Univar Solutions Inc. - Quarter Report: 2020 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________________________________________

Form 10-Q

__________________________________________________________


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-37443

__________________________________________________________

Univar Solutions Inc.

(Exact name of registrant as specified in its charter)

__________________________________________________________


Delaware						26-1251958
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

3075 Highland Parkway, Suite 200

Downers Grove,

Illinois

60515

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (331) 777-6000

__________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock ($0.01 par value)

UNVR

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

At October 22, 2020, 169,100,367 shares of the registrant’s common stock, $0.01 par value, were outstanding.

Table of Contents

Univar Solutions Inc.

Form 10-Q

For the quarterly period ended September 30, 2020

TABLE OF CONTENTS


Part I. FINANCIAL INFORMATION			Page
Item 1. Financial Statements (unaudited)
Condensed Consolidated Statements of Operations			1
Condensed Consolidated Statements of Comprehensive Income (Loss)			2
Condensed Consolidated Balance Sheets			3
Condensed Consolidated Statements of Cash Flows			4
Condensed Consolidated Statements of Changes in Stockholders’ Equity			5
Notes to Condensed Consolidated Statements			7
Note 1: Nature of operations			7
Note 2: Significant accounting policies			7
Note 3: Business combinations			8
Note 4: Discontinued operations and dispositions			9
Note 5: Revenue			10
Note 6: Other operating expenses, net			11
Note 7: Restructuring charges			11
Note 8: Other expense, net			13
Note 9: Employee benefit plans			13
Note 10: Income taxes			13
Note 11: Earnings per share			14
Note 12: Accumulated other comprehensive loss			15
Note 13: Debt			16
Note 14: Supplemental balance sheet information			17
Note 15: Fair value measurements			19
Note 16: Derivatives			19
Note 17: Commitments and contingencies			21
Note 18: Leasing			23
Note 19: Segments			25
Note 20: Subsequent events			26
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			27
Item 3. Quantitative and Qualitative Disclosures about Market Risk			44
Item 4. Controls and Procedures			44
Part II. OTHER INFORMATION
Item 1. Legal Proceedings			44
Item 1A. Risk Factors			44
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			44
Item 3. Defaults upon Senior Securities			44
Item 4. Mine Safety Disclosures			45
Item 5. Other Information			45
Item 6. Exhibits			46
Signatures			47

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PART I.

FINANCIAL INFORMATION

Item 1. Financial Statements

Univar Solutions Inc.

Condensed Consolidated Statements of Operations

(Unaudited)


		Three months ended September 30,				Nine months ended September 30,
(in millions, except per share data)	Note	2020		2019		2020		2019
Net sales		$	2,009.2	$	2,387.3	$	6,229.6	$	7,131.9
Cost of goods sold (exclusive of depreciation)		1,513.2		1,842.4		4,711.9		5,513.3
Operating expenses:
Outbound freight and handling		85.9		96.8		258.1		275.1
Warehousing, selling and administrative		245.5		269.2		770.5		803.4
Other operating expenses, net	6	21.4		30.2		69.1		258.8
Depreciation		41.6		41.6		123.7		114.5
Amortization		14.7		12.1		45.3		45.1
Impairment charges	14	20.7		7.0		37.6		7.0
Total operating expenses		$	429.8	$	456.9	$	1,304.3	$	1,503.9
Operating income		$	66.2	$	88.0	$	213.4	$	114.7
Other (expense) income:
Interest income		0.5		0.6		1.7		2.3
Interest expense		(28.2)		(37.4)		(87.4)		(111.2)
Loss on sale of business	4	(9.3)		—		(17.9)		—
Loss on extinguishment of debt	13	—		—		(1.8)		(0.7)
Other income (expense), net	8	2.4		(5.5)		(7.4)		(17.2)
Total other expense		$	(34.6)	$	(42.3)	$	(112.8)	$	(126.8)
Income (loss) before income taxes		31.6		45.7		100.6		(12.1)
Income tax expense from continuing operations	10	2.7		43.2		14.0		38.4
Net income (loss) from continuing operations		$	28.9	$	2.5	$	86.6	$	(50.5)
Net income from discontinued operations	4	$	—	$	—	$	—	$	5.4
Net income (loss)		$	28.9	$	2.5	$	86.6	$	(45.1)

Income (loss) per common share:
Basic from continuing operations	11	$	0.17	$	0.01	$	0.51	$	(0.31)
Basic from discontinued operations	11	—		—		—		0.03
Basic income (loss) per common share		$	0.17	$	0.01	$	0.51	$	(0.28)
Diluted from continuing operations	11	$	0.17	$	0.01	$	0.51	$	(0.31)
Diluted from discontinued operations	11	—		—		—		0.03
Diluted income (loss) per common share		$	0.17	$	0.01	$	0.51	$	(0.28)

Weighted average common shares outstanding:
Basic	11	169.0		168.6		168.9		162.6
Diluted	11	169.8		169.5		169.7		162.6

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Univar Solutions Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)


		Three months ended September 30,				Nine months ended September 30,
(in millions)	Note	2020		2019		2020		2019
Net income (loss)		$	28.9	$	2.5	$	86.6	$	(45.1)

Other comprehensive (loss) income, net of tax:
Impact due to adoption of ASU 2018-02 (1)	12	—		—		—		(3.2)
Foreign currency translation	12	14.3		(31.9)		(60.1)		(12.1)
Pension and postretirement benefit adjustment	12	—		—		0.1		0.1
Derivative financial instruments	12	2.6		(4.4)		(18.8)		(28.6)
Total other comprehensive income (loss), net of tax		$	16.9	$	(36.3)	$	(78.8)	$	(43.8)
Comprehensive income (loss)		$	45.8	$	(33.8)	$	7.8	$	(88.9)

(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.

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Univar Solutions Inc.

Condensed Consolidated Balance Sheets

(Unaudited)


(in millions, except per share data)	Note	September 30, 2020		December 31, 2019
Assets
Current assets:
Cash and cash equivalents		$	273.7	$	330.3
Trade accounts receivable, net of allowance for doubtful accounts of $24.6 and $12.9 at September 30, 2020 and December 31, 2019, respectively.	14	1,276.8		1,160.1
Inventories		696.3		796.0
Prepaid expenses and other current assets		171.8		167.2
Total current assets		$	2,418.6	$	2,453.6
Property, plant and equipment, net	14	1,085.2		1,152.4
Goodwill	14	2,267.3		2,280.8
Intangible assets, net	14	263.3		320.2
Deferred tax assets		20.9		21.3
Other assets		252.0		266.5
Total assets		$	6,307.3	$	6,494.8
Liabilities and stockholders’ equity
Current liabilities:
Short-term financing	13	$	0.4	$	0.7
Trade accounts payable		761.8		895.0
Current portion of long-term debt	13	27.6		25.0
Accrued compensation		86.7		103.6
Other accrued expenses	14	393.2		425.1
Total current liabilities		$	1,269.7	$	1,449.4
Long-term debt	13	2,660.4		2,688.8
Pension and other postretirement benefit liabilities		279.8		295.6
Deferred tax liabilities		61.4		56.3
Other long-term liabilities		285.0		271.9
Total liabilities		$	4,556.3	$	4,762.0
Stockholders’ equity:
Preferred stock, 200.0 million shares authorized at $0.01 par value with no shares issued or outstanding as of September 30, 2020 and December 31, 2019		$	—	$	—
Common stock, 2.0 billion shares authorized at $0.01 par value with 169.1 million and 168.7 million shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively		1.7		1.7
Additional paid-in capital		2,979.3		2,968.9
Accumulated deficit		(771.9)		(858.5)
Accumulated other comprehensive loss	12	(458.1)		(379.3)
Total stockholders’ equity		$	1,751.0	$	1,732.8
Total liabilities and stockholders’ equity		$	6,307.3	$	6,494.8

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Univar Solutions Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)


		Nine months ended September 30,
(in millions)	Note	2020		2019
Operating activities:
Net income (loss)		$	86.6	$	(45.1)
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
Depreciation and amortization		169.0		159.6
Impairment charges	14	37.6		7.0
Amortization of deferred financing fees and debt discount		4.7		7.0
Amortization of pension credit from accumulated other comprehensive loss		0.1		0.1
Loss on sale of business	4	17.9		—
(Gain) loss on sale of property, plant and equipment		(8.3)		1.7
Loss on extinguishment of debt	13	1.8		0.7
Deferred income taxes		5.2		4.4
Stock-based compensation expense	6	10.9		21.7
Charge for inventory step-up of acquired inventory		—		5.3
Other		2.6		2.1
Changes in operating assets and liabilities:
Trade accounts receivable, net		(126.2)		3.7
Inventories		89.6		72.1
Prepaid expenses and other current assets		(19.2)		20.0
Trade accounts payable		(123.4)		(85.2)
Pensions and other postretirement benefit liabilities		(16.8)		(22.6)
Other, net		(50.5)		(118.3)
Net cash provided by operating activities		$	81.6	$	34.2
Investing activities:
Purchases of property, plant and equipment		$	(82.1)	$	(72.1)
Purchases of businesses, net of cash acquired	3	—		(1,201.0)
Proceeds from sale of property, plant and equipment		17.7		3.6
(Payments)/proceeds from sale of business	4	(2.0)		664.3
Other		(7.8)		(1.3)
Net cash used by investing activities		$	(74.2)	$	(606.5)
Financing activities:
Proceeds from issuance of long-term debt	13	$	—	$	947.0
Payments on long-term debt and finance lease obligations	13	(196.8)		(465.4)
Net proceeds under revolving credit facilities	13	137.2		130.6
Short-term financing, net	13	1.3		(4.4)
Taxes paid related to net share settlements of stock-based compensation awards		(2.0)		(2.8)
Stock option exercises		0.7		5.7
Other		0.7		0.6
Net cash (used) provided by financing activities		$	(58.9)	$	611.3
Effect of exchange rate changes on cash and cash equivalents		$	(5.1)	$	(26.0)
Net (decrease) increase in cash and cash equivalents		(56.6)		13.0
Cash and cash equivalents at beginning of period		330.3		121.6
Cash and cash equivalents at end of period		$	273.7	$	134.6
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes		$	40.9	$	31.9
Interest, net of capitalized interest		73.1		109.9
Non-cash activities:
Fair value of common stock issued for acquisition of business	3	$	—	$	613.8
Additions of property, plant and equipment included in trade accounts payable and other accrued expenses		4.1		7.5
Additions of property, plant and equipment under a finance lease obligation		35.6		8.5
Additions of assets under an operating lease obligation		31.4		9.8

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Univar Solutions Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)


(in millions)	Common stock (shares)	Common stock		Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive loss		Total
Balance, January 1, 2020	168.7	$	1.7	$	2,968.9	$	(858.5)	$	(379.3)	$	1,732.8
Net income	—	—		—		86.6		—		86.6
Foreign currency translation adjustment, net of tax $(4.7)	—	—		—		—		(60.1)		(60.1)
Pension and other postretirement benefits adjustment	—	—		—		—		0.1		0.1
Derivative financial instruments, net of tax $8.5	—	—		—		—		(18.8)		(18.8)
Restricted stock units vested	0.4	—		—		—		—		—
Tax withholdings related to net share settlements of stock-based compensation awards	(0.1)	—		(2.0)		—		—		(2.0)
Stock option exercises	0.1	—		0.7		—		—		0.7
Employee stock purchase plan	—	—		0.7		—		—		0.7
Stock-based compensation	—	—		10.9		—		—		10.9
Other	—			0.1		—		—		0.1
Balance, September 30, 2020	169.1	$	1.7	$	2,979.3	$	(771.9)	$	(458.1)	$	1,751.0


(in millions)	Common stock (shares)	Common stock		Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive loss		Total
Balance, July 1, 2020	169.0	$	1.7	$	2,977.3	$	(800.8)	$	(475.0)	$	1,703.2
Net income	—	—		—		28.9		—		28.9
Foreign currency translation adjustment	—	—		—		—		14.3		14.3

Derivative financial instruments, net of tax $(0.8)	—	—		—		—		2.6		2.6
Restricted stock units vested	0.1	—		—		—		—		—
Tax withholdings related to net share settlements of stock-based compensation awards	—	—		(0.6)		—		—		(0.6)


Stock-based compensation	—	—		2.6		—		—		2.6

Balance, September 30, 2020	169.1	$	1.7	$	2,979.3	$	(771.9)	$	(458.1)	$	1,751.0

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(in millions)	Common stock (shares)	Common stock		Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive loss		Total
Balance, January 1, 2019	141.7	$	1.4	$	2,325.0	$	(761.5)	$	(373.2)	$	1,191.7
Impact due to adoption of ASU (1)	—	—		—		3.2		(3.2)		—
Net loss	—	—		—		(45.1)		—		(45.1)
Foreign currency translation adjustment, net of tax $0.2	—	—		—		—		(12.1)		(12.1)
Pension and other postretirement benefits adjustment	—	—		—		—		0.1		0.1
Derivative financial instruments, net of tax $9.6	—	—		—		—		(28.6)		(28.6)
Common stock issued for the Nexeo acquisition (2)	27.9	0.3		649.0		—		—		649.3
Shares canceled (2)	(1.5)	—		(35.5)		—		—		(35.5)
Restricted stock units vested	0.4	—		—		—		—		—
Tax withholdings related to net share settlements of stock-based compensation awards	(0.2)	—		(2.8)		—		—		(2.8)
Stock option exercises	0.3	—		5.7		—		—		5.7
Employee stock purchase plan	—	—		0.6						0.6
Stock-based compensation	—	—		21.7		—		—		21.7
Balance, September 30, 2019	168.6	$	1.7	$	2,963.7	$	(803.4)	$	(417.0)	$	1,745.0


(in millions)	Common stock (shares)	Common stock		Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive loss		Total
Balance, July 1, 2019	168.6	$	1.7	$	2,959.4	$	(805.9)	$	(380.7)	$	1,774.5
Net income	—	—		—		2.5		—		2.5
Foreign currency translation adjustment, net of tax $0.2	—	—		—		—		(31.9)		(31.9)
Derivative financial instruments, net of tax $1.5	—	—		—		—		(4.4)		(4.4)
Restricted stock units vested	0.1	—		—		—		—		—
Tax withholdings related to net share settlements of stock-based compensation awards	(0.1)	—		—		—		—		—
Stock-based compensation	—	—		4.4		—		—		4.4
Other	—	—		(0.1)		—		—		(0.1)
Balance, September 30, 2019	168.6	$	1.7	$	2,963.7	$	(803.4)	$	(417.0)	$	1,745.0

(1)Adjusted due to the adoption of ASU 2018-02 “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” on January 1, 2019.

(2)Refer to “Note 3: Business combinations” for more information.

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Univar Solutions Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Nature of operations

Headquartered in Downers Grove, Illinois, Univar Solutions Inc. (“Univar Solutions,” “Company,” “we,” “our” and “us”) is a leading global chemical and ingredient distributor and provider of value-added services to customers across a wide range of industries. The Company’s operations are structured into four reportable segments that represent the geographic areas under which the Company manages its business:

•Univar Solutions USA (“USA”)

•Univar Solutions Europe, the Middle East and Africa (“EMEA”)

•Univar Solutions Canada (“Canada”)

•Univar Solutions Latin America (“LATAM”)

LATAM includes certain developing businesses in Latin America (including Brazil and Mexico) and the Asia-Pacific region.

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. 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. The accompanying condensed consolidated financial statements of Univar Solutions includes the combined results of all directly and indirectly controlled companies, which have been adjusted to account for the elimination of intercompany balances and transactions.

On our condensed consolidated statements of cash flows for the nine months ended September 30, 2019, the amounts included in “net proceeds under revolving credit facilities,” which were previously included in “proceeds from issuance of long-term debt,” are now presented separately to conform to the current year presentation.

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. These condensed consolidated financial statements and related footnotes are unaudited and should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Recently adopted accounting pronouncements

On January 1, 2020, the Company adopted ASU 2016-13 “Financial Instruments - Credit Losses” (Topic 326), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. The transition to the new methodology did not have a significant financial impact and the Company did not recognize a cumulative-effect adjustment to the opening balance of accumulated deficit.

On January 1, 2020, the Company adopted ASU 2018-13 “Fair Value Measurement” (Topic 820), which modifies the disclosure requirements for fair value measurements by removing, modifying and adding certain disclosures.

On January 1, 2020, the Company adopted ASU 2018-15 “Intangibles - Goodwill and Other - Internal-Use Software” (Subtopic 350-40), which aligns the requirements for capitalizing implementation costs incurred in a service contract hosting arrangement with those for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company adopted this guidance on a prospective basis.

Accounting pronouncements issued and not yet adopted

In August 2018, the FASB issued ASU 2018-14 “Compensation - Retirement Benefits - Defined Benefit Plans - General” (Subtopic 715-20), which amends the disclosure requirements related to defined benefit pension and other postretirement plans. The Company will adopt this guidance effective December 31, 2020 and does not expect it to have a material impact to our consolidated financial statements and disclosures.

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In December 2019, the FASB issued ASU 2019-12 “Income Taxes” (Topic 740) – “Simplifying the Accounting for Income Taxes.” The Company will adopt this guidance effective January 1, 2021 and is currently determining the impacts of the guidance on our consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04 “Reference Rate Reform” (Topic 848) – “Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which provides optional expedients and exceptions for applying US GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform from currently referenced rates, such as LIBOR, to alternative rates. The ASU is effective beginning March 12, 2020 and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company is currently determining the impacts of the guidance on our consolidated financial statements.

3. Business combinations

2019 Acquisition

Acquisition of Nexeo Solutions

On February 28, 2019, the Company completed an acquisition of 100% of the equity interest of Nexeo Solutions, Inc. (“Nexeo”), a leading global chemicals and plastics distributor. The acquisition expanded and strengthened Univar Solutions’ presence in North America and provides expanded opportunities to create the largest North American sales force in chemical and ingredients distribution and the broadest product offering.

The total purchase price of the acquisition was $1,814.8 million, composed of $1,201.0 million of cash paid (net of cash acquired of $46.8 million) and $613.8 million of newly issued shares of Univar Solutions common stock, which represented approximately 26.4 million shares, based on Univar Solutions’ closing stock price of $23.29 on February 27, 2019. The final 26.4 million shares issued include the cancellation of 1.5 million shares in connection with the appraisal litigation settlement during the second quarter of 2019.

As of March 31, 2020, the Company updated the purchase price allocation to reflect final deferred income tax adjustments, resulting in a $7.0 million increase to goodwill. The accounting for this acquisition was complete as of March 31, 2020.

The final purchase price allocation is shown below:


(in millions)	As of December 31, 2019		Measurement Period Adjustments		Final March 31, 2020
Trade accounts receivable, net	$	296.3	$	—	$	296.3
Inventories	150.2		—		150.2
Prepaid expenses and other current assets	65.4		(1.2)		64.2
Assets held for sale	888.2		—		888.2
Property, plant and equipment, net	262.3		—		262.3
Goodwill	555.7		7.0		562.7
Intangible assets, net	138.7		—		138.7
Other assets	37.4		(0.4)		37.0
Trade accounts payable	(137.7)		—		(137.7)
Other accrued expenses	(145.8)		1.3		(144.5)
Liabilities held for sale	(221.5)		—		(221.5)
Deferred tax liabilities	(4.2)		(6.7)		(10.9)
Other long-term liabilities	(70.2)		—		(70.2)
Purchase consideration, net of cash	$	1,814.8	$	—	$	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 for total net proceeds of $664.3 million. Refer to “Note 4: Discontinued operations and dispositions” for further information.

The Company recorded $562.7 million of goodwill, consisting of $547.1 million in the USA segment, $3.8 million in Canada and $11.8 million in LATAM. The goodwill is primarily attributable to expected synergies from combining operations. The Company expects approximately $76.0 million of goodwill to be deductible for income tax purposes.

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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 Solutions common stock plus cash. The warrants have an exercise price of $27.80 and will expire on June 9, 2021. The warrants are recorded as other accrued expenses within the condensed consolidated balance sheet. Refer to “Note 15: Fair value measurements” for more information.

4. Discontinued operations and dispositions

Discontinued operations

On March 29, 2019, the Company completed the sale of Nexeo Plastics to an affiliate of One Rock Capital Partners, LLC (“Buyer”) for total proceeds of $664.3 million (net of cash disposed of $2.4 million), including $26.7 million for a working capital adjustment. The Nexeo purchase price allocation is inclusive of these working capital adjustments. Refer to “Note 3: Business combinations” for more information.

In connection with the transaction, the Company entered into a Transition Services Agreement (TSA), a Warehouse Service Agreement (WSA) and Real Property Agreements with the Buyer which are designed to ensure and facilitate an orderly transfer of business operations and 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 Nexeo Plastics.

The following table summarizes the operating results of Nexeo Plastics for the nine months ended September 30, 2019, as presented in “Net (loss) income from discontinued operations” on the condensed consolidated statements of operations.


(in millions)	Nine months ended September 30, 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)	2.0
Net (loss) income from discontinued operations	$	5.4

(1)The provision for income taxes for the nine months ended September 30, 2019 includes an adjustment to the tax expense related to the one month operations reported as of March 31, 2019.

There were no significant non-cash operating activities from the Company’s discontinued operations related to Nexeo Plastics.

Dispositions

On December 31, 2019, the Company completed the sale of the Environmental Sciences business to affiliates of AEA Investors LP for total cash proceeds of $174.0 million (net of cash disposed of $0.7 million and $5.9 million of transaction expenses) plus a $5.0 million ($2.4 million present value) subordinated note receivable (the “Transaction”) and recorded a pre-tax gain on sale of $41.4 million. In the first quarter of 2020, we recorded a net working capital adjustment of $8.2 million, reducing the proceeds and the gain on sale recorded in the fourth quarter of 2019. The sale of the business did not meet the criteria to be classified as a discontinued operation in the Company’s financial statements because the disposition did not represent a strategic shift that had, or will have, a major effect on the Company's operations and financial results.

The following summarizes the income before income taxes attributable to the Environmental Sciences business:


(in millions)	Three months ended September 30, 2019		Nine months ended September 30, 2019
Income before income taxes	$	8.9	$	23.6

On September 1, 2020, the Company completed the sale of its industrial spill and emergency response businesses to EnviroServe Inc. for total net cash proceeds of $6.2 million after transaction-related expenses, and subject to a final working capital adjustment. The Company recorded a $9.3 million pre-tax loss on sale of business in the condensed consolidated

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statements of operations and was included in the USA segment. The sale of these businesses did not meet the criteria to be classified as a discontinued operation in the Company’s financial statements because the dispositions did not represent a strategic shift that had, or will have, a major effect on the Company's operations and financial results.

The following summarizes the loss before income taxes attributable to these businesses:


	Three months ended September 30,				Nine months ended September 30,
(in millions)	2020		2019		2020		2019
Loss before income taxes	$	(0.8)	$	(2.6)	$	(26.9)	$	(5.5)

5. Revenue

The Company disaggregates revenues from contracts with customers by both geographic reportable segments and revenue contract types. Geographic reportable segmentation is pertinent to understanding Univar Solutions’ 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 Solutions offers customers, since the contractual terms necessary for revenue recognition are unique to each of the identified revenue contract types.

The following tables disaggregate external customer net sales by major stream:


	USA		EMEA		Canada		LATAM		Consolidated
(in millions)	Three months ended September 30, 2020
Chemical Distribution	$	1,179.0	$	399.1	$	179.8	$	117.8	$	1,875.7
Crop Sciences	—		—		43.9		—		43.9
Services	75.4		0.3		11.2		2.7		89.6
Total external customer net sales	$	1,254.4	$	399.4	$	234.9	$	120.5	$	2,009.2

	USA		EMEA		Canada		LATAM		Consolidated
(in millions)	Three months ended September 30, 2019
Chemical Distribution	$	1,477.0	$	424.7	$	207.3	$	114.0	$	2,223.0
Crop Sciences	—		—		64.3		—		64.3
Services	85.1		0.3		11.4		3.2		100.0
Total external customer net sales	$	1,562.1	$	425.0	$	283.0	$	117.2	$	2,387.3


	USA		EMEA		Canada		LATAM		Consolidated
(in millions)	Nine months ended September 30, 2020
Chemical Distribution	$	3,546.6	$	1,268.3	$	560.1	$	319.9	$	5,694.9
Crop Sciences	—		—		255.7		—		255.7
Services	234.7		1.0		36.4		6.9		279.0
Total external customer net sales	$	3,781.3	$	1,269.3	$	852.2	$	326.8	$	6,229.6

	USA		EMEA		Canada		LATAM		Consolidated
(in millions)	Nine months ended September 30, 2019
Chemical Distribution	$	4,240.1	$	1,365.6	$	644.1	$	321.2	$	6,571.0
Crop Sciences	—		—		281.9		—		281.9
Services	234.5		1.0		35.6		7.9		279.0
Total external customer net sales	$	4,474.6	$	1,366.6	$	961.6	$	329.1	$	7,131.9

Deferred revenue

Deferred revenues are recognized as a contract liability when customers provide Univar Solutions with consideration prior to the Company satisfying a performance obligation and are recognized in revenue when the performance obligations are met. Deferred revenues relate to revenues that are expected to be recognized within one year and are recorded within the other accrued expenses line items of the condensed consolidated balance sheets. Deferred revenues as of September 30, 2020 and December 31, 2019 were $6.0 million and $65.5 million, respectively.

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Revenue recognized through the nine months ended September 30, 2020 and September 30, 2019 from amounts included in contract liabilities at the beginning of the period were $64.8 million and $44.4 million, respectively.

6. Other operating expenses, net

Other operating expenses, net consisted of the following:


	Three months ended September 30,				Nine months ended September 30,
(in millions)	2020		2019		2020		2019
Acquisition and integration related expenses	$	14.1	$	18.6	$	45.9	$	128.3
Stock-based compensation expense	2.6		4.4		10.9		21.7
Restructuring charges	0.9		0.6		9.7		1.2
Other employee severance costs	2.9		4.2		11.2		23.3
Other facility closure costs	0.2		5.6		2.2		5.6
Saccharin legal settlement	—		—		—		62.5
Fair value adjustment for warrants	1.1		(4.2)		(6.4)		(6.8)
(Gain) loss on sale of property, plant and equipment	(0.8)		0.2		(8.3)		1.7
Other	0.4		0.8		3.9		21.3
Total other operating expenses, net	$	21.4	$	30.2	$	69.1	$	258.8

7. Restructuring charges

Restructuring charges relate to the implementation of several regional strategic initiatives aimed at streamlining the Company’s cost structure and improving its operations. These actions primarily resulted in workforce reductions and other facility rationalization costs. Restructuring charges are recorded in other operating expenses, net in the condensed consolidated statement of operations.

2020 Restructuring

During the first quarter of 2020, management approved a plan to implement a new structure designed to streamline and accelerate the opportunities between Canada and USA operations with the reporting structure in Canada condensed and realigned to report under the leadership in the USA for commercial, operations, human resources and finance. This change did not impact the Company's reportable segments. All restructuring actions under this program were complete as of June 30, 2020, except for final cash payments that will be made in the future. During the third quarter of 2020, the Company increased its previously disclosed estimate and recorded an additional charge to earnings of $0.2 million within employee termination costs.

During the second quarter of 2020, the Company initiated workforce reductions spanning across many job functions and locations in the USA and Other in order to align the Company's workforce with its anticipated business needs. The actions associated with this program are expected to be completed by the end of 2020.

As a result of both of these plans, we recorded the following charges:


(in millions)	Three months ended September 30, 2020		Nine months ended September 30, 2020		Anticipated total costs
USA:
Employee termination costs	$	1.5	$	6.2	$	6.2

Canada:
Employee termination costs	$	0.2	$	3.3	$	3.3

Other:
Employee termination costs	$	—	$	0.8	$	0.8
Total	$	1.7	$	10.3	$	10.3

2018 Restructuring

During 2018, management approved a plan to consolidate departments. The actions associated with this program were substantially complete as of March 31, 2020, although cash payments will be made into the future. During the third quarter of

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2020, the Company reduced its estimate, which was previously recorded as a charge to earnings, in the amount of $0.8 million within employee termination costs as a result of changes in organizational structure. The following table presents a summary of the financial impacts of that plan:


(in millions)	Three months ended September 30, 2020		Nine months ended September 30, 2020		Cumulative costs		Anticipated total costs
USA:
Employee termination costs	$	(0.5)	$	(0.4)	$	5.1	$	5.1
Other exit costs	—		—		0.1		0.1
Total	$	(0.5)	$	(0.4)	$	5.2	$	5.2

Other:
Employee termination costs	$	(0.3)	$	(0.2)	$	1.0	$	1.0

Total:
Employee termination costs	$	(0.8)	$	(0.6)	$	6.1	$	6.1
Other exit costs	—		—		0.1		0.1
Total	$	(0.8)	$	(0.6)	$	6.2	$	6.2

The following table summarizes activity related to accrued liabilities associated with restructuring:


(in millions)	January 1, 2020		Charge to earnings		Cash paid		September 30, 2020
Employee termination costs	$	3.7	$	9.7	$	(10.8)	$	2.6
Facility exit costs	1.9		—		(0.6)		1.3
Other exit costs	0.2		—		—		0.2
Total	$	5.8	$	9.7	$	(11.4)	$	4.1


(in millions)	January 1, 2019		Charge to earnings		Cash paid		December 31, 2019
Employee termination costs	$	4.2	$	2.5	$	(3.0)	$	3.7
Facility exit costs	5.0		0.1		(3.2)		1.9
Other exit costs	0.2		—		—		0.2
Total	$	9.4	$	2.6	$	(6.2)	$	5.8

Restructuring liabilities of $3.6 million and $5.3 million were classified as current in other accrued expenses in the condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019, respectively. The long-term portion of restructuring liabilities of $0.5 million were recorded in other long-term liabilities in the condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019, and primarily consists of facility exit costs that are expected to be paid within the next five years.

The cost information above does not contain any estimates for programs that may be developed and implemented in future periods. 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.

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8. Other income (expense), net

Other income (expense), net consisted of the following:


	Three months ended September 30,				Nine months ended September 30,
(in millions)	2020		2019		2020		2019
Foreign currency transactions	$	0.3	$	(0.9)	$	(6.1)	$	(3.7)
Foreign currency denominated loans revaluation	0.2		16.8		—		17.3
Undesignated foreign currency derivative instruments (1)	0.5		(20.6)		0.6		(26.2)
Undesignated swap contracts (1)	(0.1)		(1.0)		(6.1)		(3.8)
Non-operating retirement benefits (2)	2.2		0.5		6.5		1.7
Debt refinancing costs	—		—		(0.1)		—
Other	(0.7)		(0.3)		(2.2)		(2.5)
Total other income (expense), net	$	2.4	$	(5.5)	$	(7.4)	$	(17.2)

(1)Refer to “Note 16: Derivatives” for more information.

(2)Refer to “Note 9: Employee benefit plans” for more information.

9. Employee benefit plans

The following table summarizes the components of net periodic (benefit) cost recognized in the condensed consolidated statements of operations:


	Domestic - Defined Benefit Pension Plans								Foreign - Defined Benefit Pension Plans
	Three months ended September 30,				Nine months ended September 30,				Three months ended September 30,				Nine months ended September 30,
(in millions)	2020		2019		2020		2019		2020		2019		2020		2019
Service cost (1)	$	—	$	—	$	—	$	—	$	0.5	$	0.6	$	1.4	$	1.8
Interest cost (2)	5.8		6.8		17.4		20.4		3.2		3.9		9.3		11.7
Expected return on plan assets (2)	(7.1)		(6.3)		(21.4)		(18.9)		(4.1)		(4.9)		(11.9)		(15.0)
Prior service cost (2)	—		—		—		—		—		—		0.1		0.1
Net periodic (benefit) cost	$	(1.3)	$	0.5	$	(4.0)	$	1.5	$	(0.4)	$	(0.4)	$	(1.1)	$	(1.4)

(1)Service cost is included in warehouse, selling and administrative expenses.

(2)These amounts are included in other income (expense), net.

10. Income taxes

The income tax expense and effective income tax rate for the three and nine months ended September 30, 2020 and 2019 were as follows:


	Three months ended September 30,						Nine months ended September 30,
(dollars in millions)	2020			2019			2020			2019
Income tax expense	$	2.7		$	43.2		$	14.0		$	38.4
Effective income tax rate	8.5		%	94.5		%	13.9		%	(317.4)		%

Discrete tax benefits of $13.9 million are included in the $2.7 million income tax expense for the three months ended September 30, 2020 primarily attributable to 2019 return to provision adjustments and impairment of unrealizable assets, offset by a reserve for uncertain tax positions. The Company’s effective income tax rate without discrete items was 26.8%, higher than the US federal statutory rate of 21.0% primarily due to the impact of higher tax rates in foreign jurisdictions, non-deductible expenses and US state income taxes.

Discrete tax benefits of $27.5 million are included in the $14.0 million income tax expense for the nine months ended September 30, 2020 primarily attributable to 2019 return to provision adjustments, impairment of unrealizable assets and benefits from provisions under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), offset by a reserve for uncertain tax positions. The Company’s effective income tax rate without discrete items was 29.9%, higher than the US federal statutory rate of 21.0% primarily due to the impact of higher tax rates in foreign jurisdictions, non-deductible expenses and US state income taxes.

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Discrete tax expense of $9.1 million and discrete tax benefit of $4.9 million are included in the $43.2 million and $38.4 million income tax expense for the three and nine months ended September 30, 2019. The Company’s effective income tax rate without discrete items was 68.4%, higher than the US federal statutory rate of 21.0%, primarily due to the impact of non-deductible 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.

11. Earnings per share

The following table presents the basic and diluted earnings per share computations:


	Three months ended September 30,				Nine months ended September 30,
(in millions, except per share data)	2020		2019		2020		2019
Numerator:
Net income (loss) from continuing operations	$	28.9	$	2.5	$	86.6	$	(50.5)
Net income from discontinued operations	—		—		—		5.4
Net income (loss)	$	28.9	$	2.5	$	86.6	$	(45.1)

Denominator:
Weighted average common shares outstanding – basic	169.0		168.6		168.9		162.6
Effect of dilutive securities: stock compensation plans	0.8		0.9		0.8		—
Weighted average common shares outstanding – diluted	169.8		169.5		169.7		162.6

Basic:
Basic income (loss) per common share from continuing operations	$	0.17	$	0.01	$	0.51	$	(0.31)
Basic income per common share from discontinued operations	—		—		—		0.03
Basic income (loss) per common share (1)	$	0.17	$	0.01	$	0.51	$	(0.28)

Diluted:
Diluted income (loss) per common share from continuing operations	$	0.17	$	0.01	$	0.51	$	(0.31)
Diluted income per common share from discontinued operations	—		—		—		0.03
Diluted income (loss) per common share (1)	$	0.17	$	0.01	$	0.51	$	(0.28)

(1)As a result of changes in the number of shares outstanding during the year and rounding, the sum of the quarter's earnings per share may not equal the earnings per share for any year-to-date period.

The shares that were not included in the computation of diluted earnings per share for those periods because their inclusion would be anti-dilutive were as follows:


	Three months ended September 30,		Nine months ended September 30,
(in millions, common shares)	2020	2019	2020	2019
Stock options	4.5	3.1	4.5	3.0
Restricted stock	0.1	—	0.4	0.8
Warrants	7.6	7.6	7.6	6.0

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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, 2019	$	(15.4)	$	(1.0)	$	(362.9)	$	(379.3)
Other comprehensive loss before reclassifications	(33.4)		—		(60.1)		(93.5)
Amounts reclassified from accumulated other comprehensive loss	14.6		0.1		—		14.7
Net current period other comprehensive (loss) income	$	(18.8)	$	0.1	$	(60.1)	$	(78.8)
Balance as of September 30, 2020	$	(34.2)	$	(0.9)	$	(423.0)	$	(458.1)

Balance as of July 1, 2020	$	(36.8)	$	(0.9)	$	(437.3)	$	(475.0)
Other comprehensive (loss) income before reclassifications	(11.2)		—		14.3		3.1
Amounts reclassified from accumulated other comprehensive loss	13.8		—		—		13.8
Net current period other comprehensive income (loss)	$	2.6	$	—	$	14.3	$	16.9
Balance as of September 30, 2020	$	(34.2)	$	(0.9)	$	(423.0)	$	(458.1)

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 before reclassifications	(22.1)		—		(12.1)		(34.2)
Amounts reclassified from accumulated other comprehensive loss	(6.5)		0.1		—		(6.4)
Net current period other comprehensive (loss) income	$	(27.1)	$	0.1	$	(16.8)	$	(43.8)
Balance as of September 30, 2019	$	(18.2)	$	(1.0)	$	(397.8)	$	(417.0)

Balance as of Balance as of July 1, 2019	$	(13.8)	$	(1.0)	$	(365.9)	$	(380.7)
Other comprehensive loss before reclassifications	(3.5)		—		(31.9)		(35.4)
Amounts reclassified from accumulated other comprehensive loss	(0.9)		—		—		(0.9)
Net current period other comprehensive loss	$	(4.4)	$	—	$	(31.9)	$	(36.3)
Balance as of September 30, 2019	$	(18.2)	$	(1.0)	$	(397.8)	$	(417.0)

(1)Adjusted due to the adoption of ASU 2018-02 “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” on January 1, 2019.

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The following is a summary of the amounts reclassified from accumulated other comprehensive loss to net income (loss):


	Statement of Operations Classification	Three months ended September 30,				Nine months ended September 30,
(in millions)		2020 (1)		2019 (1)		2020 (1)		2019 (1)
Amortization of defined benefit pension items:
Prior service cost	Other income (expense), net	$	—	$	—	$	0.1	$	0.1
Tax expense	Income tax expense	—		—		—		—
Net of tax		$	—	$	—	$	0.1	$	0.1
Cash flow hedges:
Interest rate swap contracts	Interest expense	$	4.7	$	(1.2)	$	7.8	$	(8.7)
Cross-currency swap contracts	Interest expense and other income (expense), net	15.4		—		13.4		—
Tax (benefit) expense	Income tax expense	(6.3)		0.3		(6.6)		2.2
Net of tax		$	13.8	$	(0.9)	$	14.6	$	(6.5)
Total reclassifications for the period, net of tax		$	13.8	$	(0.9)	$	14.7	$	(6.4)

(1)Amounts in parentheses indicate credits to net income (loss) in the condensed consolidated statement of operations.

13. Debt

Short-term financing

Short-term financing consisted of the following:


(in millions)	September 30, 2020		December 31, 2019
Amounts drawn under credit facilities	$	—	$	0.5
Bank overdrafts	0.4		0.2
Total short-term financing	$	0.4	$	0.7

As of September 30, 2020 and December 31, 2019, the Company had $164.1 million and $158.5 million in outstanding letters of credit, respectively.

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Long-term debt

Long-term debt consisted of the following:


(in millions)	September 30, 2020		December 31, 2019
Senior Term Loan Facilities:
Term B-3 Loan due 2024, variable interest rate of 2.40% and 4.05% at September 30, 2020 and December 31, 2019, respectively	$	1,264.1	$	1,438.0
Term B-5 Loan due 2026, variable interest rate of 2.15% and 3.80% at September 30, 2020 and December 31, 2019, respectively	397.0		400.0
Asset Backed Loan (ABL) Facilities:
North American ABL Facility due 2024, variable interest rate of 2.00% and 5.25% at September 30, 2020 and December 31, 2019, respectively	337.9		200.0
Canadian ABL Term Loan due 2022, variable interest rate of 2.73% and 4.31% at September 30, 2020 and December 31, 2019, respectively	127.6		130.9

Senior Unsecured Notes:
Senior Unsecured Notes due 2027, fixed interest rate of 5.13% at September 30, 2020 and December 31, 2019	500.0		500.0
Finance lease obligations	82.8		71.2
Total long-term debt before discount	$	2,709.4	$	2,740.1
Less: unamortized debt issuance costs and discount on debt	(21.4)		(26.3)
Total long-term debt	$	2,688.0	$	2,713.8
Less: current maturities	(27.6)		(25.0)
Total long-term debt, excluding current maturities	$	2,660.4	$	2,688.8

The weighted average interest rate on long-term debt was 3.72% and 4.25% as of September 30, 2020 and December 31, 2019, respectively.

On January 7, 2020, using the proceeds from the sale of the Environmental Sciences business, the Company repaid $174.0 million of the Term B-3 Loan due 2024. As a result of the prepayment, the Company recognized a loss on extinguishment of debt of $1.8 million during the three months ended March 31, 2020.

Other Information


	September 30, 2020				December 31, 2019
(in millions)	Carrying amount		Fair value		Carrying amount		Fair value
Fair value of debt	$	2,688.0	$	2,702.6	$	2,713.8	$	2,770.7

The fair values of debt were based on current market quotes for similar borrowings and credit risk adjusted for liquidity, margins and amortization, as necessary and are classified as level 2 in the fair value hierarchy.

14. Supplemental balance sheet information

Allowance for doubtful accounts

The allowance for doubtful accounts reflects the Company's current estimate of credit losses expected to be incurred over the life of the trade accounts receivable. Collectability of the trade accounts receivable balance is assessed on an ongoing basis and determined based on the delinquency of customer accounts, the financial condition of individual customers, past collections experience and future economic expectations. The change in the allowance for doubtful accounts is as follows:


(in millions)
Balance, January 1, 2020	$	12.9
Provision for credit losses	14.8
Write-offs	(2.0)
Recoveries	0.3
Dispositions	(0.5)
Foreign exchange	(0.9)
Balance, September 30, 2020	$	24.6

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Property, plant and equipment, net


(in millions)	September 30, 2020		December 31, 2019
Property, plant and equipment, at cost	$	2,210.4	$	2,190.3
Less: accumulated depreciation	(1,125.2)		(1,037.9)
Property, plant and equipment, net	$	1,085.2	$	1,152.4

Goodwill

The following is a summary of the activity in goodwill by segment.


(in millions)	USA		EMEA		Canada		LATAM		Total
Balance, January 1, 2020	$	1,802.3	$	8.4	$	441.1	$	29.0	$	2,280.8

Purchase price adjustments	7.0		—		—		—		7.0

Other adjustments	(4.1)		—		—		(0.5)		(4.6)
Foreign exchange	—		(0.3)		(10.9)		(4.7)		(15.9)
Balance, September 30, 2020	$	1,805.2	$	8.1	$	430.2	$	23.8	$	2,267.3

Intangible assets, net


	September 30, 2020						December 31, 2019
(in millions)	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Customer relationships	$	928.0	$	(670.5)	$	257.5	$	986.4	$	(680.8)	$	305.6
Other	173.8		(168.0)		5.8		182.0		(167.4)		14.6
Total intangible assets	$	1,101.8	$	(838.5)	$	263.3	$	1,168.4	$	(848.2)	$	320.2

Other intangible assets consist of intellectual property (mostly trademarks and trade names), producer relationships and contracts, non-compete agreements and exclusive distribution rights.

The estimated annual amortization expense in each of the next five years is as follows:


(in millions)
2020	$	60.1
2021	51.3
2022	43.3
2023	38.4
2024	31.6

Other accrued expenses

As of September 30, 2020, other accrued expenses that were greater than five percent of total current liabilities consisted of current tax liabilities of $74.6 million, comprised of income, VAT and local indirect taxes payable. As of December 31, 2019, other accrued expenses that were greater than five percent of total current liabilities consisted of current tax liabilities of $87.1 million and customer prepayments and deposits of $81.5 million.

Impairment charges

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate an asset’s carrying amount may not be recoverable. Testing asset groups for recoverability involves developing estimates of future cash flows directly associated with, and that are expected to arise as a direct result of, the use and eventual disposition of the assets. An impairment of a group of long-lived assets exists when the sum of the estimated undiscounted future cash flows expected to be generated directly by the asset group are less than the carrying value of the asset group. The impairment charge computation is based on the difference between carrying value and fair value of the asset group, as determined by discounted future cash flows. Significant estimates include forecasted Adjusted EBITDA, working capital, capital expenditures and discount rates. As the inputs for testing recoverability and determining fair value of the asset groups are largely based on management’s judgments and are not generally observable in active markets, the Company considers such inputs to be Level 3 measurements in the fair value hierarchy.

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During the second quarter of 2020, the Company determined there was a more likely than not expectation that the industrial spill and emergency response businesses within the USA segment would be sold. The Company determined this to be a triggering event, requiring the assessment of the recoverability of these long lived asset groups. The Company tested the recoverability and determined the assets to be impaired. As a result, the Company recorded a non-cash, pretax impairment charge of $15.5 million, consisting of $12.8 million of intangible assets, net and $2.7 million of property, plant and equipment, net within the condensed consolidated statement of operations during the three months ended June 30, 2020.

During the third quarter of 2020, the Company decided to cease further investment in, and seek to restructure or exit a contract related to, certain technology assets, consisting of capitalized software and hardware components. This event represented a triggering event requiring an impairment analysis within the Other segment. As a result of the analysis, the Company recorded a non-cash, pretax impairment charge of $19.7 million relating to property, plant and equipment, net within the condensed consolidated statement of operations during the three months ended September 30, 2020.

Additionally, the Company announced the closure of certain production facilities in the USA segment during the second and third quarters of 2020. The closures resulted in impairment charges related to property, plant and equipment, net of $1.4 million and $1.0 million within the condensed consolidated statement of operations during the three months ended June 30, 2020 and September 30, 2020, respectively.

15. Fair value measurements

The following is a reconciliation of the fair value measurements that use significant unobservable inputs (Level 3):


(in millions)	Warrant Liability
Fair value as of December 31, 2019	$	33.0
Fair value adjustments	(6.4)
Fair value as of September 30, 2020	$	26.6

The assumptions used in the Black-Scholes-Merton valuation model to measure the fair value of the warrants are:

Weighted Average

Unobservable Inputs

Range

Amount

Method

Warrant life

N/A

2 years

Expected term

Expected volatility

28.75% to 61.86%

43.61%

Industry peer group

Risk-free interest rate

N/A

0.13%

US Treasury rates

Fair value adjustments are recorded within other operating expenses, net in the condensed consolidated statement of operations.

16. Derivatives

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 intercompany and third-party receivables and payables denominated in a foreign currency. These derivative instruments are not formally designated as cash flow hedges by the Company and the terms of these instruments range from one to three months.

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 benchmark interest rate related to the Term B-3 Loan and a portion of debt outstanding under the North American ABL Facility. On March 17, 2020, the Company executed $250.0 million of interest rate swap contracts effective June 30, 2020 to replace swaps with maturities on June 30, 2020. The interest rate swap contracts have maturities at various dates through June 2024.

Cross currency swap contracts

Cross currency swap contracts are used to effectively convert the Term B-5 Loan’s principal amount of floating rate US dollar denominated debt, including interest payments, to fixed-rate Euro denominated debt maturing in November 2024. As of September 30, 2020, approximately 95% of the cross currency swaps are designated as a cash flow hedge.

The Company uses both undesignated interest rate swap contracts and cross currency swaps to manage interest rate variability and mitigate foreign exchange exposure.

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Notional amounts and fair value of derivative instruments

The following table presents the notional amounts of the Company’s outstanding derivative instruments by type:


(in millions)	September 30, 2020		December 31, 2019
Derivatives designated as hedging instruments:
Interest rate swap contracts	$	1,050.0	$	1,050.0
Cross currency swap contracts	381.0		381.0
Derivatives not designated as hedging instruments:
Interest rate swap contracts	200.0		200.0
Foreign currency derivatives	90.9		141.4
Cross currency swap contracts	19.0		19.0

The following are the pre-tax effects of derivative instruments on the condensed consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 2020 and 2019:


	Statement of Operations Classification	Amount of gain (loss) reclassified from other comprehensive loss into income								Amount to be reclassified to Statement of Operations within the next 12 months
		Three months ended September 30,				Nine months ended September 30,
(in millions)		2020		2019		2020		2019
Derivatives in cash flow hedging relationships:
Interest rate swap contracts	Interest expense	$	(4.7)	$	1.2	$	(7.8)	$	8.7	$	(18.5)
Cross currency swap contracts	Interest expense	0.4		—		3.1		—		1.4
	Other income (expense), net	(15.8)		—		(16.5)		—		—

Refer to “Note 8: Other income (expense), net” for the gains and losses related to derivatives not designated as hedging instruments.

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The following table presents the Company’s gross assets and liabilities measured on a recurring basis and classified as level 2 within the fair value hierarchy:


	Derivative Assets					Derivative Liabilities
(in millions)	Balance Sheet Classification	September 30, 2020		December 31, 2019		Balance Sheet Classification	September 30, 2020		December 31, 2019
Designated Derivatives:
Cross currency swap contracts	Prepaid expenses and other current assets	$	1.4	$	7.2	Other long-term liabilities	$	28.8	$	12.1
Interest rate swap contracts	Prepaid expenses and other current assets	—		—		Other accrued expenses	18.5		6.4
Interest rate swap contracts	Other assets	—		—		Other long-term liabilities	23.8		14.0
Total designated derivatives		$	1.4	$	7.2		$	71.1	$	32.5

Undesignated Derivatives:
Foreign currency contracts	Prepaid expenses and other current assets	$	0.2	$	0.5	Other accrued expenses	$	0.4	$	1.0
Cross currency swap contracts	Prepaid expenses and other current assets	0.1		0.4		Other long-term liabilities	1.4		0.6
Interest rate swap contracts	Prepaid expenses and other current assets	—		—		Other accrued expenses	3.1		1.0
Interest rate swap contracts	Other assets	—		—		Other long-term liabilities	4.3		1.9
Total undesignated derivatives		$	0.3	$	0.9		$	9.2	$	4.5

Total derivatives	Total assets	$	1.7	$	8.1	Total liabilities	$	80.3	$	37.0

The net amounts by legal entity related to forward currency contracts included in prepaid and other current assets were $0.1 million and $0.2 million as of September 30, 2020 and December 31, 2019, respectively. The net amounts related to forward currency contracts included in other accrued expenses were $0.3 million and $0.7 million as of September 30, 2020 and December 31, 2019, 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 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.

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 likely to 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 or the potential for future claims or litigation and adverse developments could negatively impact earnings or cash flows in a particular future period.

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 Solutions USA Inc.’s (“Univar”) 1986 purchase of McKesson Chemical Company from McKesson Corporation (“McKesson”). Once certain conditions have been met, Univar will have the ability to pursue insurance coverage, if any, that may be available under McKesson's historical insurance coverage to offset the impact of any fees, settlements, or judgments that Univar is obligated to pay because of its obligation to defend and indemnify McKesson. As of September 30, 2020, there were approximately 182 asbestos-related cases for which Univar has the obligation to defend and indemnify; however, this number tends to fluctuate up and down over time. Historically, the vast majority of these asbestos cases have been dismissed without payment or with a nominal payment. While the Company is unable to predict

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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.

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”) and from time to time becomes aware of compliance matters regarding possible or alleged violations of these laws or regulations. For example, over the years, the Company has been identified as a “potentially responsible party” (“PRP”) under the Comprehensive Environmental Response, Compensation and Liability Act and/or similar state laws that impose liability for costs relating to environmental remediation work at various sites. As a PRP, the Company may be required to pay a share of the costs of investigation and cleanup of certain sites. The Company is currently engaged in environmental remediation work at approximately 127 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 107 current or formerly Company-owned/occupied sites. In addition, the Company may be liable as a PRP for a share of the cleanup of approximately 20 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. The level of annual expenditures for remedial, monitoring and investigatory activities will change in the future as major components of planned remediation activities are completed and the scope, timing and costs of existing activities are changed. Project lives, and therefore cash flows, range from 2 to 30 years, depending on the specific site and type of remediation project.

Although the Company believes that its reserves are adequate for environmental contingencies, it is possible, due to the uncertainties noted above; that additional reserves could be required in the future that could have a material effect on the overall financial position, results of operations, or cash flows in a particular period. This additional loss or range of losses cannot be recorded at this time, as it is not reasonably estimable.

Changes in total environmental liabilities are as follows:


(in millions)
Environmental liabilities at December 31, 2019	$	78.7
Revised obligation estimates	16.0
Environmental payments	(9.5)
Foreign exchange	0.2
Environmental liabilities at September 30, 2020	$	85.4


(in millions)	Balance Sheet Classification	September 30, 2020		December 31, 2019
Current environmental liabilities	Other accrued expenses	$	27.8	$	25.0
Long-term environmental liabilities	Other long-term liabilities	57.6		53.7

Tax Matters

During 2017, the Brazilian Federal Supreme Court (the “Court”) ruled that the inclusion of the state VAT tax collected by a taxpayer in the taxpayer’s federal social contribution calculation base is unconstitutional. In 2019, the Court ruled in the Company's favor allowing the recoverability of amounts previously paid, plus interest. As a result, the Company recorded a benefit of $10.9 million in net sales, of which $9.7 million related to prior years, and $4.6 million in interest income in the consolidated statement of operations during the fourth quarter of 2019. During the second quarter of 2020, the Company

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reduced its benefit from prior year and recorded a charge of $0.4 million in net sales and $0.3 million in interest income in the condensed consolidated statement of operations.

18. Leasing

The Company leases certain warehouses and distribution centers, office space, transportation equipment, and other machinery and equipment.


(in millions)	Balance Sheet Classification	September 30, 2020		December 31, 2019
Assets
Operating lease assets	Other assets	$	146.2	$	157.3
Finance lease assets	Property, plant and equipment, net	80.6		69.5
Total lease assets		$	226.8	$	226.8
Liabilities
Current liabilities:
Current portion of operating lease liabilities	Other accrued expenses	$	42.8	$	47.4
Current portion of finance lease liabilities	Current portion of long-term debt	23.6		20.9
Noncurrent liabilities:
Operating lease liabilities	Other long-term liabilities	111.4		114.5
Finance lease liabilities	Long-term debt	59.2		50.3
Total lease liabilities		$	237.0	$	233.1

Lease cost


(in millions)	Three months ended September 30, 2020						Three months ended September 30, 2019
Statement of Operations Classification	Operating Leases		Finance Leases		Total		Operating Leases		Finance Leases		Total
Cost of goods sold (exclusive of depreciation)	$	4.7	$	—	$	4.7	$	3.6	$	—	$	3.6
Outbound freight and handling	1.5		—		1.5		1.9		—		1.9
Warehousing, selling and administrative	7.8		—		7.8		7.1		—		7.1
Depreciation	—		6.7		6.7		—		4.8		4.8
Interest expense	—		0.8		0.8		—		0.7		0.7
Total gross lease component cost	$	14.0	$	7.5	$	21.5	$	12.6	$	5.5	$	18.1
Variable lease costs					0.2						(0.2)
Short-term lease costs					5.9						11.3
Total gross lease costs					$	27.6					$	29.2
Sublease income					0.6						1.3
Total net lease cost					$	27.0					$	27.9

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(in millions)	Nine months ended September 30, 2020						Nine months ended September 30, 2019
Statement of Operations Classification	Operating Leases		Finance Leases		Total		Operating Leases		Finance Leases		Total
Cost of goods sold (exclusive of depreciation)	$	13.4	$	—	$	13.4	$	11.3	$	—	$	11.3
Outbound freight and handling	4.2		—		4.2		5.6		—		5.6
Warehousing, selling and administrative	24.1		—		24.1		21.0		—		21.0
Depreciation	—		18.8		18.8		—		14.2		14.2
Interest expense	—		2.5		2.5		—		2.0		2.0
Total gross lease component cost	$	41.7	$	21.3	$	63.0	$	37.9	$	16.2	$	54.1
Variable lease costs					0.6						0.7
Short-term lease costs					19.8						22.9
Total gross lease costs					$	83.4					$	77.7
Sublease income					1.8						2.9
Total net lease cost					$	81.6					$	74.8

Maturity of lease liabilities


(in millions)	Operating Leases		Finance Leases		Total
2020	$	13.4	$	6.7	$	20.1
2021	44.4		24.3		68.7
2022	35.3		20.8		56.1
2023	24.5		12.0		36.5
2024	16.2		8.8		25.0
2025 and After	39.2		15.8		55.0
Total lease payments	$	173.0	$	88.4	$	261.4
Less: interest	18.8		7.1
Present value of lease liabilities, excluding guaranteed residual values	$	154.2	$	81.3
Plus: present value of guaranteed residual values	—		1.5
Present value of lease liabilities	$	154.2	$	82.8

Lease term and discount rate


	September 30, 2020		December 31, 2019
Weighted-average remaining lease term (years)
Operating leases	5.3		5.0
Finance leases	4.6		4.0
Weighted-average discount rate
Operating leases	4.82	%	4.95	%
Finance leases	3.98	%	4.33	%

Other information


	Nine months ended September 30,
(in millions)	2020		2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	41.4	$	43.3
Operating cash flows from finance leases	2.5		2.0
Financing cash flows from finance leases	17.9		14.5

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19. Segments

Management monitors the operating results of its reportable segments separately for the purpose of making decisions about resource allocation and performance assessment. Management evaluates performance on the basis of Adjusted EBITDA. Adjusted EBITDA is defined as consolidated net income (loss), plus the sum of: net loss (income) from discontinued operations, interest expense, net of interest income; income tax expense (benefit); depreciation; amortization; impairment charges; loss on extinguishment of debt; other operating expenses, net (see “Note 6: Other operating expenses, net”); and other income (expense), net (see “Note 8: Other income (expense), net”). For 2020, Adjusted EBITDA also includes an adjustment to remove a Brazil VAT charge (see “Note 17: Commitments and contingencies” for more information). In addition, for 2019, Adjusted EBITDA includes an adjustment to remove the charge of the inventory fair value step-up recorded in connection with the Nexeo purchase price allocation.

Transfer prices between reportable segments are set on an arms-length basis in a similar manner to transactions with third parties. Corporate operating expenses that directly benefit segments have been allocated to the reportable segments. Allocable operating expenses are identified through a review process by management. These costs are allocated to the reportable segments on a basis that reasonably approximates the use of services. This is typically measured on a weighted distribution of margin, asset, headcount or time spent.

Financial information for the Company’s reportable segments is as follows:


	USA		EMEA		Canada		LATAM		Other/Eliminations (1)		Consolidated
(in millions)	Three months ended September 30, 2020
External customers	$	1,254.4	$	399.4	$	234.9	$	120.5	$	—	$	2,009.2
Inter-segment	14.6		0.6		0.5		—		(15.7)		—
Total net sales	$	1,269.0	$	400.0	$	235.4	$	120.5	$	(15.7)	$	2,009.2

Adjusted EBITDA	$	110.3	$	33.3	$	16.6	$	13.1	$	(8.7)	$	164.6

Long-lived assets (2)	$	805.7	$	184.7	$	187.4	$	30.2	$	23.4	$	1,231.4


	USA		EMEA		Canada		LATAM		Other/Eliminations (1)		Consolidated
(in millions)	Three months ended September 30, 2019
External customers	$	1,562.1	$	425.0	$	283.0	$	117.2	$	—	$	2,387.3
Inter-segment	29.5		0.6		1.7		—		(31.8)		—
Total net sales	$	1,591.6	$	425.6	$	284.7	$	117.2	$	(31.8)	$	2,387.3

Adjusted EBITDA	$	127.6	$	31.9	$	22.2	$	10.2	$	(7.7)	$	184.2

Long-lived assets (2)	$	897.9	$	176.3	$	189.6	$	32.9	$	27.3	$	1,324.0


	USA		EMEA		Canada		LATAM		Other/Eliminations (1)		Consolidated
(in millions)	Nine months ended September 30, 2020
External customers	$	3,781.3	$	1,269.3	$	852.2	$	326.8	$	—	$	6,229.6
Inter-segment	63.3		2.3		2.0		—		(67.6)		—
Total net sales	$	3,844.6	$	1,271.6	$	854.2	$	326.8	$	(67.6)	$	6,229.6

Adjusted EBITDA	$	302.1	$	113.3	$	69.1	$	32.4	$	(27.5)	$	489.4

Long-lived assets (2)	$	805.7	$	184.7	$	187.4	$	30.2	$	23.4	$	1,231.4

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	USA		EMEA		Canada		LATAM		Other/Eliminations (1)		Consolidated
(in millions)	Nine months ended September 30, 2019
External customers	$	4,474.6	$	1,366.6	$	961.6	$	329.1	$	—	$	7,131.9
Inter-segment	77.8		2.6		4.5		—		(84.9)		—
Total net sales	$	4,552.4	$	1,369.2	$	966.1	$	329.1	$	(84.9)	$	7,131.9

Adjusted EBITDA	$	352.3	$	112.2	$	77.7	$	25.3	$	(22.1)	$	545.4

Long-lived assets (2)	$	897.9	$	176.3	$	189.6	$	32.9	$	27.3	$	1,324.0

(1)Other/Eliminations represents the elimination of intersegment transactions as well as unallocated corporate costs consisting of costs specifically related to parent company operations that do not directly benefit segments, either individually or collectively.

(2)Long-lived assets consist of property, plant and equipment, net and operating lease assets.

The following is a reconciliation of net income (loss) to Adjusted EBITDA for the three and nine months ended September 30, 2020 and 2019:


	Three months ended September 30,				Nine months ended September 30,
(in millions)	2020		2019		2020		2019
Net income (loss)	$	28.9	$	2.5	$	86.6	$	(45.1)
Net income from discontinued operations	—		—		—		(5.4)
Inventory step-up adjustment	—		5.3		—		5.3
Depreciation	41.6		41.6		123.7		114.5
Amortization	14.7		12.1		45.3		45.1
Interest expense, net	27.7		36.8		85.7		108.9
Income tax expense	2.7		43.2		14.0		38.4
Other operating expenses, net	21.4		30.2		69.1		258.8
Other (income) expense, net	(2.4)		5.5		7.4		17.2
Impairment charges	20.7		7.0		37.6		7.0
Loss on sale of business	9.3		—		17.9		—
Loss on extinguishment of debt	—		—		1.8		0.7
Brazil VAT charge	—		—		0.3		—
Adjusted EBITDA	$	164.6	$	184.2	$	489.4	$	545.4

20. Subsequent events

On November 4, 2020, the Company entered into an agreement to sell its Canadian Agriculture services business. The Company expects to recognize a pre-tax loss upon the sale of approximately $30 million within the condensed consolidated statements of operations upon closing. The completion of the sale is subject to regulatory approval and customary closing and financing conditions and is expected to close in the fourth quarter of 2020.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is based on financial data derived from the financial statements prepared in accordance with the United States (“US”) generally accepted accounting principles (“GAAP”) and certain other financial data that is prepared using non-GAAP 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 19: 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.

Overview

Univar Solutions Inc. is a leading global chemical and ingredient distributor and provider of value-added services to customers across a wide range of industries. We purchase chemicals from thousands of chemical producers worldwide and warehouse, repackage, blend, dilute, transport and sell those chemicals to more than 100,000 customer locations across approximately 130 countries.

Our operations are structured into four reportable segments that represent the geographic areas under which we operate and manage our business. These segments are Univar Solutions USA (“USA”), Univar Solutions Europe and the Middle East and Africa (“EMEA”), Univar Solutions Canada (“Canada”) and Univar Solutions Latin America (“LATAM”), which includes developing businesses in Latin America (including Brazil and Mexico) and the Asia-Pacific region.

Recent Developments and Items Impacting Comparability

On February 28, 2019, we completed the acquisition of 100% of the equity interest of Nexeo, a leading global chemicals and plastics distributor. The acquisition expanded and strengthened Univar Solutions’ presence in North America and provides expanded opportunities to create the largest North American sales force in chemical and ingredients distribution and the broadest product offering.

On December 31, 2019, we sold our Environmental Sciences business. The sale of the business did not meet the criteria to be classified as discontinued operations in the Company’s financial statements and, as such, the results prior to the disposition date are presented within the comparative 2019 results.

On September 1, 2020, we sold our industrial spill and emergency response businesses. The sale of these businesses did not meet the criteria to be classified as discontinued operations in the Company’s financial statements.

The Company has decided to stop future operations of a component of the agriculture business within the Canada segment. For the third quarter of 2020, that component of the business is held in use while we dispose of the remaining products as part of our inventory.

Market Conditions

We continue to monitor the potential impact of the novel coronavirus (COVID-19) pandemic to our global business. The full financial impact of the pandemic on global economic conditions, as well as our business, remains unknown at this time and will depend on the duration of government restrictions, including travel restrictions, quarantines, shelter in place orders and shutdowns, and the duration of the economic slowdown and nature and timing of a recovery. Our top priority is the safety and health of employees, customers, and suppliers. We activated a global, cross-functional response team, which is closely monitoring the situation and implementing additional safety measures to help ensure the well-being of Univar Solutions’ employees, customers and suppliers, minimize disruptions and provide for the safe and reliable supply of Univar Solutions’ chemicals and ingredients. The Company has implemented recommended policies and practices to help protect our workforce so they can safely and effectively carry out their essential work. As government restrictions are lifted or reinstated in the different jurisdictions where we operate, we are implementing agile worksite plans that can adapt to changing circumstances and help maximize the safety of our employees. As part of these plans, employees who are reasonably able to work remotely are increasingly utilizing a hybrid working model with some days being spent working from a Company office and other days being spent working from a remote location, which is often a person's home. The Company is following guidelines from global health experts and has taken additional precautionary steps to help protect our employees working in our distribution centers and other worksites.

As of the date of this filing, the Company’s global distribution centers continue to be operational and supplying products that help preserve essential businesses and infrastructure. This includes providing products and services that are essential for maintaining clean drinking water, waste water treatment, home, industrial and health care facility sanitization and that are used in the manufacturing of food and pharmaceuticals.

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We are actively monitoring key product availability, remaining up to date with the current status of our primary modes of transportation and staying up to date with current port operating statuses. We continue to stay connected with our customers to understand impacts on their operations, including whether operations remain open with no change or reduced operations or if operations have closed and whether closure is temporary or permanent. In the first quarter of 2020, we organized our product portfolio offering into the following end markets: General Industrial, Consumer Solutions, Industrial Solutions, Refining & Chemical Processing and Services and Other Markets. The primary impacts of the pandemic and the current economic events on our end markets are as follows (percentages represent 2019 Consolidated Net Sales by End Market):

General Industrial (29%) – Strong performance in chemical manufacturing. Also experienced growth in Lumber & Forestry along with general machinery. Continue to experience headwinds in Transportation as well as Pulp & Paper.

Consumer Solutions (25%) – Growth year-on-year globally led by Pharmaceuticals and a resurgence in Personal Care demand. Carefully monitoring fourth quarter risk in Food and Personal Care with new lockdowns and other measures being considered globally.

Industrial Solutions (23%) – Robust recovery in Architectural Coatings business driven by the DIY market. Automotive sector beginning to show signs of a recovery and Lubricants business showing incremental growth month-on-month throughout the third quarter.

Refining & Chemical Processing (12%) – Ongoing challenges in the upstream market. Market expected to continue to be depressed until global oil demand recovers.

Services and Other Markets (11%) – Performance was generally stable with incrementally improving trends through September.

The Company is taking steps to maintain sufficient cash and additional credit availability in recognition of the increased risk and uncertainty related to the COVID-19 pandemic and challenging macroeconomic headwinds. See “Liquidity and Capital Resources” in Item 2 of this Quarterly Report on Form 10-Q for a discussion on our liquidity. In anticipation of ongoing challenges, the Company is carefully managing its working capital and realizing and planning for cost reductions to maintain financial health while continuing to help serve supplier and customer needs. Cash outflows related to operating expenses have decreased due to lower travel and event costs, overtime and temporary labor, as well as hiring freezes, elimination of certain workforce positions and delays of some discretionary annual merit increases, temporary furloughs to match changes in demand in certain locations and deferral of certain capital project spending. We will continue to monitor customer activity and match our workforce with demand to the extent possible.

On March 27, 2020, the CARES Act was signed into law and it provides for certain tax law changes, which impact the Company and are discussed in “Note 10: Income taxes” in Item 1 of this Quarterly Report on Form 10-Q.

The current business environment and quickly evolving market conditions require significant management judgment to interpret and quantify the potential impact on our assumptions about future operating cash flows. To the extent changes in the current business environment impact our ability to achieve levels of forecasted operating results and cash flows, if our stock price were to trade below book value per share for an extended period of time and/or should other events occur indicating the carrying value of our assets might be impaired, we may be required to recognize impairment losses on goodwill, intangible and tangible assets.

See “Risk Factors” in Item 1A of this Quarterly Report on Form 10-Q for further information of the possible impact of the COVID-19 pandemic on our business.

Constant Currency

Currency impacts on consolidated and segment results have been derived by translating current period financial results in local currency using the average exchange rate for the prior period to which the financial information is being compared. We believe providing information on a constant currency basis provides valuable supplemental information regarding our results of operations, consistent with how we evaluate our performance.

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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 Ended September 30, 2020 Compared to Three Months Ended September 30, 2019


	Three months ended September 30,				Favorable (unfavorable)		% Change
(in millions)	2020		2019
Net sales	$	2,009.2	$	2,387.3	$	(378.1)	(15.8)	%
Cost of goods sold (exclusive of depreciation)	1,513.2		1,842.4		329.2		(17.9)	%
Operating expenses:
Outbound freight and handling	85.9		96.8		10.9		(11.3)	%
Warehousing, selling and administrative	245.5		269.2		23.7		(8.8)	%
Other operating expenses, net	21.4		30.2		8.8		(29.1)	%
Depreciation	41.6		41.6		—		—	%
Amortization	14.7		12.1		(2.6)		21.5	%
Impairment charges	20.7		7.0		(13.7)		195.7	%
Total operating expenses	$	429.8	$	456.9	$	27.1	(5.9)	%
Operating income	$	66.2	$	88.0	$	(21.8)	(24.8)	%
Other (expense) income:
Interest income	0.5		0.6		(0.1)		(16.7)	%
Interest expense	(28.2)		(37.4)		9.2		(24.6)	%
Loss on sale of business	(9.3)		—		(9.3)		100.0	%
Other income (expense), net	2.4		(5.5)		7.9		N/M
Total other expense	$	(34.6)	$	(42.3)	$	7.7	(18.2)	%
Income before income taxes	31.6		45.7		(14.1)		(30.9)	%
Income tax expense	2.7		43.2		40.5		(93.8)	%
Net income	$	28.9	$	2.5	$	26.4	1,056.0	%

Net sales

Net sales were $2,009.2 million for the three months ended September 30, 2020, a decrease of $378.1 million, or 15.8%, from the three months ended September 30, 2019. Net sales decreased due to lower demand in the global industrial end markets, the Environmental Sciences divestiture and price deflation on certain products. The decrease was partially offset by demand for our products in certain essential end markets. Refer to the “Analysis of Segment Results” for the three months ended September 30, 2020 for additional information.

Gross profit (exclusive of depreciation)

Gross profit (exclusive of depreciation) decreased $48.9 million, or 9.0%, to $496.0 million for the three months ended September 30, 2020. The decrease in gross profit (exclusive of depreciation) was attributable to lower sales volumes in USA, EMEA and Canada due to soft demand across most global industrial end markets, the Environmental Sciences divestiture and price deflation affecting certain products. The decrease was partially offset by favorable changes in product mix from essential end markets. Refer to the “Analysis of Segment Results” for the three months ended September 30, 2020 for additional information.

Outbound freight and handling

Outbound freight and handling expenses decreased $10.9 million, or 11.3%, to $85.9 million for the three months ended September 30, 2020 primarily due to lower sales volumes. On a constant currency basis, outbound freight and handling expenses decreased $11.0 million, or 11.4%. Refer to the “Analysis of Segment Results” for the three months ended September 30, 2020 for additional information.

Warehousing, selling and administrative

Warehousing, selling and administrative expenses decreased $23.7 million, or 8.8%, to $245.5 million for the three months ended September 30, 2020. On a constant currency basis, warehousing, selling and administrative expenses decreased $23.7 million, or 8.8%, attributable to cost reduction measures across all of our segments, partially offset by higher bad debt charges. Refer to the “Analysis of Segment Results” for the three months ended September 30, 2020 for additional information.

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Other operating expenses, net

Other operating expenses, net decreased $8.8 million from $30.2 million for the three months ended September 30, 2019 to $21.4 million for the three months ended September 30, 2020. The decrease was primarily due to lower facility closure costs, acquisition and integration related expenses, lower stock-based compensation expense and employee severance costs. Refer to “Note 6: Other operating expenses, net” in Item 1 of this Quarterly Report on Form 10-Q for additional information.

Depreciation and amortization

Depreciation expense remained flat at $41.6 million for the three months ended September 30, 2020.

Amortization expense increased $2.6 million, or 21.5%, to $14.7 million for the three months ended September 30, 2020, primarily due to the monthly amortization of intangibles acquired during the period.

Impairment charges

Impairment charges of $20.7 million were recorded in the three months ended September 30, 2020 related to property, plant and equipment in connection with the Company’s decision to cease further investment in, and seek to restructure or exit a contract related to, certain technology assets within the Other segment and the announced closure of certain production facilities. Refer to “Note 14: Supplemental balance sheet information” in Item 1 of this Quarterly Report on Form 10-Q for additional information.

Interest expense

Interest expense decreased $9.2 million, or 24.6%, to $28.2 million for the three months ended September 30, 2020 due to lower average outstanding borrowings as well as lower interest rates. Refer to “Note 13: Debt” in Item 1 of this Quarterly Report on Form 10-Q for additional information.

Loss on sale of business

A loss of $9.3 million was recorded in the three months ended September 30, 2020 related to the sale of the industrial spill and emergency response businesses, which was completed on September 1, 2020. Refer to “Note 4: Discontinued operations and dispositions” in Item 1 of this Quarterly Report on Form 10-Q for additional information.

Other income (expense), net

Other expense, net changed $7.9 million, from an expense of $5.5 million for the three months ended September 30, 2019 to income of $2.4 million for the three months ended September 30, 2020. The change was primarily related to gains on undesignated foreign currency derivative instruments and foreign currency transactions, as well as the increase in non-operating pension income. The change was partially offset by foreign currency denominated loan revaluation losses. Refer to “Note 8: Other income (expense), net” in Item 1 of this Quarterly Report on Form 10-Q for additional information.

Income tax expense

Income tax expense was $2.7 million for the three months ended September 30, 2020, resulting in an effective income tax rate of 8.5%. A discrete tax benefit of $13.9 million was included in the $2.7 million tax expense, primarily attributable to 2019 return to provision adjustments and impairment of unrealizable assets, offset by a reserve for uncertain tax positions. The Company’s effective income tax rate without discrete items was 26.8%, higher than the US federal statutory rate of 21.0% primarily due to the impact of the higher tax rates in foreign jurisdictions, non-deductible expenses and US state income taxes.

Income tax expense was $43.2 million for the three months ended September 30, 2019, resulting in an effective income tax rate of 94.5%. A discrete tax expense of $9.1 million, attributable to the indirect effects of the Nexeo plastics sale, the US return to provision adjustment, an increase in valuation allowance on tax attributes and various other items, was included in the $43.2 million tax expense. The Company’s effective income tax rate without discrete items was 74.6%, higher than the US federal statutory rate of 21.0%. This is primarily due to the impact of non-deductible 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 tax attributes.

Results of Reportable Business Segments

The Company’s operations are structured into four reportable segments that represent the geographic areas under which we operate and manage our business. Management believes Adjusted EBITDA is an important measure of operating performance, which is used as the primary basis for the chief operating decision maker to evaluate the performance of each of our reportable segments. We believe certain other financial measures that are not calculated in accordance with US GAAP provide relevant and meaningful information concerning the ongoing operating results of the Company. These financial measures include gross profit (exclusive of depreciation), adjusted gross profit (exclusive of depreciation) and gross margin. Such non-GAAP financial measures are used from time to time herein but should not be viewed as a substitute for GAAP

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measures of performance. See “Note 19: Segments” to our condensed consolidated financial statements in Item 1 of this Quarterly Report on Form 10-Q and “Analysis of Segment Results” within this Item for additional information.

Analysis of Segment Results

USA


	Three months ended September 30,				Favorable (unfavorable)		% Change
(in millions)	2020		2019
Net sales:
External customers	$	1,254.4	$	1,562.1	$	(307.7)	(19.7)	%
Inter-segment	14.6		29.5		(14.9)		(50.5)	%
Total net sales	$	1,269.0	$	1,591.6	$	(322.6)	(20.3)	%
Cost of goods sold (exclusive of depreciation)	946.8		1,225.5		278.7		(22.7)	%
Inventory step-up adjustment (1)	—		5.3		5.3		(100.0)	%
Outbound freight and handling	60.1		69.7		9.6		(13.8)	%
Warehousing, selling and administrative	151.8		174.1		22.3		(12.8)	%
Adjusted EBITDA	$	110.3	$	127.6	$	(17.3)	(13.6)	%


	Three months ended September 30,				Favorable (unfavorable)		% Change
(in millions)	2020		2019
Gross profit (exclusive of depreciation):
Net sales	$	1,269.0	$	1,591.6	$	(322.6)	(20.3)	%
Cost of goods sold (exclusive of depreciation)	946.8		1,225.5		278.7		(22.7)	%
Gross profit (exclusive of depreciation)	$	322.2	$	366.1	$	(43.9)	(12.0)	%
Inventory step-up adjustment (1)	—		5.3		5.3		(100.0)	%
Adjusted gross profit (exclusive of depreciation) (1)	$	322.2	$	371.4	$	(49.2)	(13.2)	%

(1)See definition of adjusted gross profit (exclusive of depreciation) at the end of this Item under “Non-GAAP Financial Measures.” Adjusted gross profit (exclusive of depreciation) excludes the inventory fair value step-up adjustment resulting from our February 2019 Nexeo acquisition.

External sales in the USA segment were $1,254.4 million, a decrease of $307.7 million, or 19.7%, for the three months ended September 30, 2020. The decrease in external net sales was primarily due to lower industrial end market demand, the Environmental Sciences divestiture, energy headwinds and price deflation on certain products, partially offset by higher demand for our products in certain essential end markets.

Gross profit (exclusive of depreciation) decreased $43.9 million, or 12.0%, to $322.2 million for the three months ended September 30, 2020, primarily due to lower sales volumes due to soft demand across most industrial end markets and the Environmental Sciences divestiture. Gross margin increased from 23.4% for the three months ended September 30, 2019 to 25.7% for the three months ended September 30, 2020. The increase was primarily related to favorable changes in product mix, including higher demand in certain essential end markets.

Outbound freight and handling expenses decreased $9.6 million, or 13.8%, to $60.1 million for the three months ended September 30, 2020, primarily due to lower sales volumes.

Warehousing, selling and administrative expenses decreased $22.3 million, or 12.8%, to $151.8 million for the three months ended September 30, 2020, primarily due to cost reduction measures partially offset by higher bad debt charges. As a percentage of external sales, warehousing, selling and administrative expenses increased from 11.1% for the three months ended September 30, 2019 to 12.1% for the three months ended September 30, 2020.

Adjusted EBITDA decreased by $17.3 million, or 13.6%, to $110.3 million for the three months ended September 30, 2020, primarily as a result of lower industrial end market demand, energy headwinds and the Environmental Sciences divestiture, partially offset by higher demand for our products in certain essential end markets. Adjusted EBITDA margin increased from 8.2% in the three months ended September 30, 2019 to 8.8% for the three months ended September 30, 2020, primarily as a result of higher gross margin and lower warehousing, selling and administrative costs.

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EMEA


	Three months ended September 30,				Favorable (unfavorable)		% Change
(in millions)	2020		2019
Net sales:
External customers	$	399.4	$	425.0	$	(25.6)	(6.0)	%
Inter-segment	0.6		0.6		—		—	%
Total net sales	$	400.0	$	425.6	$	(25.6)	(6.0)	%
Cost of goods sold (exclusive of depreciation)	301.6		327.4		25.8		(7.9)	%
Outbound freight and handling	13.9		14.3		0.4		(2.8)	%
Warehousing, selling and administrative	51.2		52.0		0.8		(1.5)	%
Adjusted EBITDA	$	33.3	$	31.9	$	1.4	4.4	%


	Three months ended September 30,				Favorable (unfavorable)		% Change
(in millions)	2020		2019
Gross profit (exclusive of depreciation):
Net sales	$	400.0	$	425.6	$	(25.6)	(6.0)	%
Cost of goods sold (exclusive of depreciation)	301.6		327.4		25.8		(7.9)	%
Gross profit (exclusive of depreciation)	$	98.4	$	98.2	$	0.2	0.2	%

External sales in the EMEA segment were $399.4 million, a decrease of $25.6 million, or 6.0%, for the three months ended September 30, 2020. On a constant currency basis, external net sales decreased $41.4 million, or 9.7%, primarily due to lower industrial end market demand, partially offset by strong demand for our products in certain essential end markets.

Gross profit (exclusive of depreciation) increased $0.2 million, or 0.2%, to $98.4 million for the three months ended September 30, 2020. On a constant currency basis, gross profit (exclusive of depreciation) decreased $4.1 million, or 4.2%, primarily due to lower sales volumes. Gross margin increased from 23.1% for the three months ended September 30, 2019 to 24.6% for the three months ended September 30, 2020, primarily due to the favorable changes in product mix, including higher demand in certain essential end markets.

Outbound freight and handling expenses decreased $0.4 million, or 2.8%, to $13.9 million for the three months ended September 30, 2020, primarily due to lower sales volumes.

Warehousing, selling and administrative expenses decreased $0.8 million, or 1.5%, to $51.2 million for the three months ended September 30, 2020. On a constant currency basis, warehousing, selling and administrative expenses decreased $3.1 million, or 6.0%, primarily due to cost reduction measures. As a percentage of external sales, warehousing, selling and administrative expenses increased from 12.2% for the three months ended September 30, 2019 to 12.8% for the three months ended September 30, 2020.

Adjusted EBITDA increased by $1.4 million, or 4.4%, to $33.3 million for the three months ended September 30, 2020. On a constant currency basis, Adjusted EBITDA increased $0.2 million, or 0.6%, attributable to the positive impact from demand for our products in certain essential end markets and lower warehousing, selling and administrative costs, partially offset by lower industrial end market demand and increased market pressures in the pharmaceutical finished goods product line. Adjusted EBITDA margin increased from 7.5% for the three months ended September 30, 2019 to 8.3% for the three months ended September 30, 2020, primarily as a result of higher gross margin.

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Canada


	Three months ended September 30,				Favorable (unfavorable)		% Change
(in millions)	2020		2019
Net sales:
External customers	$	234.9	$	283.0	$	(48.1)	(17.0)	%
Inter-segment	0.5		1.7		(1.2)		(70.6)	%
Total net sales	$	235.4	$	284.7	$	(49.3)	(17.3)	%
Cost of goods sold (exclusive of depreciation)	188.0		228.9		40.9		(17.9)	%
Outbound freight and handling	9.5		10.5		1.0		(9.5)	%
Warehousing, selling and administrative	21.3		23.1		1.8		(7.8)	%
Adjusted EBITDA	$	16.6	$	22.2	$	(5.6)	(25.2)	%


	Three months ended September 30,				Favorable (unfavorable)		% Change
(in millions)	2020		2019
Gross profit (exclusive of depreciation):
Net sales	$	235.4	$	284.7	$	(49.3)	(17.3)	%
Cost of goods sold (exclusive of depreciation)	188.0		228.9		40.9		(17.9)	%
Gross profit (exclusive of depreciation)	$	47.4	$	55.8	$	(8.4)	(15.1)	%

External sales in the Canada segment were $234.9 million, a decrease of $48.1 million, or 17.0%, for the three months ended September 30, 2020. On a constant currency basis, external net sales decreased $46.8 million, or 16.5%, primarily due to the Environmental Sciences divestiture, lower demand from Canada’s agriculture and energy sectors and price deflation. The decrease was partially offset by higher demand for our products in certain essential end markets.

Gross profit (exclusive of depreciation) decreased $8.4 million, or 15.1%, to $47.4 million for the three months ended September 30, 2020. On a constant currency basis, gross profit (exclusive of depreciation) decreased $8.1 million, or 14.5%, primarily due to the Environmental Sciences divestiture and the write-down of inventory related to a component of the agriculture business. Gross margin increased from 19.7% for the three months ended September 30, 2019 to 20.2% for the three months ended September 30, 2020 driven by favorable changes in product mix, including higher demand in certain essential end markets.

Outbound freight and handling expenses decreased $1.0 million, or 9.5%, to $9.5 million for the three months ended September 30, 2020, primarily due to lower sales volumes.

Warehousing, selling and administrative expenses decreased by $1.8 million, or 7.8%, to $21.3 million for the three months ended September 30, 2020. On a constant currency basis, warehousing, selling and administrative expenses decreased $1.6 million, or 6.9%, primarily due to cost reduction measures. As a percentage of external sales, warehousing, selling and administrative expenses increased from 8.2% for the three months ended September 30, 2019 to 9.1% for the three months ended September 30, 2020.

Adjusted EBITDA decreased by $5.6 million, or 25.2%, to $16.6 million for the three months ended September 30, 2020. On a constant currency basis, Adjusted EBITDA decreased $5.5 million, or 24.8%, primarily as a result of the write-down of inventory related to a component of the agriculture business, price deflation, the Environmental Sciences divestiture and lower demand from the energy sector, partially offset by cost reduction measures. Adjusted EBITDA margin decreased from 7.8% for the three months ended September 30, 2019 to 7.1% for the three months ended September 30, 2020.

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LATAM


	Three months ended September 30,				Favorable (unfavorable)		% Change
(in millions)	2020		2019
Net sales:
External customers	$	120.5	$	117.2	$	3.3	2.8	%
Total net sales (1)	$	120.5	$	117.2	$	3.3	2.8	%
Cost of goods sold (exclusive of depreciation)	92.5		92.4		(0.1)		0.1	%
Outbound freight and handling	2.4		2.3		(0.1)		4.3	%
Warehousing, selling and administrative	12.5		12.3		(0.2)		1.6	%

Adjusted EBITDA	$	13.1	$	10.2	$	2.9	28.4	%


	Three months ended September 30,				Favorable (unfavorable)		% Change
(in millions)	2020		2019
Gross profit (exclusive of depreciation):
Net sales	$	120.5	$	117.2	$	3.3	2.8	%
Cost of goods sold (exclusive of depreciation)	92.5		92.4		(0.1)		0.1	%
Gross profit (exclusive of depreciation)	$	28.0	$	24.8	$	3.2	12.9	%

External sales in the LATAM segment were $120.5 million, an increase of $3.3 million, or 2.8%, for the three months ended September 30, 2020. On a constant currency basis, external net sales increased $23.3 million, or 19.9%, primarily due to higher demand for our products in industrial solutions and certain essential end markets.

Gross profit (exclusive of depreciation) increased $3.2 million, or 12.9%, to $28.0 million for the three months ended September 30, 2020. On a constant currency basis, gross profit (exclusive of depreciation) increased $9.0 million, or 36.3%, due to favorable changes in product mix from industrial solutions and essential end markets. Gross margin increased from 21.2% for the three months ended September 30, 2019 to 23.2% for the three months ended September 30, 2020.

Outbound freight and handling expenses increased $0.1 million, or 4.3%, to $2.4 million for the three months ended September 30, 2020, primarily due to higher sales volumes.

Warehousing, selling and administrative expenses increased $0.2 million, or 1.6%, to $12.5 million for the three months ended September 30, 2020. On a constant currency basis, warehousing, selling and administrative expenses increased $2.4 million, or 19.5%, primarily due to higher bad debt charges and higher variable compensation costs. As a percentage of external sales, warehousing, selling and administrative expenses decreased slightly from 10.5% for the three months ended September 30, 2019 to 10.4% for the three months ended September 30, 2020.

Adjusted EBITDA increased by $2.9 million, or 28.4%, to $13.1 million for the three months ended September 30, 2020. On a constant currency basis, Adjusted EBITDA increased $6.0 million, or 58.8%, primarily due to increased gross profit (exclusive of depreciation) due to higher demand for our products in industrial solutions and certain essential end markets. Adjusted EBITDA margin increased from 8.7% for the three months ended September 30, 2019 to 10.9% for the three months ended September 30, 2020, primarily as a result of higher gross margin.

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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.

Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019


	Nine months ended September 30,				Favorable (unfavorable)		% Change
(in millions)	2020		2019
Net sales	$	6,229.6	$	7,131.9	$	(902.3)	(12.7)	%
Cost of goods sold (exclusive of depreciation)	4,711.9		5,513.3		801.4		(14.5)	%
Operating expenses:
Outbound freight and handling	258.1		275.1		17.0		(6.2)	%
Warehousing, selling and administrative	770.5		803.4		32.9		(4.1)	%
Other operating expenses, net	69.1		258.8		189.7		(73.3)	%
Depreciation	123.7		114.5		(9.2)		8.0	%
Amortization	45.3		45.1		(0.2)		0.4	%
Impairment charges	37.6		7.0		(30.6)		437.1	%
Total operating expenses	$	1,304.3	$	1,503.9	$	199.6	(13.3)	%
Operating income	$	213.4	$	114.7	$	98.7	86.1	%
Other (expense) income:
Interest income	1.7		2.3		(0.6)		(26.1)	%
Interest expense	(87.4)		(111.2)		23.8		(21.4)	%
Loss on sale of business	(17.9)		—		(17.9)		100.0	%
Loss on extinguishment of debt	(1.8)		(0.7)		(1.1)		157.1	%
Other expense, net	(7.4)		(17.2)		9.8		(57.0)	%
Total other expense	$	(112.8)	$	(126.8)	$	14.0	(11.0)	%
Income (loss) from continuing operations before income taxes	100.6		(12.1)		112.7		N/M
Income tax expense from continuing operations	14.0		38.4		24.4		(63.5)	%
Net income (loss) from continuing operations	$	86.6	$	(50.5)	$	137.1	N/M
Net income from discontinued operations	$	—	$	5.4	$	(5.4)	(100.0)	%
Net income (loss)	$	86.6	$	(45.1)	$	131.7	N/M

Net sales

Net sales were $6,229.6 million for the nine months ended September 30, 2020, a decrease of $902.3 million, or 12.7%, from the nine months ended September 30, 2019. Net sales decreased due to lower demand in the global industrial end markets, the Environmental Sciences divestiture and price deflation. The decrease was partially offset by higher demand for our products in certain essential end markets and the February 2019 Nexeo acquisition in USA, Canada and LATAM segments for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. Refer to the “Analysis of Segment Results” for the nine months ended September 30, 2020 for additional information.

Gross profit (exclusive of depreciation)

Gross profit (exclusive of depreciation) decreased $100.9 million, or 6.2%, to $1,517.7 million for the nine months ended September 30, 2020. The decrease in gross profit (exclusive of depreciation) was attributable to lower sales volumes in USA, Canada and EMEA segments due to soft demand across most industrial end markets and the Environmental Sciences divestiture. The decrease was partially offset by favorable changes in product mix from essential end markets. Refer to the “Analysis of Segment Results” for the nine months ended September 30, 2020 for additional information.

Outbound freight and handling

Outbound freight and handling expenses decreased $17.0 million, or 6.2%, to $258.1 million for the nine months ended September 30, 2020, primarily due to lower sales volumes. On a constant currency basis, outbound freight and handling expenses decreased $15.3 million, or 5.6%. Refer to the “Analysis of Segment Results” for the nine months ended September 30, 2020 for additional information.

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Warehousing, selling and administrative

Warehousing, selling and administrative expenses decreased $32.9 million, or 4.1%, to $770.5 million for the nine months ended September 30, 2020. On a constant currency basis, warehousing, selling and administrative expenses decreased $25.1 million, or 3.1%, attributable to cost reduction measures across all of our segments. The decrease was partially offset by higher bad debt charges. Refer to the “Analysis of Segment Results” for the nine months ended September 30, 2020 for additional information.

Other operating expenses, net

Other operating expenses, net decreased $189.7 million from $258.8 million for the nine months ended September 30, 2019 to $69.1 million for the nine months ended September 30, 2020. The decrease was primarily due to lower acquisition and integration related expenses, the absence of the saccharin legal settlement, lower employee severance costs and stock-based compensation expense as well as the gain on sale of property, plant and equipment. Refer to “Note 6: Other operating expenses, net” in Item 1 of this Quarterly Report on Form 10-Q for additional information.

Depreciation and amortization

Depreciation expense increased $9.2 million, or 8.0%, to $123.7 million for the nine months ended September 30, 2020 primarily due to the February 2019 Nexeo acquisition.

Amortization expense increased $0.2 million, or 0.4%, to $45.3 million for the nine months ended September 30, 2020 primarily due to the February 2019 Nexeo acquisition.

Impairment charges

Impairment charges of $37.6 million were recorded in the nine months ended September 30, 2020 related to property, plant and equipment in connection with the Company’s decision to cease further investment in, and seek to restructure or exit a contract related to, certain technology assets within the Other segment as well as intangibles and property, plant and equipment in connection with the sale of the industrial spill and emergency response businesses within the USA segment and the announced closure of certain production facilities. Refer to “Note 14: Supplemental balance sheet information” in Item 1 of this Quarterly Report on Form 10-Q for additional information.

Interest expense

Interest expense decreased $23.8 million, or 21.4%, to $87.4 million for the nine months ended September 30, 2020 due to lower average outstanding borrowings as well as lower interest rates. Refer to “Note 13: Debt” in Item 1 of this Quarterly Report on Form 10-Q for additional information.

Loss on sale of business

A loss of $17.9 million was recorded in the nine months ended September 30, 2020 primarily related to the sale of the industrial spill and emergency response businesses, which was completed on September 1, 2020 and the first quarter working capital adjustment on the sale of the Environmental Sciences business, which was completed on December 31, 2019. Refer to “Note 4: Discontinued operations and dispositions” in Item 1 of this Quarterly Report on Form 10-Q for additional information.

Loss on extinguishment of debt

Loss on extinguishment of debt of $1.8 million during the nine months ended September 30, 2020 was driven by the partial prepayment of the Term B-3 Loan due 2024. The prior year period included a $0.7 million loss for the nine months ended September 30, 2019 due to the February 2019 amendment of the Senior ABL Facility. Refer to “Note 13: Debt” in Item 1 of this Quarterly Report on Form 10-Q for additional information.

Other expense, net

Other expense, net decreased $9.8 million, or 57.0%, to $7.4 million for the nine months ended September 30, 2020. The decrease was primarily related to gains on undesignated foreign currency derivative instruments as well as the increase in non-operating pension income, partially offset by foreign currency denominated loan revaluation losses. Refer to “Note 8: Other income (expense), net” in Item 1 of this Quarterly Report on Form 10-Q for additional information.

Income tax expense from continuing operations

Income tax expense was $14.0 million for the nine months ended September 30, 2020, resulting in an effective income tax rate of 13.9%. A discrete tax benefit of $27.5 million was included in the $14.0 million tax expense, primarily attributable to 2019 return to provision adjustments, impairment of unrealizable assets and benefits from provisions under the CARES Act, offset by a reserve for uncertain tax positions. The Company’s effective income tax rate without discrete items was 29.9%, higher than the US federal statutory rate of 21.0% primarily due to the impact of the higher tax rates in foreign jurisdictions, non-deductible expenses and US state income taxes.

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Income tax expense was $38.4 million for the nine months ended September 30, 2019, resulting in an effective income tax rate of (317.4)%. A discrete tax benefit of $4.9 million, substantially attributable to the indirect effects of the Nexeo plastics sale, was included in the $38.4 million tax expense. The Company’s effective income tax rate without discrete items was 68.4%, higher than the US federal statutory rate of 21.0%. This is primarily due to the impact of the non-deductible 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.

Analysis of Segment Results

USA


	Nine months ended September 30,				Favorable (unfavorable)		% Change
(in millions)	2020		2019
Net sales:
External customers	$	3,781.3	$	4,474.6	$	(693.3)	(15.5)	%
Inter-segment	63.3		77.8		(14.5)		(18.6)	%
Total net sales	$	3,844.6	$	4,552.4	$	(707.8)	(15.5)	%
Cost of goods sold (exclusive of depreciation)	2,888.4		3,504.9		616.5		(17.6)	%
Inventory step-up adjustment (1)	—		5.3		5.3		(100.0)	%
Outbound freight and handling	178.9		191.7		12.8		(6.7)	%
Warehousing, selling and administrative	475.2		508.8		33.6		(6.6)	%
Adjusted EBITDA	$	302.1	$	352.3	$	(50.2)	(14.2)	%


	Nine months ended September 30,				Favorable (unfavorable)		% Change
(in millions)	2020		2019
Gross profit (exclusive of depreciation):
Net sales	$	3,844.6	$	4,552.4	$	(707.8)	(15.5)	%
Cost of goods sold (exclusive of depreciation)	2,888.4		3,504.9		616.5		(17.6)	%
Gross profit (exclusive of depreciation)	$	956.2	$	1,047.5	$	(91.3)	(8.7)	%
Inventory step-up adjustment (1)	—		5.3		5.3		(100.0)	%
Adjusted gross profit (exclusive of depreciation) (1)	$	956.2	$	1,052.8	$	(96.6)	(9.2)	%

External sales in the USA segment were $3,781.3 million, a decrease of $693.3 million, or 15.5%, for the nine months ended September 30, 2020. The decrease in external net sales was primarily related to the Environmental Sciences divestiture, lower energy and industrial end market demand and price deflation on certain products partially offset by higher demand for our products in certain essential end markets and the February 2019 Nexeo acquisition.

Gross profit (exclusive of depreciation) decreased $91.3 million, or 8.7%, to $956.2 million for the nine months ended September 30, 2020, primarily due to lower sales volumes due to soft demand across most industrial end markets and the Environmental Sciences divestiture. Gross margin increased from 23.4% for the nine months ended September 30, 2019 to 25.3% for the nine months ended September 30, 2020. The increase was primarily related to favorable changes in product mix from essential end markets.

Outbound freight and handling expenses decreased $12.8 million, or 6.7%, to $178.9 million for the nine months ended September 30, 2020, primarily due to lower sales volumes.

Warehousing, selling and administrative expenses decreased $33.6 million, or 6.6%, to $475.2 million for the nine months ended September 30, 2020, primarily due to the Environmental Sciences divestiture and cost reduction measures, partially offset by higher bad debt charges and incremental expenses related to the February 2019 Nexeo acquisition. As a percentage of external sales, warehousing, selling and administrative expenses increased from 11.4% for the nine months ended September 30, 2019 to 12.6% for the nine months ended September 30, 2020.

Adjusted EBITDA decreased by $50.2 million, or 14.2%, to $302.1 million for the nine months ended September 30, 2020, primarily as a result of lower demand for chemicals and ingredients in most industrial end markets and the Environmental

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Sciences divestiture. Adjusted EBITDA margin increased from 7.9% in the nine months ended September 30, 2019 to 8.0% for the nine months ended September 30, 2020, primarily as a result of higher gross margin.

EMEA


	Nine months ended September 30,				Favorable (unfavorable)		% Change
(in millions)	2020		2019
Net sales:
External customers	$	1,269.3	$	1,366.6	$	(97.3)	(7.1)	%
Inter-segment	2.3		2.6		(0.3)		(11.5)	%
Total net sales	$	1,271.6	$	1,369.2	$	(97.6)	(7.1)	%
Cost of goods sold (exclusive of depreciation)	950.6		1,044.6		94.0		(9.0)	%
Outbound freight and handling	42.8		44.8		2.0		(4.5)	%
Warehousing, selling and administrative	164.9		167.6		2.7		(1.6)	%
Adjusted EBITDA	$	113.3	$	112.2	$	1.1	1.0	%


	Nine months ended September 30,				Favorable (unfavorable)		% Change
(in millions)	2020		2019
Gross profit (exclusive of depreciation):
Net sales	$	1,271.6	$	1,369.2	$	(97.6)	(7.1)	%
Cost of goods sold (exclusive of depreciation)	950.6		1,044.6		94.0		(9.0)	%
Gross profit (exclusive of depreciation)	$	321.0	$	324.6	$	(3.6)	(1.1)	%

External sales in the EMEA segment were $1,269.3 million, a decrease of $97.3 million, or 7.1%, for the nine months ended September 30, 2020. On a constant currency basis, external net sales decreased $87.1 million, or 6.4%, primarily due to lower volumes in most end markets, partially offset by strong demand for our products in certain essential end markets.

Gross profit (exclusive of depreciation) decreased $3.6 million, or 1.1%, to $321.0 million in the nine months ended September 30, 2020. On a constant currency basis, gross profit (exclusive of depreciation) decreased $1.6 million, or 0.5%, primarily due to lower sales volumes. Gross margin increased from 23.8% for the nine months ended September 30, 2019 to 25.3% for the nine months ended September 30, 2020, primarily due to favorable changes in product mix.

Outbound freight and handling expenses decreased $2.0 million, or 4.5%, to $42.8 million for the nine months ended September 30, 2020, driven by lower sales volumes.

Warehousing, selling and administrative expenses decreased $2.7 million, or 1.6%, to $164.9 million for the nine months ended September 30, 2020. On a constant currency basis, warehousing, selling and administrative expenses decreased $2.1 million, or 1.3%, primarily due to cost reduction measures, partially offset by higher variable compensation costs and environmental remediation. As a percentage of external sales, warehousing, selling and administrative expenses increased from 12.3% for the nine months ended September 30, 2019 to 13.0% for the nine months ended September 30, 2020.

Adjusted EBITDA increased by $1.1 million, or 1.0%, to $113.3 million for the nine months ended September 30, 2020. On a constant currency basis, Adjusted EBITDA increased $2.6 million, or 2.3%, attributable to the positive impact from demand for our products in certain essential end markets, partially offset by increased market pressures in the pharmaceutical finished goods product line. Adjusted EBITDA margin increased from 8.2% for the nine months ended September 30, 2019 to 8.9% for the nine months ended September 30, 2020.

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Canada


	Nine months ended September 30,				Favorable (unfavorable)		% Change
(in millions)	2020		2019
Net sales:
External customers	$	852.2	$	961.6	$	(109.4)	(11.4)	%
Inter-segment	2.0		4.5		(2.5)		(55.6)	%
Total net sales	$	854.2	$	966.1	$	(111.9)	(11.6)	%
Cost of goods sold (exclusive of depreciation)	689.6		788.3		98.7		(12.5)	%
Outbound freight and handling	29.4		31.8		2.4		(7.5)	%
Warehousing, selling and administrative	66.1		68.3		2.2		(3.2)	%
Adjusted EBITDA	$	69.1	$	77.7	$	(8.6)	(11.1)	%


	Nine months ended September 30,				Favorable (unfavorable)		% Change
(in millions)	2020		2019
Gross profit (exclusive of depreciation):
Net sales	$	854.2	$	966.1	$	(111.9)	(11.6)	%
Cost of goods sold (exclusive of depreciation)	689.6		788.3		98.7		(12.5)	%
Gross profit (exclusive of depreciation)	$	164.6	$	177.8	$	(13.2)	(7.4)	%

External sales in the Canada segment were $852.2 million, a decrease of $109.4 million, or 11.4%, for the nine months ended September 30, 2020. On a constant currency basis, external net sales decreased $93.7 million, or 9.7%, primarily related to lower demand from Canada’s energy sector, the Environmental Sciences divestiture and price deflation on certain products. The decrease was partially offset by higher demand for our products in certain essential end markets and the February 2019 Nexeo acquisition.

Gross profit (exclusive of depreciation) decreased $13.2 million, or 7.4%, to $164.6 million for the nine months ended September 30, 2020. On a constant currency basis, gross profit (exclusive of depreciation) decreased $10.2 million, or 5.7%, primarily due to lower demand from Canada's energy sector, the Environmental Sciences divestiture and the write-down of inventory related to a component of the agriculture business, partially offset by favorable changes in product mix from essential end markets. Gross margin increased from 18.5% for the nine months ended September 30, 2019 to 19.3% for the nine months ended September 30, 2020, primarily due to favorable changes in product mix.

Outbound freight and handling expenses decreased $2.4 million, or 7.5%, to $29.4 million for the nine months ended September 30, 2020, primarily due to lower sales volumes.

Warehousing, selling and administrative expenses decreased by $2.2 million, or 3.2%, to $66.1 million for the nine months ended September 30, 2020. On a constant currency basis, warehousing, selling and administrative expenses decreased $1.0 million, or 1.5%, primarily due to cost reduction measures. As a percentage of external sales, warehousing, selling and administrative expenses increased from 7.1% for the nine months ended September 30, 2019 to 7.8% for the nine months ended September 30, 2020.

Adjusted EBITDA decreased by $8.6 million, or 11.1%, to $69.1 million for the nine months ended September 30, 2020. On a constant currency basis, Adjusted EBITDA decreased $7.3 million, or 9.4% primarily as a result of the lower demand from Canada's energy sector, the Environmental Sciences divestiture and the write-down of inventory related to a component of the agriculture business, partially offset by favorable changes in product mix from essential end markets. Adjusted EBITDA margin remained flat at 8.1% for the nine months ended September 30, 2019 to the nine months ended September 30, 2020.

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LATAM


	Nine months ended September 30,				Favorable (unfavorable)		% Change
(in millions)	2020		2019
Net sales:
External customers	$	326.8	$	329.1	$	(2.3)	(0.7)	%
Total net sales(1)	$	326.8	$	329.1	$	(2.3)	(0.7)	%
Cost of goods sold (exclusive of depreciation)	250.9		260.4		9.5		(3.6)	%
Outbound freight and handling	7.0		6.8		(0.2)		2.9	%
Warehousing, selling and administrative	36.8		36.6		(0.2)		0.5	%
Brazil VAT charge (1)	0.3		—		0.3		100.0	%
Adjusted EBITDA (1)	$	32.4	$	25.3	$	7.1	28.1	%


	Nine months ended September 30,				Favorable (unfavorable)		% Change
(in millions)	2020		2019
Gross profit (exclusive of depreciation):
Net sales	$	326.8	$	329.1	$	(2.3)	(0.7)	%
Cost of goods sold (exclusive of depreciation)	250.9		260.4		9.5		(3.6)	%
Gross profit (exclusive of depreciation) (1)	$	75.9	$	68.7	$	7.2	10.5	%
Brazil VAT charge (1)	0.4		—		0.4		100.0	%
Adjusted gross profit (exclusive of depreciation)	$	76.3	$	68.7	$	7.6	11.1	%

(1)Included in net sales and gross profit (exclusive of depreciation) is a $0.4 million Brazil VAT charge recorded during the nine months ended September 30, 2020. The charge of $0.3 million, net of associated fees, is excluded from Adjusted EBITDA. See “Note 17: Commitments and contingencies” in Item 1 of this Quarterly Report on Form 10-Q for additional information.

External sales in the LATAM segment were $326.8 million, a decrease of $2.3 million, or 0.7%, for the nine months ended September 30, 2020. On a constant currency basis, external net sales increased $46.8 million, or 14.2%, primarily due to higher demand for our products in certain essential end markets, the February 2019 Nexeo acquisition and from contributions from the energy sector and Brazilian agriculture sector.

Gross profit (exclusive of depreciation) increased $7.2 million, or 10.5%, to $75.9 million in the nine months ended September 30, 2020. On a constant currency basis, gross profit (exclusive of depreciation) increased $20.7 million, or 30.1%, due to favorable changes in product and end market mix. Gross margin increased from 20.9% for the nine months ended September 30, 2019 to 23.2% for the nine months ended September 30, 2020.

Outbound freight and handling expenses increased $0.2 million, or 2.9%, to $7.0 million for the nine months ended September 30, 2020, primarily due to higher sales volumes.

Warehousing, selling and administrative expenses increased $0.2 million, or 0.5%, to $36.8 million for the nine months ended September 30, 2020. On a constant currency basis, warehousing, selling and administrative expenses increased $6.3 million, or 17.2%, primarily due to higher variable compensation costs and higher bad debt charges. As a percentage of external sales, warehousing, selling and administrative expenses increased from 11.1% for the nine months ended September 30, 2019 to 11.3% for the nine months ended September 30, 2020.

Adjusted EBITDA increased by $7.1 million, or 28.1%, to $32.4 million for the nine months ended September 30, 2020. On a constant currency basis, Adjusted EBITDA increased $13.4 million, or 53.0%, primarily due to increased gross profit (exclusive of depreciation) due to higher demand for our products in certain essential end markets, the energy sector and the Brazilian agriculture sector. Adjusted EBITDA margin increased from 7.7% for the nine months ended September 30, 2019 to 9.9% for the nine months ended September 30, 2020.

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Liquidity and Capital Resources

The Company’s primary sources of liquidity are cash generated from its operations and borrowings under our committed North American and European credit facilities (“facilities”). As of September 30, 2020, liquidity for the Company was $730.4 million, comprised of $273.7 million of cash and cash equivalents and $456.7 million of availability under the facilities. These 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, respectively. Significant reductions in the Company’s trade receivables and inventory would reduce our availability to access liquidity under these facilities. The Company has no active financial maintenance covenants in its 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 4.1x as of September 30, 2020.

The Company’s primary liquidity and capital resource needs are to service its debt and to finance operating expenses, working capital, capital expenditures, other liabilities, costs of integration and general corporate purposes. The majority of the Company's debt obligations mature in 2024 and beyond. Management continues to balance its focus on sales and earnings growth with continuing efforts in cost control and working capital management. In anticipation of ongoing, challenging macroeconomic headwinds, including the impact of the COVID-19 pandemic, the Company is carefully managing its working capital and implementing operating cost reductions to maintain our financial health while continuing to help serve supplier and customer needs.

The Company's access to debt capital markets has historically provided the Company with sources of liquidity. 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, the COVID-19 pandemic has caused disruption in the capital markets and could make financing more difficult and/or expensive to obtain in the short term. Additionally, 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.

On January 7, 2020, using the proceeds from the sale of the Environmental Sciences business, the Company repaid $174.0 million of the Term B-3 Loan due 2024. Refer to “Note 13: Debt” in Item 1 of this Quarterly Report on Form 10-Q for additional information.

We expect our 2020 capital expenditures for maintenance, safety and cost improvements and investments in our digital capabilities to be approximately $110 million to $120 million.

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:


	Nine months ended September 30,
(in millions)	2020		2019
Net cash provided by operating activities	$	81.6	$	34.2
Net cash used by investing activities	(74.2)		(606.5)
Net cash (used) provided by financing activities	(58.9)		611.3
Effect of exchange rate changes on cash and cash equivalents	(5.1)		(26.0)
Net (decrease) increase in cash and cash equivalents	$	(56.6)	$	13.0

Cash Provided by Operating Activities

Cash provided by operating activities increased $47.4 million to $81.6 million for the nine months ended September 30, 2020 from $34.2 million for the nine months ended September 30, 2019, primarily due to changes in net income, exclusive of non-cash items and other, net, partially offset by changes in trade working capital and prepaid expenses and other current assets. The change in net income, exclusive of non-cash items provided net cash inflows of $163.6 million from cash inflows of $328.1 million and $164.5 million for the nine months ended September 30, 2020 and September 30, 2019, respectively. Refer to “Results of Operations” above for additional information.

The change in trade working capital, which includes trade accounts receivable, net, inventories and trade accounts payable, was a cash outflow of $150.6 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. Cash outflows year-over-year from trade accounts receivable, net is primarily attributable to the timing of customer payments year-over-year. The year-over-year cash outflows related to trade accounts payable are primarily

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attributable to the timing of vendor payments. Inventory cash inflows on a year-over-year basis were primarily related to reductions in the USA segment inventories due to reduced sales volumes.

The remaining cash inflows primarily represent payment timing differences for other assets and liabilities.

Cash Used by Investing Activities

Cash used by investing activities decreased $532.3 million to $74.2 million for the nine months ended September 30, 2020 from $606.5 million for the nine months ended September 30, 2019. The decrease is primarily related to the acquisition of the Nexeo business in 2019, net of the proceeds received for the sale and disposition of Nexeo Plastics. Refer to “Note 3: Business combinations” and “Note 4: Discontinued operations and dispositions” in Item 1 of this Quarterly Report on Form 10-Q for additional information related to the Company's acquisitions and dispositions.

The decrease in cash used by investing activities was partially offset by a current year purchase of an operating site.

Cash (Used) Provided by Financing Activities

Cash (used) provided by financing activities decreased $670.2 million to cash used of $58.9 million for the nine months ended September 30, 2020 from cash provided of $611.3 million for the nine months ended September 30, 2019. The decrease in financing cash flows is primarily due to the prior year increase in debt used to finance the February 2019 Nexeo acquisition. The decrease was partially offset by cash inflows attributable to lower repayments of long-term debt during the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. Refer to “Note 13: Debt” in Item 1 of this Quarterly Report on Form 10-Q for additional information.

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 ended December 31, 2019.

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 ended December 31, 2019, other than as disclosed in “Note 13: Debt” to the condensed consolidated financial statements as of and for the three and nine-month periods ended September 30, 2020.

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 ended December 31, 2019.

Recently Issued Accounting Pronouncements

See “Note 2: Significant accounting policies” in the notes to the condensed consolidated financial statements.

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 the COVID-19 pandemic and economic conditions on our end markets, operations, financial condition and operating results;

•our expense control and cost reduction plans and other strategic plans and initiatives;

•our ability to solve customer technical challenges and accelerate product development cycles;

•demand for new products that meet regulatory and customer sustainability standards and preferences and our ability to provide such products and systems to maintain our competitive position;

•our ability to sell specialty products at higher profit;

•the cyclicality of our Agricultural business;

•the continuation of the trend of outsourcing of chemical distribution by chemical manufacturers;

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•significant factors that may adversely affect us and our industry;

•the outcome and effect of ongoing and future legal proceedings;

•market conditions and outlook;

•our liquidity outlook and the funding thereof, and cash requirements and adequacy of resources to fund them;

•future contributions to our pension plans and cash payments for postretirement benefits; and

•the impact of ongoing tax guidance and interpretations.

Potential factors that could affect such forward-looking statements include, among others:

•the sustained geographic spread of the COVID-19 pandemic, the duration and severity of the COVID-19 pandemic, current and new actions that may be taken by governmental authorities to address or otherwise mitigate the impact of the COVID-19 pandemic, the potential negative impacts of COVID-19 on the global economy and our customers and suppliers, and the overall impact of the COVID-19 pandemic on our business, results of operations and financial condition;

•other fluctuations in general economic conditions, particularly in industrial production and the demands of our customers and the timing and extent of an economic recovery;

•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;

•significant changes in the pricing, demand and availability of chemicals;

•trends in oil and gas demand and prices;

•our indebtedness, the restrictions imposed by 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;

•an inability to integrate the business and systems of companies we acquire or to realize the anticipated benefits of such acquisitions;

•potential business disruptions and security breaches, including cybersecurity incidents;

•an inability to generate sufficient working capital;

•increases in transportation and fuel costs and changes in our relationship with third party providers;

•accidents, safety failures, environmental damage, product quality and liability issues and recalls;

•major or systemic delivery failures involving our distribution network or the products we carry;

•ongoing litigation and other legal and regulatory risks;

•challenges associated with international operations;

•exposure to interest rate and currency fluctuations;

•negative developments affecting our pension plans and multi-employer pensions;

•labor disruptions associated with the unionized portion of our workforce; and

•the other factors described in the Company's filings with the Securities and Exchange Commission.

You should read this 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 ended December 31, 2019 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. We evaluate performance using Adjusted EBITDA. We define Adjusted EBITDA as consolidated net income (loss), plus the sum of net (loss) income from discontinued operations, net interest expense, income tax expense (benefit), depreciation, amortization, impairment charges, loss on extinguishment of debt, other operating expenses, net (see “Note 6: Other operating expenses, net” in Item 1 of this Quarterly Report on Form 10-Q for additional information) and other income (expense), net (see “Note 8: Other income (expense), net” in Item 1 of this Quarterly Report on Form 10-Q for additional information). Adjusted EBITDA also includes an adjustment to remove a Brazil VAT charge for 2020 and an inventory step-up adjustment for 2019. 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 (loss) to Adjusted EBITDA, the most directly comparable measure calculated in accordance with GAAP, see “Note 19: Segments” to our condensed consolidated financial statements in Item 1 of this Quarterly Report on Form 10-Q.

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We believe that non-GAAP financial measures provide relevant and meaningful information concerning the ongoing operating results of the Company. These financial measures include gross profit (exclusive of depreciation), adjusted gross profit (exclusive of depreciation), gross margin and Adjusted EBITDA margin. We define these financial measures as follows:

•Gross profit (exclusive of depreciation): net sales less cost of goods sold (exclusive of depreciation);

•Adjusted gross profit (exclusive of depreciation): net sales less cost of goods sold (exclusive of depreciation) plus Brazil VAT charge and inventory step-up adjustment;

•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.

Management believes Adjusted EBITDA, Adjusted EBITDA margin, gross profit (exclusive of depreciation), adjusted gross profit (exclusive of depreciation) and gross margin are important measures in assessing operating performance. The non-GAAP financial measures are included as a complement to results provided in accordance with GAAP because management believes these non-GAAP financial measures help investors’ ability to analyze underlying trends in the Company’s business, evaluate its performance relative to other companies in its industry and provide useful information to both management and investors by excluding certain items that may not be indicative of the Company’s core operating results. Additionally, the Company uses Adjusted EBITDA in setting performance incentive targets to align management compensation measurement with operational performance. Adjusted EBITDA, Adjusted EBITDA margin, gross profit (exclusive of depreciation), adjusted gross profit (exclusive of depreciation) and gross margin are not measures calculated in accordance with GAAP and should not be considered a substitute for net income or any other measure of financial performance presented in accordance with GAAP. Additionally, other companies may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There were no material changes from the “Quantitative and Qualitative Disclosure about Market Risk” disclosed in Part II, Item 7A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of the Company’s management, including the principal executive officer and principal financial officer, the Company conducted an evaluation as of September 30, 2020 of the effectiveness of the design and operation of its disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, the principal executive officer and principal financial officer concluded the Company’s disclosure controls and procedures were effective as of September 30, 2020.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II.

OTHER INFORMATION

Item 1. Legal Proceedings

Information pertaining to legal proceedings can be found in Note 17 to the interim condensed consolidated financial statements included in Part I, Financial Statements of this report.

Item 1A. Risk Factors

There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019 and our Quarterly Report on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults upon Senior Securities

None.

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Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

On or about November 2, 2020, Univar Solutions entered into new severance and change in control agreements (the “Severance Agreements”) with certain of its executive officers (the “Officers”), including the following named executive officers of the Company: David C. Jukes, President and Chief Executive Officer and Carl J. Lukach Executive Vice President, Corporate Development.

The Severance Agreements, which replace and supersede their prior agreements, generally provide that, if the Officer’s employment is terminated by the Company without Cause or the Officer terminates his employment with the Company for Good Reason, the Officer will generally receive a severance payment equal to (i) for the Chief Executive Officer, eighteen (18) months of the Officer’s annual base salary, and; twelve (12) months for the other Officers; plus (ii) the Officer’s target bonus for the year of termination, plus (iii) a pro rata portion of the Officer’s actual bonus for the year of termination. If during a Protection Window (i.e., upon or within three (3) months prior to, or twenty-four (24) months after, a Change in Control), the Officer’s employment is terminated by the Company without Cause or the Officer terminates his employment with the Company for Good Reason, the Officer will generally receive a severance payment equal to (i) for the Chief Executive Officer, thirty (30) months of the Officer’s annual base salary, and; twenty four (24) months for the other Officers; plus (ii) for the Chief Executive Officer, two hundred and fifty percent (250%) of the target bonus for the year of termination, and; two hundred percent (200%) for the other Officers, plus (iii) a pro rata portion of the Officer’s target bonus for the year of termination. In addition, under each of the termination scenarios described above, the Officer will be entitled to continue to receive the medical and dental coverage provided by the Company as of the Officer’s termination date for eighteen months following termination, with monthly premium payments for such coverage paid for by the Officer. The Officer must also sign a release of claims in favor of the Company to receive the severance benefits described above. Each Officer is also subject to non-competition and non-solicitation requirements for eighteen (18) months following his termination of employment.

The terms and conditions are described in more detail in the standard form severance and change in control agreement, which is attached as Exhibit 10.1 and incorporated by reference. Capitalized terms used herein and not otherwise defined have the meaning given in the Severance Agreement.

On October 28, 2020, the Board approved a standard form of Indemnification Agreement for executive officers of the Company, which indemnification agreement, among other matters, is intended to provide indemnification rights to the fullest extent permitted under applicable law. The Company’s form of indemnification agreement is attached as Exhibit 10.2 and incorporated by reference.

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Item 6. Exhibits


Exhibit Number						Exhibit Description

10.1*†						Form of Severance and Change in Control Agreement by and Between Univar Solutions Inc. and Certain Executives.

10.2*						Form of Indemnification Agreement by and Between Univar Solutions Inc. and Certain Executives.

10.3 †						Alternative Release and Amendment to Severance and Change in Control Agreement, dated as of August 5, 2020, by and between the Company and Mark Fisher, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Univar Solutions Inc., filed on August 6, 2020.

31.1*						Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*						Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1**						Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2**						Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS						Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH						Inline XBRL Taxonomy Extension Schema Document

101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document

104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

_______________________


†			Identifies each management compensation plan or arrangement
*			Filed herewith
**			Furnished herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Univar Solutions Inc. (Registrant)

By:						/s/ David C. Jukes
						David C. Jukes President and Chief Executive Officer

Date: November 5, 2020


By:						/s/ Nicholas W. Alexos
						Nicholas W. Alexos Executive Vice President and Chief Financial Officer

Date: November 5, 2020