DIVERSEY HOLDINGS, LTD.
This management discussion and analysis ("MD&A") provides information we believe
is useful in understanding our operating results, cash flows and financial
condition. We provide quantitative and qualitative information about key drivers
behind revenue and earnings performance, including the impact of foreign
currency, acquisitions as well as changes in volume and pricing.
The MD&A should be read together with our Condensed Consolidated Financial
Statements for the three months ended March 31, 2023 and the related Notes
thereto, which are prepared in accordance with U.S. GAAP, and included in Item 1
of Part I of this Quarterly Report on Form 10-Q, and our audited Consolidated
Financial Statements for the year ended December 31, 2022 and the related Notes
thereto, which are included in our Annual Report on Form 10-K. The statements in
this MD&A regarding industry outlook, our expectations regarding our future
performance, liquidity and capital resources and other non-historical statements
are forward-looking statements. These forward-looking statements are subject to
numerous risks and uncertainties, including, but not limited to, the risks and
uncertainties described in the "Risk Factors" section of our Annual Report on
Form 10-K and in the "Cautionary Statement Regarding Forward-Looking
Information" section of this Quarterly Report on Form 10-Q. Our actual results
may differ materially from those contained in or implied by any forward-looking
statements.
Management Overview
Diversey Holdings, Ltd. (hereafter the "Company", "we," "us," and "our"), is a
global leading provider of high-performance hygiene, infection prevention and
cleaning solutions. We develop mission-critical products, services and
technologies that save lives and protect our environment. We were formed as an
exempted company incorporated under the laws of the Cayman Islands with limited
liability on November 3, 2020 for the purpose of completing an initial public
offering of our ordinary shares and related transactions and in order to carry
on the business of our indirect wholly-owned operating subsidiaries.
An affiliate of Bain Capital beneficially owned approximately 72.8% our
outstanding ordinary shares as of March 31, 2023 . As a result, we are a
"controlled company" within the meaning of the corporate governance standards of
Nasdaq. Under Nasdaq listing rules, a company of which more than 50% of the
voting power for the election of directors is held by an individual, group or
another company is a "controlled company" and may elect not to comply with
certain Nasdaq corporate governance requirements. We are currently relying on
certain of these exemptions.
Recent Developments
Take-Private Merger Agreement. On March 8, 2023 , we entered into the Merger
Agreement with Parent and Merger Sub, pursuant to which Merger Sub will be
merged with and into us, with us continuing as the surviving company as a wholly
owned subsidiary of Parent. If the Merger is completed, our ordinary shares will
be removed from listing on Nasdaq and deregistered under the Exchange Act and we
will no longer file period reports with the SEC . Parent and Merger Sub are
affiliates of Platinum and affiliates of Solenis LLC , which is a portfolio
company of Platinum. Pursuant to the Merger, each ordinary share issued and
outstanding immediately prior to the effective time of the Merger (other than
(i) ordinary shares held by the Company, Parent, Merger Sub or any direct or
indirect wholly owned subsidiary of Parent or Merger Sub, (ii) ordinary shares
to which the holder has validly exercised and perfected and not effectively
withdrawn or lost their rights to dissent under the applicable provisions of the
Companies Act (2023 Revision) of the Cayman Islands , and (iii) ordinary shares
held by BCPE, our controlling shareholder and an entity advised by Bain Capital
Private Equity, LP ) will be cancelled and exchanged at the effective time of the
Merger into the right to receive merger consideration of $8.40 in cash without
interest and subject to any applicable withholding taxes. Ordinary shares held
by BCPE, other than the Rollover Shares, will be cancelled and exchanged at the
effective time of the Merger into the right to receive merger consideration of
$7.84 in cash without interest and subject to any applicable withholding taxes,
and BCPE has agreed to contribute, transfer and assign all of its right, title
and interest in the Rollover Shares to Topco (and in certain circumstances, a
subsidiary of Topco), and Topco has agreed to concurrently accept (or if
applicable, cause its subsidiary to accept) such Rollover Shares in exchange for
the issuance to BCPE of certain common and preferred units of Topco, or in
32
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certain circumstances, common units of Topco and preferred interests of a
subsidiary of Topco, at a value of
The respective obligation of each party to effect the Merger is subject to the satisfaction (or waiver, where permissible pursuant to applicable law) of certain conditions, including receipt of the Requisite Shareholder Approval, the expiration of waiting periods (and any extensions thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and certain other specified regulatory approvals and other customary closing conditions. Subject to the satisfaction (or, if applicable, waiver) of such conditions, the Merger is expected to close in the second half of 2023. We have agreed to pay Parent$92,000,000 in cash upon the termination of the Merger Agreement under certain circumstances. Parent has agreed to pay us$125,000,000 in cash upon the termination of the Merger Agreement under certain other circumstances. Reportable Segments
We report our results of operations in two segments: Institutional and Food & Beverage.
•Institutional - Our Institutional solutions are designed to enhance cleanliness, safety, environmental sustainability, and efficiency for our customers. We offer a broad range of products, services, solutions, equipment and machines, including infection prevention and personal care, products, floor and building care chemicals, kitchen and mechanical warewash chemicals and machines, dosing and dispensing equipment, and floor care machines. We also offer a range of engineering, consulting and training services related to productivity management, water and energy management, and risk management, supported by data provided through our digital solutions. We deliver these solutions to customers in the healthcare, education, food service, retail and grocery, hospitality, and building service contractors industries. •Food & Beverage - Our Food & Beverage products are designed to maximize the hygiene, safety, and efficiency of our customers' production and cleaning processes while minimizing their impact on the natural resources they consume. We offer a broad range of products, solutions, equipment and machines including chemical products, engineering and equipment solutions, knowledge-based services, training through ourDiversey Hygiene Academy , and water treatment. We deliver these solutions to enhance food safety, operational excellence, and sustainability for customers in the brewing, beverage, dairy, processed foods, pharmaceutical, and agriculture industries. We evaluate the performance of each reportable segment based on the results of each segment. In addition, corporate reflects indirect costs that support all segments, but are not allocated or monitored by segment management, and include executive and administrative functions, finance and accounting, procurement, information technology and human resources. For additional information regarding key factors and measures used to evaluate our business, see "Non-GAAP Financial Measures" and "Net Sales by Segment".
Recent Trends and Events
Russia-Ukraine War. The geopolitical situation inEastern Europe intensified onFebruary 24, 2022 withRussia's invasion ofUkraine . The war between the two countries continues to evolve as military activity proceeds and additional economic sanctions are imposed onRussia by numerous countries throughout the world. In addition to the human toll and impact of the war locally inRussia ,Ukraine , and neighboring countries that conduct business with their counterparties, the war is increasingly affecting economic and global financial markets and exacerbating ongoing economic challenges, including issues such as rising inflation and global supply-chain disruption. TheRussia -Ukraine war has exacerbated the current inflationary environment both inRussia , as a result of economic sanctions that devalue its currency, and in other countries as their businesses and currencies react to the war's implications worldwide. It is possible that foreign currency restrictions or the development of multiple exchange rates could arise in certain countries. In addition, if there are inflationary pressures inRussia and the neighboring countries, we may be required to assess whether the economies of those countries have become highly 33 --------------------------------------------------------------------------------
inflationary, in which the
Our businesses in
Supply Chain Disruptions. The COVID-19 pandemic had a meaningful impact on our business, especially within our Institutional segment. As economies around the world reopened, increases in demand created significant disruptions to the global supply chain during 2022, which affected our ability to receive goods on a timely basis and at anticipated costs. These supply chain disruptions have been caused and compounded by many factors, including changes in supply and demand, industry capacity constraints, raw material shortages and labor shortages. Global logistics network challenges have resulted in delays, shortages of certain materials, and increased transportation costs. We have materially mitigated to date the impact of these disruptions through the work of our procurement and supply chain teams, but there continues to be significant uncertainties regarding the future impact of supply chain disruptions, which we cannot predict. Additionally, we continue the process of consolidating certain facilities withinNorth America , which includes opening a new manufacturing and warehousing facility, which have presented short-term operational challenges and supply chain disruptions. We are a diversified business in regards to both industry segments and global geographic regions. These different aspects of our business are each impacted differently by supply chain disruptions and broader economic conditions. Therefore, the recovery cycle and related timing is also different for each segment and region. Capital Investments. OnFebruary 21, 2023 , we acquiredNSS Enterprise, Inc. , a manufacturer of floor cleaning machines based inthe United States . This acquisition will enable the onshore assembly of floor cleaning machines inNorth America , which we expect will significantly improve our scale, presence and support in the marketplace. Impact of Inflation. Inflation affects our manufacturing, distribution and operating costs. We experienced unprecedented inflation in 2022, which impacted the cost of our raw materials, packaging and transportation. Cost estimates for our restructuring project inNorth America andEurope have also been impacted by the inflationary macro environment with constraints around materials, freight and labor. Extraordinary short-term measures were taken to minimize disruption to customers. These measures include lengthening warehouse leases, temporarily setting up additional warehouses, paying higher freight costs during warehouse transitions and paying carriers to guarantee delivery. Inflation declined slightly in the first quarter of 2023, but continues to be well above historical levels. We are committed to maintaining our margins, and have taken actions to mitigate inflation through price increases, cost control, raw material substitutions, and more efficient logistics practices. However, our success is dependent on competitive pressures and market conditions, and we cannot guarantee the negative impacts of inflation can be fully recovered. In periods of significant inflation, we may experience a lag between our ability to recover both the cost and margin in the short term. Financial Market Volatility. In the first quarter of 2023, theU.S. and global banking sector experienced increased volatility as a result of several distressed or closed banks and financial institutions. While we have not realized any losses as a result of the increased financial market volatility, we continue to monitor the situation and will take appropriate measures, as necessary, to minimize potential risk exposure to our customers' and our cash and investment balances. Other Factors Affecting Our Operating Results Our operating results have been, and will likely continue to be, affected by numerous factors, including the increasing worldwide demand for our products and services, increasing regulatory compliance costs, macroeconomic and political conditions, the introduction of new and upgraded products, recent acquisitions and foreign currency exchange rates. Each of these factors is briefly discussed below. Increasing Demand for Our Products and Services. Governmental regulations for food safety and disease control, and consumer focus on hygiene and cleanliness have increased significantly across the world in recent years. Climate change, water scarcity and environmental concerns have combined to create further demand for products, services and solutions designed to minimize waste and support broader sustainability. In addition, many of our customers require tailored cleaning solutions that can assist in reducing labor, energy, water-use and the costs related 34 -------------------------------------------------------------------------------- to cleaning, sanitation and hygiene activities. We help our customers realize efficiencies throughout the operation of their facilities by developing customized solutions. We believe that our value-added customer service approach and proven commitment to providing cost-savings and sustainable solutions position us well to address these and other critical demand drivers in order to drive revenue growth. Increasing Regulatory Compliance Costs. Although our industry has always been highly regulated, it is becoming more regulated with the introduction of, among other things, the Environmental Protection Agency Biocidal Product Regulation and the Globally Harmonized System of Classification and Labelling of Chemicals. Compliance costs associated with these new regulations have impacted our cost of doing business, and we expect these regulations and other existing and new regulations to continue to affect our cost of doing business in the future. Impact of Currency Fluctuations. We have significant international operations with 82.2% of our net sales for the three months endedMarch 31, 2023 , being generated from sales to customers located outside ofthe United States . Our international operations are subject to changes in regional and local economic conditions, including local inflationary pressures. We present our Condensed Consolidated Financial Statements inU.S. dollars. As a result, we must translate the assets, liabilities, revenues and expenses of all of our operations intoU.S. dollars at applicable exchange rates. Consequently, increases or decreases in the value of theU.S. dollar may affect the value of these items with respect to our non-U.S. dollar businesses in our Condensed Consolidated Financial Statements, even if their value has not changed in their local currency. A strongerU.S. dollar reduces the relative value of reported results of non-U.S. dollar operations, and, conversely, a weakerU.S. dollar increases the relative value of the non-U.S. dollar operations. These translations could significantly affect the comparability of our results between financial periods and/or result in significant changes to the carrying value of our assets, liabilities and stockholders' equity. During 2022, theU.S. dollar significantly strengthened against the Euro and other European currencies, peaking in the third quarter. TheU.S. dollar has since trended weaker, and fluctuations in foreign currency exchange rates did not have a significant impact on our reported results in the first quarter of 2023. In addition, many of our operations buy materials and incur expenses in a currency other than their functional currency. As a result, our results of operations are impacted by currency exchange rate fluctuations because we are generally unable to match revenues received in foreign currencies with expenses incurred in the same currency. From time to time, as and when we determine it is appropriate and advisable to do so, we may seek to mitigate the effect of exchange rate fluctuations through the use of derivative financial instruments.Argentina .Argentina has been designated a highly inflationary economy underU.S. GAAP effectiveJuly 1, 2018 , and theU.S. dollar replaced the Argentine peso as the functional currency for our subsidiaries inArgentina . For more information, see "Foreign currency gain related to hyperinflationary subsidiaries" below.Turkey .Turkey has been designated a highly inflationary economy underU.S. GAAP effectiveApril 1, 2022 , and theU.S. dollar replaced the Turkish lira as the functional currency for our subsidiaries inTurkey . For more information, see "Foreign currency gain related to hyperinflationary subsidiaries" below. 35 --------------------------------------------------------------------------------
Condensed Consolidated Operating Results
Three Months Ended Three Months Ended
(in millions except per share amounts)
% Change March 31, 2022
Net sales $ 696.0 $ 36.0 5.5 % $ 660.0
Cost of sales 476.4 52.5 12.4 % 423.9
Gross profit 219.6 (16.5) (7.0) % 236.1
Selling, general and administrative expenses 219.1 5.4 2.5 % 213.7
Transaction and integration costs 8.0 3.5 77.8 % 4.5
Amortization of intangible assets 21.9 (2.3) (9.5) % 24.2
Restructuring and exit costs 0.5 (9.3) (94.9) % 9.8
Operating loss (29.9) (13.8) (85.7) % (16.1)
Interest expense 28.2 (2.1) (6.9) % 30.3
Foreign currency gain related to
hyperinflationary subsidiaries (3.1) (2.8) 933.3 % (0.3)
Other (income) expense, net (10.7) (1.8) 20.2 % (8.9)
Loss before income tax provision (44.3) (7.1) (19.1) % (37.2)
Income tax provision 9.3 7.4 389.5 % 1.9
Net loss $ (53.6) $ (14.5) (37.1) % $ (39.1)
Basic and diluted loss per share $ (0.17) $ (0.12)
Basic and diluted weighted average shares
outstanding 323.2 319.6
Results of Operations
Net sales by Segment. In "Net sales by segment" and in certain 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," and we exclude acquisitions in the first year after closing and the
impact of foreign currency translation when presenting net sales information,
which we define as "organic." Changes in net sales excluding the impact of
foreign currency translation is a Non-GAAP financial measure. As a global
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 we look 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 adjust for the impact of foreign currency
translation when making incentive compensation determinations. As a result, we
believe that these presentations are useful internally and useful to investors
in evaluating our performance.
The following table presents net sales by segment:
Three Months Ended Three Months Ended
(in millions) March 31, 2023 March 31, 2022
Institutional $ 477.1 $ 472.2
Food & Beverage 218.9 187.8
Total $ 696.0 $ 660.0
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First Quarter 2023 vs 2022 (in millions, except percentages) Institutional Food & Beverage Total First Quarter 2022 Net Sales$ 472.2 71.5 %$ 187.8 28.5 %$ 660.0 Organic change (non-GAAP) 31.0 6.6 % 48.4 25.8 % 79.4 12.0 % Acquisition 3.7 0.8 % - - % 3.7 0.6 % Constant dollar change (non-GAAP) 34.7 7.3 % 48.4 25.8 % 83.1 12.6 % Foreign currency translation (29.8) (6.3) %
(17.3) (9.2) % (47.1) (7.1) % Total change
4.9 1.0 % 31.1 16.6 % 36.0 5.5 %
First Quarter 2023 Net Sales $ 477.1 68.5 % $ 218.9 31.5 % $ 696.0
Institutional. Net sales increased $4.9 million , or 1.0%, during the three
months ended March 31, 2023 compared with the three months ended March 31, 2022 .
Foreign currency translation had a negative effect of $29.8 million . On a
constant dollar basis, net sales increased $34.7 million , or 7.3%, as compared
with the three months ended March 31, 2022 , with our acquisitions contributing
$3.7 million of growth. Organic sales increased by 6.6%, primarily due to price
increases to mitigate the effect of inflation, and volume growth through a
combination of new customer wins, innovation, and continued expansion with our
existing customers.
Food & Beverage. Net sales increased $31.1 million , or 16.6%, during the three
months ended March 31, 2023 as compared with the three months ended March 31,
2022 . Foreign currency translation had a negative effect of $17.3 million . On a
constant dollar basis, net sales increased $48.4 million , or 25.8%, primarily
due to price increases to mitigate the effect of inflation, volume growth
through new customer wins, and success with the rollout of water treatment
solutions.
Cost of sales and gross profit. Cost of sales is primarily comprised of direct
materials and supplies consumed in the production of product, as well as labor
and direct overhead expense necessary to acquire and convert the purchased
materials and supplies into finished products. Also included are expenses
associated with service organization, quality oversight, warranty costs and
share-based compensation.
Our gross profit was $219.6 million during the three months ended March 31, 2023
and $236.1 million during the three months ended March 31, 2022 , and our gross
margin was 31.6% during the three months ended March 31, 2023 and 35.8% during
the three months ended March 31, 2022 . Gross profit during the three months
ended March 31, 2023 was unfavorably impacted by $18.1 million of non-recurring
costs related to consolidating certain manufacturing and warehousing facilities
within Europe and North America , $17.2 million of foreign currency translation,
and a $1.8 million increase in share-based compensation. Gross profit was
positively impacted by higher sales volumes and price increases as described
above, which were offset by additional freight costs, increased inflation, and
higher labor and manufacturing costs.
Selling, general and administrative expenses. Selling, general and administrative expenses are comprised primarily of marketing, research and development and administrative costs. Administrative costs, among other things, include share-based compensation, professional consulting expenditures, administrative salaries and wages, certain software and hardware costs and facilities costs.
Selling, general and administrative expenses were$219.1 million during the three months endedMarch 31, 2023 compared to$213.7 million during the three months endedMarch 31, 2022 . The increase of$5.4 million was primarily due to increases in employee compensation and benefit costs due to inflationary labor increases. These increases were partially offset by$11.5 million of favorable foreign currency translation and a$5.9 million decrease in share-based compensation. Transaction and integration costs. Transaction and integration costs were$8.0 million during the three months endedMarch 31, 2023 and$4.5 million during the three months endedMarch 31, 2022 . These costs consist primarily of professional and consulting services which are non-operational in nature, costs related to strategic initiatives, acquisition-related costs, costs incurred in preparing to become a publicly traded company, and costs related to the Merger. 37 -------------------------------------------------------------------------------- Amortization of intangible assets acquired. In connection with our various business acquisitions, the acquired assets, including separately identifiable intangible assets, and assumed liabilities were recorded as of the acquisition date at their respective fair values. Amortization of intangible assets acquired was$21.9 million and$24.2 million during the three months endedMarch 31, 2023 and during the three months endedMarch 31, 2022 , respectively. Restructuring and exit costs. We recorded restructuring and exit costs of$0.5 million and$9.8 million during the three months endedMarch 31, 2023 and during the three months endedMarch 31, 2022 , respectively. In 2021, we began a strategic initiative to consolidate certain manufacturing and warehousing facilities withinEurope andNorth America , which also includes opening a new manufacturing and warehousing facility inNorth America . We anticipate that these actions will both expand our production capacity and allow us to better manage our inventory, supply chain and workforce. We expect to incur approximately$153.0 million of total costs related to this project, and have already charged$138.0 million over the life of the project,$18.4 million of which were charged during the three months endedMarch 31, 2023 . Costs incurred during the three months endedMarch 31, 2023 of$18.1 million of non-recurring other costs related to facilities consolidations are reflected in Cost of sales and$0.3 million are reflected in Restructuring and exit costs. Our remaining costs for this project are approximately$15.2 million atMarch 31, 2023 . Cost estimates for this project have been impacted by an inflationary macro environment with constraints around materials, freight and labor. Extraordinary short-term measures were taken to minimize disruption to customers. These measures include lengthening warehouse leases, temporarily establishing additional warehouses, paying higher freight costs during warehouse transitions and paying carriers to guarantee delivery. See Note 16 - Restructuring and Exit Activities in the Notes to our Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.
Non-operating results. Our non-operating results were as follows:
Three Months Ended Three Months Ended
(in millions) March 31, 2023 March 31, 2022
Interest expense $ 28.2 $ 30.3
Foreign currency gain related to hyperinflationary subsidiaries (3.1) (0.3)
Other (income) expense, net (10.7) (8.9)
$ 14.4 $ 21.1
Interest Expense. We incurred interest expense during the three months ended
March 31, 2023 of $28.0 million , $5.8 million and $(7.4) million related to the
Senior Secured Credit Facilities, the 2021 Senior Notes and other financial
instruments (primarily derivatives), respectively. The Senior Secured Credit
Facilities are variable-interest rate debt, and the increase in interest expense
during the three months ended March 31, 2023 related to these facilities is due
to an increase in LIBOR as a result of higher U.S. federal interest rates. The
recovery of interest expense during 2023 for the other financial instruments is
primarily due to the impact of our interest rate and currency derivatives.
We incurred interest expense during the three months ended
Amortization of deferred financing costs and original issue discount totaling$1.8 million during the three months endedMarch 31, 2023 and during the three months endedMarch 31, 2022 are included in the interest expense line item disclosed above. Foreign currency gain related to hyperinflationary subsidiaries. The economies ofArgentina andTurkey were designated as highly inflationary economies underU.S. GAAP onJuly 1, 2018 andApril 1, 2022 , respectively. Therefore, theU.S. dollar replaced the Argentine peso and the Turkish lira as the functional currency for our subsidiaries in these countries. All local currency denominated monetary assets and liabilities are remeasured into 38 --------------------------------------------------------------------------------
Other (income) expense, net. Our other (income) expense, net was as follows:
Three Months Ended Three Months Ended
(in millions) March 31, 2023 March 31, 2022
Interest income $ (1.7) $ (0.7)
Unrealized foreign exchange gain (0.6) (1.1)
Realized foreign exchange (gain) loss (0.1) 1.2
Non-cash pension and other post-employment benefit plan (0.8) (3.6)
Adjustment for tax indemnification asset - (0.1)
Tax receivable agreement adjustments (4.9) (6.4)
Securitization fees 2.4 0.9
Gain on sale of property and equipment (3.7) -
Other, net (1.3) 0.9
Total other (income) expense, net $ (10.7) $ (8.9)
The change in the interest income was primarily due to the fluctuation of our cash balances.
Unrealized foreign exchange gains and losses were primarily due to the change in the value of the Euro versus theU.S. dollar, which impacts ourU.S. dollar denominated debt held at our Euro functional entity. These were partially offset by an inverse impact on our tax receivable agreement.
The realized foreign exchange gains and losses were primarily due to internal cash-pooling activity.
In accordance with the provisions contained in Accounting Standards Update 2017-07, Compensation - Retirement Benefits, we record net pension income when the expected return on plan assets exceeds the interest costs associated with these plans.
The adjustment of our tax indemnification asset was due to the lapse of statute of limitations for unrecognized tax benefits.
The tax receivable agreement adjustments were due to changes in tax laws and changes in the valuation allowance against the deferred tax assets; therefore there was a net reduction of the tax benefits under the tax receivable agreement. Income tax provision. For the three months endedMarch 31, 2023 , the difference in the statutory income tax benefit and the recorded income tax provision was primarily attributable to an increase in the valuation allowance related to limitations on the deductibility of interest expense and the realizability of net operating losses.
For the three months ended
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Adjusted EBITDA by Segment. Adjusted EBITDA for each of our reportable segments
is as follows:
Three Months Ended Three Months Ended
(in millions) March 31, 2023 March 31, 2022
Institutional $ 37.6 $ 53.0
Food & Beverage 25.7 22.1
Total Segment Adjusted EBITDA 63.3 75.1
Corporate costs (10.7) (14.8)
Consolidated Adjusted EBITDA $ 52.6 $ 60.3
(in millions, except
percentages) Institutional Food & Beverage Corporate Costs Total
First Quarter 2022
Adjusted EBITDA $ 53.0 87.9 % $ 22.1 36.7 % $ (14.8) (24.5) % $ 60.3
Adj EBITDA margin 11.2 % 11.8 %
Organic change
(non-GAAP) (11.9) (22.5) % 6.6 29.9 % 4.2 28.4 % (1.1) (1.8) %
Acquisition 0.6 1.1 % - - % - - % 0.6 1.0 %
Constant dollar
change (non-GAAP) (11.3) (21.3) % 6.6 29.9 % 4.2 28.4 % (0.5) (0.8) %
Foreign currency
translation (4.1) (7.7) % (3.0) (13.6) % (0.1) (0.7) % (7.2) (11.9) %
Total change (15.4) (29.1) % 3.6 16.3 % 4.1 27.7 % (7.7) (12.8) %
First Quarter 2023
Adjusted EBITDA $ 37.6 71.5 % $ 25.7 48.9 % $ (10.7) (20.3) % $ 52.6
Adj EBITDA margin 7.9 % 11.7 %
Institutional. Adjusted EBITDA decreased $15.4 million , or 29.1%, during the
three months ended March 31, 2023 as compared to the three months ended March
31, 2022 . Foreign currency translation had a negative effect of $4.1 million . On
a constant dollar basis, Adjusted EBITDA during the three months ended March 31,
2023 decreased $11.3 million , or 21.3%, as compared with the three months ended
March 31, 2022 . Adjusted EBITDA margin decreased from 11.2% during the three
months ended March 31, 2022 to 7.9% during the three months ended March 31,
2023 , which reflected a decline in profit margin due to increased inflation,
higher freight costs, higher manufacturing costs and higher labor costs. These
were partially offset by volume growth and price increases. In periods of
significant inflation, we may experience a lag between our ability to recover
both the cost and margin in the short term.
Food & Beverage. Adjusted EBITDA increased $3.6 million , or 16.3%, during the
three months ended March 31, 2023 as compared to the three months ended March
31, 2022 . Foreign currency translation had a negative effect of $3.0 million . On
a constant dollar basis, Adjusted EBITDA during the three months ended March 31,
2023 increased $6.6 million , or 29.9%, when compared to the three months ended
March 31, 2022 . Adjusted EBITDA margin decreased from 11.8% during the three
months ended March 31, 2022 to 11.7% during the three months ended March 31,
2023 , which reflected a decline in gross profit margin due to high input cost
inflation, particularly in Europe due to the Russia -Ukraine war, which were
partially offset by volume growth and price increases. In periods of significant
inflation, we may experience a lag between our ability to recover both the cost
and margin in the short term.
Corporate Costs. Corporate costs decreased from $14.8 million during the three
months ended March 31, 2022 to $10.7 million during the three months ended March
31, 2023 . The decrease was primarily driven by changes in other (income)
expense, net.
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NON-GAAP FINANCIAL MEASURES
We present financial information that conforms to U.S. GAAP. We also present
financial information that does not conform to U.S. GAAP, as we believe it is
useful to investors. In addition, Non-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.
Non-GAAP financial measures also provide management with additional means to
understand and evaluate the core operating results and trends in our ongoing
business by eliminating certain 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. Non-GAAP measures do not purport to represent any
similarly titled U.S. GAAP information and are not an indicator of our
performance under U.S. GAAP. Investors are cautioned against placing undue
reliance on these Non-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-GAAP financial
measures, described below.
Our Non-GAAP financial measures may also be considered in calculations of our
performance measures set by our Board of Directors for purposes of determining
incentive compensation. The Non-GAAP financial metrics exclude items that we
consider to be certain specified items ("Special Items"), such as restructuring
charges, transaction and integration costs, certain transaction and other
charges related to acquisitions and divestitures, gains and losses related to
acquisitions and divestitures, and certain other 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-GAAP financial
measures considers both the quantitative and qualitative aspects of the item,
including among other things (i) its nature, (ii) whether it relates to our
ongoing business operations, and (iii) whether we expect it to occur as part of
our normal ongoing business on a regular basis.
Our calculation of these Non-GAAP measures may not be comparable to similarly
titled measures of other companies due to potential differences between
companies in the method of calculation. As a result, the use of these Non-GAAP
measures has limitations and should not be considered superior to, in isolation
from, or as a substitute for, related U.S. GAAP measures.
EBITDA and Adjusted EBITDA
We believe that the financial statements and other financial information presented have been prepared in a manner that complies, in all material respects, withU.S. GAAP, and are consistent with current practices with the exception of the presentation of certain Non-GAAP financial measures, including EBITDA and Adjusted EBITDA. EBITDA consists of net income (loss) before income tax provisions (benefit), interest expense, interest income, depreciation and amortization. Adjusted EBITDA consists of EBITDA adjusted to (i) eliminate certain non-operating income or expense items, (ii) eliminate the impact of certain non-cash and other items that are included in net income and EBITDA that we do not consider indicative of our ongoing operating performance, and (iii) eliminate certain unusual and non-recurring items impacting results in a particular period. EBITDA and Adjusted EBITDA are supplemental measures that are not required by, or presented in accordance with,U.S. GAAP. EBITDA and Adjusted EBITDA are not measures of our financial performance underU.S. GAAP and should not be considered as an alternative to revenues, net income (loss), income (loss) before income tax provision or any other performance measures derived in accordance withU.S. GAAP, nor should they be considered as alternatives to cash flows from operating activities as a measure of liquidity in accordance withU.S. GAAP. In addition, our method of calculating EBITDA and Adjusted EBITDA may vary from the methods used by other companies. We consider EBITDA and Adjusted EBITDA to be key indicators of our financial performance. Additionally, we believe EBITDA and Adjusted EBITDA are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. We also believe that investors, analysts and rating agencies consider EBITDA and Adjusted EBITDA useful means of measuring our ability to meet our debt service obligations and evaluating our financial performance, and management uses these measures for one or more of these purposes. 41 -------------------------------------------------------------------------------- Our presentation of EBITDA and Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items. EBITDA and Adjusted EBITDA have important limitations as analytical tools and you should not consider them in isolation or as a substitute for analysis of our results as reported underU.S. GAAP. The use of EBITDA and Adjusted EBITDA instead of net income has limitations as an analytical tool, including the following: •EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs; •EBITDA and Adjusted EBITDA do not reflect our interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; •EBITDA and Adjusted EBITDA do not reflect our income tax expense or the cash requirements to pay our income taxes; •Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements; •EBITDA and Adjusted EBITDA do not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments; and •Other companies in our industry may calculate these measures differently than we do, limiting their usefulness as a comparative measure. Adjusted EBITDA includes adjustments that represent a cash expense or that represent a non-cash charge that may relate to a future cash expense, and some of these expenses are of a type that we expect to incur in the future, although we cannot predict the amount of any such future charge. Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as a replacement for net income or as a measure of discretionary cash available to us to service our indebtedness or invest in our business. We compensate for these limitations by relying primarily on ourU.S. GAAP results and using EBITDA and Adjusted EBITDA only for supplemental purposes.
Adjusted Net Income and Adjusted Earnings (Loss) Per Share
Adjusted Net Income and Adjusted Earnings (Loss) Per Share ("Adjusted EPS") are
also Non-GAAP financial measures. We define Adjusted Net Income as net income
(loss) adjusted to (i) eliminate certain non-operating income or expense items,
(ii) eliminate the impact of certain non-cash and other items that are included
in net income that we do not consider indicative of our ongoing operating
performance, (iii) eliminate certain unusual and non-recurring items impacting
results in a particular period, and (iv) reflect the tax effect of items (i)
through (iii) and other tax special items. We define Adjusted EPS as our
Adjusted Net Income divided by the number of weighted average shares outstanding
in the period.
We believe that, in addition to our results determined in accordance with U.S.
GAAP, Adjusted Net Income and Adjusted EPS are useful in evaluating our
business, results of operations and financial condition. We believe that
Adjusted Net Income and Adjusted EPS may be helpful to investors because they
provide consistency and comparability with past financial performance and
facilitate period to period comparisons of our operations and financial results,
as they eliminate the effects of certain variables from period to period for
reasons that we do not believe reflect our underlying operating performance or
are unusual or infrequent in nature. However, Adjusted Net Income and Adjusted
EPS are presented for supplemental informational purposes only and should not be
considered in isolation or as a substitute or alternative for financial
information presented in accordance with U.S. GAAP.
Adjusted Net Income and Adjusted EPS have limitations as an analytical tool; some of these limitations are:
• Adjusted Net Income and Adjusted EPS do not reflect changes in, or cash
requirements for, our working capital needs;
• other companies, including companies in our industry, may calculate Adjusted
Net Income and Adjusted EPS differently, which reduce their usefulness as
comparative measures; and
• in the future we may incur expenses that are the same as or similar to some of
the adjustments in our calculation of Adjusted Net Income and Adjusted EPS and
our presentation of Adjusted Net Income and Adjusted EPS
42
--------------------------------------------------------------------------------should not be construed as an inference that our future results will be unaffected by the types of items excluded from the calculation of Adjusted Net Income or Adjusted EPS.
Because of these limitations, you should consider Adjusted Net Income and Adjusted EPS alongside other financial performance measures, including net loss, basic and diluted loss per share, and our otherU.S. GAAP results. Adjusted Net Income and Adjusted EPS are not presentations made in accordance withU.S. GAAP and the use of these terms may vary from other companies in our industry. The most directly comparableU.S. GAAP measure to Adjusted Net Income is net loss and the most directly comparableU.S. GAAP measure to Adjusted EPS is basic and diluted loss per share.
The following table reconciles loss before income tax provision to EBITDA and Adjusted EBITDA for the periods presented:
Three Months Ended Three Months Ended
(in millions) March 31, 2023 March 31, 2022
Loss before income tax provision $ (44.3) $ (37.2)
Interest expense 28.2 30.3
Interest income (1.7) (0.7)
Amortization expense of intangible assets 21.9 24.2
Depreciation expense included in cost of sales 19.9 20.6
Depreciation expense included in selling, general and administrative expenses
1.6 2.6
EBITDA 25.6 39.8
Transaction and integration costs(1) 8.0 4.5
Restructuring and exit costs(2) 0.5 9.8
Other costs related to facilities consolidations(3) 18.1 -
Foreign currency gain related to hyperinflationary subsidiaries(4)
(3.1) (0.3)
Adjustment for tax indemnification asset(5) - (0.1)
Acquisition accounting adjustments(6) - 1.3
Non-cash pension and other post-employment benefit plan(7) (0.8) (3.6)
Unrealized foreign currency exchange gain(8) (0.6) (1.1)
Factoring and securitization fees(9) 2.4 0.9
Share-based compensation(10) 11.0 15.1
Tax receivable agreement adjustments(11) (4.9) (6.4)
Gain on sale of property and equipment(12) (3.7) -
Other items 0.1 0.4
Consolidated Adjusted EBITDA $ 52.6 $ 60.3
43--------------------------------------------------------------------------------
The following table reconciles net loss to Adjusted Net Income and basic and diluted earnings (loss) per share to Adjusted EPS for the periods presented:
Three Months Ended March Three Months Ended March
31, 2023 31, 2022
Net Income Basic and Net Income Basic and
(in millions, except per share amounts) (Loss) diluted EPS (Loss) diluted EPS
Reported (GAAP) $ (53.6) $ (0.17) $ (39.1) $ (0.12)
Amortization expense of intangible assets acquired 21.9 0.07 24.2 0.08
Transaction and integration costs(1) 8.0 0.02 4.5 0.01
Restructuring and exit costs(2) 0.5 0.00 9.8 0.03
Other costs related to facilities consolidations(3) 18.1 0.06 - -
Foreign currency gain related to hyperinflationary subsidiaries(4)
(3.1) (0.01) (0.3) 0.00
Adjustment for tax indemnification asset(5) - - (0.1) 0.00
Acquisition accounting adjustments(6) - - 1.3 0.00
Non-cash pension and other post-employment benefit plan(7)
(0.8) 0.00 (3.6) (0.01)
Unrealized foreign currency exchange gain(8) (0.6) 0.00 (1.1) 0.00
Share-based compensation(10) 11.0 0.03 15.1 0.05
Tax receivable agreement adjustments(11) (4.9) (0.02) (6.4) (0.02)
Gain on sale of property and equipment(12) (3.7) (0.01) - -
Other items 0.1 0.00 0.4 0.00
Tax effects related to non-GAAP adjustments(13) (10.9) (0.03) (10.5) (0.04)
Discrete tax adjustments(14) 19.5 0.06 9.5 0.03
Adjusted (Non-GAAP) $ 1.5 $ 0.00 $ 3.7 $ 0.01 (1) These costs consist primarily of professional and consulting services which are non-operational in nature, costs related to strategic initiatives, acquisition-related costs, costs incurred in preparing to become a publicly traded company, and costs related to the Merger.
(2) Includes costs related to restructuring programs and business exit activities. Refer to Note 16 - Restructuring and Exit Activities in the Notes to our Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.
(3) Represents other costs related to consolidating certain manufacturing and warehousing facilities withinEurope andNorth America , which are non-recurring and included in Cost of Sales in our Condensed Consolidated Statements of Operations. (4)Argentina andTurkey were deemed to have highly inflationary economies and the functional currencies for ourArgentina andTurkey operations were changed from the Argentine peso and Turkish lira to theU.S. dollar and remeasurement charges/credits are recorded in our Condensed Consolidated Statements of Operations rather than as a component of Cumulative Translation Adjustment on our Condensed Consolidated Balance Sheets. (5) In connection with the original acquisition of theDiversey business in 2017, the purchase agreement governing the transaction includes indemnification provisions with respect to tax liabilities. The offset to this adjustment is included in income tax provision.
(6) In connection with various acquisitions we recorded fair value increases to our inventory. These amounts represent the amortization of this increase.
(7) Represents the net impact of the expected return on plan assets, interest cost, and settlement cost components of net periodic defined benefit income related to our defined benefit pension plans.
(8) Represents the unrealized foreign currency exchange impact on our
operations, primarily attributed to the valuation of the
44
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(9) Represents the fees to complete the sale of the receivables without recourse
under our accounts receivable securitization agreements. Refer to Note 5 -
Financial Statement Details in the Notes to our Condensed Consolidated Financial
Statements included elsewhere in this Quarterly Report on Form 10-Q for
additional information.
(10) Represents compensation expense associated with our share-based equity and
liability awards. See Note 15 - Share-Based Compensation in the Notes to our
Condensed Consolidated Financial Statements included elsewhere in this Quarterly
Report on Form 10-Q for additional information.
(11) Represents the adjustment to our tax receivable agreement liability due to
changes in valuation allowances that impact the realizability of the attributes
of the tax receivable agreement.
(12) Represents the gain on sale of property and equipment, primarily attributed to the sale of certain facilities.
(13) The tax rate used to calculate the tax impact of the pre-tax adjustments is based on the jurisdiction in which the charge was recorded.
(14) Represents adjustments related to discrete tax items including uncertain
tax provisions, impacts from rate changes in certain jurisdictions and changes
in our valuation allowance.
45
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LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of cash are the collection of trade receivables generated
from the sales of our products and services to our customers and amounts
available under our Revolving Credit Facility, factoring and accounts receivable
securitization programs. Our primary uses of cash are payments for operating
expenses, investments in working capital, capital expenditures, interest, taxes,
debt obligations, restructuring expenses and other long-term liabilities. Our
principal source of liquidity, in addition to cash from operating activities,
has been through our Revolving Credit Facility. As of March 31, 2023 , we had
cash and cash equivalents of $125.7 million and unused borrowing capacity of
$444.5 million under our Revolving Credit Facility. We believe that cash flow
from operations, available cash on hand and available borrowing capacity under
our Revolving Credit Facility will be adequate to service our debt, meet our
liquidity needs and fund necessary capital expenditures for the next twelve
months. We also believe these financial resources will allow us to manage our
business operations for the foreseeable future, including mitigating unexpected
reductions in revenues and delays in payments from our customers. Our future
capital requirements will depend on many factors including our growth rate, the
timing and extent of spending to support development efforts, the expansion of
sales and marketing activities and the introduction of new and enhanced products
and services offerings.
Historical Cash Flows. Note that the table and discussion that follows include
restricted cash as part of net cash in accordance with the provisions of ASU
2016-18, Statement of Cash Flows. We include restricted cash from our
compensating balance deposits as part of our cash and cash equivalents and
restricted cash for purposes of preparing our Condensed Consolidated Statements
of Cash Flows.
The following table presents a summary of our net cash provided by (used in) operating, investing and financing activities:
Three Months Ended Three Months Ended
(in millions) March 31, 2023 March 31, 2022 Change
Net cash provided by (used in) operating
activities $ (42.4) $ 45.9 $ (88.3)
Net cash provided by (used in) investing
activities $ (30.0) $ (68.7) $ 38.7
Net cash provided by (used in) financing
activities $ (7.7) $ 33.8 $ (41.5)
Operating activities
Cash flows from operating activities decreased $88.3 million during 2023 as
compared to 2022, which was primarily attributable to unfavorable fluctuations
in working capital items totaling $74.3 million . The changes in working capital
reflect unfavorable fluctuations in accounts payable of $79.6 million , other
assets and liabilities of $8.7 million (primarily relating to timing of payroll
related accruals, rebates and lease receivables), inventory of $4.7 million ,
offset by a favorable fluctuation in trade receivables of $18.7 million .
Investing activities
Cash flows from investing activities are primarily impacted by the timing of business acquisitions and capital investments in the business.
In 2023, we acquired
In 2022, we purchased
Our investments in dosing and dispensing equipment and capital expenditures totaled$24.5 million and$27.3 million during 2023 and 2022, respectively, due to new customer wins and opening a new warehouse and manufacturing facility inNorth America in the second half of 2022. 46 --------------------------------------------------------------------------------
Financing activities
Cash flows from financing activities primarily reflect derivative transactions and borrowings and repayment of debt.
In 2023, we paid
In 2022, we terminated existing derivative agreements, receiving net proceeds of$45.3 million , and simultaneously entered into new at-market derivative agreements with the same notional amount and maturity date as the terminated derivatives. Additionally, we paid$11.5 million on short-term and long-term borrowings.
Debt Capitalization. We had
(in millions) March 31, 2023 December 31, 2022
Senior Secured Credit Facilities
2021 U.S. Dollar Term Loan $ 1,481.2 $ 1,485.0
Revolving Credit Facility -
-
2021 Senior Notes 500.0 500.0
Short-term borrowings 1.1 3.8
Finance lease obligations 10.4 11.6
Financing obligations 21.7 21.9
Unamortized deferred financing costs (28.8) (30.1)
Unamortized original issue discount (6.7) (7.0)
Total debt 1,978.9 1,985.2
Less: Current portion of long-term debt (12.0)
(12.4)
Short-term borrowings (1.1) (3.8)
Long-term debt $ 1,965.8 $ 1,969.0
On September 29, 2021 , we entered into an amendment to its Senior Secured Credit
Facilities, which provided for a new $1,500.0 million senior secured U.S. dollar
denominated term loan (the "2021 U.S. Dollar Term Loan") in addition to the
existing $450.0 million revolving credit facility (the "Revolving Credit
Facility", and together with the 2021 U.S. Dollar Term Loan, the "New Senior
Secured Credit Facilities"). The 2021 U.S. Dollar Term Loan matures on September
29, 2028 , while the Revolving Credit Facility matures on March 28, 2026 . As of
March 31, 2023 , the interest rate for the 2021 U.S. Dollar Term Loan is 7.58%.
As of March 31, 2023 , we were in compliance with all covenants under the
agreements governing the New Senior Secured Credit Facilities.
On September 29, 2021 , we completed the sale of $500.0 million in aggregate
principal amount of Senior Notes due 2029 (the "2021 Senior Notes") in a private
placement to qualified institutional buyers in reliance on Rule 144A under the
Securities Act of 1933, as amended (the "Securities Act"), and to non-U.S.
persons (as defined in Regulation S) pursuant to Regulation S under the
Securities Act. We used the net proceeds from the issuance of the 2021 Senior
Notes, together with borrowings under its New Senior Secured Credit Facilities
and cash on hand, to redeem all of the €450.0 million aggregate principal amount
of the 2017 Senior Notes, pay fees and/or expenses incurred in connection with
the issuance of the 2021 Senior Notes and for general corporate purposes. The
2021 Senior Notes mature on October 1, 2029 , bear interest at 4.625%, and
interest is payable semi-annually on April 1 and October 1 of each year,
beginning on April 1, 2022 . At March 31, 2023 , we were in compliance with all
covenants under the indenture governing the 2021 Senior Notes.
The Merger, if consummated as contemplated in the Merger Agreement, is expected
to constitute a "change of control" with respect the 2021 U.S. Dollar Term Loan
and the 2021 Senior Notes. As such, it is expected that the 2021 U.S. Dollar
Term Loan will be repaid and, with respect to the 2021 Senior Notes, we expect
we will either make a Change of Control Offer (as defined in the indenture
governing the 2021 Senior Notes (the "Indenture")) at a price equal to the
Change of Control Payment (as defined in the Indenture) or redeem (which may
include a
47
--------------------------------------------------------------------------------satisfaction and discharge) the 2021 Senior Notes at the redemption price set forth in the Indenture, in each case, substantially concurrently with the closing of the Merger.
Critical Accounting Policies and Estimates
The preparation of the Condensed Consolidated Financial Statements in accordance withU.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of some assets and liabilities and, in some instances, the reported amounts of revenues and expenses during the applicable reporting period. Actual results could differ from these estimates. These estimates involve judgments with respect to, among other things, future economic factors that are difficult to predict and are beyond management's control. As a result, actual amounts could differ from these estimates. Refer to the section entitled "Critical Accounting Policies and Estimates" within the "Management's Discussion and Analysis of Results of Operations" in our Annual Report on Form 10-K for the year endedDecember 31, 2022 for discussion of our critical accounting policies and estimates. There have been no material changes in our critical accounting policies and estimates from those discussed in the Annual Report on Form 10-K.
Recent Accounting Pronouncements
Refer to the sub-section, "Recent Accounting Pronouncements," within Note 2 - Significant Accounting Policies in the Notes to our Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for further discussions.
Cautionary Statement Regarding Forward-Looking Information
This Quarterly Report on Form 10-Q contains forward-looking statements that are
subject to substantial risks and uncertainties. All statements other than
statements of historical fact included in this Quarterly Report on Form 10-Q,
including statements regarding the proposed Merger, our business strategy,
future operations and results thereof, future financial position, future
revenue, projected costs, prospects, current and prospective products, current
and prospective collaborations, timing and likelihood of success, plans and
objectives of management, expected market growth and future results of current
and anticipated products are forward-looking statements. You can identify
forward-looking statements by the fact that they do not relate strictly to
historical or current facts. These statements may include words such as
"anticipate", "estimate", "expect", "project", "plan", "potential", "predict",
"intend", "believe", "may", "might", "will", "would", "should", "can have",
"could", "continue", "contemplate", "target", "likely" and other words and terms
of similar meaning in connection with any discussion of the timing or nature of
future operating or financial performance or other events although not all
forward-looking statements contain these identifying words. For example, all
statements we make relating the proposed Merger and its completion to our
estimated and projected costs, expenditures, cash flows, growth rates and
financial results or our plans and objectives for future operations, growth
initiatives, or strategies are forward-looking statements. All forward-looking
statements involve unknown risks, and other important factors that may cause
actual results performance or achievements to be materially different from any
future results, performance or achievements expressed or implied by the
forward-looking statements, including:
• uncertainties associated with the proposed Merger, including the failure to
complete the Merger in a timely manner or at all, restrictions on business
conduct and potential lawsuits related to the proposed Merger;
• the occurrence of any event, change or other circumstances that could give
rise to the termination of the Merger Agreement;
• the inability to complete the proposed Merger due to the failure to satisfy
conditions precedent, including satisfaction of the Requisite Shareholder
Approval;
• risks related to disruption of management's attention from our ongoing
business operations due to the proposed Merger;
• the effect of the announcement of the proposed Merger on our relationships
with our customers and on our operating results and business generally;
• the costs of the proposed Merger if the proposed Merger is not consummated;
48--------------------------------------------------------------------------------
• uncertain global economic conditions which have had and could continue to have an adverse effect on our consolidated financial condition and results of operations; • the global nature of our operations exposes us to numerous risks that could materially adversely affect our consolidated financial condition and results of operations; • fluctuations between non-U.S. currencies and theU.S. dollar could materially impact our consolidated financial condition or results of operations; • political and economic instability and risk of government actions affecting our business and our customers or suppliers may adversely impact our business, results of operations and cash flows; • raw material pricing, availability and allocation by suppliers as well as energy-related costs may negatively impact our results of operations, including our profit margins; • if we do not develop new and innovative products or if customers in our markets do not accept them, our results would be negatively affected; • cyber risks and the failure to maintain the integrity of our operational or security systems or infrastructure; • the introduction of theOrganization for Economic Cooperation and Development's Base Erosion and Profit Shifting may adversely affect our effective rate of tax in future periods; • the consolidation of customers may adversely affect our business, consolidated financial condition or results of operations; • we experience competition in the markets for our products and services and in the geographic areas in which we operate; • instability and uncertainty in the credit and financial markets could adversely impact the availability of credit that we and our customers need to operate our business; • new and stricter regulations may affect our business and consolidated condition and results of operations; and • the other risks described under "Risk Factors" in our Annual Report on Form 10-K filed with theSEC . We derive many of our forward-looking statements from our operating budgets and forecasts, which are based on many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements as well as other cautionary statements that are made from time to time in our otherSEC filings and public communications. You should evaluate all forward-looking statements made in this document in the context of these risks and uncertainties. We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. The forward-looking statements included in this Form 10-Q are made only as of the date hereof. We undertake no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
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