UNIVAR SOLUTIONS INC.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") is based on financial data derived from the financial
statements prepared in accordance with US GAAP and certain other financial data
that is prepared using non-GAAP financial measures. For a reconciliation of each
non-GAAP financial measure to its most comparable GAAP measure, see "Analysis of
Segment Results" within this Item and "Note 16: Segments" to our condensed
consolidated financial statements in Item 1 of this Quarterly Report on Form
10-Q. Refer to "Non-GAAP Financial Measures" within this Item for more
information about our use of non-GAAP financial measures.
Our MD&A is provided in addition to the accompanying condensed consolidated
financial statements and notes to assist readers in understanding our results of
operations, financial condition and cash flow. The MD&A should be read in
conjunction with both the unaudited consolidated financial information and
related notes included in this Form 10-Q and the MD&A included in our Annual
Report on Form 10-K for the year ended December 31, 2021 .
Overview
Univar Solutions is a leading global commodity and specialty chemical and ingredient distributor and provider of value-added services to customers across a wide range of diverse industries. We purchase chemicals and ingredients from thousands of producers worldwide and warehouse, repackage, blend, dilute, transport and sell them to more than 100,000 customer locations across approximately 115 countries. Our operations are structured into four reportable segments that represent the geographic areas under which we operate and manage our business. These segments areUSA , EMEA,Canada and LATAM, which includes developing businesses inLatin America and theAsia-Pacific region .
Comparability of Results
Acquisitions and Divestitures
OnApril 1, 2021 , we sold ourDistrupol business within the EMEA segment. The sale of this business did not meet the criteria to be classified as discontinued operations in our condensed consolidated financial statements.
In
Constant Currency
We believe providing non-GAAP constant currency offers valuable supplemental information regarding our results of operations, consistent with how we evaluate our performance. Currency impacts on consolidated and segment results have been derived by translating current period financial results in local currency using the average exchange rate for the prior period to which the financial information is being compared.
Market Conditions
We sell commodity and specialty chemicals and ingredients that are used in manufacturing processes and as components in other products. Our sales are correlated with and affected by seasonal fluctuations and cycles in the levels of industrial production, manufacturing output and general economic activity.
The current business environment in the markets in which we operate consists of complex dynamics. A combination of factors such as supplier shut-downs, port congestion, acute COVID-19 pandemic recovery demand and theRussia -Ukraine conflict has stressed already existing sustained supply chain constraints, product shortages and chemical price inflation that continue to be atypical in magnitude and unknown in duration. These market factors have also impacted the transportation market and coupled with rising fuel prices, driver shortages and inflation, have resulted in higher operating costs. Additionally, shortages across a range of chemicals and ingredients have generally led to fluctuations in chemical prices globally, with corresponding impacts to sales and interim profits. In such a dynamic environment, we believe remaining connected with our customers to understand demand and supply impacts on their operations is critical to our success. We believe our value as a distributor is heightened in the current environment as we work to meet demand requirements through our extensive network, installed asset base, transportation and digital assets, and supplier partnerships, supported by our network of Solutions Centers and technically trained professionals with deep industry knowledge. 21
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A summary of our sales channel and underlying end market performance as of
Chemicals and Services (63%) - Ongoing supply tightness and market demand outstripping current capacity, together with healthy growth in various industrial end markets, have contributed to price inflation, positively impacting our results. We are seeing particularly robust demand in chemical manufacturing, water and mining chemistries. Strong chemical demand in energy as higher oil prices have accelerated reinvestment, with increased customer demand for more sustainable solutions in this sector. Ingredients and Specialties (37%) - Beauty and personal care revenue growth has accelerated with ongoing product shortages impacting price, particularly within the skin and hair care industries. Pharmaceuticals continue to deliver strong results from new product authorizations and increased demand within high-purity solvents, excipients and active pharmaceutical ingredients. Within CASE we saw persistent demand within paints and coatings, and construction related chemistries, supported by our extensive line card and technical capabilities. Specialty surfactants within homecare & industrial cleaning along with our enzyme portfolio are supporting year-over-year growth. Our lubricants and food businesses both enjoyed strong demand and year-over-year growth.
Results of Operations
The following tables set forth, for the periods indicated, certain statements of operations data, on the basis of reported data for the relevant period.
Three Months EndedMarch 31, 2022 compared to Three Months EndedMarch 31, 2021 Three months ended March 31, Favorable (in millions) 2022 2021 (unfavorable) % Change Net sales$ 2,882.6 $ 2,155.4 $ 727.2 33.7 % Cost of goods sold (exclusive of depreciation) 2,153.1 1,613.0 (540.1) 33.5 % Operating expenses: Outbound freight and handling $ 115.9$ 91.4 $ (24.5) 26.8 % Warehousing, selling and administrative 294.3 268.8 (25.5) 9.5 % Other operating expenses, net 15.7 44.2 28.5 (64.5) % Depreciation 32.9 43.8 10.9 (24.9) % Amortization 11.8 13.1 1.3 (9.9) % Total operating expenses $ 470.6$ 461.3 $ (9.3) 2.0 % Operating income $ 258.9$ 81.1 $ 177.8 219.2 % Other (expense) income: Interest income $ 1.1$ 0.4 $ 0.7 175.0 % Interest expense (22.2) (27.0) 4.8 (17.8) % Gain on sale of business - 0.6 (0.6) (100.0) % Other income, net 7.7 28.7 (21.0) (73.2) % Total other (expense) income $ (13.4)$ 2.7 $ (16.1) N/M Income before income taxes $ 245.5$ 83.8 $ 161.7 193.0 % Income tax expense 64.7 17.6 (47.1) 267.6 % Net income $ 180.8$ 66.2 $ 114.6 173.1 % Net sales
Net sales increased
Gross profit (exclusive of depreciation)
Gross profit (exclusive of depreciation) increased$187.1 million , or 34.5%, to$729.5 million for the three months endedMarch 31, 2022 . On a constant currency basis, gross profit (exclusive of depreciation) increased$202.0 million or 37.2%. The increase in gross profit (exclusive of depreciation) was attributable to chemical price inflation, higher industrial demand, 22
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operational execution and market share gains, partially offset by higher input costs. Refer to the "Analysis of Segment Results" for the three months endedMarch 31, 2022 and "Non-GAAP Financial Measures" for additional information.
Operating Expenses
Outbound freight and handling
Outbound freight and handling expenses increased$24.5 million , or 26.8%, for the three months endedMarch 31, 2022 , primarily due to higher costs to deliver caused by supply chain constraints. On a constant currency basis, outbound freight and handling expenses increased$25.8 million , or 28.2%. Refer to the "Analysis of Segment Results" for the three months endedMarch 31, 2022 for additional information.
Warehousing, selling and administrative
Warehousing, selling and administrative expenses ("WS&A") increased $25.5
million , or 9.5%, for the three months ended March 31, 2022 . On a constant
currency basis, WS&A increased $31.1 million , or 11.6%, attributable to higher
operating and variable compensation costs, partially offset by an environmental
recovery and net synergies. Refer to the "Analysis of Segment Results" for the
three months ended March 31, 2022 for additional information.
Other operating expenses, net
Other operating expenses, net decreased$28.5 million for the three months endedMarch 31, 2022 . Refer to "Note 6: Supplemental financial information" in Item 1 of this Quarterly Report on Form 10-Q for additional information.
Depreciation and amortization
Depreciation expense decreased$10.9 million , or 24.9%, for the three months endedMarch 31, 2022 , primarily due to certain assets reaching the end of their depreciable lives. Amortization expense decreased$1.3 million , or 9.9%, for the three months endedMarch 31, 2022 , primarily due to certain intangibles reaching the end of their amortizable lives. Other (expense) income Interest expense Interest expense decreased$4.8 million , or 17.8%, for the three months endedMarch 31, 2022 primarily due to lower average outstanding borrowings as well as lower interest rates on fixed debt. Refer to "Note 11: Debt" in Item 1 of this Quarterly Report on Form 10-Q for additional information.
Other income, net
Other income, net decreased$21.0 million , or 73.2% for the three months endedMarch 31, 2022 . Refer to "Note 6: Supplemental financial information" in Item 1 of this Quarterly Report on Form 10-Q for additional information.
Income tax expense
Income tax expense was$64.7 million for the three months endedMarch 31, 2022 , resulting in an effective income tax rate of 26.4%. Income tax expense was$17.6 million for the three months endedMarch 31, 2021 , resulting in an effective income tax rate of 21.0%. Our 2022 effective income tax rate was higher than the US federal statutory rate of 21.0%, primarily due to higher rates on foreign earnings, US tax on foreign earnings, US state income taxes and non-deductible employee costs. Our 2021 effective income tax rate was also impacted by these items but offset by the impact of other discrete tax items. 23
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Results of Reportable Business Segments
Our operations are structured into four reportable segments that represent the geographic areas under which we operate and manage our business. Management believes Adjusted EBITDA is an important measure of operating performance, which is used as the primary basis for the chief operating decision maker to evaluate the performance of each of our reportable segments. We believe certain other financial measures that are not calculated in accordance with US GAAP provide relevant and meaningful information concerning the ongoing operating results of the Company. These financial measures include gross profit (exclusive of depreciation), gross margin and Adjusted EBITDA margin. Such non-GAAP financial measures are referred to from time to time in this report, but should not be viewed as a substitute for GAAP measures of performance and should be considered along with the comparable US GAAP measures. See "Note 16: Segments" to our condensed consolidated financial statements in Item 1 of this Quarterly Report on Form 10-Q, "Analysis of Segment Results" within this Item and "Non-GAAP Financial Measures" within this Item for additional information. Analysis of Segment ResultsUSA Three months ended March 31, Favorable (in millions) 2022 2021 (unfavorable) % Change Net sales: External customers$ 1,843.2 $ 1,293.0 $ 550.2 42.6 % Inter-segment 28.5 17.4 11.1 63.8 % Total net sales$ 1,871.7 $ 1,310.4 $ 561.3 42.8 % Cost of goods sold (exclusive of depreciation) 1,398.8 984.7 (414.1) 42.1 % Outbound freight and handling 85.8 63.3 (22.5) 35.5 % Warehousing, selling and administrative 177.9 160.6 (17.3) 10.8 % Adjusted EBITDA $ 209.2$ 101.8 $ 107.4 105.5 % Three months ended March 31, Favorable (in millions) 2022 2021 (unfavorable) % Change Gross profit (exclusive of depreciation): Net sales$ 1,871.7 $ 1,310.4 $ 561.3 42.8 % Cost of goods sold (exclusive of depreciation) 1,398.8 984.7 (414.1) 42.1 %
Gross profit (exclusive of depreciation) $ 472.9
45.2 %
External sales increased $550.2 million , or 42.6%, for the three months ended
March 31, 2022 . The increase in external net sales was primarily due to chemical
price inflation, higher industrial demand and market share gains.
Gross profit (exclusive of depreciation) increased $147.2 million , or 45.2%, for
the three months ended March 31, 2022 , primarily due to chemical price
inflation, higher industrial demand, operational execution and market share
gains. Gross margin increased from 25.2% for the three months ended March 31,
2021 to 25.7% for the three months ended March 31, 2022 , primarily due to
chemical price inflation partially offset by input cost inflation.
Outbound freight and handling expenses increased $22.5 million , or 35.5%, for
the three months ended March 31, 2022 , primarily due to higher costs to deliver
caused by supply chain constraints and higher sales volumes.
WS&A increased $17.3 million , or 10.8%, for the three months ended March 31,
2022 , primarily due to higher operating and variable compensation costs,
partially offset by an environmental recovery and net synergies. As a percentage
of external sales, WS&A decreased from 12.4% for the three months ended
March 31, 2021 to 9.7% for the three months ended March 31, 2022 .
Adjusted EBITDA increased by $107.4 million , or 105.5%, for the three months
ended March 31, 2022 , due to higher gross profit (exclusive of depreciation),
partially offset by increased WS&A and outbound freight and handling expenses.
Adjusted EBITDA margin increased from 7.9% in the three months ended March 31,
2021 to 11.3% for the three months ended March 31, 2022 , primarily due to
operating leverage as well as higher gross margin.
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EMEA
Three months ended March 31, Favorable
(in millions) 2022 2021 (unfavorable) % Change
Net sales:
External customers $ 562.2 $ 505.9 $ 56.3 11.1 %
Inter-segment 0.7 0.8 (0.1) (12.5) %
Total net sales $ 562.9 $ 506.7 $ 56.2 11.1 %
Cost of goods sold (exclusive of
depreciation) 421.3 378.5 (42.8) 11.3 %
Outbound freight and handling 17.0 15.9 (1.1) 6.9 %
Warehousing, selling and administrative 60.8 61.7 0.9 (1.5) %
Adjusted EBITDA $ 63.8 $ 50.6 $ 13.2 26.1 %
Three months ended March 31, Favorable
(in millions) 2022 2021 (unfavorable) % Change
Gross profit (exclusive of depreciation):
Net sales $ 562.9 $ 506.7 $ 56.2 11.1 %
Cost of goods sold (exclusive of
depreciation) 421.3 378.5 (42.8) 11.3 %
Gross profit (exclusive of depreciation)
10.5 %
External sales increased $56.3 million , or 11.1%, for the three months ended
March 31, 2022 . On a constant currency basis, external net sales increased
$120.5 million , or 23.8%, primarily due to chemical price inflation and market
share gains, partially offset by the effects of the Distrupol divestiture.
Gross profit (exclusive of depreciation) increased $13.4 million , or 10.5%, for
the three months ended March 31, 2022 . On a constant currency basis, gross
profit (exclusive of depreciation) increased $29.0 million , or 22.6%, primarily
due to chemical price inflation, operational execution and market share gains,
partially offset by the effects of the Distrupol divestiture. Gross margin
decreased from 25.3% for the three months ended March 31, 2021 to 25.2% for the
three months ended March 31, 2022 .
Outbound freight and handling expenses increased
WS&A decreased$0.9 million , or 1.5%, for the three months endedMarch 31, 2022 . On a constant currency basis, WS&A increased$5.0 million , or 8.1%, primarily due to higher variable compensation and operating costs. As a percentage of external sales, WS&A decreased from 12.2% for the three months endedMarch 31, 2021 to 10.8% for the three months endedMarch 31, 2022 . Adjusted EBITDA increased by$13.2 million , or 26.1%, for the three months endedMarch 31, 2022 . On a constant currency basis, Adjusted EBITDA increased$21.5 million , or 42.5%, due to higher gross profit (exclusive of depreciation), partially offset by the effects of theDistrupol divestiture. Adjusted EBITDA margin increased from 10.0% for the three months endedMarch 31, 2021 to 11.3% for the three months endedMarch 31, 2022 , primarily due to operating leverage. 25
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Table of ContentsCanada Three months ended March 31, Favorable (in millions) 2022 2021 (unfavorable) % Change Net sales: External customers$ 293.4 $ 222.7 $ 70.7 31.7 % Inter-segment 1.8 0.7 1.1 157.1 % Total net sales$ 295.2 $ 223.4 $ 71.8 32.1 % Cost of goods sold (exclusive of depreciation) 220.7 167.1 (53.6) 32.1 % Outbound freight and handling 9.9 9.2 (0.7) 7.6 % Warehousing, selling and administrative 27.9 20.8 (7.1) 34.1 % Adjusted EBITDA $ 36.7$ 26.3 $ 10.4 39.5 % Three months ended March 31, Favorable (in millions) 2022 2021 (unfavorable) % Change Gross profit (exclusive of depreciation): Net sales$ 295.2 $ 223.4 $ 71.8 32.1 % Cost of goods sold (exclusive of depreciation) 220.7 167.1 (53.6) 32.1 %
Gross profit (exclusive of depreciation) $ 74.5
32.3 %
External sales increased $70.7 million , or 31.7%, for the three months ended
March 31, 2022 . On a constant currency basis, external net sales increased $70.8
million , or 31.8%, primarily due to chemical price inflation and market share
gains.
Gross profit (exclusive of depreciation) increased $18.2 million , or 32.3%, on
both a reported and constant currency basis for the three months ended March 31,
2022 . The increase is primarily due to chemical price inflation, operational
execution and market share gains. Gross margin increased from 25.3% for the
three months ended March 31, 2021 to 25.4% for the three months ended March 31,
2022 .
Outbound freight and handling expenses increased
WS&A increased by
Adjusted EBITDA increased by$10.4 million , or 39.5%, on both a reported and constant currency basis for the three months endedMarch 31, 2022 . The increase is primarily due to higher gross profit (exclusive of depreciation), partially offset by increased WS&A. Adjusted EBITDA margin increased from 11.8% for the three months endedMarch 31, 2021 to 12.5% for the three months endedMarch 31, 2022 , primarily due to operating leverage. 26
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LATAM
Three months ended March 31, Favorable
(in millions) 2022 2021 (unfavorable) % Change
Net sales:
External customers $ 183.8 $ 133.8 $ 50.0 37.4 %
Total net sales $ 183.8 $ 133.8 $ 50.0 37.4 %
Cost of goods sold (exclusive of
depreciation) 143.3 101.6 (41.7) 41.0 %
Outbound freight and handling 3.2 3.0 (0.2) 6.7 %
Warehousing, selling and administrative 21.1 13.6 (7.5) 55.1 %
Adjusted EBITDA $ 16.2 $ 15.6 $ 0.6 3.8 %
Three months ended March 31, Favorable
(in millions) 2022 2021 (unfavorable) % Change
Gross profit (exclusive of depreciation):
Net sales $ 183.8 $ 133.8 $ 50.0 37.4 %
Cost of goods sold (exclusive of
depreciation) 143.3 101.6 (41.7) 41.0 %
Gross profit (exclusive of depreciation) $ 40.5
8.3 25.8 %
External sales in the LATAM segment increased $50.0 million , or 37.4%, for the
three months ended March 31, 2022 . On a constant currency basis, external net
sales increased $47.3 million , or 35.4%, primarily due to chemical price
inflation and the Sweetmix acquisition, which contributed 11.5% of the increase.
Gross profit (exclusive of depreciation) increased $8.3 million , or 25.8%, for
the three months ended March 31, 2022 . On a constant currency basis, gross
profit (exclusive of depreciation) increased $7.5 million , or 23.3%, primarily
due chemical price inflation and the Sweetmix acquisition, which contributed
11.8% of the increase. Gross margin decreased from 24.1% for the three months
ended March 31, 2021 to 22.0% for the three months ended March 31, 2022 ,
primarily due to changes in product mix.
Outbound freight and handling expenses increased
WS&A increased$7.5 million , or 55.1%, for the three months endedMarch 31, 2022 . On a constant currency basis, WS&A increased$7.1 million , or 52.2%, primarily due to increased corporate cost allocation as a result of the SAP implementation and higher operating costs. As a percentage of external sales, WS&A increased from 10.2% for the three months endedMarch 31, 2021 to 11.5% for the three months endedMarch 31, 2022 . Adjusted EBITDA increased by$0.6 million , or 3.8%, for the three months endedMarch 31, 2022 . On a constant currency basis, Adjusted EBITDA increased$0.3 million , or 1.9%. Adjusted EBITDA margin decreased from 11.7% for the three months endedMarch 31, 2021 to 8.8% for the three months endedMarch 31, 2022 , primarily from lower gross margin and increased WS&A as a percentage of sales. 27
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Liquidity and Capital Resources
The Company's primary sources of liquidity are cash generated from its
operations and borrowings under its committed North American and European credit
facilities ("credit facilities"). As of March 31, 2022 , liquidity for the
Company was $1,098.6 million , comprised of $245.4 million of cash and cash
equivalents and $853.2 million of available borrowings under our credit
facilities. These credit facilities are guaranteed by certain significant
subsidiaries and secured by such parties' eligible trade receivables and
inventory with the maximum borrowing capacity under these credit facilities of
$1.5 billion and €200 million. Significant reductions in our trade receivables
and inventory would reduce our availability to access liquidity under these
credit facilities. We have no active financial maintenance covenants in our
credit agreements, however, there is a springing fixed charge coverage ratio
("FCCR") under the revolving credit facilities of 1.0x, applicable only if
availability is less than or equal to 10% of the borrowing capacity. If the FCCR
was applicable, the calculation would have been 7.6x as of March 31, 2022 .
Our primary short-term liquidity and capital resource needs are to finance
operating expenses, working capital, capital expenditures, other liabilities
including environmental remediation and interest, possible business
acquisitions, share repurchases and general corporate purposes. The majority of
our debt obligations mature in 2026 and beyond. To the extent that our cash
balances from time to time exceed amounts that are needed to fund our immediate
liquidity requirements, we will consider alternative uses of some or all of such
excess cash. Such alternatives may include, among others, the redemption or
repurchase of debt securities or other borrowings through open market purchases,
privately negotiated transactions or otherwise. Refer to "Note 11: Debt" in Item
1 of this Quarterly Report on Form 10-Q for additional information related to
our debt obligations. Management continues to balance its focus on sales and
earnings growth with continuing efforts in cost control and working capital
management.
Access to debt capital markets has historically provided the Company with
sources of liquidity, beyond normal operating cash flows. We do not anticipate
having difficulty in obtaining financing from those markets in the future with
our history of favorable results in the debt capital markets and strong
relationships with global financial institutions. However, our ability to
continue to access the debt capital markets with favorable interest rates and
other terms will depend, to a significant degree, on maintaining our current
ratings assigned by the credit rating agencies.
We expect our 2022 capital expenditures for maintenance, safety and cost
improvements and investments in our digital capabilities to be approximately
$130 million to $140 million . Interest payments for 2022 are expected to be $85
million to $95 million . We expect to fund our capital expenditures and our
interest payments with cash from operations or cash on hand.
We believe funds provided by our primary sources of liquidity will be adequate
to meet our liquidity, debt repayment obligations and capital resource needs for
at least the next 12 months under current operating conditions.
Cash Flows
The following table presents a summary of our cash flows:
Three months ended March 31,
(in millions) 2022 2021 Change
Net cash used by operating activities $ (134.4) $ (92.3) $ (42.1)
Net cash used by investing activities (34.5) (12.2) (22.3)
Net cash provided (used) by financing activities 170.8 (133.7) 304.5
Cash Used by Operating Activities
Cash used by operating activities increased$42.1 million for the three months endedMarch 31, 2022 . The increase in operating cash usage is primarily due to changes in trade working capital and other, net, partially offset by higher net income, exclusive of non-cash items. Cash used by trade working capital, which includes trade accounts receivable, net, inventories and trade accounts payable, increased$145.5 million for the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 . The year-over-year increase in cash used by trade working capital is due to higher trade accounts receivable from increased sales and increased inventory purchase costs. The change in net income, exclusive of non-cash items, increased$157.6 million from$104.0 million for the three months endedMarch 31, 2021 to$261.6 million for the three months endedMarch 31, 2022 . Cash used by other, net increased$72.6 million for the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 , primarily attributable to timing differences related to accrued compensation and other assets and liabilities. 28
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Cash Used by Investing Activities
Investing cash flows for the three months endedMarch 31, 2022 included capital expenditures of$32.5 million , cash paid of$3.8 million for purchase price adjustments for the Sweetmix acquisition and proceeds of$1.8 million from the sale of property, plant and equipment. Investing cash flows for the three months endedMarch 31, 2021 included capital expenditures of$16.3 million and proceeds of$5.3 million from the sale of property, plant and equipment.
Cash Provided (Used) by Financing Activities
Financing cash flows for the three months endedMarch 31, 2022 included proceeds under revolving credit facilities of$491.4 million , payments under revolving credit facilities of$294.3 million , long-term debt repayments of$12.0 million and share repurchases of$24.0 million . Financing cash flows for the three months endedMarch 31, 2021 included proceeds under revolving credit facilities of$603.0 million , payments under revolving credit facilities of$684.0 million and long-term debt repayments of$56.2 million .
Off-Balance Sheet Arrangements
There were no material changes in the Company's off-balance sheet arrangements since the filing of the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 .
Contractual Obligations and Commitments
There were no material changes in the Company's contractual obligations and commitments since the filing of the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 , other than as disclosed in "Note 11: Debt" to the interim condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q, as well as the "Liquidity and Capital Resources" included in Item 2 of this Quarterly Report on Form 10-Q.
Critical Accounting Estimates
There were no material changes in the Company's critical accounting estimates since the filing of the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 .
Recently Issued Accounting Pronouncements
See "Note 2: Significant accounting policies" to the interim condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.
Forward Looking Statements and Information
Certain parts of this Quarterly Report on Form 10-Q contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are generally accompanied by words such as "believes," "expects," "may," "will," "should," "could," "seeks," "intends," "plans," "estimates," "anticipates" or other comparable terms. All forward-looking statements made in this Quarterly Report on Form 10-Q are qualified by these cautionary statements. Any forward-looking statements represent our views only as of the date of this report and should not be relied upon as representing our views as of any subsequent date, and we undertake no obligation, other than as may be required by law, to update any forward-looking statement. We caution you that forward-looking statements are not guarantees of future performance and that our actual performance may differ materially from those made in or suggested by the forward-looking statements contained in this Quarterly Report on Form 10-Q. Forward -looking statements include, but are not limited to, statements about: •the impact of general economic conditions, supplier shut-downs, port congestion, acute COVID-19 pandemic recovery demand, theRussia -Ukraine conflict and weather events on our end markets, operations, financial condition and operating results; •our expense control and cost reduction plans and other strategic plans and initiatives; •demand for products, systems and services that meet growing customer sustainability standards, expectations and preferences and our ability to provide such products, systems and services to maintain our competitive position; •our ability to sell specialty products at higher profit; •our liquidity outlook and the funding thereof, and cash requirements and adequacy of resources to fund them; •significant factors that may adversely affect us and our industry; •the outcome and effect of ongoing and future legal proceedings; •market conditions and outlook; •return of capital to shareholders; •future contributions to, and withdrawal liability in connection with, our pension plans and cash payments for postretirement benefits; and •future capital expenditures and investments. 29
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Potential factors that could affect such forward-looking statements include, among others:
•general economic conditions, particularly fluctuations in industrial production and consumption and the timing and extent of economic downturns; •significant changes in the business strategies of producers or in the operations of our customers; •increased competitive pressures, including as a result of competitor consolidation; •potential supply chain disruptions; •significant changes in the pricing, demand and availability of chemicals; •our indebtedness, the restrictions imposed by, and costs associated with, our debt instruments, and our ability to obtain additional financing; •the broad spectrum of laws and regulations that we are subject to, including extensive environmental, health and safety laws and regulations and changes in tax laws; •potential cybersecurity incidents, including security breaches; •an inability to generate sufficient working capital; •transportation related challenges, including increases in transportation and fuel costs, changes in our relationship with third party transportation providers, and ability to attract and retain qualified drivers; •accidents, safety failures, environmental damage, product quality issues, delivery failures or hazards and risks related to our operations and the hazardous materials we handle; •potential inability to obtain adequate insurance coverage; •ongoing litigation, potential product liability claims and recalls, and other environmental, legal and regulatory risks; •challenges associated with international operations; •exposure to interest rate and currency fluctuations; •possible impairment of goodwill and intangible assets; •the ongoing and evolving COVID-19 pandemic, including impacts on the global economy, our employees, customers, vendors and suppliers, and our business, results of operations and financial condition; •an inability to integrate the business and systems of companies we acquire, including failure to realize the anticipated benefits of such acquisitions; •negative developments affecting our pension plans and multi-employer pensions; •labor disruptions associated with the unionized portion of our workforce; •our ability to attract or retain a qualified and diverse workforce; and •the other factors described in the Company's filings with theSecurities and Exchange Commission . The Quarterly Report on Form 10-Q, including the uncertainties and factors discussed under "Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2021 should be read in full and with the understanding that actual future results may be materially different from expectations expressed or implied by any forward-looking statement. All forward-looking statements made in this Quarterly Report on Form 10-Q are qualified by these cautionary statements. These forward-looking statements are made only as of the date of this Quarterly Report on Form 10-Q and we do not undertake any obligation, other than as may be required by law, to update or revise any forward-looking or cautionary statements to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise and changes in future operating results over time or otherwise.
Comparisons of results between current and prior periods are not intended to express any future trends, or indications of future performance, unless expressed as such, and should only be viewed as historical data.
Non-GAAP Financial Measures
We monitor the results of our reportable segments separately for the purposes of
making decisions about resource allocation and performance assessment, and
evaluate performance using Adjusted EBITDA. Additionally, the Company uses
Adjusted EBITDA in setting performance incentive targets to align management
compensation measurement with operational performance.
We define Adjusted EBITDA as the sum of consolidated net income; depreciation;
amortization; net interest expense; income tax expense; impairment charges;
(gain) loss on sale of business; other operating expenses, net and other income,
net (for both, see "Note 6: Supplemental financial information" in Item 1 of
this Quarterly Report on Form 10-Q for additional information). For a
reconciliation of the non-GAAP financial measures to its most comparable GAAP
measure, see "Analysis of Segment Results" within this Item and for a
reconciliation of net income to Adjusted EBITDA, the most comparable measure
calculated in accordance with GAAP, see "Note 16: Segments" to our condensed
consolidated financial statements in Item 1 of this Quarterly Report on Form
10-Q.
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We believe other financial measures, as defined below, that do not comply with US GAAP provide relevant and meaningful information concerning the ongoing operating results of the Company.
•Gross profit (exclusive of depreciation): net sales less cost of goods sold (exclusive of depreciation); •Gross margin: gross profit (exclusive of depreciation) divided by external sales on a segment level and by net sales on a consolidated level; and •Adjusted EBITDA margin: Adjusted EBITDA divided by external sales on a segment level and by net sales on a consolidated level. We evaluate our results of operations on both an as reported and a constant currency basis. The constant currency presentation is a non-GAAP financial measure, which excludes the impact of fluctuations in foreign currency exchange rates. We believe providing information on a constant currency basis provides valuable supplemental information regarding our results of operations, consistent with how we evaluate our performance. We calculate constant currency percentages and other information by converting our financial results in local currency for a period using the average exchange rate for the prior period to which we are comparing. The non-GAAP financial measures noted above are not calculated in accordance with GAAP and should not be considered a substitute for net income or any other measure of financial performance presented in accordance with GAAP. They are included as a complement to results provided in accordance with GAAP because management believes these non-GAAP financial measures help investors' ability to analyze underlying trends in the Company's business, evaluate its performance relative to other companies in its industry and provide useful information to both management and investors by excluding certain items that may not be indicative of the Company's core operating results. Additionally, other companies may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.
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