Discontinued Operations, Divestitures and Acquisitions

Discontinued Operations

On March 25, 2017, we entered into a definitive agreement to sell our Diversey Care division and the Food Hygiene and Cleaning business within our Food Care division for gross proceeds of USD equivalent of $3.2 billion, subject to customary closing conditions. The transaction was completed on September 6, 2017. We recorded a net gain on the sale of Diversey of $640.7 million, net of taxes of $197.5 million. We intend to use the cash generated from this transaction to repay debt and maintain our credit profile, repurchase shares to minimize earnings dilution, and fund core growth initiatives, including potential complementary acquisitions to our Food Care and Product Care divisions.

The sale of Diversey will allow us to enhance our strategic focus on the Food Care and Product Care divisions and simplify our operating structure. We have classified the operating results from this business, together with certain costs related to the divestiture transaction, as discontinued operations, net of tax, in the Consolidated Statements of Operations for the three years ended December 31, 2017, 2016 and 2015. Assets and liabilities of this business are classified as “held for sale” in the Consolidated Balance Sheets as of December 31, 2016.

Summary operating results of Diversey were as follows:



	Year Ended December 31,
(In millions)	2017			2016			2015
Net sales	$	1,669.0		$	2,567.0		$	2,621.2
Cost of sales	950.4			1,440.3			1,489.8
Gross profit	718.6			1,126.7			1,131.4
Selling, general and administrative expenses	538.3			859.2			907.8
Amortization expense of intangible assets acquired	23.9			79.9			77.6
Operating profit	156.4			187.6			146.0
Other expense, net	(17.0		)	(9.7		)	(11.4		)
Earnings from discontinued operations before income tax (benefit) provision	139.4			177.9			134.6
Income tax (benefit) provision from discontinued operations⁽¹⁾	28.0			(16.2		)	(42.0		)
Net earnings from discontinued operations	$	111.4		$	194.1		$	176.6

⁽¹⁾

For the year ended December 31, 2017, net earnings from discontinued operations included tax expense of $28.0 million, primarily driven by a change in our repatriation strategy and offset by a favorable earnings mix in jurisdictions with lower rates. For the year ended December 31, 2016, net earnings from discontinued operations were impacted by tax benefits of $16.2 million, primarily related to the release of reserves and favorable earnings mix in jurisdictions with lower tax rates. For the year ended December 31, 2015, net earnings from discontinued operations were impacted by tax benefits of $42.0 million, primarily related to the release of reserves and favorable earnings mix in jurisdictions with lower tax rates.

The carrying value of the major classes of assets and liabilities of Diversey were as follows:



(In millions)	December 31, 2016
Assets:
Cash and cash equivalents	$	30.0
Trade receivables, net	438.2
Inventories	203.2
Other receivables	70.3
Prepaid expenses and other current assets	80.6
Property and equipment, net	170.6
Goodwill	972.8
Intangible assets, net	669.9
Deferred taxes⁽¹⁾	39.8
Other non-current assets	162.0
Total assets held for sale	$	2,837.4
Liabilities:
Short-term borrowings	$	9.6
Current portion of long-term debt	31.1
Accounts payable	346.5
Other current liabilities	296.1
Long-term debt	175.7
Deferred taxes⁽¹⁾	72.5
Other non-current liabilities	269.0
Total liabilities held for sale	$	1,200.5


⁽¹⁾	As of December 31, 2016, $27.2 million of amounts which were previously classified as $10.9 million of non-current assets held for sale and $16.3 million of non-current liabilities held for sale were reclassified to deferred tax assets since the amounts were not transferred as part of the sale of Diversey.

The following table presents selected financial information regarding cash flows of Diversey that are included within discontinued operations in the Consolidated Statements of Cash Flows:



	Year Ended December 31,
(In millions)	2017		2016		2015
Non-cash items included in net earnings from discontinued operations:
Depreciation and amortization	$	29.3	$	111.4	$	112.5
Share-based incentive compensation	10.2		12.0		10.1
Profit sharing expense	3.0		2.9		4.5
Provision for bad debt	2.3		5.0		3.1
Capital expenditures	11.9		17.8		37.1

The amounts disclosed in the tables above have been excluded from disclosures unless otherwise noted.

On April 1, 2017, the Diversey Care division acquired the UVC disinfection portfolio of Daylight Medical, a manufacturer of innovative medical devices. The preliminary fair value of the consideration transferred was approximately $25.2 million which included $3.5 million of cash paid at closing as well as a preliminary fair value of $21.7 million related to $14.4 million of noncontingent consideration which will be paid in the future and a $7.3 million of preliminary fair value for liability-classified contingent consideration. The assets and liabilities acquired as part of the acquisition are transferred with the sale of Diversey.

Divestitures

Sale of Latin American foam trays and absorbent pads business

On August 1, 2017, we entered into an agreement to sell our polystyrene food tray business in Guarulhos, Brazil for a gross purchase price of R$24.0 million (or $7.2 million as of December 31, 2017). The closing of the transaction is expected to occur in the first quarter of 2018 after certain conditions are met. The purchase price is subject to working capital, cash and debt adjustments. As of December 31, 2017, there was $3.1 million of assets held for sale and $2.2 million of liabilities held for sale on the Consolidated Balance Sheet.

Sale of North American foam trays and absorbent pads business

On April 1, 2015, we completed the sale of our North American foam trays and absorbent pads business to NOVIPAX, a portfolio company of Atlas Holdings LLC, for net proceeds of $75.6 million, net of certain purchase price adjustments of $5.9 million and subject to final purchase price adjustment. After transaction costs of $7.0 million, we recorded a $26.5 million pre-tax gain on sale of business, which is included in (Loss) gain on sale of business, net in the Consolidated Statement of Operations for the year ended December 31, 2015. Subsequent to December 31, 2015, we recorded an additional pre-tax loss on the sale of business primarily due to additional transaction costs of $0.2 million. This resulted in cumulative transaction costs of $7.2 million. This resulted in a cumulative pre-tax gain of $26.3 million on the sale of business. The decision to sell this business was consistent with the Company's overall strategy to focus on innovation and differentiation in its portfolio of products within the flexible packaging industry. The sale included our manufacturing facilities in Paxinos and Reading, PA, Indianapolis, IN, Rockingham, NC, and Grenada, MS.

The North American foam trays and absorbent pads business was part of the Company’s Food Care division. The disposal of the North American foam trays and absorbent pads business did not qualify as a discontinued operation.

For the year ended December 31, 2015, the North American foam trays and absorbent pads businesses contributed approximately $52.9 million of net sales and $10.3 million of earnings before income taxes, which excludes certain allocated costs, including corporate support services, for which the Company would normally include in measuring its performance.

Sale of European food trays business

On November 1, 2015, we completed the sale of our European food trays business to Faerch Plast A/S, a European food packaging solutions provider, for net proceeds at that time of €17.6 million or approximately $19.0 million, net of certain purchase price adjustments of €1.7 million or approximately $1.9 million. We recorded a $13.1 million pre-tax loss on the sale of business, which is included in (Loss) gain on sale of business, net in the Consolidated Statement of Operations for the year ended December 31, 2015.

The net proceeds excluded contingent consideration which will be received if certain performance targets are met. This transaction follows the sale of our North American foam trays and absorbent pads business in April 2015 and is aligned with our continued commitment to a disciplined approach to portfolio management strategy. The European sale included the manufacturing facilities in Poole, UK and Bunol, Spain. Subsequent to December 31, 2015, we recorded an additional pre-tax loss on the sale of business primarily due to a reduction in the net proceeds of $1.6 million in 2016. This resulted in cumulative net proceeds of €16.5 million or approximately $17.7 million.

The European food trays business was part of the Company’s Food Care division. The European food trays business met the held for sale criteria in the fourth quarter of 2015 prior to its disposition. The disposal of the European food trays business did not qualify as a discontinued operation.

For the year ended December 31, 2015, the European food trays business contributed approximately $48.7 million of net sales and $6.9 million of earnings before income taxes which excludes certain allocated costs, including corporate support services for which the Company would normally include in measuring its performance.

Acquisitions

Acquisition of Fagerdala

On October 2, 2017, the Company acquired Fagerdala Singapore Pte Ltd. ("Fagerdala"), a manufacturer and fabricator of polyethylene foam based in Singapore, to join its Product Care division. We acquired 100% of Fagerdala shares for estimated consideration of S$144.7 million, or $106.6 million, net of cash acquired of $13.3 million, inclusive of purchase price adjustments which will be finalized in 2018. We plan to leverage Fagerdala’s manufacturing footprint in Asia, expertise in foam manufacturing and fabrication, and commercial organization to grow sales in the consumer electronics, medical equipment and devices, automotive, temperature assurance, and e-commerce fulfillment sectors.

The following table summarizes the consideration transferred to acquire Fagerdala and the preliminary allocation of the purchase price among the assets acquired and liabilities assumed.



	Preliminary Allocation
(In millions)	As of October 2, 2017
Total consideration transferred	$	106.6

Assets:
Cash and cash equivalents	$	13.3
Trade receivables, net	22.4
Inventory, net	10.0
Prepaid expenses and other current assets	8.4
Property and equipment, net	23.3
Intangible assets, net	41.4
Goodwill	39.3
Assets	$	158.1
Liabilities:
Short-term borrowings	$	14.0
Accounts payable	6.9
Other current liabilities	15.1
Long-term debt, less current portion	3.8
Non-current deferred taxes	11.7
Liabilities	$	51.5

The valuation of property, plant, and equipment, and intangible assets is preliminary. We expect to complete the valuation in the first half of 2018. All of the goodwill is allocated to the Product Care reporting unit. The $41.4 million value allocated to definite-lived intangible assets consists primarily of $28.7 million of customer relationships with a useful life of sixteen years, $10.8 million of trademarks and tradenames with a useful life of fifteen years and various acquired technologies of $1.9 million with useful lives of fifteen years.

Acquisition of Deltaplam

On August 1, 2017, the Company acquired Deltaplam Embalagens Indústria e Comércio Ltda ("Deltaplam"), a family owned and operated Brazilian flexible packaging manufacturer, to join its Food Care division. The preliminary fair value of the consideration transferred was approximately $25.8 million. We recorded the fair value of the assets acquired and liabilities assumed on the acquisition date, which included $10.8 million of goodwill and $6.2 million of intangible assets.

Acquisition of B+ Equipment

During the third quarter of 2015, we acquired 100% equity interest in the business of B+ Equipment, a company headquartered in France that designs, manufactures and services automated packaging equipment for order fulfillment operations. Our acquisition strategy is focused on best-in-class, disruptive technologies that extends Product Care’s leadership position. The acquisition of B+ further solidifies our position in the growing e-commerce market with a solution that focuses on reducing the cost of shipping and increasing productivity.

The fair value of the consideration transferred was $19.0 million which included an immaterial amount related to the fair value of contingent consideration. We recorded the fair value of the assets acquired and liabilities assumed on the acquisition date, which included $15.3 million of intangible assets. Goodwill of $6.4 million was recorded, which is not deductible for tax purposes.