UNIVAR INC., 10-Q filed on 5/9/2019
Quarterly Report
v3.19.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2019
Apr. 30, 2019
Document And Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Mar. 31, 2019  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q1  
Trading Symbol UNVR  
Entity Registrant Name Univar Inc.  
Entity Central Index Key 0001494319  
Current Fiscal Year End Date --12-31  
Entity Filer Category Large Accelerated Filer  
Entity Common Stock, Shares Outstanding   169,724,305
v3.19.1
Condensed Consolidated Statements of Operations - USD ($)
shares in Millions, $ in Millions
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Income Statement [Abstract]    
Net sales $ 2,160.0 $ 2,158.0
Cost of goods sold (exclusive of depreciation) 1,663.6 1,671.4
Operating expenses:    
Outbound freight and handling 82.9 79.3
Warehousing, selling and administrative 253.4 241.0
Other operating expenses, net 164.8 13.6
Depreciation 33.2 31.4
Amortization 14.4 13.4
Total operating expenses 548.7 378.7
Operating (loss) income (52.3) 107.9
Other (expense) income:    
Interest income 0.6 1.2
Interest expense (34.8) (36.1)
Loss on extinguishment of debt (0.7) 0.0
Other (expense) income, net (6.1) 2.6
Total other expense (41.0) (32.3)
(Loss) income from continuing operations before income taxes (93.3) 75.6
Income tax (benefit) expense from continuing operations (23.3) 10.2
Net (loss) income from continuing operations (70.0) 65.4
Net income from discontinued operations 6.1 0.0
Net (loss) income $ (63.9) $ 65.4
(Loss) income per common share:    
Basic from continuing operations (in dollars per share) $ (0.47) $ 0.46
Basic from discontinued operations (in dollars per share) 0.04 0.00
Basic (Loss) income per common share (in dollars per share) (0.43) 0.46
Diluted from continuing operations (in dollars per share) (0.47) 0.46
Diluted from discontinued operations (in dollars per share) 0.04 0.00
Diluted (Loss) income per common share (in dollars per share) $ (0.43) $ 0.46
Weighted average common shares outstanding:    
Basic (in shares) 149.2 140.9
Diluted (in shares) 149.2 142.0
v3.19.1
Condensed Consolidated Statements of Comprehensive (Loss) Income - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Condensed Statement of Income Captions [Line Items]    
Net (loss) income $ (63.9) $ 65.4
Other comprehensive (loss) income, net of tax:    
Foreign currency translation 8.2 (7.2)
Derivative financial instruments (8.3) 9.1
Total other comprehensive (loss) income, net of tax (3.3) 2.4
Comprehensive (loss) income (67.2) 67.8
Accounting Standard Update 2018-02    
Other comprehensive (loss) income, net of tax:    
Impact due to adoption of ASU 2017-12 [1] (3.2) 0.0
Accounting Standards Update 2017-12    
Other comprehensive (loss) income, net of tax:    
Impact due to adoption of ASU 2017-12 [2] $ 0.0 $ 0.5
[1] Adjusted due to the adoption of Accounting Standards Update (“ASU”) 2018-02 “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” on January 1, 2019. Refer to “Note 2: Significant accounting policies” for more information.
[2] Adjusted due to the adoption of ASU 2017-12 “Targeted Improvements to Accounting for Hedging Activities” on January 1, 2018.
v3.19.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Millions
Mar. 31, 2019
Dec. 31, 2018
Current assets:    
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents $ 788.0 $ 121.6
Trade accounts receivable, net 1,466.5 1,094.7
Inventories 996.6 803.3
Prepaid expenses and other current assets 195.9 169.1
Total current assets 3,447.0 2,188.7
Property, plant and equipment, net 1,168.2 955.8
Goodwill 2,472.1 1,780.7
Intangible assets, net 398.5 238.1
Deferred tax assets 24.4 24.8
Other assets [1] 277.6 84.3
Total assets 7,787.8 5,272.4
Current liabilities:    
Short-term financing 4.3 8.1
Trade accounts payable 1,096.7 925.4
Current portion of long-term debt 27.2 21.7
Accrued compensation 92.7 93.6
Other accrued expenses 467.0 285.8
Total current liabilities 1,687.9 1,334.6
Long-term debt 3,694.0 2,350.4
Pension and other postretirement benefit liabilities 252.5 254.4
Deferred tax liabilities 114.4 42.9
Other long-term liabilities [1] 258.0 98.4
Total liabilities 6,006.8 4,080.7
Stockholders’ equity:    
Preferred stock, 200.0 million shares authorized at $0.01 par value with no shares issued or outstanding as of March 31, 2019 and December 31, 2018 0.0 0.0
Common stock, 2.0 billion shares authorized at $0.01 par value with 169.7 million and 141.7 million shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively 1.7 1.4
Additional paid-in capital 2,978.0 2,325.0
Accumulated deficit (822.2) (761.5)
Accumulated other comprehensive loss (376.5) (373.2)
Total stockholders’ equity 1,781.0 1,191.7
Total liabilities and stockholders’ equity $ 7,787.8 $ 5,272.4
[1] Operating lease assets and operating lease liabilities are included in other assets and other long-term liabilities. Refer to “Note 18: Leasing” for more information.
v3.19.1
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
Mar. 31, 2019
Dec. 31, 2018
Statement of Financial Position [Abstract]    
Preferred stock, shares authorized (in shares) 200,000,000 200,000,000
Preferred stock, par value (in dollars per share) $ 0.01 $ 0.01
Preferred stock, share issued (in shares) 0 0
Preferred stock, shares outstanding (in shares) 0 0
Common stock, shares authorized (in shares) 2,000,000,000 2,000,000,000
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, shares issued (in shares) 169,700,000 141,700,000
Common stock, shares outstanding (in shares) 169,700,000 141,700,000
v3.19.1
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Operating activities:    
Net (loss) income $ (63.9) $ 65.4
Adjustments to reconcile net (loss) income to net cash used by operating activities:    
Depreciation and amortization 47.6 44.8
Amortization of deferred financing fees and debt discount 1.8 2.0
Loss on extinguishment of debt 0.7 0.0
Deferred income taxes (28.2) (3.0)
Stock-based compensation expense 6.0 9.4
Other 0.5 0.4
Changes in operating assets and liabilities:    
Trade accounts receivable, net (86.6) (219.4)
Inventories (42.9) (80.1)
Prepaid expenses and other current assets (4.2) (14.1)
Trade accounts payable 37.3 67.3
Pensions and other postretirement benefit liabilities (3.3) (11.6)
Other, net 11.7 (0.1)
Net cash used by operating activities (123.5) (139.0)
Investing activities:    
Purchases of property, plant and equipment (16.5) (16.2)
Purchases of businesses, net of cash acquired (1,165.5) (8.9)
Proceeds from sale of property, plant and equipment 0.7 2.2
Proceeds from sale of business 650.0 0.0
Other (1.3) 0.0
Net cash used by investing activities (532.6) (22.9)
Financing activities:    
Proceeds from issuance of long-term debt 1,341.4 141.8
Payments on long-term debt and finance lease obligations (4.6) (320.1)
Short-term financing, net (4.3) (6.6)
Taxes paid related to net share settlements of stock-based compensation awards (2.0) (2.7)
Stock option exercises 0.0 0.8
Net cash provided (used) by financing activities 1,330.5 (186.8)
Effect of exchange rate changes on cash and cash equivalents (8.0) (2.4)
Net increase (decrease) in cash and cash equivalents 666.4 (351.1)
Cash and cash equivalents at beginning of period 121.6 467.0
Cash and cash equivalents at end of period 788.0 115.9
Non-cash activities:    
Fair value of common stock issued for acquisition of business 649.3 0.0
Additions of property, plant and equipment included in trade accounts payable and other accrued expenses 12.4 7.3
Additions of property, plant and equipment under a finance lease obligation 1.8 $ 6.0
Additions of assets under an operating lease obligation $ 2.9  
v3.19.1
Condensed Consolidated Statements of Changes in Stockholders' Equity - USD ($)
shares in Millions, $ in Millions
Total
Common stock
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Impact due to adoption of ASU, net of tax [1] $ 0.8     $ 0.3 $ 0.5
Beginning balance at Dec. 31, 2017 1,090.1 $ 1.4 $ 2,301.3 (934.1) (278.5)
Beginning balance (in shares) at Dec. 31, 2017   141.1      
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net (loss) income 65.4     65.4  
Foreign currency translation adjustment, net of tax (7.2)       (7.2)
Derivative financial instruments, net of tax 9.1       9.1
Restricted stock units vested (in shares)   0.2      
Restricted stock units vested 0.0        
Tax withholdings related to net share settlements of stock-based compensation awards (in shares)   (0.1)      
Tax withholdings related to net share settlements of stock-based compensation awards (2.7)   (2.7)    
Stock option exercises (in shares)   0.1      
Stock option exercises 0.8   0.8    
Stock-based compensation (in shares)   0.0      
Stock-based compensation 9.4   9.4    
Ending balance (in shares) at Mar. 31, 2018   141.3      
Ending balance at Mar. 31, 2018 1,165.7 $ 1.4 2,308.8 (868.4) (276.1)
Beginning balance at Dec. 31, 2018 $ 1,191.7 $ 1.4 2,325.0 (761.5) (373.2)
Beginning balance (in shares) at Dec. 31, 2018 141.7 141.7      
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net (loss) income $ (63.9)     (63.9)  
Foreign currency translation adjustment, net of tax 8.2       8.2
Derivative financial instruments, net of tax $ (8.3)       (8.3)
Stock Issued During Period, Shares, Acquisitions 27.9        
Stock Issued During Period, Value, Acquisitions $ 649.3 $ 0.3 649.0    
Restricted stock units vested (in shares)   0.2      
Restricted stock units vested 0.0        
Tax withholdings related to net share settlements of stock-based compensation awards (in shares)   (0.1)      
Tax withholdings related to net share settlements of stock-based compensation awards (2.0)   (2.0)    
Stock-based compensation (in shares)   0.0      
Stock-based compensation $ 6.0   6.0    
Ending balance (in shares) at Mar. 31, 2019 169.7 169.7      
Ending balance at Mar. 31, 2019 $ 1,781.0 $ 1.7 $ 2,978.0 (822.2) $ (376.5)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Impact due to adoption of ASU, net of tax       $ 3.2  
[1] Adjusted due to the adoption of ASU 2014-09 “Revenue from Contracts with Customers” and ASU 2017-12 “Targeted Improvements to Accounting for Hedging Activities” on January 1, 2018.
v3.19.1
Condensed Consolidated Statements of Changes in Stockholders' Equity (Parenthetical) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Foreign currency translation adjustment $ (0.1)  
Derivative financial instruments tax $ 2.8 $ (3.2)
Accounting Standards Update 2017-12    
Impact due to adoption of ASU's   $ (0.3)
v3.19.1
Nature of operations
3 Months Ended
Mar. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Nature of operations
1. Nature of operations
Headquartered in Downers Grove, Illinois, Univar Inc. (“the Company” or “Univar”) is a leading global chemicals and ingredients distributor and provider of specialty chemicals. The Company’s operations are structured into four operating segments that represent the geographic areas under which the Company manages its business:
Univar USA (“USA”)
Univar Canada (“Canada”)
Univar Europe, the Middle East and Africa (“EMEA”)
Latin America (“LATAM”)
In 2019, the Company renamed its “Rest of World” segment “Latin America” which includes certain developing businesses in Latin America (including Brazil and Mexico) and the Asia-Pacific region.
v3.19.1
Significant accounting policies
3 Months Ended
Mar. 31, 2019
Accounting Policies [Abstract]  
Significant accounting policies
2. Significant accounting policies
Basis of presentation
The condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) as applicable to interim financial reporting. Unless otherwise indicated, all financial data presented in these condensed consolidated financial statements are expressed in US dollars. These condensed consolidated financial statements, in the Company’s opinion, include all adjustments consisting of normal recurring accruals necessary for a fair presentation of the condensed consolidated balance sheets, statements of operations, comprehensive income, cash flows and changes in stockholders’ equity. The results of operations for the periods presented are not necessarily indicative of the operating results that may be expected for the full year. These condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
The condensed consolidated financial statements include the financial statements of the Company and its subsidiaries. Subsidiaries are consolidated if the Company has a controlling financial interest, which may exist based on ownership of a majority of the voting interest, or based on the Company’s determination that it is the primary beneficiary of a variable interest entity (“VIE”) or if otherwise required by US GAAP. The Company did not have any material interests in VIEs during the periods presented in these condensed consolidated financial statements. All intercompany balances and transactions are eliminated in consolidation.
The preparation of condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and accompanying notes. Actual results could differ materially from these estimates.
Recently issued and adopted accounting pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02 “Leases” (Topic 842), which supersedes the lease recognition requirements in ASC Topic 840, “Leases.” On January 1, 2019, the Company adopted the new Accounting Standards Codification (“ASC”) Topic 842 (“new lease standard”) using the modified retrospective method. The Company has elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the historical lease classification to carryforward. The Company also made an accounting policy election to not recognize leases with an initial term of 12 months or less on the balance sheet. The Company will recognize short-term lease payments in the condensed consolidated statements of operations on a straight-line basis over the lease term. The Company recognized the cumulative effect of initially applying the new lease standard as an adjustment to the 2019 opening balance sheet. The cumulative effect of the standard’s adoption also includes adjustments related to previously unrecognized finance leases. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.
The cumulative effect of the changes made to the January 1, 2019 condensed consolidated balance sheet for the adoption of ASU 2016-02 “Leases” (Topic 842) is as follows:
(in millions)
 
Balance at December 31, 2018
 
Adjustments due to ASU 2016-02
 
Balance at January 1, 2019
Assets
 
 
 
 
 
 
Property, plant and equipment, net
 
$
955.8

 
$
5.4

 
$
961.2

Other assets
 
84.3

 
166.8

 
251.1

Liabilities
 
 
 
 
 
 
Current portion of long-term debt
 
$
21.7

 
$
(4.5
)
 
$
17.2

Other accrued expenses
 
285.8

 
43.8

 
329.6

Long-term debt
 
2,350.4

 
9.9

 
2,360.3

Other long-term liabilities
 
98.4

 
123.0

 
221.4


In February 2018, the FASB issued ASU 2018-02 “Income Statement - Reporting Comprehensive Income” (Topic 220)  “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” (“AOCI”) which gave entities the option to reclassify certain tax effects the FASB refers to as having been stranded, resulting from the Tax Cuts and Jobs Act from AOCI to retained earnings. The Company adopted the ASU as of January 1, 2019 and elected to reclassify $3.2 million of the stranded tax effects from accumulated other comprehensive loss to accumulated deficit.
The Company also adopted the following standard during 2019, which did not have a material impact to the financial statements or financial statement disclosures:
Standard
 
 
 
Effective date
2018-16
 
Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes
 
January 1, 2019

Accounting pronouncements issued and not yet adopted
In August 2018, the FASB issued ASU 2018-13 “Fair Value Measurement” (Topic 820) - “Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” The ASU amends the requirements related to fair value disclosures to include new disclosure requirements and eliminates or modifies certain historic disclosures. The ASU amendment was part of the FASB’s disclosure framework project that is designed to increase the effectiveness of companies’ disclosures to the users of the financial statements and footnotes. This guidance will be effective for fiscal years beginning after December 15, 2019, including interim periods within such fiscal years. Early adoption is permitted. The Company is currently determining the impact to the Company’s disclosure requirements, which will be reflected in the footnote disclosures subsequent to the ASU adoption on January 1, 2020.
In August 2018, the FASB issued ASU 2018-14 “Compensation - Retirement Benefits - Defined Benefit Plans - General” (Subtopic 715-20) - “Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans.” The ASU amends the requirements related to defined benefit pension and other postretirement plan disclosures to include new disclosure requirements and eliminates or clarifies certain historic disclosures. The ASU amendment was part of the FASB’s disclosure framework project that is designed to increase the effectiveness of companies’ disclosures to the users of the financial statements and footnotes. This guidance will be effective for fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company is currently determining the impact to the Company’s disclosure requirements, which will be reflected in the footnote disclosures subsequent to the ASU adoption on January 1, 2021.
The Company has not yet adopted the following standards, none of which is expected to have a material impact to the financial statements or financial statement disclosures:
Standard
 
 
 
Expected adoption date
2018-18
 
Collaborative Arrangements (Topic 808) - Clarifying the Interaction between Topic 808 and Topic 606
 
January 1, 2020
2018-17
 
Consolidation (Topic 810) - Targeted Improvements to Related Party Guidance for Variable Interest Entities
 
January 1, 2020
2018-15
 
Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force)
 
January 1, 2020
2016-13
 
Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
 
January 1, 2020
v3.19.1
Business combinations
3 Months Ended
Mar. 31, 2019
Business Combinations [Abstract]  
Business combinations
3. Business combinations
2019 Acquisitions
Acquisition of Nexeo
On February 28, 2019, the Company completed its previously announced acquisition of 100% of the equity interest of Nexeo Solutions, Inc., (“Nexeo”), a leading global chemicals and plastics distributor. The acquisition expands and strengthens Univar’s presence in North America and provides expanded opportunities to create the largest North American sales force in chemical and ingredients distribution and the broadest product offering.
The total purchase price of the acquisition was $1,814.8 million, composed of $1,165.5 million of cash paid (net of cash acquired of $46.8 million) and $649.3 million of newly issued shares of Univar common stock, which represented approximately 27.9 million shares of Univar common stock, based on Univar’s closing stock price of $23.29 on February 27, 2019. Under the merger agreement, each share of Nexeo stock issued and outstanding converted into 0.305 shares of Univar common stock and $3.02 in cash. As part of the acquisition, approximately $936.3 million of Nexeo’s debt and other long-term liabilities were repaid by Univar using the proceeds from long-term debt issued on February 28, 2019.
The $1,165.5 million cash payments along, with acquisition related costs, were funded through the proceeds from $781.5 million of incremental Term B Loans, $309.3 million borrowings under the New Senior ABL Facility and $175.0 million borrowings under the ABL Term Loan. Refer to “Note 13: Debt” for more information.
The initial accounting for this acquisition is considered preliminary, and is subject to adjustments upon receipt of additional information relevant to the acquisition, including working capital adjustments, valuations for certain tangible assets acquired and liabilities assumed, the valuation of intangible assets acquired and related deferred income taxes. Management has engaged a third-party valuation firm to assist in the valuation of certain Nexeo’s tangible and intangible assets. This valuation is in process and the preliminary values below are based on initial information that continues to be subject to the completion of the valuation and allocation of the assets acquired.
The preliminary purchase price allocation at February 28, 2019 is as follows:
(in millions)
 
 
Trade accounts receivable, net
 
$
286.9

Inventories
 
149.0

Prepaid expenses and other current assets
 
27.2

Assets held for sale
 
1,030.9

Property, plant and equipment, net
 
227.4

Goodwill
 
682.2

Intangible assets, net
 
173.9

Other assets
 
37.0

Trade accounts payable
 
(133.7
)
Other accrued expenses
 
(94.9
)
Liabilities held for sale
 
(390.9
)
Deferred tax liabilities
 
(102.3
)
Other long-term liabilities
 
(77.9
)
Purchase consideration, net of cash
 
$
1,814.8


Assets and liabilities held for sale are related to the Nexeo plastics distribution business (“Nexeo Plastics”). Nexeo Plastics was not aligned with the Company's strategic objectives and, on March 29, 2019, the business was sold to an affiliate of One Rock Capital Partners, LLC for total proceeds of $650.0 million, including $10.0 million for estimated excess working capital. Refer to “Note 4: Discontinued operations” for further information.
The Company recorded $682.2 million of goodwill which is primarily attributable to expected synergies from combining operations. The Company is in process of determining its allocation of goodwill to its USA, Canada and LATAM reporting units as well as determining if goodwill is expected to be deductible for income tax purposes.
The Company assumed 50.0 million warrants, equivalent to 25.0 million Nexeo shares, with an estimated aggregate fair value of $26.0 million at the February 28, 2019 closing date. The warrants were converted into the right to receive, upon exercise, the merger consideration consisting of approximately 7.6 million shares of Univar common stock plus cash. The warrants have an exercise price of $27.80. These warrants will expire on June 9, 2021. The Company recorded the warrants as other long-term liabilities within the condensed consolidated balance sheet. Refer to “Note 15: Fair value measurements” for more information.
The amounts of net sales and net income from continuing operations related to the Nexeo chemical distribution business, included in the Company’s condensed consolidated statements of operations from March 1, 2019 to March 31, 2019 are as follows:
(in millions)
 
 
Net sales
 
$
155.6

Net loss from continuing operations
 
(7.2
)

The following unaudited pro forma financial information combines the unaudited results of operations as if the acquisition of Nexeo had occurred at the beginning of the periods presented below. The unaudited pro forma results for all periods presented below exclude the results of operations related to Nexeo Plastics, as this divestiture was reflected as discontinued operations. Refer to “Note 4: Discontinued operations” for additional information.
The unaudited pro forma financial information is as follows:
 
 
Three months ended March 31,
(in millions)
 
2019
 
2018
Net sales
 
$
2,486.0

 
$
2,682.1

Net (loss) income from continuing operations
 
(59.8
)
 
85.4


The pro forma financial information is for comparative purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place on January 1, 2018.
The unaudited pro forma information is based upon accounting estimates and judgments that we believe are reasonable. The unaudited pro forma information reflects adjustments directly attributed to the business combination including amortization on acquired intangible assets, interest expense, transaction and acquisition related costs and the related tax effects.
2018 Acquisitions
Acquisition of Earthoil
On May 31, 2018, the Company completed an acquisition of 100% of the equity interest in Earthoil Plantations Limited (“Earthoil”), a supplier of pure, organic, fair trade essential and cold-pressed vegetable seed oils used in the naturals, organic beauty, and personal care markets. The acquisition expands and strengthens Univar’s existing global natural beauty and personal care product line.
The total purchase price of the acquisition was $13.3 million. The purchase price allocation includes goodwill of $3.7 million and intangibles of $6.1 million.
The operating results subsequent to the acquisition date did not have a significant impact on the condensed consolidated financial statements of the Company. The accounting for this acquisition has only been preliminarily determined.
Acquisition of Kemetyl Industrial Chemicals
On January 4, 2018, the Company completed an acquisition of 100% of the equity interest in Kemetyl Norge Industri AS (“Kemetyl”) as well as a definitive asset purchase agreement with Kemetyl Aktiebolag. Kemetyl is among the leading distributors of chemical products in the Nordic region and provides bulk and specialty chemicals, such as isopropanol, glycols, metal salts, minerals and polyacrylamides, to customers in Sweden and Norway. The addition of Kemetyl will allow Univar to expand its leading position in the pharmaceutical industry.
The purchase price of these acquisitions was $8.9 million (net of cash acquired of $0.7 million). The purchase price allocation includes goodwill of $3.9 million and intangibles of $3.6 million.
The operating results subsequent to the acquisition date did not have a significant impact on the condensed consolidated financial statements of the Company. The accounting for these acquisitions was complete as of March 31, 2019.
v3.19.1
Discontinued Operations
3 Months Ended
Mar. 31, 2019
Discontinued Operations and Disposal Groups [Abstract]  
Discontinued Operations
4. Discontinued operations
On March 29, 2019, the Company completed the sale of the plastics distribution business of Nexeo to an affiliate of One Rock Capital Partners, LLC for total proceeds of $650.0 million, including $10.0 million for estimated excess working capital.
In connection with the transaction, the Company entered into a Transition Services Agreement (TSA), a Warehouse Service Agreement (WSA) and Real Property Agreements with One Rock Capital Partners, LLC which are designed to ensure and facilitate an orderly transfer of business operations. The services provided under the transitional arrangements will terminate at various times, between six and twenty-four months and can be renewed with a maximum of two twelve-month periods. The income and expense for the services will be reported as other operating expenses, net in the condensed consolidated statements of operations. The Real Property Agreements will have a maximum tenure of three years. These arrangements do not constitute significant continuing involvement in the plastics distribution business. 
The following table summarizes the operating results of the Company’s discontinued operations related to the sale described above for the period from March 1, 2019 to March 31, 2019, as presented in “Net income from discontinued operations” on the condensed consolidated statements of operations.
(in millions)
 
Three months ended March 31, 2019
External sales
 
$
156.9

Cost of goods sold (exclusive of depreciation)
 
136.7

Outbound freight and handling
 
3.5

Warehousing, selling and administrative
 
7.9

Other expenses
 
1.4

Income from discontinued operations before income taxes
 
$
7.4

Income tax expense from discontinued operations
 
1.3

Net income from discontinued operations
 
$
6.1


There were no significant non-cash operating activities from the Company’s discontinued operations related to the plastics distribution business.
v3.19.1
Revenue
3 Months Ended
Mar. 31, 2019
Revenue from Contract with Customer [Abstract]  
Revenue
5. Revenue
The Company disaggregates revenues from contracts with customers by both geographic segments and revenue contract types. Geographic reportable segmentation is pertinent to understanding Univar’s revenues, as it aligns to how the Company reviews the financial performance of its operations. Revenue contract types are differentiated by the type of good or service Univar offers customers, since the contractual terms necessary for revenue recognition are unique to each of the identified revenue contract types.
The following table disaggregates external customer net sales by major stream:
(in millions)
 
USA
 
Canada
 
EMEA
 
LATAM
 
Consolidated
 
 
Three months ended March 31, 2019
Chemical Distribution
 
$
1,247.5

 
$
211.7

 
$
483.4

 
$
92.6

 
$
2,035.2

Crop Sciences
 

 
50.5

 

 

 
50.5

Services
 
59.7

 
11.6

 
0.3

 
2.7

 
74.3

Total external customer net sales
 
$
1,307.2

 
$
273.8

 
$
483.7

 
$
95.3

 
$
2,160.0

Revenue is recognized when performance obligations under the terms of the contract are satisfied, which generally occurs when goods or services are transferred to a customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. Payment terms and conditions vary by regions where the Company performs business and contract types. The term between invoicing and when payment is due is generally one year or less. As of March 31, 2019, none of the Company’s contracts contained a significant financing component.
Revenue is recognized if the Company has a customer initiated request, the materials are properly segregated and designated as belonging to the customer, materials are ready to be transferred to the customer and Univar is unable to direct the materials to service another customer. In addition, the Company has certain contractual relationships designated as an agency relationship, which requires the Company to recognize revenues on a net basis.
Chemical Distribution
The Company generates revenue when control for products is transferred to customers. Certain customers may receive discounts off the transaction price, primarily due to price and volume incentives, or return product for non-conformance, which are accounted for as variable consideration. The Company estimates the change in the transaction price that is expected to be provided to customers based on historical experience, which impacts revenues recognized.
Crop Sciences
The Company generates revenue when control for products is transferred to customers. The amount of consideration recorded varies due to price movements and rights granted to customers to return product. Customer payment terms often extend through a growing season, which may be up to six months.
Transaction prices may move during an agricultural growing season and changes may affect the amount of consideration the Company will receive. Transaction prices are also affected by special offers or volume discounts. The Company estimates the expected changes in the transaction price based on the combination of historical experience and the impact of weather on the current agriculture season. The adjustments to the transaction price are recognized as variable consideration and impacts revenues recognized.
When customers are provided rights to return eligible products, the Company estimates the expected returns based on the combination of historical experience and the impact of weather on the current agriculture season, which affects the revenues recognized.
Services
The Company generates revenue from services as they are performed and economic value is transferred to customers. Univar’s services provided to customers are primarily related to waste management services and warehousing services. Waste management services is primarily related to plant maintenance, environmental contracting, environmental consulting and the collection and disposal of both hazardous and non-hazardous waste products. Warehousing services is primarily inclusive of blending, warehousing, logistics and distribution services for customers. Waste management and warehousing services are recognized over time as the performance obligations are satisfied.
Costs to obtain or fulfill contracts with customers
Univar expenses costs to obtain contracts when the contract term and benefit period is expected to be one year or less. Contract costs where the contract term and benefit period is expected to be more than a year are capitalized and amortized over the performance obligation period. Capitalized contract costs of $1.3 million and $5.5 million are included in other current assets and other assets as of March 31, 2019.
Deferred revenue
Deferred revenues are recognized as a contract liability when customers provide Univar with consideration prior to the Company satisfying a performance obligation. The following table provides information pertaining to the deferred revenue balance and account activity:
(in millions)
 
 
Deferred revenue as of January 1, 2019
 
$
45.6

Deferred revenue as of March 31, 2019
 
49.8

Revenue recognized that was included in the deferred revenue balance at the beginning of the period
 
14.2


The deferred revenue balances are all expected to have a duration of one year or less and are recorded within the other accrued expenses line item of the condensed consolidated balance sheet.
v3.19.1
Other operating expenses, net
3 Months Ended
Mar. 31, 2019
Other Income and Expenses [Abstract]  
Other operating expenses, net
6. Other operating expenses, net
Other operating expenses, net consisted of the following activity:
 
 
Three months ended
March 31,
(in millions)
 
2019
 
2018
Stock-based compensation expense
 
$
6.0

 
$
9.4

Restructuring charges
 
0.1

 
0.5

Other employee termination costs
 
12.9

 
2.4

Acquisition and integration related expenses
 
77.1

 
0.4

Saccharin legal settlement
 
62.5

 

Other
 
6.2

 
0.9

Total other operating expenses, net
 
$
164.8

 
$
13.6

v3.19.1
Restructuring charges
3 Months Ended
Mar. 31, 2019
Restructuring and Related Activities [Abstract]  
Restructuring charges
7. Restructuring charges
Restructuring charges recorded relate to large, strategic initiatives aimed at streamlining the Company’s cost structure and improving its operations. These actions primarily result in workforce reductions, lease termination costs and other facility rationalization costs. Restructuring charges are recorded in other operating expenses, net in the condensed consolidated statement of operations.
2018 Restructuring
In 2018, the Company recorded restructuring charges of $3.2 million in USA, consisting of $3.1 million in employee termination costs and $0.1 million in other exit costs for employees impacted by a decision to consolidate departments. Additionally, the Company recorded restructuring charges of $0.9 million in Other, relating to employee termination costs. During the three months ended March 31, 2019, the Company recorded restructuring charges of $0.3 million in USA, consisting of $0.2 million in employee termination costs and $0.1 million in other exit costs. The Company expects to incur approximately $4.4 million of additional employee termination and other exit costs over the next year and expects this program to be substantially completed by 2020.
Also during the year ended December 31, 2018, the Company recorded restructuring charges of $0.9 million in EMEA relating to employee termination costs. The Company reduced its estimate in the amount of $0.2 million within employee termination costs for this program during the three months ended March 31, 2019. The Company does not expect to incur material costs in the future related to this restructuring program. The actions associated with this program are expected to be completed by the end of 2019.
The cost information above does not contain any estimates for programs that may be developed and implemented in future periods.
The following table summarizes activity related to accrued liabilities associated with restructuring:
(in millions)
 
January 1, 2019
 
Charge to 
earnings
 
Cash
paid
 
Non-cash 
and other
 
March 31, 2019
Employee termination costs
 
$
4.2

 
$

 
$
(1.5
)
 
$

 
$
2.7

Facility exit costs
 
5.0

 

 

 

 
5.0

Other exit costs
 
0.2

 
0.1

 

 

 
0.3

Total
 
$
9.4

 
$
0.1

 
$
(1.5
)
 
$

 
$
8.0


(in millions)
 
January 1, 2018
 
Charge to 
earnings
 
Cash 
paid
 
Non-cash 
and other
 
December 31, 2018
Employee termination costs
 
$
3.0

 
$
5.3

 
$
(3.4
)
 
$
(0.7
)
 
$
4.2

Facility exit costs
 
10.2

 
(0.7
)
 
(4.4
)
 
(0.1
)
 
5.0

Other exit costs
 
(0.5
)
 
0.2

 
(0.1
)
 
0.6

 
0.2

Total
 
$
12.7

 
$
4.8

 
$
(7.9
)
 
$
(0.2
)
 
$
9.4



Restructuring liabilities of $7.7 million and $5.9 million were classified as current in other accrued expenses in the condensed consolidated balance sheets as of March 31, 2019 and December 31, 2018, respectively. The long-term portion of restructuring liabilities of $0.3 million and $3.5 million were recorded in other long-term liabilities in the condensed consolidated balance sheets as of March 31, 2019 and December 31, 2018, respectively, and primarily consists of facility exit costs that are expected to be paid within the next five years.
While the Company believes the recorded restructuring liabilities are adequate, revisions to current estimates may be recorded in future periods based on new information as it becomes available.
In 2019, the Company expects to incur restructuring charges related to the February 2019 Nexeo acquisition. These charges are expected to include the estimated costs for optimizing its North American chemical operating facilities and integrating the Company’s combined business support functions.
v3.19.1
Other (expense) income, net
3 Months Ended
Mar. 31, 2019
Other Income and Expenses [Abstract]  
Other (expense) income, net
8. Other (expense) income, net
Other (expense) income, net consisted of the following gains (losses):
 
 
Three months ended
March 31,
(in millions)
 
2019

2018
Foreign currency transactions
 
$
(0.7
)

$
(0.1
)
Foreign currency denominated loans revaluation
 
5.2


1.2

Undesignated foreign currency derivative instruments (1)
 
(9.9
)

(1.3
)
Undesignated interest rate swap contracts (1)
 
0.2

 

Non-operating retirement benefits (2)
 
0.6

 
3.5

Other
 
(1.5
)

(0.7
)
Total other (expense) income, net
 
$
(6.1
)
 
$
2.6

 
(1)
Refer to “Note 16: Derivatives” for more information.
(2)
Refer to “Note 9: Employee benefit plans” for more information.
v3.19.1
Employee benefit plans
3 Months Ended
Mar. 31, 2019
Postemployment Benefits [Abstract]  
Employee benefit plans
9. Employee benefit plans
The following table summarizes the components of net periodic cost (benefit) recognized in the condensed consolidated statements of operations: 
 
 
Domestic - Defined Benefit Pension Plans
 
Foreign - Defined Benefit Pension Plans
 

Three months ended
March 31,
 
Three months ended
March 31,
(in millions)

2019

2018
 
2019
 
2018
Service cost (1)
 
$

 
$

 
$
0.6

 
$
0.7

Interest cost (2)

6.8


6.8

 
3.9

 
4.0

Expected return on plan assets (2)

(6.3
)

(7.8
)
 
(5.0
)
 
(6.5
)
Prior service cost (credits) (2)
 

 

 

 

Net periodic cost (benefit)

$
0.5


$
(1.0
)
 
$
(0.5
)
 
$
(1.8
)
 
(1)
Service cost is included in warehouse, selling and administrative expenses.
(2)
These amounts are included in other (expense) income, net.
v3.19.1
Income taxes
3 Months Ended
Mar. 31, 2019
Income Tax Disclosure [Abstract]  
Income taxes
10. Income taxes
The Company’s tax provision for interim periods is determined using an estimate of the annual effective tax rate, adjusted for discrete items, if any, that occur in the relevant period. Each quarter, an estimate of the annual effective tax rate is updated should management revise its forecast of earnings based upon the Company’s operating results. If there is a change in the estimated effective annual tax rate, a cumulative adjustment is made. The quarterly income tax provision and forecast estimate of the annual effective income tax rate may be subject to volatility due to several factors, including the complexity in forecasting jurisdictional earnings before income tax, the rate of realization of forecasting earnings or losses by quarter, acquisitions, divestitures, foreign currency gains and losses, pension gains and losses, and other factors.
The income tax benefit for the three months ended March 31, 2019 was $23.3 million, resulting in an effective income tax rate of 25.0%. A discrete tax benefit of $10.2 million was included in the $23.3 million tax benefit. The Company’s effective income tax rate without discrete items was 42.6%, higher than the US federal statutory rate of 21.0%. This is primarily due to the impact of the Nexeo related acquisition and integration costs, along with state taxes, foreign rate differential, non-deductible compensation and other expenses, and an increase in the valuation allowance on certain income tax attributes. The discrete tax benefit of $10.2 million is substantially attributable to the indirect effects of the Nexeo plastics sale.
The income tax expense for the three months ended March 31, 2018 was $10.2 million, resulting in an effective income tax rate of 13.5%. The Company’s effective income tax rate for the three month period ended March 31, 2018 was lower than the US federal statutory rate of 21.0% primarily due to discrete tax benefits of a $9.0 million release of valuation allowance on certain foreign tax attributes and a $2.7 million recognition of previously unrecognized tax benefits due to a statute of limitation expiration. Without consideration of the total $12.3 million discrete benefits in the period, the Company’s estimated effective annual tax rate was 29.5%, which is higher than the US federal rate of 21.0% due to state income taxes, foreign rate differential, and the overall impact of the new provisions of the Tax Cuts and Jobs Act.
v3.19.1
Earnings per share
3 Months Ended
Mar. 31, 2019
Earnings Per Share [Abstract]  
Earnings per share
11. Earnings per share
The following table presents the basic and diluted earnings per share computations:
 
 
Three months ended March 31,
(in millions, except per share data)
 
2019
 
2018
Basic:
 
 
 
 
Net (loss) income from continuing operations
 
$
(70.0
)
 
$
65.4

Net income from discontinued operations
 
6.1

 

Net (loss) income
 
$
(63.9
)
 
$
65.4

Less: earnings allocated to participating securities
 

 
0.1

Earnings allocated to common shares outstanding
 
$
(63.9
)
 
$
65.3

 
 
 
 
 
Weighted average common shares outstanding
 
149.2

 
140.9

Basic (loss) income per common share from continuing operations
 
$
(0.47
)
 
$
0.46

Basic income per common share from discontinued operations
 
0.04

 

Basic (loss) income per common share
 
$
(0.43
)
 
$
0.46

 
 
 
 
 
Diluted:
 
 
 
 
Net (loss) income from continuing operations
 
$
(70.0
)
 
$
65.4

Net income from discontinued operations
 
6.1

 

Net (loss) income
 
$
(63.9
)
 
$
65.4

Less: earnings allocated to participating securities
 

 

Earnings allocated to common shares outstanding
 
$
(63.9
)
 
$
65.4

 
 
 
 
 
Weighted average common shares outstanding
 
149.2

 
140.9

Effect of dilutive securities: stock compensation plans (1)
 

 
1.1

Weighted average common shares outstanding – diluted
 
149.2

 
142.0

Diluted (loss) income per common share from continuing operations
 
$
(0.47
)
 
$
0.46

Diluted income per common share from discontinued operations
 
0.04

 

Diluted (loss) income per common share
 
$
(0.43
)
 
$
0.46

 
  
(1)
Stock options to purchase 2.8 million and 0.6 million shares of common stock and restricted stock of 0.7 million and nil were outstanding during the three months ended March 31, 2019 and 2018, respectively, but were not included in the calculation of diluted income per share as the impact of these awards would have been anti-dilutive. Diluted shares outstanding also did not include 0.8 million shares of common stock issuable on the exercise of warrants because the warrants were out-of-the-money for the three months ended March 31, 2019.
v3.19.1
Accumulated other comprehensive loss
3 Months Ended
Mar. 31, 2019
Equity [Abstract]  
Accumulated other comprehensive loss
12. Accumulated other comprehensive loss
The following tables present the changes in accumulated other comprehensive loss by component, net of tax:
(in millions)
 
Cash flow hedges
 
Defined
benefit
pension items
 
Currency
translation
items
 
Total
Balance as of December 31, 2018
 
$
8.9

 
$
(1.1
)
 
$
(381.0
)
 
$
(373.2
)
Impact due to adoption of ASU 2018-02 (1)
 
1.5

 

 
(4.7
)
 
(3.2
)
Other comprehensive (loss) income before reclassifications
 
(5.5
)
 

 
8.2

 
2.7

Amounts reclassified from accumulated other comprehensive loss
 
(2.8
)
 

 

 
(2.8
)
Net current period other comprehensive (loss) income
 
$
(6.8
)
 
$

 
$
3.5

 
$
(3.3
)
Balance as of March 31, 2019
 
$
2.1

 
$
(1.1
)
 
$
(377.5
)
 
$
(376.5
)
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2017
 
$
6.7

 
$
(1.2
)
 
$
(284.0
)
 
$
(278.5
)
Impact due to adoption of ASU 2017-12 (2)
 
0.5

 

 

 
0.5

Other comprehensive income (loss) before reclassifications
 
9.1

 

 
(7.2
)
 
1.9

Net current period other comprehensive income (loss)
 
$
9.6

 
$

 
$
(7.2
)
 
$
2.4

Balance as of March 31, 2018
 
$
16.3

 
$
(1.2
)
 
$
(291.2
)
 
$
(276.1
)

 
(1)
Adjusted due to the adoption of ASU 2018-02 “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” on January 1, 2019. Refer to “Note 2: Significant accounting policies” for more information.
(2)
Adjusted due to the adoption of ASU 2017-12 “Targeted Improvements to Accounting for Hedging Activities” on January 1, 2018.

The following is a summary of the amounts reclassified from accumulated other comprehensive loss to net (loss) income:
 
 
Three months ended March 31,
 
 
(in millions)
 
2019 (1)
 
2018 (1)
 
Location of impact on
  statement of operations  
Cash flow hedges:
 
 
 
 
 
 
Interest rate swap contracts
 
$
(3.8
)
 
$

 
Interest expense
Tax expense
 
1.0

 

 
Income tax (benefit) expense
Net of tax
 
$
(2.8
)
 
$

 
 
Total reclassifications for the period
 
$
(2.8
)
 
$

 
 
 
(1)
Amounts in parentheses indicate credits to net income in the condensed consolidated statement of operations.
v3.19.1
Debt
3 Months Ended
Mar. 31, 2019
Debt Disclosure [Abstract]  
Debt
13. Debt
Short-term financing
Short-term financing consisted of the following:
(in millions)
 
March 31, 2019
 
December 31, 2018
Amounts drawn under credit facilities
 
$
3.4

 
$
4.7

Bank overdrafts
 
0.9

 
3.4

Total short-term financing
 
$
4.3

 
$
8.1


As of March 31, 2019 and December 31, 2018, the Company had $180.0 million and $139.4 million in outstanding letters of credit, respectively.
Long-term debt
Long-term debt consisted of the following:
(in millions)
 
March 31, 2019
 
December 31, 2018
Senior Term Loan Facilities:




Term B Loan due 2024, variable interest rate of 4.75% and 4.77% at March 31, 2019 and December 31, 2018, respectively

$
1,747.8


$
1,747.8

Euro Term B-2 Loan due 2024, variable interest rate of 2.75% at March 31, 2019
 
476.8

 

Term B-4 Loan due 2024, variable interest rate of 5.00% at March 31, 2019
 
300.0

 

Asset Backed Loan (ABL) Facilities:




North American ABL Facility due 2024, variable interest rate of 4.11% at March 31, 2019

524.2



Canadian ABL Term Loan due 2022, variable interest rate of 4.23% at March 31, 2019
 
172.3

 

Euro ABL Facility due 2023, variable interest rate of 1.75% at March 31, 2019 and December 31, 2018
 
62.8

 
58.5

North American ABL Facility due 2020, variable interest rate of 4.19% at December 31, 2018 (amended February 2019)
 

 
134.7

Senior Unsecured Notes:




Senior Unsecured Notes due 2023, fixed interest rate of 6.75% at March 31, 2019 and December 31, 2018

399.5


399.5

Finance lease obligations

71.0


54.8

Total long-term debt before discount

$
3,754.4


$
2,395.3

Less: unamortized debt issuance costs and discount on debt

(33.2
)

(23.2
)
Total long-term debt

$
3,721.2


$
2,372.1

Less: current maturities

(27.2
)

(21.7
)
Total long-term debt, excluding current maturities

$
3,694.0


$
2,350.4



The weighted average interest rate on long-term debt was 4.21% and 4.29% as of March 31, 2019 and December 31, 2018, respectively.
On February 28, 2019, the Company and certain of its subsidiaries entered into the Fourth Amendment (the “Fourth Amendment”) to that certain credit agreement, dated July 1, 2015 (as amended prior to the Fourth Amendment, the “Credit Agreement” and as amended by the Fourth Amendment, the “Amended Credit Agreement”). Pursuant to the Fourth Amendment, Goldman Sachs Bank USA and the other lenders agreed to provide a new Term B-4 loan facility in an aggregate principal amount of $300.0 million and a new Euro Term B-2 loan facility in an aggregate principal amount of €425.0 million (collectively, the “Incremental Term Loans”, and together with the Amended Credit Agreement, the “Senior Term Facilities”).
The interest rates applicable to the term loans under the Senior Term Facilities are based on, at the borrower’s option, (i) in the case of dollar denominated Term B-4 loan facility, a fluctuating rate of interest determined by reference to a base rate plus an applicable margin equal to 1.75% or a Eurocurrency rate plus an applicable margin equal to 2.75% (in each case with one 0.25% step down based on achievement of a specific leverage level) and (ii) in the case of Euro denominated Euro Term B-2 loan facility, a fluctuating rate of interest determined by reference to a EURIBOR rate plus an applicable margin equal to 2.75%. The Term B-4 loan and the Euro Term B-2 loan are payable in quarterly installments of 0.25% of the aggregate initial principal amount, respectively, commencing June 30, 2019 with the remaining balances due on the maturity date of July 1, 2024. The Company can repay either loan in whole or part without penalty.
On February 28, 2019, the Company and certain of its US and Canadian subsidiaries entered into an Amended and Restated ABL Credit Agreement pursuant to which Bank of America N.A. and the other lenders party thereto agreed to provide for a five year senior secured ABL credit facility in an aggregate amount of $1.2 billion US dollars and $325.0 million Canadian dollars and a three year secured Canadian dollar ABL term loan facility (“ABL Term Loan”) in an aggregate principal amount of the Canadian dollar equivalent of $175.0 million (collectively, the “New Senior ABL Facility”). The New Senior ABL Facility amends and restates in full the ABL facility entered into by Univar on July 28, 2015. Under the two revolving tranches, the borrowers may request loan advances and make loan repayments until the maturity date of February 28, 2024. The maximum amount available to borrowed under the New Senior ABL Facility will be determined by a borrowing base consisting of eligible inventory, eligible accounts receivable and cash of Univar and certain of its subsidiaries.
The interest rates applicable to the loans under the New Senior ABL Facility are based on, at the borrower’s option, (i) with respect to initial term loan facility under the New Senior ABL Facility, a fluctuating rate of interest determined by reference to either a base rate plus an applicable margin ranging from 1.00% to 1.25% and a prime rate plus an applicable margin ranging from 2.00% to 2.25% and (ii) with respect to the US and Canadian revolving loans under the New Senior ABL Facility, a fluctuating rate of interest determined by reference to a base rate plus an applicable margin ranging from 0.25% to 0.50% or a prime rate or Eurocurrency rate plus an applicable margin ranging from 1.25% to 1.50%. The applicable margin will be adjusted after the completion of each full fiscal quarter based upon the pricing grid in the New Senior ABL Facility. The ABL Term Loan is payable in quarterly installments of 25.0% of the aggregate initial principal amount commencing June 30, 2021 with a final amortization payment on February 28, 2022.
Assets pledged under the New Senior ABL Facility, Senior Term Facilities and the Euro ABL include $696.2 million of cash, $1,257.0 million of trade accounts receivable, net, $861.9 million of inventories, $94.5 million of prepaid expenses and other current assets and $973.6 million of property, plant and equipment, net.
As a result of the February 2019 amendment related to the New Senior ABL Facility, the Company recognized a loss on extinguishment of debt of $0.7 million during the three months ended March 31, 2019.
v3.19.1
Supplemental balance sheet information
3 Months Ended
Mar. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Supplemental balance sheet information
14. Supplemental balance sheet information
Property, plant and equipment, net
(in millions)
 
March 31, 2019
 
December 31, 2018
Property, plant and equipment, at cost
 
$
2,175.7

 
$
1,925.9

Less: accumulated depreciation
 
(1,007.5
)
 
(970.1
)
Property, plant and equipment, net
 
$
1,168.2

 
$
955.8

Finance lease assets, net
Included within property, plant and equipment, net are assets related to finance leases where the Company is the lessee. The below table summarizes the cost and accumulated depreciation related to these assets:
(in millions)
 
March 31, 2019
 
December 31, 2018
Finance lease assets, at cost
 
$
113.8

 
$
89.4

Less: accumulated depreciation
 
(45.9
)
 
(37.4
)
Finance lease assets, net
 
$
67.9

 
$
52.0


Intangible assets, net
The gross carrying amounts and accumulated amortization of the Company’s intangible assets were as follows:
 
 
March 31, 2019
 
December 31, 2018
(in millions)
 
Gross
 
Accumulated
Amortization
 
Net
 
Gross
 
Accumulated
Amortization
 
Net
Intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
 
$
1,022.2

 
$
(635.1
)
 
$
387.1

 
$
846.1

 
$
(620.3
)
 
$
225.8

Other
 
175.4

 
(164.0
)
 
11.4

 
175.1

 
(162.8
)
 
12.3

Total intangible assets
 
$
1,197.6

 
$
(799.1
)
 
$
398.5

 
$
1,021.2

 
$
(783.1
)
 
$
238.1


Other intangible assets consist of intellectual property trademarks, trade names, supplier relationships, non-compete agreements and exclusive distribution rights.
Other accrued expenses    
As of March 31, 2019 and December 31, 2018, there were no components within other accrued expenses that were greater than five percent of total current liabilities.
v3.19.1
Fair value measurements
3 Months Ended
Mar. 31, 2019
Fair Value Disclosures [Abstract]  
Fair value measurements
15. Fair value measurements
Items measured at fair value on a recurring basis
The following table presents the Company’s gross assets and liabilities measured on a recurring basis:
 
 
Level 2
 
Level 3
(in millions)
 
March 31, 2019
 
December 31, 2018
 
March 31, 2019
 
December 31, 2018
Financial current assets:
 
 
 
 
 
 
 
 
Forward currency contracts
 
$
0.8

 
$
0.3

 
$

 
$

Interest rate swap contracts
 
8.0

 
12.4

 

 

Financial non-current assets:
 
 
 
 
 
 
 
 
Interest rate swap contracts
 

 
1.5

 

 

Financial current liabilities:
 
 
 
 
 
 
 
 
Forward currency contracts
 
0.7

 
0.2

 

 

Financial non-current liabilities:
 
 
 
 
 
 
 
 
Interest rate swap contracts
 
5.0

 

 

 

Warrant liability
 

 

 
21.6

 


The net amounts by legal entity related to forward currency contracts included in prepaid and other current assets were $0.8 million and $0.3 million as of March 31, 2019 and December 31, 2018, respectively. The net amounts related to forward currency contracts included in other accrued expenses were $0.7 million and $0.2 million as of March 31, 2019 and December 31, 2018, respectively.
The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. The fair value of interest rate swaps is determined by estimating the net present value of amounts to be paid under the agreement offset by the net present value of the expected cash inflows based on market rates and associated yield curves. Based on these valuation methodologies, these derivative contracts are classified as Level 2 in the fair value hierarchy.
The warrant liability in the table above consisted of the fair value of warrants assumed in connection with the Nexeo acquisition. Refer to “Note 3: Business combinations” for more information. The fair value of the warrant liability is calculated using the Black-Scholes-Merton option valuation model. The fair value of the warrants was computed using the following assumptions: expected option life two years, volatility 23.8%, and risk-free interest rate of 2.27%. As the Company does not have sufficient historical volatility data, the expected volatility is based on the average historical data of a peer group of public companies over a period equal to the expected term of the stock options. The risk-free interest rate assumption was based on the US Treasury rates. Based on the valuation methodology, the warrant liability is classified as Level 3 in the fair value hierarchy.
The following table is a reconciliation of the fair value measurements that use significant unobservable inputs (Level 3), which consists of the warrant liability related to the Nexeo acquisition.
(in millions)
 
Warrant Liability
Fair value as of December 31, 2018
 
$

Additions
 
26.0

Fair value adjustments
 
(4.4
)
Fair value as of March 31, 2019
 
$
21.6


Fair value adjustments are recorded within other operating expenses, net in the condensed consolidated statement of operations.
Financial instruments not carried at fair value
The estimated fair value of financial instruments not carried at fair value in the condensed consolidated balance sheets were as follows:
 
 
March 31, 2019
 
December 31, 2018
(in millions)
 
Carrying 
Amount
 
Fair
Value
 
Carrying 
Amount
 
Fair
Value
Financial liabilities:
 
 
 
 
 
 
 
 
Long-term debt including current portion (Level 2)
 
$
3,721.2

 
$
3,766.4

 
$
2,372.1

 
$
2,314.3


The fair values of the long-term debt, including the current portions, were based on current market quotes for similar borrowings and credit risk adjusted for liquidity, margins and amortization, as necessary.
Fair value of other financial instruments
The carrying value of cash and cash equivalents, trade accounts receivable, net, trade accounts payable and short-term financing included in the condensed consolidated balance sheets approximate fair value due to their short-term nature.
v3.19.1
Derivatives
3 Months Ended
Mar. 31, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives
16. Derivatives
Interest rate swaps
The objective of the designated interest rate swap contracts is to offset the variability of cash flows in LIBOR indexed debt interest payments attributable to changes in the aforementioned benchmark interest rate related to the USD Term B Loans and USA ABL Facility due 2024.
As of March 31, 2019 and December 31, 2018, the Company had interest rate swap contracts with a total notional amount of $2.3 billion and $2.0 billion, respectively. In March 2019 and December 2018, the Company entered into interest rate swap contracts with a total notional amount of $300.0 million and $500.0 million effective March 2019 and June 2019, respectively whereby a fixed rate of interest (weighted average of 2.27% and 2.73%, respectively) is paid and a variable rate of interest (three-month LIBOR) is received as calculated on the notional amount. In 2017, the Company entered into interest rate swap contracts with a remaining notional amount of $1.5 billion whereby a fixed rate of interest (weighted average of 1.70%) is paid and a variable rate of interest (three-month LIBOR) is received as calculated on the notional amount.
As of March 31, 2019, the designated interest rate swaps held by the Company continue to qualify for hedge accounting. The Company recognizes the changes in fair value of the interest rate swap contracts, whether it is due to effectiveness or ineffectiveness, in other comprehensive income and subsequently is reclassified to the income statement when the hedged item impacts earnings.
During the three months ended March 31, 2019, there were $3.8 million in gains on our interest rate swap contracts that were reclassified to interest expense in the condensed consolidated statement of operations. As of March 31, 2019, we estimate that $7.6 million of derivative gains included in accumulated other comprehensive loss will be reclassified into the condensed consolidated statement of operations within the next 12 months. The activity related to our cash flow hedges is included in “Note 12: Accumulated other comprehensive loss.”
In March 2019, the Company entered into an interest rate swap contract with a total notional amount of $200.0 million effective March 2019 which is not designated against long-term debt. The interest rate swap is used to manage interest rate risk. The Company does not apply hedge accounting for this interest rate swap contract. Changes in fair value of the interest rate swap contract is recognized directly in other (expense) income, net in the condensed consolidated statement of operations. Refer to “Note 8: Other (expense) income, net” for additional information.
The fair value of interest rate swaps is recorded either in prepaid expenses and other current assets, other assets, other accrued expenses or other long-term liabilities in the condensed consolidated balance sheets. As of March 31, 2019 and December 31, 2018, a current asset of $8.0 million and $12.4 million was included in other current assets, respectively. As of March 31, 2019 a non-current liability of $5.0 million was included in other long-term liabilities. As of December 31, 2018, a non-current asset of $1.5 million was included in other assets.
Foreign currency derivatives
The Company uses forward currency contracts to hedge earnings from the effects of foreign exchange relating to certain of the Company’s monetary assets and liabilities denominated in a foreign currency. These derivative instruments are not formally designated as hedges by the Company and the terms of these instruments range from one to three months. Forward currency contracts are recorded at fair value in either prepaid expenses and other current assets or other accrued expenses in the condensed consolidated balance sheet, reflecting their short-term nature. The fair value adjustments and gains and losses are included in other (expense) income, net within the condensed consolidated statements of operations. Refer to “Note 8: Other (expense) income, net” for more information. On February 28, 2019, the Company entered into a new forward currency contract with a total notional amount of €425.0 million ($485.2 million) to hedge foreign exchange risk related to the Euro Term B loan. The total notional amount of undesignated forward currency contracts were $504.4 million and $108.1 million as of March 31, 2019 and December 31, 2018, respectively.
Cash flows associated with derivative financial instruments are recognized in the operating section of the condensed consolidated statement of cash flows.
v3.19.1
Commitments and contingencies
3 Months Ended
Mar. 31, 2019
Commitments and Contingencies Disclosure [Abstract]  
Commitments and contingencies
17. Commitments and contingencies
Litigation
In the ordinary course of business the Company is subject to pending or threatened claims, lawsuits, regulatory matters and administrative proceedings from time to time. Where appropriate the Company has recorded provisions in the condensed consolidated financial statements for these matters. The liabilities for injuries to persons or property are in some instances covered by liability insurance, subject to various deductibles and self-insured retentions.
The Company is not aware of any claims, lawsuits, regulatory matters or administrative proceedings, pending or threatened, that are material to its overall financial position, results of operations or cash flows. However, the Company cannot predict the outcome of any claims or litigation or the potential for future claims or litigation.
The Company is subject to liabilities from claims alleging personal injury from exposure to asbestos. The claims result primarily from an indemnification obligation related to Univar USA Inc.’s (“Univar”) 1986 purchase of McKesson Chemical Company from McKesson Corporation (“McKesson”). Univar is also a defendant in a small number of asbestos claims. As of March 31, 2019, there were fewer than 105 asbestos-related claims for which the Company has liability for defense and indemnity pursuant to the indemnification obligation. The volume of such cases has decreased in recent quarters. Historically, the vast majority of the claims against both McKesson and Univar have been dismissed without payment. The Company does incur costs in defending these claims. While the Company is unable to predict the outcome of these matters, it does not believe, based upon currently available facts, that the ultimate resolution of any of these matters will have a material effect on its overall financial position, results of operations or cash flows. However, the Company cannot predict the outcome of any present or future claims or litigation and adverse developments could negatively impact earnings or cash flows in a particular future period.
Environmental
The Company is subject to various federal, state and local environmental laws and regulations that require environmental assessment or remediation efforts (collectively “environmental remediation work”) at approximately 131 locations, some that are now or were previously Company-owned/occupied and some that were never Company-owned/occupied (“non-owned sites”).
The Company’s environmental remediation work at some sites is being conducted pursuant to governmental proceedings or investigations. At other sites, the Company, with appropriate state or federal agency oversight and approval, is conducting the environmental remediation work voluntarily. The Company is currently undergoing remediation efforts or is in the process of active review of the need for potential remediation efforts at approximately 108 current or formerly Company-owned/occupied sites. In addition, the Company may be liable for a share of the clean-up of approximately 23 non-owned sites. These non-owned sites are typically (a) locations of independent waste disposal or recycling operations with alleged or confirmed contaminated soil and/or groundwater to which the Company may have shipped waste products or drums for re-conditioning, or (b) contaminated non-owned sites near historical sites owned or operated by the Company or its predecessors from which contamination is alleged to have arisen.
In determining the appropriate level of environmental reserves, the Company considers several factors such as information obtained from investigatory studies; changes in the scope of remediation; the interpretation, application and enforcement of laws and regulations; changes in the costs of remediation programs; the development of alternative cleanup technologies and methods; and the relative level of the Company’s involvement at various sites for which the Company is allegedly associated. It is the Company’s policy to record appropriate liabilities on a case by case basis when remedial efforts or claims are probable and the costs are reasonable to estimate. We continually monitor our own sites and work with other potentially responsible parties to deploy feasible remediation techniques. The recorded liabilities are adjusted periodically as remediation progresses or other relevant information becomes available. The level of annual expenditures for remedial, monitoring and investigatory activities will change in the future as components of planned remediation activities are completed and the scope, timing and costs of remediation are changed. Given the uncertainties regarding laws, regulations, technology, information related to sites and potentially responsible parties, the Company does not believe it is possible to develop an estimate of the range of reasonably possible losses in excess of the recorded liabilities. Project lives vary, depending on the specific site and type of remediation project. Associated cash payments are expected to be paid from operating activities.
Changes in total environmental liabilities are as follows:
 
 
Three months ended March 31,
(in millions)
 
2019
 
2018
Environmental liabilities at beginning of period
 
$
83.5

 
$
89.2

Revised obligation estimates
 
4.1

 
2.2

Environmental payments
 
(4.6
)