UNIVAR SOLUTIONS INC.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") is based on financial data derived from the financial
statements prepared in accordance with the United States ("US") generally
accepted accounting principles ("GAAP") and certain other financial data that is
prepared using non-GAAP measures. For a reconciliation of each non-GAAP
financial measure to its most comparable GAAP measure, see "Analysis of Segment
Results" within this Item and "Note 23: Segments" to our consolidated financial
statements in Item 8 of this Annual Report on Form 10-K. Refer to "Non-GAAP
Financial Measures" within this Item for more information about our use of
Non-GAAP financial measures.
Our MD&A is provided in addition to the accompanying consolidated financial
statements and notes to assist readers in understanding our results of
operations, financial condition and cash flow. This section of this Annual
Report on Form 10-K discusses year-to-year comparisons between 2019 and 2018.
Discussions of year-to-year comparisons between 2018 and 2017 that are not
included in this Annual Report on Form 10-K can be found in "Management's
Discussion and Analysis of
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Financial Condition and Results of Operations" in Part II, Item 7 of the
Company's Annual Report on Form 10-K for the year ended December 31, 2018 , filed
on February 21, 2019 .
Overview
Univar Solutions Inc. is a leading global chemical and ingredient distributor
and provider of value-added services to customers across a wide range of diverse
industries. We purchase chemicals from thousands of chemical producers worldwide
and warehouse, repackage, blend, dilute, transport and sell those chemicals to
more than 100,000 customer locations across approximately 130 countries.
Our operations are structured into four reportable segments that represent the
geographic areas under which we operate and manage our business. These segments
are Univar Solutions USA ("USA"), Univar Solutions Canada ("Canada"), Univar
Solutions Europe and the Middle East and Africa ("EMEA"), and Univar Solutions
Latin America ("LATAM"), which includes developing businesses in Latin America
(including Brazil and Mexico ) and the Asia-Pacific region . Prior to its renaming
in 2019, LATAM was previously referred to as "Rest of World."
Recent Developments and Items Impacting Comparability
On February 28, 2019 , we completed the acquisition of 100% of the equity
interest of Nexeo, a leading global chemicals and plastics distributor. The
acquisition expands and strengthens Univar Solutions' presence in North America
and provides expanded opportunities to create the largest North American sales
force in chemical and ingredients distribution and the broadest product
offering. On March 29, 2019 , the Company completed the sale of the Nexeo
plastics distribution business which is presented as a discontinued operation in
the Company's results of operations for the year ended December 31, 2019 .
On December 31, 2019 , we sold our Environmental Sciences business. The sale of
the business did not meet the criteria to be classified as a discontinued
operations in the Company's financial statements.
Market Conditions and Outlook
We sell chemicals that are used in manufacturing processes and as components of
or ingredients in other products. Our sales are correlated with and affected by
fluctuations in the levels of industrial production, manufacturing output, and
general economic activity. The level of industrial production, which tends to
decline in the fourth quarter of each year, can impact our sales.
Certain of our end markets experience seasonal fluctuations, which also affect
our net sales and results of operations. For example, our sales to the
agricultural end market, particularly in Canada , tend to peak in the second
quarter in each year, depending in part on weather-related variations in demand
for agricultural chemicals. Sales to other end markets such as paints and
coatings may also be affected by changing seasonal weather conditions, the
construction industry and automotive production. Demand for our oil, gas and
mining products and services is affected by factors such as the level of
exploration, drilling, development and production activity of, and the
corresponding capital spending by, oil, gas and mining companies and oilfield
service providers, and trends in oil, gas and mineral prices.
Executive Summary
Management is focused, in the near and long term, on the following priorities:
•growth through our sales force, utilizing our realigned sales territories;
•delivering technical and application development excellence through our global
network of Solutions Centers;
•investing in, and continued advancement, of our digital capabilities, bringing
value to customers and suppliers as we work to attain our goal of being the
easiest to do business with;
•network optimization, as we progress with the integration of Nexeo, continuing
to realize synergy cost savings;
•continuing to successfully achieve important ERP migration milestones;
•delivering on our commitment to focus on our core chemical and ingredient
businesses through strategic divestitures and acquisitions globally; and
•strengthening our balance sheet and pursuing ways to deleverage.
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Constant Currency
Currency impacts on consolidated and segment results have been derived by
translating current period financial results in local currency using the average
exchange rate for the prior period to which the financial information is being
compared. We believe providing constant currency information provides valuable
supplemental information regarding our results of operations, consistent with
how we evaluate our performance.
Results of Operations
Year Ended December 31, 2019 Compared to Year Ended December 31, 2018
Year Ended Favorable Impact of
(in millions) December 31, 2019 December 31, 2018 (unfavorable) % Change currency*
Net sales $ 9,286.9 100.0 % $ 8,632.5 100.0 % $ 654.4 7.6 % (1.7) %
Cost of goods sold (exclusive of
depreciation) 7,146.1 76.9 % 6,732.4 78.0 % (413.7) 6.1 % 1.7 %
Operating expenses:
Outbound freight and handling 364.8 3.9 % 328.3 3.8 % (36.5) 11.1 % 1.4 %
Warehousing, selling and
administrative 1,068.8 11.5 % 931.4 10.8 % (137.4) 14.8 % 14.5 %
Other operating expenses, net 298.2 3.2 % 73.5 0.9 % (224.7) 305.7 % 1.0 %
Depreciation 155.0 1.7 % 125.2 1.5 % (29.8) 23.8 % 1.3 %
Amortization 59.7 0.6 % 54.3 0.6 % (5.4) 9.9 % 1.3 %
Impairment charges 7.0 0.1 % - - % (7.0) N/M - %
Total operating expenses $ 1,953.5 21.0 % $ 1,512.7 17.5 % $ (440.8) 29.1 % 1.6 %
Operating income $ 187.3 2.0 % $ 387.4 4.5 % $ (200.1) (51.7) % (2.6) %
Other (expense) income:
Interest income 7.7 0.1 % 3.2 - % 4.5 140.6 % (12.5) %
Interest expense (147.2) (1.6) % (135.6) (1.6) % (11.6) 8.6 % 0.4 %
Gain on sale of business 41.4 0.4 % - - % 41.4 N/M - %
Loss on extinguishment of debt (19.8) (0.2) % (0.1) - % (19.7) N/M - %
Other expense, net (70.5) (0.8) % (32.7) (0.4) % (37.8) 115.6 % 2.1 %
Total other expense $ (188.4) (2.0) % $ (165.2) (1.9) % $ (23.2) 14.0 % 0.5 %
(Loss) income from continuing
operations before income taxes (1.1) - % 222.2 2.6 % (223.3) (100.5) % (4.1) %
Income tax expense from
continuing operations 104.5 1.1 % 49.9 0.6 % (54.6) 109.4 % 4.4 %
Net (loss) income from
continuing operations $ (105.6) (1.1) % $ 172.3 2.0 % $ (277.9) (161.3) % (4.0) %
Net income from discontinued
operations 5.4 0.1 % - - % 5.4 N/M - %
Net (loss) income $ (100.2) (1.1) % $ 172.3 2.0 % $ (272.5) (158.2) % (4.1) %
* Foreign currency translation is included in the percentage change. Unfavorable
impacts from foreign currency translation are designated with parentheses.
Net sales
Net sales were $9,286.9 million in the year ended December 31, 2019 , an increase
of $654.4 million , or 7.6%, from the year ended December 31, 2018 . On a constant
currency basis, net sales increased from the February 2019 Nexeo acquisition in
USA, Canada and LATAM and the May 2018 Earthoil acquisition in EMEA. The
increase was partially offset by lower sales volumes primarily due to lower
global demand and by unfavorable changes in sales pricing due to chemical price
deflation in USA, Canada and LATAM. Refer to the "Analysis of Segment Results"
for additional information.
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Gross profit (exclusive of depreciation)
Gross profit (exclusive of depreciation) increased $240.7 million , or 12.7%, to
$2,140.8 million for the year ended December 31, 2019 . The increase in gross
profit (exclusive of depreciation) is attributable to changes in market and
product mix and sales force execution. The increase in gross profit (exclusive
of depreciation) from acquisitions was attributable to the February 2019 Nexeo
acquisition in USA, Canada and LATAM segments and the May 2018 Earthoil
acquisition in EMEA. Included in gross profit (exclusive of depreciation) is a
$5.3 million charge in USA related to the inventory fair value step-up
adjustment resulting from our February 2019 Nexeo acquisition and a $9.7 million
benefit in LATAM related to the Brazil VAT recovery. Excluding these impacts,
gross profit (exclusive of depreciation) increased $236.3 million , or 12.4%, to
$2,136.4 million for the year ended December 31, 2019 . Refer to the "Analysis of
Segment Results" for additional information.
Outbound freight and handling
Outbound freight and handling expenses increased $36.5 million , or 11.1%, to
$364.8 million for the year ended December 31, 2019 . On a constant currency
basis, outbound freight and handling expenses increased $40.9 million , or 12.5%,
primarily due to the February 2019 Nexeo acquisition partially offset by lower
sales volumes. Refer to the "Analysis of Segment Results" for additional
information.
Warehousing, selling and administrative
Warehousing, selling and administrative expenses increased $137.4 million , or
14.8%, to $1,068.8 million for the year ended December 31, 2019 . On a constant
currency basis, the $153.9 million increase is primarily due to incremental
expenses from the February 2019 Nexeo acquisition. These costs were partially
offset by cost containment efforts across all of our segments. Refer to the
"Analysis of Segment Results" for additional information.
Other operating expenses, net
Other operating expenses, net increased $224.7 million , or 305.7%, to $298.2
million for the year ended December 31, 2019 . The increase was primarily due to
higher acquisition and integration related expenses, expenses related to the
saccharin legal settlement, higher other facility exit costs and higher other
employee termination costs in connection with the February 2019 Nexeo
acquisition. Refer to "Note 6: Other operating expenses, net" in Item 8 of this
Annual Report on Form 10-K for additional information.
Depreciation and amortization
Depreciation expense increased $29.8 million , or 23.8%, to $155.0 million for
the year ended December 31, 2019 . On a constant currency basis, the increase of
$31.4 million , or 25.1%, was primarily due to the February 2019 Nexeo
acquisition and accelerated depreciation of legacy software.
Amortization expense increased $5.4 million , or 9.9%, to $59.7 million for the
year ended December 31, 2019 . On a constant currency basis, the increase of $6.1
million was primarily attributable to the February 2019 Nexeo acquisition.
Impairment charges
Impairment charges of $7.0 million were recorded in the year ended December 31,
2019 related to property, plant and equipment in connection with the announced
closure of certain production facilities. Refer to "Note 16: Impairment charges"
in Item 8 of this Annual Report on Form 10-K for additional information.
Interest expense
Interest expense increased $11.6 million , or 8.6%, to $147.2 million for the
year ended December 31, 2019 primarily due to higher average outstanding
borrowings in connection with the February 2019 Nexeo acquisition. Refer to
"Note 18: Debt" in Item 8 of this Annual Report on Form 10-K for additional
information.
Gain on sale of business
A gain of $41.4 million was recorded in the year ended December 31, 2019 related
to the sale of the Environmental Sciences business. Refer to "Note 4:
Discontinued operations and dispositions" in Item 8 of this Annual Report on
Form 10-K for additional information.
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Loss on extinguishment of debt
Loss on extinguishment of debt of $19.8 million for the year ended December 31,
2019 was due to the February and November 2019 debt refinancing and repayment
activities.
Other expense, net
Other expense, net increased $37.8 million , or 115.6%, to $70.5 million for the
year ended December 31, 2019 . The change was primarily related to the increase
in pension mark to market loss, losses on undesignated foreign currency
derivative instruments, losses on interest rate swaps as well as the reduction
in non-operating pension income. The change was partially offset by foreign
currency denominated loan revaluation gains. Refer to "Note 8: Other expense,
net" in Item 8 of this Annual Report on Form 10-K for additional information.
Income tax expense from continuing operations
Income tax expense was $104.5 million for the year ended December 31, 2019 ,
resulting in an effective income tax rate of (9500.0)%, compared to the US
federal statutory rate of 21.0%. The Company's effective income tax rate for the
year ended December 31, 2019 was primarily driven by increased international tax
impacts, including those related to US tax reform and transactions with foreign
subsidiaries, tax gain in excess of book gain on the sale of the Environmental
Sciences business, nondeductible expenses, including the Saccharin legal
settlement, the Nexeo shareholder settlement and state taxes. These increases to
the effective income tax rate are partially offset by the release of valuation
allowances on certain tax attributes.
Income tax expense was $49.9 million for the year ended December 31, 2018 ,
resulting in an effective income tax rate of 22.5%. The Company's effective
income tax rate for the year ended December 31, 2018 was higher than the US
federal statutory rate of 21.0%, primarily due to international tax impacts,
including those related to US tax reform and state income taxes. These increases
to the effective income tax rate are partially offset by the release of
valuation allowances on certain tax attributes.
Net income from discontinued operations
Net income from discontinued operations was $5.4 million for the year ended
December 31, 2019 . Discontinued operations for 2019 represents one month of the
Nexeo plastics distribution business. Refer to "Note 4: Discontinued operations
and dispositions" in Item 8 of this Annual Report on Form 10-K for additional
information.
Results of Reportable Business Segments
The Company's operations are structured into four reportable segments that
represent the geographic areas under which we operate and manage our business.
Management believes Adjusted EBITDA is an important measure of operating
performance, which is used as the primary basis for the chief operating decision
maker to evaluate the performance of each of our reportable segments. We believe
certain other financial measures that are not calculated in accordance with US
GAAP provide relevant and meaningful information concerning the ongoing
operating results of the Company. These financial measures include gross profit
(exclusive of depreciation), adjusted gross profit (exclusive of depreciation),
gross margin and adjusted gross margin. Such non-GAAP financial measures are
used from time to time herein but should not be viewed as a substitute for GAAP
measures of performance. See "Note 23: Segments" in Item 8 of this Annual Report
on Form 10-K and "Analysis of Segment Results" within this Item for additional
information.
Analysis of Segment Results
USA
Year ended December 31, Favorable
(in millions) 2019 2018 (unfavorable) % Change
Net sales:
External customers $ 5,828.5 $ 4,961.0 $ 867.5 17.5 %
Inter-segment 100.2 126.6 (26.4) (20.9) %
Total net sales $ 5,928.7 $ 5,087.6 $ 841.1 16.5 %
Cost of goods sold (exclusive of depreciation) 4,550.9 3,959.3 (591.6) 14.9 %
Inventory step-up adjustment (1) 5.3 - (5.3) N/M
Outbound freight and handling 254.6 215.6 (39.0) 18.1 %
Warehousing, selling and administrative 673.8 536.3 (137.5) 25.6 %
Adjusted EBITDA $ 454.7 $ 376.4 $ 78.3 20.8 %
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Year ended December 31, Favorable
(in millions) 2019 2018 (unfavorable) % Change
Gross profit (exclusive of depreciation):
Net sales $ 5,928.7 $ 5,087.6 $ 841.1 16.5 %
Cost of goods sold (exclusive of depreciation) 4,550.9 3,959.3 (591.6) 14.9 %
Gross profit (exclusive of depreciation)
22.1 %
Inventory step-up adjustment (1) 5.3 - (5.3) N/M
Adjusted gross profit (exclusive of depreciation)
(1) $ 1,383.1 $ 1,128.3 $ 254.8 22.6 %
(1)See definition of adjusted gross profit (exclusive of depreciation) at the
end of this Item under "Non-GAAP Financial Measures." Adjusted gross profit
(exclusive of depreciation) excludes the inventory fair value step-up adjustment
resulting from our February 2019 Nexeo acquisition.
External sales in the USA segment were $5,828.5 million , an increase of $867.5
million , or 17.5%, in the year ended December 31, 2019 . External sales increased
primarily due to the February 2019 Nexeo acquisition, partially offset by lower
sales volumes attributable to soft demand.
Gross profit (exclusive of depreciation) increased $249.5 million , or 22.1%, to
$1,377.8 million in the year ended December 31, 2019 . Gross profit (exclusive of
depreciation) increased due to the February 2019 Nexeo acquisition and due to
favorable changes in pricing and product mix, partially offset by lower sales
volumes. Excluding the $5.3 million impact related to the inventory fair value
step-up adjustment from the Nexeo acquisition, adjusted gross profit (exclusive
of depreciation) increased $254.8 million , or 22.6%, to $1,383.1 million . Both
gross margin and adjusted gross margin increased during the year ended
December 31, 2019 due to the beneficial impact of product mix, sales force
execution and margin management efforts.
Outbound freight and handling expenses increased $39.0 million , or 18.1%, to
$254.6 million in the year ended December 31, 2019 primarily due to the February
2019 Nexeo acquisition partially offset by lower sales volumes.
Warehousing, selling and administrative expenses increased $137.5 million , or
25.6%, to $673.8 million in the year ended December 31, 2019 primarily due to
incremental expenses from the February 2019 Nexeo acquisition. The increase was
also attributable to higher environmental remediation expense partially offset
by strong cost containment. Warehousing, selling and administrative expenses as
a percentage of external sales increased from 10.8% in the year ended
December 31, 2018 to 11.6% in the year ended December 31, 2019 .
Adjusted EBITDA increased by $78.3 million , or 20.8%, to $454.7 million in the
year ended December 31, 2019 primarily as a result of higher gross profit
(exclusive of depreciation). Adjusted EBITDA margin increased from 7.6% in the
year ended December 31, 2018 to 7.8% in the year ended December 31, 2019
primarily as a result of higher gross margin, partially offset by increased
operating expenses as a percentage of sales.
Canada
Year ended December 31, Favorable
(in millions) 2019 2018 (unfavorable) % Change
Net sales:
External customers $ 1,217.8 $ 1,302.3 $ (84.5) (6.5) %
Inter-segment 6.2 9.3 (3.1) (33.3) %
Total net sales $ 1,224.0 $ 1,311.6 $ (87.6) (6.7) %
Cost of goods sold (exclusive of depreciation) 990.3 1,080.1 89.8 (8.3) %
Outbound freight and handling 41.9 42.5 0.6 (1.4) %
Warehousing, selling and administrative 91.6 84.3 (7.3) 8.7 %
Adjusted EBITDA $ 100.2 $ 104.7 $ (4.5) (4.3) %
Year ended December 31, Favorable
(in millions) 2019 2018 (unfavorable) % Change
Gross profit (exclusive of depreciation):
Net sales $ 1,224.0 $ 1,311.6 $ (87.6) (6.7) %
Cost of goods sold (exclusive of depreciation) 990.3 1,080.1 89.8 (8.3) %
Gross profit (exclusive of depreciation)
1.0 %
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External sales in the Canada segment were $1,217.8 million , a decrease of $84.5
million , or 6.5%, in the year ended December 31, 2019 . On a constant currency
basis, external sales decreased $55.6 million , or 4.3%, primarily due to lower
sales volumes attributable to the weather-impacted agriculture market as well as
lower demand from Canada's energy sector. The decrease also resulted from lower
average selling prices due to chemical price deflation and changes in market and
product mix, partially offset by the increase due to the February 2019 Nexeo
acquisition.
Gross profit (exclusive of depreciation) increased $2.2 million , or 1.0%, to
$233.7 million in the year ended December 31, 2019 . On a constant currency
basis, gross profit (exclusive of depreciation) increased $7.7 million , or 3.3%,
due to contributions from the February 2019 Nexeo acquisition, partially offset
by lower sales volumes in agriculture. Gross margin increased from 17.8% in the
year ended December 31, 2018 to 19.2% in the year ended December 31, 2019 as a
result of higher margins on certain commodity chemicals.
Outbound freight and handling expenses decreased $0.6 million , or 1.4%, to $41.9
million in the year ended December 31, 2019 due to lower sales volumes.
Warehousing, selling and administrative expenses increased by $7.3 million , or
8.7%, to $91.6 million in the year ended December 31, 2019 primarily due to
incremental expenses from the February 2019 Nexeo acquisition. Warehousing,
selling and administrative expenses as a percentage of external sales increased
from 6.5% in the year ended December 31, 2018 to 7.5% in the year ended
December 31, 2019 due to higher bad debt charges and higher maintenance and
repair expenses. On a constant currency basis, warehousing, selling and
administrative expenses increased $9.4 million , or 11.2%.
Adjusted EBITDA decreased by $4.5 million , or 4.3%, to $100.2 million in the
year ended December 31, 2019 . On a constant currency basis, Adjusted EBITDA
decreased $2.1 million , or 2.0%, primarily due to lower demand in the
agriculture and energy sector. Adjusted EBITDA margin increased from 8.0% in the
year ended December 31, 2018 to 8.2% in the year ended December 31, 2019 ,
primarily as a result of higher margins on certain commodity chemicals.
EMEA
Year ended December 31, Favorable
(in millions) 2019 2018 (unfavorable) % Change
Net sales:
External customers $ 1,785.5 $ 1,975.7 $ (190.2) (9.6) %
Inter-segment 3.3 4.0 (0.7) (17.5) %
Total net sales $ 1,788.8 $ 1,979.7 $ (190.9) (9.6) %
Cost of goods sold (exclusive of depreciation) 1,363.9 1,525.6 161.7 (10.6) %
Outbound freight and handling 59.1 62.4 3.3 (5.3) %
Warehousing, selling and administrative 222.5 240.5 18.0 (7.5) %
Adjusted EBITDA $ 143.3 $ 151.2 $ (7.9) (5.2) %
Year ended December 31, Favorable
(in millions) 2019 2018 (unfavorable) % Change
Gross profit (exclusive of depreciation):
Net sales $ 1,788.8 $ 1,979.7 $ (190.9) (9.6) %
Cost of goods sold (exclusive of depreciation) 1,363.9 1,525.6 161.7 (10.6) %
Gross profit (exclusive of depreciation)
(6.4) %
External sales in the EMEA segment were $1,785.5 million , a decrease of $190.2
million , or 9.6%, in the year ended December 31, 2019 . On a constant currency
basis, external sales decreased $88.5 million , or 4.5%, primarily due to lower
sales volumes attributable to soft demand, partially offset by incremental sales
from the May 2018 Earthoil acquisition.
Gross profit (exclusive of depreciation) decreased $29.2 million , or 6.4%, to
$424.9 million in the year ended December 31, 2019 . On a constant currency
basis, gross profit (exclusive of depreciation) decreased $5.5 million , or 1.2%,
due to lower sales volumes and increased market pressure in the pharmaceutical
finished goods product line. Gross margin increased from 23.0% in the year ended
December 31, 2018 to 23.8% in the year ended December 31, 2019 primarily due to
the favorable change in product mix and margin management initiatives.
Outbound freight and handling expenses decreased $3.3 million , or 5.3%, to $59.1
million . On a constant currency basis, outbound freight and handling expenses
remained flat.
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Warehousing, selling and administrative expenses decreased $18.0 million , or
7.5%, to $222.5 million in the year ended December 31, 2019 , and increased as a
percentage of external sales from 12.2% in the year ended December 31, 2018 to
12.5% in the year ended December 31, 2019 . On a constant currency basis,
operating expenses decreased $5.7 million , or 2.4%.
Adjusted EBITDA decreased by $7.9 million , or 5.2%, to $143.3 million in the
year ended December 31, 2019 . On a constant currency basis, Adjusted EBITDA
increased $0.2 million , or 0.1%, primarily due effective cost containment
partially offset by soft demand. In the year ended December 31, 2019 , the
pharmaceutical finished goods product line represented approximately 27% of
Adjusted EBITDA in the EMEA segment, declining from approximately 30% in prior
year due to increased market pressures. Adjusted EBITDA margin increased from
7.7% in the year ended December 31, 2018 to 8.0% in the year ended December 31,
2019 .
LATAM
Year ended December 31, Favorable
(in millions) 2019 2018 (unfavorable) % Change
Net sales:
External customers $ 455.1 $ 393.5 $ 61.6 15.7 %
Inter-segment - 0.2 (0.2) (100.0) %
Total net sales (1) $ 455.1 $ 393.7 $ 61.4 15.6 %
Cost of goods sold (exclusive of depreciation) 350.7 307.5 (43.2) 14.0 %
Outbound freight and handling 9.2 7.8 (1.4) 17.9 %
Warehousing, selling and administrative 50.8 45.1 (5.7) 12.6 %
Brazil VAT recovery (1) (8.3) - 8.3 N/M
Adjusted EBITDA (1) $ 36.1 $ 33.3 $ 2.8 8.4 %
Year ended December 31, Favorable
(in millions) 2019 2018 (unfavorable) % Change
Gross profit (exclusive of depreciation):
Net sales $ 455.1 $ 393.7 $ 61.4 15.6 %
Cost of goods sold (exclusive of depreciation) 350.7 307.5 (43.2) 14.0 %
Gross profit (exclusive of depreciation) (1) $ 104.4 $ 86.2 $ 18.2 21.1 %
Brazil VAT recovery (1) (9.7) - 9.7 N/M
Adjusted gross profit (exclusive of depreciation) $ 94.7 $ 86.2 $ 8.5 9.9 %
(1)Included in net sales and gross profit (exclusive of depreciation) is a
$9.7 million benefit related to a Brazil VAT recovery. The benefit of $8.3
million , net of associated fees, is excluded from Adjusted EBITDA. See "Note 21:
Commitments and contingencies" in Item 8 of this Annual Report on Form 10-K for
further information regarding the Brazil VAT recovery for the year ended
December 31, 2019 .
External sales in the LATAM segment were $455.1 million , an increase of $61.6
million , or 15.7%, in the year ended December 31, 2019 . On a constant currency
basis, external sales increased $75.6 million , or 19.2%, which includes
$9.7 million related to the Brazil VAT recovery. The increase was also due to
the February 2019 Nexeo acquisition along with contributions from the Brazilian
agriculture sector.
Gross profit (exclusive of depreciation) increased $18.2 million , or 21.1%, to
$104.4 million in the year ended December 31, 2019 . On a constant currency
basis, gross profit (exclusive of depreciation) increased $22.5 million , or
26.1%, primarily due to the Brazil VAT recovery impact of $9.7 million and the
February 2019 Nexeo acquisition. Excluding the $9.7 million impact related to
the Brazil VAT recovery, adjusted gross profit (exclusive of depreciation)
increased $8.5 million , or 9.9%, to $94.7 million . Gross margin inclusive of the
Brazil VAT recovery increased from 21.9% to 22.9% and excluding the Brazil VAT
recovery decreased from 21.9% to 21.3% in the year ended December 31, 2018 when
compared to December 31, 2019 .
Outbound freight and handling expenses increased $1.4 million , or 17.9%, to $9.2
million in the year ended December 31, 2019 primarily due to incremental
expenses from the February 2019 Nexeo acquisition and higher sales volumes.
Warehousing, selling and administrative expenses increased $5.7 million , or
12.6%, to $50.8 million in the year ended December 31, 2019 and decreased as a
percentage of external sales from 11.5% in the year ended December 31, 2018 to
11.2% in the year ended December 31, 2019 . On constant currency basis,
warehousing, selling and administrative expenses increased
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$7.6 million , or 16.9%, primarily due to incremental expenses from the February
2019 Nexeo acquisition as well as from associated fees related to the Brazil VAT
recovery, partially offset by strong cost control.
Adjusted EBITDA increased by $2.8 million , or 8.4%, to $36.1 million in the year
ended December 31, 2019 . On a constant currency basis, Adjusted EBITDA increased
$5.0 million , or 15.0%, primarily as a result of higher gross profit (exclusive
of depreciation). Adjusted EBITDA margin inclusive of the Brazil VAT recovery
decreased from 8.5% to 7.9% and excluding the Brazil VAT recovery decreased from
8.5% to 8.1% in the year ended December 31, 2018 when compared to December 31,
2019 .
Liquidity and Capital Resources
Our primary source of liquidity is cash generated from our operations as well as
borrowings under our committed credit facilities. As of December 31, 2019 , our
total liquidity was approximately $931.2 million , comprised of $600.9 million
available under our credit facilities and $330.3 million of cash and cash
equivalents. Our primary liquidity and capital resource needs are to service our
debt and to finance working capital, capital expenditures, other liabilities and
general corporate purposes. We have significant working capital needs, although
we have implemented several initiatives to improve our working capital and
reduce the related financing requirements. The nature of our business, however,
requires that we maintain inventories that enable us to deliver products to fill
customer orders. As of December 31, 2019 , we maintained inventories of $796.0
million , equivalent to approximately 43.6 days of sales.
Total debt as of December 31, 2019 was $2,714.5 million , consisting of senior
term loans, asset backed loans, senior unsecured notes, finance lease
obligations and short-term financing. We may from time to time repurchase our
debt or take other steps to reduce our debt or interest cost. These actions may
include open market repurchases, negotiated repurchases or opportunistic
refinancing of debt. The amount of debt, if any, that may be repurchased or
refinanced will depend on market conditions, trading levels of our debt, our
cash position, compliance with debt covenants and other considerations. Refer to
"Note 18: Debt" in Item 8 of this Annual Report on Form 10-K for further
information.
Our defined benefit pension plans had an underfunded status of $234.4 million
and $212.4 million as of December 31, 2019 and 2018, respectively. Based on
current projections of minimum funding requirements, we expect to make cash
contributions of $22.9 million to our defined benefit pension plans in 2020. The
timing for any such requirement in future years is uncertain given the implicit
uncertainty regarding the future developments of factors described in "Risk
Factors" in Item 1A of this Annual Report on Form 10-K.
As a result of the 2017 US Tax Act, the Company recorded in 2017 a one-time
Section 965 repatriation tax of $76.5 million . After offsetting allowable tax
credits, we elected to pay the remaining balance of $14.9 million over eight
years, of which $9.2 remains at December 31, 2019 .
We expect our 2020 capital expenditures for maintenance, safety and cost
improvements and investments in our digital capabilities to be approximately
$120 million to $130 million . Interest payments for 2020 are expected to be $115
million to $130 million . We expect to fund our capital expenditures and our
interest payments with cash from operations or cash on hand.
We believe funds provided by our primary sources of liquidity will be adequate
to meet our liquidity and capital resource needs for at least the next 12 months
under current operating conditions.
Cash Flows
The following table presents a summary of our cash flow activity:
Year Ended December 31,
(in millions) 2019 2018 2017
Net cash provided by operating activities$ 363.9 $ 289.9 $ 282.6 Net cash used by investing activities (433.1) (99.0)
(79.1)
Net cash provided (used) by financing activities 295.2 (518.3)
(112.4)
Year EndedDecember 31, 2019 Compared to Year EndedDecember 31, 2018 Cash Provided by Operating Activities Cash provided by operating activities increased$74.0 million to$363.9 million for the year endedDecember 31, 2019 from$289.9 million for the year endedDecember 31, 2018 . The increase is primarily due to changes in trade working capital and prepaid expenses and other current assets, partially offset by changes in net income, exclusive of non-cash items. The change in net income, exclusive of non-cash items, provided net cash outflows of$238.4 million related to reduced cash inflows when compared to the change in the prior year. Net income, exclusive of non-cash items, provided net cash inflows of$150.0 million and$388.4 million for the years endedDecember 31, 2019 andDecember 31, 2018 , respectively. 28 -------------------------------------------------------------------------------- Table of Contents The change in trade working capital, which includes trade accounts receivable, net, inventories, and trade accounts payable, provided net cash inflows of$233.5 million when compared to the change in the prior year. Trade working capital provided cash inflows of$195.1 million for the year endDecember 31, 2019 compared to cash outflows of$38.4 million for the year endedDecember 31, 2018 . Cash inflows from trade accounts receivable, net is attributable to improvements in the timing of customer payments and reduced sales volumes, excluding acquisitions, during the current year. Inventory cash inflows on a year-over-year basis are primarily related to reductions in theUSA segment inventories due to reduced sales volumes and favorable supplier partner pricing. The year-over-year cash outflows related to trade accounts payable are primarily attributable to decreased inventory purchases in the current year. The change in prepaid expenses and other current assets is primarily due to payment timing differences and favorable changes in expected product returns from customers. The change in pension and other postretirement benefit liabilities is primarily due to unfavorable changes in actuarial valuations, partially offset by favorable changes in expected returns on plan assets. Cash Used by Investing Activities Cash used by investing activities increased$334.1 million to$433.1 million for the year endedDecember 31, 2019 from$99.0 million for the year endedDecember 31, 2018 . The increase is primarily related to the acquisition of the Nexeo business in 2019, net of the proceeds received for the sale and dispositions of Nexeo Plastics and the Environmental Sciences business. In 2018, the Company acquired Earthoil andKemetyl . Refer to "Note 3: Business combinations" and "Note 4: Discontinued operations and dispositions" in Item 8 of this Annual Report on Form 10-K for additional information related to the Company's acquisitions and dispositions. Cash Provided (Used) by Financing Activities Cash provided (used) by financing activities increased$813.5 million to cash provided of$295.2 million for the year endedDecember 31, 2019 from cash used of$518.3 million for the year endedDecember 31, 2018 . The increase in financing cash flows is primarily due to raising additional debt to finance theFebruary 2019 Nexeo acquisition and debt refinancing activities that occurred during the fourth quarter of 2019. The increase in financing activities were partially offset by increased debt repayments primarily due to the sale of Nexeo Plastics, where proceeds were used to pay down debt, and 2019 fourth quarter refinancing activities. Refer to "Note 18: Debt" in Item 8 of this Annual Report on Form 10-K for additional information related to the Company's debt. Contractual Obligations and Commitments Our contractual obligations and commitments as ofDecember 31, 2019 are as follows: Payment Due by Period (in millions) Total 2020
2021 - 2022 2023 - 2024 Thereafter Short-term financing (1)
$ 0.7 $ 0.7
$ - $ - $ - Finance leases
74.6 22.6 34.6 11.1 6.3
Long-term debt, including current
maturities (1) 2,668.9 4.0 138.9 1,646.0 880.0
Interest (2) 560.4 111.7 204.5 159.9 84.3
Minimum operating lease payments 185.2 53.6 73.1 33.8 24.7
Estimated environmental liability payments
(3) 84.3 25.0 19.1 12.9 27.3
2017 US repatriation tax 9.2 - 2.5 6.7 -
Other (4) 112.6 54.6 28.0 30.0 -
Total (5) $ 3,695.9 $ 272.2 $ 500.7 $ 1,900.4 $ 1,022.6
(1)See "Note 18: Debt" in Item 8 of this Annual Report on Form 10-K for
additional information.
(2)Interest payments on debt are calculated for future periods using interest
rates in effect as of December 31, 2019 and obligations on that date. Projected
interest payments include the related effects of interest rate swap agreements.
Certain of these projected interest payments may differ in the future based on
changes in floating interest rates, foreign currency fluctuations or other
factors or events.
(3)Included in the less than one year category is $11.7 million related to
environmental liabilities for which the timing is uncertain. The timing of
payments is unknown and could differ based on future events. For more
information see "Note 21: Commitments and contingencies" in Item 8 of this
Annual Report on Form 10-K.
(4)Commitments related to capital expenditures and other contractual
obligations.
(5)This table excludes our pension and postretirement medical benefit
obligations. Based on current projections of minimum funding requirements, we
expect to make cash contributions of $22.9 million to our defined benefit
pension plans in the year ended December 31, 2020 . The timing for any such
requirement in future years is uncertain given the implicit uncertainty
regarding the future developments of factors described in "Risk Factors" in
Item 1A of this Annual Report on Form 10-K and "Note 11: Employee benefit plans"
in Item 8 of this Annual Report on Form 10-K.
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We expect that we will be able to fund our remaining obligations and commitments
with cash flow from operations. To the extent we are unable to fund these
obligations and commitments with cash flow from operations; we intend to fund
these obligations and commitments with proceeds from available borrowing
capacity under our New Senior ABL Facility or under future financings.
Off-Balance Sheet Arrangements
With the exception of letters of credit, we had no material off-balance sheet
arrangements as of December 31, 2019 .
Critical Accounting Estimates
Preparation of our financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses. Actual results may differ from these estimates under
different assumptions or conditions.
Our significant accounting policies are described in "Note 2: Significant
accounting policies" in Item 8 of this Annual Report on Form 10-K. We consider
an accounting estimate to be critical if that estimate requires that we make
assumptions about matters that are highly uncertain at the time we make that
estimate and if different estimates that we could reasonably have used or
changes in accounting estimates that are reasonably likely to occur could
materially affect our consolidated financial statements. Our critical accounting
estimates are as follows:
Goodwill
We perform an annual impairment assessment of goodwill at the reporting unit
level as of October 1 of each year, or more frequently if indicators of
potential impairment exist. The analysis may include both qualitative and
quantitative factors to assess the likelihood of an impairment. The reporting
unit's carrying value used in an impairment test represents the assignment of
various assets and liabilities, excluding certain corporate assets and
liabilities, such as cash, investments, and debt.
Qualitative factors include industry and market considerations, overall
financial performance, and other relevant events and factors affecting the
reporting unit. Additionally, as part of this assessment, we may perform a
quantitative analysis to support the qualitative factors above by applying
sensitivities to assumptions and inputs used in measuring a reporting unit's
fair value.
Our quantitative impairment test considers both the income approach and the
market approach to estimate a reporting unit's fair value. Significant estimates
include forecasted EBITDA, market segment growth rates, estimated costs, and
discount rates based on a reporting unit's weighted average cost of capital
("WACC"). The use of different assumptions, estimates or judgments could
significantly impact the estimated fair value of a reporting unit, and
therefore, impact the excess fair value above carrying value of the reporting
unit.
We test the reasonableness of the inputs and outcomes of our discounted cash
flow analysis against available market data. In the current year, the fair value
of the Canada reporting unit, exceeded the carrying value by 11 percent. Key
assumptions in our goodwill impairment test include an 11 percent estimated WACC
for the Canada business and a residual growth rate of 2.5 percent. A 100 basis
point change in the discount rate and a terminal growth assumption of zero would
not have reduced the fair values of the Canada reporting unit below carrying
value. The fair value for all other reporting units substantially exceeds their
carrying value.
Business Combinations
We allocate the purchase price paid for assets acquired and liabilities assumed
in connection with our acquisitions based on their estimated fair values at the
time of acquisition. This allocation involves a number of assumptions,
estimates, and judgments in determining the fair value, as of the acquisition
date, of the following:
•intangible assets, including the valuation methodology, estimations of future
cash flows, discount rates, recurring revenues attributed to customer
relationships, and our assumed market segment share, as well as the estimated
useful life of intangible assets;
•deferred tax assets and liabilities, uncertain tax positions, and tax-related
valuation allowances;
•inventory; property, plant and equipment; pre-existing liabilities or legal
claims; and
•goodwill as measured as the excess of consideration transferred over the net of
the acquisition date fair values of the assets acquired and the liabilities
assumed.
Our assumptions and estimates are based upon comparable market data and
information obtained from our management and the management of the acquired
companies. We allocate goodwill to the reporting units of the business that are
expected to benefit from the business combination.
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Purchase Accounting for the Nexeo Solutions Acquisition
Our acquisition of Nexeo Solutions in 2019 was accounted for with ASC Topic 805,
Business Combinations, as amended. As of December 31, 2019 , the allocation of
the purchase price to the acquired assets and assumed liabilities was considered
preliminary. See "Note 3: Business combinations" in Item 8 of this Annual Report
on Form 10-K for additional information.
Determining the fair value of assets acquired and liabilities assumed requires
management's judgment, and we utilized an independent valuation expert in the
valuation of the tangible and intangible assets. Critical estimates used in
valuing tangible and intangible assets include, but are not limited to, future
expected cash flows, discount rates, market prices and asset lives. The
valuation of customer relationships utilized an income approach, using an excess
earnings methodology. Additionally, the total recurring revenue attributable to
the customer relationship was based upon the relative split between specialty
and commodity chemicals. Key assumptions used in the business enterprise
valuation include the forecasted cash flows discounted using the WACC, which
reflects the macroeconomic, industry and geographic factors of the risk of
achieving the forecasted cash flows, and ranged from 10.5 percent to 19.0
percent, depending on the country.
Environmental Liabilities
We recognize environmental liabilities for probable and reasonably estimable
losses associated with environmental remediation. The estimated environmental
liability includes incremental direct costs of investigations, remediation
efforts and post-remediation monitoring. The total environmental reserve at
December 31, 2019 and 2018 was $78.7 million and $83.5 million , respectively.
See "Note 21: Commitments and contingencies" in Item 8 of this Annual Report on
Form 10-K.
Our environmental reserves are subject to numerous uncertainties that affect our
ability to estimate our costs, or our share of costs if multiple parties are
responsible. These uncertainties involve the legal, regulatory and enforcement
parameters governing environmental assessment and remediation, the nature and
extent of contamination at these sites, the extent and cost of assessment and
remediation efforts required, our insurance coverage for these sites and, in the
case of sites with multiple responsible parties, the number and financial
strength of those parties. In addition, our determination as to whether a loss
is probable may change, particularly as new facts emerge as to the causes of
contamination. We evaluate each environmental site as new information and facts
become available and make adjustments to reserves based upon our assessment of
these factors, using technical experts, legal counsel and other specialists.
Defined Benefit Pension and Other Postretirement Obligations
We sponsor defined benefit pension plans in the US and other countries. The
accounting for these plans depends on assumptions made by management, which are
used by actuaries we engage to calculate the projected and accumulated benefit
obligations and the annual expense recognized for these plans. These assumptions
include discount rates, expected return on assets, mortality and retirement
rates and for certain plans, rates for compensation increases. Actual experience
different from those estimated assumptions can result in the recognition of
gains and losses in earnings as our accounting policy is to recognize changes in
the fair value of plan assets and each plan's projected benefit obligation in
the fourth quarter of each year (the "mark to market" adjustment), unless an
earlier remeasurement is required. For the year ended December 31, 2019 and
2018, we recorded a mark to market loss of $50.9 million and $34.9 million ,
respectively. See "Note 11: Employee benefit plans" in Item 8 of this Annual
Report on Form 10-K for additional information.
Due to the phasing out of benefits under our postretirement plans, changes in
assumptions have an immaterial effect on that obligation.
A change in the assumed discount rate and return on plan asset rate would have
the following effects:
Increase (decrease) in
2020 Net Benefit 2019 Pension Benefit
(in millions) Percentage Change Cost Obligation
Discount rate 25 bps decrease $ (2.0) $ 51.4
Discount rate 25 bps increase 1.8 (48.4)
Expected return on plan assets 100 bps decrease 10.4 N/A
Expected return on plan assets 100 bps increase (10.4) N/A
Income Taxes
The Company is subject to income taxes in the jurisdictions in which it sells
products and earn revenues. We record income taxes under the asset and liability
method. Under this method, deferred tax assets and liabilities are recognized
based on the future tax consequences to temporary differences between the
financial statement carrying values of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to
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apply in the years in which the temporary differences are expected to be
recovered or paid. A reduction of the carrying values of deferred tax assets by
a valuation allowance is required if, based on the available evidence, it is
more likely than not that such assets will not be realized. In evaluating the
Company's ability to realize its deferred tax assets, in full or in part, the
Company considered all available positive and negative evidence, including its
past operating results, forecasted and appropriate character of future taxable
income, the duration of statutory carryforward periods, our experience with
operating loss and tax credit carryforwards not expiring unused and feasible tax
strategies. The Company has a valuation allowance on certain deferred tax
assets, primarily related to foreign tax credits, net operating loss carry
forwards and deferred interest.
Effective in 2018, the Company is subject to global intangible low tax income
("GILTI"), which is a tax on foreign income in excess of a deemed return on
tangible assets of foreign corporations. We elect to treat taxes due on future
US inclusions in taxable income related to GILTI as a current-period expense
when incurred and during the year ended December 31, 2019 and 2018, we recorded
$22.8 million and $19.9 million , respectively, due to the impact of GILTI.
Recently Issued Accounting Pronouncements
See "Note 2: Significant accounting policies" in Item 8 of this Annual Report on
Form 10-K.
Non-GAAP Financial Measures
We monitor the results of our reportable segments separately for the purposes of
making decisions about resource allocation and performance assessment. We
evaluate performance using Adjusted EBITDA. We define Adjusted EBITDA as
consolidated net (loss) income, plus the sum of net income from discontinued
operations, net interest expense, income tax expense, depreciation,
amortization, impairment charges, loss on extinguishment of debt, other
operating expenses, net, and other expense, net (see "Note 6: Other operating
expenses, net" and "Note 8: Other expense, net" in Item 8 of this Annual Report
on Form 10-K for additional information), and in 2019, inventory step-up
adjustment and Brazil VAT recovery. For a reconciliation of the non-GAAP
financial measures to its most comparable GAAP measure, see below and "Analysis
of Segment Results" within this Item and for a reconciliation of net (loss)
income to Adjusted EBITDA, the most comparable measure calculated in accordance
with GAAP, see "Note 23: Segments" to our consolidated financial statements in
Item 8 of this Annual Report on Form 10-K.
We believe that other financial measures that do not comply with US GAAP provide
relevant and meaningful information concerning the ongoing operating results of
the Company. These financial measures include gross profit (exclusive of
depreciation), adjusted gross profit (exclusive of depreciation), gross margin,
adjusted gross margin and Adjusted EBITDA margin. We define these financial
measures as follows:
•Gross profit (exclusive of depreciation): net sales less cost of goods sold
(exclusive of depreciation);
•Adjusted gross profit (exclusive of depreciation): net sales less cost of goods
sold (exclusive of depreciation) plus inventory step-up adjustment and Brazil
VAT recovery;
•Gross margin: gross profit (exclusive of depreciation) divided by external
sales on a segment level and by net sales on a consolidated level;
•Adjusted gross margin: adjusted gross profit (exclusive of depreciation)
divided by external sales on a segment level and by net sales on a consolidated
level; and
•Adjusted EBITDA margin: Adjusted EBITDA divided by external sales on a segment
level and by net sales on a consolidated level.
Management believes Adjusted EBITDA, Adjusted EBITDA margin, gross profit
(exclusive of depreciation), adjusted gross profit (exclusive of depreciation),
gross margin and adjusted gross margin are important measures in assessing
operating performance. The non-GAAP financial measures are included as a
complement to results provided in accordance with GAAP because management
believes these non-GAAP financial measures help investors' ability to analyze
underlying trends in the Company's business, evaluate its performance relative
to other companies in its industry and provide useful information to both
management and investors by excluding certain items that may not be indicative
of the Company's core operating results. Additionally, the Company uses Adjusted
EBITDA in setting performance incentive targets to align management compensation
measurement with operational performance. Adjusted EBITDA, Adjusted EBITDA
margin, gross profit (exclusive of depreciation), adjusted gross profit
(exclusive of depreciation), gross margin and adjusted gross margin are not
measures calculated in accordance with GAAP and should not be considered a
substitute for net income or any other measure of financial performance
presented in accordance with GAAP. Additionally, other companies may calculate
Adjusted EBITDA differently than we do, limiting its usefulness as a comparative
measure.
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The following is a quantitative reconciliation of Adjusted EBITDA to the most
directly comparable GAAP financial performance measure, which is net (loss)
income:
Year ended December 31,
(in millions) 2019 2018 2017 2016 2015
Net (loss) income $ (100.2) $ 172.3 $ 119.8 $ (68.4) $ 16.5
Net (income) loss from discontinued
operations (5.4) - - - -
Depreciation and amortization 214.7 179.5 200.4 237.9 225.0
Interest expense, net 139.5 132.4 148.0 159.9 207.0
Income tax expense (benefit) from continuing
operations 104.5 49.9 49.0 (11.2) 10.2
EBITDA $ 353.1 $ 534.1 $ 517.2 $ 318.2 $ 458.7
Acquisition and integration related expenses 152.1 22.0 3.1 5.5 7.1
Saccharin legal settlement 62.5 - - - -
(Gain) loss on sale of business, property,
plant and equipment and other assets (1) (51.3) 2.0 (11.3) (0.7) (2.8)
Pension mark to market loss (2) 50.4 34.2 3.8 68.6 21.1
Pension curtailment and settlement gains (2) (1.3) - (9.7) (1.3) (4.0)
Non-operating retirement benefits (2) (2.2) (11.0) (9.9) (15.3) (26.8)
Restructuring, employee severance and other
facility closure costs (3) 40.9 21.2 13.6 8.0 33.8
Stock-based compensation expense 25.1 20.7 19.7 10.4 7.5
Loss (gain) on undesignated derivative
contracts (6) 26.7 (1.1) 1.9 (8.3) 10.7
Loss on extinguishment of debt and debt
refinancing costs (4) 21.0 0.1 9.1 - 28.6
Brazil VAT recovery (8.3) - - - -
Foreign currency (gains) losses (6) (7.4) 7.5 22.5 14.3 (8.1)
Impairment charges (5) 7.0 - - 133.9 -
Inventory step-up adjustment 5.3 - - - -
Other operating and non-operating expenses
(3)(6) 30.6 10.7 10.4 8.7 18.5
Business transformation costs - - 23.4 5.4 -
Contract termination and advisory fees to CVC
& CD&R - - - - 29.0
Adjusted EBITDA $ 704.2 $ 640.4 $ 593.8 $ 547.4 $ 573.3
(1)Refer to the consolidated statement of operations and "Note 6: Other
operating expenses, net" in Item 8 of this Annual Report on Form 10-K for more
information.
(2)Represents charges or gains recorded for both the defined benefit pension and
other postretirement benefit plans ("The Plans"). The Plans' mark to market loss
is measured and recognized in its entirety within the statement of operations
annually on December 31 and results from changes in actuarial assumptions and
plan experience between the prior and current measurement dates, as well as the
difference between the expected return on plan assets and the actual return on
plan assets. For 2019, the pension mark to market loss of $50.4 million reflects
a measurement loss of $169.1 million resulting from changes since the prior
measurement date in actuarial assumptions and plan experience, offset by the
difference between the expected and actual return on plan assets of $118.7
million attributable to the performance of plan assets during 2019. See "Note
11: Employee benefit plans" in Item 8 of this Annual Report on Form 10-K for
additional information on pension mark to market loss, pension curtailment and
settlement gains and non-operating retirement benefits.
(3)Refer to "Note 6: Other operating expenses, net" in Item 8 of this Annual
Report on Form 10-K for more information.
(4)Refer to the consolidated statement of operations and "Note 8: Other expense,
net" in Item 8 of this Annual Report on Form 10-K for more information.
(5)The 2016 impairment charges primarily related to the impairment of intangible
assets and property, plant and equipment. See "Note 16: Impairment charges" in
Item 8 on this Annual Report on Form 10-K for further information regarding the
year ended December 31, 2019 .
(6)Refer to "Note 8: Other expense, net" in Item 8 of this Annual Report on Form
10-K for more information.
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