10-Q 1 q1201810-qdocument.htm 10-Q Document



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q 
 
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2018
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: 1-12139
 
 
SEALED AIR CORPORATION
(Exact name of registrant as specified in its charter)
 
  
Delaware
 
65-0654331
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
2415 Cascade Pointe Boulevard
Charlotte, North Carolina
 
28208
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (980) 221-3235 
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See 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
 
ý
  
Accelerated filer
 
¨
 
 
 
 
 
 
 
Non-accelerated filer
 
¨ (Do not check if a smaller reporting company)
  
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  ý
There were 161,158,938 shares of the registrant’s common stock, par value $0.10 per share, issued and outstanding as of April 30, 2018.





 
Page
PART I. FINANCIAL INFORMATION
 
PART II.  OTHER INFORMATION
 


2



Cautionary Notice Regarding Forward-Looking Statements
This report contains “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 concerning our business, consolidated financial condition and results of operations. The Securities and Exchange Commission (“SEC”) encourages companies to disclose forward-looking statements so that investors can better understand a company’s future prospects and make informed investment decisions. Forward-looking statements are subject to risks and uncertainties, many of which are outside our control, which could cause actual results to differ materially from these statements. Therefore, you should not rely on any of these forward-looking statements. Forward-looking statements can be identified by such words as “anticipates,” “believes,” “plan,” “assumes,” “could,” “should,” “estimates,” “expects,” “intends,” “potential,” “seek,” “predict,” “may,” “will” and similar references to future periods. All statements other than statements of historical facts included in this report regarding our strategies, prospects, financial condition, operations, costs, plans and objectives are forward-looking statements. Examples of forward-looking statements include, among others, statements we make regarding expected future operating results, expectations regarding the results of restructuring and other programs, anticipated levels of capital expenditures and expectations of the effect on our financial condition of claims, litigation, environmental costs, contingent liabilities and governmental and regulatory investigations and proceedings.

The following are important factors that we believe could cause actual results to differ materially from those in our forward-looking statements: global economic and political conditions, currency translation and devaluation effects, changes in raw material pricing and availability, competitive conditions, the success of new product offerings, consumer preferences, the effects of animal and food-related health issues, pandemics, changes in energy costs, environmental matters, the success of our restructuring activities, the success of our financial growth, profitability, cash generation and manufacturing strategies and our cost reduction and productivity efforts, changes in our credit ratings, the tax benefit associated with the Settlement agreement (as defined in our Annual Report on Form 10-K for the year ended December 31, 2017), regulatory actions and legal matters, and the other information referenced in Part I, Item 1A, "Risk Factors", of our Annual Report on Form 10-K for the year ended December 31, 2017 as filed with the Securities and Exchange Commission, and as revised and updated by our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Any forward-looking statement made by us in this report is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.
Non-U.S. GAAP Information
We present financial information that conforms to Generally Accepted Accounting Principles in the United States of America (“U.S. GAAP”). We also present financial information that does not conform to U.S. GAAP, which we refer to as non-U.S. GAAP, as our management believes it is useful to investors. In addition, non-U.S. GAAP measures are used by management to review and analyze our operating performance and, along with other data, as internal measures for setting annual budgets and forecasts, assessing financial performance, providing guidance and comparing our financial performance with our peers. The non-U.S. GAAP information has limitations as an analytical tool and should not be considered in isolation from or as a substitute for U.S. GAAP information. It does not purport to represent any similarly titled U.S. GAAP information and is not an indicator of our performance under U.S. GAAP. Non-U.S. GAAP financial measures that we present may not be comparable with similarly titled measures used by others. Investors are cautioned against placing undue reliance on these non-U.S. GAAP measures. Further, investors are urged to review and consider carefully the adjustments made by management to the most directly comparable U.S. GAAP financial measure to arrive at these non-U.S. GAAP financial measures. See Note 5, “Segments,” of the Notes to Condensed Consolidated Financial Statements and our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) for reconciliations of our U.S. GAAP financial measures to non-U.S. GAAP.  Information reconciling forward-looking U.S. GAAP measures to non-U.S. GAAP measures is not available without unreasonable effort.
Our management may assess our financial results both on a U.S. GAAP basis and on a non-U.S. GAAP basis. Non-U.S. GAAP financial measures provide management with additional means to understand and evaluate the core operating results and trends in our ongoing business by eliminating certain one-time expenses and/or gains (which may not occur in each period presented) and other items that management believes might otherwise make comparisons of our ongoing business with prior periods and peers more difficult, obscure trends in ongoing operations or reduce management’s ability to make useful forecasts.

3



Our non-U.S. GAAP financial measures may also be considered in calculations of our performance measures set by the Organization and Compensation Committee of our Board of Directors for purposes of determining incentive compensation. The non-U.S. GAAP financial metrics mentioned above exclude items that we consider to be certain specified items (“Special Items”), such as restructuring charges, costs related to acquisitions and divestitures, special tax items (“Tax Special Items”) and certain other infrequent or one-time items. We evaluate unusual or Special Items on an individual basis. Our evaluation of whether to exclude an unusual or special item for purposes of determining our non-U.S. GAAP financial measures considers both the quantitative and qualitative aspects of the item, including among other things (i) its nature, (ii) whether or not it relates to our ongoing business operations, and (iii) whether or not we expect it to occur as part of our normal business on a regular basis.
The Company measures segment performance using Adjusted EBITDA (a non-U.S. GAAP financial measure). Adjusted EBITDA is defined as Earnings before Interest Expense, Taxes, Depreciation and Amortization, adjusted to exclude the impact of Special Items.
We also present our adjusted income tax rate or provision (“Adjusted Tax Rate”). The Adjusted Tax Rate is a measure of our U.S. GAAP effective tax rate, adjusted to exclude the tax impact from the Special Items that are excluded from our Adjusted Net Earnings and Adjusted EPS metrics as well as expense or benefit from any Tax Special Items. The Adjusted Tax Rate is an indicator of the taxes on our core business. The tax situations and effective tax rates in the specific countries where the Special Items occur will determine the impact (positive or negative) to the Adjusted Tax Rate.
In our “Net Sales by Geographic Region,” “Net Sales by Segment” and in some of the discussions and tables that follow, we exclude the impact of foreign currency translation when presenting net sales information, which we define as “constant dollar.” Changes in net sales excluding the impact of foreign currency translation are non-U.S. GAAP financial measures. As a worldwide business, it is important that we take into account the effects of foreign currency translation when we view our results and plan our strategies. Nonetheless, we cannot control changes in foreign currency exchange rates. Consequently, when our management looks at our financial results to measure the core performance of our business, we may exclude the impact of foreign currency translation by translating our current period results at prior period foreign currency exchange rates. We also may exclude the impact of foreign currency translation when making incentive compensation determinations. As a result, our management believes that these presentations are useful internally and may be useful to investors.
We have not provided guidance for the most directly comparable U.S. GAAP financial measures, as they are not available without unreasonable effort due to the high variability, complexity, and low visibility with respect to certain Special Items, including gains and losses on the disposition of businesses, the ultimate outcome of certain legal or tax proceedings, foreign currency gains or losses and other unusual gains and losses. These items are uncertain, depend on various factors, and could be material to our results computed in accordance with U.S. GAAP. 

4


SEALED AIR CORPORATION AND SUBSIDIARIES


   
Condensed Consolidated Balance Sheets 
(In millions, except share and per share data)
 
March 31, 2018 (unaudited)
 
December 31, 2017
Assets
 
 

 
 

Current assets:
 
 

 
 

Cash and cash equivalents
 
$
326.9

 
$
594.0

Trade receivables, net of allowance for doubtful accounts of $6.8 in 2018 and $6.5 in 2017
 
465.1

 
552.4

Income tax receivables
 
13.4

 
85.1

Other receivables
 
99.3

 
90.2

Inventories, net of inventory reserves of $18.6 in 2018 and $15.5 in 2017
 
563.8

 
506.8

Current assets held for sale
 
1.7

 
4.0

Prepaid expenses and other current assets
 
195.0

 
33.9

Total current assets
 
1,665.2

 
1,866.4

Property and equipment, net
 
1,013.6

 
998.4

Goodwill
 
1,943.3

 
1,939.8

Identifiable intangible assets, net
 
87.2

 
83.6

Deferred taxes
 
127.0

 
176.2

Other non-current assets
 
204.8

 
215.9

Total assets
 
$
5,041.1

 
$
5,280.3

Liabilities and Stockholders' Equity
 
 

 
 

Current liabilities:
 
 

 
 

Short-term borrowings
 
$
155.7

 
$
25.3

Current portion of long-term debt
 
1.6

 
2.2

Accounts payable
 
729.9

 
723.8

Current liabilities held for sale
 

 
2.2

Accrued restructuring costs
 
20.6

 
15.4

Income tax payable
 
46.2

 
47.3

Other current liabilities
 
468.8

 
562.0

Total current liabilities
 
1,422.8

 
1,378.2

Long-term debt, less current portion
 
3,247.9

 
3,230.5

Deferred taxes
 
27.4

 
28.5

Other non-current liabilities
 
707.8

 
490.8

Total liabilities
 
5,405.9

 
5,128.0

Commitments and contingencies - Note 16
 


 


Stockholders’ equity:
 
 

 
 

Preferred stock, $0.10 par value per share, 50,000,000 shares authorized; no shares issued in 2018 and 2017
 

 

Common stock, $0.10 par value per share, 400,000,000 shares authorized; shares issued: 231,580,569 in 2018 and 230,080,944 in 2017; shares outstanding: 161,616,753 in 2018 and 168,595,521 in 2017
 
23.2

 
23.0

Additional paid-in capital
 
2,025.8

 
1,939.6

Retained earnings
 
1,502.9

 
1,735.2

Common stock in treasury, 69,963,816 shares in 2018 and 61,485,423 shares in 2017
 
(3,090.9
)
 
(2,700.6
)
Accumulated other comprehensive loss, net of taxes
 
(825.8
)
 
(844.9
)
Total stockholders’ equity
 
(364.8
)
 
152.3

Total liabilities and stockholders’ equity
 
$
5,041.1

 
$
5,280.3

 
See accompanying Notes to Condensed Consolidated Financial Statements.
 


5


SEALED AIR CORPORATION AND SUBSIDIARIES


Condensed Consolidated Statements of Operations
 
 
 
Three Months Ended March 31, (unaudited)
(In millions, except per share data)
 
2018
 
2017
Net sales
 
$
1,131.0

 
$
1,032.2

Cost of sales(1)(2)
 
757.0

 
696.8

Gross profit
 
374.0

 
335.4

Selling, general and administrative expenses
 
194.0

 
197.4

Amortization expense of intangible assets acquired
 
3.9

 
5.0

Restructuring and other charges
 
8.6

 
1.9

Operating profit
 
167.5

 
131.1

Interest expense, net
 
(42.0
)
 
(46.6
)
Other expense, net(1)(2)
 
(12.0
)
 
(1.8
)
Earnings before income tax provision
 
113.5

 
82.7

Income tax provision
 
321.5

 
136.4

Net loss from continuing operations
 
(208.0
)
 
(53.7
)
Gain on sale of discontinued operations, net of tax
 
7.4

 

Net earnings from discontinued operations, net of tax
 

 
10.5

Net loss
 
$
(200.6
)
 
$
(43.2
)
Basic:
 
 

 
 

Continuing operations
 
$
(1.25
)
 
$
(0.27
)
Discontinued operations
 
0.04

 
0.05

Net loss per common share - basic
 
$
(1.21
)
 
$
(0.22
)
Diluted:
 
 
 
 
Continuing operations
 
$
(1.25
)
 
$
(0.27
)
Discontinued operations
 
0.04

 
0.05

Net loss per common share - diluted
 
$
(1.21
)
 
$
(0.22
)
Dividends per common share
 
$
0.16

 
$
0.16

Weighted average number of common shares outstanding:
 
 
 
 
Basic
 
165.3

 
193.4

     Diluted
 
165.3

 
195.7

 
See accompanying Notes to Condensed Consolidated Financial Statements.
 
 
(1) 
Due to the adoption of ASU 2017-07, certain amounts related to defined benefit and other post-employment benefit plans were reclassified from cost of sales to other expense, net. Refer to Note 2, "Recently Adopted and Issued Accounting Standards," in the Notes to Condensed Consolidated Financial Statements for more information.
(2) 
As part of our review of costs included in the corporate segment, amounts related to division operations were identified and reclassified out of other expense, net to cost of sales. The impact for the three months ended March 31, 2017 was $1.9 million.

6


SEALED AIR CORPORATION AND SUBSIDIARIES


Condensed Consolidated Statements of Comprehensive (Loss) Income
 
 
 
Three Months Ended March 31, (unaudited)
(In millions)
 
2018
 
2017
Net loss
 
$
(200.6
)
 
$
(43.2
)
Other comprehensive income (loss), net of taxes:
 
 

 
 

Recognition of pension items, net of taxes of $(0.2) and $0.2 for the three months ended March 31, 2018 and 2017, respectively
 
0.6

 
4.5

Unrealized losses on derivative instruments for net investment hedge, net of taxes of $3.6 and $3.0 for the three months ended March 31, 2018 and 2017, respectively
 
(10.7
)
 
(4.9
)
Unrealized gains (losses) on derivative instruments for cash flow hedge, net of taxes of $(0.5) and $1.2 for the three months ended March 31, 2018 and 2017, respectively
 
0.8

 
(4.7
)
Foreign currency translation adjustments, net of taxes of $1.0 and $1.9 for the three months ended March 31, 2018 and 2017, respectively
 
28.4

 
55.2

Other comprehensive income, net of taxes
 
19.1

 
50.1

Comprehensive (loss) income, net of taxes
 
$
(181.5
)
 
$
6.9

 
See accompanying Notes to Condensed Consolidated Financial Statements.

7


SEALED AIR CORPORATION AND SUBSIDIARIES


Condensed Consolidated Statements of Stockholders’ Equity
(In millions)
 
Common Stock
 
Additional
Paid-in Capital
 
Retained Earnings
 
Common Stock
in Treasury
 
Accumulated Other
Comprehensive
Loss, Net of Taxes
 
Total
Stockholders’ Equity
Balance at December 31, 2016
 
$
22.8

 
$
1,974.1

 
$
1,040.0

 
$
(1,478.1
)
 
$
(949.1
)
 
$
609.7

Effect of contingent stock transactions
 
0.2

 
8.9

 

 
(21.7
)
 

 
(12.6
)
Stock issued for share-based incentive compensation
 

 
0.5

 

 
21.7

 

 
22.2

Recognition of pension items, net of taxes
 

 

 

 

 
4.5

 
4.5

Foreign currency translation adjustments
 

 

 

 

 
55.2

 
55.2

Unrealized loss on derivative instruments, net of taxes
 

 

 

 

 
(9.6
)
 
(9.6
)
Net loss
 

 

 
(43.2
)
 

 

 
(43.2
)
Dividends on common stock ($0.16 per share)
 

 

 
(31.4
)
 

 

 
(31.4
)
Balance at March 31, 2017
 
$
23.0

 
$
1,983.5

 
$
965.4

 
$
(1,478.1
)
 
$
(899.0
)
 
$
594.8

 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
 
$
23.0

 
$
1,939.6

 
$
1,735.2

 
$
(2,700.6
)
 
$
(844.9
)
 
$
152.3

Effect of contingent stock transactions
 
0.2

 
6.2

 

 
(6.3
)
 

 
0.1

Stock issued for share-based incentive compensation
 

 

 

 
20.7

 

 
20.7

Repurchases of common stock
 

 
80.0

 

 
(404.7
)
 

 
(324.7
)
Recognition of pension items, net of taxes
 

 

 

 

 
0.6

 
0.6

Foreign currency translation adjustments
 

 

 

 

 
28.4

 
28.4

Unrealized loss on derivative instruments, net of taxes
 

 

 

 

 
(9.9
)
 
(9.9
)
Net loss
 

 

 
(200.6
)
 

 

 
(200.6
)
Dividends on common stock ($0.16 per share)
 

 

 
(26.6
)
 

 

 
(26.6
)
Impact of recently adopted accounting standards(1)
 

 

 
(5.1
)
 

 

 
(5.1
)
Balance at March 31, 2018
 
$
23.2

 
$
2,025.8

 
$
1,502.9

 
$
(3,090.9
)
 
$
(825.8
)
 
$
(364.8
)

See accompanying Notes to Condensed Consolidated Financial Statements.
 
 
(1) 
Due to the adoption of ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory and ASU 2014-09, Revenue from Contracts with Customers (Topic 606) the Company recorded decreases to retained earnings of $2.7 million and $2.4 million, respectively. See Note 2, "Recently Adopted and Issued Accounting Standards," in the Notes to Condensed Consolidated Financial Statements for more information.


8


SEALED AIR CORPORATION AND SUBSIDIARIES


Condensed Consolidated Statements of Cash Flows 
 
 
Three Months Ended March 31, (unaudited)
(In millions)
 
2018
 
2017
Net loss
 
$
(200.6
)
 
$
(43.2
)
Adjustments to reconcile net loss to net cash provided by operating activities
 
 

 
 

Depreciation and amortization
 
32.8

 
52.8

Share-based incentive compensation
 
6.4

 
8.9

Profit sharing expense
 
5.2

 
8.8

Provisions for bad debt
 
0.3

 
1.8

Provisions for inventory obsolescence
 

 
2.4

Deferred taxes, net
 
56.9

 
112.2

Net gain on sale of business
 
(8.7
)
 
(2.3
)
Other non-cash items
 
(11.8
)
 
0.3

Changes in operating assets and liabilities:
 
 

 
 

Trade receivables, net
 
3.8

 
(3.3
)
Inventories
 
(50.6
)
 
(64.3
)
Accounts payable
 
7.3

 
56.1

Other assets and liabilities
 
125.3

 
(113.0
)
Net cash (used in) provided by operating activities
 
$
(33.7
)
 
$
17.2

Cash flows from investing activities:
 
 

 
 

Capital expenditures
 
(43.4
)
 
(50.4
)
Proceeds, net from sale of business and property and equipment
 
8.1

 
2.3

Business acquired, net of cash acquired
 
0.9

 

Settlement of foreign currency forward contracts
 
1.0

 
(7.3
)
Other investing activities
 
(2.6
)
 
0.1

Net cash used in investing activities
 
$
(36.0
)
 
$
(55.3
)
Cash flows from financing activities:
 
 

 
 

Net proceeds from borrowings
 
129.6

 
10.2

Dividends paid on common stock
 
(27.8
)
 
(31.4
)
Acquisition of common stock for tax withholding
 
(6.3
)
 
(21.5
)
Repurchases of common stock
 
(311.7
)
 

Other financing activities
 

 
(1.8
)
Net cash used in financing activities(1)
 
$
(216.2
)
 
$
(44.5
)
Effect of foreign currency exchange rate changes on cash and cash equivalents
 
$
18.8

 
$
8.5

Cash Reconciliation(1):
 
 
 
 
Cash and cash equivalents
 
594.0

 
333.7

Restricted cash and cash equivalents(2)
 

 
52.9

Balance, beginning of period
 
$
594.0

 
$
386.6

Net change during the period
 
$
(267.1
)
 
$
(74.1
)
Cash and cash equivalents
 
326.9

 
258.4

Restricted cash and cash equivalents(2)
 

 
54.1

Balance, end of period
 
$
326.9

 
$
312.5

 
 
 
 
 
Supplemental Cash Flow Information:
 
 

 
 

Interest payments, net of amounts capitalized
 
$
37.6

 
$
48.0

Income tax payments
 
$
19.3

 
$
46.2

Payments related to the sale of Diversey and efforts to address related stranded costs
 
$
14.3

 
$
2.4

Restructuring payments including associated costs
 
$
2.8

 
$
15.2

Non-cash items:
 
 
 
 
Transfers of shares of common stock from treasury for 2017 and 2016 profit-sharing contributions
 
$
20.7

 
$
22.3


9


SEALED AIR CORPORATION AND SUBSIDIARIES


 
See accompanying Notes to Condensed Consolidated Financial Statements.
 
 
(1) 
Due to the adoption of ASU 2016-18, the Company now is required to include restricted cash as part of the change in the total cash balance. As a result, amounts which were previously classified as cash flows from financing activities have been reclassified as they are recognized in the total change in cash. Refer to Note 2, "Recently Adopted and Issued Accounting Standards," in the Notes to Condensed Consolidated Financial Statements for more information.
(2) 
Restricted cash and cash equivalents included compensating balance deposits related to certain short-term borrowings.

10


SEALED AIR CORPORATION AND SUBSIDIARIES


Notes to Condensed Consolidated Financial Statements (unaudited)
 
 
Note 1 Organization and Basis of Presentation
Organization
We are a global leader in food safety and security and product protection. We serve an array of end markets including food and beverage processing, food service, retail and commercial and consumer applications. Our focus is on achieving quality sales growth through leveraging our geographic footprint, technological know-how and leading market positions to bring measurable, sustainable value to our customers and investors.
We conduct substantially all of our business through two wholly-owned subsidiaries, Cryovac, Inc. and Sealed Air Corporation (US). Throughout this report, when we refer to “Sealed Air,” the “Company,” “we,” “our,” or “us,” we are referring to Sealed Air Corporation and all of our subsidiaries, except where the context indicates otherwise.
Basis of Presentation
Our Condensed Consolidated Financial Statements include all of the accounts of the Company and our subsidiaries. We have eliminated all significant intercompany transactions and balances in consolidation. In management’s opinion, all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of our Condensed Consolidated Balance Sheet as of March 31, 2018 and our Condensed Consolidated Statement of Operations for the three months ended March 31, 2018 and 2017 have been made. The results set forth in our Condensed Consolidated Statement of Operations for the three months ended March 31, 2018 and in our Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 2018 are not necessarily indicative of the results to be expected for the full year. All amounts are in millions, except per share amounts, and approximate due to rounding. Some prior period amounts have been reclassified to conform to the current year presentation. These reclassifications, individually and in the aggregate, did not have a material impact on our condensed consolidated financial condition, results of operations or cash flows.
Our Condensed Consolidated Financial Statements were prepared in accordance with the interim reporting requirements of the U.S. Securities and Exchange Commission (“SEC”). As permitted under those rules, annual footnotes or other financial information that are normally required by U.S. GAAP have been condensed or omitted. The preparation of Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in our Condensed Consolidated Financial Statements and accompanying notes. Actual results could differ from these estimates.
We are responsible for the unaudited Condensed Consolidated Financial Statements and notes included in this report. As these are condensed financial statements, they should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 as filed with the SEC on February 21, 2018 (“2017 Form 10-K”) and with the information contained in other publicly-available filings with the SEC.
To accelerate productivity improvements and elimination of operational redundancies, the Company implemented a change in allocation of Corporate expenses. These expenses are now allocated to Food Care and Product Care segments. For comparison purposes, the Company presented 2017 results to reflect the revised allocation of these costs. This segment reporting change has no impact on total Company operating results. See Note 5, “Segments,” of the Notes to Condensed Consolidated Financial Statements for further information.
Note 2 Recently Adopted and Issued Accounting Standards

Recently Adopted Accounting Standards
In August 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities ("ASU 2017-12"). This update is intended to align the financial statements with an entity's risk management activities. ASU 2017-12 will allow for changes in the designation and measurement of hedges as well as expand the disclosures of hedge results. The amendments in ASU 2017-12 are effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. The Company elected to early adopt ASU 2017-12 as of January 1, 2018. The adoption did not have an impact on the Company's Condensed Consolidated Financial Results.

11



In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”). ASU 2017-09 amends the considerations for determining what events require modification accounting. This new guidance requires an entity to consider the fair value of an award before and after modification, the vesting conditions of the modified award and the classification of the modified award as an equity instrument. The amendments in ASU 2017-09 are effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The Company adopted ASU 2017-09 on January 1, 2018. The adoption did not have an impact on the Company's Condensed Consolidated Financial Results. This ASU will be applied prospectively when changes to the terms or conditions of a share-based payment award occur.
In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Benefit Postretirement Benefit Cost (“ASU 2017-07”). ASU 2017-07 changes how employers that sponsor defined benefit pension or other postretirement benefit plans present the net periodic benefit cost in the income statement. This new guidance requires entities to report the service cost component in the same line item or items as other compensation costs. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component outside of income from operations. The amendments in ASU 2017-07 are effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The Company adopted ASU 2017-07 on January 1, 2018. The effect of retrospectively adopting this guidance resulted in a reclassification of $0.8 million from cost of sales and selling, general and administrative expenses to other (expense) income, net on the Condensed Consolidated Statement of Operations for the three months ended March 31, 2017 and $16.7 million for the year ended December 31, 2017.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 eliminates Step 2 as part of the goodwill impairment test. The amount of the impairment charge to be recognized would now be the amount by which the carrying value exceeds the reporting unit’s fair value. The loss to be recognized cannot exceed the amount of goodwill allocated to that reporting unit. The amendments in ASU 2017-04 are effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company has elected to early adopt ASU 2017-04 as of January 1, 2018. The Company will apply the guidance related to ASU 2017-04 during our annual impairment test in the fourth quarter of 2018.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). ASU 2017-01 provides a screen to determine when a set of assets is a business. This screen states that when substantially all of the fair value of a group of assets acquired (or disposed of) is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business. The amendments in ASU 2017-01 are effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The Company adopted ASU 2017-01 on January 1, 2018. The adoption did not have an impact on the Company's Condensed Consolidated Financial Results however, it could have a material impact on the Company's Condensed Consolidated Financial Results if the Company enters into future business combinations.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”). ASU 2016-18 requires that entities include restricted cash and restricted cash equivalents with cash and cash equivalents in the beginning-of-period and end-of-period total amounts shown on the Statement of Cash Flows. The amendments in ASU 2016-18 are effective for fiscal years beginning after December 15, 2017, including interim reporting periods within those fiscal years. The Company adopted ASU 2016-18 on January 1, 2018. As a result of this retrospective adoption, the reclassification of restricted cash into a change in total cash resulted in an increase in financing activities of $1.2 million for the three months ended March 31, 2017 and a decrease in financing activities of $25.4 million for the year ended December 31, 2017.
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”). ASU 2016-16 requires entities to recognize income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments in ASU 2016-16 are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. The Company adopted ASU 2016-16 on January 1, 2018. This was adopted using the modified retrospective approach which resulted in a reduction in other assets of $7.5 million, an increase in non-current deferred tax assets of $4.8 million and a decrease in retained earnings was $2.7 million on the Condensed Consolidated Balance Sheet.

12



In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 provides guidance on eight specific cash flow issues in regard to how cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments in ASU 2016-15 are effective for fiscal years beginning after December 15, 2017, including interim periods within those years, with early adoption permitted. The Company adopted ASU 2016-15 on January 1, 2018. As a result of the adoption, there were no impacts on prior year statements of cash flow however this adoption may impact future periods.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). This ASU requires equity investments except those under the equity method of accounting to be measured at fair value with the changes in fair value recognized in net income. The amendment simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. In addition, it also requires enhanced disclosures about investments. Additionally, in February 2018, the FASB issued ASU 2018-03, Technical Corrections and Improvements to Financial Instruments - Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2018-03") and in March 2018, the FASB issued ASU 2018-04, Investments - Debt Securities (Subtopic 320) and Regulated Operations (Topic 980), Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 117 and SEC Release No. 33-9273 (SEC Update) ("ASU 2018-04") which were issued to clarify some of the language in ASU 2016-01. The amendments in ASU 2016-01, 2018-03 and 2018-04 are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. An entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The Company adopted ASU 2016-01, 2018-03 and 2018-04 on January 1, 2018. The adoption of these standards did not have an impact on the Company's Condensed Consolidated Financial Results.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), (“ASU 2014-09”) and issued subsequent amendments to the initial guidance, collectively, Topic 606. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, ASU 2014-09 expands and enhances disclosure requirements which require disclosing sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. This includes both qualitative and quantitative information. The amendments in ASU 2014-09 are effective for annual reporting periods beginning after December 15, 2017.
The Company adopted the new revenue recognition standard using the modified retrospective approach with a cumulative effect adjustment to beginning retained earnings at January 1, 2018. Prior periods presented were not retrospectively adjusted for this change. The Company has applied the new revenue recognition standard only to contracts that were not completed as of January 1, 2018.

The Company elected to reflect the aggregate effect of all contract modifications that occurred before the beginning of the earliest period presented under the new revenue recognition standard when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations for the modified contract at transition. The effects of application of this relief are de minimus.

Changes in accounting policy resulting from adoption of Topic 606

The adoption of Topic 606 did not have a significant impact on our consolidated financial statements with the exception of new and expanded disclosures.

The following tables summarizes the effect of adoption of the new revenue recognition standard by line item on the Company’s Condensed Consolidated Financial Statements, and the reason for the change:
 
March 31, 2018
(In millions)
As Reported
Balances without Adoption of Topic 606
Effect of Change
Net sales
$
1,131.0

$
1,130.9

$
0.1

Other current liabilities
468.8

467.4

1.4

Other non-current liabilities
707.8

706.0

1.8


13



Impact by Line Item
Reason for Change
Opening Balance Sheet Adjustment as of January 1, 2018
(In millions)
Other current liabilities
Certain contracts include an equipment accrual, whereby a customer is awarded a credit based on consumable purchases that can be redeemed for future equipment purchases. Long term contracts that include an equipment accrual create a timing difference between when cash is collected and the performance obligation is satisfied. Upon the adoption of Topic 606 the equipment accrual balance was increased to reflect the standalone selling price within our equipment portfolio.
$
2.4

Retained earnings
The modified retrospective adoption of the new revenue standard resulted in a cumulative adjustment decreasing retained earnings, which was associated with adjusting our equipment accrual contract offering to the standalone selling price value.
(2.4
)
Lease income was an additional line item impacted by the new revenue standard; however, there is no timing change associated with the change in presentation. Under the new revenue standard, certain contracts that include free-on-loan equipment, with minimum purchase obligations and associated substantive penalties for noncompliance, were deemed to include a lease component that was not previously identified as an element to the contract under ASC 605. As such, a portion of the transaction price is reclassified from revenue to lease income.

Recently Issued Accounting Standards
In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income ("ASU 2018-02"). As a result of the Tax Cut and Jobs Act ("TCJA"), this ASU was issued to provide entities with the option to reclassify straddle tax effects in accumulated other comprehensive income to retained earnings. ASU 2018-02 can be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal income tax rate pursuant to the TCJA is recognized. The guidance is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted for reporting periods for which financial statements have yet to be issued or made available for issuance. We are currently in the process of evaluating the effect that ASU 2018-02 will have on the Company's Condensed Consolidated Financial Results.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires entities to measure all expected credit losses for most financial assets held at the reporting date based on an expected loss model which includes historical experience, current conditions, and reasonable and supportable forecasts. Entities will now use forward-looking information to better form their credit loss estimates. The ASU also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal periods. Entities may adopt earlier as of the fiscal year beginning after December 15, 2018, including interim periods within those fiscal years. We are currently in the process of evaluating this new standard update however we do not anticipate for this to have a material impact on the Company's Condensed Consolidated Financial Results.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), (“ASU 2016-02”). This ASU requires an entity to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. Similar modifications have been made to lessor accounting in-line with revenue recognition guidance. The amendments also require certain quantitative and qualitative disclosures about leasing arrangements. The amendments in ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The updated guidance requires a modified retrospective adoption. We are currently in the process of evaluating this new standard update.

Note 3 Revenue Recognition, Contracts with Customers

Revenue from contracts with customers is recognized using a five-step model consisting of the following: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the Company satisfies a performance obligation. Performance obligations are satisfied when the Company transfers control of a good or service to a customer, which can occur over time or at a point in time. The amount of revenue recognized is based on

14



the consideration to which the Company expects to be entitled in exchange for those goods or services, including the expected value of variable consideration. The customer’s ability and intent to pay the transaction price is assessed in determining whether a contract exists with the customer. If collectability of substantially all of the consideration in a contract is not probable, consideration received is not recognized as revenue unless the consideration is nonrefundable and the Company no longer has an obligation to transfer additional goods or services to the customer or collectability becomes probable.

Description of Revenue Generating Activities

We employ sales, marketing and customer service personnel throughout the world who sell and market our products to and/or through a large number of distributors, fabricators, converters, e-commerce and mail order fulfillment firms, and contract packaging firms as well as directly to end-users such as food processors, foodservice businesses, supermarket retailers, pharmaceutical companies, healthcare facilities, medical device manufacturers, and other manufacturers.

As discussed in Note 5, "Segments," of the Notes to Condensed Consolidated Financial Statements, our reporting segments include: Food Care and Product Care. Our Food Care applications are largely sold directly to end customers, while most of our Product Care products are sold through business supply distributors.

Food Care:

The Food Care division focuses on providing processors, retailers and food service operators a broad range of integrated system solutions that improve the management of contamination risk during the food and beverage production process, extend product shelf life through packaging technologies, and improve merchandising, ease-of-use, and back-of-house preparation processes. Our systems are designed to be turn-key and reduce customers’ total operating costs through improved operational efficiencies and reduced food waste, as well as lower water and energy use. As a result, processors are able to produce and deliver their products more cost-effectively, safely, efficiently, and with greater confidence through their supply chain with a trusted partner.

The business largely serves perishable food and beverage processors, predominantly in fresh red meat, smoked and processed meats, beverages, poultry and dairy (solids and liquids) markets worldwide, and maintains a leading position in the applications it targets.

Product Care:

Product Care provides the industries we serve with a wide range of sustainable packaging solutions designed to reduce shipping and fulfillment costs, increase operational efficiency, reduce damage, and enhance customer and brand experience. While serving a broad range of industries and market sectors, Product Care solutions are especially valuable to the E-Commerce Fulfillment, General Manufacturing, Electronics and Transportation sectors. The breadth of the Product Care portfolio, extensive packaging engineering and technical services, and global reach supports the needs of multinational customers who require excellent, consistent performance and supply reliability.

Today, Product Care solutions are largely sold through business supply distribution that sells to business/industrial end-users. Additionally, solutions are sold directly to fabricators, original equipment manufacturers/contract manufacturers, third party logistics partners, e-commerce/fulfillment operations, and at retail centers, where Product Care offers select products for consumer use on a global basis.

Identify Contract with Customer:

For Sealed Air, the determination of whether an arrangement meets the definition of a contract under Topic 606 depends on whether it creates enforceable rights and obligations. While enforceability is a matter of law, we believe that enforceable rights and obligations in a contract must be substantive in order for the contract to be in scope of Topic 606. That is, the penalty for noncompliance must be significant relative to the minimum obligation. Fixed or minimum purchase obligations with penalties for noncompliance were the most common examples of substantive enforceable rights present in our contracts. We determined that the contract term is the period of enforceability outlined by the terms of the contract. This means that in many cases, the term stated in the contract is different than the period of enforceability. After the minimum purchase obligation is met, subsequent sales are treated as separate contracts on a purchase order by purchase order basis. If no minimum purchase obligation exists, each purchase order represents the contract.




15



Performance Obligations:

The most common goods and services determined to be distinct performance obligations are consumables/materials, equipment sales, and maintenance. Free on loan and leased equipment is typically identified as a separate lease component in scope of Topic 840. The other goods or services promised in the contract with the customer in most cases do not represent performance obligations because they are neither separate nor distinct, or they are not material in the context of the contract.

Transaction Price and Variable Consideration:

Sealed Air has many forms of variable consideration present in its contracts with customers, including rebates and other discounts. Sealed Air estimates variable consideration using either the expected value method or the most likely amount method as described in the standard. We include in the transaction price some or all of an amount of variable consideration estimated to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

For all contracts that contain a form of variable consideration, Sealed Air estimates at contract inception, and periodically throughout the term of the contract, what volume of goods and/or services the customer will purchase in a given period and determines how much consideration is payable to the customer or how much consideration Sealed Air would be able to recover from the customer based on the structure of the type of variable consideration. In most cases the variable consideration in contracts with customers results in amounts payable to the customer by Sealed Air. Sealed Air adjusts the contract transaction price based on any changes in estimates each reporting period and performs an inception to date cumulative adjustment to the amount of revenue previously recognized. When the contract with a customer contains a minimum purchase obligation, Sealed Air only has enforceable rights to the amount of consideration promised in the minimum purchase obligation through the enforceable term of the contract. This amount of consideration, plus any variable consideration, makes up the transaction price for the contract.

Charges for rebates and other allowances are recognized as a deduction from revenue on an accrual basis in the period in which the associated revenue is recorded. When we estimate our rebate accruals, we consider customer-specific contractual commitments including stated rebate rates and history of actual rebates paid. Our rebate accruals are reviewed at each reporting period and adjusted to reflect data available at that time. We adjust the accruals to reflect any differences between estimated and actual amounts. These adjustments of transaction price impact the amount of net sales recognized by us in the period of adjustment. Revenue recognized in the three months ended March 31, 2018 from performance obligations satisfied in previous reporting periods is approximately $2.0 million.

The Company does not adjust consideration in contracts with customers for the effects of a significant financing component if the Company expects that the period between transfer of a good or service and payment for that good or service will be one year or less. This is expected to be the case for the majority of contracts.

Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net sales on the Condensed Consolidated Statements of Operations.

Allocation of Transaction Price:

Sealed Air determines the standalone selling price for a performance obligation by first looking for observable selling prices of that performance obligation sold on a standalone basis. If an observable price is not available, we estimate the standalone selling price of the performance obligation using one of the three suggested methods in the following order of preference: adjusted market assessment approach, expected cost plus a margin approach, and residual approach.

Sealed Air often offers rebates to customers in their contracts that are related to the amount of consumables purchased. We believe that this form of variable consideration should only be allocated to consumables because the entire amount of variable consideration relates to the customer’s purchase of and Sealed Air’s efforts to provide consumables. Additionally, Sealed Air has many contracts that have pricing tied to third party indices. We believe that variability from index-based pricing should be allocated specifically to consumables because the pricing formulas in these contracts are related to the cost to produce consumables.

Transfer of Control:

Revenue is recognized upon transfer of control to the customer. Revenue for consumables and equipment sales is recognized based on shipping terms, which is the point in time the customer obtains control of the promised goods.

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Maintenance revenue is recognized straight-line on the basis that the level of effort is consistent over the term of the contract. Lease components within contracts with customers are recognized in accordance with Topic 840.

Disaggregated Revenue
For the three months ended March 31, 2018, revenues from contracts with customers summarized by Segment Geography were as follows:

 
 
 
 
 
 
 
(In millions)
 
Food Care
 
Product Care
 
Total
North America
 
$
341.0

 
$
249.9

 
$
590.9

EMEA(1)
 
155.7

 
101.1

 
256.8

Latin America
 
91.0

 
11.8

 
102.8

APAC(2)
 
103.7

 
69.9

 
173.6

Topic 606 Segment Revenue
 
691.4

 
432.7


1,124.1

Non-Topic 606 Revenue (Leasing)
 
4.9

 
2.0

 
6.9

Total
 
$
696.3


$
434.7


$
1,131.0

 
 
(1) 
EMEA = Europe, Middle East and Africa
(2) 
APAC = Asia, Australia and New Zealand
Contract Balances

The time between which a performance obligation is satisfied and when billing and payment occur is closely aligned, with the exception of equipment accruals. An equipment accrual is a contract offering, whereby a customer is incentivized to use a portion of the consumables transaction price for future equipment purchases. Long term contracts that include an equipment accrual create a timing difference between when cash is collected and the performance obligation is satisfied, resulting in a contract liability (unearned revenue). The opening and closing balances of contract assets and contract liabilities arising from contracts with customers as of March 31, 2018 were as follows:
(In millions)
 
December 31, 2017
 
January 1, 2018,
as adjusted
 
March 31, 2018
Contract assets
 
$

 
$

 
$

Contract liabilities
 
3.1

 
5.5

 
6.3


Revenue recognized in the three months ended March 31, 2018 that was included in the contract liability balance at the beginning of the period was $0.7 million. This revenue was driven primarily by equipment performance obligations being satisfied.

The contract liability balance represents deferred revenue, primarily related to equipment accruals. The increase in the first quarter of 2018 to deferred revenue was driven predominately by new contracts recently entered.
Remaining Performance Obligations
Our enforceable contractual obligations tend to be short term in nature, and the following table below does not include the transaction price of any remaining performance obligations that are part of the contracts with expected durations of less than one year. Additionally, the following table summarizes the estimated transaction price from contracts with customers allocated to performance obligations or portions of performance obligations that have not yet been satisfied as of March 31, 2018, as well as the expected timing of recognition of that transaction price.
(In millions)
 
Short-Term
(12 months or less)
 
Long-Term
 
Total
Total transaction price
 
$
2.8

 
$
3.5

 
$
6.3



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Assets recognized for the costs to obtain or fulfill a contract
The Company recognizes as an asset incremental costs to fulfill a contract if they are expected to be recovered, relate directly to a contract or anticipated contract, and generate or enhance resources that will be used to satisfy performance obligations in the future.

The Company recognizes incremental costs to obtain a contract as an expense when incurred if the amortization period of the asset that otherwise would have been recognized is one year or less. For example, the Company generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within sales and marketing expenses.

Costs for shipping and handling activities performed after a customer obtains control of a good are accounted for as costs to fulfill a contract and are included in cost of goods sold.
Note 4 Discontinued Operations, Divestitures and Acquisitions
Discontinued Operations
On March 25, 2017, we entered into a definitive agreement to sell our Diversey Care division and the food hygiene and cleaning business within our Food Care division for gross proceeds of USD equivalent of $3.2 billion, subject to customary closing conditions. The transaction was completed on September 6, 2017. During 2018, we recorded an additional net gain on the sale of Diversey of $7.4 million, net of taxes.
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 Condensed Consolidated Statements of Operations for the three months ended March 31, 2018 and 2017.
Summary operating results of Diversey were as follows:
 
 
Three Months Ended
March 31,
(In millions)
 
2017
Net sales
 
$
581.7

Cost of sales
 
330.5

    Gross profit
 
251.2

Selling, general and administrative expenses
 
198.9

Amortization expense of intangible assets acquired
 
17.7

   Operating profit
 
34.6

Other expense, net
 
(2.9
)
Earnings from discontinued operations before income tax provision(1)
 
31.7

Income tax provision from discontinued operations
 
21.2

Net earnings from discontinued operations
 
$
10.5

 
(1) 
For the three months ended March 31, 2017, net earnings from discontinued operations was impacted by a tax expense of $19.5 million related to a change in the repatriation strategy of foreign earnings.

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The following table presents selected financial information regarding cash flows of Diversey that are included within discontinued operations in the Condensed Consolidated Statements of Cash Flows:
 
 
 
Three Months Ended
March 31,
(In millions)
 
2017
Non-cash items included in net earnings from discontinued operations:
 
 

Depreciation and amortization
 
$
23.4

Share-based incentive compensation
 
3.3

Profit sharing expense
 
1.0

Provision for bad debt
 
1.3

Capital expenditures
 
3.4


The amounts disclosed in the tables above have been excluded from the Notes to Condensed Consolidated Financial Statements unless otherwise noted.
Divestitures
Divestiture of Embalagens Ltda.
On August 1, 2017, we entered into an agreement to sell our polystyrene food tray business in Guarulhos, Brazil for a gross purchase price of R$26.9 million (or $8.2 million as of the closing date of March 19, 2018). The purchase price is subject to working capital, cash and debt adjustments. As of March 31, 2018, the Company recognized a net gain on the sale of $1.0 million within other expense, net on the Condensed Consolidated Statement of Operations.
Acquisitions
Acquisition of Fagerdala
On October 2, 2017, the Company acquired Fagerdala Singapore Pte Ltd. ("Fagerdala"), a manufacturer and fabricator of polyethylene foam based in Singapore, to join its Product Care division. We acquired 100% of Fagerdala shares for estimated consideration of S$144.2 million, or $106.2 million, net of cash acquired of $13.3 million, inclusive of purchase price adjustments which will be finalized in 2018. We acquired Fagerdala to leverage its manufacturing footprint in Asia, expertise in foam manufacturing and fabrication, and commercial organization to grow sales in the consumer electronics, medical equipment and devices, automotive, temperature assurance, and e-commerce fulfillment sectors.

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


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Preliminary Allocation
Measurement Period
Revised Preliminary Allocation
(In millions)
 
As of October 2, 2017
Adjustments
As of March 31, 2018
Total consideration transferred
 
$106.6
$(0.4)
$106.2
 
 
 
 
 
Assets:
 
 
 
 
Cash and cash equivalents
 
$13.3
 
$13.3
Trade receivables, net
 
22.4

 
22.4

Inventory, net
 
10.0

 
10.0

Prepaid expenses and other current assets
 
8.4

 
8.4

Property and equipment, net
 
23.3

 
23.3

Intangible assets, net
 
41.4

0.7

42.1

Goodwill
 
39.3

(0.2
)
39.1

Assets
 
$158.1
$0.5
$158.6
Liabilities:
 
 
 
 
Short-term borrowings
 
$14.0
 
$14.0
Accounts payable
 
6.9

 
6.9

Other current liabilities
 
15.1

0.9

16.0

Long-term debt, less current portion
 
3.8

 
3.8

Non-current deferred taxes
 
11.7

 
11.7

Liabilities
 
$51.5
$0.9
$52.4

The valuation of property and equipment, net 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 $42.1 million fair value allocated to definite-lived intangible assets consists primarily of $25.4 million of customer relationships with a useful life of seventeen years, $10.6 million of trademarks and tradenames with a useful life of fifteen years and various acquired technologies of $6.1 million with useful lives of thirteen years.
Acquisition of Deltaplam
On August 1, 2017, the Food Care division acquired Deltaplam Embalagens Indústria e Comércio Ltda ("Deltaplam"), a family owned and operated Brazilian flexible packaging manufacturer. The preliminary fair value of the consideration transferred was approximately $25.8 million. We recorded the fair value of the assets acquired and liabilities assumed on the acquisition date, which included $8.1 million of goodwill and $7.4 million of intangible assets. As of March 31, 2018, the fair value of the consideration transferred was approximately $25.3 million, which included $9.7 million of goodwill and $5.9 million of intangible assets.
 
Note 5 Segments
To accelerate productivity improvements and elimination of operational redundancies, the Company implemented a change in allocation of Corporate expenses. These expenses are now allocated to Food Care and Product Care segments. For comparison purposes, the Company presented 2017 results to reflect the revised allocation of these costs. This segment reporting change has no impact on total Company operating results.
The Company’s segment reporting structure consists of two reportable segments and a Corporate category as follows:
Food Care; and
Product Care.

The Company’s Food Care and Product Care segments are considered reportable segments under FASB ASC Topic 280. Our reportable segments are aligned with similar groups of products and management team. Corporate includes certain costs are not allocated to or monitored by the reportable segments' management.
We allocate and disclose depreciation and amortization expense to our segments, although property and equipment, net is not allocated to the segment assets, nor is depreciation and amortization included in the segment performance metric Adjusted EBITDA. The accounting policies of the reportable segments and Corporate are the same as those applied to the Condensed Consolidated Financial Statements. Refer to 'Non-U.S. GAAP Information' for additional details on the use and calculation of our Non-U.S. GAAP measures presented below.

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The following tables show Net Sales and Adjusted EBITDA by reportable segment:
 
 
Three Months Ended
March 31,
(In millions)
 
2018
 
2017
Net Sales:
 
 

 
 

Food Care
 
$
696.3

 
$
655.6

As a % of Total Company net sales
 
61.6
%
 
63.5
%
Product Care
 
434.7

 
376.6

As a % of Total Company net sales
 
38.4
%
 
36.5
%
Total Company Net Sales
 
$
1,131.0

 
$
1,032.2

 
 
 
 
 
Three Months Ended
March 31,
(In millions)
 
2018
 
2017
Adjusted EBITDA from continuing operations
 
 

 
 

Food Care
 
$
134.7

 
$
122.0

Adjusted EBITDA Margin
 
19.3
%
 
18.6
%
Product Care
 
78.4

 
63.3

Adjusted EBITDA Margin
 
18.0
%
 
16.8
%
Corporate
 
(8.3)

 
(3.4)

Non-U.S. GAAP Total Company Adjusted EBITDA from continuing operations
 
$
204.8

 
$
181.9

Adjusted EBITDA Margin
 
18.1
%
 
17.6
%
The following table shows a reconciliation of net loss from continuing operations to Non-U.S. GAAP Total Company Adjusted EBITDA from continuing operations:
 
 
 
Three Months Ended
March 31,
(In millions)
 
2018
 
2017
Net loss from continuing operations
 
$
(208.0
)
 
$
(53.7
)
Interest expense, net
 
(42.0
)
 
(46.6
)
Income tax provision
 
321.5

 
136.4

Depreciation and amortization(2)
 
(40.4
)
 
(37.2
)
Depreciation and amortization adjustments
 
0.2

 

Special Items:
 
 
 
 
Restructuring and other charges(3)
 
(8.6
)
 
(1.9
)
Other restructuring associated costs
 
(2.2
)
 
(3.9
)
(Loss) gain on acquisition and divestiture activity
 
(4.0
)
 
2.3

Charges incurred due to the sale of Diversey
 
(6.8
)
 
(16.1
)
Gain from class-action litigation settlement
 
12.7

 

Other Special Items(1)
 
(0.2
)
 
4.2

Pre-tax impact of Special Items
 
(9.1
)
 
(15.4
)
Non-U.S. GAAP Total Company Adjusted EBITDA from continuing operations
 
$
204.8

 
$
181.9

 
(1) 
Other Special Items for the three months ended March 31, 2017 primarily included a recovered wage tax as the result of a court ruling partially offset by legal fees associated with restructuring and acquisitions.  
(2) 
Depreciation and amortization by segment is as follows:

21



 
 
Three Months Ended
March 31,
(In millions)
 
2018
 
2017
Food Care
 
$
26.9

 
$
24.7

Product Care
 
13.5

 
12.5

Total Company depreciation and amortization(i)
 
$
40.4

 
$
37.2


(i) 
Includes share-based incentive compensation of $7.6 million and $8.0 million for the three months ended March 31, 2018 and 2017, respectively.

(3) 
Restructuring and other charges by segment were as follows:
 
 
Three Months Ended
March 31,
(In millions)
 
2018
 
2017
Food Care
 
$
4.6

 
$
1.2

Product Care
 
4.0

 
0.7

Total Company restructuring and other charges
 
$
8.6

 
$
1.9

Assets by Reportable Segments
The following table shows assets allocated by reportable segment. Assets allocated by reportable segment include: trade receivables, net, inventory, net, property and equipment, net, goodwill, net, intangible assets, net and leased systems, net.
(In millions)
 
March 31, 2018
 
December 31, 2017
Assets allocated to segments:
 
 

 
 

Food Care
 
$
1,587.2

 
$
1,545.5

Product Care
 
2,568.3

 
2,620.2

Total segments
 
4,155.5

 
4,165.7

Assets not allocated:
 
 
 
 
Cash and cash equivalents
 
$
326.9

 
$
594.0

Assets held for sale
 
1.7

 
4.0

Income tax receivables
 
13.4

 
85.1

Other receivables
 
99.3

 
90.2

Deferred taxes
 
127.0

 
176.2

Other
 
317.3

 
165.1

Total
 
$
5,041.1

 
$
5,280.3

 
 
Note 6 Inventories
The following table details our inventories:
 
(In millions)
 
March 31, 2018
 
December 31, 2017
Raw materials
 
$
95.9

 
$
82.8

Work in process
 
138.8

 
125.7

Finished goods
 
329.1

 
298.3

Total
 
$
563.8

 
$
506.8




22



Note 7 Property and Equipment, net
 
The following table details our property and equipment, net:
 
(In millions)
 
March 31, 2018
 
December 31, 2017
Land and improvements
 
$
43.9

 
$
43.5

Buildings
 
729.0

 
718.9

Machinery and equipment
 
2,374.5

 
2,330.5

Other property and equipment
 
121.3

 
116.3

Construction-in-progress
 
114.2

 
114.7

Property and equipment, gross
 
3,382.9

 
3,323.9

Accumulated depreciation and amortization
 
(2,369.3
)
 
(2,325.5
)
Property and equipment, net
 
$
1,013.6

 
$
998.4

The following table details our interest cost capitalized and depreciation and amortization expense for property and equipment.
 
 
Three Months Ended
March 31,
(In millions)
 
2018
 
2017
Interest cost capitalized
 
$
2.2

 
$
3.0

Depreciation and amortization expense for property and equipment
 
$
28.9

 
$
24.1

 
Note 8 Goodwill and Identifiable Intangible Assets, Net
 
Goodwill
The following table shows our goodwill balances by reportable segment. We review goodwill for impairment on a reporting unit basis annually during the fourth quarter of each year and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. As of March 31, 2018, we did not identify any changes in circumstances that would indicate the carrying value of goodwill may not be recoverable.
 
(In millions)
 
Food Care
 
Product Care
 
Total
Carrying Value at December 31, 2017
 
$
526.9

 
$
1,412.9

 
$
1,939.8

Purchase price and other adjustments
 
(0.6
)
 
(0.2
)
 
(0.8
)
Currency translation
 
3.9

 
0.4

 
4.3

Carrying Value at March 31, 2018
 
$
530.2

 
$
1,413.1

 
$
1,943.3



23



Identifiable Intangible Assets, Net
The following tables summarize our identifiable intangible assets, net. As of March 31, 2018, there were no impairment indicators present.
 
 
March 31, 2018
 
December 31, 2017
(In millions)
Gross
Carrying Value
 
Accumulated Amortization
 
Net
 
Gross
Carrying Value
 
Accumulated Amortization
 
Net
Customer relationships
$
57.1

 
$
(20.5
)
 
$
36.6

 
$
59.7

 
$
(19.7
)
 
$
40.0

Trademarks and tradenames
11.7

 
(0.7
)
 
11.0

 
11.6

 
(0.5
)
 
11.1

Capitalized software
53.3

 
(42.0
)
 
11.3

 
50.6

 
(40.0
)
 
10.6

Technology
44.0

 
(28.3
)
 
15.7

 
39.2

 
(27.5
)
 
11.7

Contracts
13.5

 
(9.8
)
 
3.7

 
10.9

 
(9.6
)
 
1.3

Total intangible assets with definite lives
179.6

 
(101.3
)
 
78.3

 
172.0

 
(97.3
)
 
74.7

Trademarks and tradenames with indefinite lives
8.9

 

 
8.9

 
8.9

 

 
8.9

Total identifiable intangible assets, net
$
188.5

 
$
(101.3
)
 
$
87.2

 
$
180.9

 
$
(97.3
)
 
$
83.6


The following table shows the remaining estimated future amortization expense at March 31, 2018
 
Year
Amount
(in millions)
Remainder of 2018
$
9.1

2019
9.2

2020
6.5

2021
5.0

Thereafter
48.5

Total
$
78.3

 
 
Note 9 Accounts Receivable Securitization Programs
U.S. Accounts Receivable Securitization Program
We and a group of our U.S. operating subsidiaries maintain an accounts receivable securitization program under which we sell eligible U.S. accounts receivable to an indirectly wholly-owned subsidiary that was formed for the sole purpose of entering into this program. The wholly-owned subsidiary in turn may sell an undivided fractional ownership interest in these receivables to two banks and issuers of commercial paper administered by these banks. The wholly-owned subsidiary retains the receivables it purchases from the operating subsidiaries. Any transfers of fractional ownership interests of receivables under the U.S. receivables securitization program to the two banks and issuers of commercial paper administered by these banks are considered secured borrowings with pledge of collateral and are classified as short-term borrowings on our Condensed Consolidated Balance Sheets. These banks do not have any recourse against the general credit of the Company. The net trade receivables that served as collateral for these borrowings are reclassified from trade receivables, net to prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets.

As of March 31, 2018, the maximum purchase limit for receivable interests was $60.0 million, subject to the availability limits described below.
The amounts available from time to time under this program may be less than $60.0 million due to a number of factors, including but not limited to our credit ratings, trade receivable balances, the creditworthiness of our customers and our receivables collection experience. As of March 31, 2018, the level of eligible assets available under the program equaled $60.0 million. Although we do not believe restrictions under this program presently materially restrict our operations, if an additional event occurs that triggers one of these restrictive provisions, we could experience a decline in the amounts available to us under the program or termination of the program.

24



This program expires annually in August and is renewable.  
European Accounts Receivables Securitization Program
We and a group of our European subsidiaries maintain an accounts receivable securitization program with a special purpose vehicle, or SPV, two banks and issuers of commercial paper administered by these banks. The European program is structured to be a securitization of certain trade receivables that are originated by certain of our European subsidiaries. The SPV borrows funds from the banks to fund its acquisition of the receivables and provides the banks with a first priority perfected security interest in the accounts receivable. We do not have an equity interest in the SPV. We concluded the SPV is a variable interest entity because its total equity investment at risk is not sufficient to permit the SPV to finance its activities without additional subordinated financial support from the bank via loans or via the collections from accounts receivable already purchased. Additionally, we are considered the primary beneficiary of the SPV since we control the activities of the SPV, and are exposed to the risk of uncollectable receivables held by the SPV. Therefore, the SPV is consolidated in our Condensed Consolidated Financial Statements. Any activity between the participating subsidiaries and the SPV is eliminated in consolidation. Loans from the banks to the SPV are classified as short-term borrowings on our Condensed Consolidated Balance Sheets. The net trade receivables that served as collateral for these borrowings are reclassified from trade receivables, net to prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets.
As of March 31, 2018, the maximum purchase limit for receivable interests was €80.0 million ($98.4 million equivalent at March 31, 2018), subject to availability limits. The terms and provisions of this program are similar to our U.S. program discussed above. As of March 31, 2018, the amount available under this program was €75.4 million ($92.7 million equivalent as of March 31, 2018).
This program expires annually in August and is renewable.
Utilization of Our Accounts Receivable Securitization Programs
As of March 31, 2018, there were no amounts outstanding under our U.S. program and €74.4 million ($91.4 million equivalent as of March 31, 2018) outstanding under our European program. We continue to service the trade receivables supporting the programs, and the banks are permitted to re-pledge this collateral. The total interest paid for these programs was immaterial for the three months ended March 31, 2018 and 2017.
Under limited circumstances, the banks and the issuers of commercial paper can end purchases of receivables interests before the above expiration dates. A failure to comply with debt leverage or various other ratios related to our receivables collection experience could result in termination of the receivables programs. We were in compliance with these ratios at March 31, 2018.
As of December 31, 2017, there were no amounts outstanding under our U.S. and European programs.
 
Note 10 Restructuring Activities
Consolidation of Restructuring Programs
In the first quarter of 2016, the Board of Directors agreed to consolidate the remaining activities of all restructuring programs to create a single program to be called the “Sealed Air Restructuring Program” or the “Program.”

The Program consists of a portfolio of restructuring projects across all of our divisions as part of our transformation of Sealed Air into a knowledge-based company, including reductions in headcount, and relocation of certain facilities and offices, which primarily reflects the relocation from our former corporate headquarters in Elmwood Park, New Jersey; and facilities in Saddle Brook, New Jersey; Racine, Wisconsin; and Duncan and Greenville, South Carolina to our new global headquarters in Charlotte, North Carolina. The cost of the Charlotte campus was estimated to be approximately $120 million. The Program also includes costs associated with the sale of Diversey.
    

25



Program metrics are as follows:
 
 
Sealed Air Restructuring Program
Approximate positions eliminated by the program
1,950

Estimated Program Costs (in millions):
 

Costs of reduction in headcount as a result of reorganization
$260-$270

Other expenses associated with the Program
130-135

Total expense
$390-$405

Capital expenditures
250-255

Proceeds, foreign exchange and other cash items
(70)-(75)

Total estimated net cash cost
$570-$585

Program to Date Cumulative Expense (in millions):
 
Costs of reduction in headcount as a result of reorganization
$
246

Other expenses associated with the Program
125

Total Cumulative Expense
$
371

Cumulative capital expenditures
$
235

 
The following table details our restructuring activities reflected in the Condensed Consolidated Statement of Operations for the three months ended March 31, 2018 and 2017:
 
 
 
Three Months Ended
March 31,
(In millions)
 
2018
 
2017
Continuing Operations:
 
 
 
 
Other associated costs
 
$
2.2

 
$
3.9

Restructuring charges
 
8.6

 
1.9

Total charges from continuing operations
 
10.8

 
5.8

Charges included in discontinued operations
 

 
(1.7
)
Total charges
 
$
10.8

 
$
4.1

Capital expenditures
 
$
0.2

 
$
9.9

 
The restructuring accrual, spending and other activity for the three months ended March 31, 2018 and the accrual balance remaining at March 31, 2018 related to these programs were as follows:
 
(In millions)
 
Restructuring accrual at December 31, 2017
$
16.1

Accrual and accrual adjustments
8.6

Cash payments during 2018
(4.1
)
Effect of changes in foreign currency exchange rates
0.3

Restructuring accrual at March 31, 2018
$
20.9

 
We expect to pay $20.6 million of the accrual balance remaining at March 31, 2018 within the next twelve months. This amount is included in accrued restructuring costs on the Condensed Consolidated Balance Sheet at March 31, 2018. The remaining accrual of $0.3 million is expected to be paid in 2019. This amount is included in other non-current liabilities on our Condensed Consolidated Balance Sheet at March 31, 2018.



26



Note 11 Debt and Credit Facilities
Our total debt outstanding consisted of:
 
(In millions)
 
March 31, 2018
 
December 31, 2017
Short-term borrowings(1)
 
$
155.7

 
$
25.3

Current portion of long-term debt
 
1.6

 
2.2

Total current debt
 
157.3

 
27.5

     Term Loan A due July 2019
 
225.0

 
222.7

6.50% Senior Notes due December 2020
 
423.7

 
423.6

4.875% Senior Notes due December 2022
 
420.6

 
420.4

5.25% Senior Notes due April 2023
 
420.6

 
420.4

4.50% Senior Notes due September 2023
 
488.7

 
474.3

5.125% Senior Notes due December 2024
 
420.9

 
420.7

5.50% Senior Notes due September 2025
 
396.7

 
396.7

6.875% Senior Notes due July 2033
 
445.4

 
445.4

Other
 
6.3

 
6.3

Total long-term debt, less current portion(3)
 
3,247.9

 
3,230.5

Total debt(2)
 
$
3,405.2

 
$
3,258.0

 
(1) 
Short-term borrowings of $155.7 million at March 31, 2018 are comprised of $91.4 million under our European securitization program and $64.3 million of short term borrowings from various lines of credit. Short-term borrowings of $25.3 million at December 31, 2017 were comprised $2.1 million of Diversey accounts payable obligations under financing arrangements which Sealed Air was fully reimbursed for as part of the sale of Diversey as well as $23.2 million of short-term borrowings from various lines of credit.      
(2) 
As of March 31, 2018, our weighted average interest rate on our short-term borrowings outstanding was 1.8% and on our long-term debt outstanding was 5.3%. As of December 31, 2017, our weighted average interest rate on our short-term borrowings outstanding was 5.4% and on our long-term debt outstanding was 5.3%
(3) 
Amounts are net of unamortized discounts and issuance costs of $28.1 million as March 31, 2018 and $29.5 million as of December 31, 2017.
Lines of Credit
The following table summarizes our available lines of credit and committed and uncommitted lines of credit, including the Revolving Credit Facility discussed above, and the amounts available under our accounts receivable securitization programs.
 
(In millions)
 
March 31, 2018
 
December 31, 2017
Used lines of credit(1)
 
$
155.7

 
$
23.2

Unused lines of credit
 
942.3

 
1,108.6

Total available lines of credit(2)
 
$
1,098.0

 
$
1,131.8

 
(1) 
Includes total borrowings under the accounts receivable securitization programs, the revolving credit facility and borrowings under lines of credit available to several subsidiaries.
(2) 
Of the total available lines of credit, $852.7 million was committed as of March 31, 2018.
Covenants

Each issue of our outstanding senior notes imposes limitations on our operations and those of specified subsidiaries. The Second Amended and Restated Syndicated Credit Facility (“Amended Credit Facility”) contains customary affirmative and negative covenants for credit facilities of this type, including limitations on our indebtedness, liens, investments, restricted payments, mergers and acquisitions, dispositions of assets, transactions with affiliates, amendment of documents and sale leasebacks, and a covenant specifying a maximum permitted ratio of Consolidated Net Debt to Consolidated EBITDA (as

27



defined in the Amended Credit Facility). We were in compliance with the above financial covenants and limitations at March 31, 2018.

Note 12 Derivatives and Hedging Activities
We report all derivative instruments on our Condensed Consolidated Balance Sheets at fair value and establish criteria for designation and effectiveness of transactions entered into for hedging purposes.
As a large global organization, we face exposure to market risks, such as fluctuations in foreign currency exchange rates and interest rates. To manage the volatility relating to these exposures, we enter into various derivative instruments from time to time under our risk management policies. We designate derivative instruments as hedges on a transaction basis to support hedge accounting. The changes in fair value of these hedging instruments offset in part or in whole corresponding changes in the fair value or cash flows of the underlying exposures being hedged. We assess the initial and ongoing effectiveness of our hedging relationships in accordance with our policy. We do not purchase, hold or sell derivative financial instruments for trading purposes. Our practice is to terminate derivative transactions if the underlying asset or liability matures or is sold or terminated, or if we determine the underlying forecasted transaction is no longer probable of occurring.
We record the fair value positions of all derivative financial instruments on a net basis by counterparty for which a master netting arrangement is utilized.  
Foreign Currency Forward Contracts Designated as Cash Flow Hedges
The primary purpose of our cash flow hedging activities is to manage the potential changes in value associated with the amounts receivable or payable on equipment and raw material purchases that are denominated in foreign currencies in order to minimize the impact of the changes in foreign currencies. We record gains and losses on foreign currency forward contracts qualifying as cash flow hedges in accumulated other comprehensive income (loss) ("AOCI") to the extent that these hedges are effective and until we recognize the underlying transactions in net earnings, at which time we recognize these gains and losses in cost of sales, on our Condensed Consolidated Statements of Operations. Cash flows from derivative financial instruments are classified as cash flows from operating activities in the Condensed Consolidated Statements of Cash Flows. These contracts generally have original maturities of less than 12 months.
Net unrealized after-tax gains/losses related to these contracts that were included in AOCI were $1.1 million gain and $2.9 million loss for the three months ended March 31, 2018 and 2017, respectively. The unrealized amounts in AOCI will fluctuate based on changes in the fair value of open contracts during each reporting period.
We estimate that $0.3 million of net unrealized derivative losses included in AOCI will be reclassified into earnings within the next twelve months.
Foreign Currency Forward Contracts Not Designated as Hedges
Our subsidiaries have foreign currency exchange exposure from buying and selling in currencies other than their functional currencies. The primary purposes of our foreign currency hedging activities are to manage the potential changes in value associated with the amounts receivable or payable on transactions denominated in foreign currencies and to minimize the impact of the changes in foreign currencies related to foreign currency-denominated interest-bearing intercompany loans and receivables and payables. The changes in fair value of these derivative contracts are recognized in other income, net, on our Condensed Consolidated Statements of Operations and are largely offset by the remeasurement of the underlying foreign currency-denominated items indicated above. Cash flows from derivative financial instruments are classified as cash flows from investing activities in the Condensed Consolidated Statements of Cash Flows. These contracts generally have original maturities of less than 12 months.
Interest Rate Swaps
From time to time, we may use interest rate swaps to manage our fixed and floating interest rates on our outstanding indebtedness. At March 31, 2018 and December 31, 2017, we had no outstanding interest rate swaps.
Net Investment Hedge
During the second quarter of 2015, we entered into a series of foreign currency exchange forwards totaling €270.0 million. These foreign currency exchange forwards hedged a portion of the net investment in a certain European subsidiary

28



against fluctuations in foreign exchange rates and expired in June 2015. The loss of $3.5 million ($2.2 million after tax) is recorded in AOCI on our Condensed Consolidated Balance Sheets.
The €400.0 million 4.50% notes issued in June 2015 are designated as a net investment hedge, hedging a portion of our net investment in a certain European subsidiary against fluctuations in foreign exchange rates. The change in the fair value of the debt was $42.1 million ($27.9 million net of tax) as of March 31, 2018, and is reflected in AOCI on our Condensed Consolidated Balance Sheets. 
In March 2015, we entered into a series of cross-currency swaps with a combined notional amount of $425.0 million, hedging a portion of the net investment in a certain European subsidiary against fluctuations in foreign exchange rates. As a result of the sale of Diversey, we terminated these cross-currency swaps in September 2017 and settled these swaps in October 2017. The fair value of the swaps on the date of termination was a liability of $61.9 million which was partially offset by semi-annual interest settlements of $17.7 million. This resulted in a net impact of $(44.2) million which is recorded in AOCI.
For derivative instruments that are designated and qualify as hedges of net investments in foreign operations, settlements and changes in fair values of the derivative instruments are recognized in unrealized net gains or loss on derivative instruments for net investment hedge, a component of AOCI, net of taxes, to offset the changes in the values of the net investments being hedged. Any portion of the net investment hedge that is determined to be ineffective is recorded in other expense, net on the Condensed Consolidated Statements of Operations.
Other Derivative Instruments
We may use other derivative instruments from time to time to manage exposure to foreign exchange rates and to access to international financing transactions. These instruments can potentially limit foreign exchange exposure by swapping borrowings denominated in one currency for borrowings denominated in another currency.
Fair Value of Derivative Instruments
See Note 13, “Fair Value Measurements and Other Financial Instruments,” for a discussion of the inputs and valuation techniques used to determine the fair value of our outstanding derivative instruments.
The following table details the fair value of our derivative instruments included on our Condensed Consolidated Balance Sheets.
 
 
Cash Flow
 
Non-Designated
 
Total
(In millions)
March 31, 2018
 
December 31, 2017
 
March 31, 2018
 
December 31, 2017
 
March 31, 2018
 
December 31, 2017
Derivative Assets
 

 
 

 
 

 
 

 
 

 
 

Foreign currency forward contracts
$
0.7

 
$
0.5

 
$
7.2

 
$
3.6

 
$
7.9

 
$
4.1

Total Derivative Assets
$
0.7

 
$
0.5

 
$
7.2

 
$
3.6

 
$
7.9

 
$
4.1

 
 
 
 
 
 
 
 
 
 
 
 
Derivative Liabilities
 

 
 

 
 

 
 

 
 

 
 

Foreign currency forward contracts
$
(1.0
)
 
$
(2.4
)
 
$
(9.2
)
 
$
(3.3
)
 
$
(10.2
)
 
$
(5.7
)
Total Derivative Liabilities(1)
$
(1.0
)
 
$
(2.4
)
 
$
(9.2
)
 
$
(3.3
)
 
$
(10.2
)
 
$
(5.7
)
Net Derivatives(2)
$
(0.3
)
 
$
(1.9
)
 
$
(2.0
)
 
$
0.3

 
$
(2.3
)
 
$
(1.6
)
 
(1) 
Excludes €400.0 million of euro-denominated debt ($488.7 million equivalent at March 31, 2018 and $474.3 million equivalent at December 31, 2017), designated as a net investment hedge.
(2) 
The following table reconciles gross positions without the impact of master netting agreements to the balance sheet classification:

29



 
Other Current Assets
 
Other Current Liabilities
(In millions)
March 31, 2018
 
December 31, 2017
 
March 31, 2018
 
December 31, 2017
Gross position
$
7.9

 
$
4.1

 
$
(10.2
)
 
$
(5.7
)
Impact of master netting agreements
(0.4
)
 
(0.4
)
 
0.4

 
0.4

Net amounts recognized on the Condensed Consolidated Balance Sheet
$
7.5

 
$
3.7

 
$
(9.8
)
 
$
(5.3
)

The following table details the effect of our derivative instruments on our Condensed Consolidated Statements of Operations.
 
 
 
 
Amount of Gain (Loss) Recognized in
Earnings on Derivatives
 
Location of Gain (Loss) Recognized on
 
Three Months Ended
March 31,
(In millions)
Condensed Consolidated Statements of Operations
 
2018
 
2017
Derivatives designated as hedging instruments:
 
 
 

 
 

Cash Flow Hedges:
 
 
 

 
 

Foreign currency forward contracts
Cost of sales
 
$
(0.6
)
 
$
0.1

Treasury locks
Interest expense, net
 

 
0.1

Sub-total cash flow hedges
 
 
(0.6
)
 
0.2

Fair Value Hedges:
 
 
 

 
 

Interest rate swaps
Interest expense, net
 
0.1

 
0.1

Derivatives not designated as hedging instruments:
 
 
 

 
 

Foreign currency forward contracts
Other expense, net
 
(1.2
)
 
5.2

Total
 
 
$
(1.7
)
 
$
5.5


Note 13 Fair Value Measurements and Other Financial Instruments
Fair Value Measurements
In determining fair value of financial instruments, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and consider counterparty credit risk in our assessment of fair value. We determine fair value of our financial instruments based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:
Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.
Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.
The following table details the fair value hierarchy of our financial instruments:
 
 
 
March 31, 2018
(In millions)
 
Total Fair Value
 
Level 1
 
Level 2
 
Level 3
Cash equivalents
 
$
101.6

 
$
101.6

 
$

 
$

Derivative financial and hedging instruments net liability:
 
 

 
 

 
 

 
 

Foreign currency forward contracts and options
 
$
(2.3
)
 
$

 
$
(2.3
)
 
$

 

30



 
 
December 31, 2017
(In millions)
 
Total Fair Value
 
Level 1
 
Level 2
 
Level 3
Cash equivalents
 
$
297.5

 
$
297.5

 
$

 
$

Derivative financial and hedging instruments net liability:
 
 
 
 
 
 
 
 
Foreign currency forward contracts
 
$
(1.6
)
 
$

 
$
(1.6
)
 
$

 
Cash Equivalents
Our cash equivalents at March 31, 2018 and December 31, 2017 consisted of bank time deposits (Level 1). Since these are short-term highly liquid investments with original maturities of three months or less at the date of purchase, they present negligible risk of changes in fair value due to changes in interest rates.
Derivative Financial Instruments
Our foreign currency forward contracts, foreign currency options, euro-denominated debt, interest rate and currency swaps and cross-currency swaps are recorded at fair value on our Condensed Consolidated Balance Sheets using a discounted cash flow analysis that incorporates observable market inputs. These market inputs include foreign currency spot and forward rates, and various interest rate curves, and are obtained from pricing data quoted by various banks, third party sources and foreign currency dealers involving identical or comparable instruments (Level 2).
Counterparties to these foreign currency forward contracts have at least an investment grade rating. Credit ratings on some of our counterparties may change during the term of our financial instruments. We closely monitor our counterparties’ credit ratings and, if necessary, will make any appropriate changes to our financial instruments. The fair value generally reflects the estimated amounts that we would receive or pay to terminate the contracts at the reporting date.
Other Financial Instruments
The following financial instruments are recorded at fair value or at amounts that approximate fair value: (1) trade receivables, net, (2) certain other current assets, (3) accounts payable and (4) other current liabilities. The carrying amounts reported on our Condensed Consolidated Balance Sheets for the above financial instruments closely approximate their fair value due to the short-term nature of these assets and liabilities.
Other liabilities that are recorded at carrying value on our Condensed Consolidated Balance Sheets include our senior notes, except for our euro-denominated debt as discussed above. We utilize a market approach to calculate the fair value of our senior notes. Due to their limited investor base and the face value of some of our senior notes, they may not be actively traded on the date we calculate their fair value. Therefore, we may utilize prices and other relevant information generated by market transactions involving similar securities, reflecting U.S. Treasury yields to calculate the yield to maturity and the price on some of our senior notes. These inputs are provided by an independent third party and are considered to be Level 2 inputs.
We derive our fair value estimates of our various other debt instruments by evaluating the nature and terms of each instrument, considering prevailing economic and market conditions, and examining the cost of similar debt offered at the balance sheet date. We also incorporated our credit default swap rates and currency specific swap rates in the valuation of each debt instrument, as applicable.
These estimates are subjective and involve uncertainties and matters of significant judgment, and therefore we cannot determine them with precision. Changes in assumptions could significantly affect our estimates.

31



The table below shows the carrying amounts and estimated fair values of our total debt:

 
 
March 31, 2018
 
December 31, 2017
(In millions)
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
Term Loan A Facility due July 2019(1)
 
$
225.0

 
$
225.0

 
$
222.7

 
$
222.7

6.50% Senior Notes due December 2020
 
423.7

 
452.7

 
423.6

 
465.1

4.875% Senior Notes due December 2022
 
420.6

 
431.8

 
420.4

 
451.0

5.25% Senior Notes due April 2023
 
420.6

 
437.9

 
420.4

 
455.6

4.50% Senior Notes due September 2023(1)
 
488.7

 
549.4

 
474.3

 
544.4

5.125% Senior Notes due December 2024
 
420.9

 
434.4

 
420.7

 
456.2

5.50% Senior Notes due September 2025
 
396.7

 
417.9

 
396.7

 
439.9

6.875% Senior Notes due July 2033
 
445.4

 
506.2

 
445.4

 
527.3

Other foreign loans(1)
 
162.3

 
161.3

 
30.2

 
30.4

Other domestic loans
 
1.3

 
1.4

 
3.6

 
3.6

Total debt
 
$
3,405.2

 
$
3,618.0

 
$
3,258.0

 
$
3,596.2

 
(1) 
Includes borrowings denominated in currencies other than U.S. dollars.

In addition to the table above, the Company remeasures amounts related to contingent consideration liabilities related to acquisitions and certain equity compensation, that were carried at fair value on a recurring basis in the Condensed Consolidated Financial Statements or for which a fair value measurement was required. Refer to Note 4 “Discontinued Operations, Divestitures and Acquisitions” of the 2017 Annual Form 10-K for information regarding contingent consideration and Note 17 “Stockholders’ Equity,” of the Notes to Condensed Consolidated Financial Statements for share based compensation.
 
Note 14 Defined Benefit Pension Plans and Other Post-Employment Benefit Plans
The following table shows the components of our net periodic benefit cost (income) for our defined benefit pension plans for the three months ended March 31, 2018 and 2017:
 
 
Three Months Ended
March 31, 2018
 
Three Months Ended
March 31, 2017
(In millions)
 
U.S.
 
International
 
Total
 
U.S.