Notes to the Condensed Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of the Company and Business
Platform Specialty Products Corporation is a global, diversified producer of high-technology specialty chemical products and provider of technical services. The Company's business involves the formulation of a broad range of solutions-oriented specialty chemicals which are sold into multiple industries, including agricultural, animal health, electronics, graphic arts, plating, offshore oil and gas production and drilling. The Company refers to its products as “dynamic chemistries” due to their intricate chemical compositions which are used in a wide variety of niche markets. As further described in Note 19,
Segment Information
, the Company operates in
two
segments: Performance Solutions and Agricultural Solutions.
Until the MacDermid Acquisition on October 31, 2013, the Company had neither engaged in any operations nor generated any income. Following the MacDermid Acquisition, on January 22, 2014, the Company was domesticated in Delaware and on January 23, 2014, its common stock, par value
$0.01
per share, began trading on the NYSE under the ticker symbol “PAH.”
Basis of Presentation
These unaudited interim Condensed Consolidated Financial Statements and related information have been prepared in accordance with GAAP for interim financial information and in accordance with the applicable rules and regulations of the SEC. Accordingly, they do not include all of the disclosures required in connection with annual financial statements. These unaudited interim Condensed Consolidated Financial Statements reflect all adjustments that are, in the opinion of management, normal, recurring and necessary for a fair statement of the Company's results of operations. These unaudited interim Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and the related notes thereto included in the Company’s Annual Report.
The year-end Condensed Consolidated Balance Sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.
Principles of Consolidation
The accompanying unaudited interim Condensed Consolidated Financial Statements include Platform's accounts and all of its controlled subsidiaries. All subsidiaries are included in the unaudited interim Condensed Consolidated Financial Statements for the entire period or, if acquired, from the date on which the Company obtains control. The Company fully consolidates the income, expenses, assets, liabilities and cash flows of subsidiaries from the date it acquires control or becomes the primary beneficiary up to the date control ceases. All intercompany accounts and transactions have been eliminated in consolidation.
Recently Adopted Accounting Pronouncements
Compensation - Stock Compensation (Topic 718)
- In March 2016, the FASB issued ASU No. 2016-09, “
Improvements to Employee Share-Based Payment Accounting.”
This update changes the accounting treatment related to tax windfall and shortfalls associated with share-based awards. It also eliminates the requirement for entities to estimate future forfeiture rates associated with share-based awards and stipulates the requirement that cash payments made by employers when directly withholding shares for tax-withholdings purposes should be classified as a financing activity in the statement of cash flows. The guidance is effective for fiscal years and interim periods beginning after December 15, 2016 with early adoption permitted. The Company adopted this ASU as of April 1, 2016. This ASU did not have a material impact on the Company's financial statements.
Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40
)
- In April 2015, the FASB issued ASU No. 2015-05, “
Customer's Accounting for Fees Paid in a Cloud Computing Arrangement.”
This update provides explicit guidance to customers utilizing a cloud computing solution to help determine whether such an arrangement includes a software license, in which case the accounting applied would be similar to that of other software license arrangements. Otherwise, the arrangement would be accounted for as a service contract. The Company adopted this ASU as of January 1, 2016. This ASU did not have a material impact on the Company's financial statements.
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Income Statement – Extraordinary and Unusual Items (Subtopic 225-20)
- In January 2015, the FASB issued ASU No. 2015-1, “
Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.”
This update eliminates the requirement for entities to identify extraordinary events and transactions, those being both unusual in nature and infrequent in occurrence, and separately classify, present and disclose such items. The guidance is effective prospectively for fiscal years and interim periods beginning after December 15, 2015. The Company adopted this ASU as of January 1, 2016. The Company did not have any extraordinary or unusual income statement items recorded for any periods presented and therefore, this ASU did not have a material impact on the Company's financial statements.
Compensation – Stock Compensation (Topic 718)
- In June 2014, the FASB issued ASU No. 2014-12, “
Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (a consensus of the FASB Emerging Issues Task Force).”
Under the provisions of this update, a performance target that affects vesting and that could be achieved after the requisite service period are treated as a performance condition. The guidance is effective prospectively for fiscal years and interim periods beginning after December 15, 2015. The Company adopted this ASU as of January 1, 2016. This ASU did not have a material impact on the Company's financial statements as it had no share-based compensation awards that were effected by this pronouncement.
Recently Issued Accounting Pronouncements Not Yet Adopted
Consolidation (Topic 810)
-
In October 2016, the FASB issued ASU No. 2016-17,
"Interests Held through Related Parties that are Under Common Control."
This update clarifies how a reporting entity that is the single decision maker of a variable interest entity (VIE) should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. The guidance is effective for fiscal years and interim periods beginning after December 15, 2016, with early adoption permitted. The Company is evaluating the impact of this ASU.
Income Taxes (Topic 740)
- In October 2016, the FASB issued ASU No. 2016-16, "
Intra-Entity Transfers of Assets Other than Inventory.
" This update stipulates that entities recognize the income tax consequences of intra-entity transfers of assets other than inventory when the transfer occurs. The amendments in this guidance apply to assets other than inventory, for example, intellectual property and property, plant and equipment. The guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years, with early adoption permitted in the first quarter of an annual reporting period for which financial statements have not been issued or made available for issuance. The Company is evaluating the impact of this ASU.
Statement of Cash Flows (Topic 230)
- In August 2016, the FASB issued ASU No. 2016-15, "
Classification of Certain Cash Receipts and Cash Payments.
" This update was issued to reduce the differences in the classification of certain transactions in the statement of cash flows. The update addresses eight specific cash flow issues, including debt prepayment and extinguishment costs, zero coupon bond settlement, contingent consideration payments, insurance claim settlements, company-owned life insurance receipts/payments, distributions from equity method investments, beneficial interests in securitization transactions, and separately identifiable cash flows. The guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years, with early adoption permitted. The Company does not expect this ASU to have a material impact on its financial statements.
Financial Instruments - Credit Losses (Topic 326)
- In June 2016, the FASB issued ASU No. 2016-13, "
Measurement of Credit Losses on Financial Instruments.
" This update introduces new guidance for the accounting for credit losses on certain types of financial instruments, which are to be estimated based on the expected losses. It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The guidance is effective on a modified retrospective basis for fiscal years and interim periods beginning after December 15, 2019 with early adoption permitted for fiscal years and interim periods beginning after December 15, 2018. The Company is evaluating the impact of this ASU.
Investments - Equity Method and Joint Ventures (Topic 323)
- In March 2016, the FASB issued ASU No. 2016-07, "
Simplifying the Transition to the Equity Method of Accounting.
" This update simplifies transition accounting when the ownership level or degree of influence held in an investment qualifies that investment for equity method accounting. The guidance is effective prospectively for fiscal years and interim periods beginning after December 15, 2016, with early adoption permitted. The Company does not expect this ASU to have a material impact on its financial statements.
Derivatives and Hedging (Topic 815)
- In March 2016, the FASB issued ASU No. 2016-06, "
Contingent Put and Call Options in Debt Instruments (a consensus of the FASB Emerging Issues Task Force)
." The ASU clarifies guidance around determining whether
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
call or put options that can accelerate the repayment of principal on a debt or hybrid instrument that are considered embedded derivatives meet the "clearly and closely related" criterion for determining whether the embedded derivative is required to be separated from the host contract and accounted for separately as a derivative. The guidance is effective for fiscal years and interim periods beginning after December 15, 2016 with early adoption permitted. Adoption is required on a modified retrospective basis. The Company does not expect this ASU to have a material impact on its financial statements.
Derivatives and Hedging (Topic 815)
- In March 2016, the FASB issued ASU No. 2016-05, "
Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships (a consensus of the FASB Emerging Issues Task Force).
" This update stipulates that a change in the counterparty of a derivative instrument that has been designated as a hedging instrument under Topic 815 does not, in and of itself, require de-designation of that hedging relationship, provided that all other hedge accounting criteria continue to be met. The guidance is effective for fiscal years and interim periods beginning after December 15, 2016 and provides entities with the option to apply either a prospective or a modified retrospective approach. The Company does not expect this ASU to have a material impact on its financial statements.
Leases (Topic 842)
- In February 2016, the FASB issued ASU No. 2016-02,
“Leases.”
The updated guidance applies to capital (or finance) and operating leases, and requires the lessee to recognize a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term. The lessee can make an accounting policy choice to not recognize right of use assets and lease liabilities for short-term leases (leases with a lease term of 12 months or less). The guidance is effective for fiscal years and interim periods beginning after December 15, 2018, with early adoption permitted. The Company continues to evaluate the impact of this ASU.
Financial Instruments - Overall (Subtopic 825.10) -
In January 2016, the FASB issued ASU No. 2016-1,
“Recognition and Measurement of Financial Assets and Financial Liabilities.”
This update addresses certain aspects of recognition, measurement, presentation, and disclosure of financial assets and liabilities. Provisions of this ASU include, among others, requiring the measurement of certain equity investments at fair value, with changes in value recognized in net income, and simplifying the impairment assessment of certain equity investments. The guidance is effective for fiscal years and interim periods beginning after December 15, 2017. The guidance is effective on a modified retrospective basis, except as it relates to equity securities without a readily determinable fair value, for which it is effective on a prospective basis. Early adoption is only permitted for provisions related to the recognition of changes in fair value of financial liabilities. The Company does not expect this ASU to have a material impact on its financial statements.
Revenue from Contracts with Customers (Topic 606)
- In August 2015, the FASB issued ASU No. 2015-14,
“Deferral of the Effective Date,”
which defers the effective date of ASU No. 2014-09,
“Revenue from Contracts with Customers (Topic 606),"
for all entities by one year. As a result, the provisions of ASU No. 2014-09 will be effective prospectively for fiscal years and interim periods beginning after December 15, 2017. ASU No. 2014-09 (1) removes inconsistencies and weaknesses in revenue requirements, (2) provides a more robust framework for addressing revenue issues, (3) improves comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets, (4) provides more useful information to users of financial statements through improved disclosure requirements, and (5) simplifies the preparation of financial statements by reducing the number of requirements to which an entity must refer. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The FASB has issued the following amendments and supplements to the guidance of ASU Nos. 2014-09 and 2015-14, all of which become effective for fiscal years and interim periods beginning after December 15, 2017:
|
|
•
|
ASU No. 2016-08, "
Principal versus Agent Considerations,
" issued in March 2016. This update improves the operability and understandability of the implementation guidance on principal versus agent considerations.
|
|
|
•
|
ASU No. 2016-10, "
Identifying Performance Obligations and Licensing,
" issued in April 2016. This update provides clarification on the implementation guidance defining when a good or service is separately identifiable from other promises in the contract and on contracts with licenses of intellectual property.
|
|
|
•
|
ASU No. 2016-12, "
Narrow-Scope Improvements and Practical Expedients,
" issued in May 2016. This update provides clarification on the collectability criterion, presentation of taxes, non-cash consideration and contract modification guidance espoused in ASU No. 2014-09. This update also clarifies the accounting treatment for completed contracts and retrospective application of the standard to prior reporting periods.
|
The Company continues to evaluate the impact of ASU Nos. 2014-09, 2015-14 and their subsequent amendments.
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Presentation of Financial Statements - Going Concern (Subtopic 205-40)
- In August 2014, the FASB issued ASU No. 2014-15, "
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern
." This update provides clarification on conditions and events that should be considered by management at each annual and interim reporting period in determining whether there exists substantial doubt as to an entity’s ability to continue as a going concern. The guidance is effective for fiscal years and interim periods ending after December 15, 2016 with early adoption permitted. The Company does not expect this ASU to have a material impact on its financial statements.
Out of Period Adjustment
In connection with the preparation of the Company's unaudited interim Condensed Consolidated Financial Statements for the period ended September 30, 2016, the Company identified an error that effected prior periods related to the allocation of expenses to non-controlling interests. On a cumulative basis since the first quarter of 2015, the Company determined
$6.1 million
of expenses were not allocated to its non-controlling interests resulting in an overstatement of “Non-controlling Interests” and “Accumulated Deficit” in the Company’s Condensed Consolidated Balance Sheets and an understatement of “Net loss attributable to non-controlling interests” and overstatement of “Net loss attributable to stockholders” in the Company's Condensed Consolidated Statements of Operations. Based on an analysis of qualitative and quantitative factors, management has concluded that this error was not material to the Company's unaudited interim Condensed Consolidated Financial Statements for 2015 and 2016 as well as the Company's Annual Report for the year ended December 31, 2015. As a result, the effects of the adjustment were corrected in the unaudited interim Condensed Consolidated Financial Statements for the period ended September 30, 2016.
Restatement
As previously disclosed in the Company's Annual Report, the Company restated its unaudited Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2015 and its unaudited Condensed Consolidated Balance Sheet as of September 30, 2015 that were previously included in the Company's quarterly report on Form 10-Q for the quarter ended September 30, 2015 to correct an error as a result of improperly recording a benefit on an unrealized loss associated with a foreign currency hedge entered into in connection with the Alent Acquisition for income tax accounting purposes, which resulted in an understatement of income tax expense of
$17.8 million
. As a result of the error, "Loss per share" was understated by
$0.08
for the three and nine month periods ended September 30, 2015. In addition, "Prepaid expenses and other current assets" were overstated by
$19.6 million
, "Other assets" were understated by
$2.8 million
, and "Accrued income taxes payable" was understated by
$1.0 million
.
2. ACQUISITIONS OF BUSINESSES
OMG Malaysia Acquisition
On January 31, 2016, the Company completed the OMG Malaysia Acquisition for approximately
$124 million
, net of acquired cash and closing working capital adjustments.
The Company acquired OMG Malaysia to further enhance its Performance Solutions segment. OMG Malaysia, which is highly-synergistic with the OMG Businesses, is included in the Company's Performance Solutions business segment.
Alent Acquisition
On December 1, 2015, Platform completed the Alent Acquisition by acquiring all of the issued shares of Alent for approximately
$1.74 billion
in cash, net of acquired cash, and
18,419,738
shares of the Company's common stock at
$12.56
per share, issued to Alent shareholders, including Cevian Capital II Master Fund LP, the then largest shareholder of Alent.
The Company acquired Alent to expand its product capabilities and offerings and improve its geographic outreach in surface treatments. Alent is a global supplier of specialty chemicals and engineered materials used primarily in electronics, automotive, industrial applications, and high performance consumable products and services. Alent is included in the Company's Performance Solutions business segment.
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
OMG Acquisition
On October 28, 2015, Platform completed the OMG Acquisition for approximately
$239 million
in cash, net of acquired cash, and purchase price adjustments.
The Company acquired the highly-synergistic OMG Businesses to bolster its Performance Solutions business segment. OMG’s Electronic Chemicals business develops, produces and supplies chemicals for electronic and industrial applications. OMG’s Photomasks products are used by customers to produce semiconductors and related products. These businesses are included in the Company's Performance Solutions business segment.
Arysta Acquisition
On February 13, 2015, Platform completed the Arysta Acquisition for approximately
$3.50 billion
, consisting of
$2.86 billion
in cash, net of acquired cash and closing working capital adjustments, and including Arysta Seller transaction expenses paid by Platform, and the issuance to the Arysta Seller of
$600 million
of Platform’s Series B Convertible Preferred Stock with a fair value of
$646 million
. On September 9, 2016, the Company entered into a settlement agreement with the Arysta Seller with respect to certain of its obligations relating to the Company's shares of Series B Convertible Preferred Stock. See Note 11,
Stockholders' Equity,
under the heading "
Series B Convertible Preferred Stock."
The Company acquired Arysta to expand its presence in the agrochemical business, complementing the Agriphar and CAS Acquisitions. Arysta provides products and solutions utilizing globally managed patented and proprietary off-patent agrochemical AIs and biological solutions, or biosolutions, and off-patent agrochemical offerings. Biosolutions includes stimulants, or biostimulants, innovative nutrition and biological control, or biocontrol, products. Arysta is included in the Company's Agricultural Solutions business segment.
Acquisition Net Sales and Net Income (Loss)
Since the dates of their respective acquisitions, net sales contributed by the OMG Malaysia, Alent, OMG and Arysta Acquisitions for the
three and nine
months ended
September 30, 2016
and
2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(amounts in millions)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
OMG Malaysia
|
$
|
8.5
|
|
|
$
|
—
|
|
|
$
|
21.4
|
|
|
$
|
—
|
|
Alent
|
243.9
|
|
|
—
|
|
|
693.0
|
|
|
—
|
|
OMG
|
27.8
|
|
|
—
|
|
|
80.9
|
|
|
—
|
|
Arysta
|
363.7
|
|
|
318.2
|
|
|
1,013.4
|
|
|
837.6
|
|
Total
|
$
|
643.9
|
|
|
$
|
318.2
|
|
|
$
|
1,808.7
|
|
|
$
|
837.6
|
|
Net income (loss) generated by the OMG Malaysia, Alent, OMG and Arysta Acquisitions, excluding corporate allocations, for the
three and nine
months ended
September 30, 2016
and
2015
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(amounts in millions)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
OMG Malaysia
|
$
|
1.2
|
|
|
$
|
—
|
|
|
$
|
2.3
|
|
|
$
|
—
|
|
Alent
|
23.7
|
|
|
—
|
|
|
38.8
|
|
|
—
|
|
OMG
|
4.2
|
|
|
—
|
|
|
4.5
|
|
|
—
|
|
Arysta
|
(8.9
|
)
|
|
(34.8
|
)
|
|
(174.1
|
)
|
|
(100.6
|
)
|
Total
|
$
|
20.2
|
|
|
$
|
(34.8
|
)
|
|
$
|
(128.5
|
)
|
|
$
|
(100.6
|
)
|
As the integration continues for (1) the OMG Malaysia, Alent and OMG Acquisitions within the Company's Performance Solutions business segment and (2) the Arysta Acquisition within the Agricultural Solutions segment, discrete results reported by these existing businesses are being effected by the integration process and are becoming less comparable to prior periods.
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Purchase Price Allocation
The following table summarizes the consideration transferred and transaction costs incurred to acquire OMG Malaysia, Alent and the OMG Businesses, as well as the applicable amounts of identified assets acquired and liabilities assumed at the applicable acquisition date:
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in millions)
|
OMG Malaysia
|
|
Alent
|
|
OMG
|
Consideration
|
|
|
|
|
|
Cash, net
|
$
|
(1.3
|
)
|
|
$
|
1,507.0
|
|
|
$
|
239.1
|
|
Equity instruments
|
—
|
|
|
231.4
|
|
|
—
|
|
Note receivable settlement
|
125.0
|
|
|
—
|
|
|
—
|
|
Total consideration
|
$
|
123.7
|
|
|
$
|
1,738.4
|
|
|
$
|
239.1
|
|
|
|
|
|
|
|
Acquisition costs
|
$
|
0.5
|
|
|
$
|
29.2
|
|
|
$
|
7.4
|
|
|
|
|
|
|
|
Identifiable assets acquired and liabilities assumed
|
|
|
|
|
|
Accounts receivable
|
$
|
4.3
|
|
|
$
|
177.4
|
|
|
$
|
33.1
|
|
- less uncollectible
|
—
|
|
|
(1.8
|
)
|
|
(1.6
|
)
|
Accounts receivable - fair value
|
4.3
|
|
|
175.6
|
|
|
31.5
|
|
Inventories
|
6.4
|
|
|
116.1
|
|
|
13.2
|
|
Other current assets
|
0.2
|
|
|
29.3
|
|
|
1.6
|
|
Property, plant and equipment
|
4.7
|
|
|
192.2
|
|
|
35.1
|
|
Identifiable intangible assets
|
38.3
|
|
|
682.9
|
|
|
77.9
|
|
Other assets
|
—
|
|
|
38.3
|
|
|
0.2
|
|
Current liabilities
|
(3.5
|
)
|
|
(181.8
|
)
|
|
(21.5
|
)
|
Non-current deferred tax liability
|
(10.0
|
)
|
|
(139.6
|
)
|
|
(13.6
|
)
|
Other long term liabilities
|
—
|
|
|
(345.2
|
)
|
|
(2.9
|
)
|
Total identifiable net assets
|
40.4
|
|
|
567.8
|
|
|
121.5
|
|
Goodwill
|
83.3
|
|
|
1,170.6
|
|
|
117.6
|
|
Total purchase price
|
$
|
123.7
|
|
|
$
|
1,738.4
|
|
|
$
|
239.1
|
|
The purchase accounting and purchase price allocation is complete for the OMG Acquisition. During the nine months ended September 30, 2016, the Company increased the environmental reserves by
$1.5 million
and reduced non-current accrued tax liability by
$2.6 million
. The collective impact of these adjustments resulted in a decrease of
$1.1 million
in goodwill.
The purchase accounting and purchase price allocation is substantially complete for the Alent Acquisition with the exception of intangible assets, income taxes, environmental reserves and AROs. The Company is still gathering information to finalize purchase accounting for the Alent Acquisition. During the nine months ended September 30, 2016, the Company updated the environmental reserves, non-current other liabilities and non-current deferred tax assets. The updates resulted in increases in environmental reserves of
$25.6 million
and non-current other liabilities of
$2.8 million
. The collective impact of these adjustments resulted in an increase of
$0.7 million
in non-current deferred tax asset along with corresponding adjustments reflected in goodwill.
The purchase accounting and purchase price allocation is substantially complete for the OMG Malaysia Acquisition with the exception of intangible assets. Subsequent to this acquisition, the Company updated the valuation of inventories, identifiable intangible assets and non-current deferred tax liability. The updated valuations resulted in decreases in inventories of
$0.8 million
and identifiable intangible assets of
$20.7 million
. The collective impact of the adjustments noted above resulted in a decrease of
$5.1 million
in non-current deferred tax liability, with corresponding adjustments reflected in goodwill.
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
All the measurement period adjustments noted above had an immaterial impact on Condensed Consolidated Statement of Operations for the nine months ended September 30, 2016. There were no measurement period adjustments made for the three months ended
September 30, 2016
.
The excess of the respective cost of the OMG Malaysia, Alent and OMG Acquisitions over the net of amounts assigned to the fair values of the assets acquired and the liabilities assumed in connection with these acquisitions is recorded as goodwill and represents the value of estimated synergies and the assembled workforces resulting from these acquisitions. Of the
$1.37 billion
of goodwill recorded in connection with the OMG Malaysia, Alent and OMG Acquisitions,
$113 million
is expected to be deductible for tax purposes as a result of the OMG Malaysia and OMG Acquisitions.
Identifiable intangible assets recorded in conjunction with the OMG Malaysia, Alent and OMG Acquisitions were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OMG Malaysia
|
|
Alent
|
|
OMG
|
|
Total
|
(amounts in millions)
|
Fair Value
|
|
Weighted average useful life (years)
|
|
Fair Value
|
|
Weighted average useful life (years)
|
|
Fair Value
|
|
Weighted average useful life (years)
|
|
Fair Value
|
|
Weighted average useful life (years)
|
Customer lists
|
$
|
35.0
|
|
|
25.0
|
|
|
$
|
391.4
|
|
|
14.7
|
|
|
$
|
49.0
|
|
|
24.3
|
|
|
$
|
475.4
|
|
|
16.5
|
|
Developed technology
|
3.3
|
|
|
5.0
|
|
|
203.3
|
|
|
10.0
|
|
|
28.0
|
|
|
10.0
|
|
|
234.6
|
|
|
9.9
|
|
Tradenames
|
—
|
|
|
—
|
|
|
85.8
|
|
(1)
|
20.0
|
|
|
0.9
|
|
|
10.0
|
|
|
86.7
|
|
|
18.3
|
|
In process - R&D
|
—
|
|
|
—
|
|
|
2.4
|
|
(2)
|
—
|
|
|
—
|
|
|
—
|
|
|
2.4
|
|
|
—
|
|
Total
|
$
|
38.3
|
|
|
23.3
|
|
|
$
|
682.9
|
|
|
13.2
|
|
|
$
|
77.9
|
|
|
19.0
|
|
|
$
|
799.1
|
|
|
14.3
|
|
(1)
Includes
$81.4 million
of indefinite-lived tradenames which have been excluded from the calculation of weighted average useful life.
(2)
Excluded from the calculation of weighted average useful life.
Pro Forma Revenue and Earnings
The following unaudited pro forma summary presents consolidated information of the Company for the
three and nine
months ended
September 30, 2016
and
2015
as if the OMG Malaysia, Alent and OMG Acquisitions had each occurred on January 1, 2015, and as if the Arysta Acquisition had occurred on January 1, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(amounts in millions)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Pro forma revenue
|
$
|
890.5
|
|
|
$
|
865.5
|
|
|
$
|
2,638.8
|
|
|
$
|
2,713.9
|
|
Pro forma net income (loss) attributable to stockholders
|
105.5
|
|
|
(151.8
|
)
|
|
(21.8
|
)
|
|
(198.5
|
)
|
For the
three and nine
months ended
September 30, 2016
, the Company incurred
$1.3 million
and
$14.3 million
of acquisition and integration expenses, respectively, related to the OMG Malaysia, Alent, OMG and Arysta Acquisitions, which have been reflected in the pro forma earnings above as if each of these Acquisitions had occurred in 2015. In addition, for the
three and nine
months ended
September 30, 2015
, the Company incurred acquisition and integration expenses of
$4.4 million
and
$32.2 million
, respectively, related to the Arysta Acquisition, which have been excluded from the
September 30, 2015
pro forma earnings above. These pro forma amounts have been prepared to reflect fair value adjustments to intangible assets and the related amortization expense, net of tax, from January 1, 2015, as well as the effect of the debt instruments used to fund the Arysta and Alent Acquisitions.
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
3. INVENTORIES
The major components of inventory were as follows:
|
|
|
|
|
|
|
|
|
(amounts in millions)
|
September 30,
2016
|
|
December 31, 2015
|
Finished goods
|
$
|
355.9
|
|
|
$
|
340.1
|
|
Work in process
|
44.2
|
|
|
28.5
|
|
Raw materials and supplies
|
164.2
|
|
|
148.9
|
|
Total inventory, net
|
$
|
564.3
|
|
|
$
|
517.5
|
|
In connection with Platform's various business acquisitions, the value of inventory was increased at the respective dates of acquisition to reflect fair value. For the three months ended
September 30, 2016
and
2015
,
zero
and
$1.3 million
, respectively, was recorded to "Cost of sales" in the Condensed Consolidated Statements of Operations based on inventory turnover of such acquisitions and purchase price adjustments. For the
nine
months ended
September 30, 2016
and
2015
,
$11.7 million
and
$58.0 million
, respectively, was charged to "Cost of sales" in the Condensed Consolidated Statements of Operations based on inventory turnover of such acquisitions and purchase price adjustments.
4. PROPERTY, PLANT AND EQUIPMENT
The major components of property, plant and equipment, including equipment under capital leases, were as follows:
|
|
|
|
|
|
|
|
|
|
(amounts in millions)
|
|
September 30,
2016
|
|
December 31, 2015
|
Land and leasehold improvements
|
|
$
|
109.2
|
|
|
$
|
107.9
|
|
Buildings and improvements
|
|
138.1
|
|
|
143.8
|
|
Machinery, equipment, fixtures and software
|
|
302.4
|
|
|
276.8
|
|
Construction in process
|
|
27.4
|
|
|
21.4
|
|
Assets under capital lease:
|
|
|
|
|
Land and buildings
|
|
8.2
|
|
|
6.4
|
|
Machinery and equipment
|
|
5.3
|
|
|
5.1
|
|
Total property, plant and equipment
|
|
590.6
|
|
|
561.4
|
|
Accumulated depreciation
|
|
(111.1
|
)
|
|
(64.3
|
)
|
Accumulated amortization of capital leases
|
|
(6.8
|
)
|
|
(5.5
|
)
|
Property, plant and equipment, net
|
|
$
|
472.7
|
|
|
$
|
491.6
|
|
For the three months ended September 30, 2016
and
2015
, the Company recorded depreciation expense of
$18.9 million
and
$11.6 million
, respectively. For the
nine
months ended
September 30, 2016
and
2015
, the Company recorded depreciation expense of
$55.8 million
and
$33.7 million
, respectively.
In March 2016, the Company entered into a sale agreement for a long-lived asset with a net book value of
$12.1 million
in exchange for a cash payment of
$9.3 million
, net of estimated selling costs of
$0.2 million
. As a result, the Company reduced the net book value of the asset by
$2.8 million
, which was recorded in "Selling, technical, general and administrative expense" in the Condensed Consolidated Statements of Operations during the first quarter of 2016. The asset was subsequently sold during the second quarter of 2016.
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
5. GOODWILL AND INTANGIBLE ASSETS
The changes in the carrying amount of goodwill by segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in millions)
|
Performance
Solutions
|
|
Agricultural Solutions
|
|
Total
|
December 31, 2015
|
$
|
2,147.2
|
|
|
$
|
1,874.7
|
|
|
$
|
4,021.9
|
|
Addition from acquisitions
|
66.9
|
|
|
—
|
|
|
66.9
|
|
Purchase accounting adjustments
|
46.3
|
|
|
—
|
|
|
46.3
|
|
Foreign currency translation and other
|
4.6
|
|
|
226.6
|
|
|
231.2
|
|
September 30, 2016
|
$
|
2,265.0
|
|
|
$
|
2,101.3
|
|
|
$
|
4,366.3
|
|
The carrying value of indefinite-lived intangible assets other than goodwill, which consist solely of tradenames, was
$391 million
and
$360 million
at
September 30, 2016
and
December 31, 2015
, respectively.
During the
nine
months ended
September 30, 2016
, the Company found no indications of impairment related to its goodwill and indefinite-lived intangible assets.
Intangible assets subject to amortization were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
(amounts in millions)
|
Weighted Average Useful Life (years)
|
|
Gross Carrying
Amount and Foreign Exchange
|
|
Accumulated
Amortization and
Foreign Exchange
|
|
Net Book
Value
|
|
Gross Carrying
Amount and Foreign Exchange
|
|
Accumulated
Amortization and
Foreign Exchange
|
|
Net Book
Value
|
Customer lists
|
18.3
|
|
$
|
1,240.5
|
|
|
$
|
(117.9
|
)
|
|
$
|
1,122.6
|
|
|
$
|
1,297.2
|
|
|
$
|
(184.0
|
)
|
|
$
|
1,113.2
|
|
Developed technology
|
11.7
|
|
2,009.4
|
|
|
(146.7
|
)
|
|
1,862.7
|
|
|
2,260.9
|
|
|
(440.4
|
)
|
|
1,820.5
|
|
Tradenames
|
8.0
|
|
22.2
|
|
|
(5.9
|
)
|
|
16.3
|
|
|
24.2
|
|
|
(5.4
|
)
|
|
18.8
|
|
Non-compete agreements
|
5.0
|
|
1.9
|
|
|
(0.9
|
)
|
|
1.0
|
|
|
1.9
|
|
|
(0.5
|
)
|
|
1.4
|
|
Total
|
14.1
|
|
$
|
3,274.0
|
|
|
$
|
(271.4
|
)
|
|
$
|
3,002.6
|
|
|
$
|
3,584.2
|
|
|
$
|
(630.3
|
)
|
|
$
|
2,953.9
|
|
For the three months ended September 30, 2016
and
2015
, the Company recorded amortization expense on intangible assets of
$68.0 million
and
$50.4 million
, respectively.
For the nine months ended September 30, 2016
and
2015
, the Company recorded amortization expense on intangible assets of
$199 million
and
$143 million
, respectively.
6. LONG-TERM COMPENSATION PLANS
In June 2014, the Company’s stockholders approved the 2013 Plan, which is administered by the compensation committee of the Board, except as otherwise expressly provided in the 2013 Plan. The Board approved a maximum of
15,500,000
shares of common stock (subject to increase in accordance with the terms of the 2013 Plan), which were reserved and made available for issuance under the 2013 Plan.
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
As of
September 30, 2016
, a total of
373,434
shares of common stock had been issued and
2,824,164
awarded RSUs and stock options were outstanding under the 2013 Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2016
|
|
Total
|
|
RSUs
|
|
Stock Options
|
|
|
Equity
Classified
|
|
Liability Classified
|
|
Outstanding at December 31, 2015
|
1,006,436
|
|
|
501,634
|
|
|
329,802
|
|
|
175,000
|
|
Granted
|
2,110,173
|
|
|
1,719,975
|
|
|
—
|
|
|
390,198
|
|
Exercised/Issued
|
(7,642
|
)
|
|
(7,642
|
)
|
|
—
|
|
|
—
|
|
Forfeited
|
(109,803
|
)
|
|
(100,313
|
)
|
|
(9,490
|
)
|
|
—
|
|
Outstanding at September 30, 2016
|
2,999,164
|
|
|
2,113,654
|
|
|
320,312
|
|
|
565,198
|
|
Equity Classified RSUs
During the
nine
months ended
September 30, 2016
, the Company issued the following RSU grants following their approval by the Board:
|
|
|
|
|
|
|
|
|
|
|
RSUs
|
|
Weighted average grant date fair value
|
|
Weighted average vesting period (months)
|
RSUs issued
|
1,719,975
|
|
|
$
|
10.86
|
|
|
34.1
|
In addition to RSUs containing only service vesting conditions, the Company has issued RSUs for which vesting is also tied to performance or market conditions. Certain of these RSUs with performance or market vesting conditions also contain provisions for additional share awards in the event certain performance or market conditions are met at the end of certain applicable measurement periods. These conditions are generally based on ROIC or TSR targets. As of
September 30, 2016
, the following equity classified RSUs were outstanding:
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
Vesting Conditions:
|
Outstanding
|
|
Weighted average service period (years)
|
|
Potential additional awards
|
Service-based
|
772,835
|
|
|
2.8
|
|
—
|
|
Performance-based
|
713,830
|
|
|
3.3
|
|
433,780
|
|
Market-based
|
626,989
|
|
|
3.5
|
|
1,202,067
|
|
Total
|
2,113,654
|
|
|
3.2
|
|
1,635,847
|
|
In addition, the Board had approved
166,667
RSUs under the 2013 Plan subject to EBITDA performance conditions that must be achieved in the applicable vesting year which have yet to be set. These awards also include a multiplier of
zero
to
100%
based upon adjusted EBITDA target benchmarks. As the target adjusted EBITDA benchmarks have not yet been established, these RSUs have been excluded from the above grant activity. The adjusted EBITDA target benchmarks are expected to be established in 2017 and 2018.
For the three months ended September 30, 2016
and
2015
, total compensation expense associated with RSUs classified as equity totaled
$2.0 million
and
$0.2
, respectively.
For the nine months ended September 30, 2016
and
2015
, total compensation expense associated with RSUs classified as equity totaled
$4.6 million
and
$0.6 million
, respectively.
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Liability Classified RSUs
In March 2014, the Company granted to certain employees
329,823
RSUs that cliff vest on December 31, 2020. These RSUs are subject to an adjusted EBITDA performance condition and a share price market condition. Additionally, the number of shares of common stock to be issued is limited to a maximum cash value, requiring these awards to be classified as liabilities. There were
320,312
RSUs associated with these grants outstanding as of
September 30, 2016
. The combined undiscounted maximum cash value of all liability-classified RSUs issued is approximately
$6.9 million
, which is being recognized as compensation expense over the period from grant to the vesting date.
For the three months ended September 30, 2016
and
2015
, compensation expense (income) associated with these awards totaled
zero
and
$(0.6) million
, respectively.
For the nine months ended September 30, 2016
and
2015
, compensation expense associated with these awards totaled
zero
and
$0.8 million
, respectively.
Stock Options
During the
nine
months ended
September 30, 2016
, the Company granted non-qualified stock options under the 2013 Plan as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
Weighted average strike price per share
|
|
Weighted average grant date fair value per share
|
Stock options granted
|
390,198
|
|
|
$
|
8.05
|
|
|
$
|
4.35
|
|
All options granted during 2016 are subject to graded vesting over a
three
-year period and have contractual lives of
ten
years from the grant date. Fair value of the grants is calculated using the Black-Scholes option pricing model at the grant date.
The following table provides the range of assumptions used in valuing the option grants using the Black-Scholes option pricing method:
|
|
|
|
Black-Scholes Input Assumptions
|
Weighted average expected term (years)
|
6.0
|
Expected volatility
|
53.0%
|
Risk-free rate
|
1.52% to 1.56%
|
Expected dividend rate
|
—%
|
Fair value price per share
|
$4.32 to $4.81
|
Weighted average expected term is calculated based on the simplified method for plain vanilla options as the Company has concluded that its historical share option exercise experience does not provide a reasonable basis upon which to estimate expected term and certain alternative information to assist with estimating it is not easily obtainable. Expected volatility is calculated based on a blend of the implied and historical equity volatility of an index of comparable companies. Risk-free rate of return is based on an interpolation of U.S. Treasury rates to reflect an expected term of six years at the date of grant.
For the
three and nine
months ended September 30, 2016, the Company recognized compensation expense associated with stock options of
$0.1 million
and
$0.3 million
, respectively.
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Long Term Cash Bonus Plan
The Company established the LTCB during the first quarter of 2015. As of
September 30, 2016
, the LTCB provides participants with the right to receive long-term cash bonuses totaling in the aggregate
$10.5 million
, a decrease of
$4.8 million
from December 31, 2015 due to forfeitures. Benefits under the plan vest over periods ranging from
36
to
62.5
months and include adjusted EBITDA performance targets, which are subject to appropriate and equitable adjustments by the compensation committee of the Board in order to reflect any subsequent acquisition, divestiture or other corporate reorganizations, as necessary.
For the three months ended September 30, 2016
and
2015
, compensation expense (income) associated with the LTCB totaled
$0.1 million
and
$(0.6) million
, respectively.
For the nine months ended September 30, 2016
and
2015
, compensation expense associated with the LTCB totaled
$0.2 million
and
$0.2 million
, respectively.
Employee Stock Purchase Plan
The Company adopted the ESPP in 2014. The Board approved a maximum of
5,178,815
shares of common stock, which were reserved and made available for issuance under the plan. As of
September 30, 2016
, a total of
152,665
shares had been issued under the ESPP, and approximately
1,200
persons were eligible to participate in the ESPP. For the three months ended
September 30, 2016
and
2015
, compensation expense associated with the ESPP totaled
$0.2 million
and
zero
, respectively. For the
nine
months ended
September 30, 2016
and
2015
, compensation expense associated with the ESPP totaled
$0.3 million
and
$0.1 million
, respectively.
7. PENSION AND POST-RETIREMENT PLANS
The components of net periodic pension and post-retirement benefit costs for the
three and nine
months ended
September 30, 2016
and
2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(amounts in millions)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Pension & SERP Benefits
|
Domestic
|
|
Foreign
|
|
Domestic
|
|
Foreign
|
|
Domestic
|
|
Foreign
|
|
Domestic
|
|
Foreign
|
Net periodic (benefit) cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
—
|
|
|
$
|
0.4
|
|
|
$
|
—
|
|
|
$
|
0.2
|
|
|
$
|
—
|
|
|
$
|
1.3
|
|
|
$
|
—
|
|
|
$
|
0.6
|
|
Interest cost on the projected benefit obligation
|
2.5
|
|
|
0.8
|
|
|
1.6
|
|
|
0.5
|
|
|
7.6
|
|
|
2.3
|
|
|
4.8
|
|
|
1.5
|
|
Expected return on plan assets
|
(2.9
|
)
|
|
(0.6
|
)
|
|
(2.4
|
)
|
|
(0.5
|
)
|
|
(8.7
|
)
|
|
(1.9
|
)
|
|
(7.2
|
)
|
|
(1.5
|
)
|
Amortization of prior service cost
|
—
|
|
|
0.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.4
|
|
|
—
|
|
|
—
|
|
Net periodic (benefit) cost
|
$
|
(0.4
|
)
|
|
$
|
0.7
|
|
|
$
|
(0.8
|
)
|
|
$
|
0.2
|
|
|
$
|
(1.1
|
)
|
|
$
|
2.1
|
|
|
$
|
(2.4
|
)
|
|
$
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(amounts in millions)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Post-retirement Benefits
|
Domestic
|
|
Foreign
|
|
Domestic
|
|
Foreign
|
|
Domestic
|
|
Foreign
|
|
Domestic
|
|
Foreign
|
Net periodic cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost on the projected benefit obligation
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
$
|
—
|
|
|
$
|
0.3
|
|
|
$
|
0.2
|
|
|
$
|
0.3
|
|
|
$
|
—
|
|
Net periodic cost
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
$
|
—
|
|
|
$
|
0.3
|
|
|
$
|
0.2
|
|
|
$
|
0.3
|
|
|
$
|
—
|
|
No pension service costs were recognized during the
three and nine
months ended
September 30, 2016
and
2015
under the domestic pension plans, nor will there be in future periods, as benefits in the plans were frozen.
The Company expects to make contributions totaling
$6.9 million
to its pension and other post-retirement benefit plans during 2016, of which
$6.6 million
was contributed as of
September 30, 2016
.
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
8. DEBT, CAPITAL LEASES, FINANCIAL GUARANTEES AND FACTORING ARRANGEMENTS
Excluding the "Preferred stock redemption liability," the Company’s debt and capital lease obligations consisted of the following:
|
|
|
|
|
|
|
|
|
(amounts in millions)
|
September 30,
2016
|
|
December 31, 2015
|
Debt and Capital Lease Obligations
|
|
|
|
USD Senior Notes due 2022,
interest at 6.5%, net of unamortized premium and debt issuance costs of $17.5 million and $18.9 million at September 30, 2016 and December 31, 2015, respectively
|
$
|
1,082.5
|
|
|
$
|
1,081.1
|
|
EUR Senior Notes due 2023,
interest at 6.00%, net of debt issuance costs of $5.8 million and $6.1 million at September 30, 2016 and December 31, 2015, respectively
|
387.6
|
|
|
374.0
|
|
USD Senior Notes due 2021,
interest at 10.375%, net of debt issuance costs of $11.5 million and $12.5 million at September 30, 2016 and December 31, 2015, respectively
|
488.5
|
|
|
487.5
|
|
First Lien Credit Facility - U.S. Dollar Term Loans due 2020,
interest at the greater of 5.50% or LIBOR plus 4.50%, net of unamortized discount and debt issuance costs of $57.4 million and $66.8 million at September 30, 2016 and December 31, 2015, respectively
|
2,620.0
|
|
|
2,631.3
|
|
First Lien Credit Facility - Euro Term Loans due 2020,
interest at the greater of 5.50% or LIBOR plus 4.50%, net of unamortized discount and debt issuance costs of $13.2 million and $14.9 million at September 30, 2016 and December 31, 2015, respectively
|
638.0
|
|
|
619.2
|
|
Borrowings under the Revolving Credit Facility,
interest at LIBOR plus 3.00% at September 30, 2016
|
—
|
|
|
—
|
|
Borrowings under lines of credit,
weighted average interest rate of 3.52% and 4.28% at September 30, 2016 and December 31, 2015, respectively
|
42.8
|
|
|
16.7
|
|
Other
|
18.9
|
|
|
18.5
|
|
Total debt and capital lease obligations
|
5,278.3
|
|
|
5,228.3
|
|
Less: current portion debt and capital lease obligations
|
(81.4
|
)
|
|
(54.7
|
)
|
Total long-term debt and capital lease obligations
|
$
|
5,196.9
|
|
|
$
|
5,173.6
|
|
The weighted average effective interest rate associated with debt outstanding at
September 30, 2016
, based on currently applicable interest rates, was
6.99%
. This rate includes the effects of interest rate swaps, as well as the impact of deferred financing fees and original issue discount and premium amortization calculated using the effective interest method.
In August 2015, the Company entered into a series of pay fixed, receive floating interest rate swaps with respect to a portion of its indebtedness. The swaps effectively fix the floating base rate portion of the interest payments on approximately
$1.15 billion
of the Company's USD denominated debt and
€282 million
of its Euro denominated debt at
1.96%
and
1.20%
, respectively, from September 2015 through June 2020.
On September 9, 2016, the Company entered into a settlement agreement with the Arysta Seller with respect to certain obligations relating to the Company's shares of Series B Convertible Preferred Stock. As a result of the settlement agreement, for accounting purposes, the Series B Convertible Preferred Stock was deemed extinguished in exchange for the issuance of another financial instrument that is recognized as a "Preferred stock redemption liability" in the current liability section of the Condensed Consolidated Balance Sheet, which totaled
$504 million
as of September 30, 2016. See Note 11,
Stockholders' Equity,
under the heading "Preferred Stock -
Series B Convertible Preferred Stock"
for further information
.
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Minimum principal payments on long-term debt and capital leases were as follows:
|
|
|
|
|
(amounts in millions)
|
Principal Payments
|
Year ending December 31,
|
2016 - remaining
|
$
|
8.9
|
|
2017
|
34.9
|
|
2018
|
34.8
|
|
2019
|
34.6
|
|
2020
|
3,218.8
|
|
2021
|
500.7
|
|
Thereafter
|
1,494.4
|
|
Total
|
$
|
5,327.1
|
|
In order to fund its acquisition activity, the Company has
$5.28 billion
of debt as of
September 30, 2016
, with expected interest payments in excess of
$300 million
per year. The first significant principal debt payments, totaling
$3.22 billion
, are due in
2020
and represent maturities of outstanding term loans under the Amended and Restated Credit Agreement. On October 14, 2016, the Company created new tranches of term loans, the proceeds of which were used to prepay, in full, more than half of the Company's previously existing term loans, having the effect of reducing future interest payments and extending maturity dates. See "
Amended and Restated Agreement - Subsequent Events"
below. In addition, to the extent the Company does not settle its preferred stock redemption liability as described below, on April 20, 2017, it will be required to repurchase, in consideration and exchange for shares of its common stock, each share of Series B Convertible Preferred Stock that has not been previously converted into shares of the Company's common stock or automatically redeemed for cash. Upon such repurchase, the Company would also pay to holders of Series B Convertible Preferred Stock in cash a make whole payment, which corresponds to any deficit between (i) the
10
-day volume weighted price of Platform’s common stock prior to such repurchase and (ii)
$27.14
per share. Based on Platform's common stock price of
$8.11
as of
September 30, 2016
, the maximum potential make whole payment would total approximately
$421 million
. Under the terms of a recent settlement agreement with the Arysta Seller, from October 20, 2016 until the close of business on December 15, 2016, the Company may however settle (i) all of its obligations with respect to the Series B Convertible Preferred Stock in exchange for a cash payment of
$1.00
and the issuance of
5,500,000
shares of its common stock upon simultaneous conversion of the Series B Convertible Preferred Stock by the Arysta Seller, and (ii) for a payment of
$460 million
, its obligation to pay the make whole payment mentioned above to the Arysta Seller.
The Company anticipates sufficient cash from operations to fund interest, working capital and other capital expenditures for the foreseeable future and has access to a
$500 million
line of credit under the Revolving Credit Facility, with current availability of
$500 million
, as well as availability under various lines of credit and overdraft facilities of
$118 million
. In addition, during the third quarter of 2016, the Company completed the September 2016 Equity Offering of
48,787,878
shares of common stock. This offering resulted in gross proceeds of approximately
$402.5 million
. Despite the above, a combination of the settlement of the preferred stock redemption liability, working capital shortfalls and future acquisitions may require utilization of the Revolving Credit Facility as well as proceeds from future debt and/or equity offerings. The Company's long-term liquidity may also be impacted by its ability to borrow additional funds, renegotiate existing debt and/or raise equity or debt under favorable terms.
Amended and Restated Credit Agreement
The Company is party to the Amended and Restated Credit Agreement, which governs the First Lien Credit Facility and the Revolving Credit Facility (in U.S. Dollar or multicurrency). A portion of the Revolving Credit Facility not in excess of
$30.0 million
is available for the issuance of letters of credit. As of
September 30, 2016
, the maximum borrowing capacity under the Amended and Restated Credit Agreement consisted (i) an aggregate principal amount of up to
$250 million
under the Revolving Credit Facility to be denominated in U.S. Dollars, and (ii) an aggregate principal amount of up to
$250 million
under the Revolving Credit Facility to be denominated in multicurrency.
Pursuant to the terms of the Amended and Restated Credit Agreement, each of the First Lien Credit Facility term loans bear interest at a rate per annum equal to the greater of
5.50%
or LIBOR plus an adjusted eurocurrency rate, or
4.50%
plus an adjusted base rate, calculated as set forth in the Amended and Restated Credit Agreement. Each tranche of term loans will mature on June 7, 2020.
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Pursuant to the terms of the Amended and Restated Credit Agreement, loans under the Revolving Credit Facility bear interest at a rate per annum equal to
3.00%
plus an adjusted eurocurrency rate, or
2.00%
plus an adjusted base rate, each as calculated as set forth in the Amended and Restated Credit Agreement. The Revolving Credit Facility will mature on June 7, 2019. Revolving loans and commitments held by revolving facility lenders who did not consent to any extension, will mature on June 7, 2018.
Certain domestic and foreign subsidiaries of the Company, including certain subsidiaries acquired in the Alent, Arysta and OMG Acquisitions, are guarantors under the Amended and Restated Credit Agreement, with certain of these subsidiaries having pledged collateral to secure the obligations incurred thereunder.
Covenants and Events of Default
The Amended and Restated Credit Agreement contains customary covenants including limitations on additional indebtedness, dividends and other distributions, entry into new lines of business, use of loan proceeds, capital expenditures, restricted payments, restrictions on liens, transactions with affiliates, amendments to organizational documents, accounting changes, sale and leaseback transactions and dispositions. The Revolving Credit Facility also imposes a financial covenant to maintain a first lien net leverage ratio of
6.25
to
1.0
of (x) consolidated indebtedness secured by a first lien minus unrestricted cash and cash equivalents of the borrowers and guarantors under the Amended and Restated Credit Agreement to (y) consolidated EBITDA for the four most recent fiscal quarters, subject to a right to cure. A violation of this financial covenant can become an event of default under the Credit Facilities and result in the acceleration of all of the Company's indebtedness. As of
September 30, 2016
, the Company was in compliance with the debt covenants contained in the Credit Facilities and, in accordance with such debt covenants, had full availability of its unused borrowing capacity of
$500 million
under the Revolving Credit Facility.
The Amended and Restated Credit Agreement also contains customary events of default that include, among others, non-payment of principal, interest or fees, violation of certain covenants, inaccuracy of representations and warranties, failure to make payment on certain other material indebtedness, bankruptcy and insolvency events, material judgments and change of control provisions. Upon the occurrence of an event of default, payment of any outstanding loans under the Amended and Restated Credit Agreement may be accelerated. Borrowings under the Amended and Restated Credit Agreement are also subject to mandatory prepayment from the proceeds of certain dispositions of assets and from certain insurance and condemnation proceeds, excess cash flow and debt incurrences, in each case, subject to customary carve-outs and exceptions.
The Amended and Restated Credit Agreement also contains a yield protection provision wherein the yield on any current indebtedness issued under the Amended and Restated Credit Agreement would be increased to within
50 basis points
of the yield on any additional incremental term loan(s), in the event the incremental term loan(s) provided an initial yield, including original issue discount (OID), subject to the yield calculation provisions, as defined, is in excess of
50 basis points
of the yield on existing term loan indebtedness.
Subsequent Event
On October 14, 2016, the Company entered into and closed the transactions contemplated by Amendment No. 5 to the Second Amended and Restated Credit Agreement. Amendment No. 5, among other things, provided for the prepayment in full of previously existing tranche B and tranche B-2 term loans denominated in U.S. dollars and tranche C-1 term loans denominated in Euros with the aggregate proceeds of newly created tranche B-4 term loans denominated in U.S. dollars in an aggregate principal amount of
$1.48 billion
(less original issue discount of
0.5%
) and tranche C-3 term loans denominated in Euros in an aggregate principal amount of
€433 million
(or
$487 million
based on the Euro/USD exchange rate of
1.124
on September 30, 2016)(less original issue discount of
0.25%
). The amendment effectively reduced interest rates by
50 basis points
for the new U.S. Dollar denominated term loans and by
75 basis points
for the new Euro denominated term loans. The new tranche B-4 term loans bear interest at
4.0%
per annum, plus an applicable eurocurrency rate and the new Euro tranche C-3 term loans bear interest at
3.75%
per annum, plus an applicable eurocurrency rate, in each case as calculated in the Credit Agreement. The maturity date of the new term loans is June 7, 2023; provided that if, on or prior to November 2, 2021, the Company has not prepaid, redeemed or otherwise retired and/or refinanced in full its
6.50%
USD Notes due 2022, as permitted under the Amended and Restated Credit Agreement, the maturity date of the new term loans will be November 2, 2021.
Amendment No. 5 also (i) amended the Restricted Payments basket, as defined in the Amended and Restated Credit Agreement, to limit select forms of restricted payments if such payments would cause the total net leverage ratio, calculated as set forth in the Amended and Restated Credit Agreement, to exceed
6.00
to
1.00
, and (ii) requires a prepayment percentage in the case of excess cash flow, both calculated as set forth in the Amended and Restated Credit Agreement, of
75%
with step-downs to
50%
,
25%
and
0%
based on the applicable first lien net leverage ratio on the prepayment date.
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Except as set forth in Amendment No. 5 and above, the new USD tranche B-4 term loans have identical terms as the existing U.S. dollar denominated tranche B-3 term loans and the new Euro tranche C-3 term loans have identical terms as the existing Euro denominated tranche C-2 term loans and, in each case, are otherwise subject to the provisions of the Amended and Restated Credit Agreement.
Guarantees
The obligations of Platform and MacDermid, as borrowers, under the Amended and Restated Credit Agreement are guaranteed by current and future direct and indirect domestic subsidiaries. Certain of Platform's foreign subsidiaries also guarantee the obligations of MAS Holdings, NAIP, MacDermid Europe and MacDermid Funding with respect to the Euro tranche C term loans. Pursuant to the Security Agreement, the Company's obligations under the Amended and Restated Credit Agreement are secured by a security interest in substantially all of the personal property, whether owned on the date of the Security Agreement, or entered into or acquired in the future, of Platform and MacDermid, as borrowers, and the guarantors listed in the Security Agreement, including the pledge by Platform, MacDermid and guarantors generally of
100%
of the voting common stock and other equity interests in all of their respective domestic subsidiaries and
65%
of the voting common stock and other equity interests in all of their respective directly owned non-domestic subsidiaries (in each case, whether existing on the date of the Security Agreement or entered into or acquired thereafter), subject to certain exceptions contained in the Amended and Restated Credit Agreement and the Security Agreement.
Lines of Credit and Other Debt Facilities
The Company carries a Revolving Credit Facility and various lines of credit, short-term debt facilities and overdraft facilities worldwide which are used to fund short-term cash needs. As of
September 30, 2016
and
December 31, 2015
, the aggregate principal amount outstanding under such facilities totaled
$42.8 million
and
$16.7 million
, respectively. The Company also had letters of credit outstanding of
$32.9 million
and
$40.0 million
as of
September 30, 2016
and
December 31, 2015
, respectively, of which
$11.2 million
and
$11.0 million
as of
September 30, 2016
and
December 31, 2015
, respectively, reduce the borrowings available under the Revolving Credit Facility. As of
September 30, 2016
and
December 31, 2015
, the availability under these facilities was approximately
$618 million
, net of outstanding letters of credit.
Financial Guarantees and Factoring Arrangements
The Company periodically enters into certain arrangements with vendors and customers under which it provides guarantees to financial institutions for loans entered into between its vendors and customers and the financial institutions, the proceeds of which are used to settle outstanding accounts receivables. The terms of the guarantees are equivalent to the terms of the customer loans. Liabilities for the guarantees are recorded at amounts that approximate fair value, based on the Company’s historical collection experience with vendors and customers that participate in the program and a current assessment of credit exposure. Such liabilities are included in "Accrued expenses and other current liabilities" in the Company's Condensed Consolidated Balance Sheets, and totaled
$6.7 million
and
$46.3 million
as of
September 30, 2016
and
December 31, 2015
, respectively. Program income and expenses are recorded in "Interest expense, net" in the Condensed Consolidated Statements of Operations. For the three months ended
September 30, 2016
and
2015
, program income (expenses) totaled
$0.1 million
and
$(0.5) million
, respectively.
For the nine months ended September 30, 2016
and
2015
, program income (expenses) totaled
$0.3 million
and
$(1.5) million
, respectively.
The Company also utilizes accounts receivable factoring arrangements as a part of its working capital management strategies. Total current capacity under such programs is approximately
$287 million
as of
September 30, 2016
. Under these arrangements, factored accounts receivable may be transferred with or without recourse. Factoring transactions qualifying for sales treatment, where the derecognition criteria have been met, totaled
$33.1 million
as of
September 30, 2016
. As of
December 31, 2015
, such transactions totaled
$189 million
. Accounts receivable balances related to arrangements not having met the derecognition criteria, where the risks and rewards of ownership have not been transferred, remain recorded in "Accounts receivable" and the related liabilities are included in "Accrued expenses and other current liabilities" in the Company's Condensed Consolidated Balance Sheets, and totaled
$31.0 million
and
$24.8 million
as of
September 30, 2016
and
December 31, 2015
, respectively. Factoring fees are recorded in "Interest expense, net" in the Condensed Consolidated Statements of Operations and totaled
$0.7 million
and
$0.1 million
for the three months ended
September 30, 2016
and
2015
, respectively.
For the nine months ended September 30, 2016
and
2015
, factoring fees totaled
$1.4 million
and
$0.1 million
, respectively. As of
September 30, 2016
, the Company had additional capacity under its factoring arrangements of approximately
$96.8 million
, subject to the limitations outlined in its Credit Facilities and other agreements governing outstanding debt.
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Some of the Company’s subsidiaries in the United States and the Netherlands periodically enter into arrangements with financial institutions for consignment and/or purchase of precious metals. The present and future indebtedness and liability relating to such arrangements are guaranteed by the Company. The Company’s maximum guarantee liability under these arrangements is limited to an aggregate of
$18.0 million
.
9. DERIVATIVE INSTRUMENTS
In the normal course of business, the Company is exposed to risks relating to changes in foreign currency exchange rates, interest rates and commodity prices. Derivative financial instruments, such as foreign currency exchange forward contracts, interest rate swaps and commodities futures contracts are used to manage the risks associated with changes in the conditions of those markets. All derivatives are recognized in the Condensed Consolidated Balance Sheets at fair value at the end of each period. The counterparties to the Company’s derivative agreements are primarily major international financial institutions. The Company continually monitors its positions and the credit ratings of its counterparties and does not anticipate nonperformance by the counterparties.
Foreign Currency
The Company conducts a significant portion of its business in currencies other than the U.S. Dollar and in currencies other than the functional currencies of its subsidiaries. As a result, the Company’s operating results are affected by foreign currency exchange rate volatility.
As of
September 30, 2016
, the Company held foreign currency forward contracts to purchase and sell various currencies primarily with U.S. Dollars and Euro, with less significant amounts traded with Japanese Yen. The Company has not designated any foreign currency exchange forward contracts as eligible for hedge accounting. The total U.S. Dollar equivalent of foreign currency exchange forward contracts held at
September 30, 2016
was approximately
$264 million
, all of which have settlement dates within
one year
. The following table details the Company's significant outstanding foreign exchange derivative contracts as of
September 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Traded against USD
|
|
Traded against EUR
(USD equivalent)
|
Currency
|
Purchasing
|
|
Selling
|
|
Purchasing
|
|
Selling
|
Euro (EUR)
|
$
|
41.4
|
|
|
$
|
36.9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Brazilian Real (BRL)
|
13.8
|
|
|
66.1
|
|
|
—
|
|
|
—
|
|
Japanese Yen (JPY)
|
12.3
|
|
|
18.7
|
|
|
9.5
|
|
|
1.6
|
|
South African Rand (ZAR)
|
—
|
|
|
22.3
|
|
|
—
|
|
|
1.4
|
|
Taiwan Dollar (TWD)
|
10.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other
|
15.4
|
|
|
2.9
|
|
|
9.1
|
|
|
0.3
|
|
Total
|
$
|
93.5
|
|
|
$
|
146.9
|
|
|
$
|
18.6
|
|
|
$
|
3.3
|
|
The change in the net fair value of the foreign currency forward contracts is recorded in "Loss on derivative contracts" in the Condensed Consolidated Statements of Operations.
Interest Rates
In August 2015, the Company entered into a series of pay fixed, receive floating interest rate swaps with respect to a portion of its indebtedness. The swaps effectively fix the floating base rate portion of the interest payments on approximately
$1.15 billion
of the Company's USD denominated debt and
€282 million
of its Euro denominated debt at
1.96%
and
1.20%
, respectively, from September 2015 through June 2020.
Changes in the fair value of a derivative that is designated as, and meets all the required criteria of, a cash flow hedge are recorded in "Accumulated other comprehensive income (loss)" and reclassified into earnings as the underlying hedged item affects earnings. Amounts reclassified into earnings related to the interest rate swaps are included in interest expense.
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Commodities
As part of its risk management policy, the Company enters into commodities futures contracts on an ongoing basis for the purpose of mitigating its exposure to fluctuations in prices of certain metals it uses in the production of its finished goods. The Company held futures contracts to purchase and sell various metals, primarily silver and tin, for a notional amount of
$38.7 million
and
$16.5 million
as of
September 30, 2016
and
December 31, 2015
, respectively. All contracts outstanding at
September 30, 2016
have delivery dates within the next
twelve months
. The change in the net fair value of the commodities futures contracts is recorded in "Loss on derivative contracts" in the Condensed Consolidated Statements of Operations.
Certain subsidiaries of the Company have entered into supply agreements with a third party that have been deemed to constitute financing agreements with an embedded derivative feature whose fair value is determined by the change in the market value of the underlying metals between delivery date and measurement date. Amounts associated with these supply agreements, which serve as the notional value of the embedded derivative, have been recorded in "Inventory" and "Current installments of long-term debt and revolving credit facilities" in the Condensed Consolidated Balance Sheets and totaled
$13.7 million
and
$13.0 million
at
September 30, 2016
and
December 31, 2015
, respectively, and primarily relate to gold purchases. The fair value of these contracts has been bifurcated and recorded as a derivative liability in "Accrued expenses and other current liabilities" in the Condensed Consolidated Balance Sheets and totaled
$0.4 million
and
zero
at
September 30, 2016
and
December 31, 2015
, respectively.
Fair Value of Derivative Instruments
The following table summarizes the fair value of derivative instruments reported in the Condensed Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in millions)
|
|
|
|
September 30,
2016
|
|
December 31, 2015
|
Derivatives designated as hedging instruments
|
|
Liabilities Balance Sheet location
|
|
|
|
|
Interest rate swaps
|
|
Accrued expenses and other current liabilities
|
|
$
|
(10.5
|
)
|
|
$
|
—
|
|
Interest rate swaps
|
|
Other long-term liabilities
|
|
(17.5
|
)
|
|
(12.5
|
)
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
Assets Balance Sheet location
|
|
|
|
|
|
|
Foreign exchange and metals contracts
|
|
Prepaid expenses and other current assets
|
|
2.6
|
|
|
1.1
|
|
Foreign exchange contracts
|
|
Other assets
|
|
—
|
|
|
1.0
|
|
|
|
Liabilities Balance Sheet location
|
|
|
|
|
|
|
Foreign exchange and metals contracts
|
|
Accrued expenses and other current liabilities
|
|
(5.5
|
)
|
|
(1.0
|
)
|
Net derivative contract liability
|
|
|
|
$
|
(30.9
|
)
|
|
$
|
(11.4
|
)
|
The Company recorded unrealized losses of
$1.6 million
and
$24.3 million
for the
three and nine
months ended
September 30, 2016
, respectively, in "Other comprehensive income (loss)" related to interest rate swaps. For the
three and nine
months ended
September 30, 2015
, such losses totaled
$18.1 million
. The interest rate swaps were deemed highly effective with no ineffective portions for cash flow hedge accounting purposes during the
nine months ended
September 30, 2016
. For the
three and nine
months ended
September 30, 2016
, the Company reclassified
$3.0 million
and
$8.9 million
, respectively, of unrealized losses associated with the interest rate swaps from "Accumulated other comprehensive income" to "Interest expense, net." During the next twelve months, the Company expects to reclassify
$10.5 million
from "Accumulated other comprehensive income" to "Interest expense, net" in the Condensed Consolidated Statements of Operations.
For the three months ended September 30, 2016
and
2015
, the Company recorded realized and unrealized losses of
$1.4 million
and
$47.3 million
in "Loss on derivative contracts" in the Condensed Consolidated Statements of Operations related to foreign exchange and metals derivative contracts.
For the nine months ended September 30, 2016
and
2015
, such losses totaled
$12.1 million
and
$49.9 million
, respectively.
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Master Netting Arrangements
In the normal course of business, the Company enters into contracts with certain counterparties to purchase and sell foreign currency exchange forwards and metal futures that contain master netting arrangements, typically in the form of an International Swaps and Derivatives Association (ISDA) or similar agreements. The right to set-off within these agreements is limited to certain termination events, such as bankruptcy or default of either party to the agreement. The Company has made an accounting policy decision not to offset and reports gross derivative asset and liability balances in the Condensed Consolidated Balance Sheets.
The following table presents recognized foreign currency exchange forward and metal future derivative contracts that are subject to master netting arrangements but not offset, as of
September 30, 2016
and
December 31, 2015
, and shows in the "Net" column what the net impact would be on the Company's Condensed Consolidated Balance Sheets if all set-off rights were exercised:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
(amounts in millions)
|
Amounts offset
|
|
Amounts not offset
|
|
Net
|
Financial assets
|
Gross assets
|
|
Gross liabilities offset
|
|
Net amounts presented
|
|
Financial instruments
|
|
Cash collateral paid
|
|
|
Derivative assets
|
$
|
2.1
|
|
|
$
|
—
|
|
|
$
|
2.1
|
|
|
$
|
(0.4
|
)
|
|
$
|
—
|
|
|
$
|
1.7
|
|
|
September 30, 2016
|
|
Amounts offset
|
|
Amounts not offset
|
|
Net
|
Financial liabilities
|
Gross liabilities
|
|
Gross assets offset
|
|
Net amounts presented
|
|
Financial instruments
|
|
Cash collateral paid
|
|
|
Derivative liabilities
|
$
|
4.8
|
|
|
$
|
—
|
|
|
$
|
4.8
|
|
|
$
|
(1.0
|
)
|
|
$
|
(1.0
|
)
|
|
$
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
(amounts in millions)
|
Amounts offset
|
|
Amounts not offset
|
|
Net
|
Financial assets
|
Gross assets
|
|
Gross liabilities offset
|
|
Net amounts presented
|
|
Financial instruments
|
|
Cash collateral paid
|
|
|
Derivative assets
|
$
|
3.1
|
|
|
$
|
—
|
|
|
$
|
3.1
|
|
|
$
|
(0.3
|
)
|
|
$
|
—
|
|
|
$
|
2.8
|
|
|
December 31, 2015
|
|
Amounts offset
|
|
Amounts not offset
|
|
Net
|
Financial liabilities
|
Gross liabilities
|
|
Gross assets offset
|
|
Net amounts presented
|
|
Financial instruments
|
|
Cash collateral paid
|
|
|
Derivative liabilities
|
$
|
1.7
|
|
|
$
|
—
|
|
|
$
|
1.7
|
|
|
$
|
(1.2
|
)
|
|
$
|
(0.9
|
)
|
|
$
|
(0.4
|
)
|
Collateral paid to counterparties is recorded in "Prepaid expenses and other current assets" in the Condensed Consolidated Balance Sheets.
10. FAIR VALUE MEASUREMENTS
The Company determines fair value measurements used in its unaudited interim Condensed Consolidated Financial Statements based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants exclusive of any transaction costs, as determined by either the principal market or the most advantageous market. The principal market is the market with the greatest level of activity and volume for the asset or liability. Absent a principal market to measure fair value, the Company uses the most advantageous market, which is the market in which the Company would receive the highest selling price for the asset or pay the lowest price to settle the liability, after considering transaction costs. However, when using the most advantageous market, transaction costs are only considered to determine which market is the most advantageous and these costs are then excluded when applying a fair value measurement.
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Inputs used in the valuation techniques to derive fair values are classified based on a three-level hierarchy. The basis for fair value measurements for each level within the hierarchy is described below, with Level 1 having the highest priority, and Level 3 having the lowest.
The three levels of the fair value hierarchy are as follows:
|
|
•
|
Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
|
|
|
•
|
Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in non-active markets; and model-derived valuations whose inputs are observable or whose significant valuation drivers are observable.
|
|
|
•
|
Level 3 – significant inputs to the valuation model are unobservable and/or reflect the Company’s market assumptions.
|
Recurring Fair Value Measurements
The following tables present the Company’s financial instruments, assets and liabilities that are measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement Using
|
(amounts in millions)
|
September 30,
2016
|
|
Quoted prices in
active markets
(Level 1)
|
|
Significant
other observable
inputs
(Level 2)
|
|
Significant
unobservable
inputs
(Level 3)
|
Asset Category
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
23.2
|
|
|
$
|
—
|
|
|
$
|
23.2
|
|
|
$
|
—
|
|
Available for sale equity securities
|
2.5
|
|
|
1.9
|
|
|
0.6
|
|
|
—
|
|
Derivatives
|
2.6
|
|
|
—
|
|
|
2.6
|
|
|
—
|
|
Total
|
$
|
28.3
|
|
|
$
|
1.9
|
|
|
$
|
26.4
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Liability Category
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
$
|
33.5
|
|
|
$
|
—
|
|
|
$
|
33.5
|
|
|
$
|
—
|
|
Long-term contingent consideration
|
75.0
|
|
|
—
|
|
|
—
|
|
|
75.0
|
|
Preferred stock redemption liability
|
504.0
|
|
|
—
|
|
|
—
|
|
|
504.0
|
|
Total
|
$
|
612.5
|
|
|
$
|
—
|
|
|
$
|
33.5
|
|
|
$
|
579.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement Using
|
(amounts in millions)
|
December 31, 2015
|
|
Quoted prices in
active markets
(Level 1)
|
|
Significant
other observable
inputs
(Level 2)
|
|
Significant
unobservable
inputs
(Level 3)
|
Asset Category
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
59.4
|
|
|
$
|
2.9
|
|
|
$
|
56.5
|
|
|
$
|
—
|
|
Available for sale equity securities
|
6.6
|
|
|
5.8
|
|
|
0.8
|
|
|
—
|
|
Derivatives
|
2.1
|
|
|
—
|
|
|
2.1
|
|
|
—
|
|
Total
|
$
|
68.1
|
|
|
$
|
8.7
|
|
|
$
|
59.4
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Liability Category
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
$
|
13.5
|
|
|
$
|
—
|
|
|
$
|
13.5
|
|
|
$
|
—
|
|
Long-term contingent consideration
|
70.7
|
|
|
—
|
|
|
—
|
|
|
70.7
|
|
Total
|
$
|
84.2
|
|
|
$
|
—
|
|
|
$
|
13.5
|
|
|
$
|
70.7
|
|
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
The following methods and assumptions were used to estimate the fair value of each class of the Company’s financial instruments, assets and liabilities:
Cash equivalents -
Cash equivalents primarily comprise certificates of deposits issued by financial institutions. These funds are not publicly traded, but historically have been highly liquid. The Company records certificates of deposit at amortized cost in the Condensed Consolidated Balance Sheets. Given the relatively short maturities of these instruments, the Company believes amortized cost approximates fair value. The Company classifies these instruments as Level 2.
Available for sale equity securities
-
Equity securities classified as available for sale are measured using quoted market prices at the reporting date multiplied by the quantity held and, accordingly, are classified as Level 1 assets. Level 2 equity securities are measured using quoted prices for similar instruments in active markets. Available for sale securities are included in "Other assets" in the Condensed Consolidated Balance Sheets.
Derivatives
-
Derivative assets and liabilities include foreign currency, metals and interest rate derivatives. The values were determined using pricing models based upon observable market inputs, such as market spot and futures prices on over-the-counter derivative instruments, market interest rates and consideration of counterparty credit risk.
Long-term contingent consideration
-
The long-term contingent consideration represents a potential liability of up to
$100 million
tied to achievement of EBITDA and common stock trading price performance metrics over a
seven
-year period ending December 2020 in connection with the MacDermid Acquisition. The common stock performance metric has been satisfied. The fair value of the EBITDA performance metric is derived using the income approach with unobservable inputs, based on future forecasts and present value assumptions which include a discount rate of approximately
1.06%
and expected future value of payments of
$60.0 million
calculated using a probability weighted EBITDA assessment with higher probability associated with the Company achieving the maximum EBITDA targets. Changes in the fair value of the long-term contingent consideration are recorded in "Selling, technical, general and administrative expenses" in the Condensed Consolidated Statements of Operations. Relative to the share price metric, an increase or decrease in the discount rate of
1%
changes the fair value measure of the metric by approximately
$1.7 million
. Relative to the EBITDA metric, an increase or a decrease in the discount rate of
1%
, within a range of probability between
80%
and
100%
, changes the fair value measure of the metric by approximately
$3.0 million
.
Preferred stock redemption liability -
The preferred stock redemption liability represents a potential liability of up to
$600 million
related to the issuance of
600,000
shares of Series B Convertible Preferred Stock in connection with the Arysta Acquisition. The Company and the Arysta Seller entered into a settlement agreement in September 2016 with respect to certain obligations related to the Company's shares of Series B Convertible Preferred Stock. See Note 11,
Stockholders' Equity,
under the heading "
Series B Convertible Preferred Stock."
The fair value of the preferred stock redemption liability is computed as the sum of the
$460 million
cash consideration, which is discounted at an interpolated, risk-free rate, the
September 30, 2016
market value of the
5,500,000
shares of common stock of the Company and accounts for settlement option assumptions. Accordingly, this liability is measured using Level 3 inputs. For the three and nine months ended September 30, 2016, the Company recorded a
$6.0 million
gain associated with the change in fair value of the preferred stock redemption liability, which was recorded to "Other income, net" in the Condensed Consolidated Statement of Operations.
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
The following table provides a reconciliation of the beginning and ending balances for the
nine months ended
September 30, 2016
for instruments measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
|
|
|
|
|
(amounts in millions)
|
September 30, 2016
|
Fair value measurements using significant unobservable inputs (Level 3)
|
|
Balance at December 31, 2015
|
$
|
70.7
|
|
Changes in fair value
|
(1.7
|
)
|
Purchases, sales and settlements
(1)
|
—
|
|
Additions
|
510.0
|
|
Transfers into Level 3
|
—
|
|
Transfers out of Level 3
|
—
|
|
Balance at September 30, 2016
|
$
|
579.0
|
|
(1)
There were
no
purchases, sales or settlements during the
nine months ended
September 30, 2016
.
The Company consistently applies its policy for transfers between fair value hierarchy levels as disclosed in the Company's Annual Report. There were no significant transfers between the fair value hierarchy levels for the
nine months ended
September 30, 2016
.
Nonrecurring Fair Value Measurements
The following table presents the carrying value and estimated fair value of the Company’s long-term debt and capital lease obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in millions)
|
September 30, 2016
|
|
December 31, 2015
|
|
Carrying
Value
|
|
Fair Value
|
|
Carrying
Value
|
|
Fair Value
|
USD Senior Notes due 2022
|
$
|
1,082.5
|
|
|
$
|
1,071.6
|
|
|
$
|
1,081.1
|
|
|
$
|
946.3
|
|
EUR Senior Notes due 2023
|
387.6
|
|
|
371.6
|
|
|
374.0
|
|
|
326.7
|
|
USD Senior Notes due 2021
|
488.5
|
|
|
539.9
|
|
|
487.5
|
|
|
500.0
|
|
First Lien Credit Facility - U.S. Dollar Term Loans
|
2,620.0
|
|
|
2,685.7
|
|
|
2,631.3
|
|
|
2,603.6
|
|
First Lien Credit Facility - Euro Term Loans
|
638.0
|
|
|
657.8
|
|
|
619.2
|
|
|
624.3
|
|
Capital lease obligations
|
5.1
|
|
|
5.2
|
|
|
5.5
|
|
|
5.3
|
|
Total
|
$
|
5,221.7
|
|
|
$
|
5,331.8
|
|
|
$
|
5,198.6
|
|
|
$
|
5,006.2
|
|
Carrying values presented above include unamortized premiums, discounts and debt issuance costs.
The following methods and assumptions were used to estimate the fair value of the Company’s liabilities:
Long-term Debt and Capital Lease Instruments
-
These financial instruments are measured using quoted market prices at the reporting date multiplied by the gross carrying amount of the related debt, which excludes unamortized premiums, discounts and debt issuance costs. Such instruments are valued using Level 2 inputs.
11. STOCKHOLDERS’ EQUITY
Underwritten Public Offering
On September 21, 2016, the Company completed the September 2016 Equity Offering of
48,787,878
shares of its common stock at a public offering price of
$8.25
per share. This number of shares includes
6,363,636
shares sold to the underwriters upon exercise in full of their option to purchase additional shares. The September 2016 Equity Offering was registered with the SEC pursuant
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
to Platform's shelf registration statement on Form S-3 declared effective by the SEC on July 26, 2016. The September 2016 Equity Offering resulted in gross proceeds to Platform of approximately
$402.5 million
, before underwriting discounts and commissions and offering expenses of
$11.6 million
.
Preferred Stock
The Company is authorized to issue
5,000,000
shares of preferred stock. The Board has designated
2,000,000
of those shares as "Series A Preferred Stock." As of
September 30, 2016
and
December 31, 2015
, a total of
2,000,000
shares of Series A Preferred Stock were issued and outstanding. The Board has also designated
600,000
of the authorized shares as "Series B Convertible Preferred Stock," which are redeemable and were presented in the mezzanine section of the Company's Condensed Consolidated Balance Sheet as of December 31, 2015. As further described below under the heading "
Series B Convertible Preferred Stock",
the Series B Convertible Preferred Stock was, for accounting purposes, deemed extinguished. As of
September 30, 2016
and
December 31, 2015
, a total of
600,000
shares of Series B Convertible Preferred Stock were issued and outstanding. Shares of preferred stock have no voting rights, except in respect of any amendment to the Company's Certificate of Incorporation, as amended, that would alter or change their rights or privileges.
Series A Preferred Stock
The Founder Entities are the current holders of Platform's outstanding
2,000,000
shares of Series A Preferred Stock. Each share of Series A Preferred Stock is convertible into
one
share of common stock at the option of the holders until December 31, 2020. All outstanding shares of Series A Preferred Stock will be automatically converted into shares of common stock on a
one
for one basis (i) in the event of a change of control of the Company following an acquisition or (ii) upon the last day of the seventh full financial year following the MacDermid Acquisition, being December 31, 2020 (which may be extended by the Board for
three
additional years).
Holders of Series A Preferred Stock are entitled to receive dividends in the form of shares of common stock. The dividend amount is calculated based on the appreciated stock price compared to the highest dividend price previously used in calculating the Series A Preferred Stock dividends, which is currently
$22.85
.
Series B Convertible Preferred Stock
In connection with the Arysta Acquisition, the Company issued to the Arysta Seller
600,000
shares of Series B Convertible Preferred Stock, which have a
$1,000
per share liquidation preference. The fair value of these shares at the time of the Arysta Acquisition of
$646 million
was recognized as "Redeemable preferred stock – Series B" in the Condensed Consolidated Balance Sheets. To the extent the Company does not settle all of its obligations pursuant to the settlement agreement mentioned below, at any time after December 15, 2016, the Arysta Seller has the ability to convert these shares into common stock of Platform at a conversion price of
$27.14
per share. Additionally, any shares that have not previously been converted will be automatically redeemed at a
$1,000
redemption price in the event of certain mergers or consolidations, the sale of all or substantially all of the Company’s assets or subsidiaries, the sale of certain subsidiaries of the Company or the approval of any plan for the dissolution, liquidation or termination of the Company by its stockholders.
Under the terms of a settlement agreement with the Arysta Seller, from October 20, 2016 until the close of business on December 15, 2016, the Company may settle (i) all of its obligations with respect to the Series B Convertible Preferred Stock in exchange for a cash payment of
$1.00
and the issuance of
5,500,000
shares of its common stock upon simultaneous conversion of the Series B Convertible Preferred Stock by the Arysta Seller, and (ii) for a payment of
$460 million
, its obligation to pay the make whole payment mentioned below to the Arysta Seller. To the extent the Company does not settle all of its obligations by December 15, 2016, it will be required, on April 20, 2017, pursuant to a share purchase agreement among the Company, the Arysta Seller and certain other parties thereto, dated as of October 20, 2014, as amended, to repurchase each share of Series B Convertible Preferred Stock that has not been converted into shares of common stock of Platform, or automatically redeemed as described above at the
$1,000
redemption price payable in shares of the Company's common stock (
22,107,590
shares of common stock valued at
$27.14
per share). Upon such repurchase, the Company shall also pay to holders of Series B Convertible Preferred Stock in cash a make whole payment, which corresponds to any deficit between (i) the
10
-day volume weighted price of Platform’s common stock prior to such repurchase and (ii)
$27.14
per share. Based on Platform's common stock price of
$8.11
as of
September 30, 2016
, the maximum potential make whole payment would total approximately
$421 million
. To the extent the Company does not settle all of its obligations by December 15, 2016, the holders of Series B Convertible Preferred Stock are also entitled to an incremental payment equal to
$4.0 million
per month from October 20, 2016 to April 20, 2017, or such earlier date after October 20, 2016 that
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
the then outstanding shares of Series B Convertible Preferred Stock are converted into shares of common stock of Platform or automatically redeemed for cash by Platform.
As a result of the settlement agreement, for accounting purposes, the Series B Convertible Preferred Stock was deemed an extinguishment in exchange for the issuance of another financial instrument that is recognized as a "Preferred stock redemption liability" in the Condensed Consolidated Balance Sheets. The Company recognized a gain of
$103 million
in "Other income, net" in the accompanying Condensed Consolidated Statement of Operations and a gain of
$32.9 million
in "Net income (loss) attributable to common stockholders." The Company also elected the fair value option to measure the liability as it most accurately reflects the economics of the transaction and the value of the liability. For the three and nine months ended September 30, 2016, the Company recorded a
$6.0 million
gain associated with the remeasurement of the liability, which was recorded to "Other income, net" in the Condensed Consolidated Statement of Operations.
Non-Controlling Interest
In connection with the MacDermid Acquisition, approximately
$97.5 million
was raised in new equity consisting of shares of PDH Common Stock. Since October 31, 2014, all shares of PDH common stock are convertible, at the option of the holder, into a like number of shares of the Company's common stock, the sale of which is subject to a contractual lock-up of
25%
per year over a
four
-year period, which started on October 31, 2013.
The PDH Common Stock is classified as a non-controlling interest on the Condensed Consolidated Balance Sheets at
September 30, 2016
and
December 31, 2015
and will continue to be until such time as it is fully converted into shares of the Company's common stock. The total number of shares of common stock originally issuable upon the exchange of PDH Common Stock pursuant to the RHSA was approximately
8.8 million
, against which
776,862
shares have been issued as of
September 30, 2016
.
For the three months ended
September 30, 2016
and
2015
, approximately
$1.5 million
and
$1.1 million
, respectively, of net loss has been allocated to the Retaining Holders, as included in the Condensed Consolidated Statements of Operations, representing non-controlling interest of
6.20%
and
6.35%
at
September 30, 2016
and
2015
, respectively.
For the
nine
months ended
September 30, 2016
and
2015
, approximately
$(4.2) million
and
$0.1 million
, respectively, of net (loss) income has been allocated to the Retaining Holders, as included in the Condensed Consolidated Statements of Operations.
12. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
Changes in each component of accumulated other comprehensive (loss) income, net of tax, for the
three and nine
months ended
September 30, 2016
and
2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2016
|
(amounts in millions)
|
Foreign Currency Translation Adjustments
|
|
Pension and Post-retirement Plans
|
|
Unrealized Loss on Available for Sale Securities
|
|
Derivative Financial Instrument Revaluation
|
|
Non-Controlling Interests
|
|
Accumulated Other Comprehensive (Loss) Income
|
Balance at June 30, 2016
|
$
|
(446.8
|
)
|
|
$
|
(26.3
|
)
|
|
$
|
(0.4
|
)
|
|
$
|
(24.9
|
)
|
|
$
|
24.7
|
|
|
$
|
(473.7
|
)
|
Other comprehensive (loss) income before reclassifications, net
|
(0.7
|
)
|
|
—
|
|
|
(0.1
|
)
|
|
(1.6
|
)
|
|
9.0
|
|
|
6.6
|
|
Reclassifications, pretax
|
—
|
|
|
—
|
|
|
—
|
|
|
3.0
|
|
|
—
|
|
|
3.0
|
|
Balance at September 30, 2016
|
$
|
(447.5
|
)
|
|
$
|
(26.3
|
)
|
|
$
|
(0.5
|
)
|
|
$
|
(23.5
|
)
|
|
$
|
33.7
|
|
|
$
|
(464.1
|
)
|
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2016
|
(amounts in millions)
|
Foreign Currency Translation Adjustments
|
|
Pension and Post-retirement Plans
|
|
Unrealized Gain on Available for Sale Securities
|
|
Derivative Financial Instrument Revaluation
|
|
Non-Controlling Interests
|
|
Accumulated Other Comprehensive (loss) Income
|
Balance at December 31, 2015
|
$
|
(899.3
|
)
|
|
$
|
(26.3
|
)
|
|
$
|
1.2
|
|
|
$
|
(8.1
|
)
|
|
$
|
46.4
|
|
|
$
|
(886.1
|
)
|
Other comprehensive income (loss) before reclassifications, net
|
451.8
|
|
|
—
|
|
|
(1.7
|
)
|
|
(24.3
|
)
|
|
(12.7
|
)
|
|
413.1
|
|
Reclassifications, pretax
|
—
|
|
|
—
|
|
|
—
|
|
|
8.9
|
|
|
—
|
|
|
8.9
|
|
Balance at September 30, 2016
|
$
|
(447.5
|
)
|
|
$
|
(26.3
|
)
|
|
$
|
(0.5
|
)
|
|
$
|
(23.5
|
)
|
|
$
|
33.7
|
|
|
$
|
(464.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2015
|
(amounts in millions)
|
Foreign Currency Translation Adjustments
|
|
Pension and Post-retirement Plans
|
|
Unrealized Gain on Available for Sale Securities
|
|
Derivative Financial Instrument Revaluation
|
|
Non-Controlling Interests
|
|
Accumulated Other Comprehensive Loss
|
Balance at June 30, 2015
|
$
|
(386.0
|
)
|
|
$
|
(15.4
|
)
|
|
$
|
0.3
|
|
|
$
|
—
|
|
|
$
|
13.5
|
|
|
$
|
(387.6
|
)
|
Other comprehensive (loss) income before reclassifications, net
|
(350.2
|
)
|
|
—
|
|
|
1.0
|
|
|
(11.8
|
)
|
|
7.2
|
|
|
(353.8
|
)
|
Balance at September 30, 2015
|
$
|
(736.2
|
)
|
|
$
|
(15.4
|
)
|
|
$
|
1.3
|
|
|
$
|
(11.8
|
)
|
|
$
|
20.7
|
|
|
$
|
(741.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2015
|
(amounts in millions)
|
Foreign Currency Translation Adjustments
|
|
Pension and Post-retirement Plans
|
|
Unrealized Gain on Available for Sale Securities
|
|
Derivative Financial Instrument Revaluation
|
|
Non-Controlling Interests
|
|
Accumulated Other Comprehensive Loss
|
Balance at December 31, 2014
|
$
|
(122.2
|
)
|
|
$
|
(14.9
|
)
|
|
$
|
0.1
|
|
|
$
|
—
|
|
|
$
|
6.4
|
|
|
$
|
(130.6
|
)
|
Other comprehensive (loss) income before reclassifications, net
|
(614.0
|
)
|
|
—
|
|
|
1.2
|
|
|
(11.8
|
)
|
|
14.3
|
|
|
(610.3
|
)
|
Tax expense reclassified
|
—
|
|
|
(0.5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.5
|
)
|
Balance at September 30, 2015
|
$
|
(736.2
|
)
|
|
$
|
(15.4
|
)
|
|
$
|
1.3
|
|
|
$
|
(11.8
|
)
|
|
$
|
20.7
|
|
|
$
|
(741.4
|
)
|
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
13. EARNINGS (LOSS) PER SHARE
A computation of earnings (loss) per share and weighted average shares of common stock outstanding for the
three and nine
months ended
September 30, 2016
and
2015
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(amounts in millions, except per share amounts)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
(as restated)
|
|
|
|
(as restated)
|
Net income (loss) attributable to common stockholders for basic EPS
|
$
|
104.7
|
|
|
$
|
(140.1
|
)
|
|
$
|
(39.0
|
)
|
|
$
|
(178.9
|
)
|
Adjustments to the numerator for diluted earnings per share:
|
|
|
|
|
|
|
|
Gain on settlement agreement related to Series B Convertible Preferred Stock
|
(103.0
|
)
|
|
—
|
|
|
(103.0
|
)
|
|
—
|
|
Gain on amendment of Series B Convertible Preferred Stock
|
(32.9
|
)
|
|
—
|
|
|
(32.9
|
)
|
|
—
|
|
Remeasurement adjustment associated with the Preferred Series B redemption liability
|
(6.0
|
)
|
|
—
|
|
|
(6.0
|
)
|
|
—
|
|
Income allocated to PDH non-controlling interest
|
(1.5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Net loss attributable to common stockholders for diluted EPS
|
$
|
(38.7
|
)
|
|
$
|
(140.1
|
)
|
|
$
|
(180.9
|
)
|
|
$
|
(178.9
|
)
|
|
|
|
|
|
|
|
|
Basic weighted average common stock outstanding
|
234.4
|
|
|
210.9
|
|
|
231.2
|
|
|
198.6
|
|
Assumed conversion related to the amendment of Series B preferred shares
|
17.1
|
|
|
—
|
|
|
20.4
|
|
|
—
|
|
Assumed settlement of preferred stock redemption liability
|
5.0
|
|
|
—
|
|
|
1.7
|
|
|
—
|
|
Issuable upon conversion of the PDH non-controlling interest
|
8.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Share adjustments
(1)
|
30.1
|
|
|
—
|
|
|
22.1
|
|
|
—
|
|
Dilutive weighted average common stock outstanding
|
264.5
|
|
|
210.9
|
|
|
253.3
|
|
|
198.6
|
|
Income (loss) per share attributable to common stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.45
|
|
|
$
|
(0.66
|
)
|
|
$
|
(0.17
|
)
|
|
$
|
(0.89
|
)
|
Diluted
|
$
|
(0.15
|
)
|
|
$
|
(0.66
|
)
|
|
$
|
(0.71
|
)
|
|
$
|
(0.89
|
)
|
|
|
|
|
|
|
|
|
Dividends per share paid to common stockholders
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
(1)
For the three and nine months ended September 30, 2015,
no
share adjustments are included in the dilutive weighted average shares outstanding computation as their effect would have been anti-dilutive. For more information about such dilutive shares outstanding, refer to the table below.
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
For the
three and nine
months ended
September 30, 2016
and
2015
, the following securities were not included in the computation of diluted shares outstanding because the effect would be anti-dilutive or because performance targets were not yet achieved for awards contingent upon performance. These securities may become dilutive in future periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(amounts in thousands)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Shares contingently issuable to Founder Entities as stock dividend on Series A Preferred Stock
|
—
|
|
|
—
|
|
|
—
|
|
|
1,652
|
|
Shares issuable upon conversion of PDH Common Stock
|
—
|
|
|
8,207
|
|
|
8,023
|
|
|
8,207
|
|
Shares issuable upon conversion of Series A Preferred Stock
|
2,000
|
|
|
2,000
|
|
|
2,000
|
|
|
2,000
|
|
Shares issuable upon conversion of Series B Convertible Preferred Stock
|
—
|
|
|
22,108
|
|
|
—
|
|
|
18,544
|
|
Shares contingently issuable for the contingent consideration
|
9,262
|
|
|
2,496
|
|
|
8,820
|
|
|
1,719
|
|
Stock options
|
—
|
|
|
55
|
|
|
—
|
|
|
70
|
|
RSUs
|
186
|
|
|
60
|
|
|
110
|
|
|
94
|
|
Shares issuable under the ESPP
|
1
|
|
|
2
|
|
|
3
|
|
|
1
|
|
|
11,449
|
|
|
34,928
|
|
|
18,956
|
|
|
32,287
|
|
14. OPERATING LEASE COMMITMENTS
The Company leases certain land, office space, warehouse space and equipment under agreements which are classified as operating leases for financial statement purposes. Certain of these leases provide for payment of real estate taxes, common area maintenance, insurance and certain other expenses. Lease terms may have escalating rent provisions and rent holidays which are recognized on a straight-line basis over the term of the lease. The leases expire at various dates through 2055.
Total rent expense for operating leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(amounts in millions)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Rent expense
|
$
|
8.9
|
|
|
$
|
6.0
|
|
|
$
|
28.0
|
|
|
$
|
16.4
|
|
Minimum non-cancelable operating lease commitments were as follows:
|
|
|
|
|
(amounts in millions)
|
Operating
Lease
Payment
|
As of September 30, 2016
|
2016, remaining
|
$
|
10.2
|
|
2017
|
26.0
|
|
2018
|
17.7
|
|
2019
|
12.0
|
|
2020
|
9.8
|
|
2021
|
8.7
|
|
Thereafter
|
26.8
|
|
Total minimum non-cancelable operating lease commitments
|
$
|
111.2
|
|
The fixed operating lease commitments detailed above assume that the Company continues the leases through their initial lease terms.
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
15. CONTINGENCIES, ENVIRONMENTAL AND LEGAL MATTERS
Asset Retirement Obligations
The Company has recognized AROs for properties where it can make a reasonable estimate of the future expenditures necessary to satisfy the related obligations. The Company considers identified legally enforceable obligations, estimated settlement dates and appropriate discount and inflation rates in calculating the fair value of its AROs.
As of
September 30, 2016
and
December 31, 2015
, the Company's ARO reserves, included in other short and long-term liabilities in the Condensed Consolidated Balance Sheets, totaled
$21.2 million
and
$17.5 million
, respectively.
Changes in the Company’s AROs were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(amounts in millions)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
AROs, beginning of period
|
$
|
20.9
|
|
|
$
|
17.7
|
|
|
$
|
17.5
|
|
|
$
|
18.5
|
|
Acquisitions
|
—
|
|
|
—
|
|
|
2.8
|
|
|
0.4
|
|
Accretion expense
|
0.3
|
|
|
0.2
|
|
|
0.9
|
|
|
0.7
|
|
Remeasurements
|
—
|
|
|
0.5
|
|
|
0.1
|
|
|
(0.2
|
)
|
Payments
|
—
|
|
|
(0.4
|
)
|
|
(0.5
|
)
|
|
(0.4
|
)
|
Foreign currency adjustments
|
—
|
|
|
(0.2
|
)
|
|
0.4
|
|
|
(1.2
|
)
|
AROs, end of period
|
$
|
21.2
|
|
|
$
|
17.8
|
|
|
$
|
21.2
|
|
|
$
|
17.8
|
|
Environmental
The Company formulates and distributes specialty chemical products and is therefore subject to extensive domestic and foreign environmental protection laws and regulations, including those governing the management, discharge and disposal of hazardous materials and pollutants into the soil, air and water, as well as laws and regulations governing workers' health and safety. As a result, the Company is exposed to risks of liability or claims with respect to environmental clean-up of contaminated facilities or other matters, including those in connection with the disposal or releases of, or exposure to, hazardous materials. The Company has incurred, and will continue to incur, costs and capital expenditures in complying with these laws and regulations. Additional costs could be incurred, including clean-up costs, fines, sanctions, and third-party claims, as a result of violations of or liabilities under environmental laws.
Among other environmental laws, the Company is subject to the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (commonly known as Superfund), under which the Company may be designated as a “potentially responsible party,” or PRP, with respect to clean-up costs associated with sites on the U.S. Environmental Protection Agency National Priority List. The Company conducts studies, individually or jointly with other PRPs, to determine the feasibility of various remedial techniques. It is the Company's policy to record appropriate liabilities for environmental matters when remedial efforts or damage claim payments are probable and the costs can be reasonably estimated. Such liabilities are based on the Company's best estimate of the undiscounted future costs required to complete the remedial work. The recorded liabilities are adjusted periodically as remediation efforts are determined.
Remediation activities vary substantially in duration and cost from site to site. These activities, and their associated costs, depend on the mix of unique site characteristics, evolving remediation technologies, diverse regulatory agencies and enforcement policies, as well as the presence or absence of PRPs.
In particular, the Company has reserved approximately
$44.7 million
primarily related to potential liability in connection with environmental remediation, clean-up costs, and monitoring of sites that were either closed or disposed of in prior years by Alent, which the Company acquired in December 2015. These sites are in various stages of environmental management: at some sites, the work is in the early stages of assessment and investigation, while at others, the clean-up remedies have been implemented and the remaining work consists of monitoring the integrity of those remedies. These sites include, but are not limited to, federal or state Superfund sites. Because the laws pertaining to Superfund sites generally impose retroactive, strict, joint and several liability,
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
a governmental plaintiff could seek to recover all remediation costs at any such site from any of the PRPs for such site, including the Company, despite the involvement of other PRPs. The Company is one of several identified PRPs in the aforementioned Superfund sites. The Company believes that the liability associated with these sites has been apportioned based on the type and amount of waste disposed by each PRP at such disposal site and the number of financially solvent PRPs. In many cases, the nature of future environmental expenditures cannot be quantified with accuracy.
The Company does not currently anticipate any material losses in excess of the reserve amount recorded. However, it is possible that new information about these sites, such as results of investigations, could make it necessary for the Company to reassess its potential exposure related to these environmental matters. As the settlement of many of the obligations for which provision is made is subject to legal or other regulatory process, the timing of the associated cash outflows is subject to some uncertainty, but the majority of the amounts provided are expected to be utilized over the next
five
to
ten
years.
As of
September 30, 2016
and
December 31, 2015
, the Company's environmental reserves totaled
$47.9 million
and
$25.7 million
, respectively. As of the date hereof, management does not believe it is possible to develop an estimate of the range of reasonably possible environmental loss in excess of the Company's recorded liabilities, and is unable to ascertain the ultimate aggregate amount of monetary liability or financial impact with respect to these matters.
Legal Proceedings
From time to time, the Company is involved in various legal proceedings in the normal course of its business. The Company believes that the resolution of these claims, to the extent not covered by insurance, will not, individually or in the aggregate, have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows. As of
September 30, 2016
and
December 31, 2015
, the Company has reserved approximately
$8.8 million
and
$6.5 million
, respectively, for its outstanding legal proceedings. The following is a description of certain litigation matters.
Product liability and/or personal injury claims for, or relating to, products the Company sells under its Agricultural Solutions segment are complex in nature and have outcomes that are difficult to predict. Since these products are used in the food chain on a global basis, any such product liability or personal injury claim could lead to litigation in multiple jurisdictions. In September 2014, Agricola Colonet, SA de CV filed a complaint with the 1st Civil Court in San Quintin (Baja California) where it alleged that certain Arysta products purchased from a retail distributor in Mexico were contaminated, requiring treated crops to be destroyed. Agricola Colonet, SA de CV is seeking compensation of approximately MXN
191 million
(
$9.8 million
, based on the MXN/ USD exchange rate of
0.0516
on
September 30, 2016
). A related complaint was filed in June 2016 in the U.S. District Court for the Southern District of California by Fresh Pac International, Inc., naming the Company as a defendant. In the complaint, Fresh Pac International Inc. claims to be a distributor of produce for Agricola Colonet, SA de CV and seeks in excess of
$6.0 million
in damages allegedly sustained in connection with the events that appear to form the basis of the claim by Agricola Colonet SA de CV. The Company believes that it has adequate defenses and intends to vigorously defend against these claims. Under its risk management policies, the Company maintains certain insurance policies under which such claims may be covered.
In March 2013, a claim was filed against Arysta LifeScience Corporation, a subsidiary of the Company, relating to a purchasing optimization agreement entered into in 2011 between Arysta LifeScience Corporation and a consulting firm. The agreement provided for an incentive fee to be paid to the plaintiff based upon savings to Arysta resulting from the plaintiff's work. In addition to fees already received, the plaintiff claims damages, which the Company considered to be immaterial. The Company believes this claim was without merit and that the fees already paid under the agreement exceeded or were equal to the fees owed to the plaintiff. An arbitration hearing was conducted in May 2014, and in May 2015 the tribunal published a partial award, ruling on various issues of principle, but declining to calculate an award amount, rather asking the parties to attempt to agree upon a calculation reflecting the decisions of the tribunal set out in the award. In April 2016, the tribunal awarded the plaintiff
$0.1 million
pursuant to the agreement. In addition, the tribunal ordered the plaintiff to pay to Arysta LifeScience Corporation the amount of
$0.6 million
, which represents a portion of Arysta LifeScience Corporation's total legal costs, with each party bearing
50%
of the arbitration costs. Finally, the tribunal dismissed any and all other claims in this arbitration. The time period available to the plaintiff under the arbitration rules to seek to "correct" the award has expired, with no such attempt by the plaintiff. The plaintiff may seek to vacate the award in a judicial proceeding, but the Company believes there are no grounds for any such action.
The
$600 million
of Series B Convertible Preferred Stock issued in connection with the Arysta Acquisition may be converted into a maximum of
22,107,590
shares of Platform common stock. Under the terms of a settlement agreement with the Arysta Seller, from October 20, 2016 until the close of business on December 15, 2016, the Company may settle all of its obligations with respect to the Series B Convertible Preferred Stock as described in Note 11,
Stockholders' Equity
, to the Company's unaudited interim
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Condensed Consolidated Financial Statements included in this Quarterly Report. To the extent the Company does not settle all of its obligations by December 15, 2016, it will be required, on April 20, 2017, to repurchase each outstanding share of Series B Convertible Preferred Stock. To the extent that the aggregate value of the shares of common stock which the shares of Series B Convertible Preferred Stock are converted into is less than
$600 million
(based on a
10
-day volume weighted average price), then such shortfall would be payable in cash by Platform. As previously disclosed, such shortfall would be reduced by a portion, or all, of the amount for which the March 2013 arbitration matter described in the preceding paragraph may be resolved. In light of the resolution of this matter as described above, such shortfall reduction is expected to be immaterial.
In June 2009, a lawsuit was filed in the District Court for the City of Ulianópolis in the State of Pará, Brazil by a private individual against Arysta LifeScience do Brasil Industria Química e Agropecuária Ltda, or Arysta Brazil, and
25
other defendants, and in November 2011, a claim was filed, also in the District Court for the City of Ulianópolis in the State of Pará, Brazil, against Arysta Brazil and
five
other defendants by the city of Ulianópolis, in each case in connection with materials sent by Arysta Brazil and others to an incineration site owned and operated by an unaffiliated third party in the state of Pará, Brazil. Arysta Brazil was summoned and has filed its answer in connection with both cases. Proceedings have been suspended indefinitely in order to allow the Pará State Attorney to conduct civil inquiries to determine the extent of contamination and the appropriate remediation, and to identify potentially responsible parties. Damages sought in the private lawsuit include a penalty of BRL
50.0 million
(
$15.3 million
, based on the BRL/USD exchange rate of
0.3065
on
September 30, 2016
), plus interest and the cost of remediation. The cost of remediation in the case brought by the city of Ulianopolis was previously estimated by the city to be BRL
70.9 million
(
$21.7 million
, based on the BRL/USD exchange rate of
0.3065
on
September 30, 2016
). In addition,
29
former employees of the incineration facility have brought actions in the Labor Court of Paragominas in the State of Pará, Brazil naming
80
defendants, including Arysta Brazil, seeking compensation in an aggregate amount of BRL
387 million
(
$118 million
, based on the BRL/USD exchange rate of
0.3065
on
September 30, 2016
) for health problems allegedly contracted as a result of their employment at the incineration site.
From time to time, in the ordinary course of our business, we contest tax assessments received by our subsidiaries in various jurisdictions. Our contested tax assessments have been most prevalent in Brazil, where the tax regime is complex, and the administrative and judicial procedures for resolving disputed tax assessments are expensive and time-consuming. In addition, short of simply paying the entire amount demanded, including penalties, interest, and attorney’s fees, it is not possible to settle disputed tax assessments other than by submission for inclusion in formal tax amnesty programs announced by the Brazilian federal or state governments from time to time at irregular intervals. The terms of such amnesty programs vary, but generally offer the possibility of reduced interest and penalties. Historically, Arysta has submitted selected contested tax matters for inclusion in such amnesty programs in Brazil, when it appeared prudent to management to do so. The Company is currently contesting several tax assessments at various stages of the applicable administrative and judicial processes, with a combined amount at issue, including interest and penalties, of approximately BRL
81.1 million
(
$24.9 million
, based on the BRL/USD exchange rate of
0.3065
on
September 30, 2016
). Because tax matters in Brazil historically take many years to resolve, it is very difficult to estimate when these matters will be finally resolved. Based on management's judgments, the Company does not expect it will incur a material loss in excess of accrued liabilities.
In July 2014, a federal court jury in the U.S. District Court for the District of Connecticut found in favor of MacDermid Printing Solutions LLC in litigation against Cortron, Inc. The court entered a judgment in the amount of approximately
$64.7 million
. Cortron, Inc. appealed the verdict, and in August 2016 the United States Court of Appeals for the Second Circuit issued a decision in which it reversed the District Court’s verdict with respect to certain claims, affirmed with respect to other claims, and remanded to the District Court to recalculate the damages payable to MacDermid Printing Solutions LLC. Accordingly, the amount of the ultimate judgment is subject to further proceedings in the District Court and is, therefore, uncertain. All proceeds from this litigation are subject to the pending litigation provisions of the Business Combination Agreement and Plan of Merger dated as of October 10, 2013.
In September 2014, the U.S. District Court for the District of New Jersey rendered a summary judgment in favor of MacDermid related to a patent litigation with E.I. du Pont de Nemours and Company. The Court issued summary judgment rulings in favor of MacDermid finding certain E.I. du Pont de Nemours and Company’s patents invalid and not infringed. These rulings summarily found against E.I. du Pont de Nemours and Company on all of the patent claims asserted by E.I. du Pont de Nemours and Company in this lawsuit. The ruling, however, leaves the counterclaims made by MacDermid against E.I. du Pont de Nemours and Company in place. E.I. du Pont de Nemours and Company appealed the summary judgment, and in August 2016 the United States Court of Appeals for the Federal Circuit affirmed the District Court’s summary judgment rulings. E.I. du Pont de Nemours and Company petitioned the Court of Appeals for a review of the decision
en banc
, which petition was denied. A trial date for MacDermid’s
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
counterclaims against E.I. du Pont de Nemours and Company has not yet been set. All proceeds from this litigation are subject to the pending litigation provisions of the Business Combination Agreement and Plan of Merger dated as of October 10, 2013.
In February 2015, MacDermid, as plaintiff, settled a litigation with Cookson Group plc, Enthone Inc., Cookson Electronics and David North, as defendants, for
$25.0 million
. The litigation related to certain corporate activities that occurred between MacDermid and the defendants in 2006 and 2007. On April 3, 2015, the Company received part of the settlement in the amount of
$16.0 million
, and placed the remainder, net of legal costs, into escrow for future distribution in accordance with the pending litigation provisions of our Business Combination Agreement and Plan of Merger dated as of October 10, 2013.
In March and April 2016, a class action lawsuit entitled
Dillard v. Platform Specialty Products Corporation, et al.
and a shareholder derivative action entitled
Tuttelman v. Platform Specialty Products Corporation, et al.
, respectively, were filed against Platform, certain of its former and current executive officers and, in the case of the derivative action, its directors in the U.S. District Court for the Southern District of Florida alleging that the defendants made material false and misleading statements relating to the Company's business, operational and compliance policies in light of certain matters discovered and reported by the Company itself in connection with a Company internal investigation into certain past business practices of the Company's Arysta West Africa business, as disclosed herein and in the Annual Report. In June 2016, the shareholder derivative action was dismissed by the Court. In June 2016, the Court appointed joint lead plaintiffs in the class action lawsuit, and in July 2016, the lead plaintiffs filed an amended complaint with an expanded class period but stating substantially similar claims to those contained in the original complaint. The amended complaint seeks unspecified damages. In September 2016, Platform filed a motion to dismiss this complaint, which is fully briefed and currently pending before the Court. The Company believes this proceeding is without merit and intends to defend it vigorously.
16. INCOME TAXES
For the three months ended
September 30, 2016
and
2015
, income tax expense totaled
$20.4 million
and
$35.4 million
, respectively. The Company's effective tax rate in the
third
quarter of
2016
was
23.6%
on pre-tax income of
$86.3 million
, compared to an effective tax rate of
(34.0)%
on pre-tax losses of
$104 million
in the
third
quarter of
2015
. The difference between the statutory and effective tax rates for the three months ended
September 30, 2016
primarily relates to the recognition of a
$38.2 million
benefit for a nontaxable purchase price adjustment related to the Arysta Acquisition, a
$25.6 million
benefit for deductions associated with the Alent Acquisition, and a
$15.3 million
benefit related to the recognition of tax deductible goodwill. Partially offsetting these items was a
$21.9 million
valuation allowance on current quarter losses that may not be recoverable for U.S. and foreign companies, a
$26.0 million
increase in tax reserves primarily for deductions related to the Alent Acquisition, and a
$14.7 million
charge related to tax on foreign operations.
For the
nine
months ended
September 30, 2016
and
2015
, income tax expense totaled
$65.7 million
and
$59.8 million
, respectively. The Company's effective tax rate for the
nine
months ended
September 30, 2016
was
(602.8)%
on pre-tax losses of
$10.9 million
, compared to an effective tax rate of
(52.0)%
on pre-tax losses of
$115 million
for the
nine
months ended
September 30, 2015
. The difference between the statutory and effective tax rates for the
nine
months ended
September 30, 2016
primarily relates to the recognition of a $
103 million
valuation allowance on current period losses that may not be recoverable for U.S. and foreign companies, a
$27.9 million
increase in tax reserves primarily for deductions related to the Alent Acquisition, and a
$10.0 million
charge related to tax on foreign operations. Partially offsetting these items was a
$38.2 million
benefit for a nontaxable purchase price adjustment related to the Arysta Acquisition, a
$25.6 million
benefit for deductions associated with the Alent Acquisition, and a
$15.3 million
benefit related to the recognition of tax deductible goodwill.
The amount of unrecognized tax benefits was
$188 million
and
$112 million
at
September 30, 2016
and
December 31, 2015
, respectively, of which
$94.0 million
and
$92.0 million
, respectively, if recognized, would reduce the Company's effective tax rate. The increase of unrecognized tax benefits during the period is in part attributable to the Alent Acquisition. Based on an analysis of the information that existed as of the acquisition date, the Company recorded an unrecognized tax benefit of
$44.5 million
in purchase accounting related to certain acquired net operating losses. In addition, the Company also increased its unrecognized tax benefits by
$25.6 million
for deductions related to the Alent Acquisition. Accrued interest and penalties related to unrecognized tax benefits were
$19.7 million
and
$17.5 million
at
September 30, 2016
and
December 31, 2015
, respectively. The Company recognized interest and penalties of
$3.5 million
and
$0.4 million
related to unrecognized tax benefits in the income tax provision for the
nine
months ended
September 30, 2016
and
2015
, respectively. The unrecognized tax benefits could be reduced by
$7.8 million
over the next 12 months as a result of the lapse of statutes of limitations in various jurisdictions.
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
17. RELATED PARTY TRANSACTIONS
Series B Convertible Preferred Stock
On September 9, 2016, the Company entered into a settlement agreement with the Arysta Seller with respect to certain of its obligations relating to the Company's shares of Series B Convertible Preferred Stock. See Note 11,
Stockholders' Equity,
under the heading "
Series B Convertible Preferred Stock."
RHSA
Immediately prior to the closing of the MacDermid Acquisition, each Retaining Holder entered into a RHSA pursuant to which they agreed to exchange their respective interests in MacDermid Holdings for shares of PDH Common Stock, at an exchange rate of
$11.00
per share plus, with respect to the common, class A and class B unit equity interests of MacDermid Holdings held by the Retaining Holder, (i) a proportionate share of a contingent interest in certain pending litigation, and (ii) a proportionate share of up to
$100 million
of contingent purchase price payable upon the attainment of certain EBITDA and stock trading price performance metrics during the
seven
-year period following the closing of the MacDermid Acquisition. The resulting non-controlling interest percentage for the Retaining Holders was
6.20%
at
September 30, 2016
and
6.25%
at
December 31, 2015
.
Advisory Services Agreement
The Company is party to an Advisory Services Agreement with Mariposa Capital, LLC, an affiliate of one of our founder directors, whereby Mariposa Capital, LLC is entitled to receive an annual fee equal to
$2.0 million
, payable in quarterly installments. This agreement is automatically renewed for successive
one
-year terms unless either party notifies the other party in writing of its intention not to renew no later than
90
days prior to the expiration of the term. For each of the three month periods ended
September 30, 2016
and
2015
, the Company incurred advisory fees under the agreement totaling
$0.5 million
. For each of the
nine
month periods ended
September 30, 2016
and
2015
, the Company incurred advisory fees under the agreement totaling
$1.5 million
.
18. RESTRUCTURING
The Company continuously evaluates all operations to identify opportunities to improve profitability by leveraging existing infrastructure to reduce operating costs and respond to overall economic conditions.
Restructuring expenses were recorded as follows in each of the Company's segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(amounts in millions)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Performance Solutions
|
$
|
6.4
|
|
|
$
|
2.9
|
|
|
$
|
16.8
|
|
|
$
|
5.8
|
|
Agricultural Solutions
|
0.9
|
|
|
1.6
|
|
|
2.7
|
|
|
12.4
|
|
Total restructuring
|
$
|
7.3
|
|
|
$
|
4.5
|
|
|
$
|
19.5
|
|
|
$
|
18.2
|
|
The restructuring plans initiated within the Performance Solutions segment primarily relate to headcount reductions associated with the integration of the Alent, OMG and OMG Malaysia Acquisitions. The restructuring plans initiated within the Agricultural Solutions segment primarily relate to cost saving opportunities associated with the integration of the Arysta, CAS and Agriphar Acquisitions. There are no material additional costs expected to be incurred related to these discrete restructuring plans.
As of
September 30, 2016
and
December 31, 2015
, restructuring liabilities totaled
$0.4 million
and
$1.1 million
, respectively, and were included in "Accrued expenses and other current liabilities" in the Condensed Consolidated Balance Sheets.
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Restructuring expenses were recorded as follows in the Condensed Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(amounts in millions)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Cost of sales
|
$
|
—
|
|
|
$
|
2.4
|
|
|
$
|
(0.4
|
)
|
|
$
|
3.6
|
|
Selling, technical, general and administrative
|
7.3
|
|
|
2.1
|
|
|
19.9
|
|
|
14.6
|
|
Total restructuring
|
$
|
7.3
|
|
|
$
|
4.5
|
|
|
$
|
19.5
|
|
|
$
|
18.2
|
|
19. SEGMENT INFORMATION
The Company's operations are organized into
two
reportable segments: Performance Solutions and Agricultural Solutions. The reporting segments represent businesses for which separate financial information is utilized by the chief operating decision maker, or CODM, for purpose of allocating resources and evaluating performance. Each of the reportable segments has its own president, who reports to the CODM.
Performance Solutions
- The Performance Solutions segment formulates and markets dynamic chemistry solutions that are used in automotive production, commercial packaging and printing, electronics, and oil and gas production and drilling. Its products include surface and coating materials, functional conversion coatings, electronics assembly materials, water-based hydraulic control fluids and photopolymers. Performance Solutions products are sold worldwide. In conjunction with the sale of its products, extensive technical service and support is provided to ensure superior performance. Within this segment, the Company provides specialty chemicals to the following industries: Electronics, Electronics Assembly Materials, Commercial Packing and Printing, Industrial, and Offshore. For the Electronics industry, the segment designs and formulates a complete line of proprietary “wet” dynamic chemistries used by customers to process the surface of the printed circuit boards and other electronic components they manufacture. For the Electronics Assembly Materials industry, the segment develops, manufactures and sells innovative interconnected materials, primarily in the electronics market, used to assemble printed circuit boards and advanced semiconductor packaging. For the Commercial Packaging and Printing industries, the segment produces photopolymers, through an extensive line of flexographic plates, which are used to produce printing plates for transferring images onto commercial packaging, including packaging for consumer food products, pet food bags, corrugated boxes, labels and beverage containers. In addition, the segment also produces photopolymer printing plates for the flexographic and letterpress newspaper and publications markets. For the Industrials, the segment's dynamic chemistries are used for finishing, cleaning and providing surface coatings for a broad range of metal and non-metal surfaces which improve the performance or look of a component of an industrial part or process. For the Offshore industry, the segment produces water-based hydraulic control fluids for major oil and gas companies and drilling contractors for offshore deep water production and drilling applications.
Agricultural Solutions
- The Agricultural Solutions segment is based on a solutions-oriented business model that focuses on product innovation to address an ever-increasing need for higher crop yield and quality. It offers to growers diverse crop-protection solutions from weeds (herbicides), insects (insecticides) and diseases (fungicides), in foliar and seed treatment applications. The segment also offers a wide variety of proven biosolutions, including biostimulants, innovative nutrition and biocontrol products. It emphasizes farmer economics and food safety by combining, when possible, biosolutions with crop protection and seed treatment
agrochemicals. Its Global Value Added Portfolio, or GVAP, consists of agrochemicals in the fungicides, herbicides, insecticides and seed treatment categories, based on patented or proprietary off-patent AIs. Its Global BioSolutions Portfolio, or GBP, includes biostimulants, innovative nutrition and biocontrol products. The segment considers its GVAP and GBP offerings to be key pillars for sustainable growth. In addition, the segment offers regional off-patent AIs and certain non-crop products, including animal health products, such as honey bee protective miticides and certain veterinary vaccines.
The Company evaluates the performance of its operating segments based on net sales and adjusted EBITDA. Adjusted EBITDA for each segment is defined as earnings before interest, taxes, depreciation and amortization, as further adjusted for additional items included in earnings that are not representative or indicative of each segment's ongoing business. Adjusted EBITDA for each segment also includes an allocation of corporate costs such as corporate salaries, wages, equity compensation expenses and legal costs.
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
The following table summarizes financial information regarding each reportable segment’s results of operations for the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(amounts in millions)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net Sales (from external customers):
|
|
|
|
|
|
|
|
Performance Solutions
|
$
|
454.9
|
|
|
$
|
179.7
|
|
|
$
|
1,312.9
|
|
|
$
|
541.6
|
|
Agricultural Solutions
|
435.6
|
|
|
417.6
|
|
|
1,323.0
|
|
|
1,265.7
|
|
Consolidated net sales
|
$
|
890.5
|
|
|
$
|
597.3
|
|
|
$
|
2,635.9
|
|
|
$
|
1,807.3
|
|
Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
Performance Solutions
|
$
|
109.9
|
|
|
$
|
54.1
|
|
|
$
|
290.7
|
|
|
$
|
156.9
|
|
Agricultural Solutions
|
80.2
|
|
|
59.5
|
|
|
260.7
|
|
|
256.5
|
|
Adjusted EBITDA
|
$
|
190.1
|
|
|
$
|
113.6
|
|
|
$
|
551.4
|
|
|
$
|
413.4
|
|
The following table reconciles Net income (loss) attributable to common stockholders to Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
(amounts in millions)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net income (loss) attributable to common stockholders
|
$
|
104.7
|
|
|
$
|
(140.1
|
)
|
|
$
|
(39.0
|
)
|
|
$
|
(178.9
|
)
|
Gain on amendment of Series B Convertible Preferred Stock
|
(32.9
|
)
|
|
—
|
|
|
(32.9
|
)
|
|
—
|
|
Net (loss) income attributable to the non-controlling interests
|
(5.9
|
)
|
|
0.5
|
|
|
(4.7
|
)
|
|
4.0
|
|
Income tax expense
|
20.4
|
|
|
35.4
|
|
|
65.7
|
|
|
59.8
|
|
Income (loss) before income taxes and non-controlling interests
|
86.3
|
|
|
(104.2
|
)
|
|
(10.9
|
)
|
|
(115.1
|
)
|
Adjustments to reconcile to Adjusted EBITDA:
|
|
|
|
|
|
|
|
Interest expense, net
|
98.5
|
|
|
52.7
|
|
|
289.7
|
|
|
143.2
|
|
Depreciation expense
|
18.9
|
|
|
11.6
|
|
|
55.8
|
|
|
33.7
|
|
Amortization expense
|
68.0
|
|
|
50.4
|
|
|
199.1
|
|
|
142.6
|
|
Long-term compensation issued in connection with acquisitions
|
0.2
|
|
|
(1.5
|
)
|
|
0.6
|
|
|
0.2
|
|
Restructuring expenses
|
7.3
|
|
|
4.5
|
|
|
19.5
|
|
|
18.2
|
|
Manufacturer's profit in inventory purchase accounting adjustments
|
—
|
|
|
1.3
|
|
|
11.7
|
|
|
58.0
|
|
Acquisition and integration costs
|
3.2
|
|
|
15.0
|
|
|
27.4
|
|
|
70.4
|
|
Non-cash change in fair value of contingent consideration
|
0.2
|
|
|
2.7
|
|
|
4.3
|
|
|
6.3
|
|
Legal settlements
|
—
|
|
|
—
|
|
|
(2.8
|
)
|
|
(16.0
|
)
|
Foreign exchange loss on foreign denominated external and internal debt
|
12.0
|
|
|
33.0
|
|
|
58.7
|
|
|
26.8
|
|
Fair value loss on foreign exchange forward contract
|
—
|
|
|
48.1
|
|
|
—
|
|
|
48.1
|
|
Gain on settlement agreement related to Series B Convertible Preferred Stock
|
(103.0
|
)
|
|
—
|
|
|
(103.0
|
)
|
|
—
|
|
Non-cash change in fair value of preferred stock redemption liability
|
(6.0
|
)
|
|
—
|
|
|
(6.0
|
)
|
|
—
|
|
Other income (expense), net
|
4.5
|
|
|
—
|
|
|
7.3
|
|
|
(3.0
|
)
|
Adjusted EBITDA
|
$
|
190.1
|
|
|
$
|
113.6
|
|
|
$
|
551.4
|
|
|
$
|
413.4
|
|