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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, 2022
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/9d1ca6cdd04df4fdd8d3c70a93c5a7ae-dsey-20220930_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 12529708
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, 2022, there were 324,315,963 shares of the registrant's ordinary shares outstanding.





DIVERSEY HOLDINGS, LTD.
FORM 10-Q
For the Nine Months Ended September 30, 2022

TABLE OF CONTENTS


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, 2022December 31, 2021
Assets
   Current assets:
Cash and cash equivalents$249.1 $207.6 
Trade receivables, net of allowance for doubtful accounts of $22.0 and $23.5
416.4 414.3 
Other receivables68.2 59.3 
Inventories368.7 337.6 
Prepaid expenses and other current assets 121.7 69.4 
     Total current assets1,224.1 1,088.2 
     Property and equipment, net 226.6 210.7 
     Goodwill 441.4 471.5 
     Intangible assets, net1,869.7 2,147.3 
     Other non-current assets 381.2 382.3 
     Total assets$4,143.0 $4,300.0 
Liabilities and stockholders' equity
   Current liabilities:
Short-term borrowings$6.6 $10.7 
Current portion of long-term debt 11.5 10.9 
Accounts payable479.2 434.3 
Accrued restructuring costs 14.0 16.7 
Other current liabilities393.9 384.5 
     Total current liabilities905.2 857.1 
     Long-term debt, less current portion 1,969.9 1,973.0 
     Deferred taxes 151.0 164.3 
     Other non-current liabilities 450.8 520.0 
     Total liabilities3,476.9 3,514.4 
     Commitments and contingencies
   Stockholders' equity:
Ordinary shares, $0.01 par value per share, 1,000,000,000 shares authorized, 324,315,963 and 324,369,517 shares outstanding in 2022 and 2021
  
Preferred shares, $0.0001 par value per share, 200,000,000 shares authorized, 0 shares outstanding in 2022 and 2021
  
Additional paid-in capital1,708.1 1,662.7 
Accumulated deficit(829.9)(720.1)
Accumulated other comprehensive loss(212.1)(157.0)
    Total stockholders' equity666.1 785.6 
Total liabilities and stockholders' equity$4,143.0 $4,300.0 

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)2022202120222021
Net sales$689.0 $664.9 $2,064.3 $1,946.5 
Cost of sales447.3 405.2 1,349.5 1,174.8 
   Gross profit241.7 259.7 714.8 771.7 
Selling, general and administrative expenses191.3 193.2 614.7 642.5 
Transaction and integration costs12.5 4.4 26.1 24.6 
Management fee    19.4 
Amortization of intangible assets21.5 24.2 68.5 72.6 
Restructuring and exit costs 39.4 21.6 67.6 29.6 
Operating income (loss)(23.0)16.3 (62.1)(17.0)
Interest expense25.7 25.8 83.0 97.4 
Foreign currency gain related to hyperinflationary subsidiaries(2.0)(2.9)(3.6)(2.7)
Loss on extinguishment of debt 15.6  15.6 
Other (income) expense, net (11.3)0.7 (35.2)4.8 
Loss before income tax provision(35.4)(22.9)(106.3)(132.1)
Income tax provision1.1 19.2 3.5 7.0 
Net loss$(36.5)$(42.1)$(109.8)$(139.1)
Basic and diluted loss per share$(0.11)$(0.14)$(0.34)$(0.49)
Basic and diluted weighted average shares outstanding
320.2301.6319.9283.4

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 September 30,Nine Months Ended September 30,
2022202120222021
Net loss$(36.5)$(42.1)$(109.8)$(139.1)
Other comprehensive income (loss):
Pension plans and post-employment benefits, net of taxes(0.2) (1.0) 
Hedging activities, net of taxes of $(6.8), $0.0, $(18.0) and $(1.0)
21.7 (4.1)53.9 1.0 
Foreign currency translation adjustments(62.7)(23.0)(108.0)31.3 
Other comprehensive income (loss)(41.2)(27.1)(55.1)32.3 
Comprehensive loss$(77.7)$(69.2)$(164.9)$(106.8)

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, 2022
(Unaudited)
(in millions)Common StockOrdinary SharesAdditional Paid-in CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal
Balance as of June 30, 2022$ $— $1,694.6 $(793.4)$(170.9)$730.3 
Share-based compensation— — 13.5 — — 13.5 
Pension and post-employment benefits— — — — (0.2)(0.2)
Cash flow hedging activities, net of tax— — — — 21.7 21.7 
Foreign currency translation adjustments— — — — (62.7)(62.7)
Net loss— — — (36.5)— (36.5)
Balance as of September 30, 2022
$ $— $1,708.1 $(829.9)$(212.1)$666.1 
Balance as of December 31, 2021$ $— $1,662.7 $(720.1)$(157.0)$785.6 
Share-based compensation— — 45.4 — — 45.4 
Pension and post-employment benefits— — — — (1.0)(1.0)
Cash flow hedging activities, net of tax— — — — 53.9 53.9 
Foreign currency translation adjustments— — — — (108.0)(108.0)
Net loss— — — (109.8)— (109.8)
Balance as of September 30, 2022
$ $— $1,708.1 $(829.9)$(212.1)$666.1 

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, 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)$624.2 
Issuance of ordinary shares sold in IPO, net of offering costs— —  — —  
Share-based compensation— — 13.9 — — 13.9 
Cash flow hedging activities, net of tax— — — — (4.1)(4.1)
Foreign currency translation adjustments— — — — (23.0)(23.0)
Net loss— (42.1)(42.1)
Balance as of September 30, 2021$ $— $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.

5


Diversey Holdings, Ltd.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30,
(in millions)20222021
Operating activities:
Net loss$(109.8)$(139.1)
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
   Depreciation and amortization138.2 141.6 
   Amortization of deferred financing costs and original issue discount5.4 21.6 
   Loss on extinguishment of debt 15.6 
   (Gain) loss on derivatives(0.6)2.3 
   Deferred taxes(17.6)(15.6)
   Unrealized foreign exchange (gain) loss(8.9)5.2 
   Share-based compensation45.4 67.1 
   Impact of highly inflationary subsidiaries(3.6)(2.7)
   Provision for (recovery of) bad debts2.8 (1.9)
   Provision for slow moving inventory16.2 4.1 
Non-cash pension benefit(10.3)(12.0)
   Non-cash restructuring and exit costs 16.9 
   Non-cash tax receivable agreement adjustments(16.7)4.1 
   Changes in operating assets and liabilities:
      Trade receivables, net(58.3)(96.8)
      Inventories, net(72.4)(52.8)
      Accounts payable95.6 1.9 
      Income taxes, net(11.0)(5.8)
      Other assets and liabilities, net40.0 (64.6)
Cash provided by (used in) operating activities34.4 (110.9)
Investing activities:
Business acquired in purchase transactions, net of cash acquired(41.4)(9.4)
Acquisition of intellectual property (3.0)
Dosing and dispensing equipment(57.7)(47.8)
Capital expenditures(36.2)(22.2)
Collection of deferred factored receivables 40.1 
Cash used in investing activities(135.3)(42.3)
Financing activities:
Contingent consideration payments (0.3)
Proceeds from (payments on) short-term borrowings(2.8)16.7 
Proceeds from revolving credit facility50.0 109.0 
Payments on revolving credit facility(50.0)(109.0)
Proceeds from long-term borrowings 2,000.0 
Payments on long-term borrowings(13.2)(2,667.8)
Payment of deferred financing costs (35.1)
Payment of bond redemption premium (7.6)
Issuance of ordinary shares sold in IPO, net of offering costs 725.7 
Proceeds from termination of derivatives186.1  
Cash provided by financing activities170.1 31.6 
Exchange rate changes on cash, cash equivalents and restricted cash(27.7)(4.0)
Increase (decrease) in cash, cash equivalents and restricted cash41.5 (125.6)
Cash, cash equivalents and restricted cash at beginning of period(1)
208.2 201.7 
Cash, cash equivalents and restricted cash at end of period(2)
$249.7 $76.1 
6


Supplemental Cash Flow Information:
Interest payments$57.8 $99.3 
Income tax payments$33.5 $27.0 
Non-cash conversion of preferred equity certificates to equity$ $620.9 
Beneficial interest obtained in exchange for factored receivables$ $25.6 

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.

(1) Restricted cash was $0.6 million and $14.0 million as of December 31, 2021 and December 31, 2020, respectively.

(2) Restricted cash was $0.6 million and $7.3 million as of September 30, 2022 and September 30, 2021, 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”) is a leading provider of hygiene, infection prevention and cleaning solutions. We develop mission-critical products, services and technologies that save lives and protect our environment. We were formed as an exempted company incorporated under the laws of the Cayman Islands with limited liability on November 3, 2020 for the purpose of completing a public offering and related transactions and in order to carry on the business of our indirect wholly-owned operating subsidiaries.

Initial Public Offering and Additional Share Offering in 2021

On March 29, 2021, we 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, we 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".

On November 15, 2021, we issued and sold 15,000,000 Ordinary Shares at a public offering price of $15.00 per Ordinary Share, receiving $214.4 million in net proceeds, after deducting the underwriting discount and offering expenses.

Reorganization Transactions

Prior to the formation of Diversey Holdings, Ltd., the organizational structure consisted of Constellation (BC) 2 S.à r.l ("Constellation"), which was incorporated on June 30, 2017, and 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
8

Diversey Holdings, Ltd.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 merged or liquidated certain 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.

Tax Receivable Agreement

As part of the Reorganization Transactions, the Company entered into a tax receivable agreement (the “TRA”) with the pre-IPO owners of Constellation and certain other members of management (the “TRA Recipients”). The TRA requires the Company to make payments to the TRA Recipients as part of the consideration for their shares in Constellation or as part consideration for the note receivable held by them, as applicable, for 85% of the tax benefits realized by the Company when utilizing certain U.S. and Dutch income tax attributes generated, or owned by, or attributable to, the Company on or prior to the date of the IPO, and any tax deductions available to the Company that relate to the transaction expenses incurred by the Company as a result of the consummation of the IPO. The Company expects to utilize a significant portion of these income tax attributes based on current projections of taxable income, and therefore, expects to realize tax benefits. The annual tax benefits are computed by calculating the income taxes due, including such tax benefits, and the income taxes due without such tax benefits. Under the TRA, generally, the Company will retain the benefit of the remaining 15% of the applicable tax savings. The Company's liability under the TRA on an undiscounted basis was $193.7 million and $238.1 million as of September 30, 2022 and December 31, 2021, respectively, of which $1.3 million and zero is presented within Other current liabilities, and $192.4 million and $238.1 million is presented within Other non-current liabilities on the Condensed Consolidated Balance Sheet, as of September 30, 2022 and December 31, 2021, respectively.

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 9,000 employees as of September 30, 2022.


9

Diversey Holdings, Ltd.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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, 2021 included in the Company's Annual Report on Form 10-K. Certain amounts within Transaction and integration costs (formerly described as "Transition and transformation costs") in the prior year's Condensed Consolidated Statement of Operations have been reclassified into Restructuring and exit costs and Cost of sales to conform to the current year presentation, with no impact on net loss or accumulated deficit.

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, purchase price accounting, 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, fair value measurement of assets, rebate costs, costs for incentive compensation, the valuation allowance on deferred tax assets 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 consolidated financial statements.

Recently Issued Accounting Standards

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
10

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

In September 2022, the FASB issued ASU No. 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. The new guidance is expected to improve the transparency of supplier finance programs by requiring that a buyer in a supplier finance program disclose sufficient qualitative and quantitative information about the program to allow a user of its financial statements to understand the program's nature, activity during the period, changes from period to period and potential magnitude. ASU No. 2022-04 is effective for the Company as of January 1, 2023 on a retrospective basis including interim periods within those fiscal years, except for the requirement to disclose rollforward information which is effective for the Company as of January 1, 2024. Early adoption is permitted. The Company had no supplier finance programs during the nine months ended September 30, 2022. The Company is currently reviewing the provisions of this new pronouncement and does not expect this guidance to have a material impact on the condensed consolidated financial statements.

NOTE 3 - REVENUE RECOGNITION

Description of Revenue Generating Activities

We provide 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, we offer 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.

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. Our 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 depending 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 27.0% and 26.4% of gross sales for the three months ended September 30, 2022 and September 30, 2021, respectively, and 25.9% and 24.9% for the nine months ended September 30, 2022 and September 30, 2021, respectively.

11

Diversey Holdings, Ltd.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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)2022202120222021
Europe$315.2 $313.0 $929.6 $838.9 
North America152.0 158.0 496.2 549.8 
Asia Pacific87.1 81.2 254.9 239.4 
Middle East and Africa72.4 63.0 204.7 170.9 
Latin America55.9 45.5 161.0 133.6 
Revenue from contracts with customers682.6 660.7 2,046.4 1,932.6 
Other revenue (Leasing: Sales-type and Operating)6.4 4.2 17.9 13.9 
Total revenue$689.0 $664.9 $2,064.3 $1,946.5 

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 our Condensed Consolidated Balance Sheets.

NOTE 4 - ACQUISITIONS

We make business acquisitions that align with its strategic business objectives. The assets and liabilities of acquired businesses are recorded in the Condensed Consolidated Balance Sheet at fair value as of their acquisition date. The purchase price allocation is based on estimates of the fair value of assets acquired, liabilities assumed and consideration paid. Purchase consideration is reduced by the amount of cash or cash equivalents acquired. Acquisitions during 2022 and 2021 were not significant to our condensed consolidated financial statements; therefore, pro forma financial information is not presented. Costs incurred related to acquisitions are included as part of Transaction and integration costs in the Condensed Consolidated Statements of Operations.

2022 Activity

On January 24, 2022, we acquired Shorrock Trichem Ltd, a distributor of cleaning and hygiene solutions and services in the United Kingdom. In the second quarter of 2022, we recorded purchase accounting adjustments associated with this acquisition, which both decreased acquisition related net assets and increased goodwill by $3.1 million.

In the first quarter of 2022, we recorded purchase accounting adjustments associated with our fourth quarter 2021 acquisition of Birko Corporation. As a result, the acquisition related net assets increased by $1.6 million, goodwill decreased by $1.7 million, and we paid $0.1 million in additional consideration related to a net working capital adjustment.

2021 Activity

On September 20, 2021 we acquired certain assets of Tasman Chemicals Pty. Limited, 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.
12

Diversey Holdings, Ltd.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table summarizes the fair values of the net assets acquired during 2022 and 2021:

Nine Months Ended September 30,
(in millions)20222021
Cash and cash equivalents$10.7 $ 
Trade receivables7.1 1.8 
Inventories3.9 2.2 
Prepaid expenses and other current assets1.8  
Property, plant and equipment6.3 0.1 
Intangible assets15.6 4.0 
Accounts payable(4.1)(1.7)
Other current liabilities(5.0)(0.1)
Other non-current liabilities(0.1) 
Deferred taxes(4.6)(1.2)
Net assets acquired before goodwill on acquisition31.6 5.1 
Goodwill on acquisition20.5 4.3 
Net cash paid for acquisitions$52.1 $9.4 

NOTE 5 - FINANCIAL STATEMENT DETAILS

Inventories

Our net inventory balances were:
(in millions)September 30, 2022December 31, 2021
Raw materials$75.3 $74.2 
Work in process3.8 2.8 
Finished goods289.6 260.6 
 $368.7 $337.6 

Factoring of trade receivables

On October 25, 2021, we terminated our Master Agreement with Factofrance, S.A. (“Factofrance”) to sell certain trade receivables, without recourse, of eight Diversey companies located in the United Kingdom, Spain, France, Netherlands, Poland, Germany, Italy and Portugal under individually executed Receivable Purchase Agreements (“RPAs”).

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 sold $483.1 million of receivables to Factofrance and received cash from Factofrance of $475.4 million during the nine months ended September 30, 2021. We collected from our customers and remitted to Factofrance $486.6 million during the nine months ended September 30, 2021.


13

Diversey Holdings, Ltd.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Securitization of trade receivables

We sell certain North American and European customer receivables to PNC Bank ("PNC") without recourse on a revolving basis. This arrangement provided for maximum funding of up to $150.0 million for receivables sold, which increased from $100.0 million during the second quarter of 2022. 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 $137.6 million as of September 30, 2022 that are pledged as collateral under this agreement.

Fees associated with the arrangement were $3.5 million and $1.2 million for the nine months ended September 30, 2022 and September 30, 2021, respectively.

We transferred and derecognized $946.9 million of receivables and collected $885.0 million in connection with our arrangement with PNC during the nine months ended September 30, 2022.

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

Our allowance for expected 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. We continue 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)20222021
Balance, beginning of period$44.2 $35.1 
Provision for bad debts2.8 (1.9)
Provision for lease receivables associated with exit activities 16.5 
Write-offs(10.7)(2.6)
Balance, end of period$36.3 $47.1 


Prepaid expenses and other current assets

The components of prepaid expenses and other current assets were as follows:
(in millions)September 30, 2022December 31, 2021
Derivatives$60.2 $11.3 
Prepaid expenses32.1 36.1 
Income tax receivables28.0 20.2 
Other current assets1.4 1.8 
$121.7 $69.4 
14

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

The components of other non-current assets were as follows:
(in millions)September 30, 2022December 31, 2021
Dosing and dispensing equipment$135.4 $142.0 
Operating lease right-of-use assets, net82.4 94.6 
Derivatives58.4 25.9 
Deferred taxes44.4 51.8 
Tax indemnification asset17.1 17.8 
Lease receivables13.2 18.0 
Finance lease right-of-use assets, net9.5 4.3 
Customer prebates8.9 16.6 
Other non-current assets11.9 11.3 
$381.2 $382.3 

Depreciation expense for our dosing and dispensing equipment was $17.0 million and $17.3 million for the three months ended September 30, 2022 and September 30, 2021, respectively. Depreciation expense for our dosing and dispensing equipment was $51.3 million and $52.1 million for the nine months ended September 30, 2022 and September 30, 2021, respectively.

Other Current and Non-current Liabilities

The components of other current liabilities were as follows:
(in millions)September 30, 2022December 31, 2021
Accrued customer volume rebates$141.9 $138.1 
Accrued salaries, wages and related costs85.9 88.7 
Accrued interest payable26.9 11.0 
Value added, general and sales tax payable25.7 25.3 
Operating lease liability16.7 21.4 
Derivatives16.3 8.2 
Income taxes payable4.2 8.4 
Accrued share-based compensation4.1 5.4 
Contingent consideration4.6 4.4 
Other accrued liabilities67.6 73.6 
$393.9 $384.5 

15

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, 2022December 31, 2021
Tax receivable agreement $192.4 $238.1 
Defined benefit pension plan liability99.6 129.6 
Operating lease liability78.2 72.5 
Uncertain tax positions44.7 44.5 
Derivatives10.8 4.9 
Asset retirement obligations5.7 6.4 
Accrued share-based compensation4.9 6.0 
Other post-employment benefit plan liability2.1 2.1 
Other non-current liabilities12.4 15.9 
$450.8 $520.0 

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)2022202120222021
Interest income$(1.4)$(0.8)$(2.8)$(2.9)
Unrealized foreign exchange (gain) loss (3.6)(2.4)(8.9)5.2 
Realized foreign exchange (gain) loss(1.8)5.5 (2.1)6.1 
Non-cash pension and other post-employment benefit plan(3.3)(4.3)(10.3)(12.0)
Adjustment for tax indemnification asset0.3 0.1 0.7 1.4 
Factoring and securitization fees1.7 1.4 3.9 3.6 
Tax receivable agreement adjustments(3.7) (16.7)4.1 
Other, net0.5 1.2 1.0 (0.7)
 $(11.3)$0.7 $(35.2)$4.8 

NOTE 6 - PROPERTY AND EQUIPMENT, NET

Our property and equipment and accumulated depreciation balances were as follows:
(in millions)September 30, 2022December 31, 2021
Land and improvements$38.1 $41.3 
Buildings52.3 55.4 
Machinery and equipment96.6 95.4 
Other property and equipment48.7 51.6 
Construction-in-progress80.6 49.4 
Property and equipment, gross
316.3 293.1 
Less: Accumulated depreciation(89.7)(82.4)
Property and equipment, net
$226.6 $210.7 

Depreciation expense was $5.8 million and $6.1 million for the three months ended September 30, 2022 and September 30, 2021, respectively. Depreciation expense was $18.4 million and $16.9 million for the nine months ended September 30, 2022 and September 30, 2021, respectively.
16

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)InstitutionalFood & BeverageTotal
Balance at December 31, 2021$330.4 $141.1 $471.5 
Acquisitions20.5  20.5 
Acquisition adjustments(1)
 (1.7)(1.7)
Foreign currency translation(