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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 September 30, 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

https://cdn.kscope.io/5d8653401accedac96522404cddff526-dsey-20210930_g1.jpg
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
29708
Fort Mill, South Carolina
(Address of registrant's principal executive offices)(Zip Code)
(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 October 31, 2021, there were 302,431,140 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)September 30, 2021December 31, 2020
Assets
   Current assets:
Cash and cash equivalents$68.8 $192.9 
Trade receivables, net of allowance for doubtful accounts of $25.4 and $28.7
403.9 342.0 
Other receivables51.8 71.0 
Inventories327.5 282.4 
Prepaid expenses and other current assets63.6 62.0 
     Total current assets915.6 950.3 
     Property and equipment, net187.9 188.3 
     Goodwill459.5 467.0 
     Intangible assets, net2,193.8 2,311.4 
     Other non-current assets338.9 369.1 
     Total assets$4,095.7 $4,286.1 
Liabilities and stockholders' equity
   Current liabilities:
Short-term borrowings$16.5 $0.4 
Current portion of long-term debt11.4 13.2 
Accounts payable396.8 404.6 
Accrued restructuring costs15.9 26.3 
Other current liabilities392.1 512.4 
     Total current liabilities832.7 956.9 
     Long-term debt, less current portion1,966.4 2,686.7 
     Preferred equity certificates
 641.7 
     Deferred taxes164.1 181.1 
     Other non-current liabilities563.6 328.3 
     Total liabilities3,526.8 4,794.7 
     Commitments and contingencies
   Stockholders' equity:
Common stock, $0.01 par value per share, 0 and 243,163,947 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, 302,431,140 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 capital1,433.7 247.2 
Accumulated deficit(684.4)(545.3)
Accumulated other comprehensive loss(180.4)(212.7)
    Total stockholders' equity568.9 (508.6)
Total liabilities and stockholders' equity$4,095.7 $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)
Three Months Ended September 30,Nine Months Ended September 30,
(in millions except per share amounts)2021202020212020
Net sales$664.9 $681.1 $1,946.5 $1,961.8 
Cost of sales403.9 410.9 1,173.5 1,150.0 
   Gross profit261.0 270.2 773.0 811.8 
Selling, general and administrative expenses193.2 189.0 642.5 582.9 
Transition and transformation costs7.5 11.2 33.1 20.0 
Management fee 1.8 19.4 5.6 
Amortization of intangible assets24.2 24.8 72.6 74.0 
Restructuring and exit costs19.8 2.0 22.4 5.3 
Merger and acquisition related costs 0.9  0.9 
Operating income (loss)16.3 40.5 (17.0)123.1 
Interest expense25.8 32.4 97.4 94.8 
Foreign currency (gain) loss related to Argentina subsidiaries(2.9)(0.3)(2.7)0.3 
Loss on extinguishment of debt15.6  15.6  
Other (income) expense, net0.7 (11.7)4.8 (29.2)
Income (loss) before income tax provision(22.9)20.1 (132.1)57.2 
Income tax provision19.2 7.1 7.0 23.9 
Net income (loss)$(42.1)$13.0 $(139.1)$33.3 
Basic income (loss) per share$(0.14)$0.05 $(0.49)$0.14 
Diluted income (loss) per share$(0.14)$0.05 $(0.49)$0.14 
Basic weighted average shares outstanding301.6243.2283.4243.2
Diluted weighted average shares outstanding301.6243.2283.4243.2

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


Diversey Holdings, Ltd.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
(in millions)2021202020212020
Net income (loss)$(42.1)$13.0 $(139.1)$33.3 
Other comprehensive income (loss):
Pension plans and post-employment benefits (0.8) (1.2)
Cash flow hedging activities, net of taxes of $(0.1) and $(0.8) for the three months ended September 30, 2021 and 2020, respectively, and $(1.0) and $6.2 for the nine months ended September 30, 2021 and 2020, respectively
(4.1)1.5 1.0 (21.8)
Foreign currency translation adjustments(23.0)(29.5)31.3 (99.7)
Other comprehensive income (loss)(27.1)(28.8)32.3 (122.7)
Comprehensive income (loss)$(69.2)$(15.8)$(106.8)$(89.4)

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


Diversey Holdings, Ltd.
Condensed Consolidated Statements of Stockholders' Equity
Three and Nine Months Ended September 30, 2021
(Unaudited)
(in millions)Common StockOrdinary SharesAdditional Paid-in CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal
Balance as of June 30, 2021$ $ $1,419.8 $(642.3)$(153.3)$624.2 
Share-based compensation— — 13.9 — — 13.9 
Cash flow hedging activities, net of tax
— — — — (4.1)(4.1)
Foreign currency translation adjustments— — — — (23.0)(23.0)
Net loss— — — (42.1)— (42.1)
Balance as of September 30, 2021$ $ $1,433.7 $(684.4)$(180.4)$568.9 
Balance as of December 31, 2020$2.2 $ $247.2 $(545.3)$(212.7)$(508.6)
Effect of reorganization transactions(2.2)— (39.6)— — (41.8)
Issuance of ordinary shares sold in IPO, net of offering costs— — 725.7 — — 725.7 
Exchange of preferred equity certificates for ordinary shares— — 620.9 — — 620.9 
Conversion of share-based awards— — 68.1 — — 68.1 
Share-based compensation— — 67.1 — — 67.1 
Tax receivable agreement— — (255.7)— — (255.7)
Cash flow hedging activities, net of tax
— — — — 1.0 1.0 
Foreign currency translation adjustments— — — — 31.3 31.3 
Net loss— — — (139.1)— (139.1)
Balance as of September 30, 2021$ $ $1,433.7 $(684.4)$(180.4)$568.9 

The accompanying notes are an integral part of the condensed consolidated financial statements.
4


Diversey Holdings, Ltd.
Condensed Consolidated Statements of Stockholders' Equity
Three and Nine Months Ended September 30, 2020
(Unaudited)

(in millions)Common StockOrdinary SharesAdditional Paid-in CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal
Balance as of June 30, 2020$2.2 $ $242.2 $(486.5)$(158.4)$(400.5)
Equity contributions— — 5.0 — — 5.0 
Pension and post-employment benefits— — — — (0.8)(0.8)
Cash flow hedging activities, net of tax— — — — 1.5 1.5 
Foreign currency translation adjustments— — — — (29.5)(29.5)
Net income— — — 13.0 — 13.0 
Balance as of September 30, 2020$2.2 $ $247.2 $(473.5)$(187.2)$(411.3)
Balance as of December 31, 2019$2.2 $ $242.2 $(501.1)$(64.5)$(321.2)
Equity contributions— — 5.0 — — 5.0 
Pension and post-employment benefits— — — — (1.2)(1.2)
Cash flow hedging activities, net of tax— — — — (21.8)(21.8)
Foreign currency translation adjustments— — — — (99.7)(99.7)
Adoption of new accounting standard Topic ASC 326— — — (5.7)— (5.7)
Net income— — — 33.3 — 33.3 
Balance as of September 30, 2020$2.2 $ $247.2 $(473.5)$(187.2)$(411.3)

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

5


Diversey Holdings, Ltd.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30,
(in millions)20212020
Operating activities:
Net income (loss)$(139.1)$33.3 
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:
   Depreciation and amortization141.6 144.8 
Amortization of deferred financing costs and original issue discount21.6 8.2 
Loss on extinguishment of debt15.6  
   Gain (loss) on cash flow hedges2.3 (2.2)
   Deferred taxes(15.6)0.3 
   Unrealized foreign currency exchange (gain) loss5.2 (17.6)
   Share-based compensation67.1 1.1 
   Impact of highly inflationary economy - Argentina(2.7)0.3 
   Provision for (recovery of ) bad debts(1.9)15.0 
   Provision for slow moving inventory4.1 5.6 
   Non-cash pension benefit(12.0)(9.7)
Non-cash restructuring and exit costs16.9  
   Changes in operating assets and liabilities:
      Trade receivables, net(96.8)(13.7)
      Inventories, net(52.8)(82.9)
      Accounts payable1.9 (39.8)
      Income taxes, net(5.8)(7.3)
      Other assets and liabilities, net(60.5)14.6 
Cash provided by (used in) operating activities(110.9)50.0 
Investing activities:
Business acquired in purchase transaction(9.4)(31.8)
Acquisition of intellectual property(3.0) 
Dosing and dispensing equipment(47.8)(32.5)
Capital expenditures(22.2)(24.4)
Collection of deferred factored receivables40.1 54.5 
Cash used in investing activities(42.3)(34.2)
Financing activities:
Contingent consideration payments(0.3)(0.2)
Proceeds from (payments on) short-term borrowings16.7 (0.7)
Proceeds from revolving credit facility109.0 90.0 
Payments on revolving credit facility(109.0)(210.0)
Proceeds from long-term borrowings2,000.0 167.4 
Payments on long-term borrowings(2,667.8)(16.7)
Payment of deferred financing costs and original issue discount(35.1) 
Payment of bond redemption premium(7.6) 
Issuance of ordinary shares sold in IPO, net of offering costs725.7  
Equity contributions 5.0 
Cash provided by financing activities31.6 34.8 
Exchange rate changes on cash, cash equivalents and restricted cash(4.0)(2.3)
Increase (decrease) in cash, cash equivalents and restricted cash(125.6)48.3 
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)
$76.1 $190.6 
Supplemental Cash Flow Information:
Interest payments$99.3 $94.6 
Income tax payments$27.0 $28.2 
Conversion of preferred equity certificates to equity$620.9 $ 
Beneficial interest obtained in exchange for factored receivables$25.6 $50.9 

6



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 $7.3 million and $14.6 million as of September 30, 2021 and September 30, 2020, respectively.

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

7

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 ordinary 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 organizational 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”), which acquisition closed on September 6, 2017.

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.

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
8

Diversey Holdings, Ltd.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
of our wholly-owned subsidiaries, including Constellation, Poolco and Topco, prior to December 31, 2021. 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 8,600 employees as of September 30, 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.

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
9

Diversey Holdings, Ltd.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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. The Company continues to evaluate 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.

10

Diversey Holdings, Ltd.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 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 26.4% and 26.9% of gross sales for the three months ended September 30, 2021 and September 30, 2020, respectively, and 24.9% and 26.5% of gross sales for the nine months ended September 30, 2021 and September 30, 2020, respectively.

11

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

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

Revenues from contracts with customers summarized by region were as follows:
Three Months Ended September 30,Nine Months Ended September 30,
(in millions)2021202020212020
Europe$313.0 $291.6 $838.9 $837.5 
North America158.0 221.3 549.8 577.3 
Asia Pacific81.2 73.3 239.4 238.2 
Middle East and Africa63.0 52.5 170.9 164.9 
Latin America45.5 37.1 133.6 124.6 
Revenue from contracts with customers660.7 675.8 1,932.6 1,942.5 
Other revenue (Leasing: Sales-type and Operating)4.2 5.3 13.9 19.3 
Total revenue$664.9 $681.1 $1,946.5 $1,961.8 

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 September 30, 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.

12

Diversey Holdings, Ltd.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - ACQUISITIONS

Tasman Chemicals Acquisition

On September 20, 2021 the Company acquired certain assets of Tasman Chemicals Pty. Limited ("Tasman"), an Australian manufacturer of professional hygiene and cleaning solutions, and the results of operations for this business are reported within both the Institutional and Food & Beverage business segment.

The Company paid total consideration of $8.1 million for the asset acquired. 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. The preliminary determination of goodwill in the amount of $8.1 million was recognized for the Tasman 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. 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 Tasman business contributions to revenue and net income were not material for both the three and nine months ended September 30, 2021.

In connection with the Tasman acquisition, the Company did not incur any merger and acquisition-related costs for the three or nine months ended September 30, 2021.

The inclusion of the Tasman 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 September 30, 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, customer lists and other liabilities.

SaneChem Acquisition

On December 30, 2020, the Company acquired 100% of the stock of SaneChem sp. z o o, ("SaneChem"), which is a Poland-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.

The Company acquired SaneChem for a total consideration of $21.6 million. 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 as of the acquisition date.

The acquired SaneChem business contributed $3.0 million and $9.4 million of revenue for the three and nine months ended September 30, 2021, respectively. The net income contribution was not material for the three or nine months ended September 30, 2021.

The fair value of SaneChem'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 $8.6 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
13

Diversey Holdings, Ltd.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 final fair values of the net assets acquired as of the December 30, 2020 acquisition date:

(in millions)SaneChem
Cash and cash equivalents$2.1 
Trade receivables2.0 
Inventories1.4 
Prepaid expenses and other current assets0.1 
Property, plant and equipment0.7 
Other non-current assets0.1 
Intangible assets10.1 
Accounts payable(0.9)
Other current liabilities(0.8)
Deferred taxes(1.8)
Net assets acquired before goodwill on acquisition13.0 
Goodwill on acquisition8.6 
Net assets acquired$21.6 

In connection with the SaneChem acquisition, the Company did not incur any merger and acquisition-related costs for the three or nine months ended September 30, 2021.

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.

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. 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.

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.

14

Diversey Holdings, Ltd.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table summarizes the final fair values of the net assets acquired as of the July 1, 2020 acquisition date:

(in millions)Wypetech
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 or nine months ended September 30, 2021 or the three or nine months ended September 30, 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.

NOTE 5 - FINANCIAL STATEMENT DETAILS

Inventories

Our net inventory balances were:
(in millions)September 30, 2021December 31, 2020
Raw materials$66.4 $60.8 
Work in process2.6 3.7 
Finished goods258.5 217.9 
 $327.5 $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 in the Master Agreement, 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 ($175.4 million) at September 30, 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 for which we do not immediately collect cash. Cash receipts from the beneficial interests on sold receivables (which
15

Diversey Holdings, Ltd.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
are cash receipts on the underlying trade receivables that have already been sold under these agreements) are classified as investing activities and presented as collection of deferred factored 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 September 30, 2021. We are also required to service the receivables sold without fee.

The Company sold $483.1 million and $471.5 million of receivables to Factofrance and received cash from Factofrance of $475.4 million and $433.2 million during the nine months ended September 30, 2021 and September 30, 2020, respectively. The difference of $7.7 million and $38.3 million is the activity for the nine months ended September 30, 2021 and September 30, 2020, respectively, net of fees and reserves. We collected from our customers and remitted to Factofrance $486.6 million and $426.8 million during the nine months ended September 30, 2021 and September 30, 2020, respectively.

The funded status, which is defined as the balance of outstanding receivables purchased, less holdbacks and reserves, was $45.8 million and $40.8 million as of September 30, 2021 and December 31, 2020, 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 $45.9 million as of September 30, 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 $1.2 million for the nine months ended September 30, 2021. We are also required to service the receivables sold without fee.

We transferred and derecognized $415.1 million of receivables and collected $420.3 million in connection with our arrangement with PNC during the nine months ended September 30, 2021.

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 continues to monitor 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:

Nine Months Ended September 30,
(in millions)20212020
Balance, beginning of period$35.2 $21.5 
Adoption of ASC 326— 7.1 
Provision for (recovery of) bad debts(1.9)15.0 
Provision for lease receivables associated with exit activities16.5  
Write-offs(2.7)(3.2)
Balance, end of period$47.1 $40.4 





16

Diversey Holdings, Ltd.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Prepaid expenses and other current assets

The components of prepaid expenses and other current assets were as follows:
(in millions)September 30, 2021December 31, 2020
Prepaid expenses$32.0 $35.2 
Income tax receivables27.8 22.2 
Restricted cash and compensating balance deposits2.3 3.2 
Other current assets1.5 1.4 
$63.6 $62.0 
Other non-current assets

The components of other non-current assets were as follows:
(in millions)September 30, 2021December 31, 2020
Dosing and dispensing equipment$145.2 $153.0 
Tax indemnification asset23.3 24.8 
Lease receivables, net19.6 30.2 
Deferred financing fees - revolver2.7 0.9 
Restricted cash5.0 5.7 
Finance lease right-of-use assets, net3.8 4.9 
Operating lease right-of-use assets, net53.6 62.8 
Deferred taxes58.2 60.6 
Derivatives6.6  
Other non-current assets20.9 26.2 
$338.9 $369.1 

Depreciation expense for our dosing and dispensing equipment was $17.3 million and $18.2 million for the three months ended September 30, 2021 and September 30, 2020, respectively. Depreciation expense for our dosing and dispensing equipment was $52.1 million and $55.0 million for the nine months ended September 30, 2021 and September 30, 2020, respectively.

Other Current and Non-current Liabilities

The components of other current liabilities were as follows:
(in millions)September 30, 2021December 31, 2020
Accrued salaries, wages and related costs$98.5 $131.9 
Accrued customer volume rebates132.4 146.0 
Contingent consideration7.0 3.3 
Value added, general and sales tax payable34.1 36.0 
Accrued interest payable0.5 24.6 
Income taxes payable8.5 6.0 
Derivatives9.6 8.8 
Operating lease liabilities20.0 22.9 
Accrued share-based compensation6.3 69.6 
Other accrued liabilities75.2 63.3 
$392.1 $512.4 
17

Diversey Holdings, Ltd.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The components of other non-current liabilities were as follows:
(in millions)September 30, 2021December 31, 2020
Defined benefit pension plan liability$178.2 $203.1 
Other post-employment benefit plan liability2.2 2.2 
Uncertain tax positions43.1 43.7 
Contingent consideration0.2 4.9 
Asset retirement obligations6.5 6.6 
Derivatives17.3 12.0 
Operating lease liabilities32.0 38.8 
Tax receivable agreement258.0  
Other non-current liabilities26.1 17.0 
$563.6 $328.3 

Other (Income) Expense, net

The following table provides details of our Other (Income) Expense, net:
Three Months Ended September 30,Nine Months Ended September 30,
(in millions)2021202020212020
Interest income$(0.8)$(1.2)$(2.9)$(4.6)
Unrealized foreign exchange (gain) loss (2.4)(8.8)5.2 (17.6)
Realized foreign exchange (gain) loss5.5 (0.9)6.1 (1.7)
Non-cash pension and other post-employment benefit plan(4.3)(3.5)(12.0)(9.7)
Release of tax indemnification asset0.1 0.1 1.4 1.4 
Factoring and securitization fees1.4 1.3 3.6 3.2 
Tax receivable agreement adjustments  4.1  
Other, net1.2 1.3 (0.7)(0.2)
 $0.7 $(11.7)$4.8 $(29.2)

NOTE 6 - PROPERTY AND EQUIPMENT, NET

Our property and equipment and accumulated depreciation balances were as follows:
(in millions)September 30, 2021December 31, 2020
Land and improvements$43.2 $44.0 
Buildings52.2 51.9 
Machinery and equipment91.9 81.9 
Other property and equipment51.3 47.9 
Construction-in-progress31.7 28.5 
Property and equipment, gross270.3 254.2 
Less: Accumulated depreciation(82.4)(65.9)
Property and equipment, net$187.9 $