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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 March 31, 2021
Or
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
For the transition period from__________to__________
Commission File No. 001-40293

DIVERSEY HOLDINGS, LTD.
(Exact name of registrant as specified in its charter)
Cayman Islands
2842
Not applicable
(State or other jurisdiction of
incorporation or organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer
Identification No.)
1300 Altura Road, Suite 125
Fort Mill, South Carolina 29708
(Address of registrant's principal executive offices)
(803) 746-2200
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:    
Title of each class
Trading Symbol
Name of the exchange on which registered
Ordinary Shares, par value $0.0001
DSEY
The Nasdaq Stock Market LLC


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

As of May 14, 2021, there were 301,245,126 shares of the registrant's ordinary shares outstanding.






TABLE OF CONTENTS


PART I
Page Number







PART I
FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Diversey Holdings, Ltd.
Condensed Consolidated Balance Sheets
(Unaudited)
(in millions except per share amounts)March 31, 2021December 31, 2020
Assets
   Current assets:
Cash and cash equivalents$113.0 $192.9 
Trade receivables, net of allowance for doubtful accounts of $27.1 and $28.7
332.8 342.0 
Other receivables60.8 71.0 
Inventories (Note 5)
317.5 282.4 
Prepaid expenses and other current assets (Note 5)
79.0 62.0 
     Total current assets903.1 950.3 
     Property and equipment, net (Note 6)
186.5 188.3 
     Goodwill (Note 7)
459.3 467.0 
     Intangible assets, net (Note 7)
2,236.0 2,311.4 
     Other non-current assets (Note 5)
352.6 369.1 
     Total assets$4,137.5 $4,286.1 
Liabilities and stockholders' equity
   Current liabilities:
Short-term borrowings (Note 8)
$0.4 $0.4 
Current portion of long-term debt (Note 8)
14.5 13.2 
Accounts payable444.2 404.6 
Accrued restructuring costs (Note 17)
19.6 26.3 
Other current liabilities (Note 5)
407.4 512.4 
     Total current liabilities886.1 956.9 
     Long-term debt, less current portion (Note 8)
1,991.3 2,686.7 
     Preferred equity certificates (Note 9)
 641.7 
     Deferred taxes (Note 13)
178.7 181.1 
     Other non-current liabilities (Note 5)
565.8 328.3 
     Total liabilities3,621.9 4,794.7 
     Commitments and contingencies (Note 14)
   Stockholders' equity:
Common stock, $0.01 par value per share, 0 and 195,800,697 shares authorized and outstanding in 2021 and 2020, respectively
— 2.2 
Ordinary shares, $0.0001 par value per share; 1,000,000,000 and 0 shares authorized, 296,245,126 and 0 shares outstanding in 2021 and 2020, respectively
 — 
Preferred shares, $0.0001 par value per share, 200,000,000 and 0 shares authorized, 0 and 0 shares outstanding in 2021 and 2020, respectively
  
Additional paid-in capital1,332.7 247.2 
Accumulated deficit(641.0)(545.3)
Accumulated other comprehensive loss (Note 18)
(176.1)(212.7)
    Total stockholders' equity515.6 (508.6)
Total liabilities and stockholders' equity$4,137.5 $4,286.1 
The accompanying notes are an integral part of the condensed consolidated financial statements.
1


Diversey Holdings, Ltd.
Condensed Consolidated Statements of Operations
(Unaudited)
(in millions except per share amounts)Three Months Ended March 31, 2021Three Months Ended March 31, 2020
Net sales$631.5 $654.9 
Cost of sales385.1 373.6 
   Gross profit246.4 281.3 
Selling, general and administrative expenses243.1 214.1 
Transition and transformation costs15.4 5.0 
Management fee (Note 15)
19.4 1.9 
Amortization of intangible assets24.3 24.6 
Restructuring costs (Note 17)
0.5 1.4 
Operating income (loss)(56.3)34.3 
Interest expense43.7 31.6 
Foreign currency (gain) loss related to Argentina subsidiaries(2.0)0.9 
Other (income) expense, net (Note 5)
0.1 (13.3)
Income (loss) before income tax provision (benefit)(98.1)15.1 
Income tax provision (benefit) (Note 13)
(2.4)11.2 
Net income (loss)$(95.7)$3.9 
Basic income (loss) per share (Note 20)
$(0.39)$0.02 
Diluted income (loss) per share (Note 20)
$(0.39)$0.02 
Basic weighted average shares outstanding (Note 20)
247.3243.2
Diluted weighted average shares outstanding (Note 20)
247.3243.2

The accompanying notes are an integral part of the condensed consolidated financial statements
2


Diversey Holdings, Ltd.
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
(in millions)Three Months Ended March 31, 2021Three Months Ended March 31, 2020
Net income (loss)$(95.7)$3.9 
Other comprehensive income (loss):
Cash flow hedging activities, net of taxes of $(1.0) and $6.5
4.0 (18.5)
Foreign currency translation adjustments32.6 (68.8)
Other comprehensive income (loss)36.6 (87.3)
Comprehensive loss$(59.1)$(83.4)

The accompanying notes are an integral part of the condensed consolidated financial statements.
3


Diversey Holdings, Ltd.
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
(in millions)Common StockOrdinary SharesAdditional Paid-in CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal
Balance as of December 31, 2020$2.2 $ $247.2 $(545.3)$(212.7)$(508.6)
Effect of reorganization transactions(2.2)— (39.6)— — (41.8)
Issuance of ordinary shares sold in IPO, net of offering costs— — 654.3 — — 654.3 
Exchange of preferred equity certificates for ordinary shares— — 620.9 — — $620.9 
Conversion of share-based awards— — 68.1 — — $68.1 
Share-based compensation— — 37.5 — — 37.5 
Tax receivable agreement— — (255.7)— — $(255.7)
Cash flow hedging activities, net of tax
— — — — 4.0 4.0 
Foreign currency translation adjustments— — — — 32.6 32.6 
Net loss— — — (95.7)— (95.7)
Balance as of March 31, 2021$ $ $1,332.7 $(641.0)$(176.1)$515.6 
Balance as of December 31, 2019$2.2 $ $242.2 $(501.1)$(64.5)$(321.2)
Cash flow hedging activities, net of tax— — — — (18.5)(18.5)
Foreign currency translation adjustments— — — — (68.8)(68.8)
Adoption of new accounting standard Topic ASC 326— — — (5.7)— (5.7)
Net income— — — 3.9 — 3.9 
Balance as of March 31, 2020$2.2 $ $242.2 $(502.9)$(151.8)$(410.3)

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

4


Diversey Holdings, Ltd.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in millions)Three Months Ended March 31, 2021Three Months Ended March 31, 2020
Operating activities:
Net income (loss)$(95.7)$3.9 
Adjustments to reconcile net income (loss) to cash used in operating activities:
   Depreciation and amortization47.1 48.4 
Amortization of deferred financing costs and original issue discount14.9 2.6 
   (Gain) loss on cash flow hedges0.2 (1.0)
   Deferred taxes0.8 (1.1)
   Unrealized foreign currency exchange (gain) loss5.9 (9.0)
   Share-based compensation37.5 0.3 
   Impact of highly inflationary economy - Argentina(2.0)0.9 
   Provision for bad debts2.0 5.5 
   Provision for slow moving inventory3.0 1.1 
   Other non-cash, net(3.7)0.3 
   Changes in operating assets and liabilities:
      Trade receivables, net(28.0)(73.6)
      Inventories, net(41.2)(28.5)
      Accounts payable46.5 13.0 
      Income taxes, net(11.6)6.7 
      Other assets and liabilities, net(54.4)(25.7)
Cash used in operating activities(78.7)(56.2)
Investing activities:
Dosing and dispensing equipment(12.0)(14.6)
Capital expenditures(6.4)(7.3)
Collection of deferred factored receivables24.4 18.0 
Cash provided by (used in) investing activities6.0 (3.9)
Financing activities:
Contingent consideration payments(0.1) 
Proceeds from short-term borrowings0.4 0.1 
Proceeds from revolving credit facility 60.0 
Payments on revolving credit facility (52.0)
Proceeds from long-term borrowings 22.9 
Payments on long-term borrowings(656.0)(6.2)
Payment of deferred financing costs(2.5) 
Issuance of ordinary shares sold in IPO, net of offering costs654.3  
Cash provided by (used in) financing activities(3.9)24.8 
Exchange rate changes on cash, cash equivalents and restricted cash(3.9)(3.5)
Decrease in cash, cash equivalents and restricted cash(80.5)(38.8)
Cash, cash equivalents and restricted cash at beginning of period(a)
201.7 142.3 
Cash, cash equivalents and restricted cash at end of period(b)
$121.2 $103.5 
Supplemental Cash Flow Information:
Interest payments$49.0 $36.8 
Income tax payments$8.4 $6.7 
Conversion of preferred equity certificates to equity$620.9 $114.3 
Beneficial interest obtained in exchange for factored receivables$6.9 $13.6 
5


Restricted cash (which includes compensating balance deposits) is recorded in prepaid expenses and other current assets and other non-current assets on the Condensed Consolidated Balance Sheets.

(a) Restricted cash was $8.9 million and $14.0 million as of December 31, 2020 and December 31, 2019, respectively.
(b) Restricted cash was $8.2 million and $10.5 million as of March 31, 2021 and March 31, 2020, respectively.

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

6

Diversey Holdings, Ltd.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1 - THE COMPANY AND BASIS OF PRESENTATION

Description of Business

Diversey Holdings, Ltd. (hereafter the "Company", “we,” “us,” and “our”), an exempted company incorporated under the laws of the Cayman Islands with limited liability, was formed on November 3, 2020 for the purpose of completing a public offering and related transactions and in order to carry on the business of Constellation (BC) 2 S.à r.l ("Constellation") and its indirect wholly-owned operating subsidiaries. The Company serves as a holding company in our corporate structure, and does not engage in any business or other activities other than those incident to its formation.

On March 29, 2021, the Company completed an initial public offering of 46,153,846 ordinary shares at a public offering price of $15.00 per share (the "IPO"), receiving $654.3 million in net proceeds, after deducting the underwriting discount and offering expenses. On April 9, 2021, the Company issued and sold an additional 5,000,000 ordinary shares pursuant to the underwriters' partial exercise of their option to purchase additional shares, receiving an incremental $71.4 million in net proceeds, after deducting the underwriting discount and offering expenses. Our ordinary shares trade on The Nasdaq Global Select Market under the ticker symbol "DSEY".

Prior to the formation of Diversey Holdings, Ltd., the organization structure consisted of Constellation, which was incorporated on June 30, 2017, and is organized under the laws of Luxembourg as a Société à Responsabilité Limitée for an unlimited period under the direction of Bain Capital, LP (“Bain Capital”). Diamond (BC) B.V., an indirect wholly-owned subsidiary of Constellation, was formed on March 15, 2017 for the purpose of consummating the acquisition of the Diversey Care division and the food hygiene and cleaning business of Sealed Air Corporation (“Sealed Air”) (together, the “Diversey Business”), including certain assets and all the capital stock of certain entities engaged in the Diversey Business (the “Diversey Acquisition”). In March 2017, Diamond (BC) B.V. entered into a purchase agreement (the “Purchase Agreement”) with Sealed Air pursuant to which, among other things, Diamond (BC) B.V. would acquire the Diversey Business. The Diversey Acquisition closed on September 6, 2017 (the “Acquisition Date”).

Prior to closing of the IPO, we effected a series of transactions (the "Reorganization Transactions") pursuant to which:

(i) Constellation (BC) PoolCo SCA (“Poolco”), an entity incorporated for the purpose of pooling the interests of our employees, directors and officers in Constellation (BC) S.à r.l (“Topco”), a direct subsidiary of Constellation, repurchased shares from certain equity holders in exchange for a note receivable;

(ii) all other equity holders of Poolco contributed their shares of Poolco to Constellation in exchange for new shares of Constellation; and

(iii) the equity holders of Constellation, including Bain Capital and the individuals referred to in the foregoing clause (ii), contributed a portion of their shares of Constellation to the Company, and the equity holders referred to in the foregoing clause (i) contributed a portion of their note receivable to the Company, in each case, in exchange for ordinary shares of the Company (in which the Company withheld a portion of the ordinary shares otherwise issuable solely to the extent necessary to satisfy (y) any outstanding loans owned by such employee equity holders and (z) any tax consequences resulting to the equity holders from the repurchase, and the aggregate fair market value of such withheld ordinary shares will be paid by the Company or a subsidiary thereof to satisfy such tax consequence) and the equity holders of Constellation, including Bain Capital and the individuals referred to in the foregoing clause (ii), contributed the remaining portion of their shares of Constellation to one of our subsidiaries, and the equity holders referred to in the foregoing clause (i) contributed the remaining portion of their note receivable to one of our subsidiaries, in each case, in exchange for payments to be made under the Tax Receivable Agreement entered into in connection with the IPO and certain other consideration.

7

Diversey Holdings, Ltd.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Reorganization Transactions resulted in the Company becoming the ultimate parent company of Constellation and its subsidiaries, and Bain Capital and all other equity holders of Constellation and Poolco becoming shareholders of the Company. In order to simplify our corporate structure, we expect to merge or liquidate certain of our wholly-owned subsidiaries, including Constellation, Poolco and Topco. The Reorganization Transactions were considered transactions between entities under common control. As a result, the financial statements for periods prior to the IPO and the Reorganization Transactions have been adjusted to combine the previously separate entities for presentation purposes.

Nature of Operations

We are a leading global provider of high performance hygiene, infection prevention, and cleaning solutions for the Institutional and Food & Beverage markets. In addition, we offer a wide range of value added services, including food safety and application training and consulting, as well as auditing of hygiene and water management. Our Institutional business provides solutions serving end-users such as healthcare facilities, food service providers, retail and grocery outlets, educational institutions, hospitality establishments, and building service contractors. Our Food & Beverage business provides solutions serving manufacturers in the brewing, beverage, dairy, processed foods, pharmaceutical, and agricultural markets. Although our cleaning products represent only a small portion of our customers’ total cleaning costs, they are typically viewed as being non discretionary because they can have a meaningful impact on the efficacy of food safety, operational excellence, and sustainability. The COVID-19 pandemic has further reinforced the essential nature of our solutions and increased hygiene, infection prevention, and cleaning standards across all markets.

The product range of Diversey®-branded solutions includes fully integrated lines of products and dispensing systems for hard surface cleaning, disinfecting and sanitizing, hand washing, deodorizing, mechanical and manual ware washing, hard surface and carpeted floor cleaning systems, cleaning tools and utensils, fabric care for professional laundry applications comprising detergents, stain removers, bleaches and a broad range of dispensing equipment for process control and management information systems. Floor care machines are commercialized under the well-established Taski® brand.

We are globally operated with manufacturing facilities, sales centers, administrative offices and warehouses located throughout the world, and we have a global team of approximately 8,500 employees as of March 31, 2021.

Basis of Presentation

Our Condensed Consolidated Financial Statements include all of the accounts of the Company and our subsidiaries. These Condensed Consolidated Financial Statements reflect our financial position, results of operations, cash flows and changes in stockholders' equity in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). All intercompany accounts and transactions have been eliminated. All amounts are in US Dollar denominated millions, except per share amounts and unless otherwise noted, and are approximate due to rounding.

The accompanying unaudited financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the rules and regulations of the Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete annual financial statements. In the opinion of management, the accompanying unaudited financial statements include all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation. Interim results are not necessarily indicative of the results that may be expected for the full year. The accompanying unaudited interim financial statements should be read in conjunction with the annual audited financial statements of the Company and notes thereto for the year ended December 31, 2020 included in the Company's Prospectus dated March 24, 2021 filed with the SEC in connection with the IPO.





8

Diversey Holdings, Ltd.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of the Condensed Consolidated Financial Statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the periods. These estimates include, among other items, assessing the collectability of receivables, the use and recoverability of inventory, the estimation of the fair value of financial instruments, useful lives and recoverability of tangible and intangible assets and impairment of goodwill, assumptions used in our defined benefit pension plans and other post-employment benefit plans, estimates related to self-insurance such as the aggregate liability for uninsured claims using historical experience, insurance and actuarial estimates and estimated trends in claim values, fair value measurement of assets, costs for incentive compensation and accruals for commitments and contingencies. Management reviews these estimates and assumptions periodically and reflects the effects of any revisions in the Condensed Consolidated Financial Statements in the period management determines any revisions to be necessary. Actual results could differ materially from these estimates.

New Accounting Guidance

We consider the applicability and impact of all Accounting Standards Updates ("ASUs") issued by the Financial Accounting Standards Board ("FASB"). ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our Condensed Consolidated Financial Statements.

Recently Adopted Pronouncements

There were no accounting pronouncements which were adopted during the current period that had a material impact on our Condensed Consolidated Financial Statements.

Recently Issued Accounting Standards

Facilitation of the Effects of Rate Reform

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Inter-bank Offered Rate ("LIBOR") or another reference rate expected to be discontinued. The Company can elect to apply the amendments in this update as of March 12, 2020 through December 31, 2022, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. We are currently in the process of evaluating this new standard update and the impact of this guidance on the Condensed Consolidated Financial Statements.
In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which explicitly clarifies which contracts, hedging relationships, and other transactions are within the scope of the optional expedients and exceptions allowed under Topic 848. The Company has not utilized any of the optional expedients or exceptions available under Topic 848. The Company continues to assess whether this ASU is applicable throughout the effective period, in conjunction with our assessment of ASU 2020-4.

NOTE 3 - REVENUE RECOGNITION

The Company recognizes revenue from contracts with customers using the following five-step model: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction
9

Diversey Holdings, Ltd.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) we satisfy a performance obligation. Performance obligations are satisfied upon transfers of control of a good or service to a customer. We recognize revenue based on the expected amount of consideration to be received for the provided goods or services, taking into account the expected value of variable consideration.

Description of Revenue Generating Activities

The Company provides high-performance cleaning, infection prevention and hygiene products for the food safety and service, food and beverage plant operations, healthcare, floor care, housekeeping and room care, laundry and hand care markets. In addition, the Company offers a wide range of value-added solutions, including food safety and application training and consulting, as well as auditing of hygiene and water management. Many of our products are sold through distributors who then sell the product to end users.

Identify Contract with Customer

For an agreement to qualify as a contract, the agreement must create substantive enforceable rights and obligations. Indicators of enforceability for our contracts include, but are not limited to, minimum purchase or spend obligations coupled with early termination penalties for the customer.

In the event that a contract does not have a minimum purchase obligation nor contain any of the provisions to establish enforceable rights and obligations, part of the contract may still be enforceable when a purchase order is issued and the purchase order relates to a section of the contract. Most of the Company’s contracts do not contain minimum purchase obligations or early termination penalties for the customer.

Performance Obligations

A performance obligation must include a promise to deliver goods or services whereby the good or service must be distinct in the contract. For the Company, the most common examples of distinct performance obligations are consumables, training, equipment sales, installation, and maintenance. Dosing and dispensing equipment provided to customers (“free on loan”) are typically identified as separate lease components within the scope of ASU 2016-02, Leases. The other goods or services promised in the contract are not identified as performance obligations when they are not separate, distinct, or material.

Transaction Price and Variable Consideration

Our contracts contain fixed and variable components. The Company's variable considerations include, but are not limited to, rebates, prebates, discounts, and returns. The amount of variable consideration is estimated at contract inception by using the most likely amount method pending on the nature of the variable consideration. Such variable consideration is re-evaluated each reporting period, and accruals are booked based on the re-evaluated estimates and variable consideration recognized to date.

Charges for rebates and other allowances are recognized as a deduction from revenue on an accrual basis in the period in which the associated revenue is recorded. When we estimate our rebate accruals, we consider customer-specific contractual commitments including stated rebate rates and history of actual rebates paid. Our rebate accruals are reviewed at each reporting period and adjusted to reflect data available at that time. We adjust the accruals to reflect any differences between estimated and actual amounts. These adjustments impact the amount of net sales recognized by us in the corresponding period of adjustment. Charges for rebates and other allowances were 24.5% and 27.7% of gross sales for the three months ended March 31, 2021 and March 31, 2020, respectively.

Allocation of Transaction Price

The Company allocates the transaction price to performance obligations in proportion to their standalone selling prices. The Company obtains the transaction price of performance obligations by using the selling prices for performance obligations with observable prices sold on a standalone basis. When observable prices are not readily available, the Company estimates the standalone selling prices by using the expected cost, plus a margin approach.
10

Diversey Holdings, Ltd.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Satisfaction of Performance Obligations

The timing of revenue recognition depends on the nature of each performance obligation. In general, the time between when a performance obligation is satisfied and when billing and payment occur is closely aligned, with the exception of revenue for services, which is satisfied over the life of the contract. The sale of goods is recorded at a point in time when the customer obtains control of the asset. Transfer of control is indicated when the Company has a present right to payment for the goods, the customer has legal title to the asset, the Company has transferred physical possession of the goods to the customer, the customer has the significant risks and rewards of ownership of the goods, and the customer has accepted the goods. Revenue for services, such as maintenance or training, that are performed over the life of a contract are recognized based on the activity the Company expects to undertake to fulfill the performance obligation.

Disaggregated Revenue

For the three months ended March 31, 2021 and March 31, 2020, revenues from contracts with customers summarized by region were as follows:
(in millions)Three Months Ended March 31, 2021Three Months Ended March 31, 2020
Europe$232.9 $295.1 
North America219.2 155.2 
Asia Pacific79.1 85.4 
Middle East and Africa52.8 64.4 
Latin America42.1 48.5 
Revenue from contracts with customers626.1 648.6 
Other revenue (Leasing: Sales-type and Operating)5.4 6.3 
Total revenue$631.5 $654.9 

Contract Balances

Timing differences occur when billing precedes or succeeds the satisfaction of the corresponding performance obligation. If the timing differences between billing and services recognized over time is significant, the Company records a liability (unearned revenue) and does not recognize revenue until the performance obligation is satisfied. There were no material timing differences that led to contract liabilities as of March 31, 2021 and December 31, 2020.

Assets Recognized For the Costs to Obtain a Contract

In certain instances, we incur incremental direct costs of a transaction, such as prebates, equipment provided free on loan, or other related expenses in the contract negotiation phase. Because these costs are likely incurred to transition to a new relationship or part of a negotiated renewal of a long-term relationship, these costs are considered costs to obtain a contract and are deferred and amortized over the period in which revenue is recognized, provided that unamortized deferred costs are considered recoverable. These amounts are recorded within Other non-current assets on the Company’s Condensed Consolidated Balance Sheets.

NOTE 4 - ACQUISITIONS

SaneChem Acquisition

On December 30, 2020, the Company acquired 100% of the stock of SaneChem sp. z o o, ("SaneChem"), which is a Polish-based supplier of specialized hygiene solutions. This acquisition further expanded the Company’s footprint within Europe and the results of operations for this business are reported within the Food & Beverage business segment.
11

Diversey Holdings, Ltd.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The Company acquired SaneChem for a total consideration of $21.8 million. This acquisition has been accounted for using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed to be recognized at fair value as of the acquisition date. Certain valuation estimates and net asset adjustments are not yet finalized and are subject to change, but are expected to be finalized by the end of 2021.

The acquired business contributed $3.2 million of revenue, while the net income contribution was not material for the three months ended March 31, 2021.

The preliminary determination of goodwill in the amount of $17.9 million was recognized for the SaneChem acquisition as the excess of consideration transferred over the net assets recognized and represents the future economic benefits arising from other assets, including an assembled workforce, which cannot be individually identified and separately recognized. The recorded goodwill is not deductible for tax purposes.

The following table summarizes the preliminary fair values of the net assets acquired as of the December 30, 2020 acquisition date:

(in millions)
Cash and cash equivalents$2.3 
Trade receivables1.6 
Inventories1.7 
Accounts payable(1.0)
Other current liabilities(0.6)
Other non-current liabilities(0.1)
Net assets acquired before goodwill on acquisition3.9 
Goodwill on acquisition17.9 
Net assets acquired$21.8 

In connection with the SaneChem acquisition, the Company did not incur any merger and acquisition-related costs for the three months ended March 31, 2021 or the three months ended March 31, 2020.

The inclusion of the SaneChem acquisition in our Condensed Consolidated Financial Statements is not deemed material with respect to the requirement to provide pro-forma results of operations. As such, pro-forma information is not presented.

As of March 31, 2021, the valuation studies necessary to determine the fair market value of the assets acquired and liabilities assumed are preliminary, including, but not limited to, inventory and other liabilities.

Wypetech Acquisition

On July 1, 2020, the Company acquired 100% of the stock of Wypetech, LLC ("Wypetech"), which is a contract manufacturer, based out of Milwaukee, Wisconsin, that specializes in the production of disinfecting wipes used in a variety of end markets including healthcare, industrial and general commercial and household applications. This acquisition further expanded the Company’s footprint in the United States and the results of operations for this business are reported within the Institutional business segment.

The Company acquired Wypetech for a total consideration of $32.3 million, of which $2.0 million will be deferred for one year. This acquisition has been accounted for using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at fair value of the acquisition date.

12

Diversey Holdings, Ltd.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The acquired Wypetech business contributed $2.2 million of revenue, while the net income contribution was not material for the three months ended March 31, 2021.

The fair value of Wypetech's intangible asset, which represents customer relationships, was determined using the Income Approach which measures the value of an intangible asset based on the present value of its future economic benefits. This approach converts future economic benefits to a single current amount by discounting the future benefits at a rate of return sufficient to satisfy the risks and rewards associated with ownership of similar assets. This measurement reflects current market expectations regarding its future economic benefits. The Income Approach is a non-recurring Level Three fair value assessment.

The determination of goodwill in the amount of $22.0 million was recognized for the Wypetech acquisition as the excess of consideration transferred over the net assets recognized and represents the future economic benefits arising from other assets, including an assembled workforce, which cannot be individually identified and separately recognized. The recorded goodwill is deductible for tax purposes.

The following table summarizes the final fair values of the net assets acquired as of the July 1, 2020 acquisition date:
(in millions)
Cash and cash equivalents$0.6 
Trade receivables2.1 
Inventories1.5 
Prepaid expenses and other current assets0.1 
Property, plant and equipment0.6 
Intangible assets9.5 
Accounts payable(4.0)
Other current liabilities(0.1)
Net assets acquired before goodwill on acquisition10.3 
Goodwill on acquisition22.0 
Net assets acquired$32.3 

Additionally, the Company purchased the land and building facilities associated with Wypetech on August 4, 2020 for $2.1 million. This is included in Property and equipment within the Condensed Consolidated Balance Sheets.

In connection with the Wypetech acquisition, the Company did not incur any merger and acquisition-related costs for the three months ended March 31, 2021 or the three months ended March 31, 2020.

The inclusion of the Wypetech acquisition in our Condensed Consolidated Financial Statements is not deemed material with respect to the requirement to provide pro-forma results of operations. As such, pro-forma information is not presented.



13

Diversey Holdings, Ltd.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 - FINANCIAL STATEMENT DETAILS

Inventories

As of March 31, 2021 and December 31, 2020, our net inventory balances, were:
(in millions)March 31, 2021December 31, 2020
Raw materials$63.6 $60.8 
Work in process2.5 3.7 
Finished goods251.4 217.9 
 $317.5 $282.4 

Factoring of trade receivables

On November 15, 2018, we entered into a Master Agreement with Factofrance, S.A. (“Factofrance”) to sell certain trade receivables, without recourse, of eight Diversey subsidiaries located in the United Kingdom, Spain, France, Netherlands, Poland, Germany, Italy and Portugal under individually executed Receivable Purchase Agreements (“RPAs”). Factofrance charges a 0.10% factoring fee and a 0.05% debtor credit default commission on the face value of receivables sold and paid. In addition, Factofrance charges a financing fee, as defined, based on Factofrance advances made on remaining uncollected receivables. Factofrance also charges a quarterly commitment fee of 0.10% of the maximum total funding amount which is €150.0 million ($176.9 million) at March 31, 2021.

We accounted for transfers of receivables pursuant to the RPAs as a sale and removed them from our Condensed Consolidated Balance Sheets. We maintained a “beneficial interest,” or a right to collect cash, in the sold receivables in which we do not immediately collect cash. Cash receipts from the beneficial interests on sold receivables (which are cash receipts on the underlying trade receivables that have already been sold in these agreements) are classified as investing activities and presented as cash receipts on sold receivables on our Condensed Consolidated Statements of Cash Flows.

We are required to maintain a restricted cash collateral account pursuant to the Master Agreement in order to secure the full and punctual payment, performance and discharge of all payments due to Factofrance. The amount of cash collateral required was €4.0 million ($4.7 million) as of March 31, 2021. We are also required to service the receivables sold without fee.

For the three months ended March 31, 2021 and March 31, 2020, the Company sold $142.6 million and $139.6 million of receivables to Factofrance and received cash from Factofrance of $158.3 million and $132.9 million, respectively. The difference of $(15.7) million and $6.7 million is the activity for the three months ended March 31, 2021 and March 31, 2020, respectively, net of fees and reserves. For the three months ended March 31, 2021 and March 31, 2020, we collected from our customers and remitted to Factofrance $184.1 million and $149.5 million, respectively.

The funded status, which is defined as the balance of outstanding receivables purchased, less holdbacks and reserves, as of March 31, 2021 and December 31, 2020 was $29.9 million and $40.8 million, respectively.

Securitization of trade receivables

In April 2020, we entered into an arrangement with PNC Bank ("PNC") to sell certain North American customer receivables without recourse on a revolving basis. As customers pay their balances, we transfer additional receivables into the program. The transferred receivables are fully guaranteed by a bankruptcy-remote wholly-owned subsidiary of the Company, which holds additional receivables in the amount of $47.9 million as of March 31, 2021 that are pledged as collateral under this agreement. This arrangement provided for maximum funding of up to $75.0 million for receivables sold. Fees associated with the arrangement were $0.5 million for the three months ended March 31, 2021.
14

Diversey Holdings, Ltd.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

For the three months ended March 31, 2021 we transferred and derecognized $149.5 million of receivables and collected $152.9 million in connection with our arrangement with PNC.

Credit losses

The Company’s allowance for credit losses on trade and lease receivables is assessed at the end of each quarter based on an analysis of historical losses and assessment of future expected losses. The Company is monitoring the impact that COVID-19 may have on outstanding receivables.

The following represents the activity in our allowance for credit losses for trade and lease receivables for the three months ended March 31, 2021 and March 31, 2020:

(in millions)Three Months Ended March 31, 2021Three Months Ended March 31, 2020
Balance, beginning of period$35.1 $21.5 
Adoption of ASC 326— 7.1 
Provision for bad debts2.0 5.5 
Write-offs(1.1)(1.6)
Balance, end of period$36.0 $32.5 

Prepaid expenses and other current assets

As of March 31, 2021 and December 31, 2020, the components of prepaid expenses and other current assets were as follows:
(in millions)March 31, 2021December 31, 2020
Prepaid expenses$40.6 $35.2 
Income tax receivables33.8 22.2 
Restricted cash and compensating balance deposits3.2 3.2 
Other current assets1.4 1.4 
$79.0 $62.0 

15

Diversey Holdings, Ltd.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Other non-current assets

As of March 31, 2021 and December 31, 2020, the components of other non-current assets were as follows:
(in millions)March 31, 2021December 31, 2020
Dosing and dispensing equipment$145.5 $153.0 
Tax indemnification asset24.8 24.8 
Lease receivables29.7 30.2 
Deferred financing fees - revolver3.1 0.9 
Restricted cash5.0 5.7 
Finance lease right-of-use assets, net4.4 4.9 
Operating lease right-of-use assets, net55.0 62.8 
Deferred taxes58.6 60.6 
Other non-current assets26.5 26.2 
$352.6 $369.1 

Depreciation expense for our dosing and dispensing equipment for the three months ended March 31, 2021 and March 31, 2020 was $17.4 million and $18.7 million, respectively.

Other Current and Non-current Liabilities

As of March 31, 2021 and December 31, 2020, the components of other current liabilities were as follows:
(in millions)March 31, 2021December 31, 2020
Accrued salaries, wages and related costs
$119.9 $131.9 
Accrued customer volume rebates
130.4 146.0 
Contingent consideration
3.4 3.3 
Value added, general and sales tax payable
30.5 36.0 
Accrued interest payable
4.1 24.6 
Income taxes payable
7.5 6.0 
Interest rate swaps
8.7 8.8 
Operating lease liabilities
18.9 22.9 
Accrued share-based compensation20.2 69.6 
Other accrued liabilities
63.8 63.3 
$407.4 $512.4 

16

Diversey Holdings, Ltd.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of March 31, 2021 and December 31, 2020, the components of other non-current liabilities were as follows:
(in millions)March 31, 2021December 31, 2020
Defined benefit pension plan liability$188.9 $203.1 
Other post-employment benefit plan liability2.2 2.2 
Uncertain tax positions44.4 43.7 
Contingent consideration5.0 4.9 
Asset retirement obligations6.5 6.6 
Interest rate swaps7.0 12.0 
Operating lease liabilities34.3 38.8 
Tax receivable agreement256.0  
Other non-current liabilities21.5 17.0 
$565.8 $328.3 

Other (Income) Expense, net

The following table provides details of our Other (Income) Expense, net:
(in millions)Three Months Ended March 31, 2021Three Months Ended March 31, 2020
Interest income$(0.9)$(2.2)
Unrealized foreign exchange (gain) loss 5.9 (8.3)
Realized foreign exchange (gain) loss(0.3)0.4 
Non-cash pension and other post-employment benefit plan(3.8)(3.1)
Factoring and securitization fees1.0 0.7 
Other, net(1.8)(0.8)
 $0.1 $(13.3)

NOTE 6 - PROPERTY AND EQUIPMENT, NET

As of March 31, 2021 and December 31, 2020 our property and equipment and accumulated depreciation balances were as follows:
(in millions)March 31, 2021December 31, 2020
Land and improvements$43.0 $44.0 
Buildings51.6 51.9 
Machinery and equipment85.5 81.9 
Other property and equipment47.7 47.9 
Construction-in-progress29.6 28.5 
Property and equipment, gross
257.4 254.2 
Less: Accumulated depreciation(70.9)(65.9)
Property and equipment, net
$186.5 $188.3 

Depreciation expense was $5.4 million and $5.1 million for the three months ended March 31, 2021 and March 31, 2020, respectively.

17

Diversey Holdings, Ltd.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 7 - GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS

Goodwill
The following table represents a roll forward of our goodwill balances by reportable segments:

(in millions)Food & BeverageInstitutionalTotal
Balance at December 31, 2020$129.1 $337.9 $467.0 
Acquisition   
Impairment   
Currency translation adjustment(2.1)(5.6)(7.7)
Balance at March 31, 2021$127.0 $332.3 $459.3 


Identifiable Intangible Assets

The following table summarizes the gross carrying amounts and accumulated amortization of identifiable intangible assets by major class with definite and indefinite lives at March 31, 2021, respectively:
(in millions)Gross Carrying ValueAccumulated AmortizationAccumulated ImpairmentNet Book Value
Customer relationships$918.5 $(151.0)$— $767.5 
Trademarks28.7 (5.9)— 22.8 
Capitalized software76.4 (60.9)— 15.5 
Brand name627.3 (111.8)— 515.5 
Non-compete agreements8.6 (8.5)— 0.1 
Favorable leases4.3 (2.5)— 1.8 
Intellectual property37.4 (3.9)— 33.5 
Total intangible assets with definite lives1,701.2 (344.5) 1,356.7 
Trademarks and trade names with indefinite lives879.3 — — 879.3 
Total identifiable intangible assets$2,580.5 $(344.5)$ $2,236.0 
18

Diversey Holdings, Ltd.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The following table summarizes the gross carrying amounts and accumulated amortization of identifiable intangible assets by major class with definite and indefinite lives at December 31, 2020, respectively:
(in millions)Gross Carrying ValueAccumulated AmortizationAccumulated ImpairmentNet Book Value
Customer relationships$939.2 $(142.4)$— $796.8 
Trademarks28.8 (5.3)— 23.5 
Capitalized software76.7 (58.5)— 18.2 
Brand name642.7 (106.5)— 536.2 
Non-compete agreements8.5 (8.4)— 0.1 
Favorable leases4.3 (2.3)— 2.0 
Intellectual property37.4 (3.2)— 34.2 
Total intangible assets with definite lives1,737.6 (326.6) 1,411.0 
Trademarks and trade names with indefinite lives900.4 — — 900.4 
Total identifiable intangible assets$2,638.0 $(326.6)$ $2,311.4 

Amortization expense for acquired intangibles was $24.3 million and $24.6 million for three months ended March 31, 2021 and March 31, 2020, respectively.


NOTE 8 - DEBT AND CREDIT FACILITIES

As of March 31, 2021 and December 31, 2020, the components of debt and credit facilities were as follows:
(in millions)March 31, 2021December 31, 2020
Senior Secured Credit Facilities
US Dollar Term Loan
$870.8 $873.0 
US Dollar Incremental Loan
 149.6 
Euro Term Loan
607.9 1,146.9 
Revolving Credit Facility
  
Senior Notes530.7 548.5 
Short-term borrowings0.4 0.4 
Finance lease obligations4.5 5.2 
Financing obligations22.5 22.5 
Unamortized deferred financing costs(28.6)(39.6)
Unamortized original issue discount(2.0)(6.2)
Total debt
2,006.2 2,700.3 
Less: Current portion of long-term debt(14.5)(13.2)
   Short-term borrowings
(0.4)(0.4)
Long-term debt
$1,991.3 $2,686.7 

Senior Secured Credit Facilities

On September 6, 2017, the Company entered into the Senior Secured Credit Facilities comprised of a $900.0 million senior secured US dollar denominated term loan (the “USD Term Loan”), a €970.0 million senior secured Euro denominated term loan (the “Euro Term Loan” and together with the USD Term Loan, the "Term Loan Facility")
19

Diversey Holdings, Ltd.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
and a $250.0 million revolving credit facility, which was increased to $450.0 million on March 29, 2021 pursuant to an amendment (the “Revolving Credit Facility,” together with the "USD Term Loan" and the "Euro Term Loan," the "Senior Secured Credit Facilities"). Both the US Dollar Term Loan and the Euro Term Loan mature on September 6, 2024, while the Revolving Credit Facility matures on March 28, 2026, subject to certain exceptions. On March 29, 2021, the Company used proceeds from the IPO to partially repay the Euro Term Loan in the amount of $498.9 million.

The interest rate associated with the US Dollar Term Loan is 3.00% plus a 3-month LIBOR rate. At March 31, 2021, the interest rate for the US Dollar Term Loan is 3.11%. The interest rate associated with the Euro Term Loan is a EURIBOR rate plus 3.25%, and the EURIBOR rate has a floor of 0%. At March 31, 2021, the interest rate for this term loan is 3.25%.

Deferred financing costs of $51.2 million related to the issuance of the US Dollar Term Loan and the Euro Term Loan are recorded as a reduction of the principal amount of the borrowings and are amortized using the effective interest method as a component of interest expense over the life of the term loans. Unamortized deferred financing costs were $19.6 million and $28.4 million as of March 31, 2021 and December 31, 2020, respectively. In connection with the partial repayment of the Euro Term Loan discussed above, an additional $6.4 million of deferred financing costs were charged to interest expense during the three months ended March 31, 2021.

Original issue discount of $5.1 million related to the Senior Secured Credit Facilities is recorded as a reduction of the principal amount of the borrowings and is amortized using the effective interest method as a component of interest expense over the life of the Senior Secured Credit Facilities. The unamortized original issue discount balance for the Senior Secured Credit Facilities is $2.0 million and $2.9 million as of March 31, 2021 and December 31, 2020, respectively. In connection with the partial repayment of the Euro Term Loan discussed above, an additional $0.7 million of original issue discount was charged to interest expense during the three months ended March 31, 2021.

Costs of $8.9 million related to entering into and subsequently increasing the Revolving Credit Facility are recorded as “Deferred financing costs” within Other current assets and Other non-current assets on the Condensed Consolidated Balance Sheets, and are being amortized on a straight-line basis over the term of the Revolving Credit Facility. Unamortized deferred financing costs related to the Revolving Credit Facility were $4.4 million and $2.2 million as of March 31, 2021 and December 31, 2020, respectively.

As of March 31, 2021, the Company had $9.5 million of letters of credit outstanding which reduced the available borrowing capacity under the Revolving Credit Facility to approximately $440.5 million.

As of December 31, 2020, the Company had $9.9 million of outstanding letters of credit which reduced the available borrowing capacity under the Revolving Credit Facility to approximately $240.1 million.

The Senior Secured Credit Facilities contain normal and customary affirmative and negative covenants. Some of the more restrictive covenants are (a) limitations on our ability to pay dividends, (b) limitations on asset sales, and (c) limitations on our ability to incur additional indebtedness. The Senior Secured Credit Facilities also contain various events of default, the occurrence of which could result in the acceleration of all obligations. As of March 31, 2021 we were in full compliance with the provisions contained within the covenants.

US Dollar Incremental Loan

On June 23, 2020, the Company entered into an agreement in which the Company borrowed an additional $150.0 million in connection with the Senior Secured Credit Facilities ("US Dollar Incremental Loan"). The US Dollar Incremental Loan was considered a new loan commitment under the Senior Secured Credit Facilities. The net proceeds after the deferred financing costs and original issue discount (as defined below), were $144.5 million. On March 29, 2021, the Company used proceeds from the IPO to repay the US Dollar Incremental Loan in full, and this facility is closed and no longer available for borrowings.

20

Diversey Holdings, Ltd.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Deferred financing costs of $1.7 million related to the issuance of the US Dollar Incremental Loan were recorded as a reduction of the principal amount of the borrowings and were amortized using the effective interest method as a component of interest expense over the life of the term loan. Unamortized deferred financing fees were $1.5 million as of December 31, 2020, which were charged to interest expense during the three months ended March 31, 2021 as the US Dollar Incremental Loan was repaid.

Original issue discount of $3.8 million related to the US Dollar Incremental Loan was recorded as a reduction of the principal amount of the borrowings and was amortized using the effective interest method as a component of interest expense over the life of the loan. The original issue discount balance for the US Dollar Incremental Loan was $3.3 million as of December 31, 2020, which was charged to interest expense during the three months ended March 31, 2021 as the US Dollar Incremental Loan was repaid.

Senior Notes

On August 8, 2017, the Company issued €450 million of notes and related guarantees thereof and the proceeds were placed into escrow pending the consummation of the Diversey Acquisition (the "Senior Notes"). On September 6, 2017, the proceeds of the Senior Notes were released from escrow and, together with equity contributions and the proceeds from borrowings under the Term Loan Facility, were used to fund the Diversey Acquisition. The Senior Notes were sold at par and are due August 15, 2025. The Senior Notes bear interest at 5.625% and interest is payable semi-annually on February 15 and August 15 of each year.

Deferred financing costs related to the issuance of the Senior Notes of $14.5 million are recorded as a reduction of the principal amount of the borrowings and are amortized using the effective interest method as a component of interest expense over the life of the Notes. Unamortized deferred financing costs were $9.0 million and $9.7 million as of March 31, 2021 and December 31, 2020, respectively.

On or after August 15, 2020, the Company has the option to redeem all or part of the Senior Notes at the following redemption prices (expressed as percentages of principal amount) plus accrued and unpaid interest, if redeemed during the twelve-month period beginning on August 15 of the each of the years indicated below:
YearPercentage
2020102.8%
2021101.4%
2022 and thereafter100.0%


Upon the occurrence of certain events constituting a change of control, holders of the Senior Notes have the right to require the Company to repurchase all or any part of the Senior Notes at a purchase price equal to 101% of the principal amount plus accrued and unpaid interest, if any, to the repurchase date.

The indebtedness evidenced by the Senior Notes is senior unsecured indebtedness of the Company, is senior in right of payment to all future subordinated indebtedness of the Company and is equal in right of payment to all existing and future senior indebtedness of the Company. The Senior Notes are effectively subordinated to any secured indebtedness of the Company (including indebtedness of the Company outstanding under the Senior Secured Credit Facilities) to the extent of the value of the assets securing such indebtedness. The Senior Notes are unconditionally guaranteed on a senior basis by certain of the Company’s subsidiaries.

The indenture governing the Notes contains covenants that restrict the ability of the Issuer and its subsidiaries to, among other things, incur additional debt, make certain payments including payment of dividends or repurchase equity interest of the Issuer, make loans or acquisitions or capital contributions and certain investments, incur certain liens, sell assets, merge or consolidate or liquidate other entities, and enter into transactions with affiliates.

Short-term Borrowings

21

Diversey Holdings, Ltd.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Our short-term borrowings comprise primarily of bank overdrafts to temporarily fund our working capital needs.

Sale-Leaseback Transactions

During March 2020, the Company completed sale-leaseback transactions under which it sold two properties to an unrelated third-party for a total of $22.9 million. Concurrent with this sale, the Company entered into agreements to lease the properties back from the purchaser over initial lease terms of 15 years. The leases for the two properties include an initial term of 15 years and fourfive-year renewal options and provides for the Company to evaluate each property individually upon certain events during the life of the lease, including individual renewal options.
The Company classified the leases as a financing obligation to be paid over 15 years. The current and non-current portions are included in current portion of long-term debt and long-term debt, less current portion, respectively, on the Condensed Consolidated Balance Sheets.

NOTE 9 - PREFERRED EQUITY CERTIFICATES

Constellation (BC) 2 S.à r.l. was financed in part by preferred equity certificates ("PECs"), which are commonly used in private equity transactions in Luxembourg for tax planning purposes. PECs are a part of the capital structure, although classified as a debt instrument, because they have an unconditional obligation to be redeemed in cash.
The PECs are summarized in the following table:
(in millions)Maturity dateInterest RateCarrying Value December 31, 2020RedemptionForeign Currency TranslationCarrying Value March 31, 2021Interest Expense
Series 1 PECs9/1/2047See below$641.7 $(620.9)$(20.8)$ $ 

The Series 1 PECs are legal obligations to security holders, having a par value (and face amount) of EUR 1.00 each. The Series 1 PECs are yield-free and have a term of 30 years from the date of issuance, but can be redeemed earlier at the election of the Company. Mandatory retirement or optional redemption of the Series 1 PECs are at a price equal to par value.

On March 25, 2021, the Series 1 PECs were exchanged for ordinary shares of the Company as part of the Reorganization Transactions discussed in Note 1.

NOTE 10 - DERIVATIVES AND HEDGING ACTIVITIES

As a large global organization, we face exposure to market risks, such as fluctuations in foreign currency exchange rates and interest rates. To manage the volatility relating to these exposures, we enter into various derivative instruments from time to time under our risk management policies. We designate derivative instruments as hedges on a transactional basis to support hedge accounting. The changes in fair value of these hedging instruments offset in part or in whole corresponding changes in the fair value or cash flows of the underlying exposures being hedged. We assess the initial and ongoing effectiveness of our hedging relationships in accordance with our policy. We do not purchase, hold or sell derivative financial instruments for trading purposes. Our practice is to terminate derivative transactions if the underlying asset or liability matures or is sold or terminated, or if we determine the underlying forecasted transaction is no longer probable of occurring.
Foreign Currency Forward Contracts Designated as Cash Flow Hedges
The primary purpose of our cash flow hedging activities is to manage the potential changes in value associated with the amounts receivable or payable on equipment and raw material purchases that are denominated in foreign currencies in order to minimize the impact of changes in foreign currencies. We record gains and losses on foreign currency forward contracts qualifying as cash flow hedges in other comprehensive income (loss) to the extent the
22

Diversey Holdings, Ltd.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
hedges are effective and until we recognize the underlying transactions in net income (loss), at which time we recognize these gains and losses in Other (income) expense, net on our Condensed Consolidated Statements of Operations. Cash flows from derivative financial instruments are classified as cash flows from investing activities in the Condensed Consolidated Statements of Cash Flows. These contracts generally have original maturities of less than 12 months. As of March 31, 2021 and December 31, 2020, there were no foreign currency forward contracts designated as cash flow hedges.

Interest Rate Swap Contracts Designated as Cash Flow Hedges
During August 2019, the Company entered into a series of interest rate swaps with a notional amount of $720 million. The primary purpose of our cash flow hedging activities is to manage the potential adverse fluctuations in interest rates by reducing our exposure to variability in cash flows on a portion of the Company’s floating-rate debt. We record gains and losses on the interest rate swap contracts that qualify as cash flow hedges in other comprehensive income (loss), net of tax to the extent the hedges are effective and until we recognize the underlying transactions in net income (loss), at which time we recognize these gains and losses in Other expense (income), net on our Condensed Consolidated Statements of Operations. Cash flows from derivative financial instruments are classified as cash flows from investing activities in the Condensed Consolidated Statements of Cash Flows. These contracts have original maturities of 60 months, and the notional amount is reduced to $315 million at month 48. The short and long term fair value of our interest rate swap contracts are liabilities of $15.7 million and $20.8 million as of March 31, 2021 and December 31, 2020, respectively, and are included as a part of our other current liabilities and other non-current liabilities in our Condensed Consolidated Balance Sheets.
Net unrealized after-tax loss related to these contracts that were included in other comprehensive income were $11.8 million and $16.4 million for the three months ended March 31, 2021 and March 31, 2020, respectively. The unrealized amounts in other comprehensive income will fluctuate based on changes in the fair value of open contracts during each reporting period.
We estimate that $6.5 million of net unrealized after-tax derivative loss included in accumulated other comprehensive income ("AOCI") will be reclassified into Other (income) expense, net, on the Condensed Consolidated Statement of Operations within the next twelve months.

Fair Value of Derivative Instruments

See Note 11 for a discussion of the inputs and valuation techniques used to determine the fair value of our outstanding derivative instruments. The following table details the fair value of our derivative instruments included in the Condensed Consolidated Balance Sheets:
(in millions)March 31, 2021December 31, 2020
Derivative liabilities
Interest rate swaps$(15.7)$(20.8)
Total derivative liabilities$(15.7)$(20.8)


The following table details the effect of our derivative instruments on our Condensed Consolidated Statements of Operations:
23

Diversey Holdings, Ltd.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in millions)Three Months Ended March 31, 2021Three Months Ended March 31, 2020
Derivatives designated as hedging instruments:
Cash flow hedges:
Foreign currency forward contracts (1)
$ $0.4 
Interest rate swaps (1)
2.2 0.6 
     Total$2.2 $1.0 
(1)Amounts recognized on the foreign currency forward contracts and interest rate swaps were included in Other (income) expense during the three months ended March 31, 2021 and March 31, 2020.

NOTE 11 - FAIR VALUE MEASUREMENTS AND OTHER FINANCIAL INSTRUMENTS
Fair Value Measurements
In determining the fair value of financial instruments, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and consider counterparty credit risk in our assessment of fair value. We determine the fair value of our financial instruments based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.
Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

The following table details the fair value hierarchy of our financial assets and liabilities, which are measured at fair value on a recurring basis:
March 31, 2021
(in millions)Total Fair ValueLevel 1Level 2Level 3
Cash equivalents$50.2 $50.2 $ $ 
Restricted cash and compensating balance deposits$8.2 $8.2 $ $ 
Interest rate swaps, net liability$(15.7)$ $(15.7)$ 
Contingent consideration$(8.4)$ $ $(