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 September 30, 2017
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” and “smaller reporting 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 229,996,518 shares of the registrant’s common stock, par value $0.10 per share, issued and outstanding as of October 31, 2017.





 
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: the tax benefits associated with the Settlement agreement (as defined in our Annual Report on Form 10-K for the year ended December 31, 2016), global economic and political conditions, changes in our credit ratings, changes in raw material pricing and availability, changes in energy costs, competitive conditions, the success of our restructuring activities, currency translation and devaluation effects, the success of our financial growth, profitability, cash generation and manufacturing strategies and our cost reduction and productivity efforts, the success of new product offerings, the effects of animal and food-related health issues, pandemics, consumer preferences, environmental matters, 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, 2016 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 4, “Segments” of the Notes to 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, charges related to ceasing operations in Venezuela, cash-settled stock appreciation rights (“SARs”) granted as part of the original Diversey acquisition, 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 special taxes or tax benefits (“Tax Special Items”). The Adjusted Tax Rate is an indicator of the taxes on our core business. The tax situation and effective tax rate in the specific countries where the excluded or Special Items occur will determine the impact (positive or negative) to the Adjusted Tax Rate.
In our “Net Sales by Geographic Region,” “Components of Change in 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 data)
 
September 30, 2017 (unaudited)
 
December 31, 2016
ASSETS
 
 

 
 

Current assets:
 
 

 
 

Cash and cash equivalents
 
$
1,304.7

 
$
333.7

Trade receivables, net of allowance for doubtful accounts of $6.8 in 2017 and $8.4 in 2016
 
540.5

 
460.5

Income tax receivables
 
16.7

 
11.5

Other receivables
 
81.7

 
72.7

Inventories, net of inventory reserves of $17.4 in 2017 and $13.4 in 2016
 
547.7

 
456.7

Current assets held for sale
 
20.8

 
825.7

Prepaid expenses and other current assets
 
63.6

 
54.5

Total current assets
 
2,575.7

 
2,215.3

Property and equipment, net
 
951.0

 
889.6

Goodwill
 
1,898.3

 
1,882.9

Intangible assets, net
 
44.8

 
40.1

Deferred taxes
 
275.7

 
169.9

Non-current assets held for sale
 

 
2,026.0

Other non-current assets
 
193.9

 
175.4

Total assets
 
$
5,939.4

 
$
7,399.2

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 

 
 

Current liabilities:
 
 

 
 

Short-term borrowings
 
$
84.0

 
$
83.0

Current portion of long-term debt
 
2.0

 
297.0

Accounts payable
 
778.2

 
539.2

Current liabilities held for sale
 
1.8

 
683.3

Accrued restructuring costs
 
16.1

 
44.8

Income tax payable
 
183.6

 
48.3

Other current liabilities
 
451.2

 
423.4

Total current liabilities
 
1,516.9

 
2,119.0

Long-term debt, less current portion
 
3,219.4

 
3,762.6

Deferred taxes
 
4.7

 
4.9

Non-current liabilities held for sale
 

 
501.0

Other non-current liabilities
 
437.8

 
402.0

Total liabilities
 
5,178.8

 
6,789.5

Commitments and contingencies - Note 15
 


 


Stockholders’ equity:
 
 

 
 

Preferred stock, $0.10 par value per share, 50,000,000 shares authorized; no shares issued in 2017 and 2016
 

 

Common stock, $0.10 par value per share, 400,000,000 shares authorized; shares issued: 230,002,826 in 2017 and 227,638,738 in 2016; shares outstanding: 180,394,303 in 2017 and 193,482,383 in 2016
 
23.0

 
22.8

Additional paid-in capital
 
1,933.3

 
1,974.1

Retained earnings
 
1,796.0

 
1,040.0

Common stock in treasury, 49,608,523 shares in 2017 and 34,156,355 shares in 2016
 
(2,155.8
)
 
(1,478.1
)
Accumulated other comprehensive loss, net of taxes
 
(835.9
)
 
(949.1
)
Total stockholders’ equity
 
760.6

 
609.7

Total liabilities and stockholders’ equity
 
$
5,939.4

 
$
7,399.2

 
See accompanying Notes to Condensed Consolidated Financial Statements.
 


5


SEALED AIR CORPORATION AND SUBSIDIARIES


Condensed Consolidated Statements of Operations
 
 
 
Three Months Ended September 30, (unaudited)
 
Nine Months Ended September 30, (unaudited)
(In millions, except share data)
 
2017
 
2016
 
2017
 
2016
Net sales
 
$
1,131.3

 
$
1,065.1

 
$
3,233.8

 
$
3,109.9

Cost of sales(1)
 
769.2

 
708.4

 
2,191.0

 
2,068.0

Gross profit
 
362.1

 
356.7

 
1,042.8

 
1,041.9

Selling, general and administrative expenses(1)
 
192.7

 
184.2

 
590.2

 
566.7

Amortization expense of intangible assets acquired
 
3.1

 
4.1

 
9.2

 
10.4

Restructuring and other charges(1)
 
6.2

 
1.3

 
9.2

 
1.4

Operating profit
 
160.1

 
167.1

 
434.2

 
463.4

Interest expense
 
(54.0
)
 
(49.6
)
 
(153.7
)
 
(151.4
)
Foreign currency exchange loss related to Venezuelan subsidiaries
 

 

 

 
(1.6
)
Charge related to Venezuelan subsidiaries(1)
 

 

 

 
(46.0
)
Other (expense) income, net
 

 
0.4

 
(6.2
)
 
1.4

Earnings before income tax provision
 
106.1

 
117.9

 
274.3

 
265.8

Income tax provision
 
43.7

 
54.1

 
236.5

 
124.7

Net earnings from continuing operations
 
62.4

 
63.8

 
37.8

 
141.1

Gain on sale of discontinued operations, net of tax
 
699.3

 

 
699.3

 

Net earnings from discontinued operations, net of tax(2)
 
25.7

 
99.5

 
111.3

 
174.2

Net earnings available to common stockholders
 
$
787.4

 
$
163.3

 
$
848.4

 
$
315.3

Basic:
 
 

 
 

 
 

 
 

Continuing operations
 
$
0.33

 
$
0.33

 
$
0.20

 
$
0.71

Discontinued operations(2)
 
3.86

 
0.51

 
4.22

 
0.89

Net earnings per common share - basic
 
$
4.19

 
$
0.84

 
$
4.42

 
$
1.60

Diluted:
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.33

 
$
0.32

 
$
0.19

 
$
0.71

Discontinued operations(2)
 
3.82

 
0.51

 
4.18

 
0.88

Net earnings per common share - diluted
 
$
4.15

 
$
0.83

 
$
4.37

 
$
1.59

Dividends per common share
 
$
0.16

 
$
0.16

 
$
0.48

 
$
0.45

Weighted average number of common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
186.9

 
194.1

 
190.9

 
195.0

     Diluted
 
188.9

 
196.7

 
192.9

 
197.5

 
See accompanying Notes to Condensed Consolidated Financial Statements.
 
 
(1) 
Due to the ongoing challenging economic situation in Venezuela, the Company approved a program in the second quarter of 2016 to cease operations in the country.  Refer to Note 1, "Organization and Basis of Presentation," of the Notes to the Condensed Consolidated Financial Statement for further details.
(2) 
For the nine months ended September 30, 2017, there was a revision to net earnings from discontinued operations, net of tax, on the Condensed Consolidated Statement of Operations related to depreciation and amortization on Diversey assets held for sale. As a result, net earnings from discontinued operations, net of tax, increased $16.4 million and increased basic and diluted shares by $0.09 per share.



6


SEALED AIR CORPORATION AND SUBSIDIARIES


Condensed Consolidated Statements of Comprehensive Income
 
 
 
Three Months Ended September 30, (unaudited)
 
Nine Months Ended September 30, (unaudited)
(In millions)
 
2017
 
2016
 
2017
 
2016
Net earnings available to common stockholders
 
$
787.4

 
$
163.3

 
$
848.4

 
$
315.3

Other comprehensive income (loss), net of taxes:
 
 

 
 

 
 

 
 

Recognition of deferred pension items, net of taxes of $(45.3) for the three months ended September 30, 2017, $(0.7) for the three months ended September 30, 2016, $(48.3) for the nine months ended September 30, 2017 and $(2.0) for the nine months ended September 30, 2016
 
174.6

 
1.8

 
179.9

 
5.6

Unrealized gain (losses)on derivative instruments for net investment hedge, net of taxes of $12.1 for three months ended September 30, 2017, $5.2 for the three months ended September 30, 2016, $39.6 for the nine months ended September 30, 2017 and $9.6 for the nine months end September 30, 2016
 
(19.6
)
 
(8.3
)
 
(64.0
)
 
(15.4
)
Unrealized (losses) gains on derivative instruments for cash flow hedge, net of taxes of $0.5 for the three months ended September 30, 2017, $(0.8) for the three months ended September 30, 2016, $1.9 for the nine months ended September 30, 2017 and $1.6 for the nine months ended September 30, 2016
 
(2.0
)
 
2.2

 
(8.2
)
 
(2.5
)
Foreign currency translation adjustments, net of taxes of $1.1 for the three months ended September 30, 2017, $0.2 for the three months ended September 30, 2016, $5.5 for the nine months ended September 30, 2017 and $(20.0) for the nine months ended September 30, 2016
 
(68.3
)
 
(11.1
)
 
5.5

 
(26.6
)
Other comprehensive income (loss), net of taxes
 
84.7

 
(15.4
)
 
113.2

 
(38.9
)
Comprehensive income, net of taxes
 
$
872.1

 
$
147.9

 
$
961.6

 
$
276.4

 
See accompanying Notes to Condensed Consolidated Financial Statements.

7


SEALED AIR CORPORATION AND SUBSIDIARIES


Condensed Consolidated Statements of Cash Flows 
 
 
Nine Months Ended September 30, (unaudited)
(In millions)
 
2017
 
2016(1)
Net earnings available to common stockholders
 
$
848.4

 
$
315.3

Adjustments to reconcile net earnings to net cash  provided by operating activities
 
 

 
 

Depreciation and amortization
 
114.4

 
161.2

Share-based incentive compensation
 
38.7

 
44.6

Profit sharing expense
 
18.6

 
29.7

Remeasurement loss related to Venezuelan subsidiaries
 
0.1

 
3.2

Reclassification of cumulative translation adjustment of Venezuelan subsidiaries
 

 
46.0

Provisions for bad debt
 
2.6

 
4.0

Provisions for inventory obsolescence
 
5.9

 
7.0

Deferred taxes, net
 
160.7

 
2.4

Net (gain) loss on sale of business
 
(701.4
)
 
1.9

Foreign currency gains (losses)
 
19.0

 
(1.8
)
Other non-cash items
 
8.7

 
11.4

Changes in operating assets and liabilities:
 
 

 
 

Trade receivables, net
 
(87.5
)
 
(58.5
)
Inventories
 
(100.5
)
 
(100.5
)
Accounts payable
 
135.2

 
140.5

Other assets and liabilities
 
(130.4
)
 
(138.0
)
Net cash  provided by operating activities
 
332.5

 
468.4

Cash flows from investing activities:
 
 

 
 

Capital expenditures
 
(126.5
)
 
(190.2
)
Proceeds, net from sale of business and property and equipment
 
4.4

 
8.4

Business acquired in purchase transactions, net of cash acquired
 
(25.4
)
 
(5.8
)
Impact of sale of Diversey(2)
 
2,053.0

 

Settlement of foreign currency forward contracts
 
(1.1
)
 
(43.1
)
Net cash provided by (used in) investing activities
 
1,904.4

 
(230.7
)
Cash flows from financing activities:
 
 

 
 

Net proceeds from borrowings
 
(21.5
)
 
85.5

Payments of borrowings(2)
 
(369.5
)
 
(12.8
)
Change in cash used as collateral on borrowing arrangements
 
(1.8
)
 
1.5

Proceeds from cross currency swap
 
17.4

 
6.2

Dividends paid on common stock
 
(92.4
)
 
(90.1
)
Acquisition of common stock for tax withholding
 
(21.9
)
 
(22.7
)
Repurchases of common stock(3)
 
(757.3
)
 
(217.0
)
Other financing activities
 

 
(0.1
)
Net cash used in financing activities
 
(1,247.0
)
 
(249.5
)
Effect of foreign currency exchange rate changes on cash and cash equivalents
 
(18.9
)
 
(15.9
)
Balance, beginning of period
 
333.7

 
321.7

Net change during the period
 
971.0

 
(27.7
)
Balance, end of period
 
$
1,304.7

 
$
294.0

Supplemental Cash Flow Information:
 
 

 
 

Interest payments, net of amounts capitalized
 
$
156.5

 
$
157.4

Income tax payments
 
$
126.6

 
$
93.5

Payments related to the sale of Diversey(4)
 
$
61.2

 
$

Stock appreciation rights payments (less amounts included in restructuring payments)
 
$

 
$
1.9

Restructuring payments including associated costs
 
$
48.7

 
$
51.0

 
 
 
 
 

8


SEALED AIR CORPORATION AND SUBSIDIARIES


Non-cash items:
 
 
 
 
Transfers of shares of our common stock from treasury for our 2016 and 2015 profit-sharing  plan
   contributions
 
$
22.3

 
$
37.6

 
See accompanying Notes to Condensed Consolidated Financial Statements.
 
 

(1) 
Due to changes in the accounting treatment of a factoring agreement the Company reclassified amounts from cash and cash equivalents to other receivables of $8.7 million as of September 30, 2016. This reclassification resulted in an increase in cash provided by operating activities of $2.0 million for the nine months ended September 30, 2016.
(2) 
Payments of borrowings included in financing activities excludes amounts which were paid using cash proceeds from the sale of Diversey. As a result, $755.2 million of payments of borrowings is included within investing activities for a total payment of borrowings of $1.1 billion through the nine months ended September 30, 2017.
(3) 
The Company entered into an accelerated share repurchase agreement with a third-party financial institution to repurchase $400.0 million of the Company’s common stock. The full amount was paid as of September 30, 2017 however, only $320.0 million was used to repurchase shares at that point in time. The ASR program is expected to conclude in the fourth quarter of 2017.
(4) 
Payments related to the sale of Diversey includes $33.0 million related to tax payments and the remainder primarily attributable to professional fees.

9


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, healthcare and industrial, 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 September 30, 2017 and our Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2017 and 2016 have been made. The results set forth in our Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2017 and in our Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2017 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, 2016 as filed with the SEC on February 15, 2017 (“2016 Form 10-K”) and with the information contained in other publicly-available filings with the SEC.
On March 25, 2017, we entered into a definitive agreement to sell the Diversey Care division and the food hygiene and cleaning business within the Food Care division (collectively "Diversey"). The sale of Diversey was completed on September 6, 2017. The net assets of Diversey met the criteria to be classified as “held for sale” for the period ended December 31, 2016. Results of operations for Diversey are reported as discontinued operations in all periods presented. See Note 3, “Discontinued Operations” for further information.
As a result of the Diversey transaction, we have also changed our segment reporting structure effective as of January 1, 2017. See Note 4, “Segments” for further information.
Impact of Inflation and Currency Fluctuation
Venezuela
Economic and political events in Venezuela have continued to expose us to heightened levels of foreign currency exchange risk.  Accordingly, Venezuela has been designated a highly inflationary economy under U.S. GAAP, and the U.S. dollar replaced the bolivar fuerte as the functional currency for our subsidiaries in Venezuela. All bolivar-denominated monetary assets and liabilities are remeasured into U.S. dollars using the current exchange rate available to us, and any changes in the exchange rate are reflected in foreign currency exchange loss related to our Venezuelan subsidiaries on the Condensed Consolidated Statements of Operations.

10



2016 Activity
Effective March 10, 2016, there were only two legal mechanisms in Venezuela to access U.S. dollars. This included the DIPRO (10.0 bolivars per U.S. dollar), which replaced the CENCOEX rate and is the preferential rate for essential goods and services and; the DICOM rate, which replaced the SIMADI rate, which was allowed to float freely.
At September 30, 2016, we evaluated which legal mechanisms were available to our Venezuelan subsidiaries to access U.S. dollars. We concluded that we would use the DICOM rate to remeasure our bolivar denominated monetary assets and liabilities since it was our only legally available option and our intent on a go-forward basis to utilize this market to settle any future transactions based on the then current facts and circumstances. The DICOM rate as of September 30, 2016 was 658.8853.
During the first six months of 2016, we were only able to access the SIMADI market (during the period the market was available) and only received minimal amounts of U.S. dollars during the first three months of 2016. We did not receive any U.S. dollars via the CENCOEX (at an official rate of 6.3) or the DIPRO (at an official rate of 10.0). For any U.S. dollar denominated monetary asset or liability, such amounts do not get remeasured at month-end since it is already an asset or liability denominated in U.S. dollars. As a result of this evaluation, the Company reported a remeasurement loss of $0.4 million (none of which related to continuing operations) for the three months ended September 30, 2016 and $3.2 million (of which $1.6 million related to continuing operations) for the nine months ended September 30, 2016.
Due to the ongoing challenging economic situation in Venezuela, the Company approved a program in the second quarter of 2016 to cease operations in the country.  Foreign exchange control regulations have affected our Venezuelan subsidiaries ability to obtain inventory and maintain normal production. This resulted in total costs of $47.3 million being incurred which included the following (i) a voluntary reduction in headcount including severance and termination benefits for employees of approximately $0.3 million, (ii) depreciation and amortization expense related to fixed assets and intangibles of approximately $0.6 million (iii) inventory reserves of $0.4 million and (iv) the reclassification of approximately $46.0 million of cumulative translation adjustment into net income as the Company’s decision to cease operations is similar to a substantially complete liquidation.
2017 Activity
On May 19, 2017, the Venezuelan government published in Exchange Agreement No. 38 that the DICOM system would now operate through an auction process which is referred to as the new DICOM. This became effective on May 23, 2017.
At September 30, 2017, we concluded that we would continue to use the DICOM rate to remeasure our remaining bolivar denominated monetary assets and liabilities since it was our only legally available option and our intent on a go-forward basis to utilize this market if needed, to settle any future transactions based on current facts and circumstances. During the first nine months of 2017, we did not receive any U.S dollars via any of the legal mechanisms noted above. The new DICOM rate as of September 30, 2017 was 3,345.0 which reflects the last auction in June 2017. As a result of this evaluation, the Company reported a remeasurement loss of less than $1.0 million for the three months and nine months ended September 30, 2017 (which included less than $0.1 million of income related to continuing operations).
We will continue to evaluate each reporting period the appropriate exchange rate to remeasure our financial statements based on the facts and circumstances as applicable.

Note 2 Recently Issued Accounting Standards

Recently Issued 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 intends 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. Early adoption is permitted for all entities as of the beginning of an annual reporting period for which financial statements have not been issued or made available for issuance. We are currently in the process of evaluating this new standard update.

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 if a modification should be accounted for. 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. Early adoption is permitted for all entities as of the beginning of an annual reporting period for which financial statements have not been issued or made available for issuance. We are currently in the process of evaluating this new standard update.
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. Early adoption is permitted for all entities as of the beginning of an annual reporting period for which financial statements have not been issued or made available for issuance. We are currently in the process of evaluating this new standard update.
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. Early adoption is permitted for interim and annual goodwill impairment tests performed on testing dates after January 1, 2017. We are currently in the process of evaluating this new standard update.
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 is not a business. This screen states that when substantially all of the fair value of the group 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. Early application is permitted for transactions for which the acquisition date occurs before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been issued. We are currently in the process of evaluating this new standard update.
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. Early adoption, including adoption in interim periods, is permitted for all entities. Retrospective transition method is to be applied to each period presented. We are currently in the process of evaluating this new standard update.
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.  Early adoption is permitted for all entities as of the beginning of an annual reporting period for which financial statements have not been issued or made available for issuance. We are currently in the process of evaluating this new standard update.
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. We are currently in the process of evaluating this new standard update.

12



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.
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. 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.
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.  The amendments in ASU 2016-01 are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early application for certain provisions is allowed but early adoption of the amendments is not permitted.  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. We are currently in the process of evaluating this new standard update.
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 in August 2015, March 2016, April 2016, May 2016, February 2017 and May 2017 within ASU 2015-04, ASU 2016-08, ASU 2016-10, ASU 2016-12, ASU 2017-05 and ASU 2017-10 respectively (ASU 2014-09, ASU 2015-04, ASU 2016-08, ASU 2016-10, ASU 2016-12, ASU 2017-05 and ASU 2017-10 collectively, Topic 606). Previous revenue recognition guidance in U.S. GAAP comprised broad revenue recognition concepts together with numerous revenue requirements for particular industries or transactions, which sometimes resulted in different accounting for economically similar transactions. 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, 2016, including interim periods within that reporting period. Early application is not permitted. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, (“ASU 2015-14”). The amendments in ASU 2015-14 delay the effective date of ASU 2014-09 by one year to annual reporting periods beginning after December 15, 2017 and allow early adoption as of the original public entity effective date. The amendments in ASU 2016-08, ASU 2016-10 and ASU 2016-12 are effective in conjunction with ASU 2015-14.
The guidance permits two methods of adoption: full retrospective in which the standard is applied to all of the periods presented or modified retrospective where an entity will have to recognize the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings. We currently anticipate adopting the modified retrospective method.
Our efforts to adopt this standard to date have focused on contract analysis at a regional level. We currently estimate the most significant impact will be on the accounting for Free on Loan equipment in our Food Care division. Whereas today we do not recognize revenue on Free on Loan equipment, under the new standard, we anticipate allocating revenue to that equipment and treating it as a performance obligation. We are in the process of assessing the timing of when revenue assigned to Free on Loan equipment would be recognized. Based on the information we have evaluated to date, we do not anticipate that the adoption of the amendments will have a significant impact on our consolidated financial statements with the exception of new and expanded disclosures.

13





Note 3 Discontinued Operations, Divestitures and Acquisitions
Discontinued Operations
On March 25, 2017, we entered into a definitive agreement to sell our Diversey Care division and the food hygiene and cleaning business within our Food Care division for gross proceeds of USD equivalent of $3.2 billion, subject to customary closing conditions. The transaction was completed on September 6, 2017. We recorded a net gain on the sale of Diversey of $699.3 million, net of taxes. We intend to use the cash generated from this transaction to repay debt and maintain our credit profile, repurchase shares to minimize earnings dilution, and fund core growth initiatives, including potential complementary acquisitions to our Food Care and Product Care divisions.
The sale of Diversey will allow us to enhance our strategic focus on the Food Care and Product Care divisions and simplify our operating structure. We have classified the operating results from this business, together with certain costs related to the divestiture transaction, as discontinued operations, net of tax, in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2017 and 2016. Assets and liabilities of this business are classified as “held for sale” in the Condensed Consolidated Balance Sheets as of December 31, 2016.
Summary operating results of Diversey were as follows:
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(In millions)
 
2017
 
2016
 
2017
 
2016
Net sales
 
$
434.6

 
$
651.5

 
$
1,667.5

 
$
1,924.4

Cost of sales
 
249.1

 
368.2

 
949.5

 
1,075.6

    Gross profit
 
185.5

 
283.3

 
718.0

 
848.8

Selling, general and administrative expenses(1)
 
131.0

 
206.2

 
537.8

 
635.1

Amortization expense of intangible assets acquired(1)
 
7.7

 
19.3

 
23.9

 
62.0

   Operating profit
 
46.8

 
57.8

 
156.3

 
151.7

Other expense, net
 
(9.0
)
 
(2.8
)
 
(17.0
)
 
(9.4
)
Earnings from discontinued operations before income tax (benefit) provision(1)(2)
 
37.8

 
55.0

 
139.3

 
142.3

Income tax (benefit) provision from discontinued operations
 
12.1

 
(44.5
)
 
28.0

 
(31.9
)
Net earnings from discontinued operations
 
$
25.7

 
$
99.5

 
$
111.3

 
$
174.2

 
(1) 
For the nine months ended September 30, 2017, there was a revision to net earnings from discontinued operations, net of tax, on the Condensed Consolidated Statement of Operations related to depreciation and amortization on Diversey assets held for sale. As a result, selling, general and administrative expenses decreased $6.1 million, amortization expenses of intangible assets acquired decreased $16.5 million and income tax provision from discontinued operations increased $6.2 million.
(2) 
For the three months and nine months ended September 30, 2017, net earnings from discontinued operations was impacted by a tax expense of $12.1 million and $28.0 million, respectively, driven by a change in the repatriation strategy of foreign earnings offset by a favorable earnings mix in jurisdictions with lower rates. For the three and nine months ended September 30, 2016, net earnings from discontinued operations were impacted by tax benefits of $44.5 million and $31.9 million, respectively, primarily related to the release of reserves, and earnings mix in jurisdictions with lower tax rates.

14



The carrying value of the major classes of assets and liabilities of Diversey were as follows:
 
(In millions)
 
September 30, 2017
 
December 31, 2016
Assets:
 
 

 
 

Cash and cash equivalents
 
$

 
$
30.0

Trade receivables, net
 
3.1

 
438.2

Inventories
 
0.5

 
203.2

Other receivables
 
11.5

 
70.3

Prepaid expenses and other current assets
 

 
80.6

Property and equipment, net
 

 
170.6

Goodwill
 

 
972.8

Intangible assets, net
 

 
669.9

Deferred taxes
 
0.1

 
50.7

Other non-current assets
 

 
162.0

Total assets held for sale
 
$
15.2

 
$
2,848.3

Liabilities:
 
 
 
 
Short-term borrowings
 
$

 
$
9.6

Current portion of long-term debt
 

 
31.1

Accounts payable
 

 
346.5

Other current liabilities
 

 
296.1

Long-term debt
 

 
175.7

Deferred taxes
 

 
56.3

Other non-current liabilities
 

 
269.0

Total liabilities held for sale
 
$

 
$
1,184.3


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:
 
 
 
Nine Months Ended
September 30,
(In millions)
 
2017
 
2016
Non-cash items included in net earnings from discontinued operations:
 
 

 
 

Depreciation and amortization
 
$
29.3

 
$
85.5

Share-based incentive compensation
 
10.2

 
9.2

Profit sharing expense
 
3.0

 
3.5

Provision for bad debt
 
2.3

 
4.0

Capital expenditures
 
11.9

 
14.7


The amounts disclosed in the tables above have been excluded from disclosures unless otherwise noted.
On April 1, 2017, the Diversey Care division acquired the UVC disinfection portfolio of Daylight Medical, a manufacturer of innovative medical devices. The preliminary fair value of the consideration transferred was approximately $25.2 million which included $3.5 million of cash paid at closing as well as a preliminary fair value of $21.7 million related to $14.4 million of noncontingent consideration which will be paid in the future and a $7.3 million of preliminary fair value for liability-classified contingent consideration. The assets and liabilities acquired as part of the acquisition are transferred with the sale of Diversey.
Divestitures
On August 1, 2017, we entered into an agreement to sell our polystyrene food tray business in Guarulhos, Brazil for a gross purchase price of R$24.0 million (or $7.5 million as of September 30, 2017). The closing of the transaction is expected to occur in the fourth quarter of 2017 after certain conditions are met. The purchase price is subject to working capital, cash and debt adjustments. As of September 30, 2017, there was $4.9 million of assets held for sale and $1.8 million of liabilities held for sale on the Condensed Consolidated Balance Sheet.

15



Acquisitions
On August 2, 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.
 
Note 4 Segments
As a result of the sale of Diversey, we have changed our segment reporting structure. The Food Care division now excludes the food hygiene and cleaning business, which is included in discontinued operations, and includes our Medical Applications and New Ventures businesses, which were previously reported in the “Other” category. The Other category also previously included “Corporate” which is now its own category.
The Company’s segment reporting structure now consists of two reportable segments and a Corporate category as follows:
Food Care (including Medical Applications and New Ventures businesses);
Product Care; and
Corporate.

The Company’s Food Care and Product Care segments are considered reportable segments under FASB ASC Topic 280. Our reportable segments are aligned with similar groups of products and management team. Corporate includes certain costs that are not allocated to the reportable segments, primarily consisting of unallocated corporate overhead costs, including administrative functions and cost recovery variances not allocated to the reportable segments from global functional expenses.
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. As of January 1, 2017 we modified our calculation of Adjusted EBITDA to exclude interest income. The impact in this modification was $1.6 million and $5.3 million for the three and nine months ended September 30, 2016, respectively. We also disclose restructuring and other charges by segment, although these items are not included in the segment performance metric Adjusted EBITDA since restructuring and other charges are categorized as special items as outlined in the table reconciling U.S. GAAP net earnings from continuing operations to Non-U.S. GAAP Total Company Adjusted EBITDA set forth below. The accounting policies of the reportable segments and Corporate are the same as those applied to the Condensed Consolidated Financial Statements.
The following tables show Net Sales and Adjusted EBITDA by our segment reporting structure:

16



 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(In millions)
 
2017
 
2016
 
2017
 
2016
Net Sales:
 
 

 
 

 
 

 
 

Food Care
 
$
716.0

 
$
676.2

 
$
2,051.1

 
$
1,979.2

As a % of Total Company net sales
 
63.3
%
 
63.5
%
 
63.4
%
 
63.6
%
Product Care
 
415.3

 
388.9

 
1,182.7

 
1,130.7

As a % of Total Company net sales
 
36.7
%
 
36.5
%
 
36.6
%
 
36.4
%
Total Company Net Sales
 
$
1,131.3

 
$
1,065.1

 
$
3,233.8

 
$
3,109.9

 
 
 
 
 
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(In millions)
 
2017
 
2016
 
2017
 
2016
Adjusted EBITDA from continuing operations
 
 

 
 

 
 

 
 

Food Care
 
$
158.3

 
$
155.6

 
$
446.0

 
$
440.7

Adjusted EBITDA Margin
 
22.1
%
 
23.0
%
 
21.7
%
 
22.3
%
Product Care
 
86.5

 
88.0

 
237.7

 
243.8

Adjusted EBITDA Margin
 
20.8
%
 
22.6
%
 
20.1
%
 
21.6
%
Corporate(1)
 
(28.0)

 
(30.7)

 
(88.7)

 
(91.7)

Non-U.S. GAAP Total Company Adjusted EBITDA from continuing operations
 
$
216.8

 
$
212.9

 
$
595.0

 
$
592.8

Adjusted EBITDA Margin
 
19.2
%
 
20.0
%
 
18.4
%
 
19.1
%
 
(1) 
Corporate includes costs previously allocated to the Diversey Care segment and food hygiene and cleaning business of our Food Care segment reported within discontinued operations of $2.8 million and $3.5 million for the three months ended September 30, 2017 and 2016, respectively, and $13.7 million and $10.4 million for the nine months ended September 30, 2017 and 2016, respectively.

17



The following table shows a reconciliation of U.S. GAAP net earnings from continuing operations to Non-U.S. GAAP Total Company Adjusted EBITDA from continuing operations:
 
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(In millions)
 
2017
 
2016
 
2017
 
2016(1)
Net earnings from continuing operations
 
$
62.4

 
$
63.8

 
$
37.8

 
$
141.1

Interest expense
 
(54.0
)
 
(49.6
)
 
(153.7
)
 
(151.4
)
Interest income
 
4.9

 
1.7

 
10.3

 
5.3

Income tax provision
 
43.7

 
54.1

 
236.5

 
124.7

Depreciation and amortization(3)
 
(42.7
)
 
(39.6
)
 
(116.3
)
 
(113.0
)
Accelerated depreciation and amortization of fixed assets and intangible assets for Venezuelan subsidiaries
 

 
0.1

 

 
0.8

Special Items:
 
 
 
 
 
 
 
 
Restructuring and other charges(4)
 
(6.2
)
 
(1.3
)
 
(9.2
)
 
(1.1
)
Other restructuring associated costs included in cost of sales and selling, general and administrative expenses
 
(2.9
)
 
(5.2
)
 
(12.7
)
 
(13.2
)
SARs
 

 
0.3

 

 
(0.7
)
Foreign currency exchange loss related to Venezuelan subsidiaries
 

 

 

 
(1.6
)
Charges related to ceasing operations in Venezuela
 

 

 

 
(47.3
)
Gain (loss) on sale of North American foam trays and absorbent pads business and European food trays business
 
0.2

 

 
2.3

 
(1.6
)
(Loss) gain related to the sale of other businesses, investments and property, plant and equipment
 
(6.9
)
 
2.1

 
(7.1
)
 

Charges incurred related to the sale of Diversey
 
(13.7
)
 

 
(47.6
)
 

Settlement/curtailment benefits related to retained Diversey retirement plans
 
13.5

 

 
13.5

 

Other special items(2)
 
(2.9
)
 
(3.5
)
 
(0.2
)
 
(3.2
)
Pre-tax impact of Special items
 
(18.9
)
 
(7.6
)
 
(61.0
)
 
(68.7
)
Non-U.S. GAAP Total Company Adjusted EBITDA from continuing operations
 
$
216.8

 
$
212.9

 
$
595.0

 
$
592.8

 
(1) 
Due to the ongoing challenging economic situation in Venezuela, the Company approved a program in the second quarter of 2016 to cease operations in the country.  Refer to Note 1, "Organization and Basis of Presentation," of the Notes to the Condensed Consolidated Financial Statement for further details.
(2) 
Other special items for the three and nine months ended September 30, 2017, primarily included transaction fees related to various divestitures and acquisitions. Other special items for the three and nine months ended September 30, 2016 primarily included a reduction in a non-income tax reserve following the completion of a governmental audit partially offset by legal fees associated with restructuring and acquisitions.
(3) 
Depreciation and amortization by segment is as follows:
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(In millions)
 
2017
 
2016
 
2017
 
2016
Food Care
 
$
26.4

 
$
23.1

 
$
75.8

 
$
68.3

Product Care
 
$
11.7

 
$
9.6

 
$
34.2

 
$
28.6

Corporate
 
$
4.6

 
$
6.9

 
$
6.3

 
$
16.1

Total Company depreciation and amortization(1)
 
$
42.7

 
$
39.6

 
$
116.3

 
$
113.0


(1) 
Includes share-based incentive compensation of $12.3 million and $31.2 million for the three and nine months ended September 30, 2017, respectively, and $12.2 million and $37.6 million for the three and nine months ended September 30, 2016, respectively.


18



(4) 
Restructuring and other charges by segment were as follows:
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(In millions)
 
2017
 
2016
 
2017
 
2016
Food Care
 
$
3.9

 
$
0.8

 
$
5.8

 
$
0.7

Product Care
 
2.3

 
0.5

 
3.4

 
0.4

Total Company restructuring and other charges(1)
 
$
6.2

 
$
1.3

 
$
9.2

 
$
1.1


(1) For the nine months ended September 30, 2016 restructuring and other charges excludes $0.3 million related to severance and termination benefits for employees in our Venezuelan subsidiaries.
Assets by Reportable Segments
The following table shows assets allocated by our segment reporting structure. Only assets identifiable by segment and reviewed by our chief operating decision maker by segment are allocated by the reportable segment assets, which are trade receivables, net, and finished goods inventory, net.  All other assets are included in “Assets not allocated.”
 
(In millions)
 
September 30, 2017
 
December 31, 2016
Assets:
 
 

 
 

Trade receivables, net, and finished goods inventories, net
 
 

 
 

Food Care
 
$
519.0

 
$
459.8

Product Care
 
334.0

 
261.5

Total segments
 
$
853.0

 
$
721.3

Assets not allocated
 
 
 
 
Cash and cash equivalents
 
$
1,304.7

 
$
333.7

Property and equipment, net
 
951.0

 
889.6

Goodwill
 
1,898.3

 
1,882.9

Intangible assets, net
 
44.8

 
40.1

Assets held for sale
 
20.8

 
2,851.7

Other
 
866.8

 
679.9

Total
 
$
5,939.4

 
$
7,399.2

 
 
Note 5 Inventories
The following table details our inventories, net:
 
(In millions)
 
September 30, 2017
 
December 31, 2016
Inventories:
 
 

 
 

Raw materials
 
$
91.6

 
$
81.5

Work in process
 
143.6

 
114.4

Finished goods
 
312.5

 
260.8

Total
 
$
547.7

 
$
456.7




19



Note 6 Property and Equipment, net
 
The following table details our property and equipment, net:
 
(In millions)
 
September 30, 2017
 
December 31, 2016
Land and improvements
 
$
43.9

 
$
41.6

Buildings
 
696.1

 
600.2

Machinery and equipment
 
2,237.8

 
2,091.5

Other property and equipment
 
109.6

 
104.3

Construction-in-progress
 
170.2

 
210.1

Property and equipment, gross
 
3,257.6

 
3,047.7

Accumulated depreciation and amortization(1)
 
(2,306.6
)
 
(2,158.1
)
Property and equipment, net
 
$
951.0

 
$
889.6

 
(1) 
As of December 31, 2016, this amount includes $0.4 million related to the accelerated depreciation and amortization of fixed assets related to ceasing operations in Venezuela. Refer to Note 1, "Organization and Basis of Presentation," of the Notes to Condensed Consolidated Financial Statement Operations for further details.
The following table details our interest cost capitalized and depreciation and amortization expense for property and equipment.
 
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(In millions)
 
2017
 
2016
 
2017
 
2016
Interest cost capitalized
 
$
1.8

 
$
3.2

 
$
7.8

 
$
7.1

Depreciation and amortization expense for property and equipment
 
$
27.3

 
$
23.2

 
$
75.9

 
$
64.9

 
Note 7 Goodwill and Identifiable Assets
 
Goodwill
The following table shows our goodwill balances by our segment reporting structure.  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 September 30, 2017, 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, 2016
 
$
510.8

 
$
1,372.1

 
$
1,882.9

Acquisitions and divestitures
 
7.2

 
(0.3
)
 
6.9

Currency translation
 
7.1

 
1.4

 
8.5

Carrying Value at September 30, 2017
 
$
525.1

 
$
1,373.2

 
$
1,898.3



20



Identifiable Intangible Assets
The following tables summarize our identifiable intangible assets with definite and indefinite useful lives.  As of September 30, 2017, there were no impairment indicators present.
 
 
September 30, 2017
 
December 31, 2016
(In millions)
Gross
Carrying Value
 
Accumulated Amortization
 
Net
 
Gross
Carrying Value
 
Accumulated Amortization
 
Net
Customer relationships
$
31.9

 
$
(19.0
)
 
$
12.9

 
$
25.0

 
$
(17.5
)
 
$
7.5

Trademarks and tradenames
0.7

 
(0.3
)
 
0.4

 
0.6

 
(0.2
)
 
0.4

Capitalized software
48.7

 
(37.8
)
 
10.9

 
42.6

 
(31.2
)
 
11.4

Technology
37.4

 
(26.7
)
 
10.7

 
34.4

 
(24.2
)
 
10.2

Contracts
10.6

 
(9.6
)
 
1.0

 
10.6

 
(8.9
)
 
1.7

Total intangible assets with definite lives
129.3

 
(93.4
)
 
35.9

 
113.2

 
(82.0
)
 
31.2

Trademarks and tradenames with indefinite lives
8.9

 

 
8.9

 
8.9

 

 
8.9

Total identifiable intangible assets
$
138.2

 
$
(93.4
)
 
$
44.8

 
$
122.1

 
$
(82.0
)
 
$
40.1


The following table shows the remaining estimated future amortization expense at September 30, 2017
 
Year
Amount
(in millions)
Remainder of 2017
$
6.3

2018
12.8

2019
2.6

2020
2.9

Thereafter
11.3

Total
$
35.9

 
 
Note 8 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 they 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 with 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 will be 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.

Prior to the sale of Diversey, our U.S. program was amended to remove receivables associated with Diversey and reduce the program size accordingly. As of September 30, 2017, the maximum purchase limit for receivable interests was $60.0 million, subject to the availability limits described below.

21



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 September 30, 2017, the level of eligible assets available under the program equaled $60.0 million. Although we do not believe restrictions under this program presently materially restrict our operations, if an additional event occurs that triggers one of these restrictive provisions, we could experience a decline in the amounts available to us under the program or termination of the program.
This program expires annually in August and is renewable.  
European Accounts Receivables Securitization Program
We and a group of our European subsidiaries maintain an accounts receivable securitization program with a special purpose vehicle, or SPV, two banks and issuers of commercial paper administered by these banks.  The European program is structured to be a securitization of certain trade receivables that are originated by certain of our European subsidiaries. The SPV borrows funds from the banks to fund its acquisition of the receivables and provides the banks with a first priority perfected security interest in the accounts receivable.  We do not have an equity interest in the SPV. We concluded the SPV is a variable interest entity because its total equity investment at risk is not sufficient to permit the SPV to finance its activities without additional subordinated financial support from the bank via loans or via the collections from accounts receivable already purchased. Additionally, we are considered the primary beneficiary of the SPV since we control the activities of the SPV, and are exposed to the risk of uncollectable receivables held by the SPV.  Therefore, the SPV is consolidated in our Condensed Consolidated Financial Statements. Any activity between the participating subsidiaries and the SPV is eliminated in consolidation. Loans from the banks to the SPV will be classified as short-term borrowings on our Condensed Consolidated Balance Sheet. 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 Sheet. Prior to the sale of Diversey, the European program was amended to remove the receivables associated with Diversey and reduce the program size accordingly.
Prior to the sale of Diversey, our European program was amended to remove receivables associated with Diversey and reduce the program size accordingly. As of September 30, 2017, the maximum purchase limit for receivable interests was €80.0 million ($94.3 million equivalent at September 30, 2017), subject to availability limits.  The terms and provisions of this program are similar to our U.S. program discussed above. As of September 30, 2017, the amount available under this program was €79.2 million ($93.3 million equivalent as of September 30, 2017).
This program expires annually in August and is renewable.
Utilization of Our Accounts Receivable Securitization Programs
As of September 30, 2017, there were no amounts outstanding under our U.S. or European programs. We continue to service the trade receivables supporting the programs, and the banks are permitted to re-pledge this collateral. Total interest expense for these programs was $0.6 million and $1.0 million for the three and nine months ended September 30, 2017, respectively. Total interest expense for these programs was $0.4 million and $1.1 million for the three and nine months ended September 30, 2016, respectively.
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 September 30, 2017.
As of December 31, 2016, there were no amounts outstanding under our U.S. and European programs.

 
Note 9 Restructuring and Relocation 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.”


22



The Program consists of a portfolio of restructuring projects across all of our divisions as part of our transformation of Sealed Air into a knowledge-based company, including reductions in headcount, and relocation of certain facilities and offices, which primarily reflects the relocation from our former corporate headquarters in Elmwood Park, New Jersey; and facilities in Saddle Brook, New Jersey; Racine, Wisconsin; and, Duncan and Greenville, South Carolina to our new global headquarters in Charlotte, North Carolina. The cost of the Charlotte campus was estimated to be approximately $120 million. The Program also includes costs associated with the sale of Diversey.
Program metrics are as follows:
 
 
Sealed Air Restructuring Program
Approximate positions eliminated by the program
1,950

Estimated Program Costs (in millions):
 

Costs of reduction in headcount as a result of reorganization
$245-$255

Other expenses associated with the Program
145-150

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
$
234

Other expenses associated with the Program
121

Total Cumulative Expense
$
355

Cumulative capital expenditures
$
231

 
The following table details our restructuring activities as reflected in the Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2017 and 2016:
 
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(In millions)
 
2017
 
2016
 
2017
 
2016
Continuing Operations
 
 
 
 
 
 
 
 
Other associated costs
 
$
2.9

 
$
5.2

 
$
12.7

 
$
13.2

Restructuring charges
 
6.2

 
1.3

 
9.2

 
1.1

Total charges from continuing operations
 
$
9.1

 
$
6.5

 
$
21.9

 
$
14.3

Charges included in discontinued operations
 
(1.4
)
 
1.1

 
2.3

 
6.2

Total charges
 
$
7.7

 
$
7.6

 
$
24.2

 
$
20.5

Capital expenditures
 
$
3.4

 
$
34.6

 
$
17.3

 
$
91.6

 
The restructuring accrual, spending and other activity for the nine months ended September 30, 2017 and the accrual balance remaining at September 30, 2017 related to these programs were as follows (in millions):
 
(In millions)
 
Restructuring accrual at December 31, 2016
$
47.4

Accrual and accrual adjustments
9.2

Cash payments during 2017
(32.2
)
Transfers as part of the sale of Diversey
(5.5
)
Effect of changes in foreign currency exchange rates
(1.2
)
Restructuring accrual at September 30, 2017
$
17.7

 
We expect to pay $16.2 million of the accrual balance remaining at September 30, 2017 within the next twelve months. This amount is included in accrued restructuring costs on the Condensed Consolidated Balance Sheet at September 30, 2017.

23



The remaining accrual of $1.5 million is expected to be paid in 2018. This amount is included in other non-current liabilities on our Condensed Consolidated Balance Sheet at September 30, 2017.


Note 10 Debt and Credit Facilities
Our total debt outstanding consisted of the amounts set forth on the following table:
 
(In millions)
 
September 30, 2017
 
December 31, 2016
Short-term borrowings(1)
 
$
84.0

 
$
83.0

Current portion of long-term debt
 
2.0

 
297.0

Total current debt
 
86.0

 
380.0

     Term Loan A due July 2019
 
222.2

 
818.3

6.50% Senior Notes due December 2020
 
423.4

 
423.1

4.875% Senior Notes due December 2022
 
420.2

 
419.6

5.25% Senior Notes due April 2023
 
420.2

 
419.7

4.50% Senior Notes due September 2023
 
467.9

 
416.7

5.125% Senior Notes due December 2024
 
420.6

 
420.2

5.50% Senior Notes due September 2025
 
396.6

 
396.4

6.875% Senior Notes due July 2033
 
445.4

 
445.3

Other
 
2.9

 
3.3

Total long-term debt, less current portion(3)
 
3,219.4

 
3,762.6

Total debt(2)(4)
 
$
3,305.4

 
$
4,142.6

 
(1) 
Short-term borrowings of $84.0 million at September 30, 2017 are comprised of $43.0 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 $41.0 million of short term borrowings from various lines of credit. Short-term borrowings at December 31, 2016 were comprised primarily of $83.0 million of short-term borrowings from various lines of credit.      
(2) 
As of September 30, 2017, our weighted average interest rate on our short-term borrowings outstanding, excluding the amounts related to the Diversey accounts payable obligations discussed above, was 7.4% and on our long-term debt outstanding was 5.3%. As of December 31, 2016, our weighted average interest rate on our short-term borrowings outstanding was 4.8% and on our long-term debt outstanding was 4.7%
(3) 
Amounts are net of unamortized discounts and issuance costs of $30.9 million as September 30, 2017 and $36.3 million as of December 31, 2016.
(4) 
Long-term debt instruments are listed in order of priority.
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)
 
September 30, 2017
 
December 31, 2016
Used lines of credit (1)(2)
 
$
41.0

 
$
83.0

Unused lines of credit
 
1,075.3

 
1,074.4

Total available lines of credit(3)
 
$
1,116.3

 
$
1,157.4

 
(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) 
As of September 30, 2017 and December 31, 2016, there were $27.2 million and $25.4 million of cash held on deposit, respectively, as a compensating balance for certain short-term borrowings, which is recorded in other current assets on the Condensed Consolidated Balance Sheet.
(3) 
Of the total available lines of credit, $853.3 million were committed as of September 30, 2017.

24



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 defined in the Amended Credit Facility). We were in compliance with the above financial covenants and limitations at September 30, 2017.
Recent Activity
In July 2017, we paid the full $250.0 million principal balance of the Term Loan A facility due in July 2017, upon its maturity.   

On July 1, 2017, we executed an amendment to the Amended Credit Facility in order to close on the sale of Diversey.  The amendment primarily allowed us to take steps necessary for the legal separation of the Diversey business and release the loan security effective with the sale closing.  These changes do not impact the Condensed Consolidated Financial Statements as of September 30, 2017. Subsequent to the execution of the amendment, we prepaid the Brazilian tranche of our Term Loan A facility due in July 2019 in the amount of $96.3 million in connection with the anticipated Diversey transaction. An additional $755.2 million of this facility was prepaid in conjunction with the Diversey closing. As of September 30, 2017, the remaining balance of this facility was $222.2 million and no further amortization payments will be required before the maturity of the facility.

Note 11 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 other comprehensive income 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 other comprehensive income were $0.9 million loss and $5.7 million loss for the three and nine months ended September 30, 2017, respectively, and $1.3 million gain and $0.8 million loss for the three and nine months ended September 30, 2016. The unrealized amounts in other comprehensive income will fluctuate based on changes in the fair value of open contracts during each reporting period.
We estimate that $0.4 million of net unrealized derivative losses included in accumulated other comprehensive income (AOCI) will be reclassified into earnings within the next twelve months.

25



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 September 30, 2017 and December 31, 2016, we had no outstanding interest rate swaps.
Interest Rate and Currency Swaps
In 2014, in connection with exercising the $100.0 million delayed draw under the senior secured credit facility, we entered into a series of interest rate and currency swaps in a notional amount of $100.0 million.  On September 30, 2016, the first $20.0 million swap contract matured and was settled. As a result of the settlement, the Company received $4.9 million. For the nine months ended September 30, 2017, settlement payments were made for $2.5 million. In July 2017, we prepaid the Brazilian tranche of our Term Loan A facility due in July 2019 in the amount of $96.3 million in connection with the anticipated Diversey transaction. In anticipation of this loan prepayment, we terminated all the swaps used to convert the related U.S. dollar-denominated variable rate obligation into a fixed Brazilian real-denominated obligation. The related activity has been classified as net earnings from discontinued operations, net of tax on the Condensed Consolidated Statement of Operations.
Net Investment Hedge
During the second quarter of 2015, we entered into a series of foreign currency exchange forwards totaling €270.0 million.  These foreign currency exchange forwards hedged a portion of the net investment in a certain European subsidiary against fluctuations in foreign exchange rates and expired in June 2015. The loss of $3.5 million ($2.2 million after tax) is recorded in AOCI on our Condensed Consolidated Balance Sheet.
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 $21.5 million ($13.3 million net of taxes) as of September 30, 2017 and is reflected in long-term debt on our Condensed Consolidated Balance Sheet. 
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 will pay the settlement 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) income, 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.

26



Fair Value of Derivative Instruments
See Note 12, “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
 
Net Investment Hedge
 
Non-Designated
 
Total
(In millions)
September 30,
2017
 
December 31, 2016
 
September 30,
2017
 
December 31, 2016
 
September 30,
2017
 
December 31, 2016
 
September 30,
2017
 
December 31, 2016
Derivative Assets
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Foreign currency forward contracts(2)
$
0.2

 
$
4.9

 
$

 
$

 
$
3.4

 
$
11.4

 
$
3.6

 
$
16.3

Interest rate currency swaps(2)

 
23.9

 

 

 

 

 

 
23.9

Total Derivative Assets
$
0.2

 
$
28.8

 
$

 
$

 
$
3.4

 
$
11.4

 
$
3.6

 
$
40.2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative Liabilities
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Foreign currency forward contracts(2)
$
(3.0
)
 
$
(0.1
)
 
$

 
$

 
$
(11.3
)
 
$
(11.5
)
 
$
(14.3
)
 
$
(11.6
)
Cross-currency swaps

 

 

 
(5.3
)
 

 

 

 
(5.3
)
Total Derivative Liabilities(1)
$
(3.0
)
 
$
(0.1
)
 
$

 
$
(5.3
)
 
$
(11.3
)
 
$
(11.5
)
 
$
(14.3
)
 
$
(16.9
)
Net Derivatives(3)
$
(2.8
)
 
$
28.7

 
$

 
$
(5.3
)
 
$
(7.9
)
 
$
(0.1
)
 
$
(10.7
)
 
$
23.3

 
(1) 
Excludes €400.0 million of euro-denominated debt ($467.9 million equivalent at September 30, 2017 and $416.7 million equivalent at December 31, 2016), designated as a net investment hedge.
(2) 
Amounts related to Diversey have been classified as held for sale on the Condensed Consolidated Balance Sheet as of December 31, 2016, $(1.4) million related to foreign currency forward contracts were reclassified to liabilities held for sale and $23.9 million related to interest rate and currency swaps were reclassified to assets held for sale. These financial instruments have been classified as Level 2 Inputs. Refer to Note 12 “Fair Value Measurements and Other Financial Instruments” for discussion of the inputs and valuation techniques used.
(3) 
The following table reconciles gross positions without the impact of master netting agreements to the balance sheet classification:
 
Other Current Assets
 
Other Current Liabilities
 
Other Non-current Assets
 
Other Non-current Liabilities
(In millions)
September 30,
2017
 
December 31, 2016
 
September 30,
2017
 
December 31, 2016
 
September 30,
2017
 
December 31, 2016
 
September 30,
2017
 
December 31, 2016
Gross position
$
3.5

 
$
22.6

 
$
(14.2
)
 
$
(11.6
)
 
$

 
$
17.6

 
$

 
$
(5.3
)
Reclassified to held for sale(1)

 
(7.3
)
 

 
2.3

 

 
(17.6
)
 

 

Impact of master netting agreements
(0.1
)
 
(0.2
)
 
0.1

 
0.2

 

 

 

 

Net amounts recognized on the Condensed Consolidated Balance Sheet
$
3.4

 
$
15.1

 
$
(14.1
)
 
$
(9.1
)
 
$

 
$

 
$

 
$
(5.3
)
 
(1) 
Amounts related to Diversey have been classified as held for sale on the Condensed Consolidated Balance Sheet as of December 31, 2016.


27



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
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(In millions)