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Dynamic quotes 
OFFON

SEALED AIR CORPORATION

(SEE)
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SEALED AIR CORP/DE Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

11/02/2021 | 03:40pm EST
The information in our Management's Discussion and Analysis of Financial
Condition and Results of Operations ("MD&A") should be read together with our
Condensed Consolidated Financial Statements and related notes set forth in
Item 1 of Part I of this Quarterly Report on Form 10-Q, our MD&A set forth in
Item 7 of Part II of our 2020 Form 10-K and our Consolidated Financial
Statements and related notes set forth in Item 8 of Part II of our 2020 Form
10-K. See "Cautionary Notice Regarding Forward-Looking Statements," above, and
the information referenced therein, for a description of risks that we face and
important factors that we believe could cause actual results to differ
materially from those in our forward-looking statements. All amounts and
percentages are approximate due to rounding and all dollars are in millions,
except per share amounts or where otherwise noted. When we cross-reference to a
"Note," we are referring to our "Notes to Condensed Consolidated Financial
Statements," unless the context indicates otherwise.
Recent Events and Trends

Supply Chain Disruptions and Raw Material Price Increases
Throughout 2021, the Company has experienced supply chain disruptions and sharp
raw material price increases resulting from various factors including general
inflationary pressure, limited availability of certain raw materials, global
transportation disruptions and natural disasters such as Winter Storm Uri in
February 2021. In addition to higher raw material costs, we have incurred higher
freight costs associated with the sourcing and movement of raw materials due to
overall tight market conditions. As a result, cost of sales increased from 67.3%
of sales to 71.3% of sales during the three months ended September 30, 2021, as
compared to the prior year.
The Company has implemented price increases throughout the year. The associated
timing lag on these increases and formula-based pricing has resulted in
compressed gross margins (defined as the gross profit divided by net sales)
during the three and nine months ended September 30, 2021. Our formula-based
pricing lags raw material cost movement by approximately six months.
Approximately one-third of Food's sales are subject to formula-based pricing,
predominantly within the Americas and APAC. Formula-based pricing does not
comprise a significant portion of sales in our Protective segment.
We continue to work closely with our customers and have been leveraging our
global supply network and supplier relationships and implementing material
substitution where available to meet customers' demands and mitigate supply
continuity risks. However, the current environment continues to negatively
impact the price and supply of certain raw materials. Additionally, the supply
disruptions may result in longer lead times for some of our customers, the loss
and/or delay of sales, or the inability to fulfill customer orders. Any of these
developments may have a material adverse impact on our consolidated financial
condition, results of operations, or cash flows.
Refer to Part I, Item 1A, "Risk Factors," in our Annual Report on Form 10-K for
the fiscal year ended December 31, 2020 for information concerning operational
risks, including customer responses to price increases, raw material pricing and
availability.
Impact of COVID-19
Our diverse end-markets and geographies continue to experience varying degrees
of impact from COVID-19. The food service market, including restaurants,
entertainment venues and hotels, experienced higher activity in third quarter
2021 as compared to the prior year when it was more adversely impacted by
government mandated shut-downs and social distancing measures. This has resulted
in year-over-year volume growth for many of our products that support this
market. Protective has experienced year-over-year volume increases in industrial
segments as economies continued to reopen and certain sectors of the economy
rebounded strongly. However, the environment remains volatile, and we cannot
predict the future impact on the market segments we serve.
We cannot predict the impact on the markets we serve due to the continued impact
of the COVID-19 pandemic or future restrictions on commercial activities by
governmental agencies to limit the spread of the virus, including new variants.
Future developments of the pandemic, including disparity in areas of significant
regional spread compared to areas with higher vaccination availability and
rates, may cause uneven impacts to our geographies around the world.
Non-U.S. GAAP Information
We present financial information that conforms to U.S. GAAP. We also present
financial information that does not conform to U.S. GAAP, as our management
believes it is useful to investors. In addition, non-U.S. GAAP financial
measures
                                       39
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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-U.S. 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-U.S.
GAAP information does not purport to represent any similarly titled U.S. GAAP
information and is not an indicator of our performance under U.S. GAAP.
Investors are cautioned against placing undue reliance on these non-U.S. GAAP
financial measures. Further, investors are urged to review and consider
carefully the adjustments made by management to the most directly comparable
U.S. GAAP financial measure to arrive at these non-U.S. GAAP financial measures,
described below.
The non-U.S. GAAP financial metrics exclude certain specified items ("Special
Items"), including restructuring charges and restructuring associated costs,
certain transaction and other charges related to acquisitions and divestitures,
gains and losses related to acquisitions and divestitures, special tax items or
tax benefits (collectively, "Tax Special Items") 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-U.S. GAAP financial measures considers both the quantitative and qualitative
aspects of the item, including among other things (i) its nature, (ii) whether
or not it relates to our ongoing business operations, and (iii) whether or not
we expect it to occur as part of our normal business on a regular basis.
When we present non-U.S. GAAP forward-looking guidance, we do not also provide
guidance for the most directly comparable U.S. GAAP financial measures, as they
are not available without unreasonable effort due to the high variability,
complexity, and low visibility with respect to certain Special Items, including
gains and losses on the disposition of businesses, the ultimate outcome of
certain legal or tax proceedings, foreign currency gains or losses resulting
from the volatile currency market in Argentina, and other unusual gains and
losses. These items are uncertain, depend on various factors, and could be
material to our results computed in accordance with U.S. GAAP.

Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA is defined as Earnings before Interest Expense, Taxes,
Depreciation and Amortization, adjusted to exclude the impact of Special Items.
Management uses Adjusted EBITDA as one of many measures to assess the
performance of the business. Additionally, Adjusted EBITDA of the segments is
the performance metric used by the Company's chief operating decision maker to
evaluate performance of our reportable segments. Adjusted EBITDA is also a
metric used to determine performance in the Company's Annual Incentive Plan. We
do not believe there are estimates underlying the calculation of Adjusted
EBITDA, other than those inherent in our U.S. GAAP results of operations, which
would render the use and presentation of Adjusted EBITDA misleading. While the
nature and amount of individual Special Items vary from period to period, we
believe our calculation of Adjusted EBITDA is applied consistently to all
periods and, in conjunction with other U.S. GAAP and non-U.S. GAAP financial
measures, Adjusted EBITDA provides a useful and consistent comparison of our
Company's performance to other periods.
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The following table shows a reconciliation of U.S. GAAP Net Earnings from continuing operations to non-U.S. GAAP Consolidated Adjusted EBITDA from continuing operations:

                                                          Three Months Ended                      Nine Months Ended
                                                            September 30,                           September 30,
(In millions)                                           2021                2020               2021                2020
Net earnings from continuing operations           $    107.8             $  131.8          $    322.2          $   346.6
Interest expense, net                                   42.4                 43.0               127.6              130.7
Income tax provision                                    46.6                 17.4               147.0               94.7
Depreciation and amortization                           55.2                 56.2               170.3              161.1
Special Items:
Restructuring charges                                    2.4                  1.0                 4.5               11.7
Other restructuring associated costs(1)                  5.4                  7.2                15.5               15.0
Foreign currency exchange loss due to
highly inflationary economies                            0.9                  1.1                 2.9                3.2
Loss on debt redemption and refinancing
activities                                              14.7                    -                14.7                  -
Increase in fair value of equity investment             (6.6)                   -                (6.6)                 -
Charges related to acquisition and
divestiture activity                                     0.8                  1.0                 1.9                5.1

Other Special Items                                      1.0                  0.6                 1.9                4.3
Pre-tax impact of Special Items                         18.6                 10.9                34.8               39.3
Non-U.S. GAAP Consolidated Adjusted EBITDA
from continuing operations                        $    270.6             $  259.3          $    801.9          $   772.4




(1)Restructuring associated costs for the three months ended September 30, 2021
primarily relate to fees paid to third-party consultants in support of the
Reinvent SEE business transformation. Restructuring associated costs for the
nine months ended September 30, 2021 also includes a one-time, non-cash CTA loss
recognized due to the wind-up of one of our legal entities. Restructuring
associated costs for the three and nine months ended September 30, 2020
primarily relate to fees paid to third-party consultants in support of the
Reinvent SEE business transformation.

The Company may also assess performance using Adjusted EBITDA Margin. Adjusted
EBITDA Margin is calculated as Adjusted EBITDA divided by net trade sales. We
believe that Adjusted EBITDA Margin is a useful measure to assess the
profitability of sales made to third parties and the efficiency of our core
operations.
Adjusted Net Earnings and Adjusted Earnings Per Share
Adjusted Net Earnings and Adjusted Earnings Per Share ("Adjusted EPS") are also
used by the Company to measure total company performance. Adjusted Net Earnings
is defined as U.S. GAAP net earnings from continuing operations excluding the
impact of Special Items. Adjusted EPS is defined as our Adjusted Net Earnings
divided by the number of diluted shares outstanding. We believe that Adjusted
Net Earnings and Adjusted EPS are useful measurements of Company performance,
along with other U.S. GAAP and non-U.S. GAAP financial measures, because they
incorporate non-cash items of depreciation and amortization, including
stock-based compensation, which impact the overall performance and net earnings
of our business. Additionally, Adjusted Net Earnings and Adjusted EPS reflect
the impact of our Adjusted Tax Rate and interest expense on a net and per share
basis. While the nature and amount of individual Special Items vary from period
to period, we believe our calculation of Adjusted Net Earnings and Adjusted EPS
is applied consistently to all periods and, in conjunction with other U.S. GAAP
and non-U.S. GAAP financial measures, Adjusted Net Earnings and Adjusted EPS
provide a useful and consistent comparison of our Company's performance to other
periods.
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The following table shows a reconciliation of U.S. GAAP Net Earnings and Diluted Earnings per Share from continuing operations to Non-U.S. GAAP Adjusted Net Earnings and Adjusted EPS from continuing operations.

                                                                Three Months Ended September 30,                                                  

Nine Months Ended September 30,

                                                        2021                                          2020                                         2021                                          2020
(In millions, except per share
data)                                    Net Earnings            Diluted EPS           Net Earnings           Diluted EPS           Net Earnings            Diluted EPS           Net Earnings           Diluted EPS
U.S. GAAP net earnings and
diluted EPS from continuing
operations                            $    107.8               $       0.71          $       131.8          $       0.85          $    322.2              $       2.10          $       346.6          $       2.22
Special Items(1)                            22.1                       0.15                   (4.7)                (0.03)               50.7                      0.33                   12.2                  0.08
Non-U.S. GAAP adjusted net
earnings and adjusted diluted
EPS from continuing operations        $    129.9               $       0.86          $       127.1          $       0.82          $    372.9              $       2.43          $       358.8          $       2.30
Weighted average number of
common shares outstanding -
Diluted                                                               151.4                                        156.1                                         153.2                                        155.8




(1)Includes pre-tax Special Items, plus/less Tax Special Items and the tax
impact of Special Items as seen in the following calculation of non-U.S. GAAP
Adjusted income tax rate.
Adjusted Tax Rate
We also present our adjusted income tax rate ("Adjusted Tax Rate"). The Adjusted
Tax Rate is a measure of our U.S. GAAP effective tax rate, adjusted to exclude
the tax impact from the Special Items that are excluded from our Adjusted Net
Earnings and Adjusted EPS metrics as well as expense or benefit from any special
taxes or Tax Special Items. The Adjusted Tax Rate is an indicator of the taxes
on our core business. The tax circumstances and effective tax rate in the
specific countries where the Special Items occur will determine the impact
(positive or negative) to the Adjusted Tax Rate. While the nature and amount of
Tax Special Items vary from period to period, we believe our calculation of the
Adjusted Tax Rate is applied consistently to all periods and, in conjunction
with our U.S. GAAP effective income tax rate, the Adjusted Tax Rate provides a
useful and consistent comparison of the impact that tax expense has on our
Company's performance.
The following table shows our calculation of the non-U.S. GAAP Adjusted income
tax rate:
                                                            Three Months Ended                   Nine Months Ended
                                                              September 30,                        September 30,
(In millions)                                             2021              2020               2021              2020
U.S. GAAP Earnings before income tax provision
from continuing operations                            $   154.4          $  149.2          $   469.2          $  441.3
Pre-tax impact of Special Items                            18.6              10.9               34.8              39.3
Non-U.S. GAAP Adjusted Earnings before income
tax provision from continuing operations              $   173.0          $  

160.1 $ 504.0 $ 480.6


U.S. GAAP Income tax provision from continuing
operations                                            $    46.6          $   17.4          $   147.0          $   94.7
Tax Special Items(1)                                       (7.5)             12.6              (23.0)             18.0
Tax impact of Special Items(2)                              4.0               3.0                7.1               9.1
Non-U.S. GAAP Adjusted Income tax provision
from continuing operations                            $    43.1          $  

33.0 $ 131.1 $ 121.8


U.S. GAAP Effective income tax rate                        30.2  %           11.7  %            31.3  %           21.5  %
Non-U.S. GAAP Adjusted income tax rate                     24.9  %           20.6  %            26.0  %           25.3  %






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(1)For the nine months ended September 30, 2021, Tax Special Items reflect
legislative and administrative changes to enacted statues. For the nine months
ended September 30, 2020, Tax Special Items reflect net benefits from audit
settlements and the issuance of the GILTI regulations.
(2)The tax rate used to calculate the tax impact of Special Items is based on
the jurisdiction in which the item was recorded.
Constant Dollar Measures
In "Net Sales by Geographic Region," "Net Sales by Segment" and in some of the
discussions and tables that follow, we exclude the impact of foreign currency
translation when presenting net sales information, which we define as "constant
dollar." Changes in net sales excluding the impact of foreign currency
translation are non-U.S. GAAP financial measures. As a worldwide business, it is
important that we consider the effects of foreign currency translation when we
view our results and plan our strategies. Nonetheless, we cannot control changes
in foreign currency exchange rates. Consequently, when our management analyzes
our financial results including performance metrics such as sales, cost of sales
or selling, general and administrative expense, to measure the core performance
of our business, we may exclude the impact of foreign currency translation by
translating our current period results at prior period foreign currency exchange
rates. We also may exclude the impact of foreign currency translation when
making incentive compensation determinations. As a result, our management
believes that these presentations are useful internally and may be useful to
investors.
Refer to these specific tables presented later in our Management's Discussion
and Analysis of Financial Condition and Results of Operations for
reconciliations of these non-U.S. GAAP financial measures to their most directly
comparable U.S. GAAP measures.
Free Cash Flow
In addition to net cash provided by operating activities, we use free cash flow
as a useful measure of performance and an indication of the strength and ability
of our operations to generate cash. We define free cash flow as cash provided by
operating activities less capital expenditures (which is classified as an
investing activity). Free cash flow is not defined under U.S. GAAP. Therefore,
free cash flow should not be considered a substitute for net income or cash flow
data prepared in accordance with U.S. GAAP and may not be comparable to
similarly titled measures used by other companies. Free cash flow does not
represent residual cash available for discretionary expenditures, including
certain debt servicing requirements or non-discretionary expenditures that are
not deducted from this measure.
Refer to the specific tables presented later in our Management's Discussion and
Analysis of Financial Condition and Results of Operations under Analysis of
Historical Cash Flow for reconciliations of these non-U.S. GAAP financial
measures to their most directly comparable U.S. GAAP measures.
                                       43
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Highlights of Financial Performance
Below are the highlights of our financial performance for the three and nine
months ended September 30, 2021 and 2020:

                                                Three Months Ended                                         Nine Months Ended
                                                   September 30,                      %                      September 30,                      %
(In millions, except per share                2021                                                      2021
amounts)                                                         2020              Change                                  2020              Change
Net sales                                 $ 1,406.7          $ 1,237.2                13.7  %       $ 4,002.3          $ 3,562.3                12.4  %
Gross profit                              $   403.7          $   404.5                (0.2) %       $ 1,205.5          $ 1,184.9                 1.7  %
As a % of net sales                            28.7  %            32.7  %                                30.1  %            33.3  %
Operating profit                          $   201.3          $   194.5                 3.5  %       $   600.7          $   567.3                 5.9  %
As a % of net sales                            14.3  %            15.7  %                                15.0  %            15.9  %
Net earnings from continuing
operations                                $   107.8          $   131.8               (18.2) %       $   322.2          $   346.6                (7.0) %
(Loss) Gain on sale of discontinued
operations, net of tax                         (0.1)               2.2                      #             3.7               14.1               (73.8) %

Net earnings                              $   107.7          $   134.0               (19.6) %       $   325.9          $   360.7                (9.6) %
Basic:
Continuing operations                     $    0.72          $    0.85               (15.3) %       $    2.12          $    2.23                (4.9) %
Discontinued operations                           -               0.01                      #            0.03               0.09               (66.7) %
Net earnings per common share -
basic                                     $    0.72          $    0.86               (16.3) %       $    2.15          $    2.32                (7.3) %
Diluted:
Continuing operations                     $    0.71          $    0.85               (16.5) %       $    2.10          $    2.22                (5.4) %
Discontinued operations                           -               0.01                      #            0.03               0.09               (66.7) %
Net earnings per common share -
diluted                                   $    0.71          $    0.86               (17.4) %       $    2.13          $    2.31                (7.8) %
Weighted average numbers of common
shares outstanding:
Basic                                         149.9              155.5                                  151.8              155.2
Diluted                                       151.4              156.1                                  153.2              155.8
Non-U.S. GAAP Consolidated Adjusted
EBITDA from continuing
operations(1)                             $   270.6          $   259.3                 4.4  %       $   801.9          $   772.4                 3.8  %
Non-U.S. GAAP Adjusted EPS from
continuing operations(2)                  $    0.86          $    0.82                 4.9  %       $    2.43          $    2.30                 5.7  %




#  Denotes a variance greater than or equal to 100% or equal to or less than
(100)%.
(1)See "Non-U.S. GAAP Information" for a reconciliation of U.S. GAAP net
earnings from continuing operations to non-U.S. GAAP Consolidated Adjusted
EBITDA from continuing operations.
(2)See "Non-U.S. GAAP Information" for a reconciliation of U.S. GAAP net
earnings and diluted earnings per share from continuing operations to our
non-U.S. GAAP Adjusted Net Earnings and Adjusted EPS from continuing operations.
Foreign Currency Translation Impact on Condensed Consolidated Financial Results
Since we are a U.S.-domiciled company, we translate our foreign
currency-denominated financial results into U.S. dollars. Due to the changes in
the value of foreign currencies relative to the U.S. dollar, translating our
financial results from foreign currencies to U.S. dollars may result in a
favorable or unfavorable impact. Historically, the most significant currencies
that have impacted the translation of our condensed consolidated financial
results are the euro, the Australian dollar, the British pound, the Canadian
dollar, the Chinese Renminbi, the Mexican peso, the Brazilian real and the New
Zealand dollar.
The following table presents the approximate favorable (unfavorable) impact that
foreign currency translation had on our condensed consolidated financial results
from continuing operations:
                                       44
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                                                                  Three Months Ended           Nine Months Ended
(In millions)                                                     September 30, 2021          September 30, 2021
Net sales                                                       $              12.2          $             83.5
Cost of sales                                                                  (8.6)                      (59.4)
Selling, general and administrative expenses                                   (1.4)                      (10.9)
Net earnings                                                                    1.8                        10.7
Adjusted EBITDA                                                                 3.0                        16.2


Net Sales by Geographic Region The following table presents the components of the change in net sales by geographic region for the three and nine months ended September 30, 2021 compared with the same periods in 2020. In this section and in Net sales by Segment below, we present the change in net sales excluding the impact of foreign currency translation, a non-U.S. GAAP measure, which we define as "constant dollar." We believe using the constant dollar measure aids in the comparability between periods as it eliminates the volatility of changes in foreign currency exchange rates.

                                                                                          Three Months Ended September 30,
(In millions)                                   Americas(1)                            EMEA                              APAC                               Total
2020 Net sales                         $    794.2             64.2  %       $ 255.7             20.7  %       $ 187.3             15.1  %       $ 1,237.2            100.0  %

Price                                        86.6             10.9  %           9.3              3.6  %           1.1              0.6  %            97.0              7.8  %
Volume(2)                                    24.7              3.1  %          24.8              9.7  %          10.8              5.8  %            60.3              4.9  %

Total constant dollar
change (non-U.S. GAAP)                      111.3             14.0  %          34.1             13.3  %          11.9              6.4  %           157.3             12.7  %
Foreign currency translation                  1.9              0.3  %           5.2              2.1  %           5.1              2.7  %            12.2              1.0  %
Total change (U.S. GAAP)                    113.2             14.3  %          39.3             15.4  %          17.0              9.1  %           169.5             13.7  %

2021 Net sales                         $    907.4             64.5  %       $ 295.0             21.0  %       $ 204.3             14.5  %       $ 1,406.7            100.0  %

                                                                                          Nine Months Ended September 30,
(In millions)                                   Americas(1)                            EMEA                              APAC                               Total
2020 Net sales                         $  2,301.7             64.6  %       $ 741.1             20.8  %       $ 519.5             14.6  %       $ 3,562.3            100.0  %

Price                                       120.4              5.2  %          13.0              1.7  %           1.6              0.3  %           135.0              3.8  %
Volume(2)                                   116.1              5.1  %          75.5             10.2  %          29.9              5.8  %           221.5              6.2  %

Total constant dollar
change (non-U.S. GAAP)                      236.5             10.3  %          88.5             11.9  %          31.5              6.1  %           356.5             10.0  %
Foreign currency translation                 (2.9)            (0.2) %          49.1              6.7  %          37.3              7.1  %            83.5              2.4  %
Total change (U.S. GAAP)                    233.6             10.1  %         137.6             18.6  %          68.8             13.2  %           440.0             12.4  %

2021 Net sales                         $  2,535.3             63.3  %       $ 878.7             22.0  %       $ 588.3             14.7  %       $ 4,002.3            100.0  %





(1)As of January 1, 2021, we consolidated the reporting of the North America and
South America geographic regions, which are now collectively presented as
Americas. No changes were made to EMEA or APAC. This change has no impact on our
prior period consolidated results and is only the aggregation of the previously
bifurcated continents.
(2)Our volume reported above includes the net impact of changes in unit volume
as well as the period-to-period change in the mix of products sold.


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Net Sales by Segment
The following table presents the components of change in net sales by reportable
segment for the three and nine months ended September 30, 2021 compared with the
same periods in 2020.
                                                                              Three Months Ended September 30,
(In millions)                                         Food                              Protective                           Total Company
2020 Net sales                           $     704.6             57.0  %       $   532.6             43.0  %       $     1,237.2            100.0  %

Price                                           46.3              6.6  %            50.7              9.5  %                97.0              7.8  %
Volume(1)                                       40.2              5.7  %            20.1              3.8  %                60.3              4.9  %

Total constant dollar change
(non-U.S. GAAP)                                 86.5             12.3  %            70.8             13.3  %               157.3             12.7  %
Foreign currency translation                     6.3              0.9  %             5.9              1.1  %                12.2              1.0  %
Total change (U.S. GAAP)                        92.8             13.2  %            76.7             14.4  %               169.5             13.7  %

2021 Net sales                           $     797.4             56.7  %       $   609.3             43.3  %       $     1,406.7            100.0  %

                                                                               Nine Months Ended September 30,
(In millions)                                         Food                              Protective                           Total Company
2020 Net sales                           $   2,068.1             58.1  %       $ 1,494.2             41.9  %       $     3,562.3            100.0  %

Price                                           59.1              2.8  %            75.9              5.1  %               135.0              3.8  %
Volume(1)                                       65.9              3.2  %           155.6             10.4  %               221.5              6.2  %

Total constant dollar change
(non-U.S. GAAP)                                125.0              6.0  %           231.5             15.5  %               356.5             10.0  %
Foreign currency translation                    43.2              2.1  %            40.3              2.7  %                83.5              2.4  %
Total change (U.S. GAAP)                       168.2              8.1  %           271.8             18.2  %               440.0             12.4  %

2021 Net sales                           $   2,236.3             55.9  %       $ 1,766.0             44.1  %       $     4,002.3            100.0  %





(1)Our volume reported above includes the net impact of changes in unit volume
as well as the period-to-period change in the mix of products sold.
The following net sales discussion is on a reported and constant dollar basis.
Food
Three Months Ended September 30, 2021 Compared with the Same Period in 2020
As reported, net sales increased by $93 million, or 13%, in 2021 compared with
2020. Foreign currency had a positive impact of $6 million, or 1%. On a constant
dollar basis, net sales increased by $87 million, or 12%, compared with 2020,
primarily due to the following:
•favorable pricing of $46 million, primarily in the Americas, due to pricing
actions, including the impact of formula-based pricing, to offset rising input
costs. U.S. dollar-based indexed pricing in South America also contributed to
the favorable pricing impact; and
•higher volumes of $40 million, with increases across all regions, on higher
demand in food retail and the global food service industry.
Nine Months Ended September 30, 2021 Compared with the Same Period in 2020
As reported, net sales increased by $168 million, or 8%, in 2021 compared to
2020. Foreign currency had a positive impact of $43 million or 2%. On a constant
dollar basis, net sales increased by $125 million, or 6%, in 2021 as compared
with 2020, primarily due to the following:

                                       46
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•higher volumes of $66 million, with increases across all regions, primarily
driven by higher demand in the global food service industry compared to last
year and increased automated equipment sales; and
•favorable pricing of $59 million, due to pricing actions and the impact of
formula-based pricing to offset rising input costs. U.S. dollar-based indexed
pricing in South America also contributed to the favorable pricing impact.
Protective
Three Months Ended September 30, 2021 Compared with the Same Period in 2020
As reported, net sales increased by $77 million, or 14%, in 2021 as compared to
2020. Foreign currency had a positive impact of $6 million, or 1%. On a constant
dollar basis, net sales increased by approximately $71 million, or 13%, in 2021
compared with 2020, primarily due to the following:
•favorable pricing of $51 million, primarily in the Americas, due to pricing
actions to offset rising input costs; and
•higher volumes of $20 million, driven by EMEA and APAC on strong industrial
segment growth and continued growth in automated equipment sales.
Nine Months Ended September 30, 2021 Compared with the Same Period in 2020
As reported, net sales increased $272 million, or 18%, in 2021 as compared to
2020. Foreign currency had a positive impact of $40 million or 3%. On a constant
dollar basis, net sales increased by $232 million, or 15%, in 2021 compared with
2020, primarily due to the following:
•higher volumes of $156 million, with increases across all regions on higher
industrial segment demand, strength in automated equipment and continued
momentum in eCommerce; and
•favorable pricing of $76 million, primarily in the Americas, due to price
actions to offset rising input costs.
Cost of Sales
Cost of sales for the three and nine months ended September 30, 2021 and 2020
were as follows:
                                                    Three Months Ended                                                  Nine Months Ended
                                                       September 30,                          %                           September 30,                           %
(In millions)                                   2021                   2020                Change                 2021                    2020                 Change

Cost of sales                                    1,003.0                 832.7                20.5  %              2,796.8                 2,377.4                17.6  %
As a % of net sales                                 71.3  %               67.3  %                                     69.9  %                 66.7  %



Three Months Ended September 30, 2021 Compared with the Same Period in 2020
As reported, cost of sales increased by $170 million, or 20%, in 2021 compared
to 2020. Cost of sales was impacted by unfavorable foreign currency translation
of $9 million. As a percentage of net sales, cost of sales increased by 400
basis points, from 67.3% in 2020 to 71.3% in 2021, primarily due to higher input
costs resulting from raw material price increases and costs associated with
global supply chain disruptions. Higher input and freight costs were partially
offset by productivity improvements resulting from our Reinvent SEE business
transformation initiatives.
Nine Months Ended September 30, 2021 Compared with the Same Period in 2020
As reported, cost of sales increased by $419 million, or 18%, in 2021 as
compared to 2020. Cost of sales was impacted by unfavorable foreign currency
translation of $59 million. As a percentage of net sales, cost of sales
increased by 320 basis points, from 66.7% to 69.9%, primarily due to higher
input costs resulting from raw material price increases and costs associated
with global supply chain disruptions. Higher input and freight costs were
partially offset by productivity improvements resulting from our Reinvent SEE
business transformation initiatives.
                                       47
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Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") for the three and nine
months ended September 30, 2021 and 2020 were as follows:
                                              Three Months Ended                                      Nine Months Ended
                                                 September 30,                     %                    September 30,                     %
(In millions)                                2021              2020             Change              2021              2020             Change
Selling, general and
administrative expenses                  $   190.3          $ 199.3                (4.5) %       $  571.2          $ 577.9                (1.2) %

As a % of net sales                           13.5  %          16.1  %                               14.3  %          16.2  %


Three Months Ended September 30, 2021 Compared with the Same Period in 2020
As reported, SG&A expenses decreased by $9 million, or 5%, in 2021 compared to
2020. SG&A expenses were unfavorably impacted by foreign currency translation of
$1 million. On a constant dollar basis, SG&A expenses decreased by $10 million
or 5%. The decrease in SG&A expenses was primarily the result of lower employee
related expenses and benefits from actions associated with our Reinvent SEE
business transformation, which were partially offset by lower spend in the
comparable period due to COVID-19, including travel and entertainment expense.
Nine Months Ended September 30, 2021 Compared with the Same Period in 2020
As reported, SG&A expenses decreased by $7 million, or 1%, in 2021 as compared
to 2020. SG&A expenses were impacted by unfavorable foreign currency translation
of $11 million. On a constant dollar basis, SG&A expenses decreased by $18
million, or 3%. The decrease in SG&A expenses was primarily the result of lower
employee related expenses and benefits from actions associated with our Reinvent
SEE business transformation.
Amortization Expense of Intangible Assets
Amortization expense of intangible assets for the three and nine months ended
September 30, 2021 and 2020 was as follows:

                                              Three Months Ended                                         Nine Months Ended
                                                September 30,                        %                     September 30,                     %
(In millions)                             2021                   2020             Change               2021              2020             Change
Amortization expense of
intangible assets                     $    9.7                $   9.7                   -  %       $    29.1          $  28.0                 3.9  %

As a % of net sales                        0.7   %                0.8  %                                 0.7  %           0.8  %



 Three and Nine Months Ended September 30, 2021 Compared with the Same Period in
2020
Amortization expense of intangible assets was flat and increased $1 million for
the three and nine months ended September 30, 2021, respectively, compared to
the three and nine months ended September 30, 2020. The increase during the nine
months ended September 30, 2021 was primarily related to an increase in the
amortization of capitalized software.
Reinvent SEE Business Transformation and Restructuring Activities
See Note 11, "Restructuring Activities" for additional details regarding the
Company's restructuring programs discussed below.
In December 2018, the Sealed Air Board of Directors approved a three-year
restructuring program (the "Program") related to the Reinvent SEE business
transformation. For the nine months ended September 30, 2021, the Program
generated incremental cost benefits of $43 million related to reductions in
operating costs, of which $16 million was related to restructuring actions, and
$3 million was related to actions impacting price/cost spread. We expect the
Program to generate cost benefits of approximately $65 million in 2021 and
expect Program spend for the full year 2021 to be in the range of $30 million to
$40 million.
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For the three and nine months ended September 30, 2021, we recorded other
associated costs of $5 million and $16 million, respectively. The largest
component of the other associated costs recorded in the three and nine month
periods relates to third party fees in support of the Reinvent SEE business
transformation. Restructuring associated costs for the nine months ended
September 30, 2021 also includes a one-time, non-cash CTA loss recognized due to
the wind up of one of our legal entities. For the three and nine months ended
September 30, 2021, we recorded restructuring expense of $2 million and $5
million, respectively.
As we reach the end of our three-year restructuring program related to the
Reinvent SEE business transformation, we expect the capabilities and governance
processes established will translate well into our on-going continuous
improvement system, supporting our SEE Operating Model, which is rooted in
economic value add with the goal to drive profitable, above market organic
growth and attractive returns on invested capital.
The actual timing of future costs and cash payments related to the Program
described above are subject to change due to a variety of factors that may cause
a portion of the costs, spending and benefits to occur later than expected. In
addition, changes in foreign exchange rates may impact future costs, spending,
benefits and cost synergies.
Interest Expense, net
Interest expense, net includes the stated interest rate on our outstanding debt,
as well as the net impact of capitalized interest, interest income, the effects
of interest rate swaps and the amortization of capitalized senior debt issuance
costs and credit facility fees, bond discounts, and terminated treasury locks.
Interest expense, net for the three and nine months ended September 30, 2021 and
2020 was as follows:
                                                  Three Months Ended                                     Nine Months Ended
                                                    September 30,                                          September 30,
(In millions)                                    2021                2020           Change             2021               2020           Change
Interest expense on our various
debt instruments:
Term Loan A due August 2022               $      1.5               $  1.6   

$ (0.1) $ 4.6 $ 7.2 $ (2.6) Term Loan A due July 2023(1)

                     0.8                  0.9            (0.1)                2.5              4.0            (1.5)
Revolving credit facility due July
2023                                             0.4                  0.4               -                 1.1              1.1               -

4.875% Senior Notes due December
2022(1)                                          5.4                  5.4               -                16.2             16.2               -
5.25% Senior Notes due April 2023                5.8                  5.8               -                17.4             17.4               -
4.50% Senior Notes due September
2023                                             5.5                  5.5               -                16.6             15.7             0.9
5.125% Senior Notes due December
2024                                             5.6                  5.6               -                16.8             16.8               -
5.50% Senior Notes due September
2025                                             5.6                  5.6               -                16.8             16.8               -
1.573% Senior Secured Notes due
October 2026(1)                                    -                    -               -                   -                -               -
4.00% Senior Notes due December
2027                                             4.3                  4.4            (0.1)               13.1             13.1               -
6.875% Senior Notes due July 2033                7.8                  7.8               -                23.4             23.3             0.1
Other interest expense                           3.7                  3.5             0.2                10.3             11.3            (1.0)
Less: capitalized interest                      (2.0)                (1.2)           (0.8)               (5.2)            (4.4)           (0.8)
Less: interest income                           (2.0)                (2.3)            0.3                (6.0)            (7.8)            1.8
Total                                     $     42.4               $ 43.0          $ (0.6)         $    127.6          $ 130.7          $ (3.1)





(1)In September 2021, Sealed Air issued $600 million of 1.573% Senior Secured
Notes due October 2026. The proceeds were used to repurchase the Company's
4.875% Senior Notes due December 2022 and to repay the U.S. dollar tranche of
Term Loan A due 2023. See Note 12, "Debt and Credit Facilities," for further
details.
                                       49
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Other (Expense) Income, net
Loss on debt redemption and refinancing activities
In September 2021, Sealed Air issued $600 million of 1.573% Senior Secured Notes
due October 2026. A portion of the proceeds were used to repurchase the
Company's 4.875% Senior Notes due December 2022. As of September 30, 2021,
approximately 80% of the 4.875% Senior Notes due December 2022 were repurchased
through a tender offer. We recognized a $15 million pre-tax loss on the
transaction, primary driven by the tender offer consideration beyond the
principal amount of the notes tendered. During the fourth quarter 2021, the
Company expects to incur an additional $4 million expense upon satisfaction and
discharge of the remaining 4.875% Senior Notes due December 2022 that were
outstanding at September 30, 2021. See Note 12, "Debt and Credit Facilities,"
for further details.
Increase in fair value of equity investments
We hold strategic investments in other companies. These investments are
accounted for under the measurement alternative, described in ASC 321, for
equity investments that do not have readily determinable fair values. These
investments are measured at cost, less impairment, if any, plus or minus changes
resulting from observable price changes in orderly transactions for identical or
similar investments of the same issuer. We do not exercise significant influence
over these companies. For the nine months ended September 30, 2021, we recorded
an increase in the fair value of these investments of $7 million. The increase
in fair value was directly related to an additional round of equity issuance
from one investee, which occurred during the third quarter of 2021. We concluded
that this was an observable price change in an orderly transaction for a similar
investment of the same issuer. See Note 14, "Fair Value Measurements, Equity
Investments and Other Financial Instruments," for further details.
Brazil Tax Credits
In 2019, Cryovac Brasil Ltda., a Sealed Air subsidiary, received a decision from
the Brazilian court regarding a claim in which Sealed Air contended that certain
indirect taxes paid were calculated based on an incorrect amount. During the
second quarter of 2019, the Company recorded a benefit of $5 million as a result
of a filed return claim for the tax years of 2015 through 2018.
In 2021, the Supreme Court of Brazil issued a final decision that clarified the
methodology companies should use in the calculation. This decision was published
and certified by the courts during the third quarter 2021. As a result of the
court's actions, the Company recognized a benefit of $5 million primarily
related to recovery of tax years not previously claimed. The claims related to
indirect taxes will be used to offset future Brazilian indirect tax liabilities.
Net foreign exchange transaction (loss) gain
Foreign exchange transaction losses were less than $1 million for the nine
months ended September 30, 2021.
For the nine months ended September 30, 2020, we recorded $5 million in net
foreign exchange transaction gains as a result of volatile foreign currencies,
particularly in emerging markets relative to the U.S. dollar due to
macroeconomic conditions resulting from COVID-19.
See Note 20, "Other (Expense) Income, Net," for the remaining components of
other (expense) income, net.
Income Taxes
Our effective income tax rates for the three and nine months ended September 30,
2021 were 30% and 31%, respectively, both of which were negatively impacted by
legislative and administrative changes to foreign enacted statutes and
adjustments to uncertain tax positions.
Our effective income tax rates for the three and nine months ended September 30,
2020 were 12% and 22%, respectively. The effective income tax rate for the nine
months ended September 30, 2020 was positively impacted by the enactment of new
GILTI regulations and the effective settlement of certain uncertain tax
positions associated with the U.S. IRS audit for the tax years of 2011 through
2014.
Due to the uncertainty in projecting certain discrete items, it is possible that
our effective tax rate will change in future periods. The actual annual
effective tax rate could vary as a result of many factors, including but not
limited to the following:
                                       50
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•The actual mix of earnings by jurisdiction, which could fluctuate from the
Company's projection;
•The tax effects of other discrete items, including accruals related to tax
contingencies, the resolution of worldwide tax matters, tax audit settlements,
statute of limitations expirations and changes in tax regulations, which are
reflected in the period in which they occur; and
•Any future legislative changes, and any related additional tax optimization to
address these changes.
Our effective income tax rate depends upon the realization of our net deferred
tax assets. We have deferred tax assets related to accruals not yet deductible
for tax purposes, state and foreign net operating loss carryforwards and tax
credits, employee benefit items, intangible assets and other items.
The IRS completed its field examination of our U.S. federal income tax returns
for the years 2011 through 2014 in the third quarter of 2020. As previously
disclosed, the IRS has proposed to disallow for the 2014 taxable year the
entirety of the deduction of the approximately $1.49 billion in settlement
payments made pursuant to the Settlement agreement (as defined in Note 17,
"Commitments and Contingencies") and the resulting reduction of our U.S. federal
tax liability by approximately $525 million. We continue to believe that we have
meritorious defenses to the proposed disallowance and have filed a protest with
the IRS. The matter has been submitted to the IRS Independent Office of Appeals
for review of the proposed disallowance and we cannot predict when the Appeals
process will conclude, or the outcome of such process. It is possible that
future developments in this matter could have a material impact on the Company's
uncertain tax position balances and results of operations, including cash flows,
within the next twelve months.
We have established valuation allowances to reduce our deferred tax assets to an
amount that is more likely than not to be realized. Our ability to utilize our
deferred tax assets depends in part upon our ability to carryback any losses
created by the deduction of these temporary differences, the future income from
existing temporary differences, and the ability to generate future taxable
income within the respective jurisdictions during the periods in which these
temporary differences reverse. If we are unable to generate sufficient future
taxable income in the U.S. and certain foreign jurisdictions, or if there is a
significant change in the time period within which the underlying temporary
differences become taxable or deductible, we could be required to increase our
valuation allowances against our deferred tax assets. Conversely, if we have
sufficient future taxable income in jurisdictions where we have valuation
allowances, we may be able to reduce those valuation allowances.
There was no significant change in our valuation allowances for the three and
nine months ended September 30, 2021 and 2020.
We reported net increases of $7 million and $14 million, respectively, in
unrecognized tax positions for the three and nine months ended September 30,
2021, including adjustments to specific uncertain tax positions and interest
accruals on existing uncertain tax positions. We are not currently able to
reasonably estimate the amount by which the liability for unrecognized tax
positions may increase or decrease during the next 12 months, because of the
remaining items under IRS audit for those years. We reported a net decrease of
$2 million and $8 million respectively in unrecognized tax positions, for the
three and nine months ended September 30, 2020 primarily related to settlements
with tax authorities. Interest and penalties on tax assessments are included in
income tax expense.
Net Earnings from Continuing Operations
Net earnings for the three and nine months ended September 30, 2021 and 2020 are
included in the table below.

                                             Three Months Ended                                          Nine Months Ended
                                                September 30,                       %                      September 30,                      %
(In millions)                               2021                2020              Change               2021               2020             Change
Net earnings from continuing
operations                            $    107.8             $ 131.8                (18.2) %       $    322.2          $ 346.6                (7.0) %



Three Months Ended September 30, 2021 Compared with the Same Period in 2020
Net earnings in 2021 were unfavorably impacted by $22 million of Special Items,
which were largely due to loss on debt redemption and refinancing activities of
$15 million ($11 million, net of taxes) and restructuring and associated costs
of $8
                                       51
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million ($6 million, net of taxes) as well as one-time tax expenses ("Tax
Special Items") of $8 million, partially offset by an increase in the fair value
of an equity investment of $7 million ($5 million, net of taxes).
Net earnings in 2020 were favorably impacted by $5 million of Special Items,
which were largely due to the benefit of one-time net tax related benefits ("Tax
Special Items") of $13 million. Tax Special Items were partially offset by $11
million ($7 million, net of taxes) of non-tax related Special Items, the largest
of which was restructuring and other restructuring associated costs of $8
million ($6 million, net of taxes).
Nine Months Ended September 30, 2021 Compared with the Same Period of 2020
For the nine months ended September 30, 2021, net earnings were unfavorably
impacted by $51 million of Special Items. Special Items were primarily the
result of:
•$23 million of Tax Special Items including accruals for open items subject to
tax audits as well as legislative and administrative changes to foreign enacted
statues;
•$20 million ($15 million, net of taxes) of restructuring and associated costs
in support of the Reinvent SEE business transformation. Restructuring associated
costs in 2021 primarily relate to a one-time, non-cash CTA loss recognized due
to the wind-up of one of our legal entities as well as fees paid to third-party
consultants in support of the Reinvent SEE business transformation; and
•Loss on the repurchase of the Company's 4.875% Senior Notes due December 2022
of $15 million ($11 million, net of taxes).
These expenses were partially offset by an increase in the fair value of equity
investments of $7 million ($5 million, net of taxes) recorded on a SEE Ventures
portfolio company.
For the nine months ended September 30, 2020, net earnings were unfavorably
impacted by $12 million of Special Items. Special Items were primarily the
result of:
•$27 million ($20 million, net of taxes) of restructuring and associated costs
in support of the Reinvent SEE business transformation;
•$5 million ($4 million, net of taxes) in charges related to acquisition and
divestiture activities.
These expenses were partially offset by Tax Special Items, including the
resolution of specific uncertain tax positions, which benefited net earnings by
$18 million.
Adjusted EBITDA by Segment
The Company evaluates performance of the reportable segments based on the
results of each segment. The performance metric used by the Company's chief
operating decision maker to evaluate the performance of our reportable segments
is Segment Adjusted EBITDA. We allocate and disclose depreciation and
amortization expense to our segments, although depreciation and amortization are
not included in the segment performance metric Segment Adjusted EBITDA. We also
allocate and disclose restructuring and other charges and impairment of goodwill
and other intangible assets by segment, although they are not included in the
segment performance metric Segment Adjusted EBITDA since restructuring and other
charges and impairment of goodwill and other intangible assets are categorized
as Special Items. The accounting policies of the reportable segments and
Corporate are the same as those applied to the Condensed Consolidated Financial
Statements.
See "Non-U.S. GAAP Information" for a reconciliation of U.S. GAAP net earnings
from continuing operations to non-U.S. GAAP Consolidated Adjusted EBITDA from
continuing operations.

                                       52
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                                            Three Months Ended                                      Nine Months Ended
                                               September 30,                     %                    September 30,                      %
(In millions)                              2021              2020             Change              2021              2020              Change
Food Adjusted EBITDA                   $   169.4          $ 152.4                11.2  %       $  484.4          $ 477.8                   1.4  %
Adjusted EBITDA Margin                      21.2  %          21.6  %                               21.7  %          23.1  %
Protective Adjusted EBITDA                 102.7            108.7                (5.5) %          319.9            293.0                   9.2  %
Adjusted EBITDA Margin                      16.9  %          20.4  %                               18.1  %          19.6  %
Corporate Adjusted EBITDA                   (1.5)            (1.8)               16.7  %           (2.4)             1.6                (250.0) %
Non-U.S. GAAP Consolidated
Adjusted EBITDA                        $   270.6          $ 259.3                 4.4  %       $  801.9          $ 772.4                   3.8  %
Adjusted EBITDA Margin                      19.2  %          21.0  %                               20.0  %          21.7  %


The following is a discussion of the factors that contributed to the change in
Segment Adjusted EBITDA during the three and nine months ended September 30,
2021, as compared to the same periods in the 2020.
Food
Three Months Ended September 30, 2021 Compared with the Same Period in 2020
On a reported currency basis, Segment Adjusted EBITDA increased by $17 million
in 2021 compared to 2020. Segment Adjusted EBITDA was impacted by favorable
foreign currency translation of approximately $2 million. On a constant dollar
basis, Segment Adjusted EBITDA increased by $15 million, or 10%, in 2021
primarily as a result of:
•higher volumes and favorable product mix of $17 million due to strength across
the portfolio, driven by higher demand in both food retail and food service
industries;
•Reinvent SEE business transformation benefits of $13 million driven by actions
reducing operating costs, including restructuring savings of $2 million; and
•lower net operating costs of $1 million driven by lower employee related costs,
partially offset by inflationary pressures.
These increases were partially offset by unfavorable price/cost spread of $16
million driven by raw material inflation and higher freight costs, related to
supply chain disruptions.
Nine Months Ended September 30, 2021 Compared with the Same Period of 2020
On a reported currency basis, Segment Adjusted EBITDA increased by $7 million in
2021 as compared to 2020. Segment Adjusted EBITDA was impacted by favorable
foreign currency translation of $9 million. On a constant dollar basis, Segment
Adjusted EBITDA decreased by approximately $2 million, or less than 1%, in 2021
primarily as a result of:
•unfavorable price/cost spread of $50 million driven by raw material inflation
and higher freight costs, related to supply chain disruptions; and
•higher operating costs of $10 million, including inefficiencies associated with
supply chain disruptions and inflationary pressures.
These decreases were partially offset by:
•Reinvent SEE benefits of $31 million driven by actions reducing operating costs
by $29 million, including restructuring savings of $8 million, and improvements
to price/cost spread of $2 million; and
•higher volumes and favorable product mix of $27 million due to strength in
automated equipment sales and higher food service demand.
Protective
Three Months Ended September 30, 2021 Compared with the Same Period in 2020
On a reported currency basis, Segment Adjusted EBITDA decreased by $6 million in
2021 compared to 2020. Segment Adjusted EBITDA was impacted by favorable foreign
currency translation of $1 million. On a constant dollar basis, Segment Adjusted
EBITDA decreased by $7 million, or 6%, in 2021 primarily as a result of:
                                       53
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•higher operating costs of $13 million, including costs associated with supply
chain disruptions and inflation on labor and indirect manufacturing costs,
partially offset by lower employee related expenses; and
•unfavorable price/cost spread of approximately $3 million driven by raw
material inflation and higher freight costs.
These decreases were partially offset by:
•higher volumes of $7 million due to continued growth in industrial markets and
automated equipment sales; and
•Reinvent SEE business transformation benefits of $2 million, driven primarily
by restructuring savings.
Nine Months Ended September 30, 2021 Compared with the Same Period of 2020
On a reported currency basis, Segment Adjusted EBITDA increased by $27 million
in 2021 as compared to 2020. Segment Adjusted EBITDA was impacted by favorable
foreign currency translation of $8 million. On a constant dollar basis, Segment
Adjusted EBITDA increased by $19 million, or 6%, in 2021 primarily as a result
of:
•higher volumes of $59 million on strength in eCommerce, higher industrial
segment demand and increased automated equipment sales;
•Reinvent SEE benefits of $12 million, driven by actions reducing operating
costs, including restructuring savings of $9 million, and improvements to
price/cost spread of $1 million.
These increases were partially offset by:
•higher operating costs of $27 million, including costs associated with supply
chain disruptions and inflation on labor and indirect manufacturing costs; and
•unfavorable price/cost spread of approximately $25 million driven by raw
material inflation and higher freight costs.
Corporate
Three Months Ended September 30, 2021 Compared with the Same Period in 2020
In 2021, the impact of Corporate was essentially flat compared with the same
period in 2020.
Nine Months Ended September 30, 2021 Compared with the Same Period of 2020

The impact of Corporate represents an unfavorable change of $4 million in the
nine months ended September 30, 2021, primarily driven by foreign currency
transaction gains recorded in 2020.
Liquidity and Capital Resources
Principal Sources of Liquidity
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 existing lines of credit, including our senior secured
credit facility, and our accounts receivable securitization programs. Our
primary uses of cash are payments for operating expenses, investments in working
capital, capital expenditures, interest, taxes, stock repurchases, dividends,
debt obligations, restructuring expenses and other long-term liabilities. We
believe that our current liquidity position and future cash flows from
operations will enable us to fund our operations, including all of the items
mentioned above, in the next twelve months.
As of September 30, 2021, we had cash and cash equivalents of $394 million, of
which approximately $200 million, or 51%, was held outside of the U.S. We
believe our U.S. cash balances and committed liquidity facilities available to
U.S. borrowers are sufficient to fund our U.S. operating requirements and
capital expenditures, current debt obligations and dividends. The Company does
not expect that, in the near term, cash located outside of the U.S. will be
needed to satisfy our obligations, dividends and other demands for cash in the
U.S. In addition, an immaterial amount of our non-U.S. cash balance is deemed to
be trapped as of September 30, 2021.
On October 15, 2021, the Company used approximately $91 million of cash on hand
to satisfy and discharge the remaining amounts outstanding on the 4.875% Senior
Notes due 2022, in accordance with the terms of the indenture governing the
notes.
                                       54
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As of September 30, 2021, $475 million related to the Term Loan A due August
2022 has been classified as Current portion of long-term debt on the Condensed
Consolidated Balance Sheets, as the Term Loan is due within 12 months of the
balance sheet date. We believe our current liquidity and credit position and
future cash flows from operations will enable us to either satisfy our debt
obligations or to refinance the current portion of our indebtedness on
commercially reasonable terms.
Cash and Cash Equivalents
The following table summarizes our accumulated cash and cash equivalents:

(In millions)                   September 30, 2021       December 31, 2020
Cash and cash equivalents      $             393.7      $            548.7


See "Analysis of Historical Cash Flow" below.
Accounts Receivable Securitization Programs
At September 30, 2021, we had $140 million available to us under our U.S. and
European accounts receivable securitization programs and no outstanding
borrowings. At December 31, 2020, we had $146 million available to us under our
U.S. and Europeans programs and no outstanding borrowings. See Note 9, "Accounts
Receivable Securitization Programs" for further information concerning these
programs.
Our trade receivable securitization programs represent borrowings secured by
outstanding customer receivables. Therefore, the use and repayment of borrowings
under such programs are classified as financing activities in our Condensed
Consolidated Statements of Cash Flows. We do not recognize the cash flow within
operating activities until the underlying invoices have been paid by our
customer. The trade receivables that serve as collateral for these borrowings
are reclassified from trade receivables, net to prepaid expenses and other
current assets on the Condensed Consolidated Balance Sheets. See Note 9,
"Accounts Receivable Securitization Programs" for further details.
Accounts Receivable Factoring Agreements
We account for our participation in our customers' supply chain financing
arrangements and our trade receivable factoring program in accordance with ASC
Topic 860, which allows the ownership transfer of accounts receivable to qualify
for sale treatment when the appropriate criteria are met. As such, the Company
excludes the balances sold under such programs from Trade receivables, net on
the Condensed Consolidated Balance Sheets. We recognize cash flow from operating
activities at the point the receivables are sold under such programs. See Note
10, "Accounts Receivable Factoring Agreements" for further details.
Gross amounts received under these programs for the nine months ended
September 30, 2021 were $480 million, of which $175 million was received in the
third quarter. If these programs had not been in effect during the current year,
we would have been required to collect the invoice amounts directly from the
relevant customers in accordance with the agreed payment terms. Approximately
$116 million in incremental trade receivables would have been outstanding at
September 30, 2021 if collection on such invoice amounts were made directly from
our customers on the invoice due date and not through our customers' supply
chain financing arrangements or our factoring program.
Lines of Credit
At September 30, 2021 and December 31, 2020, we had a $1.0 billion revolving
credit facility as part of our senior secured credit facility. We had no
outstanding borrowings under the facility at September 30, 2021 or December 31,
2020. There was less than $1 million and $7 million outstanding under various
lines of credit extended to our subsidiaries at September 30, 2021 and
December 31, 2020, respectively. See Note 12, "Debt and Credit Facilities" for
further details.
LIBOR Phase Out
In July 2017, the United Kingdom's Financial Conduct Authority (FCA), which
regulates LIBOR, announced that it intends to phase out LIBOR by the end of
2021. In March 2021, the FCA announced that specific U.S. dollar LIBOR tenors
(overnight, 1-month, 3-month, 6-month and 12-month) will continue to be
published until June 30, 2023, while the 1-week and 2-month tenors will no
longer be published after December 31, 2021. Similarly, all tenors for EUR, CHF,
JPY and GBP LIBOR currencies will no longer be published after December 31,
2021. Regulators in the U.S. and other jurisdictions have been working to
replace these rates with alternative reference interest rates that are supported
by transactions in liquid and observable
                                       55
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markets, such as the Secured Overnight Financing Rate. An alternative to LIBOR
has been contemplated in many of our LIBOR-linked instruments and other
financial obligations, including our senior secured credit facility. We do not
expect the phase-out of LIBOR to have a material impact on our financing or
liquidity. In March 2020, the FASB issued ASU 2020-04. This ASU, along with
subsequently issued ASU 2021-01, are designed to ease the potential burden in
accounting for reference rate reform; however, neither the LIBOR phase out nor
these ASUs are expected to have a material impact on the Company.
Covenants
At September 30, 2021, we were in compliance with our financial covenants and
limitations, as discussed in "Covenants" within Note 12, "Debt and Credit
Facilities", which require us, among other things, to maintain a maximum
leverage ratio of debt to EBITDA of 4.50 to 1.00. At September 30, 2021, as
calculated under the covenant, our leverage ratio was 2.79 to 1.00. We expect to
be in continued compliance with our debt covenants including the covenant
leverage ratio over the next 12 months.
Supply Chain Financing Programs
As part of our ongoing efforts to manage our working capital and improve our
cash flow, we work with suppliers to optimize our purchasing terms and
conditions, including extending payment terms. We also facilitate a voluntary
supply chain financing program to provide some of our suppliers with the
opportunity to sell receivables due from us (our accounts payables) to
participating financial institutions at the sole discretion of both the
suppliers and the financial institutions. These programs are administered by
participating financial institutions. Should a supplier choose to participate in
the program, it will receive payment from the financial institution in advance
of agreed payment terms; our responsibility is limited to making payments to the
respective financial institutions on the terms originally negotiated with our
supplier. The range of payment terms is consistent regardless of a vendor's
participation in the program. We monitor our days payable outstanding relative
to our peers and industry trends in order to assess our conclusion that these
programs continue to be trade payable programs and not indicative of borrowing
arrangements. The liabilities continue to be presented as trade payables in our
Condensed Consolidated Balance Sheets until they are paid, and they are
reflected as cash flows from operating activities when settled.
At September 30, 2021 and December 31, 2020, our accounts payable balances
included $162 million and $149 million, respectively, related to invoices from
suppliers participating in the programs. The cumulative amounts settled through
the supply chain financing programs for the nine months ended September 30, 2021
were $304 million. These programs did not significantly improve our cash
provided by operating activities or free cash flow for the nine months ended
September 30, 2021 as compared to the nine months ended September 30, 2020.
Debt Ratings
Our cost of capital and ability to obtain external financing may be affected by
our debt ratings, which the credit rating agencies review periodically. Below is
a table that details our credit ratings by the various types of debt by rating
agency at September 30, 2021.
                                              Moody's Investor        Standard
                                                  Services            & Poor's
Corporate Rating                                             Ba1             BB+
Senior Unsecured Rating                                      Ba2             BB+
Senior Secured Rating                                       Baa2            BBB-
Senior Secured Credit Facility Rating                       Baa2            BBB-
Outlook                                                   Stable          Stable


In September 2021, upon the issuance of our 1.573% Senior Secured Notes due
2026, Moody's Investor Services updated our Senior Secured Credit Facility
Rating from Baa1 to Baa2. See Note 12, "Debt and Credit Facilities," for further
details related to the note issuance.
In May 2021, Moody's Investor Services updated our Corporate Rating from Ba2 to
Ba1, our Senior Unsecured Rating from Ba3 to Ba2 and our Senior Secured Credit
Facility Rating from Baa3 to Baa1.
The current credit ratings are considered to be below investment grade (with the
exception of the Baa2 and BBB- for our Senior Secured Credit Facility Rating and
Senior Secured Notes Rating from Moody's Investor Services and Standard &
Poor's, respectively, which are classified as investment grade). If our credit
ratings are downgraded, there could be a negative impact on our ability to
access capital markets and borrowing costs could increase. A credit rating is
not a recommendation to
                                       56
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buy, sell or hold securities and may be subject to revision or withdrawal at any
time by the rating organization. Each rating should be evaluated independently
of any other rating.

Outstanding Indebtedness
At September 30, 2021 and December 31, 2020, our total debt outstanding
consisted of the amounts set forth in the following table. In addition to total
debt, we use Net Debt as a useful measure of our total debt exposure less cash
and cash equivalents. Net Debt is not defined under U.S. GAAP. Therefore, Net
Debt should not be considered a substitute for amounts owed to creditors or
other balance sheet information prepared in accordance with U.S. GAAP, and it
may not be comparable to similarly titled measures used by other companies.
(In millions)                                                     September 30,         December 31,
                                                                      2021                  2020
Short-term borrowings                                            $        0.4          $        7.2
Current portion of long-term debt                                       487.8                  22.3
Total current debt                                                      488.2                  29.5
Total long-term debt, less current portion(1)                         3,315.4               3,731.4
Total debt                                                            3,803.6               3,760.9
Less: Cash and cash equivalents                                        (393.7)               (548.7)
Non-U.S. GAAP Net Debt                                           $    3,409.9          $    3,212.2




(1)Amounts are net of unamortized discounts and debt issuance costs of $20
million at both September 30, 2021 and December 31, 2020. See Note 12, "Debt and
Credit Facilities" for further details.
Analysis of Historical Cash Flow
The following table shows the changes in our Condensed Consolidated Statements
of Cash Flows for the nine months ended September 30, 2021 and 2020.
                                                                    Nine Months Ended
                                                                      September 30,
(In millions)                                                    2021               2020             Change
Net cash provided by operating activities                    $    377.5          $  410.2          $  (32.7)
Net cash used in investing activities                            (154.3)           (101.1)            (53.2)
Net cash used in financing activities                            (379.2)           (217.1)           (162.1)

Effect of foreign currency exchange rate changes on cash and cash equivalents

                                           1.5             (37.6)             39.1


In addition to net cash provided by operating activities, we use free cash flow
as a useful measure of performance and an indication of the strength and ability
of our operations to generate cash. We define free cash flow as cash provided by
operating activities less capital expenditures (which is classified as an
investing activity). Free cash flow is not defined under U.S. GAAP. Therefore,
free cash flow should not be considered a substitute for net income or cash flow
data prepared in accordance with U.S. GAAP and may not be comparable to
similarly titled measures used by other companies. Free cash flow does not
represent residual cash available for discretionary expenditures, including
certain debt servicing requirements or non-discretionary expenditures that are
not deducted from this measure. We historically have generated the majority of
our annual free cash flow in the second half of the year. Below are the details
of free cash flow for the nine months ended September 30, 2021 and 2020:
                                                    Nine Months Ended
                                                      September 30,
(In millions)                                       2021          2020      

Change

Cash flow provided by operating activities $ 377.5 $ 410.2

 $ (32.7)
Capital expenditures                                (154.8)      (118.3)       (36.5)
Non-U.S. GAAP Free Cash Flow                    $    222.7      $ 291.9      $ (69.2)


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Operating Activities
Nine Months Ended September 30, 2021 Compared with the Same Period in 2020
Net cash provided by operating activities was $378 million in 2021, compared to
$410 million in 2020. The decrease in cash provided by operating activities was
primarily attributable to Other Assets and Liabilities which negatively impacted
cash flow by $45 million compared to 2020. This was largely due to the impact of
incentive compensation including higher cash payments made during the first
quarter 2021, as compared to the prior year, coupled with a lower accrual as of
September 30, 2021, as compared to the prior year. Value Added Tax payments were
also unfavorable on net cash provided by operating activities compared to the
prior year. Operating activities for the nine months ended September 30, 2020
included the benefit of $15 million in payroll tax cash payments deferred to the
fourth quarter 2020 under the CARES Act.
This activity was partially offset by lower payments associated with
restructuring programs as well as the indirect cash flow benefit from a net
reduction in the uncertain tax position liability in 2020, as compared to an
increase in 2021.
Overall, net cash used by our working capital accounts (inventories, trade
receivables and accounts payables) was $14 million favorable in 2021 compared to
2020. Significantly higher cash generation from Accounts payable was primarily
due to higher raw material prices and freight expense compared to the prior
year. The increase in cash generation from Accounts payable was largely offset
by higher Trade receivables balance, which increased primarily due to higher
sales year-over-year, and a higher Inventory balance, which was up due to the
raw material price increases in the current cost environment.
Investing Activities
Nine Months Ended September 30, 2021 Compared with the Same Period in 2020
Net cash used in investing activities was $154 million in 2021 compared to a use
of $101 million in 2020.
During 2021, we invested a total of $16 million in SEE Venture initiatives,
including an investment in the convertible debt of one investee company during
the first quarter 2021, an additional equity investment in one of our other
investee companies made during the second quarter and a $1 million third quarter
investment in a fund aimed to advance scalable recycling technologies, equipment
upgrades and infrastructure solutions, which is being accounted for as an equity
method investment. Under the SEE Ventures initiative, we make select
entrepreneurial investments that present opportunities to accelerate innovation
and increase speed to market, while creating a sustainable competitive
advantage. SEE Ventures is part of our capital allocation strategy focused on
investing in early stage disruptive technologies and new business models for
growth.
The increase in net cash used in investing activities was also due to $37
million in higher capital expenditures compared to the prior year. The increase
reflects the Company's continued investment in assets which support growth
focused on touchless automation, sustainability and digital, combined with lower
spending in the prior year due to the impact of COVID-19. The Company is making
investments to drive touchless automation within our internal operations. Prior
year investing activity also included cash generation of $14 million from the
maturity of cash deposits greater than 90 days (marketable securities), with no
similar activity in the current year.
The above cash uses for investing activities were partially offset by the
settlement of foreign currency forward contracts, which generated $8 million in
2021 compared to a cash use of $4 million in the prior year, and the receipt of
$8 million on Corporate Owned Life Insurance contracts in 2021. The proceeds of
Corporate Owned Life Insurance contracts were from policies redeemed related to
former employees of Sealed Air. The Company previously maintained a
corresponding asset on the Condensed Consolidated Balance Sheets. There was no
impact to the Condensed Statements of Operations during the three or nine months
ended September 30, 2021 related to the Corporate Owned Life Insurance proceeds.
Financing Activities
Nine Months Ended September 30, 2021 Compared with the Same Period in 2020
Net cash used in financing activities was $379 million in 2021, compared to $217
million used in 2020. The increase in cash outflows for financing activities was
primarily related to increased share repurchases and dividends payments,
partially offset by cash generated from debt-related activities.
                                       58
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During the nine months ended September 30, 2021, the Company repurchased $329
million in shares compared to $20 million in the prior year. Dividends paid of
$86 million were $10 million higher than the prior year due to the increased
quarterly dividend announced in the second quarter 2021.
The above cash inflows were partially offset by debt related activities that
generated $59 million of cash in 2021, compared to $101 million of cash used in
2020. Cash used for debt related activities in 2020 was primarily related to
payment on the Company's revolving credit facility outstanding balance from the
prior year-end. Current year cash activity related to debt primarily relates to
receipts from the issuance of $600 million 1.573% Senior Secured Notes due 2026,
net of $3.6 million in capitalized issuance costs. This partially was offset by
the payment of $358 million related to the tender offer for the 4.875% Senior
Note due 2022, and $183 million in payments on the Company's Term Loans A, which
includes the scheduled quarterly payment and the early repayment of $175 million
in principal amount using the proceeds of the 1.573% Senior Secured Notes
issuance.
Changes in Working Capital

(In millions)                                          September 30, 2021           December 31, 2020            Change
Working capital (current assets less current
liabilities)                                          $             45.5          $            514.1          $  (468.6)
Current ratio (current assets divided by
current liabilities)                                                   1.0x                        1.4x
Quick ratio (current assets, less inventories
divided by current liabilities)                                        0.6x                        0.9x


The $469 million, or 91%, decrease in working capital during the nine months
ended September 30, 2021 was primarily due the following:
•increase in Current portion of long-term debt of $466 million primarily due to
the reclassification of $475 million related to the Term Loan A due August 2022,
which is now contractually due within 12 months of the balance sheet date at
September 30, 2021;
•increase in Accounts payable of $164 million, primarily due to higher raw
material prices and freight expense; and
•$155 million decrease in Cash balances, which was largely the result of cash
outlays for share repurchases, partially offset by the increase in cash due to
debt related activities.
The decreases in working capital were partially offset by:
•increase in Inventory of $144 million, primarily on rising input costs;
•increase in Trade receivables of $98 million, primarily on higher sales in the
current year; and
•$64 million in lower Other current liabilities, reflecting the payment of
performance-based compensation and profit sharing in the first quarter 2021,
offset by current year accruals.
Changes in Stockholders' Equity
The $45 million, or 26%, decrease in stockholders' equity in the nine months
ended September 30, 2021 was primarily due to the following:
•repurchases of 6,585,112 shares of our common stock for $328 million, including
commissions paid (See Note 18, "Stockholders' Equity" for further details);
•dividends paid on our common stock and dividend equivalent accruals related to
unvested equity awards of $87 million; and
•CTA loss of $33 million.
These decreases were partially offset by:
•net earnings of $326 million;
•stock issued for profit sharing contribution paid in stock of $28 million;
•unrealized gains on derivative instruments of $26 million;
                                       59
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•the effect of share-based incentive compensation of $20 million, including the
impact of share-based compensation expense and netting of shares to cover the
employee tax withholding amounts; and
•the recognition of pension items within AOCL of $3 million.
Derivative Financial Instruments
Interest Rate Swaps
The information set forth in Part I, Item 1 of this Quarterly Report on
Form 10-Q in Note 13, "Derivatives and Hedging Activities," under the caption
"Interest Rate Swaps" is incorporated herein by reference.
Net Investment Hedge
The information set forth in Part I, Item 1 of this Quarterly Report on
Form 10-Q in Note 13, "Derivatives and Hedging Activities," under the caption
"Net Investment Hedge" is incorporated herein by reference.
Other Derivative Instruments
The information set forth in Part I, Item 1 of this Quarterly Report on
Form 10-Q in Note 13, "Derivatives and Hedging Activities," under the caption
"Other Derivative Instruments" is incorporated herein by reference.
Foreign Currency Forward Contracts
At September 30, 2021, we were party to foreign currency forward contracts,
which did not have a significant impact on our liquidity.
The information set forth in Part I, Item 1 of this Quarterly Report on
Form 10-Q in Note 13, "Derivatives and Hedging Activities," under the caption
"Foreign Currency Forward Contracts Designated as Cash Flow Hedges" and "Foreign
Currency Forward Contracts Not Designated as Hedges" is incorporated herein by
reference. For further discussion about these contracts and other financial
instruments, see Part I, Item 3, "Quantitative and Qualitative Disclosures About
Market Risk."
Recently Issued Statements of Financial Accounting Standards, Accounting
Guidance and Disclosure Requirements
We are subject to recently issued statements of financial accounting standards,
accounting guidance and disclosure requirements. Note 2, "Recently Adopted and
Issued Accounting Standards" which is contained in Part I, Item 1 of this
Quarterly Report on Form 10-Q, describes these new accounting standards and is
incorporated herein by reference.
Critical Accounting Policies and Estimates
There have been no material changes in our critical accounting policies and
estimates from those disclosed in our 2020 Form 10-K. For a discussion of our
critical accounting policies and estimates, refer to "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Critical
Accounting Policies and Estimates" in Part II, Item 7 of our 2020 Form 10-K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk from changes in the conditions in the global
financial markets, interest rates, foreign currency exchange rates and commodity
prices and the creditworthiness of our customers and suppliers, which may
adversely affect our consolidated financial condition and results of
operations. We seek to minimize these risks through regular operating and
financing activities and, when deemed appropriate, through the use of derivative
financial instruments. We do not purchase, hold or sell derivative financial
instruments for trading purposes.
Interest Rates
From time to time, we may use interest rate swaps, collars or options to manage
our exposure to fluctuations in interest rates. At September 30, 2021, we had no
outstanding interest rate swaps, collars or options.
                                       60
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The information set forth in Part I, Item 1 of this Quarterly Report on
Form 10-Q in Note 13, "Derivatives and Hedging Activities," under the caption
"Interest Rate Swaps," is incorporated herein by reference.
See Note 14, "Fair Value Measurements, Equity Investments and Other Financial
Instruments," for details of the methodology and inputs used to determine the
fair value of our fixed rate debt. The fair value of our fixed rate debt varies
with changes in interest rates. Generally, the fair value of fixed rate debt
will increase as interest rates fall and decrease as interest rates rise. A
hypothetical 10% increase in interest rates would result in a decrease of $34
million in the fair value of the total debt balance at September 30, 2021. These
changes in the fair value of our fixed rate debt do not alter our obligations to
repay the outstanding principal amount or any related interest of such debt.
Foreign Exchange Rates
Operations
As a large global organization, we face exposure to changes in foreign currency
exchange rates. These exposures may change over time as business practices
evolve and could materially impact our consolidated financial condition and
results of operations in the future. See Item 2, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," above for the
impacts that foreign currency translation had on our operations.
Argentina
Economic events in Argentina, including the default on some of its international
debt obligations, which have subsequently been renegotiated, exposed us to
heightened levels of foreign currency exchange risks. Despite some recent debt
restructuring, fluctuations in foreign exchange rates on the Argentine Peso
continue to impact our financial results. As of July 1, 2018, Argentina was
designated as a highly inflationary economy. We recognized a net foreign
currency exchange loss of $3 million in each of the nine months ended
September 30, 2021 and 2020, and a loss of $1 million in each of the three
months ended September 30, 2021 and 2020, within Other (expense) income, net on
the Condensed Consolidated Statements of Operations, related to the designation
of Argentina as a highly inflationary economy under U.S. GAAP. As of
September 30, 2021, approximately 1% of our consolidated net sales were derived
from our products sold in Argentina and our net assets include $7 million of
cash and cash equivalents domiciled in Argentina. Also, as of September 30,
2021, our Argentina subsidiaries had cumulative translation losses of $24
million.

Russia

The U.S. and the European Union (EU) have imposed sanctions on various sectors
of the Russian economy and on transactions with certain Russian nationals and
entities. Russia has also announced economic sanctions against the U.S. and
other nations that include a ban on imports of certain products. These sanctions
are not expected to have a material impact on our business as much of the
operations in Russia support local production; however, they may limit the
amount of future business the Company does with customers involved in activities
in Russia. However, as of September 30, 2021, we do not anticipate these events
will have a material impact to our 2021 results of operations. As of
September 30, 2021, approximately 2% of our consolidated net sales were derived
from products sold into Russia and our net assets include $6 million of cash and
cash equivalents domiciled in Russia. Also, as of September 30, 2021, our Russia
subsidiaries had cumulative translation losses of $37 million.
Brazil
Recent economic events in Brazil, including changes in the benchmark interest
rate set by the Brazilian Central Bank, have exposed us to heightened levels of
foreign currency exchange risks. However, as of September 30, 2021, we do not
anticipate these events will have a material impact on our 2021 results of
operations. As of September 30, 2021, approximately 2% of our consolidated net
sales were derived from products sold into Brazil and net assets include $13
million of cash and cash equivalents domiciled in Brazil. Also, as of
September 30, 2021, our Brazil subsidiaries had cumulative translation losses of
$68 million.
United Kingdom
On January 31, 2020, the United Kingdom (UK) exited the EU (referred to as
"Brexit"). The UK agreed to abide by EU rules during a transition period through
December 31, 2020. Prior to the end of the transition period, the UK and the EU
reached a deal related to future trade, customs, and mobility, among other
topics. The deal generally provides continued free trade between the two
parties, though increased checks and custom declarations. Over the last two
years, we have deployed a
                                       61
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cross-functional team to develop and implement changes to our operating model
and legal entity structure to efficiently address challenges that may arise from
Brexit.
As of September 30, 2021, the above events are not expected to have a material
impact on our 2021 results of operations. As of September 30, 2021,
approximately 3% of our consolidated net sales were derived from products sold
into the UK. Net assets in the UK include $9 million of cash and cash
equivalents and $15 million in inventory. Also, as of September 30, 2021, our UK
subsidiaries had cumulative translation losses of $52 million.
Foreign Currency Forward Contracts
We use foreign currency forward contracts to fix the amounts payable or
receivable on some transactions denominated in foreign currencies. A
hypothetical 10% adverse change in foreign exchange rates at September 30, 2021
would have caused us to pay approximately $27 million to terminate these
contracts. Based on our overall foreign exchange exposure, we estimate this
change would not materially affect our financial position and liquidity. The
effect on our results of operations would be substantially offset by the impact
of the hedged items.
Our foreign currency forward contracts are described in Note 13, "Derivatives
and Hedging Activities," which is incorporated herein by reference.
Net Investment Hedge
The €400.0 million 4.50% notes issued in June 2015 are designated as a net
investment hedge, hedging a portion of our net investment in a certain European
subsidiary against fluctuations in foreign exchange rates. The decrease in the
translated value of the debt was $11 million, net of tax as of September 30,
2021 and is reflected in long-term debt on our Condensed Consolidated Balance
Sheets.
For derivative instruments that are designated and qualify as hedges of net
investments in foreign operations, settlements and changes in fair values of the
derivative instruments are recognized in unrealized net gain or loss on
derivative instruments for net investment hedge, a component of accumulated
other comprehensive loss, net of taxes, to offset the changes in the values of
the net investments being hedged. Any portion of the net investment hedge that
is determined to be ineffective is recorded in other (expense) income, net on
the Condensed Consolidated Statements of Operations.
Other Derivative Instruments
We may use other derivative instruments from time to time to manage exposure to
foreign exchange rates and to access international financing transactions. These
instruments can potentially limit foreign exchange exposure by swapping
borrowings denominated in one currency for borrowings denominated in another
currency.
Outstanding Debt
Our outstanding debt is generally denominated in the functional currency of the
borrower or in euros as is the case with the issuance of €400 million of 4.50%
senior notes due 2023. We believe that this enables us to better match operating
cash flows with debt service requirements and to better match the currency of
assets and liabilities. The U.S. dollar equivalent amount of outstanding debt
denominated in a functional currency other than the U.S. dollar was $503 million
and $541 million at September 30, 2021 and December 31, 2020, respectively.
Customer Credit
We are exposed to credit risk from our customers. In the normal course of
business, we extend credit to our customers if they satisfy pre-defined credit
criteria. We maintain an allowance for credit losses on trade receivables for
estimated losses resulting from the failure of our customers to make required
payments. An additional allowance may be required if the financial condition of
our customers deteriorates beyond our expected loss model. Our customers may
default on their obligations to us due to bankruptcy, lack of liquidity,
operational failure or other reasons.
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