | 8.5 | % | | 21.3 | % | | 13.9 | % |
Discrete tax expenses of $0.6 million and $2.7 million are included in the $37.7 million and $82.3 million income tax expense for the three and nine months ended September 30, 2021, respectively. The Company’s estimated annual effective income tax rate without discrete items was 30.5%, higher than the US federal statutory rate of 21.0%, primarily due to higher rates on foreign earnings, US tax on foreign earnings, US state income taxes, and non-deductible employee costs.
Discrete tax benefits of $13.9 million and $27.5 million are included in the $2.7 million and $14.0 million income tax expense for the three and nine months ended September 30, 2020, respectively, primarily attributable to 2019 return to provision adjustments, impairment of unrealizable assets and benefits from provisions under the Coronavirus Aid, Relief and Economic Security Act, which was enacted on March 27, 2020, offset by a reserve for uncertain tax positions. The Company’s estimated annual effective income tax rate without discrete items was 29.9%, higher than the US federal statutory rate of 21.0%, primarily due to the impact of the higher tax rates in foreign jurisdictions, non-deductible expenses and US state income taxes.
11. Earnings per share
The following table presents the basic and diluted earnings per share computations: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended September 30, | | Nine months ended September 30, |
| (in millions, except per share data) | | 2021 | | 2020 | | 2021 | | 2020 |
| Numerator: | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Net income | | $ | 84.4 | | | $ | 28.9 | | | $ | 303.8 | | | $ | 86.6 | |
| | | | | | | | |
| Denominator: | | | | | | | | |
| Weighted average common shares outstanding – basic | | 170.9 | | | 169.0 | | | 170.1 | | | 168.9 | |
| Effect of dilutive securities: stock compensation plans | | 1.0 | | | 0.8 | | | 0.8 | | | 0.8 | |
| Weighted average common shares outstanding – diluted | | 171.9 | | | 169.8 | | | 170.9 | | | 169.7 | |
| | | | | | | | |
| Basic: | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Basic income per common share | | $ | 0.49 | | | $ | 0.17 | | | $ | 1.79 | | | $ | 0.51 | |
| | | | | | | | |
| Diluted: | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Diluted income per common share | | $ | 0.49 | | | $ | 0.17 | | | $ | 1.78 | | | $ | 0.51 | |
The shares that were not included in the computation of diluted earnings per share for those periods because their inclusion would be anti-dilutive were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended September 30, | | Nine months ended September 30, |
| (in millions, common shares) | | 2021 | | 2020 | | 2021 | | 2020 |
| Stock options | | 1.9 | | | 4.5 | | | 2.3 | | | 4.5 | |
| Restricted stock | | — | | | 0.1 | | | — | | | 0.4 | |
| Warrants | | — | | | 7.6 | | | — | | | 7.6 | |
12. Accumulated other comprehensive loss
The following tables present the changes in accumulated other comprehensive loss by component, net of tax: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | Cash flow hedges | | Defined benefit pension | | Currency translation | | Total AOCI |
| Balance, December 31, 2020 | | $ | (32.7) | | | $ | 19.2 | | | $ | (373.6) | | | $ | (387.1) | |
| Other comprehensive income (loss) before reclassifications | | 17.4 | | | — | | | (8.4) | | | 9.0 | |
| Amounts reclassified from accumulated other comprehensive loss | | (5.6) | | | (2.7) | | | — | | | (8.3) | |
Amounts reclassified related to dispositions (1) | | — | | | — | | | 18.1 | | | 18.1 | |
| Net current period other comprehensive income (loss) | | $ | 11.8 | | | $ | (2.7) | | | $ | 9.7 | | | $ | 18.8 | |
| Balance, September 30, 2021 | | $ | (20.9) | | | $ | 16.5 | | | $ | (363.9) | | | $ | (368.3) | |
| | | | | | | | |
| Balance as of July 1, 2021 | | $ | (24.6) | | | $ | 16.6 | | | $ | (334.7) | | | $ | (342.7) | |
| Other comprehensive income (loss) before reclassifications | | 7.2 | | | — | | | (29.2) | | | (22.0) | |
| Amounts reclassified from accumulated other comprehensive loss | | (3.5) | | | (0.1) | | | — | | | (3.6) | |
| | | | | | | | |
| Net current period other comprehensive income (loss) | | $ | 3.7 | | | $ | (0.1) | | | $ | (29.2) | | | $ | (25.6) | |
| Balance as of September 30, 2021 | | $ | (20.9) | | | $ | 16.5 | | | $ | (363.9) | | | $ | (368.3) | |
| | | | | | | | |
| Balance, December 31, 2019 | | $ | (15.4) | | | $ | (1.0) | | | $ | (362.9) | | | $ | (379.3) | |
| | | | | | | | |
| Other comprehensive loss before reclassifications | | (33.4) | | | — | | | (60.1) | | | (93.5) | |
| Amounts reclassified from accumulated other comprehensive loss | | 14.6 | | | 0.1 | | | — | | | 14.7 | |
| Net current period other comprehensive (loss) income | | $ | (18.8) | | | $ | 0.1 | | | $ | (60.1) | | | $ | (78.8) | |
| Balance, September 30, 2020 | | $ | (34.2) | | | $ | (0.9) | | | $ | (423.0) | | | $ | (458.1) | |
| | | | | | | | |
| Balance as of July 1, 2020 | | $ | (36.8) | | | $ | (0.9) | | | $ | (437.3) | | | $ | (475.0) | |
| Other comprehensive (loss) income before reclassifications | | (11.2) | | | — | | | 14.3 | | | 3.1 | |
| Amounts reclassified from accumulated other comprehensive loss | | 13.8 | | | — | | | — | | | 13.8 | |
| Net current period other comprehensive income | | $ | 2.6 | | | $ | — | | | $ | 14.3 | | | $ | 16.9 | |
| Balance as of September 30, 2020 | | $ | (34.2) | | | $ | (0.9) | | | $ | (423.0) | | | $ | (458.1) | |
| | | | | | | | |
(1)In conjunction with the sale of the Distrupol business, the Company released the associated cumulative foreign currency translation losses and reported such release as part of the net gain on sale of business. Refer to “Note 4: Dispositions” for more information.
The following is a summary of the amounts reclassified from accumulated other comprehensive loss to net income:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Statement of Operations Classification | | Three months ended September 30, | | Nine months ended September 30, |
| (in millions) | | | 2021 (1) | | 2020 (1) | | 2021 (1) | | 2020 (1) |
| Amortization of defined benefit pension items: | | | | | | | | | | |
Prior service (credit) cost (2) | | Other income (expense), net | | $ | (0.1) | | | $ | — | | | $ | (3.2) | | | $ | 0.1 | |
| Tax expense | | Income tax expense | | — | | | — | | | 0.5 | | | — | |
| Net of tax | | | | $ | (0.1) | | | $ | — | | | $ | (2.7) | | | $ | 0.1 | |
| Cash flow hedges: | | | | | | | | | | |
Interest rate swap contracts (2) | | Interest expense | | $ | 4.4 | | | $ | 4.7 | | | $ | 13.5 | | | $ | 7.8 | |
Cross-currency swap contracts (2) | | Interest expense and other income (expense), net | | (9.3) | | | 15.4 | | | (21.2) | | | 13.4 | |
| Tax expense (benefit) | | Income tax expense | | 1.4 | | | (6.3) | | | 2.1 | | | (6.6) | |
| Net of tax | | | | $ | (3.5) | | | $ | 13.8 | | | $ | (5.6) | | | $ | 14.6 | |
| Total reclassifications for the period, net of tax | | | | $ | (3.6) | | | $ | 13.8 | | | $ | (8.3) | | | $ | 14.7 | |
| | | | | | | | | | |
(1)Amounts in parentheses indicate credits to net income in the condensed consolidated statements of operations.
(2)Refer to “Note 9: Employee benefit plans” and “Note 16: Derivatives” for more information.
13. Debt
Short-term financing
Short-term financing consisted of the following: | | | | | | | | | | | | | | |
(in millions) | | September 30, 2021 | | December 31, 2020 |
| | | | |
Bank overdrafts | | $ | — | | | $ | 2.1 | |
Total short-term financing | | $ | — | | | $ | 2.1 | |
As of September 30, 2021 and December 31, 2020, the Company had $142.2 million and $196.0 million, respectively, in undrawn letters of credit.
Long-term debt
Long-term debt consisted of the following: | | | | | | | | | | | | | | |
| (in millions) | | September 30, 2021 | | December 31, 2020 |
| Senior Term Loan Facilities: | | | | |
| Term B-3 Loan due 2024, variable interest rate of 2.40% at December 31, 2020 | | $ | — | | | $ | 1,264.1 | |
| Term B-5 Loan due 2026, variable interest rate of 2.08% and 2.15% at September 30, 2021 and December 31, 2020, respectively | | 393.0 | | | 396.0 | |
| Term B-6 Loan due 2028, variable interest rate of 2.08% at September 30, 2021 | | 997.5 | | | — | |
| Asset Backed Loan (“ABL”) Facilities: | | | | |
| North American ABL Facility due 2024, variable interest rate of 1.32% and 1.71% at September 30, 2021 and December 31, 2020, respectively | | 279.0 | | | 265.5 | |
| Canadian ABL Term Loan due 2022, variable interest rate of 2.43% and 2.71% at September 30, 2021 and December 31, 2020, respectively | | 39.4 | | | 133.5 | |
| | | | |
| Senior Unsecured Notes: | | | | |
| Senior Unsecured Notes due 2027, fixed interest rate of 5.13% at September 30, 2021 and December 31, 2020 | | 500.0 | | | 500.0 | |
| Finance lease obligations | | 92.7 | | | 101.6 | |
| Total long-term debt before discount | | $ | 2,301.6 | | | $ | 2,660.7 | |
| Less: unamortized debt issuance costs and discount on debt | | (22.7) | | | (20.1) | |
| Total long-term debt | | $ | 2,278.9 | | | $ | 2,640.6 | |
| Less: current maturities | | (80.1) | | | (163.5) | |
| Total long-term debt, excluding current maturities | | $ | 2,198.8 | | | $ | 2,477.1 | |
The weighted average interest rate on long-term debt, including the effect of designated and undesignated derivative instruments (refer to “Note 16: Derivatives” for more information), was 3.52% and 3.73% as of September 30, 2021 and December 31, 2020, respectively.
Senior Term Loan Facilities
In the second quarter of 2021, to secure favorable market rates of interest and extend principal maturities, the Company entered into the Sixth Amendment (“Sixth Amendment”) to its Credit Agreement, dated July 1, 2015, which provided a new Term B-6 Loan facility in an aggregate principal amount of $1.0 billion that matures on June 3, 2028. The proceeds from the new Term B-6 Loan and an incremental borrowing of $274.2 million under the Company's existing North American ABL facility were used to repay in full the Company's outstanding Term B-3 Loan facility and satisfy related lending and refinancing fees.
The Term B-6 Loan is payable in quarterly installments of 0.25% of the aggregate initial principal amount beginning in September 2021. The interest rate applicable to the Term B-6 Loan is based on, at the Company’s option, (i) a fluctuating rate of interest determined by reference to a base rate plus an applicable margin equal to 1.00% or (ii) a Eurocurrency rate plus an applicable margin equal to 2.00% (in each case with a 0.25% step down based on the achievement of a specific leverage level). The Company can voluntarily prepay the Term B-6 Loan in whole or part without penalty, except for a 1.00% premium applicable to prepayments made prior to the six-month anniversary of the Sixth Amendment in connection with certain defined events.
As a result of the issuance of the Term B-6 Loan and the Sixth Amendment, and the repayment of the Term B-3 Loan, the Company recognized a loss on extinguishment of debt of $2.0 million and debt refinancing costs of $6.9 million during the three months ended June 30, 2021. Refer to “Note 8: Other income (expense), net” for more information on debt refinancing costs.
On January 7, 2020, using the proceeds from the sale of the Environmental Sciences business, the Company repaid $174.0 million of the Term B-3 Loan. As a result of this prepayment, the Company recognized a loss on extinguishment of debt of $1.8 million during the three months ended March 31, 2020.
ABL Facilities
On February 26, 2021, using the proceeds from the sale of the Canadian Agriculture services business and existing cash, the Company prepaid $47.1 million of debt outstanding under the Company's Canadian ABL Term Loan. On August 5, 2021 using available cash on hand, the Company prepaid $48.0 million under the Canadian ABL Term Loan. As a result of these prepayments, the Company recognized a loss on extinguishment of debt of $0.1 million and $0.3 million during the three and nine months ended September 30, 2021, respectively.
On October 7, 2021, the Company prepaid the remaining debt outstanding under the Canadian ABL Term Loan, which resulted in the full extinguishment of the loan.
Other Information
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 |
| (in millions) | | Carrying amount | | Fair value | | Carrying amount | | Fair value |
| Fair value of debt | | $ | 2,278.9 | | | $ | 2,325.9 | | | $ | 2,640.6 | | | $ | 2,687.4 | |
The fair values of debt were based on current market quotes for similar borrowings and credit risk adjusted for liquidity, margins and amortization, as necessary and are classified as Level 2 in the fair value hierarchy.
14. Supplemental balance sheet information | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, |
| (in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
| | | | | | | | |
| Foreign currency loss, net | | $ | (4.4) | | | $ | (3.5) | | | $ | (3.9) | | | $ | (5.4) | |
| Undesignated foreign currency derivative instruments | | 1.0 | | | (0.1) | | | 1.9 | | | (1.8) | |
| Undesignated interest rate and cross currency swap contracts | | 2.5 | | | (0.3) | | | 6.6 | | | 1.0 | |
| Non-operating retirement benefits | | 2.9 | | | 4.0 | | | 5.5 | | | 10.7 | |
| Debt refinancing costs | | — | | | (6.9) | | | — | | | (6.9) | |
| Fair value adjustment for warrants | | — | | | 8.2 | | | — | | | 33.8 | |
| Other | | 0.7 | | | 1.9 | | | 0.3 | | | 0.6 | |
| Total other income, net | | $ | 2.7 | | | $ | 3.3 | | | $ | 10.4 | | | $ | 32.0 | |
Cash and cash equivalents
Certain of the Company’s subsidiaries participate in a multi-currency, notional cash pooling arrangement with a third-party bank provider in order to help manage global liquidity requirements (the “Notional Cash Pool”). Under the Notional Cash Pool, cash deposited by participating subsidiaries is pledged as security against the overdraft balances of other participating subsidiaries, providing legal rights of offset. As a result, the balances are presented on a net basis within cash and cash equivalents in the condensed consolidated balance sheets. As of SeptemberJune 30, 2022, the net cash position of the Notional Cash Pool was $48.3 million, which consisted of a gross cash balance of $86.5 million less a bank overdraft balance of $38.2 million. As of December 31, 2021, the net cash position of the Notional Cash Pool was $52.8$43.2 million, which consisted of a gross cash balance of $250.5$146.0 million less a bank overdraft balance of $197.7 million. As of December 31, 2020, the net cash position of the Notional Cash Pool was $52.7 million, which consisted of a gross cash balance of $89.7 million less a bank overdraft balance of $37.0$102.8 million.
Allowance for doubtful accounts
The allowance for doubtful accounts reflects the Company’s current estimate of credit losses expected to be incurred over the life of the trade accounts receivable. Collectability of the trade accounts receivable balance is assessed on an ongoing basis and determined based on the delinquency of customer accounts, the financial condition of individual customers, past collections experience and future economic expectations. The change in the allowance for doubtful accounts is as follows:
| | | | | | | | |
| (in millions) | | |
Balance, January 1, 20212022 | | $ | 17.215.8 | |
| Provision for credit losses | | 4.13.0 | |
| Write-offs | | (5.3)(5.1) | |
| | |
| | |
| Foreign exchange | | (0.2) | |
Balance, SeptemberJune 30, 20212022 | | $ | 15.813.5 | |
Property, plant and equipment, net
| | | | | | | | | | | | | | |
| (in millions) | | September 30, 2021 | | December 31, 2020 |
| Property, plant and equipment, at cost | | $ | 2,226.2 | | | $ | 2,216.4 | |
| Less: accumulated depreciation | | (1,224.6) | | | (1,150.7) | |
| Property, plant and equipment, net | | $ | 1,001.6 | | | $ | 1,065.7 | |
Goodwill
The following is a summary of the activity in goodwill by segment. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | USA | | EMEA | | Canada | | LATAM | | Total |
| Balance, January 1, 2021 | | $ | 1,805.0 | | | $ | 8.7 | | | $ | 428.1 | | | $ | 28.6 | | | $ | 2,270.4 | |
| | | | | | | | | | |
| Purchase price adjustments | | — | | | — | | | — | | | (0.9) | | | (0.9) | |
| | | | | | | | | | |
| Dispositions and other adjustments | | 7.6 | | | (1.1) | | | — | | | (2.2) | | | 4.3 | |
| Foreign exchange | | — | | | (0.2) | | | 1.8 | | | (0.5) | | | 1.1 | |
| Balance, September 30, 2021 | | $ | 1,812.6 | | | $ | 7.4 | | | $ | 429.9 | | | $ | 25.0 | | | $ | 2,274.9 | |
Intangible assets, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2021 | | December 31, 2020 |
| (in millions) | | Gross | | Accumulated Amortization | | Net | | Gross | | Accumulated Amortization | | Net |
| Customer relationships | | $ | 929.5 | | | $ | (722.4) | | | $ | 207.1 | | | $ | 936.9 | | | $ | (691.3) | | | $ | 245.6 | |
| Other | | 170.7 | | | (165.8) | | | 4.9 | | | 177.4 | | | (171.1) | | | 6.3 | |
| Total intangible assets | | $ | 1,100.2 | | | $ | (888.2) | | | $ | 212.0 | | | $ | 1,114.3 | | | $ | (862.4) | | | $ | 251.9 | |
Other intangible assets consist of intellectual property (mostly trademarks and trade names), producer 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:Property, plant and equipment, net
| | | | | |
| (in millions) | |
| 2021 | $ | 52.3 | |
| 2022 | 44.0 | |
| 2023 | 39.5 | |
| 2024 | 30.8 | |
| 2025 | 27.6 | |
| | | | | | | | | | | | | | |
| (in millions) | | June 30, 2022 | | December 31, 2021 |
| Property, plant and equipment, at cost | | $ | 2,264.7 | | | $ | 2,238.8 | |
| Less: accumulated depreciation | | (1,246.7) | | | (1,207.8) | |
| Property, plant and equipment, net | | $ | 1,018.0 | | | $ | 1,031.0 | |
Other0Other accrued expenses
As of SeptemberJune 30, 20212022 and December 31, 2020,2021, there were no components within other accrued expenses that were greater than five percent of total current liabilities consisted of current tax liabilities of $82.2 million and $73.4 million, respectively, comprised primarily of VAT, income and local indirect taxes payable.liabilities.
Impairment charges
7. Employee benefit plans
The Company reviews long-lived assets for impairment whenever events or changesfollowing table summarizes the components of net periodic benefit (income) cost recognized in circumstances indicate an asset’s carrying amount may not be recoverable. Testing asset groups for recoverability involves developing estimates of future cash flows directly associated with, and that are expected to arise as a direct result of, the use and eventual disposition of the assets. An impairment of a group of long-lived assets exists when the sum of the estimated undiscounted future cash flows expected to be generated directly by the asset group are less than the carrying value of the asset group. The impairment charge computation is based on the difference between carrying value and fair value of the asset group, as determined by discounted future cash flows. Significant estimates include forecasted Adjusted EBITDA, working capital, capital expenditures and discount rates. As the inputs for testing recoverability and determining fair value of the asset groups are largely based on management’s judgments and are not generally observable in active markets, the Company considers such inputs to be Level 3 measurements in the fair value hierarchy.
During the second and third quarters of 2021, the Company announced the closure of certain operating facilities in the USA and Canada segments. The closures resulted in impairment charges related to property, plant and equipment, net of $2.1 million and $0.9 million within the condensed consolidated statement of operations during the three months ended June 30, 2021 and September 30, 2021, respectively.
During the second quarter of 2020, the Company determined there was a more likely than not expectation that the industrial spill and emergency response businesses within the USA segment would be sold. The Company determined this to be a triggering event, requiring the assessment of the recoverability of these long-lived asset groups. The Company tested the recoverability and determined the assets to be impaired. As a result, the Company recorded a non-cash, pretax impairment charge of $15.5 million, consisting of $12.8 million of intangible assets, net and $2.7 million of property, plant and equipment, net within the condensed consolidated statement of operations during the three months ended June 30, 2020.
During the third quarter of 2020, the Company decided to cease further investment in, and seek to restructure or exit a contract related to, certain technology assets, consisting of capitalized software and hardware components. This event represented a triggering event requiring an impairment analysis within the Other segment. As a result of the analysis, the Company recorded a non-cash, pretax impairment charge of $19.7 million relating to property, plant and equipment, net within the condensed consolidated statement of operations during the three months ended September 30, 2020.
Additionally, the Company announced the closure of certain operating facilities in the USA segment during the second and third quarters of 2020. The closures resulted in impairment charges related to property, plant and equipment, net of $1.4 million and $1.0 million within the condensed consolidated statements of operations during the three months ended June 30, 2020 and September 30, 2020, respectively.
15. Fair value measurements
The following is a reconciliation of the fair value measurements that use significant unobservable inputs (Level 3), which consists of the warrant liability related to the 2019 Nexeo acquisitiondefined benefit plans:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Domestic | | Foreign |
| | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
| (in millions) | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 |
Service cost (1) | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 0.4 | | | $ | 0.4 | | | $ | 0.7 | | | $ | 0.9 | |
Interest cost (2) | | 5.1 | | | 4.8 | | | 10.3 | | | 9.6 | | | 2.7 | | | 2.5 | | | 5.6 | | | 5.0 | |
Expected return on plan assets (2) | | (7.6) | | | (7.3) | | | (15.2) | | | (14.6) | | | (2.8) | | | (3.8) | | | (5.8) | | | (7.6) | |
Prior service credit (2) | | — | | | — | | | — | | | — | | | (0.3) | | | (0.2) | | | (0.4) | | | (3.1) | |
| Net periodic benefit (income) cost | | $ | (2.5) | | | $ | (2.5) | | | $ | (4.9) | | | $ | (5.0) | | | $ | — | | | $ | (1.1) | | | $ | 0.1 | | | $ | (4.8) | |
| | | | | | | | | | | | | | | | |
(1)Service cost is included in warehouse, selling and contingent consideration liabilities related to the Techi Chem acquisition:administrative expenses.
| | | | | | | | | | | | | | |
| (in millions) | | Warrant Liability | | Contingent Consideration |
| Fair value at December 31, 2020 | | $ | 33.8 | | | $ | 2.2 | |
| Fair value adjustments | | (33.8) | | | (0.1) | |
| Fair value at September 30, 2021 | | $ | — | | | $ | 2.1 | |
During the second quarter of 2021, a portion of the outstanding warrants were exercised at a price of $27.80 resultingThese amounts are included in the issuance of 973,717 shares of common stock and the receipt of approximately $27.1 million in cash proceeds. All remaining warrants expired unexercised on June 9, 2021, with the write-off of the fair value of such warrants recorded within other income, (expense), net, in the condensed consolidated statement of operations. and represent non-operating retirement benefits.
Multi-employer pension plan withdrawal liability
As of September 30,December 31, 2021, the Company had no outstanding warrants.recognized its best estimate of a withdrawal liability of $31.2 million, related to triggering events at all 8 sites of the Central States, Southeast and Southwest Areas Pension Plan (“Central States Pension Fund”), culminating in the Company ceasing to participate in the Central States Pension Fund. Upon an agreed final funding assessment with the Central States Pension Fund, the Company will recognize any differences between the estimated and actual withdrawal liability. As of June 30, 2022 this balance is unchanged.
The fairCompany estimates its cash obligation to be approximately $1.9 million annually for each of the next 20 years. The net present value of the contingent consideration is based onwithdrawal liability was determined using a real options approach, which takes into account management's best estimate ofrisk-free interest rate. Amounts associated with the acquired business performance, as well as achievement risk, and is recordedwithdrawal liability are included in other accrued expenses within the condensed consolidated balance sheets. Fair value adjustments for contingent consideration are recorded within other operating expenses, net in the condensed consolidated statements of operations. Changesoperations and other accrued expenses and other long-term liabilities in the fair valuecondensed consolidated balance sheets.
8. Income taxes
The income tax expense and effective income tax rate for the three and six months ended June 30, 2022 and 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, |
| (dollars in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| Income tax expense | | $ | 58.6 | | | $ | 27.0 | | | $ | 123.3 | | | $ | 44.6 | |
| Effective income tax rate | | 26.5 | % | | 15.0 | % | | 26.4 | % | | 16.9 | % |
The Company’s 2022 effective income tax rate was higher than the US federal statutory rate of contingent consideration are recorded21.0%, primarily due to higher rates on foreign earnings, US tax on foreign earnings, US state income taxes and non-deductible employee costs. The Company’s 2021 effective income tax rate was also impacted by these items but offset by the impact of other discrete tax items.
9. Earnings per share
The following table presents the basic and diluted earnings per share computations: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, |
| (in millions, except per share data) | | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Net income | | $ | 162.9 | | | $ | 153.2 | | | $ | 343.7 | | | $ | 219.4 | |
| | | | | | | | |
| Weighted average common shares outstanding | | | | | | | | |
| Basic | | 168.4 | | | 169.9 | | | 169.0 | | | 169.6 | |
| Effect of dilutive securities: stock compensation plans | | 1.3 | | | 1.0 | | | 1.5 | | | 0.8 | |
| Diluted | | 169.7 | | | 170.9 | | | 170.5 | | | 170.4 | |
| | | | | | | | |
| Income per common share | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Basic | | $ | 0.97 | | | $ | 0.90 | | | $ | 2.03 | | | $ | 1.29 | |
| | | | | | | | |
| | | | | | | | |
| Diluted | | $ | 0.96 | | | $ | 0.90 | | | $ | 2.02 | | | $ | 1.29 | |
The shares that were not included in the computation of diluted earnings per share for those periods because their inclusion would be anti-dilutive were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, |
| (in millions, common shares) | | 2022 | | 2021 | | 2022 | | 2021 |
| Stock options | | — | | | 1.3 | | | — | | | 2.7 | |
| | | | | | | | |
| | | | | | | | |
10. Accumulated other comprehensive income (loss)
The following tables present the changes in accumulated other comprehensive income (loss) by component, net line itemof tax: | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | Cash flow hedges | | Defined benefit pension | | Currency translation | | Total AOCI |
| Balance, December 31, 2021 | | $ | (10.8) | | | $ | 16.7 | | | $ | (368.6) | | | $ | (362.7) | |
| Other comprehensive income before reclassifications | | 77.0 | | | — | | | (38.1) | | | 38.9 | |
| Amounts reclassified from accumulated other comprehensive loss | | (21.3) | | | (0.3) | | | — | | | (21.6) | |
| | | | | | | | |
| Net current period other comprehensive income (loss) | | $ | 55.7 | | | $ | (0.3) | | | $ | (38.1) | | | $ | 17.3 | |
| Balance, June 30, 2022 | | $ | 44.9 | | | $ | 16.4 | | | $ | (406.7) | | | $ | (345.4) | |
| | | | | | | | |
| Balance as of April 1, 2022 | | $ | 25.6 | | | $ | 16.6 | | | $ | (351.4) | | | $ | (309.2) | |
| Other comprehensive income (loss) before reclassifications | | 34.5 | | | — | | | (55.3) | | | (20.8) | |
| Amounts reclassified from accumulated other comprehensive loss | | (15.2) | | | (0.2) | | | — | | | (15.4) | |
| | | | | | | | |
| Net current period other comprehensive income (loss) | | $ | 19.3 | | | $ | (0.2) | | | $ | (55.3) | | | $ | (36.2) | |
| Balance as of June 30, 2022 | | $ | 44.9 | | | $ | 16.4 | | | $ | (406.7) | | | $ | (345.4) | |
| | | | | | | | |
| Balance, December 31, 2020 | | $ | (32.7) | | | $ | 19.2 | | | $ | (373.6) | | | $ | (387.1) | |
| | | | | | | | |
| Other comprehensive income before reclassifications | | 10.2 | | | — | | | 20.8 | | | 31.0 | |
| Amounts reclassified from accumulated other comprehensive loss | | (2.1) | | | (2.6) | | | — | | | (4.7) | |
| Amounts reclassified related to dispositions | | — | | | — | | | 18.1 | | | 18.1 | |
| Net current period other comprehensive income (loss) | | $ | 8.1 | | | $ | (2.6) | | | $ | 38.9 | | | $ | 44.4 | |
| Balance, June 30, 2021 | | $ | (24.6) | | | $ | 16.6 | | | $ | (334.7) | | | $ | (342.7) | |
| | | | | | | | |
| Balance as of April 1, 2021 | | $ | (26.1) | | | $ | 16.8 | | | $ | (372.8) | | | $ | (382.1) | |
| Other comprehensive (loss) income before reclassifications | | (4.7) | | | — | | | 20.0 | | | 15.3 | |
| Amounts reclassified from accumulated other comprehensive loss | | 6.2 | | | (0.2) | | | — | | | 6.0 | |
| Amounts reclassified related to dispositions | | — | | | — | | | 18.1 | | | $ | 18.1 | |
| Net current period other comprehensive income (loss) | | $ | 1.5 | | | $ | (0.2) | | | $ | 38.1 | | | $ | 39.4 | |
| Balance as of June 30, 2021 | | $ | (24.6) | | | $ | 16.6 | | | $ | (334.7) | | | $ | (342.7) | |
The following is a summary of the operating activities withinamounts reclassified from accumulated other comprehensive income (loss) to net income:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Statement of Operations Classification | | Three months ended June 30, | | Six months ended June 30, |
| (in millions) | | | 2022 (1) | | 2021 (1) | | 2022 (1) | | 2021 (1) |
| Amortization of defined benefit pension items: | | | | | | | | | | |
| Prior service credit | | Other income, net | | $ | (0.3) | | | $ | (0.2) | | | $ | (0.4) | | | $ | (3.1) | |
| Tax expense | | Income tax expense | | 0.1 | | | — | | | 0.1 | | | 0.5 | |
| Net of tax | | | | $ | (0.2) | | | $ | (0.2) | | | $ | (0.3) | | | $ | (2.6) | |
| Cash flow hedges: | | | | | | | | | | |
| Interest rate swap contracts | | Interest expense | | $ | 1.3 | | | $ | 4.3 | | | $ | 3.9 | | | $ | 9.1 | |
| Cross-currency swap contracts | | Interest expense and other income, net | | (21.9) | | | 4.0 | | | (32.6) | | | (11.9) | |
| Tax expense (benefit) | | Income tax expense | | 5.4 | | | (2.1) | | | 7.4 | | | 0.7 | |
| Net of tax | | | | $ | (15.2) | | | $ | 6.2 | | | $ | (21.3) | | | $ | (2.1) | |
| Total reclassifications for the period, net of tax | | | | $ | (15.4) | | | $ | 6.0 | | | $ | (21.6) | | | $ | (4.7) | |
| | | | | | | | | | |
(1)Amounts in parentheses represents income in the condensed consolidated statements of cash flows. Cash payments up tooperations.
11. Debt
Short-term financing
As of June 30, 2022, the amountCompany had $3.3 million outstanding in short-term financing facilities which consisted of bank overdrafts. The Company had no outstanding balance as of December 31, 2021.
The Company had $138.3 million and $141.9 million of outstanding letters of credits as of June 30, 2022 and December 31, 2021, respectively.
Long-term debt
Long-term debt consisted of the original acquisition value are recorded within financing activitiesfollowing: | | | | | | | | | | | | | | |
| (in millions) | | June 30, 2022 | | December 31, 2021 |
| Senior Term Loan Facilities: | | | | |
| | | | |
| Term B-5 Loan due 2026, variable interest rate of 3.67% and 2.10% at June 30, 2022 and December 31, 2021, respectively | | $ | 390.0 | | | $ | 392.0 | |
| Term B-6 Loan due 2028, variable interest rate of 3.42% and 2.10% at June 30, 2022 and December 31, 2021, respectively | | 990.0 | | | 995.0 | |
| Asset Backed Loan (“ABL”) Facilities: | | | | |
| North American ABL Facility due 2024, variable interest rate of 2.72% and 1.43% at June 30, 2022 and December 31, 2021, respectively | | 614.0 | | | 297.9 | |
| | | | |
| | | | |
| Senior Unsecured Notes: | | | | |
| Senior Unsecured Notes due 2027, fixed interest rate of 5.13% at June 30, 2022 and December 31, 2021 | | 454.0 | | | 500.0 | |
| Finance lease obligations | | 94.4 | | | 101.9 | |
| Total long-term debt before discount | | $ | 2,542.4 | | | $ | 2,286.8 | |
| Less: unamortized debt issuance costs and discount on debt | | (19.5) | | | (21.8) | |
| Total long-term debt | | $ | 2,522.9 | | | $ | 2,265.0 | |
| Less: current maturities | | (38.7) | | | (41.5) | |
| Total long-term debt, excluding current maturities | | $ | 2,484.2 | | | $ | 2,223.5 | |
The weighted average interest rate on long-term debt, including the effect of designated and undesignated derivative instruments (refer to “Note 13: Derivatives” for more information), was 3.35% and 3.25% as of June 30, 2022 and December 31, 2021, respectively.
Senior Unsecured Notes
During the second quarter of 2022, the Company repaid $46.0 million of its Senior Unsecured Notes due 2027, resulting in a gain on extinguishment of debt of $1.5 million which is included in other income, net in the condensed consolidated statements of cash flows.operations.
Senior Term Loan Facilities
During the second quarter of 2021, the Company entered into the Sixth Amendment (“Sixth Amendment”) to its Credit Agreement, dated July 1, 2015, which provided a new Term B-6 Loan facility in an aggregate principal amount of $1.0 billion that matures on June 3, 2028 (“Term B-6 Loan”). The portionproceeds from the new Term B-6 Loan and an incremental borrowing of contingent consideration cash payments$274.2 million under the Company's existing North American ABL facility were used to repay in excessfull the outstanding Term B-3 Loan facility and satisfy related lending and refinancing fees.
As a result of the original acquisition value, if any,issuance of the Term B-6 Loan and the Sixth Amendment, and the repayment of the Term B-3 Loan, the Company recognized a loss on extinguishment of debt of $2.0 million and debt refinancing costs of $6.9 million during the three and six months ended June 30, 2021, both of which are recorded within operating activities ofincluded in other income, net in the condensed consolidated statements of cash flows.operations.
Other Information
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
| (in millions) | | Carrying amount | | Fair value | | Carrying amount | | Fair value |
| Fair value of debt | | $ | 2,522.9 | | | $ | 2,490.9 | | | $ | 2,265.0 | | | $ | 2,307.8 | |
The fair values of debt were based on current market quotes for similar borrowings and credit risk adjusted for liquidity, margins and amortization, as necessary and are classified as Level 2 in the fair value hierarchy.
16.12. Equity and stock-based compensation
Share repurchase program
In November 2021, the Company announced that the Board of Directors had approved a share repurchase program of up to $500.0 million of our outstanding common stock, which expires on October 27, 2026. The program does not require the repurchase of any minimum number of shares and can be suspended, modified or discontinued at any time at the Company’s discretion. Under the share repurchase program, the Company may purchase shares from time-to-time at the discretion of management through open market purchases, privately negotiated transactions, block trades, accelerated or other structured share repurchase programs, or other means.
The Company repurchased 3,487,485 shares for $104.6 million during the six months ended June 30, 2022, which includes the repurchase of 2,756,421 shares of its common stock for $80.6 million during the three months ended June 30, 2022. The Company’s remaining stock repurchase authorization under this program was approximately $345.4 million as of June 30, 2022.
Stock-based compensation
The Company grants stock-based compensation to employees and non-employee directors under the Univar Solutions Inc. 2020 Omnibus Incentive Plan. Most of the Company’s stock-based compensation awards to employees are granted in the first quarter of each year.
During the second quarter of 2022, the Company granted the following stock-based awards to employees:
•57,034 of restricted stock units (“RSUs”) with a weighted-average fair value of $30.30 per share; and
•19,526 of restricted stock awards (“RSAs”) with a weighted-average fair value of $29.96 per share.
During the first quarter of 2022, the Company granted the following stock-based awards to employees:
•704,466 of RSUs with a weighted-average fair value of $28.36 per share; and
•243,750 of performance-based restricted stock units (“PRSUs”) with a weighted-average fair value of $27.94 per share.
As of June 30, 2022, the Company has unrecognized stock-based compensation expense related to non-vested RSUs of $21.7 million, which will be recognized over a weighted-average period of 1.3 years, and non-vested PRSUs of $11.1 million, which will be recognized over a weighted-average period of 1.8 years.
13. Derivatives
Foreign currency derivatives
The Company uses forward currency contracts to hedge earnings from the effects of foreign exchange rates relating to certain of the Company’s intercompany and third-party receivables and payables denominated in foreign currencies. These derivative instruments are not formally designated as cash flow hedges by the Company and the terms of these instruments range from one to three months.
Interest rate swap contracts
The objective of the Company'sCompany’s designated interest rate swap contracts is to offset the variability of cash flows in LIBOR indexed debt interest payments attributable to changes in the benchmark interest rate related to the Term B-6 Loan (previously the Term B-3 Loan) and a portion of debt outstanding under the North American ABL Facility.
On June 4, 2021, the Company executed 2 interest rate swap contracts, both effective June 30, 2023, to replace existing interest rate swap contracts with maturities occurring between June 2023 and June 2024. These interest rate swap contracts contain an initial aggregate notional value of $250.0 million from June 2023 to June 2024 that increases to an aggregate notional value of $500.0 million from June 2024 to May 2028.
On March 17, 2020, the Company executed $250.0 million
The Company also uses undesignated interest rate swap contracts to manage interest rate variability.
Cross currency swap contracts
Cross currency swap contracts are used to effectively convert the Term B-5 Loan’s principal amount of floating rate US dollar-denominated debt, including interest payments, to fixed-rate Euro-denominated debt. The cross currency swap contracts mature in November 2024. As of SeptemberJune 30, 2021,2022, approximately 95% of the cross currency swap contracts are designated as a cash flow hedge.
The Company also uses undesignated cross currency swap contracts to manage interest rate variability and mitigate foreign exchange exposure.
Notional amounts and fair value of derivative instruments
The following table presents the notional amounts of the Company’s outstanding derivative instruments by type:
| | | | | | | | | | | | | | |
| (in millions) | | September 30, 2021 | | December 31, 2020 |
| Designated Derivatives: | | | | |
| Interest rate swap contracts | | $ | 900.0 | | | $ | 1,050.0 | |
| Cross currency swap contracts | | 381.0 | | | 381.0 | |
| Undesignated Derivatives: | | | | |
| Interest rate swap contracts | | $ | 100.0 | | | $ | 200.0 | |
| Foreign currency derivatives | | 143.4 | | | 77.2 | |
| Cross currency swap contracts | | 19.0 | | | 19.0 | |
| | | | | | | | | | | | | | |
| (in millions) | | June 30, 2022 | | December 31, 2021 |
| Designated Derivatives: | | | | |
| Interest rate swap contracts | | $ | 650.0 | | | $ | 650.0 | |
| Cross currency swap contracts | | 381.0 | | | 381.0 | |
| Undesignated Derivatives: | | | | |
| Interest rate swap contracts | | $ | 100.0 | | | $ | 100.0 | |
| Foreign currency derivatives | | 198.8 | | | 179.0 | |
| Cross currency swap contracts | | 19.0 | | | 19.0 | |
The following are the pre-tax effects of derivative instruments on the condensed consolidated statements of operations and comprehensive income for the three and ninesix months ended SeptemberJune 30, 20212022 and 2020:2021:
| | | Statement of Operations Classification | | Amount of (loss) gain reclassified from other comprehensive loss into income | | Amount of (loss) gain to be reclassified to consolidated statement of operations within the next 12 months | | Statement of Operations Classification | | Amount of (loss) gain reclassified from other comprehensive loss into income | | Amount of (loss) gain to be reclassified to consolidated statement of operations within the next 12 months |
| | Three months ended September 30, | | Nine months ended September 30, | | | Three months ended June 30, | | Six months ended June 30, | |
| (in millions) | (in millions) | | 2021 | | 2020 | | 2021 | | 2020 | | (in millions) | | 2022 | | 2021 | | 2022 | | 2021 | |
| Derivatives in cash flow hedging relationships: | Derivatives in cash flow hedging relationships: | | | | | | | | | | | | | Derivatives in cash flow hedging relationships: | | | | | | | | | | | | |
| Interest rate swap contracts | Interest rate swap contracts | | Interest expense | | $ | (4.4) | | | $ | (4.7) | | | $ | (13.5) | | | $ | (7.8) | | | $ | (12.0) | | Interest rate swap contracts | | Interest expense | | $ | (1.3) | | | $ | (4.3) | | | $ | (3.9) | | | $ | (9.1) | | | $ | 9.0 | |
| Cross currency swap contracts | Cross currency swap contracts | | Interest expense | | 0.3 | | | 0.4 | | | 0.9 | | | 3.1 | | | 1.4 | | Cross currency swap contracts | | Interest expense | | 1.3 | | | 0.3 | | | 1.7 | | | 0.6 | | | 13.2 | |
| Cross currency swap contracts | Cross currency swap contracts | | Other income (expense), net | | 9.0 | | | (15.8) | | | 20.3 | | | (16.5) | | | — | | Cross currency swap contracts | | Other income, net | | 20.6 | | | (4.3) | | | 30.9 | | | 11.3 | | | — | |
Refer to “Note 8: Other income (expense), net”6: Supplemental financial information” for the gains and losses related to derivatives not designated as hedging instruments.
The following table presents the Company’s gross assets and liabilities measured on a recurring basis and classified as Level 2 within the fair value hierarchy:
| | | Derivative Assets | | Derivative Liabilities | | Derivative Assets | | Derivative Liabilities |
| (in millions) | (in millions) | | Balance Sheet Classification | | September 30, 2021 | | December 31, 2020 | | Balance Sheet Classification | | September 30, 2021 | | December 31, 2020 | (in millions) | | Balance Sheet Classification | | June 30, 2022 | | December 31, 2021 | | Balance Sheet Classification | | June 30, 2022 | | December 31, 2021 |
| Designated Derivatives: | Designated Derivatives: | | | | | | | | | | | | | Designated Derivatives: | | | | | | | | | | | | |
| Cross currency swap contracts | | Cross currency swap contracts | | Prepaid expenses and other current assets | | $ | 13.2 | | | $ | 2.8 | | | Other accrued expenses | | $ | — | | | $ | — | |
| Cross currency swap contracts | Cross currency swap contracts | | Prepaid expenses and other current assets | | $ | 1.4 | | | $ | 1.0 | | | Other long-term liabilities | | $ | 22.3 | | | $ | 47.4 | | Cross currency swap contracts | | Other assets | | 31.7 | | | — | | | Other long-term liabilities | | — | | | 12.7 | |
| Interest rate swap contracts | Interest rate swap contracts | | Prepaid expenses and other current assets | | — | | | — | | | Other accrued expenses | | 12.0 | | | 17.9 | | Interest rate swap contracts | | Prepaid expenses and other current assets | | 9.0 | | | — | | | Other accrued expenses | | — | | | 8.1 | |
| Interest rate swap contracts | Interest rate swap contracts | | Other assets | | — | | | — | | | Other long-term liabilities | | 13.8 | | | 20.7 | | Interest rate swap contracts | | Other assets | | 24.6 | | | — | | | Other long-term liabilities | | — | | | 7.8 | |
| Total designated derivatives | Total designated derivatives | | $ | 1.4 | | | $ | 1.0 | | | $ | 48.1 | | | $ | 86.0 | | Total designated derivatives | | $ | 78.5 | | | $ | 2.8 | | | $ | — | | | $ | 28.6 | |
| | Undesignated Derivatives: | Undesignated Derivatives: | | Undesignated Derivatives: | |
| Foreign currency contracts | Foreign currency contracts | | Prepaid expenses and other current assets | | $ | 0.7 | | | $ | 0.2 | | | Other accrued expenses | | $ | 0.8 | | | $ | 0.4 | | Foreign currency contracts | | Prepaid expenses and other current assets | | $ | 0.1 | | | $ | 1.8 | | | Other accrued expenses | | $ | 1.1 | | | $ | 0.8 | |
| Cross currency swap contracts | Cross currency swap contracts | | Prepaid expenses and other current assets | | 0.1 | | | 0.1 | | | Other long-term liabilities | | 1.1 | | | 2.4 | | Cross currency swap contracts | | Prepaid expenses and other current assets | | 0.7 | | | 0.1 | | | Other accrued expenses | | — | | | — | |
| Cross currency swap contracts | | Cross currency swap contracts | | Other assets | | 1.6 | | | — | | | Other long-term liabilities | | — | | | 0.6 | |
| Interest rate swap contracts | Interest rate swap contracts | | Prepaid expenses and other current assets | | — | | | — | | | Other accrued expenses | | 2.1 | | | 2.6 | | Interest rate swap contracts | | Prepaid expenses and other current assets | | 0.9 | | | — | | | Other accrued expenses | | — | | | 1.7 | |
| Interest rate swap contracts | Interest rate swap contracts | | Other assets | | — | | | — | | | Other long-term liabilities | | 2.3 | | | 4.0 | | Interest rate swap contracts | | Other assets | | 0.7 | | | — | | | Other long-term liabilities | | — | | | 1.1 | |
| Total undesignated derivatives | Total undesignated derivatives | | $ | 0.8 | | | $ | 0.3 | | | $ | 6.3 | | | $ | 9.4 | | Total undesignated derivatives | | $ | 4.0 | | | $ | 1.9 | | | $ | 1.1 | | | $ | 4.2 | |
| | Total derivatives | Total derivatives | | $ | 2.2 | | | $ | 1.3 | | | $ | 54.4 | | | $ | 95.4 | | Total derivatives | | $ | 82.5 | | | $ | 4.7 | | | $ | 1.1 | | | $ | 32.8 | |
The net amounts by legal entity related to forward currency contracts included in prepaid and other current assets were $0.6$0.1 million and $0.1$1.7 million as of SeptemberJune 30, 20212022 and December 31, 2020,2021, respectively. The net amounts related to forward currency contracts included in other accrued expenses were $0.7$1.1 million and $0.3$0.7 million as of SeptemberJune 30, 20212022 and December 31, 2020,2021, respectively.
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 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. Based on these valuation methodologies, these derivative contracts are classified as Level 2 in the fair value hierarchy.
17.14. Commitments and contingencies
Litigation
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 present or future claims or litigation or the potential for future claims or litigation and adverse developments could negatively impact earnings or cash flows in a particular future period.
Asbestos Claims
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 Solutions USA Inc.’s (“Univar”) 1986 purchase of McKesson Chemical Company from McKesson Corporation (“McKesson”). Once certain conditions have been met, Univar will have the
ability to pursue insurance coverage, if any, that may be available under McKesson's historical insurance coverage to offset the impact of any fees, settlements, or judgments that Univar is obligated to pay because of its obligation to defend and indemnify McKesson. As of SeptemberJune 30, 2021,2022, there were approximately 220 asbestos-related cases for which Univar has the obligation to defend and indemnify; however, this number tends to fluctuate up and down over time. Historically, the vast majority of these asbestos cases have been dismissed without payment or with a nominal payment. While the Company is unable to predict the outcome of these matters, it does not believe, based upon currently 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.
Unclaimed Property Audit
The Company and its subsidiaries arewere the subject of an unclaimed property audit request issued by the State of Delaware. The State of Delaware retained a contingent-fee private audit firm to conduct the audit. In October 2018,in 2015. On June 29, 2022, the State of Delaware issued a subpoena tonotified the Company requestingthat it was closing its examination with a broad swath of records and information purportedly necessary to perform the audit (the “Subpoena”). After receiving the Subpoena, the Company objected and also initiated a lawsuit in the Federal District Court for the District of Delaware challenging the constitutionality of the Subpoena and other provisions of Delaware’s escheats law, which case is ongoing (the “Lawsuit”). In response to the Lawsuit, the State of Delaware filed a competing enforcement action in the Delaware Court of Chancery in order to compel the Company to comply with the Subpoena. The Lawsuit has been stayed pending the resolution of the enforcement action. In October 2020, the Delaware Court of Chancery deemed the Subpoena enforceable, subject to some limitations, but stayed enforcement of the Subpoena until the Company’s claims in the Lawsuit are resolved by the District Court. The Company intends to vigorously defend itself and believes it has strong defenses. The timing and outcome of these proceedings or any unclaimed property audits that may be subsequently conducted as a result of the outcome of the proceedings cannot be predicted with certainty at this time.$0 finding.
Environmental
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”) and from time to time becomes aware of compliance matters regarding possible or alleged violations of these laws or regulations. For example, over the years, the Company has been identified as a “potentially responsible party” (“PRP”) under the Comprehensive Environmental Response, Compensation and Liability Act and/or similar state laws that impose liability for costs relating to environmental remediation work at various sites. As a PRP, the Company may be required to pay a share of the costs of investigation and cleanup of certain sites. The Company is currently engaged in environmental remediation work at approximately 127125 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. At other sites, the Company, with appropriate state or federal agency oversight and approval, is conducting the environmental remediation work 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 106104 current or formerly Company-owned/occupied sites. In addition, the Company may be liable as a PRP for a share of the clean-up of approximately 21 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;remediation (including any changes over time); 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.
Although the Company believes that its 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.
Changes in total environmental liabilities are as follows:
| | | | | | | | |
| (in millions) | | |
Environmental liabilities at December 31, 20202021 | | $ | 79.688.1 | |
| Revised obligation estimates | | 20.56.8 | |
| Environmental payments | | (14.4)(11.2) | |
| Foreign exchange | | (0.2)(0.5) | |
Environmental liabilities at SeptemberJune 30, 20212022 | | $ | 85.583.2 | |
| | (in millions) | (in millions) | | Balance Sheet Classification | | September 30, 2021 | | December 31, 2020 | (in millions) | | Balance Sheet Classification | | June 30, 2022 | | December 31, 2021 |
| Current environmental liabilities | Current environmental liabilities | | Other accrued expenses | | $ | 30.3 | | | $ | 26.5 | | Current environmental liabilities | | Other accrued expenses | | $ | 32.8 | | | $ | 39.3 | |
| Long-term environmental liabilities | Long-term environmental liabilities | | Other long-term liabilities | | 55.2 | | | 53.1 | | Long-term environmental liabilities | | Other long-term liabilities | | 50.4 | | | 48.8 | |
18.
15. Leasing
The Company leases certain warehouses and distribution centers, office space, transportation equipment and other machinery and equipment.
| | (in millions) | (in millions) | | Balance Sheet Classification | | September 30, 2021 | | December 31, 2020 | (in millions) | | Balance Sheet Classification | | June 30, 2022 | | December 31, 2021 |
| Assets | Assets | | | | | | | Assets | | | | | | |
| Operating lease assets | Operating lease assets | | Other assets | | $ | 158.1 | | | $ | 161.0 | | Operating lease assets | | Other assets | | $ | 173.3 | | | $ | 164.3 | |
| Finance lease assets | Finance lease assets | | Property, plant and equipment, net (1) | | 92.2 | | | 100.3 | | Finance lease assets | | Property, plant and equipment, net (1) | | 96.1 | | | 102.1 | |
| Total lease assets | Total lease assets | | $ | 250.3 | | | $ | 261.3 | | Total lease assets | | $ | 269.4 | | | $ | 266.4 | |
| Liabilities | Liabilities | | | | | Liabilities | | | | |
| Current liabilities: | Current liabilities: | | Current liabilities: | |
| Current portion of operating lease liabilities | Current portion of operating lease liabilities | | Other accrued expenses | | $ | 43.7 | | | $ | 44.9 | | Current portion of operating lease liabilities | | Other accrued expenses | | $ | 44.2 | | | $ | 45.7 | |
| Current portion of finance lease liabilities | Current portion of finance lease liabilities | | Current portion of long-term debt | | 26.7 | | | 26.0 | | Current portion of finance lease liabilities | | Current portion of long-term debt | | 24.7 | | | 27.5 | |
| Noncurrent liabilities: | Noncurrent liabilities: | | Noncurrent liabilities: | |
| Operating lease liabilities | Operating lease liabilities | | Other long-term liabilities | | 122.6 | | | 125.3 | | Operating lease liabilities | | Other long-term liabilities | | 135.0 | | | 125.5 | |
| Finance lease liabilities | Finance lease liabilities | | Long-term debt | | 66.0 | | | 75.6 | | Finance lease liabilities | | Long-term debt | | 69.7 | | | 74.4 | |
| Total lease liabilities | Total lease liabilities | | $ | 259.0 | | | $ | 271.8 | | Total lease liabilities | | $ | 273.6 | | | $ | 273.1 | |
|
(1)Finance lease right-of-use assets are recorded net of accumulated depreciation of $70.5$82.9 million and $61.2$75.8 million as of SeptemberJune 30, 20212022 and December 31, 2020,2021, respectively.
Lease cost
| | (in millions) | (in millions) | | Three months ended September 30, 2021 | | Three months ended September 30, 2020 | (in millions) | | Three months ended June 30, 2022 | | Three months ended June 30, 2021 |
| Statement of Operations Classification | Statement of Operations Classification | | Operating Leases | | Finance Leases | | Total | | Operating Leases | | Finance Leases | | Total | Statement of Operations Classification | | Operating Leases | | Finance Leases | | Total | | Operating Leases | | Finance Leases | | Total |
| Cost of goods sold (exclusive of depreciation) | Cost of goods sold (exclusive of depreciation) | | $ | 6.1 | | | $ | — | | | $ | 6.1 | | | $ | 4.7 | | | $ | — | | | $ | 4.7 | | Cost of goods sold (exclusive of depreciation) | | $ | 5.7 | | | $ | — | | | $ | 5.7 | | | $ | 6.3 | | | $ | — | | | $ | 6.3 | |
| Outbound freight and handling | Outbound freight and handling | | 1.2 | | | — | | | 1.2 | | | 1.5 | | | — | | | 1.5 | | Outbound freight and handling | | 1.7 | | | — | | | 1.7 | | | 2.6 | | | — | | | 2.6 | |
| Warehousing, selling and administrative | Warehousing, selling and administrative | | 6.8 | | | — | | | 6.8 | | | 7.8 | | | — | | | 7.8 | | Warehousing, selling and administrative | | 6.7 | | | — | | | 6.7 | | | 7.3 | | | — | | | 7.3 | |
| Depreciation | Depreciation | | — | | | 6.3 | | | 6.3 | | | — | | | 6.7 | | | 6.7 | | Depreciation | | — | | | 6.7 | | | 6.7 | | | — | | | 7.0 | | | 7.0 | |
| Interest expense | Interest expense | | — | | | 0.9 | | | 0.9 | | | — | | | 0.8 | | | 0.8 | | Interest expense | | — | | | 0.9 | | | 0.9 | | | — | | | 0.9 | | | 0.9 | |
| Total gross lease component costs | Total gross lease component costs | | $ | 14.1 | | | $ | 7.2 | | | $ | 21.3 | | | $ | 14.0 | | | $ | 7.5 | | | $ | 21.5 | | Total gross lease component costs | | $ | 14.1 | | | $ | 7.6 | | | $ | 21.7 | | | $ | 16.2 | | | $ | 7.9 | | | $ | 24.1 | |
| Variable lease costs | Variable lease costs | | | | | | 0.4 | | | | | | | 0.2 | | Variable lease costs | | | | | | 0.4 | | | | | | | 0.6 | |
| Short-term lease costs | Short-term lease costs | | 2.0 | | | 5.9 | | Short-term lease costs | | 1.9 | | | 1.6 | |
| Total gross lease costs | Total gross lease costs | | $ | 23.7 | | | $ | 27.6 | | Total gross lease costs | | $ | 24.0 | | | $ | 26.3 | |
| Less: Sublease income | | 0.5 | | | 0.6 | | |
| Less: sublease income | | Less: sublease income | | 0.2 | | | 0.5 | |
| Total net lease costs | Total net lease costs | | $ | 23.2 | | | $ | 27.0 | | Total net lease costs | | $ | 23.8 | | | $ | 25.8 | |
| | (in millions) | (in millions) | | Nine months ended September 30, 2021 | | Nine months ended September 30, 2020 | (in millions) | | Six months ended June 30, 2022 | | Six months ended June 30, 2021 |
| Statement of Operations Classification | Statement of Operations Classification | | Operating Leases | | Finance Leases | | Total | | Operating Leases | | Finance Leases | | Total | Statement of Operations Classification | | Operating Leases | | Finance Leases | | Total | | Operating Leases | | Finance Leases | | Total |
| Cost of goods sold (exclusive of depreciation) | Cost of goods sold (exclusive of depreciation) | | $ | 17.2 | | | $ | — | | | $ | 17.2 | | | $ | 13.4 | | | $ | — | | | $ | 13.4 | | Cost of goods sold (exclusive of depreciation) | | $ | 11.2 | | | $ | — | | | $ | 11.2 | | | $ | 11.1 | | | $ | — | | | $ | 11.1 | |
| Outbound freight and handling | Outbound freight and handling | | 5.0 | | | — | | | 5.0 | | | 4.2 | | | — | | | 4.2 | | Outbound freight and handling | | 3.3 | | | — | | | 3.3 | | | 3.8 | | | — | | | 3.8 | |
| Warehousing, selling and administrative | Warehousing, selling and administrative | | 21.4 | | | — | | | 21.4 | | | 24.1 | | | — | | | 24.1 | | Warehousing, selling and administrative | | 13.5 | | | — | | | 13.5 | | | 14.6 | | | — | | | 14.6 | |
| Depreciation | Depreciation | | — | | | 19.7 | | | 19.7 | | | — | | | 18.8 | | | 18.8 | | Depreciation | | — | | | 13.6 | | | 13.6 | | | — | | | 13.4 | | | 13.4 | |
| Interest expense | Interest expense | | — | | | 2.8 | | | 2.8 | | | — | | | 2.5 | | | 2.5 | | Interest expense | | — | | | 1.8 | | | 1.8 | | | — | | | 1.9 | | | 1.9 | |
| Total gross lease component cost | | $ | 43.6 | | | $ | 22.5 | | | $ | 66.1 | | | $ | 41.7 | | | $ | 21.3 | | | $ | 63.0 | | |
| Total gross lease component costs | | Total gross lease component costs | | $ | 28.0 | | | $ | 15.4 | | | $ | 43.4 | | | $ | 29.5 | | | $ | 15.3 | | | $ | 44.8 | |
| Variable lease costs | Variable lease costs | | | | | | 1.3 | | | | | | | 0.6 | | Variable lease costs | | | | | | 0.7 | | | | | | | 0.9 | |
| Short-term lease costs | Short-term lease costs | | 5.3 | | | 19.8 | | Short-term lease costs | | 3.8 | | | 3.3 | |
| Total gross lease costs | Total gross lease costs | | $ | 72.7 | | | $ | 83.4 | | Total gross lease costs | | $ | 47.9 | | | $ | 49.0 | |
| Less: sublease income | Less: sublease income | | 1.6 | | | 1.8 | | Less: sublease income | | 0.4 | | | 1.1 | |
| Total net lease costs | Total net lease costs | | $ | 71.1 | | | $ | 81.6 | | Total net lease costs | | $ | 47.5 | | | $ | 47.9 | |
Maturity of lease liabilities | | (in millions) | (in millions) | | Operating Leases | | Finance Leases | | Total | (in millions) | | Operating Leases | | Finance Leases | | Total |
| Remainder of 2021 | | $ | 13.6 | | | $ | 7.6 | | | $ | 21.2 | | |
| 2022 | | 44.8 | | | 27.7 | | | 72.5 | | |
| Remainder of 2022 | | Remainder of 2022 | | $ | 28.2 | | | $ | 15.2 | | | $ | 43.4 | |
| 2023 | 2023 | | 33.4 | | | 18.8 | | | 52.2 | | 2023 | | 42.6 | | | 23.3 | | | 65.9 | |
| 2024 | 2024 | | 23.6 | | | 15.4 | | | 39.0 | | 2024 | | 29.4 | | | 19.8 | | | 49.2 | |
| 2025 | 2025 | | 15.9 | | | 13.3 | | | 29.2 | | 2025 | | 20.9 | | | 18.0 | | | 38.9 | |
| 2026 and After | | 59.9 | | | 17.3 | | | 77.2 | | |
| 2026 | | 2026 | | 17.5 | | | 15.4 | | | 32.9 | |
| 2027 and after | | 2027 and after | | 76.0 | | | 10.4 | | | 86.4 | |
| Total lease payments | Total lease payments | | $ | 191.2 | | | $ | 100.1 | | | $ | 291.3 | | Total lease payments | | $ | 214.6 | | | $ | 102.1 | | | $ | 316.7 | |
| Less: Interest | | 24.9 | | | 7.4 | | | 32.3 | | |
| Less: interest | | Less: interest | | 35.4 | | | 7.7 | | | 43.1 | |
| Present value of lease liabilities | Present value of lease liabilities | | $ | 166.3 | | | $ | 92.7 | | | $ | 259.0 | | Present value of lease liabilities | | $ | 179.2 | | | $ | 94.4 | | | $ | 273.6 | |
Lease term and discount rate
| | | September 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
| Weighted-average remaining lease term (years) | Weighted-average remaining lease term (years) | | | | | Weighted-average remaining lease term (years) | | | | |
| Operating leases | Operating leases | | 6.3 | | 6.0 | Operating leases | | 7.8 | | 6.7 |
| Finance leases | Finance leases | | 6.1 | | 6.3 | Finance leases | | 6.3 | | 6.5 |
| Weighted-average discount rate | Weighted-average discount rate | | Weighted-average discount rate | |
| Operating leases | Operating leases | | 4.19 | % | | 4.68 | % | Operating leases | | 3.92 | % | | 3.99 | % |
| Finance leases | Finance leases | | 3.58 | % | | 3.83 | % | Finance leases | | 3.57 | % | | 3.59 | % |
Other information
| | | Nine months ended September 30, | | Six months ended June 30, |
| (in millions) | (in millions) | | 2021 | | 2020 | (in millions) | | 2022 | | 2021 |
| Cash paid for amounts included in the measurement of lease liabilities | Cash paid for amounts included in the measurement of lease liabilities | | | | | Cash paid for amounts included in the measurement of lease liabilities | | | | |
| Operating cash flows from operating leases | Operating cash flows from operating leases | | $ | 42.1 | | | $ | 41.4 | | Operating cash flows from operating leases | | $ | 28.5 | | | $ | 28.1 | |
| Operating cash flows from finance leases | Operating cash flows from finance leases | | 2.7 | | | 2.5 | | Operating cash flows from finance leases | | 1.8 | | | 1.9 | |
| Financing cash flows from finance leases | Financing cash flows from finance leases | | 20.4 | | | 17.9 | | Financing cash flows from finance leases | | 15.1 | | | 13.6 | |
19.16. Segments
The Company’s operations are structured into 4 reportable segments that represent the geographic areas under which it operates and manages the business. Management, including the Chief Operating Decision Maker, monitors the operating results of its reportable segments separately for the purpose of making decisions about resource allocation and performance assessment. Management evaluates performance of its reportable segments on the basis of Adjusted EBITDA. Adjusted EBITDA is defined as the sum of consolidated net income, plus the sum of:income; depreciation; amortization; net interest expense, net of interest income;expense; income tax expense; impairment charges; (gain) lossgain on sale of business; loss on extinguishment of debt; other operating expenses, net (see “Note 6: Other operating expenses, net”); and other income, (expense), net (see(for both, see “Note 8: Other income (expense), net”6: Supplemental financial information”). For 2020, Adjusted EBITDA also includes an adjustment to remove a Brazil VAT charge.
Transfer prices between reportable 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 reportable segments. Allocable operating expenses are identified through a review process by management. The allocable operating expenses are assigned to the reportable segments on a basis that reasonably approximates the use of services, which is generally measured based on a weighted distribution of margin, asset, headcount or time spent.
Financial information for the Company’s reportable segments is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | USA | | EMEA | | Canada | | LATAM | | Other/Eliminations (1) | | Consolidated |
| (in millions) | | Three months ended September 30, 2021 |
| External customers | | $ | 1,616.8 | | | $ | 480.3 | | | $ | 223.3 | | | $ | 167.5 | | | $ | — | | | $ | 2,487.9 | |
| Inter-segment | | 28.9 | | | 0.9 | | | 0.6 | | | 0.7 | | | (31.1) | | | — | |
| Total net sales | | $ | 1,645.7 | | | $ | 481.2 | | | $ | 223.9 | | | $ | 168.2 | | | $ | (31.1) | | | $ | 2,487.9 | |
| | | | | | | | | | | | |
| Adjusted EBITDA | | $ | 140.2 | | | $ | 34.4 | | | $ | 24.0 | | | $ | 15.7 | | | $ | (3.4) | | | $ | 210.9 | |
| | | | | | | | | | | | |
Long-lived assets (2) | | $ | 771.8 | | | $ | 186.9 | | | $ | 139.4 | | | $ | 35.0 | | | $ | 26.6 | | | $ | 1,159.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | USA | | EMEA | | Canada | | LATAM | | Other/Eliminations (1) | | Consolidated |
| (in millions) | | Three months ended September 30, 2020 |
| External customers | | $ | 1,254.4 | | | $ | 399.4 | | | $ | 234.9 | | | $ | 120.5 | | | $ | — | | | $ | 2,009.2 | |
| Inter-segment | | 14.6 | | | 0.6 | | | 0.5 | | | — | | | (15.7) | | | — | |
| Total net sales | | $ | 1,269.0 | | | $ | 400.0 | | | $ | 235.4 | | | $ | 120.5 | | | $ | (15.7) | | | $ | 2,009.2 | |
| | | | | | | | | | | | |
| Adjusted EBITDA | | $ | 110.3 | | | $ | 33.3 | | | $ | 16.6 | | | $ | 13.1 | | | $ | (8.7) | | | $ | 164.6 | |
| | | | | | | | | | | | |
Long-lived assets (2) | | $ | 805.7 | | | $ | 184.7 | | | $ | 187.4 | | | $ | 30.2 | | | $ | 23.4 | | | $ | 1,231.4 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | USA | | EMEA | | Canada | | LATAM | | Other/Eliminations (1) | | Consolidated |
| (in millions) | | Nine months ended September 30, 2021 |
| External customers | | $ | 4,410.0 | | | $ | 1,490.2 | | | $ | 684.6 | | | $ | 452.6 | | | $ | — | | | $ | 7,037.4 | |
| Inter-segment | | 65.8 | | | 3.6 | | | 2.6 | | | 0.7 | | | (72.7) | | | — | |
| Total net sales | | $ | 4,475.8 | | | $ | 1,493.8 | | | $ | 687.2 | | | $ | 453.3 | | | $ | (72.7) | | | $ | 7,037.4 | |
| | | | | | | | | | | | |
| Adjusted EBITDA | | $ | 367.6 | | | $ | 132.8 | | | $ | 75.3 | | | $ | 44.6 | | | $ | (29.7) | | | $ | 590.6 | |
| | | | | | | | | | | | |
Long-lived assets (2) | | $ | 771.8 | | | $ | 186.9 | | | $ | 139.4 | | | $ | 35.0 | | | $ | 26.6 | | | $ | 1,159.7 | |
| | | USA | | EMEA | | Canada | | LATAM | | Other/Eliminations (1) | | Consolidated | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | (in millions) | | Nine months ended September 30, 2020 | (in millions) | | USA | | EMEA | | Canada | | LATAM | | Other/ Eliminations(1) | | Consolidated |
| Net Sales | | Net Sales | | | | | | | | | | | | |
| Three months ended June 30, 2022 | | Three months ended June 30, 2022 | |
| External customers | External customers | | $ | 3,781.3 | | | $ | 1,269.3 | | | $ | 852.2 | | | $ | 326.8 | | | $ | — | | | $ | 6,229.6 | | External customers | | $ | 1,970.2 | | | $ | 547.2 | | | $ | 298.2 | | | $ | 201.0 | | | $ | — | | | $ | 3,016.6 | |
| Inter-segment | Inter-segment | | 63.3 | | | 2.3 | | | 2.0 | | | — | | | (67.6) | | | — | | Inter-segment | | 43.8 | | | 3.0 | | | 2.5 | | | 0.1 | | | (49.4) | | | — | |
| Total net sales | | $ | 3,844.6 | | | $ | 1,271.6 | | | $ | 854.2 | | | $ | 326.8 | | | $ | (67.6) | | | $ | 6,229.6 | | |
| Net Sales | | Net Sales | | $ | 2,014.0 | | | $ | 550.2 | | | $ | 300.7 | | | $ | 201.1 | | | $ | (49.4) | | | $ | 3,016.6 | |
| | Adjusted EBITDA | | $ | 302.1 | | | $ | 113.3 | | | $ | 69.1 | | | $ | 32.4 | | | $ | (27.5) | | | $ | 489.4 | | |
| Three months ended June 30, 2021 | | Three months ended June 30, 2021 | |
| External customers | | External customers | | $ | 1,500.2 | | | $ | 504.0 | | | $ | 238.6 | | | $ | 151.3 | | | $ | — | | | $ | 2,394.1 | |
| Inter-segment | | Inter-segment | | 19.5 | | | 1.9 | | | 1.3 | | | — | | | (22.7) | | | — | |
| Net Sales | | Net Sales | | $ | 1,519.7 | | | $ | 505.9 | | | $ | 239.9 | | | $ | 151.3 | | | $ | (22.7) | | | $ | 2,394.1 | |
| Long-lived assets (2) | | $ | 805.7 | | | $ | 184.7 | | | $ | 187.4 | | | $ | 30.2 | | | $ | 23.4 | | | $ | 1,231.4 | | |
| Six months ended June 30, 2022 | | Six months ended June 30, 2022 | |
| External customers | | External customers | | $ | 3,813.4 | | | $ | 1,109.4 | | | $ | 591.6 | | | $ | 384.8 | | | $ | — | | | $ | 5,899.2 | |
| Inter-segment | | Inter-segment | | 72.3 | | | 3.7 | | | 4.3 | | | 0.1 | | | (80.4) | | | — | |
| Net Sales | | Net Sales | | $ | 3,885.7 | | | $ | 1,113.1 | | | $ | 595.9 | | | $ | 384.9 | | | $ | (80.4) | | | $ | 5,899.2 | |
| | Six months ended June 30, 2021 | | Six months ended June 30, 2021 | |
| External customers | | External customers | | $ | 2,793.2 | | | $ | 1,009.9 | | | $ | 461.3 | | | $ | 285.1 | | | $ | — | | | $ | 4,549.5 | |
| Inter-segment | | Inter-segment | | 36.9 | | | 2.7 | | | 2.0 | | | — | | | (41.6) | | | — | |
| Net Sales | | Net Sales | | $ | 2,830.1 | | | $ | 1,012.6 | | | $ | 463.3 | | | $ | 285.1 | | | $ | (41.6) | | | $ | 4,549.5 | |
|
(1)Other/Eliminations represents the elimination of intersegment transactions, as well as,transactions.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, |
| (in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| Adjusted EBITDA | | | | | | | | |
| USA | | $ | 198.6 | | | $ | 125.6 | | | $ | 407.8 | | | $ | 227.4 | |
| EMEA | | 50.4 | | | 47.8 | | | 114.2 | | | 98.4 | |
| Canada | | 32.0 | | | 25.0 | | | 68.7 | | | 51.3 | |
| LATAM | | 16.2 | | | 13.3 | | | 32.4 | | | 28.9 | |
Other/Eliminations (1) | | (5.6) | | | (14.2) | | | (12.2) | | | (26.3) | |
| Consolidated | | $ | 291.6 | | | $ | 197.5 | | | $ | 610.9 | | | $ | 379.7 | |
| | | | | | | | |
(1)Other/Eliminations represents unallocated corporate costs consisting of costsitems specifically related to parent company operations that do not directly benefit segments, either individually or collectively.
(2)Long-lived assets consist of property, plant and equipment, net and operating lease assets.
The following is a reconciliation of net income to Adjusted EBITDA for the three and ninesix months ended SeptemberJune 30, 20212022 and 2020:2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended September 30, | | Nine months ended September 30, |
| (in millions) | | 2021 | | 2020 | | 2021 | | 2020 |
| Net income | | $ | 84.4 | | | $ | 28.9 | | | $ | 303.8 | | | $ | 86.6 | |
| | | | | | | | |
| | | | | | | | |
| Depreciation | | 36.7 | | | 41.6 | | | 117.8 | | | 123.7 | |
| Amortization | | 12.4 | | | 14.7 | | | 38.7 | | | 45.3 | |
| Interest expense, net | | 22.2 | | | 27.7 | | | 74.5 | | | 85.7 | |
| Income tax expense | | 37.7 | | | 2.7 | | | 82.3 | | | 14.0 | |
Other operating expenses, net (1) | | 17.7 | | | 20.3 | | | 91.8 | | | 75.5 | |
Other (income) expense, net (1) | | (1.2) | | | (1.3) | | | (35.4) | | | 1.0 | |
| Impairment charges | | 0.9 | | | 20.7 | | | 3.0 | | | 37.6 | |
| (Gain) loss on sale of business | | — | | | 9.3 | | | (88.2) | | | 17.9 | |
| Loss on extinguishment of debt | | 0.1 | | | — | | | 2.3 | | | 1.8 | |
| Brazil VAT charge | | — | | | — | | | — | | | 0.3 | |
| Adjusted EBITDA | | $ | 210.9 | | | $ | 164.6 | | | $ | 590.6 | | | $ | 489.4 | |
| | | | | | | | |
(1)For the three and nine months ended September 30, 2020, the fair value adjustment for warrants was reclassified to other (income) expense, net, from other operating expenses, net, to conform to the current year presentation. Refer to “Note 2: Significant accounting policies” for more information. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, |
| (in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| Net income | | $ | 162.9 | | | $ | 153.2 | | | $ | 343.7 | | | $ | 219.4 | |
| | | | | | | | |
| | | | | | | | |
| Depreciation | | 32.2 | | | 37.3 | | | 65.1 | | | 81.1 | |
| Amortization | | 12.0 | | | 13.2 | | | 23.8 | | | 26.3 | |
| Interest expense, net | | 23.3 | | | 25.7 | | | 44.4 | | | 52.3 | |
| Income tax expense | | 58.6 | | | 27.0 | | | 123.3 | | | 44.6 | |
| EBITDA | | $ | 289.0 | | | $ | 256.4 | | | $ | 600.3 | | | $ | 423.7 | |
| Other operating expenses, net | | 5.3 | | | 29.9 | | | 21.0 | | | 74.1 | |
| Other income, net | | (2.7) | | | (3.3) | | | (10.4) | | | (32.0) | |
| Impairment charges | | — | | | 2.1 | | | — | | | 2.1 | |
| Gain on sale of business | | — | | | (87.6) | | | — | | | (88.2) | |
| | | | | | | | |
| | | | | | | | |
| Adjusted EBITDA | | $ | 291.6 | | | $ | 197.5 | | | $ | 610.9 | | | $ | 379.7 | |
| | | | | | | | |
17. Subsequent events
On July 29, 2022, the Company acquired Vicom Distribución Productos Quimicos, S.L., a leading regional specialty chemicals distributor in Spain and Portugal, for approximately $14 million.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is based on financial data derived from the financial statements prepared in accordance with the United States (“US”) generally accepted accounting principles (“GAAP”)US GAAP and certain other financial data that is prepared using non-GAAP financial measures. For a reconciliation of each non-GAAP financial measure to its most comparable GAAP measure, see “Analysis of Segment Results” within this Item and “Note 19:16: Segments” to our condensed consolidated financial statements in Item 1 of this Quarterly Report on Form 10-Q. Refer to “Non-GAAP Financial Measures” within this Item for more information about our use of non-GAAP financial measures.
Our MD&A is provided in addition to the accompanying condensed consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition and cash flow. The MD&A should be read in conjunction with both the unaudited consolidated financial information and related notes included in this Form 10-Q and Management’s Discussion and Analysis of Financial Condition and Results of Operationsthe MD&A included in our Annual Report on Form 10-K for the year ended December 31, 2020.2021.
Overview
Univar Solutions is a leading global chemicalsolutions provider to users of specialty ingredients and ingredient distributorchemicals and provider of value-added services to customers across a wide range of diverse industries. We purchase chemicals and ingredients from thousands of producers worldwide and warehouse, repackage, blend, dilute, transport and sell them to more than 100,000 customer locations across approximately 125115 countries.
Our operations are structured into four reportable segments that represent the geographic areas under which we operate and manage our business. These segments are Univar Solutions USA, (“USA”), Univar Solutions EuropeEMEA, Canada and the Middle East and Africa (“EMEA”), Univar Solutions Canada (“Canada”) and Univar Solutions Latin America (“LATAM”),LATAM, which includes developing businesses in Latin America and the Asia-Pacific region.
Recent DevelopmentsComparability of Results
Acquisitions and Items Impacting Comparability
On September 1, 2020, we sold our industrial spill and emergency response businesses and, on November 30, 2020, we sold our Canadian Agriculture services business. The sale of these businesses did not meet the criteria to be classified as discontinued operations in our condensed consolidated financial statements.
On December 18, 2020, we acquired a business of Techi Chem, a leading distributor of specialty silicone solutions used primarily for the CASE market within the China marketplace.
At the beginning of the fourth quarter of 2020, we decided to wind down our Canadian Agriculture wholesale distribution business, which was operationally completed by December 31, 2020 when all the inventory had been sold.Divestitures
On April 1, 2021, we sold our Distrupol business within the EMEA segment. The sale of this business did not meet the criteria to be classified as discontinued operations in our condensed consolidated financial statements.
Market Conditions
The current business environment in the markets in whichIn December 2021, we operate consists of unusual dynamics. The combination of the severe storms in the US Gulf region in 2021, supplier shut-downs, port congestion and acute pandemic recovery demand, has resulted in sustained supply chain constraints, product shortages and chemical price inflation that is atypical in magnitude and duration. Product shortages have generally led to fluctuations in chemical prices globally, with corresponding impacts to sales and interim profits. These market factors have also impacted the transportation market and, coupled with rising fuel prices, driver shortages and inflation overall, have resulted in higher operating costs. Investments in working capital to bridge supply disruption and account for higher chemical prices may impact our ability to achieve forecasted cash flows in the short-term. We believe our value asacquired Sweetmix, a distributor is heightened in challenging times such as these when we work to orderly meet demand requirements through our extensive network and supply partnerships.
We continue to monitor the impact of the COVID-19 pandemic on our global business. The continuing and future effect of the pandemic will depend on infection rates, the emergence of new virus variants, effectiveness of vaccination programs, regulatory changes and the scope of government restrictions. In 2020, we activated a global, cross-functional response team, which continues to closely monitor the situation and has led to the implementation of additional safety measures to help ensure the well-being of Univar Solutions’ employees, customers and suppliers, minimize disruptions and provide for the safe and reliable supply of Univar Solutions’ chemicals and ingredients. We continue to take steps to promote employee safety in our distribution centers and other worksites and strongly encourage employee vaccination where available. For office-based employees, we have rolled-out plans for hybrid working arrangements that are designed to strike an appropriate balance between our need to have certain personnel working from a company office and employees’ desires to have the flexibility to work from a remote location.
We stay connected with our customers to understand demand and supply impacts on their operations, including temporary changes in demand due to weather events, pandemic emergence and supply constraints. To capture and report on these trends, we organized our product portfolio offering into the following end markets: Industrial Solutions, Consumer Solutions, General Industrial, Services and Other Markets and Refining & Chemical Processing. The primary impacts of the pandemic and the current economic events on our end markets are as follows (percentages represent 2020 Consolidated Net Sales by End Market):
Industrial Solutions (30%) – Accelerating growth with strong performance in lubricants, metalworking and household and industrial markets due to increased industrial demand and our strategic supply position. Despite challenges in the automotive sector due to the global microchip shortages, we found new opportunities to grow our CASE business and deliver new solutions for our suppliers and customers.
Consumer Solutions (20%) – Strong growth in skin and hair care markets within the beauty and personal care industries with robust demand and leveraged supplier partnerships. Strong growth in food ingredients demand helped by the ongoing reopening of the economy.
General Industrial (30%and coatings, adhesives, sealants and elastomers (“CASE”) – Strong demand across the various markets, with ongoing strengthspecialty chemical distribution company in chemical manufacturing and the electronics industry. We are seeing increasing demand in mining chemistries, from mist suppressants to extraction chemistries, as a result of global efforts to shift away from fossil fuels.
Services and Other Markets (12%) – Stable demand despite automotive supply chain disruptions. Waste services has been challenged due to capacity constraints within the industry; however, we are leveraging our network capabilities to continue to provide full-life cycle product management in the market.
Refining & Chemical Processing (8%) – Growth in energy and oil field chemistries as oil rig counts have steadily improved and Brent and West Texas indices reached levels not seen since 2014.
Governments across the globe are considering tax legislation to help fund the cost of the COVID-19 pandemic response. We continue to monitor these plans and assess the impact on the Company. As tax law changes are enacted, the impacts will be discussed in “Note 10: Income taxes” in Item 1 of this Quarterly Report on Form 10-Q.Brazil.
Constant Currency
We believe providing non-GAAP constant currency basis offers valuable supplemental information regarding our results of operations, consistent with how we evaluate our performance. Currency impacts on consolidated and segment results have been derived by translating current period financial results in local currency using the average exchange rate for the prior period to which the financial information is being compared.
Market Conditions
We sell commodity and specialty chemicals and ingredients that are used in manufacturing processes and as components in other products. Our sales are correlated with and affected by seasonal fluctuations and cycles in the levels of industrial production, manufacturing output and general economic activity. The current business environment in the markets in which we operate consists of complex dynamics. A combination of global factors such as supplier shut-downs, port congestion, acute COVID-19 pandemic recovery demand and the Russia-Ukraine conflict has stressed already existing sustained supply chain constraints, product shortages and our pricing discipline in inflationary markets that continue to be atypical in magnitude and unknown in duration.
These market factors have also impacted the transportation market and coupled with continued energy price pressure, driver shortages and inflation, have resulted in higher operating costs. Additionally, shortages across a range of chemicals and ingredients have generally led to fluctuations in chemical prices globally, with corresponding impacts to sales and interim profits.
In such a dynamic environment, we believe remaining connected with our customers to understand demand and supply impacts on their operations is critical to our success. We believe providing constant currency information, which informationour value as a distributor is considered non-GAAP, provides valuable supplemental information regarding our results of operations, consistent with how we evaluate our performance. We calculate constant currency by applying the foreign currency exchange rate from the prior period to the local currency results forheightened in the current period.environment as we work to meet demand requirements through our extensive network, installed asset base, transportation and digital assets, and supplier partnerships, supported by our network of Solutions Centers and technically trained professionals with deep industry knowledge.
A summary of our sales channel and underlying end market performance as of June 30, 2022, with corresponding impacts from the current environment are as follows (percentages represent 2022 second quarter Consolidated Net Sales):
Chemicals and Services (65%) - We are leveraging our owned distribution assets to provide continuous supply to our customers in especially vital industries such as Chemical Manufacturing, Energy and Water Treatment. We have seen increased opportunities and growth in demand within traditional energy and clean energy technologies as higher oil prices have accelerated production and increased demand for sustainable solutions. Our ability to work with the largest global customers to de-risk their supply chain issues has driven especially strong results in the US and Canadian segments. Our industrial end markets are winning new business and better servicing existing business through our integrated supply chain, enhancing our value proposition of having the right material available in the right location for whenever our customers need it.
Ingredients and Specialties (35%) - Our global Consumer Solutions business has benefited new authorizations and effective our pricing discipline in inflationary markets. With our numerous new supplier authorizations, we are leveraging our technically trained salesforce to formulate new solutions for our customers in Personal Care and Pharmaceuticals. In Food, we repositioned in the market as Foodology and recently opened a new super innovation kitchen to help our customers innovate recipes to meet and create the latest trends in the marketplace. Within Industrial Solutions, we have seen tremendous growth in our Lubricants and Metalworking business as we combine our solvents capabilities with our technical formulations to service this market. Our CASE products have seen ongoing supply shortages; however, we are encouraged by the loyalty of many of our customers who have come to rely on our supply position to ensure they have the product they need. Household & Industrial Cleaning has seen ongoing growth from our specialty surfactants and enzymes portfolio.
Results of Operations
The following tables set forth, for the periods indicated, certain statements of operations data, on the basis of reported data for the relevant period.
Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended September 30, | | Favorable
(unfavorable) | | % Change |
| (in millions) | | 2021 | | 2020 | |
| Net sales | | $ | 2,487.9 | | | $ | 2,009.2 | | | $ | 478.7 | | | 23.8 | % |
| Cost of goods sold (exclusive of depreciation) | | 1,871.5 | | | 1,513.2 | | | (358.3) | | | 23.7 | % |
| Operating expenses: | | | | | | | | |
| Outbound freight and handling | | $ | 105.8 | | | $ | 85.9 | | | $ | (19.9) | | | 23.2 | % |
| Warehousing, selling and administrative | | 299.7 | | | 245.5 | | | (54.2) | | | 22.1 | % |
Other operating expenses, net (1) | | 17.7 | | | 20.3 | | | 2.6 | | | (12.8) | % |
| Depreciation | | 36.7 | | | 41.6 | | | 4.9 | | | (11.8) | % |
| Amortization | | 12.4 | | | 14.7 | | | 2.3 | | | (15.6) | % |
| Impairment charges | | 0.9 | | | 20.7 | | | 19.8 | | | (95.7) | % |
| Total operating expenses | | $ | 473.2 | | | $ | 428.7 | | | $ | (44.5) | | | 10.4 | % |
| Operating income | | $ | 143.2 | | | $ | 67.3 | | | $ | 75.9 | | | 112.8 | % |
| Other expense: | | | | | | | | |
| Interest income | | $ | 1.5 | | | $ | 0.5 | | | $ | 1.0 | | | 200.0 | % |
| Interest expense | | (23.7) | | | (28.2) | | | 4.5 | | | (16.0) | % |
| Loss on sale of business | | — | | | (9.3) | | | 9.3 | | | (100.0) | % |
| Loss on extinguishment of debt | | (0.1) | | | — | | | (0.1) | | | 100.0 | % |
Other income (expense), net (1) | | 1.2 | | | 1.3 | | | (0.1) | | | (7.7) | % |
| Total other expense | | $ | (21.1) | | | $ | (35.7) | | | $ | 14.6 | | | (40.9) | % |
| Income before income taxes | | $ | 122.1 | | | $ | 31.6 | | | $ | 90.5 | | | 286.4 | % |
| Income tax expense | | 37.7 | | | 2.7 | | | (35.0) | | | 1,296.3 | % |
| Net income | | $ | 84.4 | | | $ | 28.9 | | | $ | 55.5 | | | 192.0 | % |
| | | | | | | | |
(1)For the three months ended September 30, 2020, the fair value adjustment for warrants was reclassified to other income (expense), net, from other operating expenses, net, to conform to the current year presentation. Refer to “Note 2: Significant accounting policies” in Item 1 of this Quarterly Report on Form 10-Q for more information. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended June 30, | | | | % Change | | Six months ended June 30, | | % Change |
| (in millions) | | 2022 | | 2021 | | | 2022 | | 2021 | |
| Net sales | | $ | 3,016.6 | | | $ | 2,394.1 | | | | | 26.0 | % | | $ | 5,899.2 | | | $ | 4,549.5 | | | 29.7 | % |
| Cost of goods sold (exclusive of depreciation) | | 2,280.6 | | | 1,791.6 | | | | | 27.3 | % | | 4,433.7 | | | 3,404.6 | | | 30.2 | % |
| Operating expenses: | | | | | | | | | | | | | | |
| Outbound freight and handling | | $ | 125.7 | | | $ | 97.8 | | | | | 28.5 | % | | $ | 241.6 | | | $ | 189.2 | | | 27.7 | % |
| Warehousing, selling and administrative | | 318.7 | | | 307.2 | | | | | 3.7 | % | | 613.0 | | | 576.0 | | | 6.4 | % |
| Other operating expenses, net | | 5.3 | | | 29.9 | | | | | (82.3) | % | | 21.0 | | | 74.1 | | | (71.7) | % |
| Depreciation | | 32.2 | | | 37.3 | | | | | (13.7) | % | | 65.1 | | | 81.1 | | | (19.7) | % |
| Amortization | | 12.0 | | | 13.2 | | | | | (9.1) | % | | 23.8 | | | 26.3 | | | (9.5) | % |
| Impairment charges | | — | | | 2.1 | | | | | (100.0) | % | | — | | | 2.1 | | | (100.0) | % |
| Total operating expenses | | $ | 493.9 | | | $ | 487.5 | | | | | 1.3 | % | | $ | 964.5 | | | $ | 948.8 | | | 1.7 | % |
| Operating income | | $ | 242.1 | | | $ | 115.0 | | | | | 110.5 | % | | $ | 501.0 | | | $ | 196.1 | | | 155.5 | % |
| Other (expense) income: | | | | | | | | | | | | | | |
| Interest income | | $ | 1.0 | | | $ | 0.7 | | | | | 42.9 | % | | $ | 2.1 | | | $ | 1.1 | | | 90.9 | % |
| Interest expense | | (24.3) | | | (26.4) | | | | | (8.0) | % | | (46.5) | | | (53.4) | | | (12.9) | % |
| Gain on sale of business | | — | | | 87.6 | | | | | (100.0) | % | | — | | | 88.2 | | | (100.0) | % |
| | | | | | | | | | | | | | |
| Other income, net | | 2.7 | | | 3.3 | | | | | (18.2) | % | | 10.4 | | | 32.0 | | | (67.5) | % |
| Total other (expense) income | | $ | (20.6) | | | $ | 65.2 | | | | | N/M | | $ | (34.0) | | | $ | 67.9 | | | N/M |
| Income before income taxes | | $ | 221.5 | | | $ | 180.2 | | | | | 22.9 | % | | $ | 467.0 | | | $ | 264.0 | | | 76.9 | % |
| Income tax expense | | 58.6 | | | 27.0 | | | | | 117.0 | % | | 123.3 | | | 44.6 | | | 176.5 | % |
| Net income | | $ | 162.9 | | | $ | 153.2 | | | | | 6.3 | % | | $ | 343.7 | | | $ | 219.4 | | | 56.7 | % |
| | | | | | | | | | | | | | |
Net sales
Net sales increased $478.7$622.5 million, or 23.8%26.0%, and increased $1,349.7 million, or 29.7%, for the three and six months ended SeptemberJune 30, 2021.2022, respectively. On a constant currency basis, net sales increased $459.1$722.4 million, or 22.8%. Net sales30.2%, and increased $1,511.4 million, or 33.2%, for the three and six months ended June 30, 2022, respectively. The increase is primarily due to chemical price inflationour pricing
discipline in inflationary markets and higher industrial demand, partially offset by the Canadian Agriculture wholesale distribution exit and the Distrupol and Canadian Agriculture services divestitures.market share gains. Refer to the “Analysis of Segment Results” for the three and six months ended SeptemberJune 30, 20212022 for additional information.
Gross profit (exclusive of depreciation)
Gross profit (exclusive of depreciation) increased $120.4$133.5 million, or 24.3%22.2%, to $616.4$736.0 million and increased $320.6 million, or 28.0%, to $1,465.5 million for the three and six months ended SeptemberJune 30, 2021.2022, respectively. On a constant currency basis, gross profit (exclusive of depreciation) increased $116.0$156.4 million, or 23.4%.26.0%, and increased $358.4 million, or 31.3%, for the three and six months ended June 30, 2022, respectively. The increase in gross profit (exclusive of depreciation) was primarily attributable to chemical price inflationour pricing discipline in inflationary markets, operational execution and higher industrial demand,market share gains, partially offset by unfavorable changes in pricing from certain essential end markets and the effects of the Distrupol and Canadian Agricultural services divestitures as compared to the prior year.higher input costs. Refer to the “Analysis of Segment Results” for the three and six months ended SeptemberJune 30, 20212022 and “Non-GAAP Financial Measures” for additional information.
Operating Expenses
Outbound freight and handling
Outbound freight and handling expenses increased $19.9$27.9 million, or 23.2%28.5%, and increased $52.4 million, or 27.7%, for the three and six months ended SeptemberJune 30, 2021, primarily due to higher costs to deliver and higher sales volumes.2022, respectively. On a constant currency basis, outbound freight and handling expenses increased $19.1$30.7 million, or 22.2%.31.4%, and increased $56.6 million, or 29.9%, for the three and six months ended June 30, 2022. Refer to the “Analysis of Segment Results” for the three and six months ended SeptemberJune 30, 20212022 for additional information.
Warehousing, selling and administrative
Warehousing, selling and administrative expenses (“WS&A”) increased $54.2$11.5 million, or 22.1%3.7%, and increased $37.0 million, or 6.4%, for the three and six months ended SeptemberJune 30, 2021.2022, respectively. On a constant currency basis, warehousing, selling and administrative expensesWS&A increased $52.1$21.5 million, or 21.2%7.0%, and increased $52.6 million, or 9.1%, for the three and six months ended June 30, 2022, respectively, primarily attributable to higher operating costs and variable compensation, operating and environmental remediation costs, partially offset by Nexeo net synergies. Additionally, the six months ended June 30, 2022 was further offset by an environmental recovery. Refer to the “Analysis of Segment Results” for the three and six months ended SeptemberJune 30, 20212022 for additional information.
Other operating expenses, net
Other operating expenses, net decreased $2.6$24.6 million for the three months ended SeptemberJune 30, 2021.2022 and decreased $53.1 million for the six months ended June 30, 2022. Refer to “Note 6: Other operating expenses, net”Supplemental financial information” in Item 1 of this Quarterly Report on Form 10-Q for additional information.
Depreciation and amortization
Depreciation expense decreased $4.9$5.1 million, or 11.8%13.7%, and decreased $16.0 million, or 19.7%, for the three and six months ended SeptemberJune 30, 2021,2022, respectively, primarily due to certain assets reaching the end of their usefuldepreciable lives. On a constant currency basis, depreciation expense decreased $4.3 million, or 11.5%, and $14.8 million, or 18.2%, for the three and six months ended June 30, 2022, respectively, due to certain assets reaching the end of their depreciable lives.
Amortization expense decreased $2.3$1.2 million, or 15.6%9.1%, and decreased $2.5 million, or 9.5%, for the three and six months ended SeptemberJune 30, 2021,2022, respectively, primarily due to certain intangibles reaching the end of their usefulamortizable lives.
Impairment charges
Impairment charges of $0.9 million were recorded in the three months ended September 30, 2021 related to property, plant and equipment in connection with the announced closure of certain operating facilities within the USA and Canada segments. Impairment charges of $20.7 million were recorded in the three months ended September 30, 2020 related to property, plant and equipment in connection with our decision to cease further investment in, and seek to restructure or exit a contract related to, certain technology assets within the Other segment and the announced closure of certain production facilities. Refer to “Note 14: Supplemental balance sheet information” in Item 1 of this Quarterly Report on Form 10-Q for additional information.
Interest expense
Interest expense decreased $4.5$2.1 million, or 16.0%8.0%, and decreased $6.9 million, or 12.9%, for the three and six months ended SeptemberJune 30, 20212022, respectively, primarily due to lower average outstanding borrowings as well as lower interest rates.rates on fixed debt. Refer to “Note 13:11: Debt” in Item 1 of this Quarterly Report on Form 10-Q for additional information.
LossGain on sale of business
A lossGain on sale of $9.3business was $87.6 million was recorded inand $88.2 million for the three and six months ended SeptemberJune 30, 20202021, respectively, related to the sale of the industrial spillDistrupol business. The six months ended June 30, 2021 also included adjustments to the sale price of the Canadian Agriculture services business
Other income, net
Other income, net decreased $0.6 million, or 18.2%, and emergency response businesses, which was completed on September 1, 2020.increased $21.6 million, or 67.5%, for the three and six months ended June 30, 2022, respectively. Refer to “Note 4: Dispositions”6: Supplemental financial information” in Item 1 of this Quarterly Report on Form 10-Q for additional information.
Income tax expense
Income tax expense was $37.7$58.6 million and $27.0 million for the three months ended SeptemberJune 30, 2022 and 2021, respectively, resulting in aneffective income tax rates of 26.5% and 15.0% for the respective periods. Income tax expense was $123.3 million
and $44.6 million for the six months ended June 30, 2022 and 2021, respectively, resulting in effective income tax rates of 26.4% and 16.9% for the respective periods.
Our 2022 effective income tax rate of 30.9%. A discrete tax expense of $0.6 million was included in the $37.7 million tax expense. Our estimated annual effective income tax rate without discrete items was 30.5%, higher than the US federal statutory rate of 21.0%, primarily due to higher rates on foreign earnings, US tax on foreign earnings, US state income taxes and non-deductible employee costs.
Income tax expense was $2.7 million for the three months ended September 30, 2020, resulting in an Our 2021 effective income tax rate of 8.5%. Awas also impacted by these items but offset by other discrete tax benefit of $13.9 million, was included in the $2.7 million tax expense, primarily attributable to the 2019 return to provision adjustments and impairment of unrealizable assets, offset by a reserve for uncertain tax positions. Our estimated annual effective income tax rate without discrete items was 26.8%, higher than the US federal statutory rate of 21.0%. This is primarily due to the impact of the higher tax rates in foreign jurisdictions, non-deductible expenses and US state income taxes.items.
Results of Reportable Business Segments
Our operations are structured into four reportable segments that represent the geographic areas under which we operate and manage our business. Management believes Adjusted EBITDA is an important measure of operating performance, which is used as the primary basis for the chief operating decision maker to evaluate the performance of each of our reportable segments.
We believe certain other financial measures that are not calculated in accordance with US GAAP provide relevant and meaningful information concerning the ongoing operating results of the Company. These financial measures include gross profit (exclusive of depreciation), gross margin and Adjusted EBITDA margin. Such non-GAAP financial measures are referred to from time to time in this report, but should not be viewed as a substitute for GAAP measures of performance and should be considered along with the comparable US GAAP measures. See “Note 19:16: Segments” to our condensed consolidated
financial statements in Item 1 of this Quarterly Report on Form 10-Q, and “Analysis of Segment Results” within this Item and “Non-GAAP Financial Measures” within this Item for additional information.
Analysis of Segment Results
USA | | | Three months ended September 30, | | Favorable (unfavorable) | | % Change | | Three months ended June 30, | | | % Change | | Six months ended June 30, | | % Change |
| (in millions) | (in millions) | 2021 | | 2020 | | (in millions) | 2022 | | 2021 | | | | 2022 | | 2021 | | % Change |
| Net sales: | Net sales: | | | | | | | | Net sales: | | | | | | | | | | |
| External customers | External customers | $ | 1,616.8 | | | $ | 1,254.4 | | | $ | 362.4 | | | 28.9 | % | External customers | $ | 1,970.2 | | | $ | 1,500.2 | | | | 31.3 | % | | $ | 3,813.4 | | | $ | 2,793.2 | | | 36.5 | % |
| Inter-segment | Inter-segment | 28.9 | | | 14.6 | | | 14.3 | | | 97.9 | % | Inter-segment | 43.8 | | | 19.5 | | | | 124.6 | % | | 72.3 | | | 36.9 | | | 95.9 | % |
| Total net sales | Total net sales | $ | 1,645.7 | | | $ | 1,269.0 | | | $ | 376.7 | | | 29.7 | % | Total net sales | $ | 2,014.0 | | | $ | 1,519.7 | | | | 32.5 | % | | $ | 3,885.7 | | | $ | 2,830.1 | | | 37.3 | % |
| Cost of goods sold (exclusive of depreciation) | Cost of goods sold (exclusive of depreciation) | 1,234.8 | | | 946.8 | | | (288.0) | | | 30.4 | % | Cost of goods sold (exclusive of depreciation) | 1,518.8 | | | 1,137.8 | | | | 33.5 | % | | 2,917.6 | | | 2,122.5 | | | 37.5 | % |
| | Outbound freight and handling | Outbound freight and handling | 77.7 | | | 60.1 | | | (17.6) | | | 29.3 | % | Outbound freight and handling | 94.4 | | | 68.8 | | | | 37.2 | % | | 180.2 | | | 132.1 | | | 36.4 | % |
| Warehousing, selling and administrative | Warehousing, selling and administrative | 193.0 | | | 151.8 | | | (41.2) | | | 27.1 | % | Warehousing, selling and administrative | 202.2 | | | 187.5 | | | | 7.8 | % | | 380.1 | | | 348.1 | | | 9.2 | % |
| Adjusted EBITDA | Adjusted EBITDA | $ | 140.2 | | | $ | 110.3 | | | $ | 29.9 | | | 27.1 | % | Adjusted EBITDA | $ | 198.6 | | | $ | 125.6 | | | | 58.1 | % | | $ | 407.8 | | | $ | 227.4 | | | 79.3 | % |
| | | Three months ended September 30, | | Favorable (unfavorable) | | % Change | | Three months ended June 30, | | | % Change | | Six months ended June 30, | | % Change |
| (in millions) | (in millions) | 2021 | | 2020 | | (in millions) | 2022 | | 2021 | | | | 2022 | | 2021 | | % Change |
| Gross profit (exclusive of depreciation): | Gross profit (exclusive of depreciation): | | | | | | | | Gross profit (exclusive of depreciation): | | | | | | | | | | |
| Net sales | Net sales | $ | 1,645.7 | | | $ | 1,269.0 | | | $ | 376.7 | | | 29.7 | % | Net sales | $ | 2,014.0 | | | $ | 1,519.7 | | | | 32.5 | % | | $ | 3,885.7 | | | $ | 2,830.1 | | | 37.3 | % |
| Cost of goods sold (exclusive of depreciation) | Cost of goods sold (exclusive of depreciation) | 1,234.8 | | | 946.8 | | | (288.0) | | | 30.4 | % | Cost of goods sold (exclusive of depreciation) | 1,518.8 | | | 1,137.8 | | | | 33.5 | % | | 2,917.6 | | | 2,122.5 | | | 37.5 | % |
| Gross profit (exclusive of depreciation) | Gross profit (exclusive of depreciation) | $ | 410.9 | | | $ | 322.2 | | | $ | 88.7 | | | 27.5 | % | Gross profit (exclusive of depreciation) | $ | 495.2 | | | $ | 381.9 | | | | 29.7 | % | | $ | 968.1 | | | $ | 707.6 | | | 36.8 | % |
|
External sales in the USA segment increased $362.4$470.0 million, or 28.9%31.3%, and increased $1,020.2 million, or 36.5%, for the three and six months ended SeptemberJune 30, 2021. The increase in external net sales was2022, respectively, primarily due to chemical price inflationour pricing discipline in inflationary markets and higher industrial end market demand.share gains.
Gross profit (exclusive of depreciation) increased $88.7$113.3 million, or 29.7%, and increased $260.5 million, or 36.8%, for the three and six months ended June 30, 2022, respectively, primarily due to our pricing discipline in inflationary markets, operational execution and market share gains, partially offset by input cost inflation. Gross margin decreased from 25.5% for the three months ended June 30, 2021 to 25.1% for the three months ended June 30, 2022 and increased from 25.3% for the six months ended June 30, 2021 to 25.4% for the six months ended June 30, 2022, with both comparable periods impacted by our pricing discipline in inflationary markets and input cost inflation.
Outbound freight and handling expenses increased $25.6 million, or 37.2%, and increased $48.1 million, or 36.4%, for the three and six months ended June 30, 2022, respectively, primarily due to higher costs to deliver caused by supply chain constraints.
WS&A increased $14.7 million, or 7.8%, and increased $32.0 million, or 9.2%, for the three and six months ended June 30, 2022, respectively, primarily due to higher operating costs and variable compensation, partially offset by net synergies. An environmental recovery in 2022 also favorably impacted the six month comparable periods. As a percentage of external sales,
WS&A decreased from 12.5% for the three months ended June 30, 2021 to 10.3% for the three months ended June 30, 2022 and decreased from 12.5% for the six months ended June 30, 2021 to 10.0% for the six months ended June 30, 2022.
Adjusted EBITDA increased $73.0 million, or 58.1%, and increased $180.4 million, or 79.3%, for the three and six months ended June 30, 2022, respectively, primarily driven by higher gross profit (exclusive of depreciation), partially offset by higher outbound freight and handling expenses as well as higher WS&A. Adjusted EBITDA margin increased from 8.4% in the three months ended June 30, 2021 to 10.1% for the three months ended June 30, 2022 and increased from 8.1% in the six months ended June 30, 2021 to 10.7% for the six months ended June 30, 2022, reflecting the business operating leverage.
EMEA
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | | | % Change | | Six months ended June 30, | | % Change |
| (in millions) | 2022 | | 2021 | | | | 2022 | | 2021 | |
| Net sales: | | | | | | | | | | | | | |
| External customers | $ | 547.2 | | | $ | 504.0 | | | | | 8.6 | % | | $ | 1,109.4 | | | $ | 1,009.9 | | | 9.9 | % |
| Inter-segment | 3.0 | | | 1.9 | | | | | 57.9 | % | | 3.7 | | | 2.7 | | | 37.0 | % |
| Total net sales | $ | 550.2 | | | $ | 505.9 | | | | | 8.8 | % | | $ | 1,113.1 | | | $ | 1,012.6 | | | 9.9 | % |
| Cost of goods sold (exclusive of depreciation) | 419.7 | | | 377.8 | | | | | 11.1 | % | | 841.0 | | | 756.3 | | | 11.2 | % |
| Outbound freight and handling | 17.8 | | | 16.1 | | | | | 10.6 | % | | 34.8 | | | 32.0 | | | 8.8 | % |
| Warehousing, selling and administrative | 62.3 | | | 64.2 | | | | | (3.0) | % | | 123.1 | | | 125.9 | | | (2.2) | % |
| Adjusted EBITDA | $ | 50.4 | | | $ | 47.8 | | | | | 5.4 | % | | $ | 114.2 | | | $ | 98.4 | | | 16.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | | | % Change | | Six months ended June 30, | | % Change |
| (in millions) | 2022 | | 2021 | | | | 2022 | | 2021 | |
| Gross profit (exclusive of depreciation): | | | | | | | | | | | | | |
| Net sales | $ | 550.2 | | | $ | 505.9 | | | | | 8.8 | % | | $ | 1,113.1 | | | $ | 1,012.6 | | | 9.9 | % |
| Cost of goods sold (exclusive of depreciation) | 419.7 | | | 377.8 | | | | | 11.1 | % | | 841.0 | | | 756.3 | | | 11.2 | % |
| Gross profit (exclusive of depreciation) | $ | 130.5 | | | $ | 128.1 | | | | | 1.9 | % | | $ | 272.1 | | | $ | 256.3 | | | 6.2 | % |
External sales increased $43.2 million, or 8.6%, and increased $99.5 million, or 9.9%, for the three and six months ended June 30, 2022, respectively. On a constant currency basis, external sales increased $135.7 million, or 26.9%, and increased $256.1 million, or 25.4%, for the three and six months ended June 30, 2022, respectively.The increase was primarily due to our pricing discipline in inflationary markets and market share gains, with the six month comparison period partially offset by the effects of the Distrupol divestiture.
Gross profit (exclusive of depreciation) increased $2.4 million, or 1.9%, and increased $15.8 million, or 6.2%, for the three and six months ended June 30, 2022, respectively. On a constant currency basis, gross profit (exclusive of depreciation) increased $23.7 million, or 18.5%, and increased $52.7 million, or 20.6%, for the three and six months ended June 30, 2022, respectively. The increase was primarily due to our pricing discipline in inflationary markets, operational execution and market share gains, with the six month comparison period partially offset by the effects of the Distrupol divestiture. Gross margin decreased from 25.4% for the three months ended June 30, 2021 to 23.8% for the three months ended June 30, 2022 and decreased from 25.4% for the six months ended June 30, 2021 to 24.5% for the six months ended June 30, 2022, with both comparable periods negatively impacted by input cost inflation, partially offset by our pricing discipline in inflationary markets.
Outbound freight and handling expenses increased $1.7 million, or 10.6%, and increased $2.8 million, or 8.8%, for the three and six months ended June 30, 2022, respectively. On a constant currency basis, outbound freight and handling expenses increased $4.2 million, or 26.1%, and increased $6.7 million, or 20.9%, for the three and six months ended June 30, 2022, respectively, primarily due to higher costs to deliver caused by supply chain constraints.
WS&A decreased $1.9 million, or 3.0%, and decreased $2.8 million, or 2.2%, for the three and six months ended June 30, 2022, respectively. On a constant currency basis, WS&A increased $7.7 million, or 12.0% and increased $12.8 million, or 10.2%, for the three and six months ended June 30, 2022, respectively, primarily due to higher operating costs and variable compensation. As a percentage of external sales, WS&A decreased from 12.7% for the three months ended June 30, 2021 to 11.4% for the three months ended June 30, 2022 and decreased from 12.5% for the six months ended June 30, 2021 to 11.1% for the six months ended June 30, 2022.
Adjusted EBITDA increased $2.6 million, or 5.4%, and increased $15.8 million, or 16.1%, for the three and six months ended June 30, 2022, respectively. On a constant currency basis, adjusted EBITDA increased $11.8 million, or 24.7%, and increased $33.3 million, or 33.8%, for the three and six months ended June 30, 2022, respectively, primarily due to higher gross profit (exclusive of depreciation), partially offset by increased WS&A and by the effects of the Distrupol divestiture for the six month comparable periods. Adjusted EBITDA margin decreased from 9.5% for the three months ended June 30, 2021 to 9.2% for the three months ended June 30, 2022 primarily due to lower gross margin, partially offset by the business operating leverage. Adjusted EBITDA margin increased from 9.7% for the six months ended June 30, 2021 to 10.3% for the six months ended June 30, 2022, reflecting the business operating leverage for the full six month period.
Canada
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | | | % Change | | Six months ended June 30, | | % Change |
| (in millions) | 2022 | | 2021 | | | | 2022 | | 2021 | |
| Net sales: | | | | | | | | | | | | | |
| External customers | $ | 298.2 | | | $ | 238.6 | | | | | 25.0 | % | | $ | 591.6 | | | $ | 461.3 | | | 28.2 | % |
| Inter-segment | 2.5 | | | 1.3 | | | | | 92.3 | % | | 4.3 | | | 2.0 | | | 115.0 | % |
| Total net sales | $ | 300.7 | | | $ | 239.9 | | | | | 25.3 | % | | $ | 595.9 | | | $ | 463.3 | | | 28.6 | % |
| Cost of goods sold (exclusive of depreciation) | 231.2 | | | 181.0 | | | | | 27.7 | % | | 451.9 | | | 348.1 | | | 29.8 | % |
| Outbound freight and handling | 10.2 | | | 9.9 | | | | | 3.0 | % | | 20.1 | | | 19.1 | | | 5.2 | % |
| Warehousing, selling and administrative | 27.3 | | | 24.0 | | | | | 13.8 | % | | 55.2 | | | 44.8 | | | 23.2 | % |
| Adjusted EBITDA | $ | 32.0 | | | $ | 25.0 | | | | | 28.0 | % | | $ | 68.7 | | | $ | 51.3 | | | 33.9 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | | | % Change | | Six months ended June 30, | | % Change |
| (in millions) | 2022 | | 2021 | | | | 2022 | | 2021 | |
| Gross profit (exclusive of depreciation): | | | | | | | | | | | | | |
| Net sales | $ | 300.7 | | | $ | 239.9 | | | | | 25.3 | % | | $ | 595.9 | | | $ | 463.3 | | | 28.6 | % |
| Cost of goods sold (exclusive of depreciation) | 231.2 | | | 181.0 | | | | | 27.7 | % | | 451.9 | | | 348.1 | | | 29.8 | % |
| Gross profit (exclusive of depreciation) | $ | 69.5 | | | $ | 58.9 | | | | | 18.0 | % | | $ | 144.0 | | | $ | 115.2 | | | 25.0 | % |
External sales increased $59.6 million, or 25.0%, and increased $130.3 million, or 28.2%, for the three and six months ended June 30, 2022, respectively. On a constant currency basis, external sales increased $71.2 million, or 29.8%, and increased $142.0 million, or 30.8%, for the three and six months ended June 30, 2022, respectively. The increase was primarily due to our pricing discipline in inflationary markets and market share gains.
Gross profit (exclusive of depreciation) increased $10.6 million, or 18.0%, and increased $28.8 million, or 25.0%, for the three and six months ended June 30, 2022, respectively. On a constant currency basis, gross profit (exclusive of depreciation) increased $13.5 million, or 22.9%, and increased $31.7 million, or 27.5%, for the three and six months ended SeptemberJune 30, 2021,2022, respectively.The increase is primarily attributabledue to chemical price inflationour pricing discipline in inflationary markets, operational execution and higher demand in industrial end markets.market share gains, partially offset by input cost inflation. Gross margin decreased from 25.7%24.7% for the three months ended SeptemberJune 30, 20202021 to 25.4%23.3% for the three months ended SeptemberJune 30, 2022 and decreased from 25.0% for the six months ended June 30, 2021 primarily related to higher24.3% for the six months ended June 30, 2022, with both comparable periods impacted by our pricing discipline in inflationary markets and input cost inflation that led to gross margin compression.inflation.
Outbound freight and handling expenses increased $17.6$0.3 million, or 29.3%3.0%, and increased $1.0 million, or 5.2%, for the three and six months ended SeptemberJune 30, 2021,2022, respectively. On a constant currency basis, outbound freight and handling expenses increased $0.7 million, or 7.1%, and increased $1.4 million, or 7.3%, for the three and six months ended June 30, 2022, respectively.
WS&A increased $3.3 million, or 13.8%, and increased $10.4 million, or 23.2%, for the three and six months ended June 30, 2022, respectively. On a constant currency basis, WS&A increased by $4.4 million, or 18.3%, and increased $11.5 million, or 25.7%, for the three and six months ended June 30, 2022, respectively. The increase is primarily due to higher sales volumesoperating costs and higher costs to deliver.
Warehousing, selling and administrative expenses increased $41.2 million, or 27.1%, for the three months ended September 30, 2021, primarily due to higher variable compensation, operating and environmental remediation costs, partially offset by Nexeo net synergies.compensation. As a percentage of external sales, warehousing, selling and administrative expensesWS&A decreased from 12.1%10.1% for the three months ended SeptemberJune 30, 20202021 to 11.9%9.2% for the three months ended SeptemberJune 30, 2021.2022 and decreased from 9.7% for the six months ended June 30, 2021 to 9.3% for the six months ended June 30, 2022.
Adjusted EBITDA increased by $29.9$7.0 million, or 27.1%28.0%, and increased $17.4 million, or 33.9%, for the three and six months ended June 30, 2022, respectively. On a constant currency basis, Adjusted EBITDA increased $8.4 million, or 33.6%, and increased $18.8 million, or 36.6%, for the three and six months ended June 30, 2022, respectively. The increase is primarily due to higher gross profit (exclusive of depreciation), partially offset by increased WS&A. Adjusted EBITDA margin increased from 10.5% for the three months ended SeptemberJune 30, 2021 primarily due to chemical price inflation and higher industrial end market demand, partially offset by increased warehousing, selling and administrative expenses. Adjusted EBITDA margin decreased from 8.8% in the three months ended September 30, 2020 to 8.7%10.7% for the three months ended SeptemberJune 30, 2021.2022 and increased from 11.1% for the six months ended June 30, 2021 to 11.6% for the six months ended June 30, 2022, reflecting the business operating leverage.
LATAM
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | | | % Change | | Six months ended June 30, | | % Change |
| (in millions) | 2022 | | 2021 | | | | 2022 | | 2021 | |
| Net sales: | | | | | | | | | | | | | |
| External customers | $ | 201.0 | | | $ | 151.3 | | | | | 32.8 | % | | $ | 384.8 | | | $ | 285.1 | | | 35.0 | % |
| Inter-segment | 0.1 | | | — | | | | | | | 0.1 | | | — | | | |
| Total net sales | $ | 201.1 | | | $ | 151.3 | | | | | 32.9 | % | | $ | 384.9 | | | $ | 285.1 | | | 35.0 | % |
| Cost of goods sold (exclusive of depreciation) | 160.3 | | | 117.7 | | | | | 36.2 | % | | 303.6 | | | 219.3 | | | 38.4 | % |
| Outbound freight and handling | 3.3 | | | 3.0 | | | | | 10.0 | % | | 6.5 | | | 6.0 | | | 8.3 | % |
| Warehousing, selling and administrative | 21.3 | | | 17.3 | | | | | 23.1 | % | | 42.4 | | | 30.9 | | | 37.2 | % |
| | | | | | | | | | | | | |
| Adjusted EBITDA | $ | 16.2 | | | $ | 13.3 | | | | | 21.8 | % | | $ | 32.4 | | | $ | 28.9 | | | 12.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | | | % Change | | Six months ended June 30, | | % Change |
| (in millions) | 2022 | | 2021 | | | | 2022 | | 2021 | |
| Gross profit (exclusive of depreciation): | | | | | | | | | | | | | |
| Net sales | $ | 201.1 | | | $ | 151.3 | | | | | 32.9 | % | | $ | 384.9 | | | $ | 285.1 | | | 35.0 | % |
| Cost of goods sold (exclusive of depreciation) | 160.3 | | | 117.7 | | | | | 36.2 | % | | 303.6 | | | 219.3 | | | 38.4 | % |
| Gross profit (exclusive of depreciation) | $ | 40.8 | | | $ | 33.6 | | | | | 21.4 | % | | $ | 81.3 | | | $ | 65.8 | | | 23.6 | % |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
External sales increased $49.7 million, or 32.8%, and increased $99.7 million, or 35.0%, for the three and six months ended June 30, 2022, respectively. On a constant currency basis, external net sales increased $45.6 million, or 30.1%, and increased $93.0 million, or 32.6%, for the three and six months ended June 30, 2022, respectively, primarily due to our pricing discipline in inflationary markets and the Sweetmix acquisition, which contributed 10.4% and 10.9% of the increase for the three and six months ended June 30, 2022, respectively.
Gross profit (exclusive of depreciation) increased $7.2 million, or 21.4%, and increased $15.5 million, or 23.6%, for the three and six months ended June 30, 2022, respectively. On a constant currency basis, gross profit (exclusive of depreciation) increased $6.0 million, or 17.9%, and increased $13.5 million, or 20.5%, for the three and six months ended June 30, 2022, respectively, primarily due to our pricing discipline in inflationary markets and the Sweetmix acquisition, which contributed 8.6% and 10.2% of the increase for the three and six months ended June 30, 2022, respectively. Both comparable periods were also negatively impacted by input cost inflation. Gross margin decreased from 22.2% for the three months ended June 30, 2021 to 20.3% for the three months ended June 30, 2022 and decreased from 23.1% for the six months ended June 30, 2021 to 21.1% for the six months ended June 30, 2022, with both comparable periods impacted by our pricing discipline in inflationary markets and input cost inflation.
Outbound freight and handling expenses increased $0.3 million, or 10.0%, and increased $0.5 million, or 8.3%, for the three and six months ended June 30, 2022, respectively. On a constant currency basis, outbound freight and handling expenses increased $0.3 million, or 10.0%, and increased $0.4 million, or 6.7%, for the three and six months ended June 30, 2022, respectively.
WS&A increased $4.0 million, or 23.1%, and increased $11.5 million, or 37.2%, for the three and six months ended June 30, 2022, respectively. On a constant currency basis, WS&A increased $3.3 million, or 19.1%, and increased $10.5 million, or 34.0%, for the three and six months ended June 30, 2022, respectively, primarily due to increased corporate cost allocation as a result of the SAP implementation and higher operating costs. As a percentage of external sales, WS&A decreased from 11.4% for the three months ended June 30, 2021 to 10.6% for the three months ended June 30, 2022 and increased from 10.8% for the six months ended June 30, 2021 to 11.0% for the six months ended June 30, 2022.
EMEA | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Favorable (unfavorable) | | % Change |
| (in millions) | 2021 | | 2020 | | |
| Net sales: | | | | | | | |
| External customers | $ | 480.3 | | | $ | 399.4 | | | $ | 80.9 | | | 20.3 | % |
| Inter-segment | 0.9 | | | 0.6 | | | 0.3 | | | 50.0 | % |
| Total net sales | $ | 481.2 | | | $ | 400.0 | | | $ | 81.2 | | | 20.3 | % |
| Cost of goods sold (exclusive of depreciation) | 368.1 | | | 301.6 | | | (66.5) | | | 22.0 | % |
| Outbound freight and handling | 16.3 | | | 13.9 | | | (2.4) | | | 17.3 | % |
| Warehousing, selling and administrative | 62.4 | | | 51.2 | | | (11.2) | | | 21.9 | % |
| Adjusted EBITDA | $ | 34.4 | | | $ | 33.3 | | | $ | 1.1 | | | 3.3 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Favorable (unfavorable) | | % Change |
| (in millions) | 2021 | | 2020 | | |
| Gross profit (exclusive of depreciation): | | | | | | | |
| Net sales | $ | 481.2 | | | $ | 400.0 | | | $ | 81.2 | | | 20.3 | % |
| Cost of goods sold (exclusive of depreciation) | 368.1 | | | 301.6 | | | (66.5) | | | 22.0 | % |
| Gross profit (exclusive of depreciation) | $ | 113.1 | | | $ | 98.4 | | | $ | 14.7 | | | 14.9 | % |
External sales in the EMEA segmentAdjusted EBITDA increased $80.9$2.9 million, or 20.3%21.8%, and increased $3.5 million, or 12.1%, for the three and six months ended SeptemberJune 30, 2021. On a constant currency basis, external net sales increased $81.7 million, or 20.5%, primarily due to chemical price inflation and higher industrial end market demand, partially offset by the Distrupol divestiture.
Gross profit (exclusive of depreciation) increased $14.7 million, or 14.9%, for the three months ended September 30, 2021.On a constant currency basis, gross profit (exclusive of depreciation) increased $14.8 million, or 15.0%, primarily due chemical price inflation. Gross margin decreased from 24.6% for the three months ended September 30, 2020 to 23.5% for the three months ended September 30, 2021, primarily driven by higher cost inflation that led to gross margin compression.
Outbound freight and handling expenses increased $2.4 million, or 17.3%, for the three months ended September 30, 2021, primarily due to higher sales volumes and higher costs to deliver.
Warehousing, selling and administrative expenses increased $11.2 million, or 21.9%, for the three months ended September 30, 2021. On a constant currency basis, warehousing, selling and administrative expenses increased $11.3 million, or 22.1%, primarily due to higher variable compensation, severance and other operating costs. As a percentage of external sales, warehousing, selling and administrative expenses increased from 12.8% for the three months ended September 30, 2020 to 13.0% for the three months ended September 30, 2021.
Adjusted EBITDA increased by $1.1 million, or 3.3%, for the three months ended September 30, 2021.2022, respectively. On a constant currency basis, Adjusted EBITDA increased $1.3$2.4 million, or 3.9%18.0%, primarily attributable to chemical price inflation and higher industrialincreased $2.6 million, or 9.0%, for the three and consumer solutions end market demand, partially offset by the Distrupol divestiture and higher warehousing, selling and administrative expenses.six months ended June 30, 2022. Adjusted EBITDA margin decreased from 8.3%8.8% for the three months ended SeptemberJune 30, 20202021 to 7.2%8.1% for the three months ended SeptemberJune 30, 2022 and decreased from 10.1% for the six months ended June 30, 2021 to 8.4% for the six months ended June 30, 2022, primarily as a result offrom lower gross margin, and higher warehousing, selling and administrative expenses.
Canada | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Favorable (unfavorable) | | % Change |
| (in millions) | 2021 | | 2020 | | |
| Net sales: | | | | | | | |
| External customers | $ | 223.3 | | | $ | 234.9 | | | $ | (11.6) | | | (4.9) | % |
| Inter-segment | 0.6 | | | 0.5 | | | 0.1 | | | 20.0 | % |
| Total net sales | $ | 223.9 | | | $ | 235.4 | | | $ | (11.5) | | | (4.9) | % |
| Cost of goods sold (exclusive of depreciation) | 167.1 | | | 188.0 | | | 20.9 | | | (11.1) | % |
| Outbound freight and handling | 8.7 | | | 9.5 | | | 0.8 | | | (8.4) | % |
| Warehousing, selling and administrative | 24.1 | | | 21.3 | | | (2.8) | | | 13.1 | % |
| Adjusted EBITDA | $ | 24.0 | | | $ | 16.6 | | | $ | 7.4 | | | 44.6 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Favorable (unfavorable) | | % Change |
| (in millions) | 2021 | | 2020 | | |
| Gross profit (exclusive of depreciation): | | | | | | | |
| Net sales | $ | 223.9 | | | $ | 235.4 | | | $ | (11.5) | | | (4.9) | % |
| Cost of goods sold (exclusive of depreciation) | 167.1 | | | 188.0 | | | 20.9 | | | (11.1) | % |
| Gross profit (exclusive of depreciation) | $ | 56.8 | | | $ | 47.4 | | | $ | 9.4 | | | 19.8 | % |
External sales in the Canada segment decreased $11.6 million, or 4.9%, for the three months ended September 30, 2021. On a constant currency basis, external net sales decreased $23.7 million, or 10.1%, primarily due to the effects of the Canadian Agriculture wholesale distribution exit and the Canadian Agriculture services divestiture.
Gross profit (exclusive of depreciation) increased $9.4 million, or 19.8%, for the three months ended September 30, 2021.On a constant currency basis, gross profit (exclusive of depreciation) increased $6.2 million, or 13.1%, primarily due to chemical price inflation. Gross margin increased from 20.2% for the three months ended September 30, 2020 to 25.4% for the three months ended September 30, 2021, primarily driven by the effects of the Canadian Agriculture wholesale distribution exit, partially offset by higher cost inflation.
Outbound freight and handling expenses decreased $0.8 million, or 8.4%, for the three months ended September 30, 2021. On a constant currency basis, outbound freight and handling expenses decreased $1.3 million, or 13.7%.
Warehousing, selling and administrative expenses increased by $2.8 million, or 13.1%, for the three months ended September 30, 2021. On a constant currency basis, warehousing, selling and administrative expenses increased $1.5 million, or 7.0%, primarily due to higher environmental remediation costs. As a percentage of external sales, warehousing, selling and administrative expenses increased from 9.1% for the three months ended September 30, 2020 to 10.8% for the three months ended September 30, 2021.
Adjusted EBITDA increased by $7.4 million, or 44.6%, for the three months ended September 30, 2021. On a constant currency basis, Adjusted EBITDA increased $6.0 million, or 36.1%, primarily due to chemical price inflation and the effects of the Canadian Agriculture wholesale distribution exit and the Canadian Agriculture services divestiture. Adjusted EBITDA margin increased from 7.1% for the three months ended September 30, 2020 to 10.7% for the three months ended September 30, 2021, primarily due to higher gross margin.business operating leverage.
LATAM | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Favorable (unfavorable) | | % Change |
| (in millions) | 2021 | | 2020 | | |
| Net sales: | | | | | | | |
| External customers | $ | 167.5 | | | $ | 120.5 | | | $ | 47.0 | | | 39.0 | % |
| Inter-segment | 0.7 | | | — | | | (0.7) | | | N/M |
| Total net sales | $ | 168.2 | | | $ | 120.5 | | | $ | 47.7 | | | 39.6 | % |
| Cost of goods sold (exclusive of depreciation) | 132.6 | | | 92.5 | | | (40.1) | | | 43.4 | % |
| Outbound freight and handling | 3.1 | | | 2.4 | | | (0.7) | | | 29.2 | % |
| Warehousing, selling and administrative | 16.8 | | | 12.5 | | | (4.3) | | | 34.4 | % |
| | | | | | | |
| Adjusted EBITDA | $ | 15.7 | | | $ | 13.1 | | | $ | 2.6 | | | 19.8 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Favorable (unfavorable) | | % Change |
| (in millions) | 2021 | | 2020 | | |
| Gross profit (exclusive of depreciation): | | | | | | | |
| Net sales | $ | 168.2 | | | $ | 120.5 | | | $ | 47.7 | | | 39.6 | % |
| Cost of goods sold (exclusive of depreciation) | 132.6 | | | 92.5 | | | (40.1) | | | 43.4 | % |
| Gross profit (exclusive of depreciation) | $ | 35.6 | | | $ | 28.0 | | | $ | 7.6 | | | 27.1 | % |
| | | | | | | |
| | | | | | | |
| | | | | | | |
External sales in the LATAM segment increased $47.0 million, or 39.0%, for the three months ended September 30, 2021. On a constant currency basis, external net sales increased $38.6 million, or 32.0%, primarily due to chemical price inflation.
Gross profit (exclusive of depreciation) increased $7.6 million, or 27.1%, for the three months ended September 30, 2021. On a constant currency basis, gross profit (exclusive of depreciation) increased $6.1 million, or 21.8%, due to chemical price inflation. Gross margin decreased from 23.2% for the three months ended September 30, 2020 to 21.3% for the three months ended September 30, 2021, primarily driven by higher cost inflation leading to gross margin compression.
Outbound freight and handling expenses increased $0.7 million, or 29.2%, for the three months ended September 30, 2021.
Warehousing, selling and administrative expenses increased $4.3 million, or 34.4%, for the three months ended September 30, 2021. On a constant currency basis, warehousing, selling and administrative expenses increased $3.5 million, or 28.0%, primarily due to higher variable compensation costs. As a percentage of external sales, warehousing, selling and administrative expenses decreased from 10.4% for the three months ended September 30, 2020 to 10.0% for the three months ended September 30, 2021.
Adjusted EBITDA increased by $2.6 million, or 19.8%, for the three months ended September 30, 2021. On a constant currency basis, Adjusted EBITDA increased $2.0 million, or 15.3%, primarily due to chemical price inflation. Adjusted EBITDA margin decreased from 10.9% for the three months ended September 30, 2020 to 9.4% for the three months ended September 30, 2021, primarily as a result of lower gross margins.
Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Nine months ended September 30, | | Favorable
(unfavorable) | | % Change |
| (in millions) | | 2021 | | 2020 | |
| Net sales | | $ | 7,037.4 | | | $ | 6,229.6 | | | $ | 807.8 | | | 13.0 | % |
| Cost of goods sold (exclusive of depreciation) | | 5,276.1 | | | 4,711.9 | | | (564.2) | | | 12.0 | % |
| Operating expenses: | | | | | | | | |
| Outbound freight and handling | | $ | 295.0 | | | $ | 258.1 | | | $ | (36.9) | | | 14.3 | % |
| Warehousing, selling and administrative | | 875.7 | | | 770.5 | | | (105.2) | | | 13.7 | % |
Other operating expenses, net (1) | | 91.8 | | | 75.5 | | | (16.3) | | | 21.6 | % |
| Depreciation | | 117.8 | | | 123.7 | | | 5.9 | | | (4.8) | % |
| Amortization | | 38.7 | | | 45.3 | | | 6.6 | | | (14.6) | % |
| Impairment charges | | 3.0 | | | 37.6 | | | 34.6 | | | (92.0) | % |
| Total operating expenses | | $ | 1,422.0 | | | $ | 1,310.7 | | | $ | (111.3) | | | 8.5 | % |
| Operating income | | $ | 339.3 | | | $ | 207.0 | | | $ | 132.3 | | | 63.9 | % |
| Other income (expense): | | | | | | | | |
| Interest income | | $ | 2.6 | | | $ | 1.7 | | | $ | 0.9 | | | 52.9 | % |
| Interest expense | | (77.1) | | | (87.4) | | | 10.3 | | | (11.8) | % |
| Gain (loss) on sale of business | | 88.2 | | | (17.9) | | | 106.1 | | | N/M |
| Loss on extinguishment of debt | | (2.3) | | | (1.8) | | | (0.5) | | | 27.8 | % |
Other income (expense), net (1) | | 35.4 | | | (1.0) | | | 36.4 | | | N/M |
| Total other income (expense) | | $ | 46.8 | | | $ | (106.4) | | | $ | 153.2 | | | N/M |
| Income before income taxes | | $ | 386.1 | | | $ | 100.6 | | | $ | 285.5 | | | 283.8 | % |
| Income tax expense | | 82.3 | | | 14.0 | | | (68.3) | | | 487.9 | % |
| Net income | | $ | 303.8 | | | $ | 86.6 | | | $ | 217.2 | | | 250.8 | % |
| | | | | | | | |
(1)For the nine months ended September 30, 2020, the fair value adjustment for warrants was reclassified to other income (expense), net, from other operating expenses, net, to conform to the current year presentation. Refer to “Note 2: Significant accounting policies” in Item 1 of this Quarterly Report on Form 10-Q for more information.
Net sales
Net sales increased $807.8 million, or 13.0%, for the nine months ended September 30, 2021. On a constant currency basis, net sales increased $673.4 million, or 10.8%. Net sales increased due to chemical price inflation and higher industrial end market demand. The increase was partially offset by the Canadian Agriculture wholesale distribution exit and the Distrupol divestiture. Refer to the “Analysis of Segment Results” for the nine months ended September 30, 2021 for additional information.
Gross profit (exclusive of depreciation)
Gross profit (exclusive of depreciation) increased $243.6 million, or 16.1%, to $1,761.3 million for the nine months ended September 30, 2021. On a constant currency basis, gross profit (exclusive of depreciation) increased $210.3 million or 13.9%. The increase in gross profit (exclusive of depreciation) was attributable to chemical price inflation and higher industrial end market demand. The increase was partially offset by unfavorable changes in pricing from certain essential end markets as compared to the prior year, and the effect of the Canadian Agriculture services divestiture and the Canadian Agriculture wholesale distribution exit.Refer to the “Analysis of Segment Results” for the nine months ended September 30, 2021 for additional information.
Outbound freight and handling
Outbound freight and handling expenses increased $36.9 million, or 14.3%, for the nine months ended September 30, 2021, primarily due to higher sales volumes and higher costs to deliver. On a constant currency basis, outbound freight and handling expenses increased $31.6 million, or 12.2%. Refer to the “Analysis of Segment Results” for the nine months ended September 30, 2021 for additional information.
Warehousing, selling and administrative
Warehousing, selling and administrative expenses increased $105.2 million, or 13.7%, for the nine months ended September 30, 2021. On a constant currency basis, warehousing, selling and administrative expenses increased $90.3 million, or 11.7%, attributable to higher variable compensation, operating and environmental remediation costs, partially offset by Nexeo
net synergies. Refer to the “Analysis of Segment Results” for the nine months ended September 30, 2021 for additional information.
Other operating expenses, net
Other operating expenses, net increased $16.3 million for the nine months ended September 30, 2021. The increase was primarily due to the withdrawal liability related to operating sites exiting the Central States multi-employer pension plan and higher stock-based compensation expense. The increase was partially offset by lower restructuring charges and other employee severance and facility closure costs. Refer to “Note 6: Other operating expenses, net” in Item 1 of this Quarterly Report on Form 10-Q for additional information.
Depreciation and amortization
Depreciation expense decreased $5.9 million, or 4.8%, for the nine months ended September 30, 2021, primarily due to certain assets reaching the end of their useful lives.
Amortization expense decreased $6.6 million, or 14.6%, for the nine months ended September 30, 2021, primarily due to certain intangibles reaching the end of their useful lives.
Impairment charges
Impairment charges of $3.0 million were recorded in the nine months ended September 30, 2021, related to property, plant and equipment in connection with the announced closure of certain operating facilities within the USA and Canada segments. Impairment charges of $37.6 million were recorded in the nine months ended September 30, 2020 related to property, plant and equipment in connection with the Company’s decision to cease further investment in, and seek to restructure or exit a contract related to, certain technology assets within the Other segment as well as intangibles and property, plant and equipment in connection with the sale of the industrial spill and emergency response businesses within the USA segment and the announced closure of certain production facilities. Refer to “Note 14: Supplemental balance sheet information” in Item 1 of this Quarterly Report on Form 10-Q for additional information.
Interest expense
Interest expense decreased $10.3 million, or 11.8%, for the nine months ended September 30, 2021 due to lower average outstanding borrowings as well as lower interest rates. Refer to “Note 13: Debt” in Item 1 of this Quarterly Report on Form 10-Q for additional information.
Gain (loss) on sale of business
A gain of $88.2 million was recorded in the nine months ended September 30, 2021, primarily related to the sale of the Distrupol business, which was completed on April 1, 2021, and the first quarter post-closing adjustments related to the sale of the Canadian Agriculture services business, which was completed on November 30, 2020. A loss of $17.9 million was recorded in the nine months ended September 30, 2020, primarily related to the sale of the industrial spill and emergency response businesses, which was completed on September 1, 2020, and the working capital adjustment on the sale of the Environmental Sciences business, which was completed on December 31, 2019. Refer to “Note 4: Dispositions” in Item 1 of this Quarterly Report on Form 10-Q for additional information.
Loss on extinguishment of debt
Loss on extinguishment of debt of $2.3 million during the nine months ended September 30, 2021 was driven by the June 2021 debt refinancing and repayment activity and partial prepayment of the Canadian ABL Term Loan. Loss on extinguishment of debt of $1.8 million during the nine months ended September 30, 2020 was driven by the partial repayment of the Term B-3 Loan due 2024. Refer to “Note 13: Debt” in Item 1 of this Quarterly Report on Form 10-Q for additional information.
Other income (expense), net
Other income (expense), net changed $36.4 million, from expense of $1.0 million for the nine months ended September 30, 2020 to income of $35.4 million for the nine months ended September 30, 2021. The change was primarily related to the fair value adjustment on warrants, gains of undesignated swap contracts as well as the increase in non-operating pension income. The change was partially offset by higher debt refinancing costs in connection with the June 2021 debt refinancing and repayment activity and losses on undesignated foreign currency derivative instruments. Refer to “Note 8: Other income (expense), net” in Item 1 of this Quarterly Report on Form 10-Q for additional information.
Income tax expense
Income tax expense was $82.3 million for the nine months ended September 30, 2021, resulting in an effective income tax rate of 21.3%. A discrete tax expense of $2.7 million was included in the $82.3 million tax expense. The Company’s estimated annual effective income tax rate without discrete items was 30.5%, higher than the US federal statutory rate of 21.0%,
primarily due to higher rates on foreign earnings, US tax on foreign earnings, non-deductible employee costs and US state income taxes.
Income tax expense was $14.0 million for the nine months ended September 30, 2020, resulting in an effective income tax rate of 13.9%. A discrete tax benefit of $27.5 million, was included in the $14.0 million tax expense, primarily attributable to the 2019 return to provision adjustments, impairment of unrealizable assets and the benefit resulting from the Coronavirus Aid, Relief and Economic Security Act, offset by uncertain tax positions. The Company’s estimated annual effective income tax rate without discrete items was 29.9%, higher than the US federal statutory rate of 21.0%. This is primarily due to the impact of the higher tax rates in foreign jurisdictions, non-deductible expenses and US state income taxes.
Analysis of Segment Results
USA | | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, | | Favorable (unfavorable) | | % Change |
| (in millions) | 2021 | | 2020 | | |
| Net sales: | | | | | | | |
| External customers | $ | 4,410.0 | | | $ | 3,781.3 | | | $ | 628.7 | | | 16.6 | % |
| Inter-segment | 65.8 | | | 63.3 | | | 2.5 | | | 3.9 | % |
| Total net sales | $ | 4,475.8 | | | $ | 3,844.6 | | | $ | 631.2 | | | 16.4 | % |
| Cost of goods sold (exclusive of depreciation) | 3,357.3 | | | 2,888.4 | | | (468.9) | | | 16.2 | % |
| Outbound freight and handling | 209.8 | | | 178.9 | | | (30.9) | | | 17.3 | % |
| Warehousing, selling and administrative | 541.1 | | | 475.2 | | | (65.9) | | | 13.9 | % |
| Adjusted EBITDA | $ | 367.6 | | | $ | 302.1 | | | $ | 65.5 | | | 21.7 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, | | Favorable (unfavorable) | | % Change |
| (in millions) | 2021 | | 2020 | | |
| Gross profit (exclusive of depreciation): | | | | | | | |
| Net sales | $ | 4,475.8 | | | $ | 3,844.6 | | | $ | 631.2 | | | 16.4 | % |
| Cost of goods sold (exclusive of depreciation) | 3,357.3 | | | 2,888.4 | | | (468.9) | | | 16.2 | % |
| Gross profit (exclusive of depreciation) | $ | 1,118.5 | | | $ | 956.2 | | | $ | 162.3 | | | 17.0 | % |
| | | | | | | |
| | | | | | | |
| | | | | | | |
External sales in the USA segment were increased $628.7 million, or 16.6%, for the nine months ended September 30, 2021. The increase in external net sales was primarily related to chemical price inflation and higher industrial end market demand.
Gross profit (exclusive of depreciation) increased $162.3 million, or 17.0%, for the nine months ended September 30, 2021, primarily due to chemical price inflation and higher industrial end market demand. Gross margin increased from 25.3% for the nine months ended September 30, 2020 to 25.4% for the nine months ended September 30, 2021.
Outbound freight and handling expenses increased $30.9 million, or 17.3%, for the nine months ended September 30, 2021, primarily due to higher costs to deliver and increased sales volumes.
Warehousing, selling and administrative expenses increased $65.9 million, or 13.9%, for the nine months ended September 30, 2021, primarily due to higher variable compensation costs, partially offset by Nexeo net synergies. As a percentage of external sales, warehousing, selling and administrative expenses decreased from 12.6% for the nine months ended September 30, 2020 to 12.3% for the nine months ended September 30, 2021.
Adjusted EBITDA increased by $65.5 million, or 21.7%, for the nine months ended September 30, 2021, primarily as a result of chemical price inflation and higher industrial end market demand, partially offset by higher warehousing, selling and administrative expenses. Adjusted EBITDA margin increased from 8.0% in the nine months ended September 30, 2020 to 8.3% for the nine months ended September 30, 2021, primarily as a result of higher gross margin and increased leverage on warehousing, selling and administrative expenses.
EMEA | | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, | | Favorable (unfavorable) | | % Change |
| (in millions) | 2021 | | 2020 | | |
| Net sales: | | | | | | | |
| External customers | $ | 1,490.2 | | | $ | 1,269.3 | | | $ | 220.9 | | | 17.4 | % |
| Inter-segment | 3.6 | | | 2.3 | | | 1.3 | | | 56.5 | % |
| Total net sales | $ | 1,493.8 | | | $ | 1,271.6 | | | $ | 222.2 | | | 17.5 | % |
| Cost of goods sold (exclusive of depreciation) | 1,124.4 | | | 950.6 | | | (173.8) | | | 18.3 | % |
| Outbound freight and handling | 48.3 | | | 42.8 | | | (5.5) | | | 12.9 | % |
| Warehousing, selling and administrative | 188.3 | | | 164.9 | | | (23.4) | | | 14.2 | % |
| Adjusted EBITDA | $ | 132.8 | | | $ | 113.3 | | | $ | 19.5 | | | 17.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, | | Favorable (unfavorable) | | % Change |
| (in millions) | 2021 | | 2020 | | |
| Gross profit (exclusive of depreciation): | | | | | | | |
| Net sales | $ | 1,493.8 | | | $ | 1,271.6 | | | $ | 222.2 | | | 17.5 | % |
| Cost of goods sold (exclusive of depreciation) | 1,124.4 | | | 950.6 | | | (173.8) | | | 18.3 | % |
| Gross profit (exclusive of depreciation) | $ | 369.4 | | | $ | 321.0 | | | $ | 48.4 | | | 15.1 | % |
External sales in the EMEA segment increased $220.9 million, or 17.4%, for the nine months ended September 30, 2021.On a constant currency basis, external net sales increased $151.2 million, or 11.9%, primarily due to chemical price inflation and higher industrial end market demand, partially offset by the Distrupol divestiture.
Gross profit (exclusive of depreciation) increased $48.4 million, or 15.1%, for the nine months ended September 30, 2021. On a constant currency basis, gross profit (exclusive of depreciation) increased $29.7 million, or 9.3%, primarily due to chemical price inflation. Gross margin decreased from 25.3% for the nine months ended September 30, 2020 to 24.8% for the nine months ended September 30, 2021, primarily driven by unfavorable changes in pricing from certain essential end markets as compared to the prior year and higher cost inflation that led to gross margin compression.
Outbound freight and handling expenses increased $5.5 million, or 12.9%, for the nine months ended September 30, 2021. On a constant currency basis, outbound freight and handling expenses increased $2.7 million, or 6.3%.
Warehousing, selling and administrative expenses increased $23.4 million, or 14.2%, for the nine months ended September 30, 2021. On a constant currency basis, warehousing, selling and administrative expenses increased $14.5 million, or 8.8%, primarily due to higher variable compensation, severance and other operating costs. As a percentage of external sales, warehousing, selling and administrative expenses decreased from 13.0% for the nine months ended September 30, 2020 to 12.6% for the nine months ended September 30, 2021.
Adjusted EBITDA increased by $19.5 million, or 17.2%, for the nine months ended September 30, 2021. On a constant currency basis, Adjusted EBITDA increased $12.5 million, or 11.0%, attributable to chemical price inflation and higher industrial end market demand, partially offset by the Distrupol divestiture and market pressures in essential end markets and pharmaceutical finished goods product line. Adjusted EBITDA margin was consistent at 8.9% for both of the nine month periods ended September 30, 2021 and 2020.
Canada | | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, | | Favorable (unfavorable) | | % Change |
| (in millions) | 2021 | | 2020 | | |
| Net sales: | | | | | | | |
| External customers | $ | 684.6 | | | $ | 852.2 | | | $ | (167.6) | | | (19.7) | % |
| Inter-segment | 2.6 | | | 2.0 | | | 0.6 | | | 30.0 | % |
| Total net sales | $ | 687.2 | | | $ | 854.2 | | | $ | (167.0) | | | (19.6) | % |
| Cost of goods sold (exclusive of depreciation) | 515.2 | | | 689.6 | | | 174.4 | | | (25.3) | % |
| Outbound freight and handling | 27.8 | | | 29.4 | | | 1.6 | | | (5.4) | % |
| Warehousing, selling and administrative | 68.9 | | | 66.1 | | | (2.8) | | | 4.2 | % |
| Adjusted EBITDA | $ | 75.3 | | | $ | 69.1 | | | $ | 6.2 | | | 9.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, | | Favorable (unfavorable) | | % Change |
| (in millions) | 2021 | | 2020 | | |
| Gross profit (exclusive of depreciation): | | | | | | | |
| Net sales | $ | 687.2 | | | $ | 854.2 | | | $ | (167.0) | | | (19.6) | % |
| Cost of goods sold (exclusive of depreciation) | 515.2 | | | 689.6 | | | 174.4 | | | (25.3) | % |
| Gross profit (exclusive of depreciation) | $ | 172.0 | | | $ | 164.6 | | | $ | 7.4 | | | 4.5 | % |
External sales in the Canada segment decreased $167.6 million, or 19.7%, for the nine months ended September 30, 2021. On a constant currency basis, external net sales decreased $219.4 million, or 25.7%, primarily due to the effects of the Canadian Agriculture wholesale distribution exit and the Canadian Agriculture services divestiture.
Gross profit (exclusive of depreciation) increased $7.4 million, or 4.5%, for the nine months ended September 30, 2021. On a constant currency basis, gross profit (exclusive of depreciation) decreased $5.6 million, or 3.4%, primarily due to the Canadian Agriculture services divestiture. Gross margin increased from 19.3% for the nine months ended September 30, 2020 to 25.1% for the nine months ended September 30, 2021, primarily driven by the effects of the Canadian Agriculture wholesale distribution exit and favorable changes in product mix.
Outbound freight and handling expenses decreased $1.6 million, or 5.4%, for the nine months ended September 30, 2021, primarily due to lower sales volumes.
Warehousing, selling and administrative expenses decreased $2.8 million, or 4.2%, for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. On a constant currency basis, warehousing, selling and administrative expenses decreased $2.3 million, or 3.5%, primarily due to the effects of the Canadian Agriculture wholesale distribution exit and the Canadian Agriculture services divestiture, partially offset by higher other operating costs. As a percentage of external sales, warehousing, selling and administrative expenses increased from 7.8% for the nine months ended September 30, 2020 to 10.1% for the nine months ended September 30, 2021.
Adjusted EBITDA increased by $6.2 million, or 9.0%, for the nine months ended September 30, 2021. On a constant currency basis, Adjusted EBITDA increased $0.4 million, or 0.6%. Adjusted EBITDA margin increased from 8.1% for the nine months ended September 30, 2020 to 11.0% for the nine months ended September 30, 2021, primarily due to higher gross margin.
LATAM | | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, | | Favorable (unfavorable) | | % Change |
| (in millions) | 2021 | | 2020 | | |
| Net sales: | | | | | | | |
| External customers | $ | 452.6 | | | $ | 326.8 | | | $ | 125.8 | | | 38.5 | % |
| Inter-segment | 0.7 | | | — | | | 0.7 | | | N/M |
Total net sales(1) | $ | 453.3 | | | $ | 326.8 | | | $ | 126.5 | | | 38.7 | % |
| Cost of goods sold (exclusive of depreciation) | 351.9 | | | 250.9 | | | (101.0) | | | 40.3 | % |
| Outbound freight and handling | 9.1 | | | 7.0 | | | (2.1) | | | 30.0 | % |
| Warehousing, selling and administrative | 47.7 | | | 36.8 | | | (10.9) | | | 29.6 | % |
Brazil VAT charge (1) | — | | | 0.3 | | | (0.3) | | | (100.0) | % |
Adjusted EBITDA (1) | $ | 44.6 | | | $ | 32.4 | | | $ | 12.2 | | | 37.7 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, | | Favorable (unfavorable) | | % Change |
| (in millions) | 2021 | | 2020 | | |
| Gross profit (exclusive of depreciation): | | | | | | | |
| Net sales | $ | 453.3 | | | $ | 326.8 | | | $ | 126.5 | | | 38.7 | % |
| Cost of goods sold (exclusive of depreciation) | 351.9 | | | 250.9 | | | (101.0) | | | 40.3 | % |
Gross profit (exclusive of depreciation) (1) | $ | 101.4 | | | $ | 75.9 | | | $ | 25.5 | | | 33.6 | % |
Brazil VAT charge (1) | — | | | 0.4 | | | (0.4) | | | (100.0) | % |
| Adjusted gross profit (exclusive of depreciation) | $ | 101.4 | | | $ | 76.3 | | | $ | 25.1 | | | 32.9 | % |
| | | | | | | |
(1)Included in net sales and gross profit (exclusive of depreciation) is a $0.4 million Brazil VAT charge completing a net claim recovery recorded during the nine months ended September 30, 2020. The charge of $0.3 million, net of associated fees, is excluded from Adjusted EBITDA.
External sales in the LATAM segment increased $125.8 million, or 38.5%, for the nine months ended September 30, 2021. On a constant currency basis, external net sales increased $112.8 million, or 34.5%, primarily due to chemical price inflation and higher industrial end market demand.
Gross profit (exclusive of depreciation) increased $25.5 million, or 33.6%, for the nine months ended September 30, 2021. On a constant currency basis, gross profit (exclusive of depreciation) increased $23.9 million, or 31.5%, due to favorable changes in product mix from industrial solutions. Gross margin decreased from 23.2% for the nine months ended September 30, 2020 to 22.4% for the nine months ended September 30, 2021, primarily driven by unfavorable changes in pricing from certain essential end markets as compared to the prior year.
Outbound freight and handling expenses increased $2.1 million, or 30.0%, for the nine months ended September 30, 2021, primarily due to higher sales volumes.
Warehousing, selling and administrative expenses increased $10.9 million, or 29.6%, for the nine months ended September 30, 2021. On a constant currency basis, warehousing, selling and administrative expenses increased $10.1 million, or 27.4%, primarily due to higher variable compensation costs. As a percentage of external sales, warehousing, selling and administrative expenses decreased from 11.3% for the nine months ended September 30, 2020 to 10.5% for the nine months ended September 30, 2021.
Adjusted EBITDA increased by $12.2 million, or 37.7%, for the nine months ended September 30, 2021. On a constant currency basis, Adjusted EBITDA increased $11.8 million, or 36.4%, primarily due to higher demand for our products in industrial solutions and chemical price inflation. Adjusted EBITDA margin was consistent at 9.9% for both of the nine month periods ended September 30, 2021 and 2020.
Liquidity and Capital Resources
The Company’s primary sources of liquidity are cash generated from its operations and borrowings under its committed North American and European credit facilities (“credit facilities”). As of SeptemberJune 30, 2021,2022, liquidity for the Company was $996.7$1,011.8 million, comprised of $220.8$234.8 million of cash and cash equivalents and $775.9$777.0 million of available borrowings under our credit facilities. These credit facilities are guaranteed by certain significant subsidiaries and secured by such parties’ eligible trade receivables and inventory with the maximum borrowing capacity under these credit facilities of $1.5 billion and €200 million. Significant reductions in the Company’sour trade receivables and inventory would reduce our availability to access liquidity under these credit facilities. The Company hasWe have no active financial maintenance covenants in itsour credit agreements,
however, there is a springing fixed charge coverage ratio (“FCCR”) under the revolving credit facilities of 1.0x, applicable only if availability is less than or equal to 10% of the borrowing capacity. If the FCCR was applicable, the calculation would have been 5.8x7.4x as of SeptemberJune 30, 2021.2022.
The Company’sOur primary short-term liquidity and capital resource needs are to service its debt and to finance operating expenses, working capital, capital expenditures, other liabilities costs of integrationincluding environmental remediation and interest, possible business acquisitions, share repurchases and general corporate purposes. The majority of the Company'sour debt obligations mature in 2026 and beyond. To the extent that our cash balances from time to time exceed amounts that are needed to fund our immediate liquidity requirements, we will consider alternative uses of some or all of such excess cash. Such alternatives may include, among others, the redemption or repurchase of debt securities or other borrowings through open market purchases, privately negotiated transactions or otherwise. Refer to “Note 13:11: Debt” in Item 1 of this Quarterly Report on Form 10-Q for additional information related to the Company’sour debt obligations. Management continues to balance its focus on sales and earnings growth with continuing efforts in cost control and working capital management.
Access to debt capital markets has historically provided the Company with sources of liquidity, beyond normal operating cash flows. We do not anticipate having difficulty in obtaining financing from those markets in the future with our history of favorable results in the debt capital markets and strong relationships with global financial institutions. However, our ability to continue to access the debt capital markets with favorable interest rates and other terms will depend, to a significant degree, on maintaining our current ratings assigned by the credit rating agencies.
We expect our 20212022 capital expenditures to be approximately $135 million to $145 million for maintenance and growth, including safety, and cost improvements and investments in our digital capabilitiesESG investments. Interest payments for 2022 are expected to be approximately $110$85 million to $120$95 million.
On February 26, 2021, using the proceeds We expect to fund our capital expenditures and our interest payments with cash from the sale of the Canadian Agriculture services business and existing cash, the Company prepaid $47.1 million of debt outstanding under the Canadian ABL Term Loan. On August 5, 2021, using availableoperations or cash on hand, the Company prepaid $48.0 million under the Canadian ABL Term Loan. On October 7, 2021, the Company prepaid the remaining debt outstanding under the Canadian ABL Term Loan, which resulted in the full extinguishment of the loan. Refer to “Note 13: Debt” in Item 1 of this Quarterly Report on Form 10-Q for additional information.
On June 3, 2021, the Company entered into the Sixth Amendment to its Credit Agreement, dated July 1, 2015, which provided a new Term B-6 Loan facility in an aggregate principal amount of $1.0 billion that matures on June 3, 2028. The proceeds from the new Term B-6 Loan facility and an incremental borrowing of $274.2 million under the Company's existing North American ABL facility were used to repay in full the outstanding Term B-3 Loan facility and satisfy related lending and refinancing fees. Refer to “Note 13: Debt” in Item 1 of this Quarterly Report on Form 10-Q for additional information.
In September 2021, the Company entered into an agreement to acquire 100% of the equity interest of a Food, CASE and Pharma specialty chemicals company in Brazil. The Company anticipates this acquisition to close in late 2021 or early 2022, subject to regulatory approval, with approximately $30 million due upon closing and subsequent amounts to be paid in accordance with the agreement terms. The acquisition is not expected to have a significant impact on the consolidated financial statements of the Company.
In October 2021, the Company's Board of Directors approved a share repurchase program authorizing the repurchase of up to $500million of the Company's outstanding common stock ("shares”) over then next five years. The program does not require the repurchase of any minimum number of shares and may be suspended, modified or discontinued at any time at the Company's discretion. Under the share repurchase program, the Company may purchase shares from time to time at the discretion of management through open market purchases, privately negotiated transactions, block trades, accelerated or other structured share repurchase programs, or other means. The manner, timing, pricing and amount of any share repurchase transactions will be based upon a variety of factors, including market conditions, applicable legal requirements and alternative opportunities that the Company may have for the use or investment of capital.hand.
We believe funds provided by our primary sources of liquidity will be adequate to meet our liquidity, debt repayment obligations and capital resource needs for at least the next 12 months under current operating conditions.
Cash Flows
The following table presents a summary of our cash flows:
| | | | | | | | | | | | | | | | | | | | |
| | | Nine months ended September 30, | | Inflow
(outflow) |
| (in millions) | | 2021 | | 2020 | |
| Net cash provided by operating activities | | $ | 115.1 | | | $ | 81.6 | | | $ | 33.5 | |
| Net cash provided (used) by investing activities | | 79.0 | | | (74.2) | | | 153.2 | |
| Net cash used by financing activities | | (347.4) | | | (58.9) | | | (288.5) | |
| Effect of exchange rate changes on cash and cash equivalents | | (12.5) | | | (5.1) | | | (7.4) | |
| Net decrease in cash and cash equivalents | | $ | (165.8) | | | $ | (56.6) | | | $ | (109.2) | |
| | | | | | | | | | | | | | | | | | | | |
| | | Six months ended June 30, | | Change |
| (in millions) | | 2022 | | 2021 | |
| Net cash used by operating activities | | $ | (86.2) | | | $ | (8.6) | | | $ | (77.6) | |
| Net cash (used) provided by investing activities | | (65.4) | | | 103.6 | | | (169.0) | |
| Net cash provided (used) by financing activities | | 154.7 | | | (269.7) | | | 424.4 | |
Cash ProvidedUsed by Operating Activities
Cash providedused by operating activities increased $33.5$77.6 million for the ninesix months ended SeptemberJune 30, 2021.2022. The increase in operating cash usage is primarily due to higher net income compared to 2020changes in trade working capital and the change in other, net, partially offset by trade working capital cash flows. The change inhigher net income, exclusive of non-cash items, provided net cash inflows of $52.3 million from cash inflows of $374.0 million and $321.7 million for the nine months ended September 30, 2021 and 2020, respectively. Refer to “Results of Operations” above for additional information.items.
Cash used by trade working capital, which includes trade accounts receivable, net, inventories and trade accounts payable, increased $181.9$212.1 million for the ninesix months ended SeptemberJune 30, 20212022 as compared to the ninesix months ended SeptemberJune 30, 2020.2021. The year-over-year increase in cash used by trade working capital is due to increased inventory purchase costs and higher trade accounts receivable from improved sales andpayable primarily attributable to increased inventory purchases in the current year.
The change in net income, exclusive of non-cash items, increased $252.5 million from $215.8 million for the six months ended June 30, 2021 to $468.3 million for the six months ended June 30, 2022. Cash providedused by other, net increased $176.9$123.3 million for the ninesix months ended SeptemberJune 30, 20212022 as compared to the ninesix months ended SeptemberJune 30, 2020. The year-over-year increase in cash provided by other, net is2021, primarily attributable to current year increases in accrued compensation current year multi-employer pension plan withdrawal liabilitiesand tax payments and timing differences inrelated to other assets and liabilities.
Cash (Used) Provided by Investing Activities
Investing cash flows for the six months ended June 30, 2022 included capital expenditures of $64.8 million, cash paid of $3.8 million for Sweetmix acquisition purchase price adjustments and proceeds of $3.2 million from the sale of property, plant and equipment. Investing cash flows for the six months ended June 30, 2021 included proceeds of $136.3 million from the sale of Distrupol business, capital expenditures of $38.9 million and proceeds of $8.5 million from the sale of property, plant and equipment.
Cash Provided (Used) by Investing Activities
Cash provided (used) by investing activities increased $153.2 million for the nine months ended September 30, 2021. The increase is primarily due to proceeds of $136.7 million from the current year sale of the Distrupol business. Refer to “Note 4: Dispositions” in Item 1 of this Quarterly Report on Form 10-Q for additional information related to the Company's dispositions.
Cash Used by Financing Activities
Cash used by financing activities increased $288.5 millionFinancing cash flows for the ninesix months ended SeptemberJune 30, 2021. The increase is primarily due to increased2022 included proceeds under revolving credit facilities of $925.6 million, payments under revolving credit facilities of $609.5 million, long-term debt repayments duringof $68.0 million and share repurchases of $104.6 million. Financing cash flows for the ninesix months ended SeptemberJune 30, 2021 as compared to the nine months ended September 30, 2020. Refer to “Note 13: Debt” in Item 1included proceeds under revolving credit facilities of this Quarterly Report on Form 10-Q for additional information. The financing cash outflows were partially offset by the current year issuance$1,352.2 million, payments under revolving credit facilities of $1,326.7 million, long term debt issuances of $995.0 million and long-term debt and proceeds from the exerciserepayments of outstanding warrants and stock options.$1,330.0 million.
Off-Balance Sheet Arrangements
There were no material changes in the Company’s off-balance sheet arrangements since the filing of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.2021.
Contractual Obligations and Commitments
There were no material changes in the Company’s contractual obligations and commitments since the filing of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020,2021, other than as disclosed in “Note 9: Employee benefit plans” and “Note 13:11: Debt” to the interim condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q, as well as the "Liquidity“Liquidity and Capital Resources"Resources” included in Item 2 of this Quarterly Report on Form 10-Q.
Critical Accounting Estimates
There were no material changes in the Company’s critical accounting estimates since the filing of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.2021.
Recently Issued Accounting Pronouncements
See “Note 2:1: Significant accounting policies” to the interim condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.
Forward Looking Statements and Information
Certain parts of this Quarterly Report on Form 10-Q contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are generally accompanied by words such as “believes,” “expects,” “may,” “will,” “should,” “could,” “seeks,” “intends,” “plans,” “estimates,” “anticipates” or other comparable terms. All forward-looking statements made in this Quarterly Report on Form 10-Q are qualified by these cautionary statements.
Any forward-looking statements represent our views only as of the date of this report and should not be relied upon as representing our views as of any subsequent date, and we undertake no obligation, other than as may be required by law, to update any forward-looking statement. We caution you that forward-looking statements are not guarantees of future performance and that our actual performance may differ materially from those made in or suggested by the forward-looking statements contained in this Quarterly Report on Form 10-Q. Forward-looking statements include, but are not limited to, statements about:
•the impact of general economic conditions, supplier shut-downs, port congestion, acute COVID-19 pandemic recovery demand, the Russia-Ukraine conflict and weather events on our end markets, operations, financial condition and operating results;
•our expense control and cost reduction plans and other strategic plans and initiatives;
•demand for products, systems and services that meet growing customer sustainability standards, expectations and preferences and our ability to provide such products, systems and services to maintain our competitive position;
•our ability to sell specialty products at higher profit;
•our liquidity outlook and the funding thereof, and cash requirements and adequacy of resources to fund them;
•the impact of ongoing tax guidance and interpretations;
•the impact of the COVID-19 pandemic, weather events and economic conditions on our end markets, operations, financial condition and operating results;
•our expense control and cost reduction plans and other strategic plans and initiatives;
•our ability to solve customer technical challenges and accelerate product development cycles;
•our ability to sell specialty products at higher profit;
•significant factors that may adversely affect us and our industry;
•the outcome and effect of ongoing and future legal proceedings;
•market conditions and outlook;
•return of capital to shareholders;
•future contributions to, and withdrawal liability in connection with, our pension plans and cash payments for postretirement benefits; and
•future capital expenditures and investments.
Potential factors that could affect such forward-looking statements include, among others:
•general economic conditions, particularly fluctuations in industrial production and consumption and the timing and extent of economic downturns;
•significant changes in the pricing, demand and availability of chemicals;
•increases in transportation and fuel costs and changes in our relationship with third party providers;
•significant changes in the business strategies of producers or in the operations of our customers;
•increased competitive pressures, including as a result of competitor consolidation;
•potential supply chain disruptions;
•significant changes in the sustained geographic spreadpricing, demand and availability of the COVID-19 pandemic, the duration and severity of the COVID-19 pandemic, current and new actions that may be taken by governmental authorities to address or otherwise mitigate the impact of the COVID-19 pandemic, the potential negative impacts of COVID-19 on the global economy and our employees, customers, vendors and suppliers, and the overall impact of the COVID-19 pandemic on our business, results of operations and financial condition;chemicals;
•our indebtedness, the restrictions imposed by, and costs associated with, our debt instruments, and our ability to obtain additional financing;
•potential business disruptions and security breaches, including cybersecurity incidents;
•increased competitive pressures, including as a result of competitor consolidation;
•the broad spectrum of laws and regulations that we are subject to, including extensive environmental, health and safety laws and regulations;regulations and changes in tax laws;
•potential cybersecurity incidents, including security breaches;
•an inability to generate sufficient working capital;
•transportation related challenges, including increases in transportation and fuel costs, changes in our relationship with third party transportation providers, and ability to attract and retain qualified drivers;
•accidents, safety failures, environmental damage, product quality issues, delivery failures or hazards and risks related to our operations and the hazardous materials we handle;
•potential inability to obtain adequate insurance coverage;
•ongoing litigation, potential product liability claims and recalls, and other environmental, legal and regulatory risks;
•challenges associated with international operations;
•exposure to interest rate and currency fluctuations;
•risks associated with integration of legacy business systems;
•possible impairment of goodwill and intangible assets;
•the ongoing and evolving COVID-19 pandemic, including impacts on the global economy, our employees, customers, vendors and suppliers, and our business, results of operations and financial condition;
•an inability to integrate the business and systems of companies we acquire, including failure to realize the anticipated benefits of such acquisitions;
•negative developments affecting our pension plans and multi-employer pensions;
•labor disruptions associated with the unionized portion of our workforce;
•our ability to attract or retain a qualified and diverse workforce; and
•our ability to execute on our strategies related to environmental, social, and governance matters, and achieve related expectations may be impacted as a result of evolving regulatory and other standards, processes, and assumptions, the pace of scientific and technological developments, increased costs and the availability of requisite financing and changes in carbon markets; and
•the other factors described in the Company'sCompany’s filings with the Securities and Exchange Commission.
The Quarterly Report on Form 10-Q, including the uncertainties and factors discussed under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 20202021 should be read in full and with the understanding that actual future results may be materially different from expectations expressed or implied by any forward-looking statement. All forward-looking statements made in this Quarterly Report on Form 10-Q are qualified by these cautionary statements. These forward-looking statements are made only as of the date of this Quarterly Report on Form 10-Q 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.
Non-GAAP Financial Measures
We monitor the results of our reportable segments separately for the purposes of making decisions about resource allocation and performance assessment. Weassessment, and evaluate performance using Adjusted EBITDA. Additionally, the Company uses Adjusted EBITDA in setting performance incentive targets to align management compensation measurement with operational performance.
We define Adjusted EBITDA as the sum of consolidated net income, plus the sum of:income; depreciation; amortization; net interest expense, net of interest income;expense; income tax expense; impairment charges; (gain) loss on sale of business; loss on extinguishment of debt; other operating expenses, net (seeand other income, net (for both, see “Note 6: Other operating expenses, net”Supplemental financial information” in Item 1 of this Quarterly Report on Form 10-Q for additional information); and other income (expense), net (see “Note 8: Other income (expense), net” in Item 1 of this Quarterly Report on Form 10-Q for additional information), and in 2020, Brazil VAT charge.. For a reconciliation of the non-GAAP financial measures to its most comparable GAAP measure, see “Analysis of Segment Results” within this Item and for a reconciliation of net income to Adjusted EBITDA, the most comparable measure calculated
in accordance with GAAP, see “Note 19:16: Segments” to our condensed consolidated financial statements in Item 1 of this Quarterly Report on Form 10-Q.
We believe other financial measures, as defined below, 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 (exclusive of depreciation), adjusted gross profit (exclusive of depreciation), gross margin and Adjusted EBITDA margin. We define these financial measures as follows:
•Gross profit (exclusive of depreciation): net sales less cost of goods sold (exclusive of depreciation);
•Adjusted gross profit (exclusive of depreciation): net sales less cost of goods sold (exclusive of depreciation) plus Brazil VAT charge;
•Gross margin: gross profit (exclusive of depreciation) divided by external sales on a segment level and by net sales on a consolidated level; and
•Adjusted EBITDA margin: Adjusted EBITDA divided by external sales on a segment level and by net sales on a consolidated level.
Management believes Adjusted EBITDA, Adjusted EBITDA margin, gross profit (exclusiveWe evaluate our results of depreciation), adjusted gross profit (exclusiveoperations 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 depreciation)fluctuations in foreign currency exchange rates. We believe providing information on a constant currency basis provides valuable supplemental information regarding our results of operations, consistent with how we evaluate our performance. We calculate constant currency percentages and gross marginother information by converting our financial results in local currency for a period using the average exchange rate for the prior period to which we are important measures in assessing operating performance. comparing.
The non-GAAP financial measures noted above are not calculated in accordance with GAAP and should not be considered a substitute for net income or any other measure of financial performance presented in accordance with GAAP. They are included as a complement to results provided in accordance with GAAP because management believes these non-GAAP financial measures help investors’ ability to analyze underlying trends in the Company’s business, evaluate its performance relative to other companies in its industry and provide useful information to both management and investors by excluding certain items that may not be indicative of the Company’s core operating results. Additionally, the Company uses Adjusted EBITDA in setting performance incentive targets to align management compensation measurement with operational performance. Adjusted EBITDA, Adjusted EBITDA margin, gross profit (exclusive of depreciation), adjusted gross profit (exclusive of depreciation) and gross margin are not measures calculated in accordance with GAAP and should not be considered a substitute for net income or any other measure of financial performance presented in accordance with GAAP. Additionally, other companies may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There were no material changes from the “Quantitative and Qualitative Disclosure about Market Risk” disclosed in Part II, Item 7A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of the Company’s management, including the principal executive officer and principal financial officer, the Company conducted an evaluation as of SeptemberJune 30, 20212022 of the effectiveness of the design and operation of its disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, the principal executive officer and principal financial officer concluded the Company’s disclosure controls and procedures were effective as of SeptemberJune 30, 2021.2022.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended SeptemberJune 30, 20212022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings
Information pertaining to legal proceedings can be found in Note 1714 to the interim condensed consolidated financial statements included in Part I, Financial Statements of this report.
Item 1A. Risk Factors
There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.Information on our common stock share repurchases during the second quarter of 2022 is provided below:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of a Publicly Announced Plan or Program(1) | | Maximum Approximate Dollar Value of Shares that may yet be Purchased Under the Plan or Program (millions)(1) |
| April 1-30, 2022 | | 454,637 | | | $ | 31.36 | | | 454,637 | | | $ | 411.7 | |
| May 1-31, 2022 | | 1,749,226 | | | 28.66 | | | 1,749,226 | | | 361.6 | |
| June 1-30, 2022 | | 552,558 | | | 29.31 | | | 552,558 | | | 345.4 | |
| Total | | 2,756,421 | | | 29.24 | | | 2,756,421 | | | |
| | | | | | | | |
(1)As announced on November 1, 2021, our Board of Directors authorized the repurchase of up to $500.0 million of our outstanding common stock, which expires on October 27, 2026.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
Item 6. Exhibits | | | | | | | | |
| Exhibit Number | | Exhibit Description |
| | |
| | Letter Agreement between the Company and Nicholas Powell, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of the Company, filed on September 17, 2021 |
| | |
| | Letter Agreement between the Company and Jennifer McIntyre |
| | |
| | Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| |
| | Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| |
| | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| | |
| | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| | |
| 101.INS | | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
| | |
| 101.SCH | | Inline XBRL Taxonomy Extension Schema Document |
| | |
| 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| | |
| 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| | |
| 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document |
| | |
| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| | |
| 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
_______________________ | | | | | |
† | Identifies each management compensation plan or arrangement |
| * | Filed herewith |
| ** | Furnished herewith |
SIGNATURES
Pursuant to the requirements 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.
| | | | | | | | |
Univar Solutions Inc.
(Registrant) |
| |
| By: | | /s/ David C. Jukes |
| | David C. Jukes
President and Chief Executive Officer |
Date: NovemberAugust 2, 20212022
| | | | | | | | |
| By: | | /s/ Nicholas W. Alexos |
| | Nicholas W. Alexos
Executive Vice President and Chief Financial Officer |
Date: NovemberAugust 2, 20212022