Document



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 

ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
OR 
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _______
 
Commission file number: 001-36272
 

 http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12093926&doc=16

(Exact name of Registrant as specified in its charter)

Delaware
37-1744899
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
1450 Centrepark Boulevard, Suite 210
West Palm Beach, Florida
33401
(Zip Code)
(Address of principal executive offices)
 
 
Registrant’s telephone number, including area code: (561) 207-9600
 

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share
The New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ý   No  o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o  No ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ý   No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes  ý   No  o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
Accelerated filer o
Non-Accelerated filer o
Smaller reporting company o
 
 
 
Emerging growth company o
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o  No ý
The number of shares of common stock outstanding as of February 23, 2018 was 288,028,893. The aggregate market value of the common stock held by non-affiliates as of June 30, 2017 was approximately $2.94 billion, based upon the last reported sales price for such date on the NYSE. All (i) executive officers and directors of the registrant and (ii) all persons who hold 10% or more of the registrant’s outstanding common stock have been deemed, solely for the purpose of the foregoing calculation, to be “affiliates” of the registrant.
Documents Incorporated By Reference 
Portions of the registrant’s definitive proxy statement for its 2018 annual meeting of stockholders, which 2018 Proxy Statement will be filed no later than 120 days after the close of the registrant’s fiscal year ended December 31, 2017, are hereby incorporated by reference in Part III of this 2017 Annual Report on Form 10-K.





Platform Specialty Products Corporation

ANNUAL REPORT ON FORM 10-K
For the year ended December 31, 2017

Table of Contents
 
Glossary
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



GLOSSARY OF DEFINED TERMS


 
Terms
 
Definitions
Platform; Successor;
We; Us; Our; the Company
 
Platform Specialty Products Corporation, a Delaware corporation, and its subsidiaries, collectively, for all periods subsequent to the MacDermid Acquisition.
Acquisitions
 
Agriphar Acquisition, Alent Acquisition, Arysta Acquisition, CAS Acquisition, MacDermid Acquisition, OMG Acquisition and OMG Malaysia Acquisition, collectively.
Agriphar
 
Percival S.A., a formerly Belgium société anonyme, and its agrochemical business, Agriphar.
Agriphar Acquisition
 
Acquisition of a 100% interest in Agriphar, completed on October 1, 2014.
AIs
 
Active ingredients.
Alent
 
Alent plc, a formerly public limited company registered in England and Wales.
Alent Acquisition
 
Acquisition of a 100% interest in Alent, completed on December 1, 2015 under the U.K. Companies Act 2006, as amended.
Amended and Restated
Credit Agreement
 
Platform's Second Amended and Restated Credit Agreement, dated as of August 6, 2014, among, inter alia, Platform, MacDermid Holdings, LLC, MacDermid, the subsidiaries of Platform and MacDermid Holdings, LLC from time to time parties thereto, the lenders from time to time parties thereto and Barclays Bank PLC, as administrative agent and collateral agent, as amended and restated from time to time.
Arysta
 
Arysta LifeScience Limited, formerly an Irish private limited company.
Arysta Acquisition
 
Acquisition of a 100% interest in Arysta, completed on February 13, 2015.
Arysta Seller
 
Nalozo, L.P., an affiliate of Nalozo S.à.r.l., a Luxembourg limited liability company and the original seller in the Arysta Acquisition.
ASC
 
Accounting Standard Codification.
ASU
 
Accounting Standards Update.
Board
 
Platform’s board of directors.
Bribery Act
 
The United Kingdom Bribery Act 2010.
CAS
 
Chemtura AgroSolutions business of Chemtura.
CAS Acquisition
 
Acquisition of a 100% interest in CAS, completed on November 3, 2014.
Chemtura
 
Chemtura Corporation, a Delaware corporation.
Credit Facilities
 
The First Lien Credit Facility and the Revolving Credit Facility, collectively, available under the Amended and Restated Credit Agreement.
EBITDA
 
Earnings before interest, taxes, depreciation and amortization.
ESPP
 
Platform Specialty Products Corporation 2014 Employee Stock Purchase Plan.
E.U.
 
European Union.
Exchange Act
 
Securities Exchange Act of 1934, as amended.
FASB
 
Financial Accounting Standard Board.
FCPA
 
Foreign Corrupt Practices Act of 1977.
February 2015 Notes Offering
 
Platform's private offering of $1.10 billion aggregate principal amount of 6.50% USD Notes due 2022 and €350 million aggregate principal amount of 6.00% EUR Notes due 2023, completed on February 2, 2015.
First Lien Credit Facility
 
First lien credit facility available under the Amended and Restated Credit Agreement.
Founder Entities
 
Mariposa Acquisition, LLC and Berggruen Holdings Ltd. and its affiliates, collectively.
GAAP
 
Generally Accepted Accounting Principles in the United States.
June 2015 Equity Offering
 
Platform's public offering of 18,226,414 shares of its common stock at a public offering price of $26.50 per share, which closed on June 29, 2015, raising gross proceeds of approximately $483 million.
MacDermid
 
MacDermid, Incorporated, a Connecticut corporation.
MacDermid Acquisition
 
Platform’s acquisition on October 31, 2013 of substantially all of the equity of MacDermid Holdings, LLC, which, at the time, owned approximately 97% of MacDermid. Platform acquired the remaining 3% of MacDermid on March 4, 2014, pursuant to the terms of the Exchange Agreement, dated October 25, 2013, between Platform and the fiduciaries of the MacDermid, Incorporated Profit Sharing and Employee Savings Plan.
MacDermid Printing
 
MacDermid Printing Solutions LLC, now known as MacDermid Graphics Solutions LLC.

G- 1

GLOSSARY OF DEFINED TERMS


Terms
 
Definitions
November 2015 Notes Offering
 
Platform's private offering of $500 million aggregate principal amount of 10.375% USD Notes due 2021, completed on November 10, 2015.
NYSE
 
New York Stock Exchange.
OEM
 
Original Equipment Manufacturer.
OMG
 
OM Group, Inc. (NYSE:OMG), a Delaware corporation.
OMG Businesses
 
OMG's Electronic Chemicals and Photomasks businesses, collectively, other than their Malaysian subsidiary acquired separately.
OMG Acquisition
 
Platform's acquisition of the OMG Businesses completed on October 28, 2015.
OMG Malaysia
 
OMG Electronic Chemicals (M) Sdn Bhd, a subsidiary of OMG located in Malaysia, acquired separately by Platform in the OMG Malaysia Acquisition.
OMG Malaysia Acquisition
 
Platform's acquisition of 100% interest in OMG Malaysia completed on January 31, 2016.
PCAOB
 
Public Company Accounting Oversight Board.
PDH
 
Platform Delaware Holdings, Inc., a subsidiary of Platform.
PDH Common Stock
 
Shares of common stock of PDH.
Predecessor
 
MacDermid and its subsidiaries, collectively, for all periods prior to the MacDermid Acquisition.
Predecessor 2013 Period
 
Ten-month period from January 1, 2013 through October 31, 2013.
Prior Senior Notes
 
Platform's 6.00% EUR Notes due 2023 and 6.50% USD Notes due 2022, collectively.
Proposed Separation
 
Platform's proposed separation of its Agricultural Solutions and Performance Solutions businesses which we expect to complete in 2018.
Retaining Holder
 
Each Holder of an equity interest of MacDermid Holdings, LLC immediately prior to the closing of the MacDermid Acquisition, not owned by Platform, who executed a RHSA.
Revolving Credit
Facility
 
Revolving Credit Facility (in U.S. dollars or multicurrency) available under the Amended and Restated Credit Agreement.
RHSA
 
Retaining Holder Securityholders’ Agreement, dated as of October 31, 2013, entered into by and between Platform and each Retaining Holder pursuant to which they agreed to exchange their respective interests in MacDermid Holdings, LLC for shares of PDH Common Stock, at an exchange rate of $11.00 per share plus (i) a proportionate share of the $100 million contingent consideration and (ii) an interest in certain MacDermid pending litigation.
ROA
 
Return on assets.
RSUs
 
Restricted stock units issued by Platform from time to time under the 2013 Plan.
SEC
 
Securities and Exchange Commission.
Securities Act
 
Securities Act of 1933, as amended.
Senior Notes
 
Platform's 5.875% USD Notes due 2025, 6.00% EUR Notes due 2023 and 6.50% USD Notes due 2022, collectively.
September 2016 Equity Offering
 
Platform's public offering of 48,787,878 shares of its common stock at a public offering price of $8.25 per share, which closed on September 21, 2016, raising gross proceeds of approximately $402.5 million.
Series A Preferred Stock
 
Platform's 2,000,000 shares of Series A convertible preferred stock, which are convertible into shares of Platform’s common stock, on a one-for-one basis, at any time at the option of the Founder Entities.
Series B Convertible Preferred Stock
 
Platform's 600,000 shares of Series B convertible preferred stock issued to the Arysta Seller in connection with the Arysta Acquisition. At December 31, 2016, none of the Series B Convertible Preferred Stock remained outstanding.
SERP
 
Supplemental Executive Retirement Plan for executive officers of Platform.
Successor
 
Platform and its subsidiaries, collectively, for all periods subsequent to the MacDermid Acquisition.
Successor 2013 Period
 
Period from April 23, 2013 (inception) through December 31, 2013.
TCJA
 
Tax Cuts and Jobs Act of 2017.
USD Incremental Term Loan
 
Incremental term loan under the Incremental Amendment to the Amended and Restated Credit Agreement in an aggregate principal amount of $300 million used to finance the Agriphar Acquisition.
WACC
 
Weighted Average Cost of Capital.

G- 2

GLOSSARY OF DEFINED TERMS


Terms
 
Definitions
2013 Plan
 
Platform Specialty Products Corporation Amended and Restated 2013 Incentive Compensation Plan.
2017 Annual Report
 
This annual report on Form 10-K for the fiscal year ended December 31, 2017.
2017 Notes Offerings
 
Platform's private offering of $550 million aggregate principal amount of 5.875% USD Notes due 2025, completed on November 24, 2017, and tack-on private offering of $250 million aggregate principal amount of additional 5.875% USD Notes due 2025, completed on December 8, 2017, collectively.
2018 Proxy Statement
 
Platform’s definitive proxy statement for its 2018 annual meeting of stockholders expected to be filed no later than 120 days after December 31, 2017.
5.875% USD Notes Indenture
 
The indenture, dated as of November 24, 2017, governing the 5.875% USD Notes due 2025.
5.875% USD Notes due 2025
 
Platform's 5.875% senior notes due 2023, denominated in U.S. dollars, issued in the 2017 Notes Offering.
6.00% EUR Notes due 2023
 
Platform’s 6.00% senior notes due 2023, denominated in euros, issued in the February 2015 Notes Offering.
6.50% USD Notes due 2022
 
Platform’s 6.50% senior notes due 2022, denominated in U.S. dollars, issued in the February 2015 Notes Offering.
10.375% USD Notes Indenture
 
The indenture, dated November 10, 2015, as amended from time to time, governing the 10.375% USD Notes due 2021.
10.375% USD Notes due 2021
 
Platform's 10.375% senior notes due 2021, denominated in U.S. dollars, issued in the November 2015 Notes Offering. As of December 31, 2017, none of the 10.375% USD Notes due 2021 remained outstanding.



G- 3


Forward-Looking Statements
This 2017 Annual Report contains forward-looking statements that can be identified by words such as "expect," "anticipate," "project," "will," "should," "believe," "intend," "plan," "estimate," "predict," "believe," "seek," "continue," "outlook," "may," "might," "should," "can have," "likely," "potential," "target," and variations of such words and similar expressions. Examples of forward-looking statements include, but are not limited to, statements, beliefs, projections and expectations regarding the Proposed Separation and its anticipated benefits, costs related to the Proposed Separation, the impact of new accounting standards and accounting changes, the impact of the TCJA, our dividend policy, the effects of global economic conditions on our business and financial condition, our hedging activities, results of legal matters, our goodwill and other intangible assets, price volatility and cost environment, our liquidity, our funding sources, our capital expenditures, our debt, off-balance sheet arrangements and contractual obligations, general views about future operating results, our risk management program, our business and management strategies, future prospects, and other events or developments that we expect or anticipate will occur in the future.
Forward-looking statements are not guarantees of future performance, actions or events, and are subject to risks and uncertainties. If one or more of these risks or uncertainties materialize, or if management’s underlying beliefs and assumptions prove to be incorrect, actual results may differ materially from those contemplated by these statements. Forward-looking statements regarding the anticipated impact of the TCJA on the Company's businesses consist of provisional amounts, which are based on currently available information as well as management's current interpretations, assumptions and expectations relating to the TCJA, and subject to change, possibly materially, as the Company completes its analysis. A discussion of such risks and uncertainties include, without limitation, the risks set forth in Part I, Item 1A, "Risk Factors" in this 2017 Annual Report. Any forward-looking statement made by us in this 2017 Annual Report is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Please consult any further disclosures we make on related subjects in the Company’s Form 10-K, 10-Q and 8-K reports filed with the SEC.
Non-GAAP Financial Measures
This 2017 Annual Report contains the following non-GAAP financial measures: Adjusted EBITDA, operating results on a constant currency basis and organic sales growth. Non-GAAP financial measures should not be considered in isolation from, as a substitute for, or superior to performance measures calculated in accordance with GAAP. For definitions of these non-GAAP financial measures and additional information on why we present them, their respective limitations and reconciliations to the most comparable applicable GAAP measures, see "Non-GAAP Financial Measures" in the Management's Discussion and Analysis of Financial Condition and Results of Operations section in Part II, Item 7, and Note 23, Segment Information, to the Consolidated Financial Statements, all included in this 2017 Annual Report.

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Part I
Item 1. Business 
Unless the context otherwise indicates or requires, all product names and trade names used in this 2017 Annual Report are our trademarks, some of which may be registered in certain jurisdictions. Although we have omitted the “®” and “TM” trademark designations for some of these marks, all rights to such trademarks are nevertheless reserved. This 2017 Annual Report contains additional trade names of other companies. We do not intend our use or display of such other companies’ trade names to imply a relationship with, or endorsement or sponsorship of us by, these other companies. Unless otherwise specified in this 2017 Annual Report, all references to currency, monetary values and dollars set forth herein shall mean U.S. dollars.
Business Overview
Platform, incorporated in Delaware in January 2014, is a global and diversified producer of high-technology specialty chemical products. Our business involves the blending of a number of key ingredients to produce proprietary formulations. Utilizing our strong industry insight, process know-how, and creative research and development, we partner with our customers to provide innovative and differentiated solutions that are integral to their finished products. We operate in a wide variety of attractive niche markets across multiple industries, including automotive, agricultural, animal health, electronics, graphics, and offshore oil and gas production and drilling. We believe the majority of our operations hold strong positions in the markets they serve. Our product innovations and product extensions are expected to continue to drive sales growth in both new and existing markets, while also expanding margins by continuing to offer high-customer-value propositions.
Platform has strong market positions in niche segments of high-growth markets. We continually seek opportunities to enhance our growth and strategic position through inorganic initiatives, focusing on specialty chemical businesses or assets within our existing or complementary end-markets, particularly those meeting our “Asset-Lite, High-Touch” philosophy, which involves the following core elements:
prioritizing resources to research and development;
offering highly technical sales and customer service; and
managing conservatively our capital investments.
We regularly review acquisition opportunities and may acquire businesses that meet our acquisition criteria when we deem it to be financially prudent.
We manage our business in two segments: Performance Solutions and Agricultural Solutions, which are each described below under "Business Segments." Both segments share a common focus on attractive niche markets, which we believe will grow faster than the diverse end-markets each segment serves. In 2017, we achieved sales of $3.78 billion, to which our Performance and Agricultural Solutions segments each contributed approximately 50%.
For financial information about our operating segments and the geographic areas in which we do business, please see Note 23, Segment Information, to the Consolidated Financial Statements included in this 2017 Annual Report.
Proposed Separation of Agricultural Solutions
In August 2017, we announced our intention to separate our Agricultural Solutions and Performance Solutions businesses. We believe this Proposed Separation, which we expect to complete in 2018, should maximize long-term value for our stockholders by enabling investors to focus on our specific different and differentiated high-quality businesses that serve two distinct segments of the specialty chemicals industry. However, this Proposed Separation, and any related transactions that we may decide to pursue in anticipation of the Proposed Separation, remain subject to final approval by the Board, as well as a number of conditions and variables, including financial market conditions and volatility, legal, tax or regulatory requirements, the establishment of the necessary corporate infrastructure and processes, and/or the possibility of more attractive strategic options arising in the future.
Acquisitions
OMG Malaysia Acquisition - On January 31, 2016, we completed the OMG Malaysia Acquisition for approximately $124 million, net of acquired cash and closing working capital adjustments. We acquired OMG Malaysia to further enhance our Performance Solutions business segment in which OMG Malaysia is included.


1




Alent Acquisition - On December 1, 2015, we completed the Alent Acquisition for approximately $1.74 billion in cash, net of acquired cash, and 18,419,738 shares of our common stock issued to Alent shareholders. Legacy Alent was a global supplier of specialty chemicals and engineered materials used primarily in electronics, automotive and industrial applications, and a supplier of high performance consumable products and services. Alent's business is included in our Performance Solutions business segment.
OMG Acquisition - On October 28, 2015, we completed the OMG Acquisition for a total purchase price of approximately $239 million in cash, net of acquired cash and purchase price adjustments. The acquired OMG Businesses are included in our Performance Solutions business segment. OMG’s Electronic Chemicals business is similar to the legacy MacDermid electronic chemical and surface treatment businesses, as it develops, produces and supplies chemicals for electronic and industrial applications. OMG’s Photomasks products are used by customers to produce semiconductors and related products.
Arysta Acquisition - On February 13, 2015, we completed the Arysta Acquisition for approximately $3.50 billion, consisting of $2.86 billion in cash, net of acquired cash and closing working capital and other adjustments, and the issuance of $600 million of Platform’s Series B Convertible Preferred Stock. The legacy Arysta business, which is included in our Agricultural Solutions business segment, has a solutions-oriented business model which focuses on product innovation to address grower needs. We acquired Arysta to expand our presence in the agrochemical business and our offering of Crop Protection solutions, including BioSolutions and Seed Treatment products, to growers worldwide.
CAS Acquisition - On November 3, 2014, we completed the CAS Acquisition for $1.04 billion, consisting of $983 million in cash, net of acquired cash, after certain post-closing working capital and other adjustments, and 2,000,000 shares of our common stock. Legacy CAS was a niche provider of seed treatments and agrochemical products for a wide variety of crop protection applications in numerous geographies and is included in our Agricultural Solutions business segment.
Agriphar Acquisition - On October 1, 2014, we completed the Agriphar Acquisition for a purchase price of approximately €300 million ($370 million), consisting of $350 million in cash, net of acquired cash and certain post-closing working capital and other adjustments, and 711,551 restricted shares of our common stock, which become unrestricted beginning January 2, 2018.  Legacy Agriphar was a European crop protection group supported by a team of researchers and regulatory experts which provided a wide range of fungicides, herbicides and insecticides with end markets primarily across Europe. The legacy Agriphar business is included in our Agricultural Solutions business segment.
Business Segments
We generate revenue through the formulation and sale of our dynamic chemistry solutions in our two business segments: Performance Solutions and Agricultural Solutions.  In addition, our personnel work closely with our customers on an ongoing basis to ensure that the functional performance of our intricate chemical compositions is maintained as intended and that these products are applied safely and effectively.  For example, a customer in our Performance Solutions segment will engage us to provide a multi-step chemical process for circuit boards that they are producing for end use in the automotive industry in order to enhance the overall performance of that customer’s circuit boards. Customers derive value from the performance of the innovative formulation itself, as well as from the on-site technical service we provide to assure consistent process quality. Another example from our Agricultural Solutions segment is our “Aplique Bem” stewardship program which focuses on teaching growers to apply agrochemicals safely and cost-efficiently. This program, which started in Brazil in 2007 in partnership with the Institute of Agriculture, Campinas (IC), has since expanded to Bolivia, Colombia, Mexico, West Africa and Vietnam. This high quality customer service and stewardship program is also supported by our local technical teams and our local infrastructure, such as our field research stations, enabling the development of unique solutions to meet grower needs. Our specialty chemicals and processes, together with our field technical and sales staff, are seen as integral to our customer’s product performance.
Performance Solutions
Overview
Our Performance Solutions segment, which employs approximately 4,350 people, combines the legacy MacDermid operations with Alent Enthone Surface Chemistries, Alpha Assembly Materials businesses, the OMG Businesses and OMG Malaysia. By pooling these businesses, we were able to expand our product offerings, geographic footprint and market share position but also unify sales strategies for improved processes and enhanced innovative capability, allowing us to deliver high-quality products and services at every stage of our customers' supply chains.
Performance Solutions formulates and markets dynamic chemistry solutions that are used in automotive production, electronics, commercial packaging and printing, and oil and gas production and drilling. Our products include chemicals for metal deposition,


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functional conversion coatings, electronic assembly materials, water-based hydraulic control fluids, photopolymers, and other specialty chemistries that modify surfaces. In conjunction with the sale of our products, the segment provides extensive technical service and support to ensure functional performance of the processes used at our customer manufacturing locations. We leverage our close customer relationships to execute our growth strategy by working directly with our customers to identify opportunities for new products. These new products are developed and created by drawing upon our intellectual property portfolio and technical expertise.  Our focus on constant innovation serves as a catalyst to drive specification change and to capitalize on adjacent market opportunities in our industry. We also have strong collaborative relationships with OEMs who specify to us which specialty materials, chemistries and technologies they need in their products. We leverage these relationships to increase OEM specification of our products. We believe that our customers place significant value on our brands, which we capitalize on through significant market share, brand loyalty and supply chain access.
Our Performance Solutions segment provides specialty chemicals through the following five businesses:
Assembly Solutions - representing approximately 34% of the segment's 2017 net sales. As a large supplier of solder, solder pastes and attachment materials for the electronics assembly industry, we develop, manufacture, and sell innovative interconnect materials, primarily in the electronics market, used to assemble printed circuit boards, integrated circuit substrates and advanced semiconductor packaging. Within this business, we also focus on the semiconductor packaging industry and offer a water treatment product line.
Electronics Solutions - representing approximately 29% of the segment's 2017 net sales. As a global supplier of chemical compounds to the electronics interconnection industry, we design and formulate a complete line of proprietary, dynamic “wet” chemistries used by our customers to process the surface of printed circuit board materials and other electronic components they manufacture. Our product portfolio is focused on specialized consumable chemical processes, such as solderable finishes, conductor metallization, and circuit formation. Our process chemistries comprise a small portion of the total cost of our customers’ finished device, but they are a critical component for maintaining the end product's performance. Our customer base includes companies in the following end markets: aerospace; audio visual; automotive; computers; medical devices; and telecommunications. We believe our growth in this business will be driven by demand in telecommunication, wireless devices and computers, and the increasing use of electronics in automobiles. .
Industrial Solutions - representing approximately 26% of the segment's 2017 net sales. As a global supplier of industrial metal and plastic finishing chemistries, our dynamic chemical systems are used for depositing metals, cleaning substrates, and providing protective coatings for a broad range of metal and non-metal surfaces.  These coatings may have functional uses, including improving wear and tear, such as hard chrome plating of shock absorbers for cars and special drills used for oil and gas exploration, or providing corrosion resistance for appliance parts. Alternatively, our chemistries may have decorative performance, such as the application of gloss finishes for parts used in automotive interiors or fashion finishes used on jewelry surfaces.  Our industrial customer base is highly diverse and includes customers in the following end markets: appliances and electronics equipment; automotive parts; industrial parts; plumbing goods; and transportation equipment.  We believe our growth in this industry will be primarily driven by increased worldwide automobile production with elevated fashion elements and content per vehicle.
Graphics Solutions - representing approximately 8% of the segment's 2017 net sales. As a supplier of consumable materials used to transfer images to printed substrates, our products are used to improve print quality and printing productivity. We produce and market photopolymers through an extensive line of flexographic plates that are used in the commercial packaging and printing industries. Photopolymers are molecules that change properties upon exposure to light. Flexography is a printing process that utilizes flexible printing plates made of rubber or other flexible plastics. We believe growth in this business will be driven by consumer demand and market shifts that favor the use of our package imaging technologies that offer a lower cost of ownership to our customers.
Offshore Solutions - representing approximately 4% of the segment's 2017 net sales. As a global supplier of specialized fluids to the offshore energy industry, we produce, market, and support water-based hydraulic control fluids for major oil and gas companies and drilling contractors for offshore deep water production and drilling applications.  Our current customer base is weighted primarily in the production area of this business.  Although the recent declines in oil and gas industry investments have impacted the short-term growth, we believe the industry has stabilized and capital expenditure investments are increasing in both offshore drilling and new sub-sea wells.


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Products
Our Performance Solutions segment offers a wide range of specialty chemicals comprised of surface and coating materials, functional conversion coatings, electronic assembly materials, water-based hydraulic control fluids, and photopolymers. We review our portfolio of products regularly to identify and replace low margin products with higher margin products.  Accordingly, our product mix may frequently change depending upon customer demand, and the cost and selling prices related to any given technical system. A selection of Performance Solutions' product offerings is presented below:
Assembly Solutions
 
Electronic Assembly Materials
 
Assembly Solutions focuses on the development, manufacture, and sale of innovative interconnect materials, primarily into the electronic market by providing specialized fluxes, solder spheres, organic encapsulants, and die attach materials that enable successful interconnection of semiconductor devices. We also offer metal reclaim systems, primarily for tin, used in electronic assembly.
 
Water Treatment
 
Fernox is our water treatment product line used for the filtration and conditioning of water in residential boiler systems.
Electronic Solutions
 
Plating
Products
 
Plating products are used to plate holes drilled through printed circuit boards to connect opposite sides of the board and the different layers of multi-layer printed circuit boards. Our key products include the MacuSpec, M-Copper and M-System.
 
Solderable
Finishes
 
Solderable finishing formulations are used to deposit coatings on printed circuit boards to preserve the solderability of the finished boards.
 
Circuit Formation Products
 
Circuit formation products represent an assortment of products for defining circuit patterns and bonding conductors to insulating materials.
 
Semiconductor Materials & Packaging
 
Our Viaform product family of copper damascene chemistry is used in semiconductor plating applications for creating conductors as narrow as 10 nanometers. Our Microfab family of plating chemistry is used in wafer level packaging applications, including copper pillar, redistribution layers (RDLs), nickel, tin bump, gold bump and thru-silicon via (TSV) applications.
 
Functional Conversion Coatings
 
Our products plate various parts that are used in automotive and aerospace equipment, appliances, computer hard disks and other electronic products.
Industrial Solutions
 
Electroless
Nickel
 
Electroless nickel is applied to a variety of metal and plastic surfaces to enhance corrosion resistance, wear resistance, solderability (from Electronic Solutions), and to repair worn or over-machined surfaces in a variety of applications.
 
Plating
Products
 
The CuMac range of products for applications such as plating on aluminum wheels, plastic substrates and zinc-based die castings, and the ChromKlad and ANKOR range of hard chromium plating processes are utilized in various industrial finishing applications.
 
Pre-treatment and Cleaning Solutions
 
Pre-treatment and cleaning solutions are applied to prepare the surfaces of a wide variety of industrial products for additional treatment.  We have a complete line of aqueous and semi-aqueous pre-treatment and cleaning products.
 
Functional Conversion Coatings
 
Functional conversion coatings are applied to metals to enhance corrosion resistance and paint adhesion in a wide spectrum of industrial applications where heavy duty usage and exposure to unfavorable environments are anticipated.
 
Hard-coated Films
 
Hard-coated films are used for the membrane switch in the touch screen applications.
Graphic Solutions
 
Solid Sheet
Printing Elements
 
Solid sheet printing elements are digital and analog printing sheets, used in the flexographic printing and platemaking processes.  Our extensive line of Lux flexographic plates are used in the commercial packaging letterpress newspaper and publication industries.
 
Liquid
Imaging
Products
 
Liquid products are liquid photopolymers used to produce printing plates for transferring images onto commercial packaging. Our key products are MWH photopolymer, MWB 50 photopolymer, and M Stamp 40 photopolymer. We also offer products that are used in the production of liquid photopolymer plates such as substrate, coverfilms and detergents.
Offshore Solutions
 
Offshore
Fluids
 
Production fluids are used to operate valves for the deep water oil extraction and transportation process, and drilling fluids are used to operate valves for drilling rigs on the ocean floor. Production and drilling fluids are water-based hydraulic fluids used in subsea control systems.


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Seasonality
The Performance Solutions segment is not subject to significant seasonality.
Agricultural Solutions
Overview
Our Agricultural Solutions segment, which employs approximately 3,300 people, consists of legacy Arysta which was combined with two additional Crop Protection chemical companies acquired in 2014, Agriphar and CAS. By combining these businesses, we were able to gain further access to the large agricultural markets globally, including the United States (through the CAS Acquisition) and Europe (through the Agriphar Acquisition). Additionally, we gained formulation expertise and wider product portfolio which allowed us to better serve our existing clients.
Agricultural Solutions specializes in the development, formulation, registration, marketing and distribution of differentiated Crop Protection solutions, including BioSolutions and Seed Treatments, for a variety of crops and applications. Our diverse Crop Protection chemicals control biotic stresses, such as diseases (fungicides), weeds (herbicides) and insects (insecticides). Our portfolio of proven BioSolutions is comprised of BioStimulants, which are derived from natural substances applied to plants, seeds or the soil in order to enhance yields and help crops withstand abiotic stress, such as drought or cold, and BioControl products, which perform the same task as conventional Crop Protection products with, in many cases, the added benefit of reduced chemical residues. Our solutions are offered in multiple forms, such as foliar applications (direct application to leaves), furrow treatment (treatment of soil trenches or grooves wherein seeds are sown) or Seed Treatment (seed coating prior to planting). Our products are utilized by farmers through the entire growing cycle: from burn-down through pre-emergence to pre-harvest. Our products allow us to partner with growers to address the ever-increasing need for higher crop yield and food quality.
Our focus on specialty applications (formerly referred to as our H3 priority markets and differentiated local solutions) and local grower needs demands a high degree of technical expertise and customer proximity. Our teams of local agronomists work together with our local marketing and commercial teams to develop tailored local products primarily targeting these applications. These products and solutions consist of one or more formulated, ready to use mixtures of different active ingredients, or AIs, to solve the needs of growers in a particular crop and in a specific country. Our local teams, especially in niche markets, allow us to better understand specific market trends and farmer requirements, which enable us to better innovate and address local needs faster and more efficiently. Specialty applications include Crop Protection solutions for niche and specialty crops like fruits and vegetables, products for underserved or hard-to-control pests affecting commodity grain crops, alternative application methods like seed and soil applied technologies, and bio-based products that are used as alternatives or additions to conventional chemical applications. We believe that the markets for these specialty applications are growing faster than the rest of the Crop Protection market and offer better opportunities for attractive margins given the superior value provided to the grower. As part of our specialty application focus, we have developed a growing BioSolutions and Seed Treatment business, organically and through acquisitions. Our BioSolutions business is focused on BioStimulants, Innovative Nutrition products, and BioControl products.
We remain focused on expanding our presence in worldwide targeted markets by developing or acquiring crop protection products and obtaining registrations for new products, new uses for existing products, and uses of existing products in new countries.  
Products
Our Agricultural Solutions segment offers a broad range of proven Crop Protection solutions to growers worldwide, across foliar, in-furrow and Seed Treatment applications. We categorize our products in three core portfolios: Crop Protection (fungicides, herbicides, and insecticides); BioSolutions; and Seed Treatment.
These portfolios are each described below:
Crop Protection
 
We are one of the largest Crop Protection chemical companies by revenue. Our diverse Crop Protection chemicals control biotic stresses, such as diseases (fungicides), weeds (herbicides) and insects (insecticides).
Fungicides
 
Fungicides prevent the spread of fungal diseases in crops. Our fungicides products include Evito, Fortix, Kasumin and Proplant.
Herbicides
 
Herbicides are used to control unwanted plants while leaving the targeted crops to grow unharmed. We offer total, non-selective and selective, herbicides with a variety of formulations for many temperate and tropical crops such as soybeans, corn, wheat, oil seed rape/canola, vegetables and sugar cane. Our main herbicide products are Dinamic, Everest, Pantera and Select.


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Insecticides
 
Our insecticides, such as Cythrin Max, Orthene and Talisma, are products used against insect pests at different stages of the pest life cycle, from egg and larvae to nymph and adult. These products can have both crop and public health applications. Acaricides or miticides control a variety of mite pests on crops. These products are primarily targeted at tree fruit and nut, vine, ornamental and selected row crop applications for effective mite control programs. Our main miticide products, such as Acramite, Floramite and Omite, are sold globally.
BioSolutions
 
We believe we are have a strong position as innovator in BioSolutions and BioStimulants. These products are derived from natural sources that fall into several categories described below. This portfolio is highly differentiated through innovative technologies and mixtures and primarily protected by trade secrets.
BioStimulants
 
Biostimulants (biological stimulants) enhance crop vigor, yield and/or quality through physiological stimuli. Our BioStimulant products include Biozyme, BM Start and Appetizer.
Innovative Nutrition
 
Innovative nutrition products optimize the nutrition in plants by enhancing nutrient availability or use efficiency. Our Innovative Nutrition products include the Poliquel line.
BioControl
 
BioControl (biological control) products operate as conventional Crop Protection products with, in many cases, reduced residues of a synthetic origin. Our BioControl products, mainly biofungicides and bioinsecticides, include Ph-D, Carpovirusine, Vacciplant, Noctovi and a wide line of natural enemies and beneficial insects for Integrated Pest Management solutions in Japan.
Seed Treatment
 
Our diverse Seed Treatment portfolio encompasses products, such as Rancona and Vitavax. Our Seed Treatments are applied before planting by coating the seed in order to protect it during germination and the plant during its initial growth phases. We anticipate growth in Seed Treatments as a result of the increasing value of seeds and the use of higher-value GM seeds.
We consider these portfolios to be key pillars for our sustainable growth. We sell our products in specific regions and niche crop markets directly to seed breeders, growers, government entities, co-operatives, branded retailers and leading national and regional distributors. Our products are sold individually or combined within our "ProNutiva" program which integrates BioSolutions with either Crop Protection or Seed Treatment products. By combining BioSolutions with conventional protection products, ProNutiva aims at addressing the full spectrum of protection, nutrition and yield enhancement needs of farmers, often with lower residue levels, addressing safety concerns of end-consumers and resulting in enhanced farm economics for growers.
Seasonality
Our Agricultural Solutions segment is seasonal in nature and corresponds to agricultural cycles within each region in which we operate. The geographic spread of our products can result in significant variations in earnings and cash flow during such cycles.  Crop Protection and Seed Treatment chemicals and BioSolutions sales typically begin ahead of the growing season and peak in the middle of the season.  In the northern hemisphere, farmers purchase the majority of their Crop Protection chemical inputs during the first half of the calendar year from distributors which we start to supply during the fourth quarter of the previous year.  Growers in the southern hemisphere purchase the majority of their products in the second half of the year.  As a result, we have historically experienced fluctuations in quarterly sales. For example, due to the size of our market in Latin America, we typically generate greater net sales in the second half of the calendar year.
Weather conditions and natural disasters such as drought and floods in a particular region, storms, hurricanes, tsunamis, hail, tornadoes, freezing conditions or extreme heat in a particular region affect decisions by our customers and end-users about the types and amounts of products to purchase and the timing of use of such products.  The high degree of correlation between sales patterns and unpredictable weather conditions makes drawing conclusions from quarterly sales difficult.
Competitive Strengths of Platform
We believe the following competitive strengths differentiate us from our competitors and contribute to the ongoing success of both of our segments:
“Asset-Lite, High-Touch” Business Model. Our businesses are evidenced by high margins and low capital expenditures which translates into high cash flow margins and returns on capital. Over 40% of our employees are in either technological innovation or sales and services areas; hence “high-touch.”  Our commitment to technological innovation and our extensive intellectual property portfolio enables us to develop our cutting-edge products.  In order to continue to provide innovative products and highly specialized technical service to our customers, we place a premium on maintaining an expert and qualified employee base. Our business involves the formulation of a broad range of specialty chemicals, created by blending raw materials or developing new uses for existing AIs. This model allows us to conservatively manage our investments in fixed assets to both maintain and grow our businesses. Our existing fixed asset base is modern and well-maintained and, accordingly, requires low capital expenditures for maintenance.


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Industry Leading Positions. Our businesses strategically focus on acquiring and maintaining leading positions in niche sectors of high-growth markets by offering high value-added services to our customers. We believe our scale and global reach in product development, marketing, and formulation provides us with advantages over many of our competitors, allowing us to maintain strong market share positions and drive profitable growth. Our strong market positions contribute to our ability to attract new customers and successfully enter new end-markets.
Customer Driven Innovation and Partnerships. We frequently work alongside our customers and other industry participants to develop new products and identify new market opportunities. We participate in a variety of dynamic end-markets where new unmet needs are always materializing. Our large sales and technical service teams provide continuous insights that help ensure our research and development efforts are appropriately focused. Customer requirements can lead to improved or uniquely tailored formulations of existing product offerings or to the development of completely new products to satisfy previously unmet needs. Tailoring products for specific OEMs or specific localized growing regions leads to sticky sales and significant customer switching costs. In our Agricultural Solutions business, we also frequently partner with molecule discovery focused companies to source new and complementary AIs for our portfolio. We believe these companies value our vast knowledge of local markets, regulations and distribution channels as they look to establish post-patent management strategies for their existing molecules.
Strong Expertise in Registration and Distribution. Product registration is complex and crucial, particularly in the agrochemical space. Our Agricultural Solutions segment has a large team of specialists dedicated to the regulatory process across various jurisdictions, and we believe we are well-experienced in obtaining and defending the required registrations for our products in each country in which they are sold and for each crop on which they are applied. Once obtained, these registrations provide a right to use a product for a specified crop in that country or region for a number of years. In addition, our Agricultural Solutions segment has a strong network of distributors, which currently reaches over 100 countries and jurisdictions.  Our large distribution network enables us to focus on profitable niche applications, which we believe are less sensitive to competitive pricing pressures.  This distribution network, together with our geographical footprint, also allows us to attract licensing and resale opportunities from partner companies for new products, technologies, and applications.
Comprehensive Product Offering. We provide our customers with a comprehensive offering of products that meet many of their specialty chemical needs. In many cases, we offer a full suite of products with complementary capabilities that provide a complete functional solution to the customer. We believe the ability to provide a “top-to-bottom” product offering is a significant competitive advantage over many of our smaller and regional competitors. We also believe that our existing product offerings offer many opportunities for growth in adjacent end-markets.
Performance-Driven Culture and Board with Proven Track Record. We believe we have outstanding people who can deliver superior performance under the tutelage and oversight of proven and experienced leadership. Our culture is performance-focused and driven by empowering team members and then holding them accountable for their outcomes. We measure people on financial results, safety, customer satisfaction and commitments, legal compliance, and environmental stewardship. We measure our performance against benchmarks and drive operational excellence through continuous improvement. Our experienced management team is complemented by an experienced Board, which includes individuals with proven track records of successfully acquiring and managing businesses. Our business segments are also led by executives that have extensive experience in their respective fields.
Business Strategies
We aim to build a best-in-class, global formulator, marketer, and distributor of specialty chemical products. Our primary measure of success is long-term intrinsic shareholder value creation, which we hope to achieve through profitable sales growth and continuous cost improvement. We seek to develop and engineer new products and processes, leverage our global scale to enter new markets and optimally manage our existing portfolio of specialty chemical businesses. Our efforts are directed by the following key business strategies:
Expand our Core Businesses. We believe that we can capitalize on our existing capabilities to further enhance our technical capabilities, sophisticated process know-how, solutions orientation, strong customer relationships and deep industry knowledge. The Acquisitions enhanced the growth of each of our segments by extending their respective products breadth and expanding their international reach. We intend to further extend many of our product offerings through the development of new applications for our existing products or through synergistic combinations, and to target geographies with attractive market fundamentals where our strengths in marketing, portfolio development, regulation and customer education can add value for our customers.
Focused Investment in Product Innovation. We place a strong emphasis on innovation. New products are developed and created by drawing upon our significant intellectual property portfolio and technical expertise.  Building on our core competencies in product innovation, applications development, and technical services, we intend to drive organic


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growth by reaching new high-growth markets and expanding upon our existing technologies to develop new products for existing and adjacent markets.
Leverage Customer Relationships. We intend to continue to leverage our close customer relationships to execute our growth strategy by working directly with our customers to identify opportunities for new products. We also have strong collaborative relationships with OEMs who specify which specialty materials, chemistries, and technologies they need in their products. Working directly with our customers allows us to increase OEM qualification of our products and identify opportunities to grow with our customers. Such close customer relationships also provide a solid barrier to entry for competition.
Pursue Strategic Inorganic Growth. Our founder, Martin E. Franklin and our Chief Executive Officer, Rakesh Sachdev have significant experience and expertise and have been highly successful in acquiring, integrating, and growing value-added businesses. We intend to pursue further inorganic initiatives as a way to enhance our growth and strategic position.  We intend to focus primarily on businesses or assets within our existing end-markets that share our “Asset-Lite, High-Touch” philosophy, with product offerings that provide geographic or product complementarity. We expect to achieve commercial and distribution efficiencies by expanding into related categories that can be marketed through our existing distribution channels or provide us with new distribution channels for our existing products.  We plan to only pursue opportunities that we believe meet our acquisition criteria and when we deem it to be financially prudent.
Focus on Human Capital. The success of our business depends on our ability to continue to capitalize on our technical capabilities, unique process know-how, strong customer relationships, and industry knowledge.  The technical expertise and history of innovation demonstrated by our employees reflect the specialized and highly skilled nature of our research and development personnel.  As such, we intend to focus on attracting, retaining, and developing the best human capital across all levels of our organization, which is key to our ability to successfully operate and grow our business.
Customers
We have a diverse customer base, as we sell our products either directly to end-user customers or through intermediaries, such as independent, third-party distributors, agricultural cooperatives, retailers, and government agencies.  We also have collaborative relationships with many OEMs and industry partners, who specify our chemistries and technologies for use in their products or grant us development rights of their intellectual property. A significant portion of our sales are through such intermediaries.
Within each segment, we rely on independent representatives and distributors to distribute our products and to assist us with the marketing and sale of certain of our products. We believe that we are able to attract new customers successfully through our international reach, coupled with our local knowledge and on-the-ground presence, which enables us to meet the needs of our customers. We have a global network of 54 manufacturing sites, 11 of which include research facilities, and 16 stand-alone research centers, all supported by a direct sales force in nearly 70 countries. Our flexible manufacturing base allows for "just in time" supply chain management. We operate a relatively large number of small and medium-sized facilities located close to our customers throughout the world's major economic regions. This close proximity to our global customers' local sites enables access to all key growth markets.
We believe that our business is not materially dependent upon a single customer.  Although no customer or distributor constitutes 10% or more of our consolidated net sales, we do have some customers and distributors, the loss of which may impair our results of operations, for certain business lines, for the affected earnings periods.
Due to the relatively short cycle times in our business, our order backlog levels are minimal.
Selling & Marketing
We employ a customer-centric sales and marketing force of professionals worldwide.  These professionals have strong technical expertise, local market knowledge and intimate customer relationships.  Our local sales and marketing teams closely monitor their market trends and maintain active dialogue with our customers to assess and understand their constantly evolving challenges.  We use this feedback from our local sales teams to anticipate future needs, respond rapidly to changing market conditions, and deliver customized, value-added solutions for our customers.  This feedback loop is an important source of new product ideas and helps guide our capital allocation decisions and research and development plans.  We leverage local market intelligence to develop new and innovative products that are then marketed by our local sales and marketing teams throughout the markets we serve.


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Performance Solutions
In our Performance Solutions segment, methods for selling and marketing our proprietary products vary slightly by geographic region.  In total, we generate business through the efforts of regional sales, technical and service personnel, as well as distributors.  In addition to regional sales and service staff, we maintain a group of global personnel focused on coordinating sales projects and obtaining design specifications for complex projects involving multiple customers within the manufacturing supply chain.
Agricultural Solutions
In our Agricultural Solutions segment, our products are sold in over 100 countries globally and reach growers through a wide variety of market channels.  Our sales, marketing, and go-to-market strategies vary significantly by territory and depend to a large extent on the existing distribution infrastructure and market practices in each particular region.  We work with national and regional distributors, retailers, co-ops, government entities and directly with growers to promote and sell our solutions.  We have loyalty programs in place for distributors and engage in active grower education to promote our products and brands.  Our global presence and local capabilities make us a partner of choice for other Crop Protection chemical companies, who often enter into exclusive distribution or license agreements with us.  These agreements give us the exclusive right to distribute or formulate their products in, or with respect to, specified territories, crops, applications, channels and formulations.
Employees
In order to ensure that we are able to continue to provide innovative products and highly technical service to our customers, we place a premium on maintaining a highly specialized and qualified employee base.  At December 31, 2017, we employed approximately 7,850 full-time employees in approximately 70 countries, including approximately 3,400 research and development chemists, experienced technical service, and technical sales personnel.  
In addition, many of our full-time employees are employed outside the United States.  In certain countries where we operate, our employees are also members of unions or are represented by works councils as required by law.  We are required to consult and seek the consent or advice of these unions and/or works councils for any changes to our activities or employee benefits.
Our management believes that our relationships with our employees and collective bargaining unions are satisfactory.
Research and Development
Continued investment in research and development ensures that we remain ahead of emerging trends, delivering solutions to strengthen our strong market positions in terms of innovation and product development in our market niches. Our research and development activities are also focused on developing products, and improving formulations and processes that will drive growth or otherwise add value to our core business operations.  We accelerate market introductions and increase the impact of our product offerings through collaboration with partners in the commercial sector (customers and value-chain partners) and by working with distributors, OEMs, governments and local communities around the world. We plan to continue to make significant investments in a broad range of research and development efforts.
Performance Solutions
With respect to our Performance Solutions segment, our commitment to technological innovation and our extensive intellectual property portfolio enables us to develop differentiated products at the forefront of the technology. Research resulting in new, proprietary formulations is performed principally in Germany, Great Britain, India, Japan, and the United States. During 2017, the segment's research and development expenses totaled $46.4 million, which represented 2.5% of Performance Solutions' total net sales. Substantially all research and development activity was performed internally.
Agricultural Solutions
Within our Agricultural Solutions segment, our global and regional marketing teams conduct a rigorous process for identifying key AIs with proven technical efficacy, which can be brought to market through our formulation, marketing, and distribution capabilities, in order to address strategic gaps in our portfolio.  Our experienced regulatory team has a strong and successful track record of obtaining product registrations expeditiously to support this product strategy. During 2017, the segment invested $92.5 million in research and development, of which $40.5 million was capitalized and $52.0 million was expensed. In 2017, research and development investments represented approximately 5% of Agricultural Solutions' total net sales.


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Competitive Environment
Our markets are consolidating, highly competitive, and subject to rapid changes in technology. Broadly speaking, we compete in the specialty chemicals market.  On a more narrow scale, we compete in markets for specialty chemicals for Crop Protection, BioSolutions and Seed Treatment chemicals, and electronic applications, general metal and plastic finishing, oil and gas exploration and production, and printing. Some of our competitors may have greater financial, technical and marketing resources than we do and may be able to devote greater resources to promoting and selling certain products.
The competitive environment of each of our segments is described below:
Performance Solutions
Our Performance Solutions segment provides a broad line of proprietary chemical compounds and supporting services, and broadly competes within the specialty chemicals industry. Although competition varies by end-market and geography, our most significant competitors are Atotech Inc., and DowDupont Inc., across its industrial and electronics chemicals businesses, as well as Asahi, Senju, Tamura, and Flint Group. We compete primarily on the basis of quality, technology, performance, reliability, brand, reputation, range of products and services, and service and support. We maintain extensive support, technical and testing services for our customers, and are continuously developing new products. Further consolidation within our industry or other changes in the competitive environment, such as the recent creation of DowDupont Inc., as a result of the merger of E.I. du Pont de Nemours and Company and The Dow Chemical Company, could result in larger competitors that compete with us on several levels. We believe, however, that our combined abilities to manufacture, sell, service, and develop new products and applications, enable us to compete successfully both locally and internationally. Some large competitors operate globally, as we do, but most operate only locally or regionally. We also face competition from many smaller companies that specialize in particular segments of the markets in which we compete.
Agricultural Solutions
The Crop Protection and Seed Treatment chemical sector is a highly developed and competitive industry with a wide range of established competitors that offer a broad variety of competing products.  Our main competitors include multi-national participants in this market, such as Syngenta AG, now owned by ChemChina, Bayer AG, BASF SE, DowDuPont and FMC, as well as a number of Japanese participants.
The BioSolutions sector is a newer and less mature market than the Crop Protection market; however, we still face significant competition from various competitors seeking to offer competing products and solutions to our customers. As a result, the BioSolutions landscape is highly fragmented, with a large number of small participants who have developed a niche product offering as well as a range of biotech companies focusing on research addressing new or early-stage technologies. Customer education and corresponding demand creation is a critical element of competing within the BioSolutions sector, especially for BioStimulants and Innovative Nutrition. Customer acceptance and adoption levels may vary widely and, in some cases, can be minimal for new and emerging technologies. Our current competitors include Novozymes Biopharma A/S, Verdesian LifeSciences LLC, Bayer Crop Science Inc. (AgraQuest, Inc.), Valagro SpA, BASF SE (Becker Underwood Inc.), Koppert Biological Systems and various others. Potential new competitors include entry by existing Crop Protection companies as well as the formation of new BioSolutions companies.
Raw Materials and Sourcing of Products
In our Performance Solutions segment, our business involves the manufacture of a broad range of specialty chemicals, which we create by blending raw materials, and the incorporation of these chemicals into multi-step technological processes.  Our manufacturing operations depend upon obtaining adequate supplies of raw materials on a timely basis.  We typically purchase our major raw materials on an as-needed basis from outside sources, and the raw materials that are of greatest importance to our global operations are, in most cases, obtainable from multiple sources worldwide.
In our Agricultural Solutions segment, we rely on contract manufacturers, both domestically and internationally, to produce certain inputs or key components for our product formulations.  These inputs, which are generally a combination of technical grade AIs, semi-finished goods, inerts and packaging materials, are typically sourced close to where we ultimately formulate and sell our products.  We source almost all of our AIs from third-party manufacturers, which represent a relatively limited number of key suppliers.  We strive to maintain multiple high-quality supply sources for each AI; however, due to the proprietary nature of some of our products, finding alternative new sources can be challenging. Our goal is to maximize our sourcing of raw materials from quality suppliers in countries with generally low manufacturing costs, such as China, Eastern Europe, and India.


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We formulate and package our products in-house or through tolling and other third-party manufacturing and formulation arrangements.  We balance our in-house formulation with third-party arrangements to limit our exposure to utilization drop-offs, facility closures, and certain manufacturing-related environmental risks which helps optimize our cost structure.
Within certain portions of our BioSolutions portfolio, we manage an end-to-end supply chain.  We purchase natural raw materials, such as plant extracts and seaweed, to extract AIs for our BioSolutions products.
Patents, Trademarks and Proprietary Products
Our intellectual property and other proprietary rights are important to our business and are protected by a combination of patents, trade secrets, trademarks, data exclusivity, and other marketing exclusivity rights, exclusive or semi-exclusive manufacturing arrangements, and other non-patent strategies. We seek intellectual property and other proprietary rights in major markets and other commercially-relevant jurisdictions worldwide. We implement confidentiality procedures and contractual exclusivity and seek other rights necessary to protect our intellectual property, proprietary formulations, processes, and other product-related rights.  We rely on trade secrets and know-how confidentiality agreements to protect our processes, natural product composition/origin, and formulations. We also enter into invention or patent assignment agreements, when applicable, with our employees, consultants, contractors, and other third-parties who may be engaged in discovery or development of intellectual property and other proprietary rights. Finally, we seek to include provisions in our material transfer agreements, license and development agreements, and other agreements that provide for the transfer of intellectual property rights back to us to the greatest extent possible under the circumstances of any specific transaction and development project.
Performance Solutions
In our Performance Solutions segment, at December 31, 2017, we owned, had applications pending, or licensed the rights to approximately 2,000 domestic and foreign patents, which have remaining lives of varying duration.  Although certain of these patents are important to our business, we believe that our ability to provide technical and testing services to our customers and meet their rapid delivery requirements is equally, if not more, important to our business.  No specific group or groups of intellectual property rights are material to our business.  However, we have many proprietary products which are not covered by patents and which are responsible for a large component of our total sales.  Further, we hold a number of domestic and foreign trade names and trademark registrations and applications for registration, which we consider to be of value in identifying our products.  We do not hold nor have we granted any franchises.
Agricultural Solutions
In our Agricultural Solutions segment, at December 31, 2017, we owned, had applications pending, licensed or had freedom-to-operate rights under, approximately 800 domestic and foreign patents, and approximately 6,800 product registrations.  This number includes multiple patents and applications with similar claims, filed in various countries. Where our rights to patents or applications are licensed, those rights may be exclusive or non-exclusive depending on such factors as which other AIs the product is formulated with and the field of use in which the product is applied. As part of our intellectual property strategy, we in-license or acquire patents from other Crop Protection chemicals and BioSolutions companies and pursue other patents not related to composition of matter, such as use extensions, formulations, mixtures and manufacturing processes. Certain of our products have multiple patents associated with their AIs, composition of matter, combinations with other AIs, methods of use, delivery technology, and manufacturing and formulation processes. We also differentiate with value-added mixtures and novel formulations, with launches prior to the expiration of the AIs' patent protection, to secure market position. 
Government and Environmental Regulation
We develop, produce and market our chemical products in a number of jurisdictions throughout the world and are subject to extensive federal, regional, national and local laws and regulations in each country in which we operate. These laws and regulations govern, among other things, the Company’s manufacture, use, labeling, packaging, storage and distribution of chemicals and hazardous substances, which are subject to strict quality and regulatory standards. We are required to meet these strict standards which, in recent years, have become increasingly stringent. However, no portion of our business is subject to re-negotiation of profits or termination of material contracts or subcontracts at the election of the governments in the countries in which we operate.
We are subject to the FCPA, which prohibits U.S. persons, U.S. issuers and U.S. companies and their intermediaries from making direct or indirect improper payments to non-U.S. government officials for the purpose of obtaining or retaining business or securing an improper advantage.   We are also subject to similar anti-bribery laws in the jurisdictions in which we operate, including the Bribery Act, which also prohibits commercial bribery, solicitation of bribery, and makes it a crime for certain commercial organizations to fail to prevent bribery.  These laws are complex and far-reaching in nature and, as a result, we may be required


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in the future to alter one or more of our policies or practices to be in compliance with these laws or any changes in these laws or the interpretation thereof.  As previously disclosed, in connection with the implementation of internal controls, policies and procedures at Arysta, following the acquisition of that business in 2015, we discovered that certain payments made to third-party agents in connection with Arysta’s government tender business in West Africa might have been illegal or otherwise inappropriate. We have conducted an investigation and voluntarily informed the SEC and the U.S. Department of Justice of this matter. After reviewing the matter, the SEC and the U.S. Department of Justice both advised that they had closed out the matter and declined to take any action.  We consider the matter closed.
We maintain a Business Conduct and Ethics Policy and a Foreign Corrupt Practices Act/Anti-Corruption Policy, applicable to all our directors, officers and employees. In addition, our CEO and CFO are bound by the provisions of a Code of Ethics for Senior Financial Officers. The Business Conduct and Ethics Policy, the Foreign Corrupt Practices Act/Anti-Corruption Policy and the Code of Ethics for Senior Financial Officers were both approved by our Board and cover compliance with the FCPA and similar anti-corruption laws, as well as other legal areas applicable to our operations.
Our business and our customers also may be subject to significant requirements under the European Community Regulation (EC) No 1907/2006 of the European Parliament and the Council dated December 18, 2006 relating to the Registration, Evaluation, Authorization and Restriction of Chemicals, effective June 1, 2007 (or REACH). REACH, adopted in December 2006, imposes obligations on E.U. manufacturers and importers of chemicals and other products into the E.U. to compile and file comprehensive reports, including testing data, on each chemical substance, and perform chemical safety assessments. Active substances and co-formulants used in plant protection products (pesticides) are generally exempt from REACH as they are considered as already registered under the Plant Protection Products Directive 91/414/EEC.  However, certain exceptions may apply that would require the active substance or co-formulant to be registered, particularly if the substance has a non-plant protection use.  While we have registered and continue to register substances as required, the registration process is lengthy and registration of certain of our substances may not be immediately effective.  The cost estimates could vary based on the number of substances requiring registration, data availability and cost.  The implementation of the REACH registration process may affect our ability to manufacture and sell certain products in the future.
As a manufacturer and distributor of Crop Protection products and BioSolutions, we are subject to extensive U.S. and foreign laws and regulations relating to environmental protection and worker health and safety, including those governing discharges of pollutants into the air and water, the management and disposal of hazardous substances and wastes, the cleanup of contaminated properties and occupational safety and health matters.  In the United States, the Environmental Protection Agency (or EPA) regulates our Agricultural Solutions products under the Federal Insecticide, Fungicide and Rodenticide Act and related legislation such as the Food Quality Protection Act of 1996, or FQPA. In addition to EPA approval, we are required to obtain regulatory approval from the appropriate state regulatory authority in individual states. Many BioSolutions products, especially those classified as fertilizers, are not regulated at the federal level, but only at the state level. The FQPA requires a review of residue tolerances, based on assessment of aggregate risk for a single Crop Protection product and cumulative risk for Crop Protection products with similar modes of toxic action.
Governments in all countries have established legislation and systems for the review and approval of Crop Protection products. These laws require the preparation of comprehensive registration dossiers that must be submitted to the relevant authority in each country before sales can proceed. Once a Crop Protection product is registered in a country, it may generally be sold in such country for use on the crops for which it has been approved, subject to any specific use conditions. The global registration landscape is varied. Many countries have highly sophisticated registration systems and take two to four years to review a Crop Protection product before approving it for sale; in some countries, such as Brazil and India, the registration process can take longer (five to seven years). Some developing countries and countries with economies in transition base their approval on those granted in the more developed countries.
This highly-regulated environment represents both a challenge (cost, time, risk of failure or non-compliance) and an opportunity (to be more efficient and effective than our competitors).  In recent years, there has been a significant increase in the stringency of environmental regulation and enforcement of environmental standards, and the costs of compliance have risen significantly. We expect that the trend of increased regulation will continue in the future. In response to this increased government attention to environmental matters worldwide, we continue to develop proprietary products designed to reduce the discharge of pollutant materials into the environment and eliminate the use of certain targeted raw materials while enhancing the efficiency of customer chemical processes. In addition, while regulation substantially increases the time and cost associated with bringing our products to market, we believe that our management team’s significant experience in bringing our and other companies’ technologies through regional, national and local regulatory approval processes, our efficient development process, and our ability to leverage our strategic collaborations to assist with registrations, particularly in Europe and Latin America, will enable us to overcome these challenges. We have and may in the future incur significant costs, including cleanup costs, fines and sanctions and third-party claims for property or natural resource damage or personal injuries as a result of past or future violations of, or liabilities under,


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such laws and regulations.  At December 31, 2017, we believe we had appropriate liabilities recorded for our various environmental matters.
Available Information
Our internet website address is www.platformspecialtyproducts.com.  We make available free of charge, through our website, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, all amendments to those reports filed pursuant to Section 13(a) or 15(d) of the Exchange Act, and proxy statements for our annual meeting of stockholders, as soon as reasonably practicable after each such material is electronically filed with or furnished to the SEC.  In addition, information concerning purchases and sales of our equity securities by our executive officers and directors is posted on our website by the end of the business day after filing with the SEC.
You may also read and copy any document that we file, including this 2017 Annual Report, at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Call the SEC at 1-800-SEC-0330 for information on the operation of the Public Reference Room. In addition, the SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers, including Platform, that are electronically filed with the SEC.
Our website includes the following corporate governance materials under the tab “Investor Relations—Corporate Governance:” Board of Directors Governance Principles and Code of Conduct; Insider Trading Policy; Stock Ownership Guidelines; Business Conduct and Ethics Policy - Employees/Directors; Business Conduct and Ethics Policy - Contractors/Consultants; Code of Ethics for Senior Financial Officers; Foreign Corrupt Practices Act/Anti-Corruption Policy; Conflict Minerals Policy and the related Form SD; Platform Data Protection and Privacy Policy; Management, Board of Directors and Committee Composition; and the charters of each committee of our Board of Directors.  These corporate governance materials are also available in print upon request by any stockholder to our Investor Relations department.
The information included on our website does not constitute part of this 2017 Annual Report.
In addition to the information included in this Part I, Item 1, see Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Part II, Item 8, as well as Note 1, Background and Basis of Presentation, and Note 23, Segment Information, to the Consolidated Financial Statements, all included in this 2017 Annual Report, for financial and other information concerning our operating segments and the geographic areas in which we do business.
Corporate Information
Our principal executive offices are located at 1450 Centrepark Boulevard, Suite 210, West Palm Beach, Florida 33401 and our telephone number is (561) 207-9600.
Senior Management of Platform
Set forth below is certain information concerning our senior management:
Name
 
Title
Rakesh Sachdev
 
Chief Executive Officer
John P. Connolly
 
Chief Financial Officer
John E. Capps
 
Executive Vice President - General Counsel and Secretary
Benjamin Gliklich
 
Executive Vice President - Operations and Strategy
J. David Tolbert
 
Chief Human Resources Officer
Scot R. Benson
 
President - Performance Solutions
Diego Lopez Casanello
 
President - Agricultural Solutions
Rakesh Sachdev, age 62, is Chief Executive Officer of Platform. Mr. Sachdev joined Platform in January 2016. Prior to joining Platform, Mr. Sachdev served as President and Chief Executive Officer of Sigma-Aldrich Corporation, or Sigma-Aldrich, beginning in 2010. Mr. Sachdev joined Sigma-Aldrich in 2008 as Chief Financial Officer and took on the additional role of Chief Administrative Officer with direct oversight of Sigma-Aldrich’s international business in 2009. He was Senior Vice President and President Asia Pacific of ArvinMeritor, Inc., or ArvinMeritor, a global supplier of engineered systems to the automotive industry, from 2007 to 2008. At ArvinMeritor, Mr. Sachdev also served in other leadership roles, including Interim Chief Financial Officer, Senior Vice President Strategy and Corporate Development and Vice President and General Manager of several of


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ArvinMeritor’s global businesses from 1999 to 2007. Prior to joining ArvinMeritor, he worked for Cummins Inc., a global manufacturer of engines and other industrial products in various leadership roles, including Chief Financial Officer for one of its largest business units, and as Managing Director of its Mexican operations. Mr. Sachdev is also a director of Regal-Beloit Corporation and Edgewell Personal Care Company and serves on the Board of Trustees of Washington University in St. Louis. Mr. Sachdev holds an M.B.A. from Indiana University, a Masters in Mechanical Engineering from the University of Illinois and a Bachelor’s degree in Mechanical Engineering from the Indian Institute of Technology in New Delhi.
John P. Connolly, age 52, is Chief Financial Officer of Platform. Prior to being promoted to this role in March 2017, Mr. Connolly served as Vice President, Corporate Controller and Chief Accounting Officer since joining Platform in August 2016. Before joining Platform, Mr. Connolly served as Vice President, Controller and Chief Accounting Officer at Xylem Inc., a spun-off water technology company from ITT Corporation, or ITT, from October 2011 to August 2016. Prior to joining Xylem Inc., Mr. Connolly spent five years at ITT during which time he held key roles as Director, Financial Planning & Analysis, and Director of Accounting. Previously, Mr. Connolly spent 10 years at IBM in roles of increasing responsibility including Manager of Financial Planning & Analysis, Controller of a software division, and Head of Pricing & Licensing Strategy across IBM’s software business, as well as seven years at PricewaterhouseCoopers LLP reaching the level of Manager. Mr. Connolly is a Certified Public Accountant and holds an M.B.A. in Finance from the Lubin School of Business at Pace University.
John E. Capps, age 53, is Executive Vice President - General Counsel and Secretary of Platform. Mr. Capps joined Platform in May 2016. Prior to joining Platform, Mr. Capps was with Jarden Corporation, a Fortune 500 broad-based consumer products company, where he most recently served as Executive Vice President - Administration, General Counsel and Secretary until April 2016 when Jarden Corporation merged with Newell Brands Inc. From 2003 to 2005, Mr. Capps was with American Household, Inc. which was acquired by Jarden Corporation in January 2005. Previously, Mr. Capps worked as a private lawyer with the firm Sullivan & Cromwell LLP. Mr. Capps holds a J.D. from the University of Texas and a B.A. and M.B.A. from Vanderbilt University.
Benjamin Gliklich, age 33, is Executive Vice President - Operations and Strategy of Platform. Mr. Gliklich was appointed in this role in April 2016, after having served as Chief Operating Officer from October 2015 to April 2016; Vice President – Corporate Development, Finance and Investor Relations of Platform from January 2015 to October 2015 and as Director of Corporate Development from May 2014 to January 2015. Prior to joining Platform, Mr. Gliklich was a member of the investments team at General Atlantic, a global growth-oriented private equity firm. Earlier in his career, Mr. Gliklich worked in the investment banking division of Goldman Sachs & Co. Mr. Gliklich holds an A.B. Cum Laude from Princeton University and an M.B.A with distinction from Columbia Business School.
J. David Tolbert, age 56, is Chief Human Resources Officer of Platform. Mr. Tolbert has served in this role since December 2016, after serving as a human resources consultant to Platform from April 2016 to December 2016. Prior to joining Platform, Mr. Tolbert was with Jarden Corporation where he served as Senior Vice President, Human Resources and Corporate Risk from September 2001 to September 2014. From October 2014 to December 2015, Mr. Tolbert served as a human resources advisor for Jarden Corporation. Since 1993, Mr. Tolbert had served in various management and executive roles in the areas of human resources, administration and corporate risk for Jarden Corporation. From 1987 to 1993, Mr. Tolbert served in various human resources and operating positions at Ball Corporation. Mr. Tolbert holds a B.S. and M.B.A. from Ball State University.
Scot R. Benson, age 56, is President of the Performance Solutions segment of Platform.  Mr. Benson joined MacDermid in 1999.  His previous positions at MacDermid included President of MacDermid Advanced Surface Finishes and Graphics Solutions from January 2013 until February 2015.  Mr. Benson also served as President of MacDermid Graphics Solutions from 2010 to 2013. Mr. Benson attended the University of Wisconsin - Stevens Point.
Diego Lopez Casanello, age 44, is President of the Agricultural Solutions segment of Platform. Prior to joining Platform in February 2016, Mr. Lopez Casanello served as Senior Vice President and head of the Agricultural Products Division, Asia Pacific at BASF from February 2015 to January 2016. His previous positions at BASF included Senior Vice President of the Performance Chemicals Division, North America from April 2012 to January 2015 as well as CEO and Managing Director of BASF Argentina from November 2008 to March 2012. Mr. Lopez Casanello has held numerous other roles within the Agricultural Products Division of BASF, including Head of Global Marketing for Seed Treatment, Global Manager of New Business Development and Business Director for South Europe. Mr. Lopez Casanello holds a Bachelor's degree in Business Administration from the University of Hagen, Hagen, Germany.


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Item 1A.  Risk Factors
The ownership of our securities involves a number of risks and uncertainties.  Potential investors should carefully consider the risks and uncertainties described below and the other information in this 2017 Annual Report before deciding whether to invest in our Company.  Our business, financial condition or results of operations could be materially adversely affected by any of these risks.  The risks described below are not the only ones facing us.  Additional risks that are currently unknown to us or that we currently consider to be immaterial may also impair our business or adversely affect our financial condition or results of operations.
Risk Related to the Proposed Separation of Agricultural Solutions
The Proposed Separation of our Agricultural Solutions business is contingent upon the satisfaction of a number of conditions and involves significant time of our management and expenses, which could disrupt or adversely affect our business.
The Proposed Separation of our Agricultural Solutions and Performance Solutions businesses is expected to be completed in 2018. However, we could be delayed or prevented from completing the Proposed Separation, or complete it on terms or conditions that are less favorable and/or different than expected, for a variety of reasons, including but not limited to:
market conditions and volatility;
inability or delays in obtaining any legal or regulatory approvals;
inability or difficulty in refinancing our Credit Facilities and other material indebtedness, including our Prior Senior Notes;
challenges in establishing infrastructure or processes; and
the possibility of more attractive strategic options arising in the future.
In addition, the terms of the 5.875% USD Notes Indenture require that certain conditions, including both secured and total leverage ratio tests, be met in order to complete the designation of the subsidiaries that comprise the Agricultural Solutions business as unrestricted subsidiaries under that indenture. In order to comply with these conditions, additional equity contributions, refinancing of both our Amended and Restated Credit Agreement and our Prior Senior Notes and certain other related financings may be required. There can be no assurance that these financing or refinancings will occur or that the conditions set forth in the 5.875% USD Notes Indenture relating to the designation of our Agricultural Solutions subsidiaries as unrestricted subsidiaries will be satisfied.
Whether or not we complete the Proposed Separation, our ongoing businesses may be adversely affected and we may be subject to certain risks and consequences as a result of pursuing the Proposed Separation, including the following:
execution of the Proposed Separation requires and will continue to require significant time and attention from management, which may distract management from the operation of our businesses and the execution of other initiatives that may have been beneficial to us;
our employees may also be distracted due to uncertainty about their future roles with us and Agricultural Solutions pending the completion of the Proposed Separation;
some of our suppliers or customers may delay or defer decisions or may end their relationships with us or our Agricultural Solutions business; and
we expect to incur incremental costs and expenses relating to the Proposed Separation, such as legal, accounting, tax and other professional fees.
We may also experience negative reactions from the financial markets if we fail to complete the Proposed Separation. Any of these factors could have a material adverse effect on our business, financial condition, results of operations and/or price of our common stock.
Failure to maintain our credit ratings could adversely affect our liquidity, capital position, borrowing costs and access to capital markets.
Our credit risk is evaluated by the major independent rating agencies. In connection with the Proposed Separation, as we are designing and implementing the transaction structure and related financings, there can be no assurance that we will be able to maintain our current credit ratings. Any actual or anticipated changes or downgrades in our credit ratings, including any announcement that our ratings are under further review for a downgrade, may impact our reputation, and adversely affect our liquidity, capital position, borrowing costs and access to capital markets.


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We may be unable to achieve some or all of the benefits that we expect to achieve from the Proposed Separation.
The Proposed Separation may not provide the results on the scope or on the scale we anticipate, and we may not realize all, or any, of the intended benefits. In addition, we will incur one-time costs and ongoing costs in connection with, or as a result of, the Proposed Separation, including costs of operating as separate companies that the two businesses will no longer be able to share.
Those costs may exceed our estimates or could negate some of the benefits we expect to realize. If we do not realize the intended benefits or if our costs exceed our estimates, our business, financial condition, results of operations and trading price may be adversely impacted.
If the Proposed Separation is completed, the trading price of our shares of common stock may decline or experience greater volatility.
If the Proposed Separation is completed, the trading price of our shares of common stock immediately following the Proposed Separation may decline or experience greater volatility as our business profile and market capitalization may no longer match some of our stockholders’ investment strategies in diversified companies, which could cause these investors to sell their shares of Platform’s common stock and/or to not invest in the Agricultural Solutions business as a separate public company. Excessive selling pressure could cause the market price of Platform’s common stock and, if publicly listed, the common stock of Agricultural Solutions, to decrease following the completion of the Proposed Separation. Similarly, following the Proposed Separation, our shares of common stock and those of the Agricultural Solutions business may collectively trade at a value less than the price at which our shares of common stock might have traded had the Proposed Separation not occurred as a result of the future performance of either us or the Agricultural Solutions business as separate companies, as well as the future stockholder base, market and trading price for our respective shares.
We may incur additional costs in connection with the Proposed Separation, which could adversely affect our business, financial condition or results of operations.

To the extent it becomes a public company, we may incur incremental costs in assisting the Agricultural Solutions business comply with its public reporting requirements and financial presentations as a separate business from Platform following the Proposed Separation. Fulfilling our public reporting requirements and creating additional costs for the Company in connection with the Agricultural Solutions business’ reporting requirements would likely be time-consuming and expensive. We cannot quantify or predict the increased costs to us as a result of the Proposed Separation.

In addition, other significant changes may occur in our cost structure, management, financing and business operations as a result of operating as a company separate from the Agricultural Solutions business following the Proposed Separation.

We may be subject to third-party claims in the event that Agricultural Solutions is not successful as a separate entity.
Following the Proposed Separation, we cannot guarantee that Agricultural Solutions will be successful as a separate entity. In the event that Agricultural Solutions is not successful, it is possible that third parties could assert a variety of claims against us. Depending on their nature and number, such claims could have a material adverse effect on our business, financial condition or results of operations.
We could be exposed to claims from Agricultural Solutions or third parties under our agreements with Agricultural Solutions or otherwise.
In connection with the Proposed Separation, we may enter into agreements with Agricultural Solutions including, among others, a separation agreement, transition services agreement and registration rights agreement. Our agreements with Agricultural Solutions may not reflect terms that would have resulted from negotiations between unaffiliated parties and, in certain instances, may relate to the continuation of certain business arrangements among us and Agricultural Solutions in existence prior to the Proposed Separation. Such provisions may include, among other things, indemnification rights and obligations, the allocations of liabilities, payment obligations and other obligations between us and Agricultural Solutions. There can be no assurance that any remedies available under these arrangements will be sufficient to us in the event of a dispute or non-performance.
In addition, there can be no assurance that the attention we must pay, and resources we must devote, to our obligations under one or more of these agreements, or the results of any failure to perform those obligations, or claim by Agricultural Solutions that we have failed to perform those obligations, will not have a material impact on our own business performance. Under the separation agreement, Agricultural Solutions will agree to indemnify us for certain liabilities. However, third parties could seek to hold us responsible for such liabilities and there can be no assurance that the indemnity from Agricultural Solutions will be sufficient to


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fully protect us from such liabilities. The transition services agreement will provide for the performance by us of certain services for Agricultural Solutions, through and following the Proposed Separation. We will rely on Agricultural Solutions to satisfy its performance and payment obligations under these and all other agreements entered into in connection with the Proposed Separation. Agricultural Solutions' failure to satisfy such obligations may have a material adverse effect on our financial condition or results of operations.
The tax treatment of the Proposed Separation remains uncertain.
The tax treatment of the Proposed Separation will depend on several factors, including the settlement of inter-company balances, restructuring of outstanding debt, and the value of the Agricultural Solutions business at the time of the Proposed Separation for U.S. federal income tax and financial statement purposes.  Preliminary tax analysis indicates that it is likely that the Proposed Separation will be a taxable event. However, pending resolution of these factors, conclusion on the tax treatment of the Proposed Separation, including whether this transaction will result in any tax liabilities, remains uncertain. Further, an analysis of the impact of the recently passed TCJA as it relates to the Proposed Separation is ongoing. As described below, the TCJA significantly reforms the Internal Revenue Code of 1986, as amended, and tax consequences for our business and contemplated transactions also remain uncertain.
Risks Relating to our Business
Acquisitions are an important part of our growth strategy.
Part of our key strategy is to grow through acquisitions. We have completed several acquisitions in the past and routinely review additional opportunities. This strategy presents certain risks including, without limitation, the potential for:
increasing debt levels to fund sizable acquisitions, resulting in additional liabilities, constraints and requirements on our business and financial performance;
the acquired businesses failing to provide, or delays in realizing, the benefits originally anticipated by management;
potential disruption of our businesses, tax costs or inefficiencies, inconsistencies or deficiencies in standards, controls (including internal control over financial reporting, environmental compliance and health and safety compliance), information technology systems, procedures and policies;
difficulties managing tax costs or inefficiencies associated with integrating our operations following completion of acquisitions;
difficulties in integrating the operations and systems of the acquired businesses and in realizing operating synergies by identifying and eliminating redundant operations and assets;
difficulties in assimilating and retaining key employees, customers, suppliers and other partners of the acquired companies;
challenges related to the lack of experience in operating in the geographical or product markets of the acquired business;
management’s attention being diverted to the integration of the acquired businesses or acceptance of the acquired technology;
rising interest rates on debt needed or dilution resulting from equity issuances to provide cash to fund the purchase price of acquisitions; and
unanticipated contract or regulatory issues and the assumption of, and exposure to, unknown or contingent liabilities of the acquired businesses.
If an acquisition is not successfully completed or integrated into our existing operations or does not result in the benefits we expect, as a result of the factors mentioned above or otherwise, our business, financial condition or results of operations may be adversely affected. In addition, failure to integrate successfully or realize the anticipated business opportunities and growth prospects from our acquisitions, including the Acquisitions, could result in unanticipated expenses and losses and may require significant financial resources that would otherwise be available for the ongoing development or expansion of our existing operations. Accordingly, in connection with any acquisition, there can be no assurance as to whether or when any benefits or cost synergies we hope to achieve will occur, or the extent to which they actually will be achieved. Finally, future business acquisitions or other material strategic initiatives, including, without limitation, the Proposed Separation, could compound the difficulty in making comparisons between prior, current and future periods because these events, which are not made in ordinary course of business, also affect our gross profit margins and our overall operating results.


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Our substantial indebtedness may adversely affect our cash flow and our ability to operate our business and fulfill our obligations under our outstanding debt.
At December 31, 2017, our total indebtedness was approximately $5.48 billion. Such substantial indebtedness could have the following material consequences:
require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund acquisitions, working capital, capital expenditures, dividends, research and development efforts and other general corporate purposes;
increase the amount of our interest expense, because our borrowings include instruments with variable rates of interest, which, if interest rates increase, would result in higher interest expense;
increase our vulnerability to general adverse economic and industry conditions;
limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
limit our ability to make strategic acquisitions, introduce new technologies or exploit business opportunities;
place us at a competitive disadvantage compared to our competitors that have less indebtedness; and
limit, among other things, our ability to borrow additional funds.
In addition, our Credit Facilities and other agreements governing our outstanding debt contain covenants that restrict, among other things, our ability to incur additional debt, grant liens, pay cash dividends, enter new lines of business, repurchase our shares of common stock, make certain investments and engage in certain merger, consolidation or asset sale transactions. These restrictions could limit our ability to plan for or react to market conditions, meet extraordinary capital needs or otherwise take actions that we believe are in the best interest of our business. In addition, the terms of our Credit Facilities and these agreements allow us to issue and incur additional debt but only upon satisfaction of certain conditions. We anticipate that any future acquisitions we pursue as part of our growth strategy may be financed through a combination of cash on hand, operating cash flow, availability under our Credit Facilities and new capital markets offerings. If new debt is added to current debt levels, the related risks described above could increase.
Our ability to satisfy our debt obligations and to fund any planned capital expenditures, dividends and other cash needs also depends in part upon the future financial and operating performance of our subsidiaries and upon our ability to renew or refinance borrowings. Prevailing economic conditions and financial, business, competitive, legislative, regulatory and other factors, many of which beyond our control, will affect our ability to make these payments. If we are unable to make payments or refinance our debt, obtain waivers or new financing, or if holders of indebtedness elect to declare all borrowed funds due and/or to terminate their commitments for future funding, those holders could exercise their rights, including assuming control over our deposit accounts and/or commencing foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation.
A change in our estimates and underlying assumptions regarding the future performance of our businesses could result in an impairment charge, which could materially affect our results of operations.
In accordance with GAAP, we account for our acquisitions using the purchase method of accounting and, historically, the Acquisitions have resulted in significant goodwill and other intangible assets being recognized in our Consolidated Financial Statements. We are required under GAAP to review our amortizable intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable, and are also required to conduct impairment tests on goodwill and other indefinite-lived intangible assets annually or more frequently, if circumstances indicate that the carrying value may not be recoverable or that an other-than-temporary impairment exists. Other than the goodwill impairments we recorded in the Agro Business reporting unit within our Agricultural Solutions segment in 2017 and the Offshore Solutions reporting unit within our Performance Solutions segment in 2016, there were no impairments of goodwill or other intangible assets in 2017, 2016 or 2015. In 2017, however, our Graphics Solutions and Offshore Solutions reporting units within our Performance Solutions segment, as well as other indefinite-lived intangible assets, each had fair values that were not substantially in excess of their respective carrying values. Any changes in estimates or underlying assumptions regarding the future performance of our businesses could adversely affect our results of operations. Factors that could result in an impairment include, but are not limited to significant negative economic or industry trends or competitive operating conditions; significant macroeconomic conditions that may result in a future increase in the weighted-average cost of capital used to estimate fair value; and significant changes in the nature and timing of decisions regarding assets or markets that do not perform consistently with our expectations, including factors we use to estimate future levels of sales, Adjusted EBITDA or cash flows. Future impairment charges, if any, could have a material adverse effect on our results of operations in the periods recognized.


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We are exposed to fluctuations in currency exchange rates, which may adversely affect our operating results and may significantly affect the comparability of our results between financial periods.
We have significant operations outside the United States, the financial results of which are maintained in the local currency and then translated in U.S. dollars at applicable exchange rates for inclusion in our consolidated financial statements. The exchange rates between these currencies and the U.S. dollar have fluctuated and will likely continue to do so in the future. Changes in exchange rates between these local currencies and the U.S. dollar will affect the recorded levels of sales, profitability, assets or liabilities. In addition, translated U.S. dollar amounts reflected in our financial statements may obscure underlying financial trends that would be apparent in financial statements prepared on a constant currency basis or affect the comparability of our results between financial periods. In addition, as a result of our international operations, our business and financing arrangements are conducted in a variety of currencies resulting in transactional currency risk. Although we may employ at times a variety of techniques to mitigate the impact of exchange rate fluctuations, including a limited number of foreign currency hedging activities, we cannot guarantee that such risk management strategies will be effective, and our financial condition, or results of operations could be adversely impacted.
In addition, the June 2016 national referendum in the United Kingdom, commonly referred to as "Brexit," whereby a majority of voters elected to withdraw the United Kingdom from the E.U. caused further volatility in global stock markets and currency exchange rate fluctuations that resulted in the strengthening of the U.S. dollar against foreign currencies. The strengthening of the U.S. dollar may adversely affect our business, financial condition or results of operations, and expose us to gains and losses on non-U.S. currency transactions. Further, a potential devaluation of the local currencies of our customers relative to the U.S. dollar could impair their purchasing power and cause them to decrease or cancel orders or default on payment. This volatility in foreign currencies is expected to continue as the United Kingdom negotiates and executes its exit from the E.U. but it is uncertain over what time period this will occur. Any of these effects of Brexit, among others, could adversely affect our business, financial condition, or results of operations.
The failure to attract and retain key personnel, including our executive officers, or effectively manage succession, could have an adverse impact on our business, financial condition or results of operations.
Our business involves complex operations and therefore demands a leadership team and employee workforce that is knowledgeable and expert in many areas necessary for our operations. The failure to attract and retain key personnel, or effectively manage succession, could have an adverse material impact on our result of operations. In addition, we are highly dependent on the experience and track records of our management, particularly Martin E. Franklin and Rakesh Sachdev, in successfully acquiring and managing businesses. If one or more of our executive officers were to cease to be employed by us, or if we were unable to replace them in a timely manner, our business, financial condition or results of operations could be adversely affected.
In addition, as a company focused on manufacturing and highly technical customer service, we rely on our ability to attract and retain skilled employees, including our specialized research and development, and sales and service personnel, in order to maintain our efficient production processes, drive innovation in our product offerings and maintain our deep customer relationships. The departure of a significant number of our highly skilled employees, or of one or more employees who hold key management positions, could have an adverse impact on our operations, including customers choosing to follow an employee or manager to one of our competitors.
If we fail to establish and maintain adequate internal controls over financial reporting, we may not be able to report our financial results in a timely and reliable manner, which could harm our business and impact the value of our securities.
We are required by the SEC to establish and maintain adequate internal control over financial reporting that provides reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements in accordance with GAAP. We are likewise required, on a quarterly basis, to evaluate the effectiveness of our internal controls and to disclose any material changes and material weaknesses in those internal controls.
As discussed in this 2017 Annual Report in Part II, Item 9A, we have identified material weaknesses in the past and, as of December 31, 2017, a material weakness in our internal control over financial reporting related to the accounting for income taxes had not been fully remediated. As a result, we have concluded, based on management's assessment, that our internal control and procedures were ineffective at December 31, 2017 as it relates to the accounting for income taxes. Effective internal controls are necessary for us to provide reliable and timely financial reports and to effectively prevent fraud. If we cannot provide reliable financial reports and effectively prevent fraud, our reputation and operating results could be harmed. Likewise, if our financial statements are not filed on a timely basis as required by the SEC and the NYSE, we could face severe consequences from those authorities. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could affect our stock price.


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Even effective internal controls have inherent limitations including the possibility of human error, the circumvention or overriding of controls, or fraud. Therefore, even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. In addition, projections of any evaluation of effectiveness of internal control over financial reporting in future periods are subject to the risk that the control may become inadequate because of changes in conditions or a deterioration in the degree of compliance with the policies or procedures.
Finally, our business strategy contemplates the acquisition of businesses and the operation of subsidiaries whose financial results are consolidated into our financial statements and operating reporting. Effective internal control over financial reporting must be established and maintained in connection with these acquisitions, if any, in order for us to produce accurate and timely financial reports. Failure to do so could result in our inability to report our financial results accurately and on a timely basis, and possibly lead to other deficiencies, which would also likely have a negative impact on our stock price.
We have identified material weaknesses in the past and we have a remaining material weakness in our internal control over financial reporting which, if not remediated, could affect the accuracy and timeliness of our financial reporting and result in misstatements in our financial statements.
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. As previously reported, we have identified material weaknesses in the past and in connection with its evaluation related to this 2017 Annual Report, management concluded that our internal control over financial reporting as it relates to the accounting for incomes taxes was ineffective at December 31, 2017.
A material weakness is defined as a deficiency, or combination of deficiencies, in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
As previously reported and discussed in this 2017 Annual Report in Part II, Item 9A, we have taken, and continue to take, numerous steps to remediate this material weakness and improve our internal controls over financial reporting. However, there can be no assurance that the measures we have taken to date, and are continuing to take, will be sufficient to remediate this material weakness or avoid potential future material weaknesses. If our remedial measures are insufficient to address this material weakness, or if additional material weaknesses or significant deficiencies in our internal controls are discovered or occur in the future, or if we are not able to comply with the requirements of Section 404 of Sarbanes-Oxley Act of 2002 in a timely manner, our financial statements for one or more periods may contain material misstatements and we could be required to restate previously issued financial statements for past periods, which may have a material adverse effect on our stock price and our ability to access capital and lending markets.
Our substantial international operations subject us to risks not faced by domestic competitors.
Our business involves significant international operations which, accordingly, subject us to risks related to the different legal, political, social and regulatory requirements and economic conditions of many foreign jurisdictions. Risks inherent to our international operations include the following:
fluctuations in currency values and foreign currency exchange rates;
increased credit risk and different financial conditions, which may necessitate longer payment cycles of accounts receivable or result in increased bad debt write-offs (including due to bankruptcy) or additions to reserves;
additional withholding taxes or other taxes on foreign income, tariffs, duties, export controls, import restrictions or other restrictions on foreign trade or investment, including currency exchange controls;
foreign exchange controls or other currency restrictions and limitation on the movement of funds, including the prohibition of the repatriation of funds into the United States, which may result in adverse tax consequences and tax inefficiencies;
export licenses may be difficult to obtain, and the transportation of our products may be delayed or interrupted;
general economic and political conditions in the countries in which we operate, including devaluation or fluctuations in the value of currencies, gross domestic product, interest rates, market demand, labor costs and other factors beyond our control;
unexpected adverse changes in foreign laws or foreign regulatory requirements, including in laws or regulatory requirements pertaining to employee benefits, the environment and health and safety, such as China's latest environmental crackdown;
protectionist policies, which may restrict or impair the manufacturing, sales or import and export of our products;
new restrictions on access to markets, such as adverse trade policies or trade barriers;


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a lack of or inadequate infrastructure;
political crises;
uncertainties as to the enforceability of contract rights and reduced protection of intellectual property rights in some countries;
expropriation of assets or forced relocations of operations;
inflation and hyperinflationary economic conditions and adverse economic effects resulting from governmental attempts to control inflation, such as imposition of wage and price controls and higher interest rates;
business cultures accepting of various levels of corruption;
the requirement to comply with a wide variety of foreign and U.S. laws and regulations that apply to international operations, including, without limitation, economic sanctions regulations, labor laws, import and export regulations, anti-corruption and anti-bribery laws;
challenges in maintaining an effective internal control environment with operations in multiple international locations, including language and cultural differences, varying levels of GAAP expertise and internal control over financial reporting in international locations and multiple financial information systems;
difficulties managing and administering an internationally dispersed business, as the management of our personnel across many countries can present legal, logistical and managerial challenges; and
labor disruptions, civil unrest, significant social, political or economic instability, wars or other armed conflict or acts of terrorism.
Any of these risks could impact our ability to manufacture, source, sell or export our products or repatriate profits. We could also experience a loss of sales and profitability from our international operations, and/or a substantial impairment or loss of assets, any of which could have a material adverse impact on our business, financial condition or results of operations.
In addition, we have been taking steps to increase our presence in new markets, including emerging markets and less developed countries. However, there is no guarantee that our efforts to expand sales in these markets will succeed. In these markets, we are subject to a variety of risks in addition to those described above, including global financial instability, consumers with limited or fluctuating discretionary spending, unstable governments and privatization, changes in customs or tax regimes or other government actions affecting the flow of goods and currency. Any of these risks could materially adversely affect our business, financial condition or results of operations.
Furthermore, some of our international operations are conducted in parts of the world that experience corruption to some degree. Although we have policies and procedures in place that are designed to promote legal and regulatory compliance (including with respect to the FCPA and the Bribery Act as further described below), our employees, suppliers, distributors and wholesalers could take actions in contravention of our policies and procedures that violate applicable anti-corruption laws or regulations. Violations of these laws, or allegations of such violations, could have a material adverse effect on our reputation, or our business, financial condition, or results of operations.
The withdrawal of the United Kingdom from the E.U. may have a negative effect on global economic conditions, financial markets and our business.
We are a multinational company with worldwide operations, including significant business operations in Europe. Subsequent to Brexit, in February 2017, the British Parliament voted in favor of allowing the British government to begin negotiating the terms of the United Kingdom's withdrawal from the E.U. and in March 2017, the British government officially triggered the process to formally initiate negotiations for the terms of separation from the E. U. by April 2019. In June 2017, the British government began negotiations to leave the E. U. This will be either accompanied or followed by additional negotiations between the EU and the United Kingdom concerning the future relations between the parties, including the terms of trade between the parties. While the ultimate effect of Brexit are difficult to predict, the withdrawal process has created significant uncertainty about the future relationship between the United Kingdom and the E.U., and has given rise to calls for certain regions within the United Kingdom to preserve their place in the E.U. by separating from the United Kingdom as well as for the governments of other E.U. member states to consider withdrawal.
These developments, or the perception that any of them could occur, have had and may continue to have a material adverse effect on global economic conditions and the stability of global financial markets, and could significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets. Asset valuations, currency exchange rates and credit ratings may be especially subject to increased market volatility. Lack of clarity about future United Kingdom laws and regulations as the United Kingdom determines which E.U. laws to replace or replicate in the event of a withdrawal, including


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financial laws and regulations, tax and free trade agreements, intellectual property rights, supply chain logistics, environmental, health and safety laws and regulations, immigration laws and employment laws, could decrease foreign direct investment in the United Kingdom, increase costs, depress economic activity and restrict our access to capital. If the United Kingdom and the E.U. are unable to negotiate acceptable withdrawal terms or if other E.U. member states pursue withdrawal, barrier-free access between the United Kingdom and other E.U. member states, or among the European economic area overall, could be diminished or eliminated. Any of these factors could have a material adverse effect on our business, financial condition or results of operations.
We have made investments in, and are expanding our business into, emerging markets and less-developed countries, which exposes us to certain additional risks.
We have been taking steps to increase our presence in emerging markets and less developed countries. However, there is no guarantee that our efforts to expand sales in these markets will succeed. In these markets, we are subject to a variety of additional risks including global financial instability, consumers with limited or fluctuating discretionary spending on which the end users of our products depend, weak legal systems which may affect our ability to enforce our intellectual property and contractual rights, exchange controls, unstable governments and privatization, changes in customs or tax regimes, or other government actions affecting the flow of goods and currency. Accordingly, changes in any of those areas may have significant negative impacts on our business, financial condition, or results of operations. Other risks inherent in operations in emerging markets include, for example, unpredictable changes in relative prices and rates of economic growth; currency exchange fluctuations; unpredictable tax policies and trade regulations; restrictions on repatriation of cash and other exchange controls; less developed and less reliable judicial and administrative systems, which can render contractual rights unenforceable; the imposition of trade sanctions, resulting in lost access to customers and suppliers in the targeted countries; increased prevalence of bribery and other forms of corruption, and the costs associated with implementing and maintaining effective compliance programs; labor strikes; unsettled political, social, or economic conditions; public health issues or epidemics; war, terrorist activities, or other armed conflict; any of which could adversely affect our business, financial condition or results of operations.
Adverse weather conditions, including those resulting from climate change and natural disasters, as well as seasonality, may negatively impact the operations and operating results of our Agricultural Solutions business.
Sales volumes for agrochemical products are subject to the sector’s dependency on weather and disease and pest infestation conditions. Adverse weather conditions and natural disasters such as drought and floods in a particular region, storms, hurricanes, tsunamis, hail, tornadoes, freezing conditions or extreme heat could have a material adverse effect on our Agricultural Solutions business. The agricultural industry, including our Agricultural Solutions business, may also be adversely affected by global climate change and its impact on weather conditions such as changes in precipitation patterns and the increased frequency of extreme weather events.
In addition, unfavorable weather conditions and natural disasters can reduce acreage planted, lead to modified crop selection by growers, and affect the incidence (or timing) of certain weeds, crop diseases or pest infestations, each of which may reduce or otherwise alter demand for our products and adversely affect our business and results of operations. Weather conditions and natural disasters also affect decisions of our distributors, direct customers, and end-users about the types and amounts of products to purchase and the timing of use of such products. Delays by growers in planting or harvesting can result in deferral of orders to a future quarter, or decisions to forgo orders altogether in a particular growing season, either of which would negatively affect our sales. Climatic and weather conditions and other variables that are difficult to forecast can lead to changes in planting and growing seasons with the result that sales of our products may vary substantially from year to year and quarter to quarter and from our internal forecasts.
In addition, our agrochemical operations are seasonal, with a greater portion of total net revenue and Adjusted EBITDA occurring in the second and fourth quarters. As a result, any factors that would negatively affect our second and fourth quarter results in any year, including severe weather conditions and natural disasters, could affect decisions by our customers and end-users about the types and amounts of agrochemicals and BioSolutions products to purchase and the timing of use of such products, which in turn could have an adverse impact on the results of operations, financial condition and results of operations of our Agricultural Solutions business for the entire year.
Volatility and increases in the price of raw materials, energy and transportation could harm our profits.
We use a variety of specialty and commodity chemicals in our formulation processes, and such formulation operations depend upon obtaining adequate supplies of raw materials on a timely basis. We typically purchase our major raw materials on a contract or as needed basis from outside sources. The availability and prices of raw materials may be subject to curtailment or change due to, among other things, the financial stability of our suppliers, suppliers’ allocations to other purchasers, interruptions in production by suppliers, new laws or regulations (for example, increasingly restrictive environmental regulations applicable to manufacturers


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in China), protectionist nationalistic trade policies and practices, changes in exchange rates and worldwide price levels (especially for raw materials derived from petrochemical based and element based feedstocks). In some cases, we are limited in our ability to purchase certain raw materials from other suppliers by our supply agreements which contain certain minimum purchase requirements.
Similarly, commodities and energy prices are subject to volatility caused by market fluctuations, supply and demand, currency fluctuations, production and transportation disruptions, and other world events. As we source many of our raw materials globally to help ensure quality control, if the cost of energy, shipping or transportation increases and we are unable to pass along those costs to our customers, our profit margins would be adversely impacted. Furthermore, increasing our prices to our customers could result in long-term sales declines or loss of market share if our customers find alternative suppliers or choose to reformulate their consumer products to use fewer ingredients, which could have an adverse long-term impact on our results of operations.
Our reliance on a limited base of key customers, contract manufacturers, suppliers or independent distributors could adversely affect our overall sales and profitability.
In our Performance Solutions segment, we have key customers, the loss of which may impair our results of operations for the affected earnings periods. The principal products purchased by such customers are surface finishing chemicals and solid sheet printing elements. In addition, in our Agricultural Solutions segment, we rely on unaffiliated contract manufacturers, both domestically and internationally, to produce certain products or key components of products. There is limited available manufacturing capacity that meets our quality standards and regulatory requirements. If we are unable to arrange for sufficient production capacity among our contract manufacturers or if our contract manufacturers encounter production, quality, financial, or other difficulties (including labor or geopolitical disturbances), we may encounter difficulty in meeting customer demands as the manufacture of our products may not be easily transferable to other sites. In addition, many of our products are developed or distributed through strategic partnerships. Some of our existing formulated products and others currently under development include combinations of proprietary AIs or combinations of AIs with proprietary safeners or adjuvants. Some of these proprietary AIs, safeners, and adjuvants are owned by third-parties, and the development and commercialization of such products are carried out through contractual strategic arrangements with such third-parties. We may also be dependent on a limited number of key suppliers for AIs. In addition, we generally do not have long-term supply contracts with AI suppliers for our regional portfolio. If our sources of AI supplies are terminated or affected by adverse prices or other concerns, we may not be able to identify alternate sources of AI supplies to sustain our sales volumes on commercially reasonable terms, or at all.
We also rely on independent distributors within each segment to distribute our products and to assist us with the marketing and sale of certain of our products. There can be no assurance that our distributors will focus adequate resources on selling our products to end users, or will be successful in selling our products, which could materially adversely affect our business.
If we are unable to protect our intellectual property rights, our business, financial condition or results of operations could be adversely affected.
Our success depends to a significant degree upon our ability to protect and preserve our intellectual property rights and the rights to our proprietary processes, methods, compounds and other technology. Failure to protect our existing intellectual property rights may result in the loss of valuable technologies and our competitors offering similar products, potentially resulting in the loss of one or more competitive advances and decreased sales. In addition, the laws of other countries may not protect our intellectual property rights to the same extent as the laws of the United States. In addition, a vigorous prosecution of an infringement claim is not always cost effective or practical.
In some cases, we rely upon unpatented proprietary manufacturing expertise, continuing technological innovation and other trade secrets to develop and maintain our competitive position. While we generally enter into confidentiality agreements with our employees and third-parties to protect our intellectual property, our confidentiality agreements could be breached and may not provide meaningful protection for or adequate remedies to protect our trade secrets or proprietary manufacturing expertise in the event of unauthorized use or disclosure of information.
Despite efforts to protect our proprietary rights, existing trade secret, copyright, patent and trademark laws afford us only limited protection. Others may attempt to copy or re-engineer aspects of our products or obtain and use information that we regard as proprietary. Accordingly, we may not be able to prevent misappropriation of our products or trade secrets, or deter others from developing similar products. Further, monitoring the unauthorized use of our products and other proprietary rights is difficult. Litigation may be necessary to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others. Litigation of this type could also result in substantial costs and diversion of resources and could significantly harm our results of operations and reputation.


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We may experience claims that our products infringe the intellectual property rights of others, which may cause us to incur unexpected costs or prevent us from selling our products.
We seek to improve our business processes and develop new products and applications. Many of our competitors have a substantial amount of intellectual property that we must continually monitor to avoid infringement. We may experience claims that our processes and products infringe issued patents (whether present or future) or other intellectual property rights belonging to others. From time to time, we oppose patent applications that we consider overbroad or otherwise invalid in order to maintain the ability to operate freely in our various business lines without the risk of being sued for patent infringement. If, however, patents are subsequently issued on any such applications by other parties, or if patents belonging to others already exist that cover our products, processes or technologies, we could experience claims of infringement or have to take other remedial or curative actions to continue our production and sales activities with respect to one or more products. Further, intellectual property litigation is expensive and time-consuming, regardless of the merits of any claim, and could divert our management’s attention from operating our business.
In addition, many of our products directly or indirectly are offered as presenting critical performance attributes, which expose us to a greater risk of product liability claims. If a person were to bring a product liability suit against one of our customers, that customer may in turn attempt to seek damage compensation from us. A person may also bring a product liability claim directly against us. A successful product liability claim or series of claims against us in excess of our insurance coverage for payments could have a material adverse effect on our financial condition or results of operations. While we endeavor to protect ourselves from such claims and exposures in our contractual negotiations (including through indemnification provisions), we cannot assure you that our efforts in this regard will ultimately protect us from any such claims.
If we experience a significant disruption in our information technology systems or if we fail to implement new systems and software successfully, our business operations could be adversely affected.
We depend on information technology systems throughout the Company to control our manufacturing processes, process orders, manage inventory, process and bill shipments to and collect cash from our customers, respond to customer inquiries, contribute to our overall internal control processes, maintain records of our property, plant and equipment and record and pay amounts due to vendors and other creditors. We are or will be implementing new enterprise resource planning software for our Agricultural Solutions segment and other software applications to manage certain business operations going forward. As we upgrade or change systems, we may suffer interruptions in service, loss of data or reduced functionality and other problems could arise that we have not foreseen. Such problems could adversely impact our ability to provide quotes, take customer orders and otherwise run our business in a timely manner. In addition, if our new systems fail to provide accurate and increased visibility into pricing and cost structures, it may be difficult to improve or maximize our profit margins. As a result, our results of operations could be adversely affected.
Our business operations and internal control processes could also be disrupted if our information technology systems fail to perform adequately. The efficient operation of our business depends on our information technology systems, some of which are managed by third-party service providers. The failure of our information technology systems to perform as we anticipate could disrupt our business and could result in transaction errors, processing inefficiencies, and the loss of sales and customers, causing our business, financial condition and results of operations to suffer.
Changes in data privacy and data protection laws and regulations, or any failure to comply with such laws and regulations, could adversely impact our business.
Our business is subject to a wide variety of laws and regulations in the U.S. and internationally designed to protect the privacy of clients, customers, employees and other third parties. The interpretation and application of such laws and regulations is uncertain and evolving and it is possible that these laws may be interpreted and applied in a manner that is inconsistent with our data practices. For example, the E.U. General Data Protection Regulation, or GDPR, which will take effect in May 2018, creates a range of new compliance obligations and increases financial penalties for non-compliance and extends the scope of the E.U. data protection law to all companies processing data of E.U. residents, regardless of the company’s location. Complying with the GDPR and other privacy and data protection laws could cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business. In addition, if we fail to comply with these laws or regulations, we could be subject to significant litigation, monetary damages, regulatory enforcement actions or fines in one or more jurisdictions.
Despite our efforts to protect sensitive information and confidential and personal data and to comply with and implement data security measures, our facilities and systems may be vulnerable to security breaches and other data loss, including cyber-attacks. In addition, it is not possible to predict the impact on our business of the future loss, alteration or misappropriation of information in our possession related to us, our employees, former employees, customers or suppliers. Depending on their nature and scope, these threats could potentially lead to improper use of our systems and networks, manipulation and destruction of proprietary or


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key data or product non-compliance. Breaches of our security measures or the accidental loss, inadvertent disclosure, or unapproved dissemination of proprietary information or sensitive or confidential information about the Company, our employees, former employees, customers or suppliers could result in legal claims or proceedings, damage to or inaccessibility of critical systems, manufacture of defective products, production downtimes, operational disruptions and other significant costs, which could adversely affect our reputation, financial condition and results of operations.
Our net sales and gross profit have varied depending on our product, customer and geographic mix for any given period, which makes it difficult to forecast future operating results.
Our net sales and gross profit vary among our products, customers and markets, and therefore may be different in future periods from historic or current periods. Overall gross profit margins in any given period are dependent in large part on the product, customer and geographic mix reflected in that period’s net sales. Market trends, competitive pressures, commoditization of products, increased component or shipping costs, regulatory conditions, severe or adverse weather and other factors may also result in reductions in revenue or pressure on the gross profit margins of certain segments in a given period.
The varying nature of our product, customer and geographic mix between periods, including the historically seasonable nature of our agrochemical operations, has materially impacted our net sales and gross profit between periods during certain recessionary times and may lead to difficulties in measuring the potential impact of market, regulatory and other factors on our business. As a result, we may be challenged in our ability to forecast our future operating results.
Global economic conditions may adversely affect our net sales, gross profit and financial condition and result in delays or reductions in spending, which could have a material adverse effect on us.
Our products are sold in industries that are sensitive to changes in general economic conditions, including agricultural, animal health, electronics, graphics, plating, and offshore oil and gas production and drilling industries. Accordingly, our net sales, gross profit and financial condition depend significantly on general economic conditions and the demand for our products and services in the markets in which we compete. In particular, weak economic conditions in parts of China and South America may have an adverse effect on our results. A delay or a reduction in customer spending due to an economic downturn would reduce demand for our products and services and, consequently, could have a material adverse effect on our business, financial condition, or results of operations.
Industry and consumer trends may cause significant fluctuations in our results of operations and have a material adverse effect on our financial condition.
We believe that the specialty chemical industry in general, and the printing industry in particular, are cyclical and subject to constant and rapid technological change, product obsolescence, price erosion, evolving standards, short product lifecycles, raw material price fluctuations and changes in product supply and demand. The specialty chemical industry is currently being affected by globalization and a shift in customers’ businesses while the printing industry is currently shrinking. The trends and characteristics in these industries may cause significant fluctuations in our results of operations and have a material adverse effect on our financial condition.
Our specialty chemicals are used for a broad range of applications by our customers. Changes, including technological changes, in our customers’ products or processes may make our specialty chemicals unnecessary, which would reduce the demand for those chemicals. We have had, and may continue to have, customers that find alternative materials or processes and therefore no longer require our products, which had and may continue to have a material adverse effect on our business, financial condition or results of operations. Similarly, demand for our products could be affected by consumer concerns regarding the health effects of ingredients as concerns continue to mount about food safety and genetically modified organisms or other product ingredients issues.
The high level of competition in our industries may lead to pricing pressure, reduced margins, or the inability of our products to achieve market acceptance.
We operate in intensely competitive markets that experience rapid technological developments, changes in industry standards, changes in customer requirements, and frequent new product introductions and improvements. We also encounter competition from numerous and varied competitors in all areas of our business. Many of our competitors have longer operating histories, significantly greater resources, greater brand recognition, and a larger base of customers than we do. As a result, they may be able to devote greater resources to the research and development, manufacturing, formulation, promotion, or sale of their products, receive greater resources and support from independent distributors, initiate or withstand substantial price competition, more readily take advantage of acquisition or other opportunities, and withstand adverse changes in conditions within the relevant industry, the prices of raw materials and energy or general economic conditions, or changes in the competitive environment, which


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could result in larger competitors.
We expect our competitors to continue to develop and introduce new products and to enhance their existing products, which may cause a decline in market acceptance of our products. Our competitors may also improve their processes or expand their manufacturing or formulation capacity, which could make it more difficult or expensive for us to compete successfully. In addition, our competitors could enter into exclusive arrangements with our existing or potential customers or suppliers, which could limit our ability to acquire necessary raw materials or to generate sales and/or significantly increase costs. At the same time, an increasing number of our products are coming off patent and are thus available to generic manufacturers to produce. As a result, we anticipate that we will continue to face new and different competitive challenges.
Our operating results are also influenced in part by our ability to introduce new products and services that offer distinct value to our customers, particularly prior to our competitors' ability to introduce equivalent products. We seek to provide tailored products for our customers’ often unique problems, which require an ongoing level of innovation. Even where we devote significant human and financial resources to develop new technologically advanced products and services, we may not be successful in these efforts. If we are not able to continue technological innovation and successful commercial introduction of new products, our customers may turn to other producers to meet their requirements. Furthermore, if our competitors are able to introduce equivalent products before we are able to bring new products to market, we may lose market shares to our competitors. Any of these factors may impact our business, financial condition, or results of operations. In addition, if we are unable to adapt to changes in market needs, our future ability to penetrate markets and sustain our market position could be adversely affected.
Chemical manufacturing is inherently hazardous and may result in accidents, which may disrupt our operations or expose us to significant losses or liabilities.
The hazards associated with chemical manufacturing and the related storage and transportation of raw materials, products and wastes are inherent in our operations.
Our research and development, manufacturing, formulating and packaging activities involve the use of hazardous materials and the generation of hazardous waste. We cannot eliminate the risk of accidental contamination, discharge or injury resulting from those materials. Also, our suppliers or contract manufacturers may use and/or generate hazardous materials in connection with producing our products. We may be required to indemnify our suppliers, contract manufacturers or waste disposal contractors against damages and other liabilities arising out of the production, handling or storage of our products or raw materials or the disposal of related wastes. Potential risks include explosions and fires, chemical spills and other discharges or releases of toxic or hazardous substances or gases, and pipeline and storage tank leaks and ruptures. Those hazards may result in personal injury and loss of life, damage to property and contamination of the environment, which may result in a suspension of operations and the imposition of civil or criminal fines, penalties and other sanctions, cleanup costs, and claims by governmental entities or third-parties. We are dependent on the continued operation of our production facilities (including third-party manufacturing on a tolling basis), and the loss or shutdown of operations over an extended period could have a material adverse effect on our financial condition, or results of operations.
Our operations currently use, and have historically used, hazardous materials and generate, and have historically generated, quantities of hazardous waste. For example, we are subject to regulatory oversight and investigation, remediation, and monitoring obligations at its current and former Superfund sites, as well as third-party disposal sites, under federal laws and their state and local analogues, including the Resource Conservation and Recovery Act (RCRA), the Clean Water Act, the Clean Air Act, and the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), as well as analogous foreign laws. In particular, we are subject to ongoing obligations at active sites in the United States and are conducting closure activities pursuant to the RCRA at several sites in the United States. The costs and liabilities associated with these issues may be substantial and may materially impact the financial health of our company.
We may incur material costs relating to environmental and health and safety requirements or liabilities, which could have a negative impact on our financial condition or results of operations.
We are subject to extensive federal, state, local and foreign environmental, health and safety laws and regulations concerning the environment and the generation, use, handling, storage, transportation, treatment and disposal of hazardous waste and other materials. Our operations bear the risk of violations of those laws and sanctions for violations such as clean-up and removal costs, long-term monitoring and maintenance costs, costs of waste disposal, fines for natural resource damage, and payments for property damage and personal injury. Additionally, those requirements, and enforcement of those requirements, may become more stringent in the future. The ultimate cost of compliance with any such requirements could be material. We have incurred, are incurring and will in the future incur, costs and capital expenditures in complying with environmental, health and safety laws and regulations.


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Although it is our policy to comply with such laws and regulations, it is possible that we have not been or may not be at all times in material compliance with all of those requirements.
At any given time, we may be involved in claims, litigation, administrative proceedings, settlements and investigations of various types in a number of jurisdictions involving potential environmental liabilities. In particular, we are currently involved in various investigations due to historic operations. Liability under some environmental laws relating to contaminated sites can be joint and several and imposed retroactively, regardless of fault or the legality of the activities that gave rise to the contamination. Some of our formulating and manufacturing facilities have an extended history of chemical formulating and manufacturing operations or other industrial activities, and contaminants have been detected at some of our sites and offsite disposal locations. Ultimate environmental costs are difficult to predict and may vary from current estimates and liabilities. The discovery of additional contaminants, the inability or failure of other liable parties to satisfy their obligations, the imposition of additional cleanup obligations, or the commencement of related third-party claims could result in significant additional costs.
Our offshore oil industry products are subject to the hazards inherent in the offshore oil production and drilling industry, and we may incur substantial liabilities or losses as a result of these hazards.
We produce water-based hydraulic control fluids for major oil companies and drilling contractors to be used for potentially hazardous offshore deep water production and drilling applications. Offshore deep water oil production and drilling are subject to hazards that include blowouts, explosions, fires, collisions, capsizing, sinking and damage or loss to pipeline, subsea or other facilities from severe weather conditions. Those hazards could result in personal injury and loss of life, severe damage to or destruction of property and equipment, pollution or environmental damage and suspension of operations. A catastrophic occurrence at a location where our products are used may expose us to substantial liability for personal injury, wrongful death, product liability or commercial claims. To the extent available, we maintain insurance coverage that we believe is customary in our industry. Such insurance does not, however, provide coverage for all liabilities, and we cannot assure you that our insurance coverage will be adequate to cover claims that may arise or that we will be able to maintain adequate insurance at rates we consider reasonable. The occurrence of a significant offshore deep water oil production or drilling event that results in liability to us that is not fully insured could have a material and adverse effect on our financial condition, or results of operations.
Certain of our products may be subject to various export control regulations and exports may require a license from the U.S. Department of State or the U.S. Department of Commerce.
Companies must comply with various laws and regulations relating to the export of products, services, and technology. In the United States, these laws include, among others, the U.S. Export Administration Regulations (EAR) administered by the U.S. Department of Commerce’s Bureau of Industry and Security and the International Traffic in Arms Regulations (ITAR), administered by the U.S. Department of State’s Directorate of Defense Trade Controls. Some of our products or technology may have military or strategic applications governed by the ITAR or represent so-called “dual use” items governed by the EAR. As a result, these products may require government licenses to be exported to certain jurisdictions or persons. Any failure to comply with these laws and regulations could result in civil or criminal penalties, fines, investigations, adverse publicity and restrictions on our ability to export our products, which could result in a material adverse effect on our business, financial condition, or results of operations.
The recently passed comprehensive U.S. tax reform bill could adversely affect our business and financial condition.
On December 22, 2017, the TCJA, was signed into law. The TCJA significantly reforms the Internal Revenue Code of 1986, as amended. The TCJA, among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation of the tax deduction for interest expense to 30% of adjusted earnings (except for certain small businesses), limitation of the deduction for net operating losses to 80% of current year taxable income and elimination of net operating loss carrybacks, one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, new taxes on certain foreign-sourced earnings, immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modification or repeal of many business deductions and credits. We continue to examine the impact this tax reform legislation may have on our business. Notwithstanding the reduction in the corporate income tax rate, the overall impact of the TCJA is uncertain and our business and financial condition could be adversely affected. The impact of this tax reform on holders of our common stock is also uncertain and could be adverse. This 2017 Annual Report does not discuss the manner in which the TCJA might affect purchasers of our common stock. We urge stockholders and potential investors of our common stock to consult with their legal and tax advisors with respect to the TCJA and the potential tax consequences of investing in our common stock.


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Fluctuations in our tax obligations and effective tax rate may have a negative effect on our results of operations.
Our products are manufactured and formulated, distributed or sold in more than 100 countries and jurisdictions. As a result, we are subject to tax laws and regulations of various federal, state and local governments in the United States, as well as outside of the United States, and to the continual examination of our income tax returns by the Internal Revenue Service and foreign tax authorities in those countries in which we operate. We record tax expense based on our estimates of future payments, which includes reserves for uncertain tax provisions in multiple tax jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes, income taxes payable, and net deferred tax position. There are many transactions where the ultimate tax determination is uncertain. As a result, we expect that throughout the year there could be ongoing variability in our quarterly tax rates as events occur and exposures are evaluated. Future changes in our mix of business activities, or in tax laws or their application with respect to matters such as transfer pricing, intra-group dividends, or a restriction in tax relief allowed on interest (including both the deductibility of interest payments, and certain reductions or exemptions from withholding taxes), could increase our effective tax rate and adversely affect our business, results of operations and financial condition. Further, our effective tax rate in a given financial period may be materially impacted by changes to existing accounting rules and regulations. Tax legislation enacted in the future, in the United States or in foreign countries and jurisdictions, could also negatively impact our current or future tax structure and effective tax rates. For example, the TCJA, recently passed in the United States as described above, or the Anti-Tax Avoidance Directive, which is required to be implemented by all E.U. member states by January 1, 2019, may have possible implications for, and affect the tax treatment of, the Company.
In addition, we are subject to the continual examination of our income tax returns by the Internal Revenue Service and foreign tax authorities in the countries and jurisdiction in which we operate and we may be subject to assessments or audits in the future. Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different from that which is reflected in our historical financial statements. An audit or litigation can result in significant additional income taxes payable in the jurisdictions in which we operate which could have an adverse impact on our financial condition and results of operations. Certain of our subsidiaries, primarily in our Agricultural Solutions segment, have historically received tax assessments for significant amounts from the tax authorities of the countries in which they operate, especially in Brazil. We are currently contesting tax assessments in several administrative and legal proceedings, and our challenges are at various stages. If determined adversely, these proceedings, or any additional material tax assessments that we may contest in the future, can result in significant income taxes payable in the jurisdictions in which we operate, which may have an adverse impact on our business, financial condition, or results of operations. In addition, in some jurisdictions, challenges to tax assessments require the posting of a bond or security for the contested amount, which may reduce our flexibility in operating our agrochemicals business.
Failure to comply with the FCPA and other similar anti-corruption laws could subject us to penalties and damage our reputation.
The global nature of our business, the significance of our international revenue and our presence in emerging markets create various domestic and local regulatory challenges and subject us to risks associated with our international operations. The FCPA, the Bribery Act, and other anti-corruption laws generally prohibit companies, directors, officers, employees, and their intermediaries from making corrupt payments to foreign officials for the purpose of obtaining or retaining business or securing an improper advantage. Under many of these laws, companies may also be held liable for actions taken by third-parties acting on their behalf, such as strategic or local partners or representatives. Certain anti-corruption laws, including the Bribery Act, also prohibit commercial bribery and the receipt of bribes, while others, such as the FCPA, require companies to maintain accurate books and records and adequate internal controls. Certain of the jurisdictions in which we conduct business are perceived to have a heightened risk for corruption, extortion, bribery, pay-offs, theft and other improper practices. We also count governments among our customers, which increases our risks under the FCPA, the Bribery Act and other laws. Our businesses prohibit bribery and unethical conduct, but these policies may not prevent our employees or agents from violating these laws. Failure by us or our intermediaries to comply with applicable anti-corruption laws, governmental authorities in the United States or elsewhere, as applicable, may result in civil and/or criminal penalties against us, our officers or our employees, prohibition on the conduct of our business, which could all damage our reputation and have a material adverse effect on our business, financial condition and results of operations.
Our products are subject to numerous, complex government regulations dealing with the production and sale of chemicals and compliance with these regulations could require us to incur additional costs or to reformulate or discontinue certain of our products.
We are subject to extensive federal, state, local and foreign customs regulations, imports and international trade laws, export control, antitrust laws, environmental and chemicals manufacturing, global climate change, health and safety requirements and zoning and occupancy laws that regulate manufacturers generally or govern the importation, promotion and sale of our products, the operation of factories and warehouse facilities and our relationship with our customers, suppliers and competitors. Our products and manufacturing processes are also subject to ongoing reviews by certain governmental authorities.


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Numerous laws regulating the production and marketing of chemical substances apply to us. Dozens of substances manufactured, imported, and used by us are regulated under the European Union REACH (Registration, Evaluation, Authorization, and Restriction of Chemicals) regulation and similar laws in other jurisdictions. We will need to submit a registration for many of these substances between now and June 1, 2018, which will require time and incremental costs. Moreover, if a registration application was, or in the future is, not submitted by any applicable deadline, our ability to sell those products may be negatively impacted until the registration process has been completed. In addition, we manufacture, process and/or use substances being evaluated under the REACH regulation’s Substances of Very High Concern (SVHC) program. Impacts under this program could include requirements to discontinue certain product lines and to reformulate others, which could materially alter our marketplace position or otherwise have a material financial effect on our revenues. We also have several product lines that currently rely on lead-based solder and many others that historically did so. Legal claims have been brought alleging harmful exposures or contamination as a result of lead-based solder, and it is possible that we may face additional claims in the future.
Additionally, those requirements, and enforcement of those requirements, may become more stringent in the future. The ultimate cost of compliance with any such requirements could be material. Changes in environmental and climate laws or regulations, such as China's latest environmental crackdown, could lead to new or additional investment in production designs and could increase environmental compliance expenditures, for us and our suppliers. Changes in climate change concerns, or in the regulation of such concerns, including greenhouse gas emissions, could subject us to additional costs and restrictions, including increased energy and raw materials costs. Additionally, we cannot assure you that we will not be required to expend significant funds to comply with, or discharge liabilities arising in the future under, environmental laws, regulations and permits, or that we will not be exposed to material environmental, health or safety litigation. Some of our formulating and manufacturing facilities have an extended history of chemical formulating and manufacturing operations or other industrial activities, and contaminants have been detected at some of our sites and offsite disposal locations. Ultimate environmental costs are difficult to predict and may vary from current estimates and liabilities. The discovery of additional contaminants, the inability or failure of other liable parties to satisfy their obligations, the imposition of additional cleanup obligations, or the commencement of related third-party claims could result in significant additional costs.
Our Agricultural Solutions products are subject to periodic technical review and approval by government authorities in each country where we wish to sell our products. The regulatory requirements are complex and vary from country to country. They are also subject to frequent changes as new data requirements arise in response to scientific developments, which require the provision of new data and the conduct of more complex risk assessments. The outcome of technical reviews of existing registrations cannot be guaranteed; registrations may be modified or canceled. In addition, each country also has its own legislative process and specific requirements in order to determine if identified risks are acceptable and can be managed in the local context. Although the approval process, referred to as “registration,” varies from country to country, all processes generally mandate periodic product reviews, referred to as “re-registration,” which can often result in the requirement to generate new data and could result in either restrictions being placed on the permissible uses of the product going forward or in a refusal by the relevant government authority to grant a re-registration for the product altogether. Notably, scientific developments often result in new data requirements under these regulatory directives, laws and/or regulations, thereby impacting both the scope and timing of the process as well as the likelihood of a registration or re-registration being granted by the relevant government authority. Globally, a large number of AIs in our agrochemical products are currently or will soon be subject to such re-registration processes which may result in products having their approval for sale withdrawn in some countries. Registrations or re-registrations may not be granted to us on a timely basis, or at all. Any delay in obtaining, or any failure to obtain or maintain those registrations, would adversely affect our ability to generate revenue from those products. In addition, since all government regulatory authorities have the right to review existing registrations at any time, the sustainability of the existing portfolio cannot be guaranteed. Existing registrations may be lost at any time, resulting in an immediate impact on sales.
Compliance with government regulations regarding the use of “conflict minerals” may result in increased costs and risks.
As part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the SEC has promulgated disclosure requirements regarding the use of certain minerals, known as "conflict minerals," which are mined from the Democratic Republic of Congo and adjoining countries. In addition, the E.U. adopted a E.U.-wide conflict minerals rule under which most E.U. importers of tin, tungsten, tantalum, gold and their ores will have to conduct due diligence to ensure the minerals do not originate from conflict zones and do not fund armed conflicts. Compliance with the regulation is required by January 1, 2021. Our material sourcing is broad-based and multi-tiered, and due to the complexity of our supply chain we may not be able to easily verify the origins of conflict minerals used in the products we sell. The implementation of these requirements could affect the sourcing and availability of minerals used in the manufacture of our products. As a result, there may only be a limited pool of suppliers who provide conflict-free metals, and no assurance can be provided that we will be able to obtain products in sufficient quantities or at competitive prices. Future regulations may become more stringent or costly and our compliance costs and potential liabilities could increase, which may harm our business. In addition, any non-compliance with the applicable standards or regulations may result in reputational challenges, which could also affect our business, financial condition, or results of operations.


29




We may be unable to ensure compliance with international trade restrictions and economic sanctions laws and regulations, which could adversely affect our business, financial condition or results of operations.
We have operations, assets and/or make sales in countries all over the world, including countries that are or may become the target of the United States and other countries’ trade restrictions, including economic sanctions, which we refer to collectively as “Economic Sanctions Laws.” Economic Sanctions Laws are complex and change with time as international relationships and confrontations between and among nations evolve. For example, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) and the U.S. State Department administer certain laws and regulations that impose penalties upon U.S. persons and entities and, in some instances, non-U.S. entities, for conducting activities or transacting business with certain countries, governments, entities, or individuals subject to U.S. Economic Sanctions Laws. We do not conduct business in any of the countries subject to such sanctions, such as Cuba, Iran, Syria or North Korea but given the breadth of our international operations and the scope of our sales globally, including via third-party distributors over whom we may have limited or no control, coupled with the complexity and ever-changing nature of Economic Sanctions Laws, there can be no assurance that we have been in the past or will at all times in the future be in full compliance. If we fail to comply with Economic Sanctions Laws, investigations and/or actions could be taken against us that could materially and adversely affect our reputation or have a material and adverse effect on our business, financial condition, or results of operations.
Risks Relating to Ownership of our Common Stock and Senior Notes
We have numerous equity instruments outstanding that could require us to issue additional shares of common stock. The future issuance of additional shares could result in significant dilution of ownership interests and have an adverse effect on our stock price.
We have a number of equity instruments outstanding that could require us to issue additional shares of our common stock. Depending on the equity instrument, these additional shares may either be issued for no additional consideration or based on a fixed amount of additional consideration. Specifically, at December 31, 2017, we had outstanding the following:
2,000,000 shares of Series A Preferred Stock which are convertible into shares of our common stock, on a one-for-one basis, at any time at the option of the holder;
4,812,742 exchange rights which require us to issue shares of our common stock in exchange for shares of common stock of our subsidiary, PDH, on a one-for-one basis, at any time at the option of the holder;
approximately 732,197 options which are exercisable to purchase shares of our common stock, on a one-for-one basis, at any time at the option of the holder, of which 557,197 shares were issued under the 2013 Plan; and
approximately 2,943,529 RSUs which were granted to employees under our 2013 Plan. Each RSU represents a contingent right to receive one (1) share of our common stock.
We have approximately 11,503,071 shares of our common stock currently available under the 2013 Plan, net of the outstanding RSUs and options noted above (subject to increase in accordance with the terms of such plan), and 496,203 shares issued under the 2013 Plan, and an additional 4,848,689 shares of our common stock currently available under the ESPP.
In addition, the holders of our Series A Preferred Stock are entitled to receive an annual dividend on their Series A Preferred Stock in the form of shares of our common stock. For 2017, no stock dividend was declared with respect to the Series A Preferred Stock. Since December 31, 2014, the dividend amount is calculated based on the appreciated stock price compared to the highest dividend price (calculated based upon the average of the last ten trading days of the year’s volume weighted average share prices) previously used in calculating the Series A Preferred Stock dividends, which currently is $22.85. The issuance of common stock as stock dividends in the future could have a dilutive impact on, and reduce the value of, our outstanding common stock.
We may issue preferred stock in the future, and the terms of the preferred stock may reduce the value of our common stock.
Our Board is authorized to create and issue one or more additional series of preferred stock, and, with respect to each series, to determine the number of shares constituting the series and the designations and the powers, preferences and rights, and the qualifications, limitations and restrictions thereof, which may include dividend rights, conversion or exchange rights, voting rights, redemption rights and terms and liquidation preferences, without stockholder approval. If we create and issue one or more additional series of preferred stock, it could affect your rights or reduce the value of our outstanding common stock. Our Board could, without stockholder approval, issue preferred stock with voting and other rights that could adversely affect the voting power of the holders of our common stock and which could have certain anti-takeover effects.


30




There can be no assurance that we will declare dividends or have the available cash to make dividend payments.
To the extent we intend to pay dividends on our common stock, we will pay such dividends at such times (if any) and in such amounts (if any) as our Board determines appropriate and in accordance with applicable law. In addition, we are subject to certain restrictions in our financing arrangements which may prohibit or limit our ability to pay dividends. There is therefore no assurance that we will be able to pay dividends going forward or as to the amount of such dividends, if any.
We operate as a holding company and our principal source of operating cash is income received from our subsidiaries.
We are a holding company and do not have any material assets or operations other than ownership of equity interests of our subsidiaries. Our operations are conducted almost entirely through our subsidiaries, and our ability to generate cash to meet our obligations or to pay dividends is highly dependent on the earnings of, and receipt of funds from, our subsidiaries through dividends or intercompany loans. As a result, we are dependent on the income generated by our subsidiaries to meet our expenses and operating cash requirements. The amount of distributions and dividends, if any, which may be paid to us from each of our subsidiaries will depend on many factors, including the results of operations and financial condition, limits on dividends under applicable law, such subsidiary's constitutional documents, documents governing any indebtedness of such subsidiary, and other factors which may be outside our control. If our subsidiaries are unable to generate sufficient cash flow, we may be unable to pay our expenses or make distributions and dividends on our shares of common stock.
We are governed by Delaware law, which has anti-takeover implications.
We are governed by Delaware law, the application of which may have the effect of deterring hostile takeover attempts or a change in control. In particular, Section 203 of the Delaware General Corporation Law imposes certain restrictions on merger, business combinations and other transactions between us and holders of 15% or more of our common stock. A Delaware corporation may opt out of that provision either with an express provision in its original certificate of incorporation or in an amendment to its certificate of incorporation or by-laws approved by its stockholders. We have not opted out of this provision. Section 203 could prohibit or delay mergers or other takeover or change in control attempts and, accordingly, may discourage attempts to acquire us, which may negatively affect our stock price.
Volatility of our stock price could adversely affect our stockholders.
The market price of our common stock could fluctuate significantly as a result of:
quarterly variations in our operating results;
changes in the market’s expectations about our operating results;
our operating results failing to meet the expectation of management, securities analysts or investors in a particular period;
the failure to remediate identified material weaknesses;
changes in financial estimates and recommendations by securities analysts concerning our Company or our industry in general;
operating and securities price performance of companies that investors deem comparable to us;
news reports and publication of research reports relating to our business or trends in our markets;
changes in laws and regulations affecting our businesses;
announcements of strategic developments, including the Proposed Separation, or potential future acquisitions or other material events by us or our competitors;
sales of substantial amounts of common stock by our directors, executive officers or significant stockholders or the perception that such sales could occur;
adverse market reaction to any additional debt we incur in the future;
the failure to identify and complete acquisitions in the future or unexpected difficulties or developments related to the integration of recently completed, pending or future acquisitions;
actions by institutional stockholders;
general economic and political conditions such as recessions and acts of war or terrorism; and
the risk factors set forth in this 2017 Annual Report and other matters discussed herein.
Fluctuations in the price of our common stock could contribute to the loss of all or part of a stockholder’s investment in our Company. Many of the factors listed above are beyond our control. These factors may cause the market price of our common


31




stock to decline, regardless of the financial condition, results of operations, business or prospects of us and our subsidiaries. There can be no assurance that the market price of our common stock will not fall in the future.
Future sales, or the perception of future sales, of our common stock may depress the price of our common stock.
If we or any of our stockholders sell a large number of shares of our common stock, or if we issue a large number of shares of common stock in connection with future acquisitions, financings or other circumstances, the market price of our common stock could decline significantly. Moreover, the perception in the public market that we or our stockholders might sell shares of common stock could depress the market price of those shares.
We cannot predict the size of future issuances of our shares of common stock or the effect, if any, that future issuances or sales of our shares will have on the market price of such shares. Sales of substantial amounts of our shares, including sales by significant stockholders, and shares issued in connection with any pending or future acquisition, or the perception that such sales could occur, may adversely affect prevailing market prices for our shares of common stock. Possible sales also may make it more difficult for us to sell equity or equity-related securities in the future at a time and price we deem necessary or appropriate.
We have redeemed in the past, and may continue to redeem or repurchase, outstanding series of debt securities, which could impact the market for our Senior Notes and/or negatively affect our liquidity.
We may from time to time, in connection with the Proposed Separation or otherwise, seek to repurchase, redeem or refinance our outstanding Senior Notes in open market purchases, accelerated repurchase programs, privately negotiated transactions, tender offers, partial or full calls for redemption or otherwise. Any such repurchases or redemptions and the timing and amount thereof would depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. Depending on such timing and amount, our liquidity could be negatively affected.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our corporate offices are located in a leased facility in West Palm Beach, Florida.  At December 31, 2017, our physical presence included 54 manufacturing sites, 11 of which include research facilities, and 16 stand-alone research centers.  Of our manufacturing facilities, 7 are located in the United States with the remaining international facilities located primarily in Asia and Europe. We own 34 of our manufacturing facilities, 8 of our manufacturing facilities that include research facilities and 7 of our stand-alone research centers.  In addition to the remaining manufacturing and research facilities, we lease the majority of our office, warehouse and other physical locations.  Among our two business segments, Performance Solutions and Agricultural Solutions utilize 41 and 13 of our manufacturing facilities, respectively.
We believe that all of our facilities and equipment are in good condition, well-maintained, adequate for our present operations, and utilized for their intended purposes.  See Note 7, Property, Plant and Equipment, to the Consolidated Financial Statements included in this 2017 Annual Report for amounts invested in land, buildings, machinery, and equipment, and Note 17, Operating Lease Commitments, to the Consolidated Financial Statements included in this 2017 Annual Report, for information about our operating lease commitments.
Item 3. Legal Proceedings
In the ordinary course of business, we are involved in various legal disputes, investigations and claims and other legal proceedings, including, but not limited to, product liability claims, contractual disputes, premises claims, and employment, environmental, and health and safety matters. Where appropriate, we may establish liabilities for such proceedings. We also maintain insurance to mitigate certain of such risks. Although we cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against us, we believe that the resolution of these claims, net of established liabilities, will not, individually or in the aggregate, have a material adverse effect on our business, financial condition or results of operations. Due to their inherent uncertainty, however, there can be no assurance as to the ultimate outcome of current or future litigation, proceedings, investigations or claims and it is possible that a resolution of one or more such proceedings could result in fines and penalties that could adversely affect our business, financial condition or results of operations.


32




In addition, we are involved in various claims relating to environmental matters at a number of current and former plant sites and waste management sites. We engage or participate in remedial and other environmental compliance activities at certain of these sites. At other sites, we have been named as a “potential responsible party” (PRP) pursuant to the federal Superfund Act and/or state Superfund laws comparable to the federal law for site remediation. Based on currently available information, we do not anticipate any material losses in excess of the liabilities recorded. However, it is possible that, as additional information becomes available, the impact of an adverse determination could have a different effect. For additional information regarding environmental matters and liabilities, see Note 18, Contingencies, Environmental and Legal Matters, to the Consolidated Financial Statements included in this 2017 Annual Report.
From time to time, in the ordinary course of business, we contest tax assessments received by our subsidiaries in various jurisdictions. For a discussion of certain tax matters relating to Arysta in Brazil, see Note 18, Contingencies, Environmental and Legal Matters, to the Consolidated Financial Statements included in this 2017 Annual Report.
Item 4. Mine Safety Disclosure
Not applicable.


33




Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market for our Common Stock
Our common stock is traded on the NYSE under the symbol “PAH.” On February 23, 2018, there were approximately 334 registered holders of record of our common stock, par value $0.01 per share. On February 23, 2018, the closing price of our common stock was $10.50.
The following table sets forth the closing high and low sales prices of our common stock as reported on the NYSE for the periods indicated:
 
 
2017
 
2016
Period
 
High
 
Low
 
High
 
Low
First Quarter
 
$
13.47

 
$
9.83

 
$
12.22

 
$
5.55

Second Quarter
 
14.32

 
12.11

 
10.77

 
7.99

Third Quarter
 
14.58

 
10.92

 
9.73

 
8.06

Fourth Quarter
 
11.70

 
9.45

 
10.40

 
7.17

Dividends
We have never declared or paid any cash dividends on our common stock and do not intend to pay cash dividends on our common stock in the foreseeable future. We anticipate that we will retain all of our future earnings, if any, for use in the development and expansion of our business, including future acquisitions, and for general corporate purposes, including for the repayment of debt. Our Amended and Restated Credit Agreement and the indentures governing our Senior Notes also contain restrictions which may prohibit or limit our ability to pay dividends. As a holding company, our ability to pay dividends is highly dependent on receipts of funds from our subsidiaries.  See Part I, Item 1A.—Risk Factors— "We operate as a holding company and our principal source of operating cash is income received from our subsidiaries."
The holders of our Series A Preferred Stock are entitled to receive an annual dividend on their Series A Preferred Stock in the form of shares of our common stock.  For 2017, 2016 and 2015, no stock dividend was declared with respect to the Series A Preferred Stock. Since December 31, 2014, the dividend amount is calculated based on the appreciated stock price compared to the highest dividend price (calculated based upon the average of the last ten trading days of the year’s volume weighted average share prices) previously used in calculating the Series A Preferred Stock dividends. In 2014, the dividend price, which was the only dividend price used to date, was $22.85.
In addition to the restrictions described above, we may become subject to additional covenants should we incur any additional indebtedness, which may prohibit or further limit our ability to pay dividends.
Performance Graph
The following performance graph and related information shall not be deemed "soliciting material" or to be "filed" with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act or Exchange Act, except to the extent that the Company specifically incorporates it by reference into such filing.
This graph compares cumulative total stockholder return on our common stock from January 23, 2014 (our first day of trading on the NYSE) through December 31, 2017 with the cumulative total return of (i) the Standard and Poor's 500 Index, and (ii) the S&P 500 Specialty Chemicals Index, assuming a $100 investment made on January 23, 2014. The stock performance shown on this graph is based on historical data and is not indicative of, or intended to forecast, possible future performance of our common stock.


34




http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12093926&doc=15
Equity Compensation Plan Information
Information regarding our equity compensation plans, including both stockholder approved plans and plans not approved by stockholders, is incorporated by reference from Part III, Item 12 of this 2017 Annual Report.
Recent Sales of Unregistered Securities
None.
Recent Purchases of our Registered Equity Securities by the Issuer and Affiliated Purchases
None.


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Item 6. Selected Financial Data
Platform’s Selected Consolidated Financial Information
The following table presents selected consolidated historical financial data for us and our Predecessor as of the dates and for each of the periods indicated.  The selected consolidated historical data at and for the years ended December 31, 2017, 2016, 2015 and 2014, and the Successor 2013 Period have been derived from our audited consolidated financial statements. The selected consolidated historical data at and for the Predecessor 2013 Period has been prepared in accordance with GAAP, is unaudited and was derived from the Predecessor's historical financial statements, which were not audited by PricewaterhouseCoopers LLP. The selected consolidated historical financial data presented below contain all normal recurring adjustments that, in the opinion of management, are necessary to present fairly our financial position and results of operations at and for the periods presented.  The selected historical consolidated financial data included below and elsewhere in this 2017 Annual Report are not necessarily indicative of future results and should be read in conjunction with the section entitled “Financial Statements and Supplementary Data” included in Part II, Item 8 of this 2017 Annual Report, and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part II, Item 7 of this 2017 Annual Report.
($ amounts in millions,
except per share data)
 
Year Ended
December 31, 2017
(1)
 
Year Ended
December 31, 2016
(2)
 
Year Ended
December 31, 2015
(3)
 
Year Ended
December 31, 2014
 (4)
 
Period from
Inception
(April 23, 2013) through
December 31,
2013 (5)
 
 
 
Period from
January 1, 2013 through
October 31, 2013
(6)
 
 
(Successor)
 
(Successor)
 
(Successor)
 
(Successor)
 
(Successor)
 
 
(Predecessor)
Statement of Operations Data
 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
3,775.9

 
$
3,585.9

 
$
2,542.3

 
$
843.2

 
$
118.2

 
 
$
627.7

Gross profit
 
1,589.0

 
1,507.7

 
991.9

 
396.6

 
35.7

 
 
322.8

Operating profit (loss)
 
221.3

 
253.4

 
71.6

 
9.5

 
(195.6
)
 
 
91.7

(Loss) income before income taxes, non-controlling interests and dividends on preferred shares
 
(289.0
)
 
(48.1
)
 
(229.3
)
 
(30.9
)
 
(201.4
)
 
 
26.5

Income tax (expense) benefit
 
(6.6
)
 
(28.6
)
 
(75.1
)
 
6.7

 
5.8

 
 
(13.0
)
Net (loss) income
 
(295.6
)
 
(76.7
)
 
(304.4
)
 
(24.2
)
 
(195.6
)
 
 
13.5

Basic loss per share
 
(1.04
)
 
(0.17
)
 
(1.52
)
 
(1.94
)
 
(2.10
)
 
 
n/a

Diluted loss per share
 
(1.04
)
 
(0.65
)
 
(1.52
)
 
(1.94
)
 
(2.10
)
 
 
n/a

Adjusted EBITDA (7)
 
820.9

 
769.5

 
567.7

 
212.2

 
27.4

 
 
n/a

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017 (1)
 
December 31, 2016 (2)
 
December 31, 2015 (3)
 
December 31, 2014 (4)
 
December 31, 2013 (5)
 
 
October 31, 2013 (6)
 
 
(Successor)
 
(Successor)
 
(Successor)
 
(Successor)
 
(Successor)
 
 
(Predecessor)
Balance Sheet Data
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
477.8

 
$
422.6

 
$
432.2

 
$
397.3

 
$
123.0

 
 
$
87.1

Working capital   (8)
 
1,248.8

 
988.5

 
1,175.2

 
1,355.8

 
263.8

 
 
170.1

Total assets
 
10,252.4

 
10,054.1

 
10,190.2

 
4,547.3

 
2,258.5

 
 
1,172.0

Total debt
 
5,479.5

 
5,239.0

 
5,228.3

 
1,405.6

 
750.6

 
 
1,107.4

Total equity (deficit)
 
2,860.0

 
2,889.8

 
2,273.3

 
2,552.6

 
1,115.1

 
 
(200.0
)
Comparability of the financial data within the table above is affected by the following acquisitions: OMG Malaysia in January 2016, Alent in December 2015, OMG Businesses in October 2015, Arysta in February 2015, CAS in November 2014, Agriphar in October 2014, and MacDermid in October 2013. See Note 4, Acquisitions of Businesses, to the Consolidated Financial Statements included in this 2017 Annual Report.


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(1) 
The results presented include the following significant items affecting comparability for the year ended December 31, 2017:
Goodwill impairment charge of $160 million related to our Agro Business reporting unit in our Agricultural Solutions segment;
Foreign exchange loss on foreign denominated external and internal long-term debt of $103 million;
Debt refinancing charges of $83.2 million;
Restructuring costs of $30.8 million, primarily related to severance;
Costs related to our Proposed Separation of $12.1 million;
Pension plan settlement and curtailment costs of $10.5 million;
Net interest expense of $342 million, primarily related to interest charges resulting from incremental debt facilities, including term loans, bonds and revolving credit borrowings, impacted by the repricing of our term debt; and
Effective tax rate changed from (59.5)% for 2016 to (2.3)% for 2017 primarily due to the increased level of goodwill impairment in 2017 as compared to 2016 for which there was no corresponding tax benefit, the benefit for the provisional estimate of the TCJA, the 2016 settlement gain of the Series B Convertible Preferred Stock which was treated as a non-taxable purchase price adjustment, and favorable reductions in foreign tax rates for changes in tax law.
(2)  
In addition to the impact of the 2016 and 2015 acquisitions and related valuation of intangible assets, the results presented include the following significant items affecting comparability for the year ended December 31, 2016:
Goodwill impairment charge of $46.6 million related to Performance Solutions' Offshore Solutions reporting unit;
Amortization of inventory step-up of $11.7 million charged to cost of sales;
Acquisition and integration related costs of $33.4 million, primarily comprised of professional fees;
Restructuring costs of $31.1 million, primarily related to severance;
Net interest expense of $376 million, primarily related to interest charges resulting from incremental debt facilities, including term loans, bonds and revolving credit borrowings, used to fund the acquisitions;
Gains relating to the amendment of the Series B Convertible Preferred Stock and the related execution of a settlement agreement totaling $32.9 million and $103 million, respectively;
Foreign exchange loss on foreign denominated external and internal long-term debt of $33.9 million;
Debt refinancing charges of $19.7 million; and
Income tax expense which included a $34.3 million benefit related to the settlement of Series B Convertible Preferred Stock, a $24.5 million benefit related to the impact of transaction costs, and a $24.1 million benefit related to a net change in tax reserves, partially offset by $68.4 million of expense related to a change in valuation allowances and $26.8 million of expense related to an increase in the provision for tax on undistributed foreign earnings.
(3) 
In addition to the impact of the 2015 and 2014 acquisitions and related valuation of intangible assets, the results presented include the following significant items affecting comparability for the year ended December 31, 2015:
Amortization of inventory step-up of $76.5 million charged to cost of sales;
Acquisition and integration related costs of $122 million, primarily comprised of professional fees;
Restructuring costs of $25.3 million, primarily related to severance, professional and consulting fees;
Net interest expense of $214 million, primarily related to interest charges resulting from incremental debt facilities, including term loans, bonds and revolving credit borrowings, used to fund the acquisitions;
Fair value loss on foreign exchange forward contract related to the Alent Acquisition of $73.7 million charged to other expense;
Foreign exchange loss on foreign denominated external and internal long-term debt of $46.4 million; and
Income tax expense which included $72.6 million of expense related to a change in valuation allowances, $40.5 million of expense related to non-deductible transaction costs, and $27.5 million of expense related to a net change in tax reserves.
(4) 
In addition to the impact of the 2014 and 2013 acquisitions and related valuation of intangible assets, the results presented include the following significant items affecting comparability for the year ended December 31, 2014:
Amortization of inventory step-up of $35.5 million charged to cost of sales;
Acquisition and integration related costs of $47.8 million, primarily comprised of professional fees;


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Net interest expense of $37.9 million' primarily related to interest charges resulting from incremental debt facilities, including term loans, bonds and revolving credit borrowings, used to fund acquisitions; and
Non-cash mark-to-market charge related to the contingent consideration in connection with the MacDermid acquisition of $29.1 million.
(5) 
The results presented include the following significant items affecting comparability in the Successor 2013 Period:
Non-cash charge related to the preferred share dividend rights of the Founders Entities of $172 million;
Amortization of inventory step-up of $23.9 million charged to cost of sales; and
Transaction related costs, primarily comprised of professional fees, of $15.2 million.
(6) 
The results presented include the following significant items affecting comparability in the Predecessor 2013 Period:
Transaction related costs, primarily for professional fees, and fees paid to Predecessor stockholders resulting from management fees payable in conjunction with consummation of the MacDermid Acquisition of $16.9 million; and
Deemed compensation expense related to pre-acquisition share awards of approximately $9.3 million.
(7) 
Adjusted EBITDA is a non-GAAP financial measure and as such, should not be considered in isolation from, as a substitute for, or superior to performance measures calculated in accordance with GAAP. For a definition of Adjusted EBITDA and additional information on why we present this measure, its limitations and a reconciliation to the most comparable applicable GAAP measure, see "Non-GAAP Financial Measures" in the Management's Discussion and Analysis of Financial Condition and Results of Operations section included in Part II, Item 7, and Note 23, Segment Information, to the Consolidated Financial Statements, all included in this 2017 Annual Report.
(8) 
Working capital is defined as current assets less current liabilities.


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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management's Discussion and Analysis of Financial Condition and Results of Operations section should be read in conjunction with “Financial Statements and Supplementary Data” included in Part II, Item 8 of this 2017 Annual Report, “Selected Financial Data” included in Part II, Item 6 of this 2017 Annual Report, and our audited Consolidated Financial Statements and notes thereto included elsewhere in this 2017 Annual Report. The following “Overview” section below is a brief presentation of our business and certain significant items addressed in this section or elsewhere in this 2017 Annual Report. You should read this section and the relevant portions of this 2017 Annual Report for a complete discussion of the events and items summarized below.
Overview of our Business
Platform, incorporated in Delaware in January 2014, is a global and diversified producer of high technology specialty chemical products.  Our business involves the blending of a number of key ingredients to produce proprietary formulations. Utilizing our strong industry insight, process know-how, and creative research and development, we also partner with our customers to provide innovative and differentiated solutions that are integral to their finished products. We operate in a wide variety of attractive niche markets across multiple industries, including automotive, agriculture, animal health, electronics, graphics, and offshore oil and gas production and drilling, and we believe that the majority of our operations hold strong positions in the product markets they serve. Our product innovations and product extensions are expected to continue to drive sales growth in both new and existing markets, while also expanding margins by continuing to offer high customer value propositions.
We have strong market positions in niche segments of high-growth markets and continually seek opportunities to act as an acquirer and consolidator of specialty chemical businesses, particularly those meeting our “Asset-Lite, High-Touch” philosophy, which involves prioritizing resources to research and development and offering highly technical sales and customer service, while managing conservatively our investments in fixed assets and capital expenditures. We regularly review acquisition opportunities and may acquire businesses that meet our acquisition criteria when we deem it to be financially prudent.
We generate revenue through the formulation and sale of our dynamic chemistries and by providing highly technical service to our customers through our extensive global network of specially-trained service personnel.  Our personnel follow up closely with our customers to ensure that the functional performance of our intricate chemical composition is maintained as intended and that these products are applied safely and effectively.  Our specialty chemicals and processes, together with our field technical and sales staff, are seen as integral to our customer’s product performance. We leverage these close customer relationships to execute our growth strategy and identify opportunities for new products. These new products are developed and created by drawing upon our intellectual property portfolio and technical expertise.  We believe that our customers place significant value on our brands, which we capitalize on through innovation, product leadership and customer service.
We manage our business in two reportable segments: Performance Solutions and Agricultural Solutions.
Performance Solutions – Our Performance Solutions segment formulates and markets dynamic chemistry solutions that are used in automotive production, electronics, commercial packaging and printing, and offshore oil and gas production and drilling. Our products include surface and coating materials, water-based hydraulic control fluids and photopolymers. In conjunction with the sale of these products, we provide extensive technical service and support when necessary to ensure superior performance of their application. While our dynamic chemistries typically represent only a small portion of our customers’ costs, we believe that they are critical to our customers’ manufacturing processes and overall product performance. Further, operational risks and switching costs make it difficult for our customers to change suppliers and allow us to retain customers and maintain our market positions. The segment employs approximately 4,350 people which operate mainly in the Americas, Asia/Pacific region and Europe.
Agricultural Solutions – Our Agricultural Solutions segment specializes in the development, formulation, registration, marketing and distribution of differentiated Crop Protection solutions, including BioSolutions and Seed Treatment, for a variety of crops and applications. Our diverse Crop Protection chemicals control biotic stresses, such as weeds (herbicides), insects (insecticides) and diseases (fungicides). Our portfolio of proven BioSolutions includes BioStimulants, which are derived from natural substances applied to plants, seeds or the soil in order to enhance yields and help crops withstand abiotic stress, such as drought or cold, and BioControl products, which perform the same task as conventional Crop Protection products with, in many cases, the added benefit of reduced chemical residues. Our solutions are offered in multiple forms, such as foliar applications (direct application to leaves), furrow treatment (treatment of soil trenches or grooves wherein seeds are sown) or Seed Treatment (seed coating prior to planting). Our products allow us to partner with growers to address the ever-increasing need for higher crop yield and food quality. The segment employs approximately 3,300 people, with a significant presence in high-growth regions such as Africa & Middle East, Asia, Latin America and Central and Eastern Europe.


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Our operating segments include significant foreign operations.  There are certain risks associated with our foreign operations. See Part I, Item 1A. Risk Factors— "Our substantial international operations subject us to risks not faced by domestic competitors." and "We are exposed to fluctuations in currency exchange rates, which may adversely affect our operating results and may significantly affect the comparability of our results between financial periods."
Proposed Separation of Agricultural Solutions
The Proposed Separation of our Agricultural Solutions and Performance Solutions businesses. We believe this Proposed Separation, which we expect to complete in 2018, should maximize long-term value for our stockholders by enabling investors to focus on our specific different and differentiated high-quality businesses that serve two distinct segments of the specialty chemicals industry. However, this Proposed Separation, and any related transactions that we may decide to pursue in anticipation of the Proposed Separation, remain subject to final approval by the Board, as well as a number of conditions and variables, including financial market conditions and volatility, legal, tax or regulatory requirements, the establishment of the necessary corporate infrastructure and processes, and/or the possibility of more attractive strategic options arising in the future.
Acquisitions
Consistent with our acquisition strategy, we intend to focus primarily on businesses or assets within our existing end-markets with product offerings that provide geographic or product complementarity. We expect to achieve commercial and distribution efficiencies by expanding into related categories that can be marketed through our existing distribution channels or provide us with new distribution channels for our existing products. Furthermore, to the extent we pursue future acquisitions, we expect that acquisition candidates would demonstrate a combination of attractive margins, strong cash flow characteristics, niche leading positions and products that generate recurring revenue. We believe the diversity of the niche-end markets we serve will enable us to continue our growth and maintain strong cash flow generation throughout economic cycles and mitigate the impact of a downturn in any single market. We will only pursue a candidate when it is deemed to be fiscally prudent and that meets our acquisition criteria. We anticipate that any future acquisitions would be financed through a combination of cash on hand, operating cash flow, availability under our Amended and Restated Credit Agreement and/or new debt or equity offerings.
For further information on our historical Acquisitions, see "Acquisitions" in Item 1. Business included in Part I, Item I of this 2017 Annual Report, and Note 4, Acquisitions of Businesses, to the Consolidated Financial Statements included in this 2017 Annual Report.
Summary of Significant 2017 Activities
In April 2017, we completed the repricing of $1.93 billion of existing term loans through Amendment No. 7 to the Second Amended and Restated Credit Agreement which, among other things, provided for the prepayment in full of previously existing term loans denominated in U.S. dollars and in euros with the aggregate proceeds of newly created term loans denominated in U.S. dollars in an aggregate principal amount of $1.23 billion and term loans denominated in euros in an aggregate principal amount of €650 million. The amendment effectively reduced interest rates by 100 basis points across both the U.S. dollar and euro tranches. In addition, the EURIBOR floor was reduced from 1.00% to 0.75% on the new euro denominated term loans. At the close of this refinancing, the reduced interest rates were expected to generate annual cash savings of approximately $20.0 million, based on foreign exchange rates then in effect.
In June 2017, MacDermid Printing and E.I. du Pont de Nemours and Company, now known as DowDuPont Inc. ("DuPont"), settled all outstanding litigation between them, as well as MacDermid Printing's lawsuit against Cortron. In connection with this settlement, DuPont made a payment of $20.0 million to MacDermid Printing, and we recorded a net settlement gain of $10.8 million.
In October 2017, we completed the repricing of $1.40 billion of existing term loans through Amendment No. 8 to the Second Amended and Restated Credit Agreement which, among other things, provided for the prepayment in full of previously existing term loans denominated in U.S. dollars and in euros with the aggregate proceeds of newly created term loans denominated in U.S. dollars in an aggregate principal amount of $680 million and term loans denominated in euros in an aggregate principal amount of €630 million. This amendment effectively reduced interest rates by 100 basis points across both the U.S. dollar and euro tranches from a combination of reduced spread and reduced EURIBOR floor from 1.00% to 0.75% on the new euro denominated term loans. At the close of this refinancing, the reduced interest rates were expected to generate annual cash savings of approximately $14.0 million, based on foreign exchange rates then in effect.


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In November 2017, we completed a private offering of $550 million aggregate principal amount of 5.875% USD Notes due 2025. The proceeds from this offering were used to pay the consideration of the below-mentioned cash tender offer and consent solicitation for, as well as redemption of, any and all of our then outstanding 10.375% USD Notes due 2021, plus accrued and unpaid interest on the 10.375% USD Notes due 2021, along with fees and expenses.
In December 2017, we completed a tack-on private offering of $250 million aggregate principal amount of additional 5.875% USD Notes due 2025. The additional notes have the same terms as, and are fungible and form a single series with, the 5.875% USD Notes due 2025 issued in November 2017. The proceeds from this offering were used to repay a portion of our existing terms loans under our Amended and Restated Credit Agreement. The 5.875% USD Notes Indenture provides that in connection with the satisfaction of certain financial covenants and other conditions, all of the then direct and indirect subsidiaries constituting our Agricultural Solutions business may be designated as unrestricted subsidiaries and, as applicable, released from their guarantees of the 5.875% USD Notes due 2025.
In December 2017, we completed the cash tender offer and consent solicitation for, as well as the redemption of, any and all of our then outstanding 10.375% USD Notes due 2021. The tender offer and consent solicitation, as well as the redemption, were financed with the proceeds of the November offering of 5.875% USD Notes due 2025 described above.

Global Economic and Industry Conditions
Our products are sold in industries that we believe are sensitive to changes in general economic conditions.  Accordingly, net sales, gross profit, and financial condition depend significantly on general economic conditions and the impact of these conditions on demand for our dynamic chemistries and services in the markets in which we compete.  In particular, weak economic conditions in parts of Asia and South America may have an adverse effect on our results. Our business is also particularly impacted by demand for chemistry products utilized in the automotive, printed circuit board, offshore oil and gas production, commercial packaging, and crop protection industries. Our business may further be influenced by trends in the broader specialty chemical industry.  We believe that these industries are cyclical and subject to constant and rapid technological change, product obsolescence, price erosion, evolving standards, finite product life-cycles, raw material price fluctuations and changes in product supply and demand.
Performance Solutions - Our Performance Solutions segment continues to be affected by globalization and a shift in customers’ businesses out of traditional geographic markets and into high-growth, emerging markets. The increased use of electronics, particularly in automotive and industrial applications, is expected to drive the need for new product development and demand for faster electronic processing. Continued growth in the consumption of consumer packaged goods is expected to drive increased demand for liquid plate and other packaging technologies. While demand in offshore oil production has been impacted by global economic activity and geopolitical tensions, we believe our business is well positioned to recover as conditions improve.
Net sales in future periods will depend, among other factors, upon a continued general improvement in global economic conditions, our continued ability to meet unscheduled or temporary changes in demand, and our continued ability to penetrate new markets with strategic product initiatives in specific targeted markets.
Agricultural Solutions - Our Agricultural Solutions segment is supported by strong global fundamentals that create a critical need to increase crop yields. These include the need to feed a growing population with limited land and competition from biofuels, in addition to a change in dietary standards in emerging markets. These needs are met through the use of agrochemicals, including Seed Treatment, to protect the crop, and BioSolutions offerings (especially BioStimulants and Innovative Nutrition), among other technologies, for crop enhancement. The expansion of the middle class is a particularly strong catalyst for growth, particularly in Brazil, China, India, Russia and South Africa. In addition, demand growth combined with rapid urbanization has led to a continual decrease in land available per capita for production. This creates strong incentives for farmers to invest in high technology inputs (agrochemicals, seed) and equipment to maximize yields, increase productivity and protect harvests.
Despite improving macro trends for the industry, net sales in future periods can depend, among other factors, on general economic conditions, commodity prices, foreign exchange volatility, climate conditions and the development of new technologies, such as genetically modified (GM) seeds, that can partially substitute the need for agrochemicals. Disruptions in the Agrochemicals market may create additional opportunities for high value, niche applications that many of our products provide.


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Foreign Currency Exposure
During 2017, 2016 and 2015, approximately 83%, 80% and 81%, respectively, of our net sales originated outside of the United States and were denominated in numerous currencies, including the euro, Brazilian Real, Chinese Yuan, British Pound Sterling, and Japanese Yen.  Therefore, changes in foreign exchange rates in any given reporting period may positively or negatively impact our financial performance. During 2017, foreign exchange translation positively impacted net sales performance by approximately 1%.
In addition, our foreign subsidiaries are subject to foreign currency risk relating to receipts from customers, payments to suppliers, and intercompany transactions that are not in their functional currency, which is typically their local currency. As a result, our foreign subsidiaries enter into foreign exchange hedges from time to time and on an on-going basis to protect against transaction exposures. We actively assess our hedging programs in order to mitigate foreign exchange risk exposures. This includes programs to hedge our foreign currency denominated balance sheet exposures as well as foreign currency anticipated cash flows. Periodically, we also enter into deal specific foreign exchange hedges to mitigate our acquisition-related foreign exchange exposure.
Critical Accounting Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and judgments regarding uncertainties, and as a result, may significantly impact our financial results. We base our estimates and judgments on historical experience, current conditions as well as other reasonable factors and assumptions. Several of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events. Actual results may differ from these estimates and assumptions and could be material to our financial statements.
We consider the accounting estimates discussed below to be critical to the understanding of our financial statements and involve difficult, subjective or complex judgments that could potentially affect reported results. See Note 2, Summary of Significant Accounting Policies, to the Consolidated Financial Statements included in this 2017 Annual Report for a detailed discussion of the application of these and other accounting policies.
Revenue Recognition
We recognize revenue either upon shipment or delivery of product depending on when it is reasonably assured that both title and the risks and rewards of ownership have been passed on to our customer. Estimates for sales rebates, incentives and discounts as well as sales returns and allowances, are accounted for as a reduction of revenue when the earnings process is complete. Sales rebates, incentives and discounts are typically earned by customers based on annual sales volume targets, which vary by each of our segments. We record an estimate for these accruals based on contract terms and our historical experience with similar programs. We record an estimate for future expected sales returns based on historical experience with product returns; however, additional allowances may be required if the historical data we use to calculate these estimates does not approximate future sales returns. Differences between estimated expense and actual costs are normally immaterial and are recognized in earnings in the period such differences are determined.
On a limited and discretionary basis, we allow certain distributors within the Agricultural Solutions segment extensions of credit on a portion of our sales to them during a purchasing cycle, which remain in the distributor’s inventory. The extension of credit is not a right to return, and distributors must pay unconditionally when the extended credit period expires.
Receivables and Allowance for Doubtful Accounts
We determine our allowance for doubtful accounts using a combination of factors to reduce our trade receivable balances to their estimated net realizable amount. We maintain an allowance for doubtful accounts based on a variety of factors, including the length of time receivables are past due, macroeconomic trends and conditions, significant one-time events, historical experience and the financial condition of customers. In addition, we record a specific reserve for individual accounts when we become aware of specific customer circumstances, such as in the case of bankruptcy filings or deterioration in the customer’s operating results or financial position. The past due or delinquency status of a receivable is based on the contractual payment terms of the receivable. If circumstances related to the specific customer change, we adjust estimates of the recoverability of receivables as appropriate. Credit risk with respect to accounts receivable is generally diversified due to the large number of entities comprising our customer base and their dispersion across many different geographical regions. We perform ongoing credit evaluations of the financial condition of our third-party distributors and other customers and require collateral, such as letters of credit and bank guarantees, in certain circumstances. At December 31, 2017 and 2016, we did not believe that we had any significant concentrations of credit risk that could materially impact our results of operations.


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Inventories
Inventories are stated at the lower of cost or net realizable value with cost being determined by the first-in/first-out and average costs methods.  Inventories in excess of one year of forecasted sales are classified in the Consolidated Balance Sheets as non-current "Other assets." We regularly review inventories for obsolescence and excess quantities and calculate reserves based on historical write-offs, customer demand, product evolution, usage rates and quantities of stock on hand. Additional obsolescence reserves may be required if actual sales are less favorable than those projected.
Business Combinations
Purchase price allocations of acquisitions to tangible and intangible assets acquired, liabilities assumed, and noncontrolling interests in the acquiree are based on estimated fair value at the acquisition date. The excess of the acquisition price over those estimated fair values is recorded as goodwill. Changes to the acquisition date provisional fair values prior to the end of the measurement period, are recorded as an adjustment to the associated goodwill. Acquisition-related expenses and restructuring costs, if any, are recognized separately from the business combination and are expensed as incurred.
Goodwill
Goodwill is tested for impairment at the reporting unit level annually in the fourth quarter, or when events or changes in circumstances indicate that goodwill might be impaired.  Our six reporting units are determined based upon our organizational structure in place at the date of the goodwill impairment test. During the fourth quarter of 2017, we elected to early adopt ASU No. 2017-04, “Simplifying the Test for Goodwill Impairment” which eliminates "Step 2" from the goodwill impairment test, but still requires us to perform "Step 1" of impairment testing. In the first step of impairment testing, the fair value of each reporting unit is compared to its carrying value.  The fair value of each reporting unit is determined based on the present value of discounted future cash flows.  The discounted cash flows are prepared based upon cash flows at the reporting unit level.  The cash flow model involves significant judgments related to future growth rates, discount rates and tax rates, among other considerations from the vantage point of a market participant.  
The primary components of and assumptions used in the assessment consist of the following:
Valuation Techniques - we use a discounted cash flow analysis, which requires assumptions about short and long-term net cash flows, growth rates, as well as discount rates.  Additionally, we consider guideline company and guideline transaction information, where available, to aid in the valuation of the reporting units.
Growth Assumptions - Multi-year financial forecasts are developed for each reporting unit by considering several key business drivers such as new business initiatives, client service and retention standards, market share changes, historical performance, and industry and economic trends, among other considerations.  We typically forecast revenue and the resulting cash flows for periods of five to seven years and include an estimated terminal growth rate at the end of the forecasted period.
Discount Rate Assumptions - Discount rates are estimated based on the WACC, which combines the required return on equity and considers the risk-free interest rate, market risk premium, small stock risk premium and a company specific risk premium, with the cost of debt, based on BBB-rated corporate bonds, adjusted using an income tax factor.
Estimated Fair Value and Sensitivities - The estimated fair value of each reporting unit is derived from the valuation techniques described above.  The estimated fair value of each reporting unit is analyzed in relation to numerous market and historical factors, including current economic and market conditions, company-specific growth opportunities, and guideline company information.
If the fair value of a reporting unit exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is not impaired and no further testing is required.  Beginning with the 2017 goodwill impairment test, subsequent to the early adoption of the new guidance, if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, the goodwill impairment loss is calculated as the difference between these amounts, limited to the amount of goodwill allocated to the reporting unit. For the 2016 goodwill impairment test, prior to the early adoption of the new guidance, if the carrying value of the net assets assigned to the reporting unit exceeded the fair value of the reporting unit, the second step of the impairment test was performed to determine the implied fair value of the reporting unit’s goodwill.  If the carrying value of the reporting unit’s goodwill exceeded its implied fair value, an impairment charge was recorded equal to the difference.  
During the fourth quarter of 2017, we performed our annual goodwill impairment test and determined that the carrying value of the Agro Business reporting unit within our Agricultural Solutions segment exceeded its fair value by $160 million. An impairment charge equal to this amount was recorded in the Statement of Operations for 2017, with a corresponding benefit of $7.4 million attributable to non-controlling interest holders. This impairment charge was driven primarily by a reduction in the estimated fair


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value of this reporting unit based on the impact of a delayed agricultural market recovery which resulted in lower expectations for future revenue, profitability and cash flows as compared to the expectations at the time of of the 2016 annual goodwill impairment test. Future impairments of this reporting unit may occur if the business continues to experience a delayed agricultural market recovery or macroeconomic conditions result in an increase in the WACC used to estimate fair value.
In addition, we determined that the excess of the fair values of the Graphics and Offshore Solutions reporting units within our Performance Solutions segment exceeded their carrying values by approximately 20% and less than 5%, respectively, in 2017. Goodwill assigned to the Graphics and Offshore Solutions reporting units totaled $223 million and $281 million, respectively, as of the assessment date. The estimated fair value of these reporting units are highly sensitive to changes in these estimates and assumptions; therefore, in some instances, changes in these assumptions may impact whether the fair value of a reporting unit is greater than its carrying value.  We performed sensitivity analysis around these assumptions in order to assess the reasonableness of the assumptions and the resulting estimated fair values.  Based on a sensitivity analysis performed for the Graphics Solutions reporting unit, a 100 basis point increase in the WACC or 100 basis decrease in the terminal growth rate, without any other changes to the valuation, would not result in the carrying value being greater than the fair value. The fair value of the Offshore Solutions reporting unit continues to remain slightly above to its carrying value following the impairment charge of $46.6 million recorded in conjunction with the annual goodwill impairment test performed in 2016. As a result, a 100 basis point increase in the WACC or 100 basis decrease in the terminal growth rate, without any other changes to the valuation, would result in the carrying value being greater than the fair value. Future impairments of these reporting units may occur if the businesses does not achieve its expected cash flows or macroeconomic conditions result in an increase in the WACC used to estimate fair value.
In 2017, we also determined that the fair values of the Surface Chemistries and Assembly Solutions reporting units within our Performance Solutions segment and the Agricultural Animal Health reporting unit within our Agricultural Solutions segment were each significantly in excess of their respective carrying values.
As noted above, a goodwill impairment charge totaling $46.6 million was recorded during 2016, related to Performance Solutions' Offshore Solutions reporting unit. This impairment charge was the result of previously weak oil prices. We experienced the impact on our results, which slightly lagged the overall industry, as this ultimately caused the industry to depress its overall investments. The fair value was determined using a combination of an income approach derived from a discounted cash flow model as well as market multiples. No impairments of goodwill were identified during the 2015.
See Note 8, Goodwill and Intangible Assets, to the Consolidated Financial Statements included in this 2017 Annual Report for additional information.
Indefinite-Lived Intangible Assets
Indefinite-lived intangible assets are reviewed for potential impairment on an annual basis, in the fourth quarter, or more frequently when events or circumstances indicate that such assets may be impaired, by comparing their estimated fair values to their carrying values.  An impairment charge is recognized when the carrying value of an indefinite-lived intangible asset exceeds its estimated fair value.  We use the “relief from royalty” method to estimate the fair value of trade name intangible assets for impairment.  The primary assumptions used to estimate the present value of cash flows from such assets include sales projections and growth rates being applied to a prevailing market-based royalty rate, the effects of which are then tax effected, and discounted using the WACC from the vantage point of a market participant.  Assumptions concerning sales projections are impacted by the uncertain nature of global and local economic conditions in the various markets we serve.
No impairments of indefinite-lived intangible assets were identified during 2017, 2016 and 2015.
Long-Lived Assets Including Finite-Lived Intangible Assets
Finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives, which currently range from 8 to 30 years for customer lists, 5 to 14 years for developed technology, 5 to 20 years for trade names, and up to 5 years for non-compete agreements.  If circumstances require a long-lived asset group to be tested for possible impairment, we first determine whether the estimated undiscounted pre-tax future cash flows expected to result from the use of the asset plus the net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset.  When an impairment is identified, the carrying value of the asset is reduced to its estimated fair value based on a discounted cash flow approach or, when available and appropriate, to comparable market values.
No impairments of long-lived assets, including finite-lived intangible assets, were identified during 2017, 2016 and 2015.


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Employee Benefits and Pension Obligations
Amounts recognized in our audited Consolidated Financial Statements related to pension and other post-retirement benefits are determined from actuarial valuations.  Inherent in such valuations are assumptions including expected return on plan assets, discount rates at which the liabilities could be settled, rates of increase in future compensation levels, and mortality rates.  These assumptions are updated annually and are disclosed in Note 10, Pension, Post-Retirement and Post-Employment Plans, to the Consolidated Financial Statements included in this 2017 Annual Report.  In accordance with GAAP, actual results that differ from the assumptions are accumulated in other comprehensive income and amortized over future periods and, therefore, affect expense recognized.
We consider a number of factors in determining and selecting assumptions for the overall expected long-term rate of return on plan assets.  We consider the historical long-term return experience of our assets, the current and expected allocation of our plan assets, and expected long-term rates of return.  We derive these expected long-term rates of return with the assistance of our investment advisors.  We base our expected allocation of plan assets on a diversified portfolio consisting of domestic and international equity securities, fixed income, real estate and alternative asset classes.  The measurement date used to determine pension and other post-retirement benefits is December 31, at which time the minimum contribution level for the following year is determined.
With respect to U.S. plans, our investment policies incorporate an asset allocation strategy that emphasizes the long-term growth of capital and acceptable asset volatility as long as it is consistent with the volatility of the relevant market indexes.  The investment policies attempt to achieve a mix of approximately 50% of plan investments for long-term growth, 49% for liability-matching assets and 1% for near-term benefit payments.  We believe this strategy is consistent with the long-term nature of plan liabilities and ultimate cash needs of the plans.  Plan assets consist primarily of corporate bond mutual funds, limited partnership interests, listed stocks and cash.  The corporate bond mutual funds held by the pension plan include primarily corporate bonds from companies from diversified industries located in the United States.  The listed stocks are investments in large-cap and mid-cap companies located in the United States.  The assets from the limited partnership investments primarily include listed stocks located in the United States.   The weighted average asset allocation of the Pension Plan was 49% fixed income mutual fund holdings, 27% equity securities, 19% limited partnership interests and managed equity funds, 4% collective investment funds and 1% cash at December 31, 2017.  ROA assumptions are determined annually based on a review of the asset mix as well as individual ROA performances, benchmarked against indexes such as the S&P 500 Index and the Russell 2000 Index.  In determining an assumed rate of return on plan assets, we consider past performance and economic forecasts for the types of investments held by the Pension Plan.  The asset allocation strategy and ROA assumptions for the non-U.S. plans are determined based on similar set of criteria adapted for local investments, inflation rates and in certain cases specific government requirements.
Stock-based Compensation
We expense employee stock-based compensation over the requisite service period based on the estimated grant-date fair value of the awards.  The fair value of RSU awards is determined using Monte Carlo simulations for market-based RSU awards, and the closing price of our common stock on the date of grant for all other RSU awards. The fair value of stock options is determined using the Black-Scholes option pricing model.  The assumptions used in calculating the fair value of stock-based awards represent our best estimates and involve inherent uncertainties and the application of judgment. Inputs in the model include assumptions related to stock price volatility, award terms, and judgments as to whether performance targets will be achieved.
Compensation costs for RSU awards reflects the number of awards expected to vest and is ultimately adjusted in future periods to reflect the actual number of vested awards. Compensation costs for awards with performance conditions are only recognized if and when it becomes probable that the performance condition will be achieved. The probability of vesting is reassessed at the end of each reporting period and the compensation costs are adjusted accordingly, with the cumulative effect of such a change on current and prior periods being recognized in compensation cost in the period of the change. Compensation costs for stock options and market-based RSU awards are recorded ratably over the vesting term of the options, effected for forfeitures as they occur.
Environmental Matters
We accrue for environmental matters when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based on current laws and existing technologies. The accruals are adjusted periodically as assessment and remediation efforts progress or as additional technical or legal information becomes available. Accruals for environmental liabilities are included in the Consolidated Balance Sheets in “Accrued expenses and other current liabilities” and “Other liabilities” at undiscounted amounts. Accruals for related insurance or other third-party recoveries for environmental liabilities are recorded when it is probable that a recovery will be realized and are included in the Consolidated Balance Sheets as “Other current assets" and "Other assets."


45




We capitalize environmental costs in instances where the costs extend the life of the property, increase its capacity, and/or mitigate or prevent contamination from future operations. Environmental costs are also capitalized in recognition of legal asset retirement obligations resulting from the acquisition, construction and/or normal operation of a long-lived asset. Costs related to environmental contamination treatment and cleanup are charged to expense. Estimated future incremental operations, maintenance and management costs directly related to remediation are accrued when such costs are probable and reasonably estimable.
Income Taxes
We recognize deferred tax assets and liabilities based on the differences between the financial statement basis and the tax bases of assets, liabilities, net operating losses and tax credit carryforwards. A valuation allowance is required to be recognized to reduce the recorded deferred tax asset to the amount that will more likely than not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income by jurisdiction during the periods in which those temporary differences become deductible or when carryforwards can be utilized. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in this assessment. If these estimates and related assumptions change in the future, we may be required to record additional valuation allowances against our deferred tax assets resulting in additional income tax expense. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences and carryforwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date of such change. Considering that the TCJA was enacted on December 22, 2017, the effect would normally be required to be recognized in the fourth quarter of 2017. The SEC staff issued Staff Accounting Bulletin 118 (“SAB 118”) to address the application of GAAP in situations where a registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the TCJA.
In particular, SAB 118 clarifies that the impact of the TCJA must be accounted for and reported in one of three ways: (1) by reflecting the tax effects of the TCJA for which the accounting is complete; (2) by reporting provisional amounts for those specific income tax effects of the TCJA for which the accounting is incomplete but a reasonable estimate can be determined, with such provisional amounts (or adjustments to provisional amounts) identified in the measurement period, as defined therein, being included as an adjustment to tax expense in the period the amounts are determined; or (3) where the income tax effects cannot be reasonably estimated, no provisional amounts should be reported and the registrant should continue to apply the accounting standard for income taxes based on the provisions of the tax laws that were in effect immediately prior to the enactment of the TCJA. SAB 118 allows companies to record provisional amounts during a one year measurement period.
We are subject to income taxes in the United States and in various states and foreign jurisdictions.  Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes.  The first step in evaluating the tax position for recognition is to determine the amount of evidence that supports a favorable conclusion for the tax position upon audit.  In order to recognize the tax position, we must determine whether it is more likely than not that the position is sustainable. The final evaluation step is to measure the tax benefit as the largest amount that has a more than 50% chance of being realized upon final settlement. Although we believe that the positions taken on income tax matters are reasonable, we establish tax reserves in recognition that various taxing authorities may challenge certain of those positions taken, potentially resulting in additional tax liabilities.
Recent Accounting Pronouncements
A summary of recent accounting pronouncements is included in Note 3, Recent Accounting Pronouncements, to the Consolidated Financial Statements included in this 2017 Annual Report.


46




Results of Operations
The following table summarizes our results of operations for 2017, 2016 and 2015
 
 
 
 
% Change - 2017 vs 2016
 
 
 
% Change - 2016 vs 2015
($ amounts in millions)
 
2017
 
2016
 
Reported
 
Constant Currency
 
Organic
 
2015
 
Reported
 
Constant Currency
 
Organic
Net sales
 
$
3,775.9

 
$
3,585.9

 
5%
 
4%
 
4%
 
$
2,542.3

 
41%
 
43%
 
2%
Cost of sales
 
2,186.9

 
2,078.2

 
5%
 
4%
 
 
 
1,550.4

 
34%
 
36%
 
 
Gross profit
 
1,589.0

 
1,507.7

 
5%
 
5%
 
 
 
991.9

 
52%
 
55%
 
 
Selling, technical, general and administrative
 
1,109.3

 
1,123.3

 
(1)%
 
(2)%
 
 
 
857.5

 
31%
 
33%
 
 
Research and development
 
98.4

 
84.4

 
17%
 
15%
 
 
 
62.8

 
34%
 
35%
 
 
Goodwill impairment
 
160.0

 
46.6

 
(nm)
 
(nm)
 
 
 

 
(nm)
 
(nm)
 
 
Operating profit
 
221.3

 
253.4

 
(13)%
 
(9)%
 
 
 
71.6

 
(nm)
 
(nm)
 
 
Interest expense, net
 
(341.6
)
 
(375.7
)
 
(9)%
 
 
 
 
 
(213.9
)
 
76%
 
 
 
 
Other (expense) income, net
 
(168.7
)
 
74.2

 
(nm)
 
 
 
 
 
(87.0
)
 
(nm)
 
 
 
 
Loss before income taxes and non-controlling interest
 
(289.0
)
 
(48.1
)
 
(nm)
 
 
 
 
 
(229.3
)
 
(79)%
 
 
 
 
Income tax expense
 
(6.6
)
 
(28.6
)
 
(77)%
 
 
 
 
 
(75.1
)
 
(62)%
 
 
 
 
Net loss
 
$
(295.6
)
 
$
(76.7
)
 
(nm)
 
 
 
 
 
$
(304.4
)
 
(75)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA (1)
 
$
820.9

 
$
769.5

 
7%
 
7%
 
 
 
$
567.7

 
36%
 
38%
 
 
(nm)    Calculation not meaningful.
(1)    Adjusted EBITDA is a non-GAAP financial measure and as such, should not be considered in isolation from, as a substitute for, or superior to performance measures calculated in accordance with GAAP. For a definition of Adjusted EBITDA and additional information on why we present this measure, its limitations and a reconciliation to the most comparable applicable GAAP measure, see "Non-GAAP Financial Measures" below, and Note 23, Segment Information, to the Consolidated Financial Statements, all included in this 2017 Annual Report.
Non-GAAP Financial Measures
To supplement our financial results presented in accordance with GAAP in this Management’s Discussion and Analysis of Financial Condition and Results of Operations section, we present certain non-GAAP financial measures, such as Adjusted EBITDA, operating results on a constant currency basis and organic sales growth. Management internally reviews each of these non-GAAP measures to evaluate performance on a comparative period-to-period basis in terms of absolute performance, trends, and expected future performance with respect to our business. We believe these non-GAAP financial measures, which are each further described below, provide investors with an additional perspective on trends and underlying operating results on a period-to-period comparable basis. We also believe that investors find this information helpful in understanding the ongoing performance of our operations separate from items that may have a disproportionate positive or negative impact on our financial results in any particular period or are considered to be costs associated with our capital structure.
These non-GAAP financial measures, however, have limitations as analytical tools, and should not be considered in isolation from, or a substitute for, or superior to, the related financial information that we report in accordance with GAAP. The principal limitations of these non-GAAP financial measures is that they exclude significant expenses and income that are required by GAAP to be recorded in the Company’s financial statements, and may not be comparable to similarly titled measures of other companies due to potential differences in the method of calculation between companies. In addition, these measures are subject to inherent limitations as they reflect the exercise of judgment by management about which items are excluded or included in determining these non-GAAP financial measures. Investors are encouraged to review the reconciliations of these non-GAAP financial measures to their most comparable GAAP financial measures included in this 2017 Annual Report, and not to rely on any single financial measure to evaluate the Company’s businesses.
Adjusted EBITDA
We define Adjusted EBITDA as EBITDA (earnings before interest, provision for income taxes, depreciation and amortization), excluding the impact of additional items included in earnings, which we believe are not representative or indicative of our ongoing business or are considered to be part of our capital structure. Management believes Adjusted EBITDA provides investors with a


47




more complete understanding of the long-term profitability trends of our business, and facilitates comparisons of our profitability to prior and future periods.
For a reconciliation of "Net loss attributable to common stockholders" to Adjusted EBITDA and more information about the adjustments made, see Note 23, Segment Information, to the Consolidated Financial Statements included in this 2017 Annual Report.
Constant Currency
We disclose operating results from net sales through operating profit on a constant currency basis by adjusting to exclude the impact of changes due to the translation of foreign currencies of our international locations into U.S. dollars. Management believes this non-GAAP financial information facilitates period-to-period comparison in the analysis of trends in business performance, thereby providing valuable supplemental information regarding our results of operations, consistent with how we internally evaluate our financial results.
The impact of foreign currency translation is calculated by converting our current-period local currency financial results into U.S. dollars using the prior period's exchange rates and comparing these adjusted amounts to our prior period reported results. The difference between actual growth rates and constant currency growth rates represents the impact of foreign currency translation.
Organic Results
Organic sales growth is defined as net sales excluding the impact of foreign currency translation, changes due to the price of certain metals, acquisitions and/or divestitures. Management believes this non-GAAP financial measure provides investors with a more complete understanding of the underlying net sales trends by providing comparable sales over differing periods on a consistent basis.
The following tables reconcile GAAP net sales growth to organic sales growth for 2017 and 2016:
 
Year ended December 31, 2017
 
Reported Net Sales Growth
 
Impact of Currency
 
Metals
 
Acquisitions/Disposition
 
Organic Sales Growth
Performance Solutions
6%
 
—%
 
(1)%
 
—%
 
4%
Agricultural Solutions
4%
 
(2)%
 
—%
 
—%
 
3%
Total
5%
 
(1)%
 
(1)%
 
—%
 
4%
 
Year ended December 31, 2016
 
Reported Net Sales Growth
 
Impact of Currency
 
Metals
 
Acquisitions/Disposition
 
Organic Sales Growth
Performance Solutions
121%
 
2%
 
(2)%
 
(120)%
 
1%
Agricultural Solutions
4%
 
2%
 
—%
 
(3)%
 
3%
Total
41%
 
2%
 
—%
 
(40)%
 
2%
NOTE: Totals may not sum due to rounding.
For 2017, metals pricing and acquisitions benefited our Performance Solutions and consolidated results by $23.6 million and $2.8 million, respectively.
For 2016, metals pricing and acquisitions benefited our Performance Solutions and consolidated results by $12.6 million and $965 million, respectively. Additionally, Agricultural Solutions and our consolidated results benefited from acquisitions and dispositions by $87.5 million and $32.1 million, respectively.
When comparing 2016 and 2015, we also presented gross profit, selling, technical, general and administrative expense, research and development expense, and operating profit on an organic basis. These results excluded the impact of foreign currency translation and were adjusted for the impact of the Alent and OMG Acquisitions in 2016 in Performance Solutions and for the impact of the Arysta Acquisition, completed in February 2015, as well as a divestiture completed in 2015, in Agricultural Solutions.


48




Year Ended December 31, 2017 Compared to the Year Ended December 31, 2016
Net Sales
 
Year ended December 31,
 
Change
 ($ amounts in millions)
2017
 
2016
 
Reported
 
Constant Currency
 
Organic
Performance Solutions
$
1,878.6

 
$
1,770.1

 
6%
 
6%
 
4%
Agricultural Solutions
1,897.3

 
1,815.8

 
4%
 
3%
 
3%
Total
$
3,775.9

 
$
3,585.9

 
5%
 
4%
 
4%
Performance Solutions' net sales for 2017 increased by 6% (6% on a constant currency and 4% on an organic basis). Organic sales growth was driven primarily by strength in our Assembly and Industrial Solutions businesses, which contributed approximately 3% and 2% of growth to the segment, respectively. Organic sales growth in Assembly Solutions reflected higher sales volume across several product lines, including solder paste. Our Industrial Solutions’ organic sales growth was driven by higher sales volume across all regions, most notably in Europe and Asia. In addition, organic sales growth in our Electronics Solutions business contributed approximately 1% of growth to the segment, driven primarily by strong performance in the Asian smart phone and memory disk markets. Organic sales growth was partially offset by continued volume declines of flexographic printing plates within our Graphics Solutions business, which reduced organic segment sales growth by approximately 1%.
Agricultural Solutions' net sales for 2017 increased by 4% (3% on a constant currency and organic basis). The organic sales increase was driven by a combination of our successful geographic expansion into various European markets, most notably in parts of Eastern Europe, Germany and UK, as well as continued volume growth, notably from our BioSolutions portfolio, and new product introductions across Europe and parts of Asia and Latin America, particularly in Japan, Brazil, Mexico and China. These gains were partially offset by declines resulting from changes in our West Africa selling strategies, pricing pressure on certain products, mostly impacting Latin America and the U.S., and lower volumes in southern Asia and North America.
Gross Profit
 
Year ended December 31,
 
Change
 ($ amounts in millions)
2017
 
2016
 
Reported
 
Constant Currency
Gross profit
 
 
 
 
 
 
 
Performance Solutions
$
813.8

 
$
776.8

 
5%
 
5%
Agricultural Solutions
775.2

 
730.9

 
6%
 
5%
Total
$
1,589.0

 
$
1,507.7

 
5%
 
5%
 
 
 
 
 
 
 
 
Gross margin
 
 
 
 
 
 
 
Performance Solutions
43.3%
 
43.9%
 
(57) bps
 
(49) bps
Agricultural Solutions
40.9%
 
40.3%
 
61 bps
 
95 bps
Total
42.1%
 
42.0%
 
4 bps
 
24 bps
Performance Solutions' gross profit for 2017 increased by 5% on a reported and constant currency basis. The constant currency increase in gross profit was primarily driven by higher net sales volume in our Assembly and Industrial Solutions businesses and $11.7 million in inventory step-up amortization in the prior year which did not recur in 2017. The increase was partially offset by higher raw material costs in our Graphics business and metals prices across our businesses. Gross margin erosion was primarily driven by declines in our Graphics Solutions business, as well as product mix and higher raw material and metals costs in our Assembly Solutions business.
Agricultural Solutions' gross profit for 2017 increased by 6% (5% at constant currency). The constant currency increase was largely a result of overall top line growth, particularly in the fourth quarter, an increased focus on selling higher-margin products, notably from our BioSolutions portfolio, in Europe, Latin America and North America, a change in our selling strategy of certain lower-margin businesses in West Africa, as well as new geographic expansions, primarily in Europe. Gross margin expansion was largely the result of higher-margin new product introductions, particularly in Latin America and North America, and cost savings associated with sourcing raw materials, partially offset by the pricing pressures in Latin America and the U.S.


49




Selling, Technical, General and Administrative Expense (STG&A)
 
Year ended December 31,
 
Change
 ($ amounts in millions)
2017
 
2016
 
Reported
 
Constant Currency
STG&A
 
 
 
 
 
 
 
Performance Solutions
$
504.1

 
$
504.3

 
—%
 
—%
Agricultural Solutions
525.3

 
518.1

 
1%
 
(1)%
Corporate
79.9

 
100.9

 
(21)%
 
(21)%
Total
$
1,109.3

 
$
1,123.3

 
(1)%
 
(2)%
 
 
 
 
 
 
 
 
STG&A as % of net sales
 
 
 
 
 
 
 
Performance Solutions
26.8%
 
28.5%
 
(165) bps
 
(169) bps
Agricultural Solutions
27.7%
 
28.5%
 
(85) bps
 
(103) bps
Total
29.4%
 
31.3%
 
(195) bps
 
(204) bps
Performance Solutions' STG&A for 2017 was flat on a reported and constant currency basis, as operating cost inflation was essentially offset by realized cost savings from integration activities and lower bad debt expense.
Agricultural Solutions' STG&A for 2017 increased by 1% (decreased by 1% at constant currency). The constant currency decrease was primarily due to cost reduction initiatives in Europe and Latin America, offset by higher costs associated with non-recourse factoring programs, costs associated with the termination of a supply agreement related to the CAS Acquisition, and costs associated with expansion of certain European markets.
Corporate STG&A for 2017 decreased by 21% on a reported and constant currency basis. The decrease was primarily due to lower acquisition and integration costs associated with previous Acquisitions, and legal expenses which did not recur in 2017, partially offset by costs associated with the Proposed Separation of our Agricultural Solutions business.
Research and Development (R&D)
 
Year ended December 31,
 
Change
 ($ amounts in millions)
2017
 
2016
 
Reported
 
Constant Currency
R&D
 
 
 
 
 
 
 
Performance Solutions
$
46.4

 
$
45.0

 
3%
 
4%
Agricultural Solutions
52.0

 
39.4

 
32%
 
28%
Total
$
98.4

 
$
84.4

 
17%
 
15%
 
 
 
 
 
 
 
 
R&D as % of net sales
 
 
 
 
 
 
 
Performance Solutions
2.5%
 
2.5%
 
(7) bps
 
(5) bps
Agricultural Solutions
2.7%
 
2.2%
 
57 bps
 
53 bps
Total
2.6%
 
2.4%
 
25 bps
 
24 bps
Performance Solutions' R&D for 2017 increased by 3% (4% at constant currency) due to timing of various projects.
Agricultural Solutions' R&D for 2017 increased by 32% (28% at constant currency), driven primarily by investments in new development projects aimed at enhancing our product portfolio in targeted areas of focus.


50




Goodwill impairment
 
Year Ended December 31,
  ($ amounts in millions)
2017
 
2016
Goodwill impairment
 
 
 
Performance Solutions
$

 
$
46.6

Agricultural Solutions
160.0

 

Total
$
160.0

 
$
46.6

As a result of our annual goodwill impairment test in 2017, we recorded an impairment charge in the Agricultural Solutions segment of $160 million related to our Agro Business reporting unit. This charge was driven by the impact of a delayed agricultural market recovery, which resulted in lower expectations for future profitability and cash flows as compared to the expectations of the 2016 annual goodwill impairment test.
As a result of our annual goodwill impairment test in 2016, we recorded an impairment charge in the Performance Solutions segment of $46.6 million related to the Offshore Solutions reporting unit as a result of previously weak oil prices.
Operating Profit
 
Year ended December 31,
 
Change
 ($ amounts in millions)
2017
 
2016
 
Reported
 
Constant Currency
Operating profit
 
 
 
 
 
 
 
Performance Solutions
$
263.2

 
$
180.9

 
45%
 
46%
Agricultural Solutions
38.0

 
173.4

 
(78)%
 
(74)%
Corporate
(79.9
)
 
(100.9
)
 
(21)%
 
(21)%
Total
$
221.3

 
$
253.4

 
(13)%
 
(9)%
 
 
 
 
 
 
 
 
Operating Margin
 
 
 
 
 
 
 
Performance Solutions
14.0%
 
10.2%
 
379 bps
 
389 bps
Agricultural Solutions
2.0%
 
9.5%
 
(755) bps
 
(711) bps
Total
5.9%
 
7.1%
 
(121) bps
 
(94) bps
Performance Solutions' operating profit for 2017 increased by 45% (46% at constant currency), representing an operating margin of 14.0%. The constant currency increase was driven by top line growth in our Assembly, Industrial and Electronic Solutions businesses, the goodwill impairment charge of $46.6 million recorded in 2016 mentioned above, as well as cost savings from integration activities of approximately $18 million. The increase was partially offset by the previously noted gross margin erosion from declines in our Graphics Solutions business.
Agricultural Solutions' operating profit for 2017 decreased by 78% (74% at constant currency), representing an operating margin of 2.0%. The decrease in constant currency operating profit and margin was driven primarily by the goodwill impairment charge of $160 million. Excluding the goodwill impairment impact, operating profit increased as a result of top line growth in all regions and the gross profit improvements noted above, partially offset by higher R&D costs.


51




Other (Expense) Income, net
 
Year Ended December 31,
  ($ amounts in millions)
2017
 
2016
Interest expense, net
$
(341.6
)
 
$
(375.7
)
Foreign exchange loss
(107.5
)
 
(14.1
)
Other (expense) income, net
(61.2
)
 
88.3

Total
$
(510.3
)
 
$
(301.5
)
Interest Expense, Net
For 2017 and 2016, net interest expense totaled $342 million and $376 million, respectively, representing a decrease of $34.1 million. The decrease in net interest expense is primarily due to the repricing of our term debt, which decreased the weighted average effective interest rate on our term loans from approximately 5.64% at December 31, 2016 to 4.53% at December 31, 2017.
Foreign Exchange Loss
For 2017 and 2016, foreign exchange loss totaled $108 million and $14.1 million, respectively, representing an increase of $93.4 million. The increase in foreign exchange losses is primarily due to the remeasurement of foreign denominated debt and intercompany balances to U.S. dollar and pertained primarily to the euro and British pound.
Other (expense) income, net
For 2017 and 2016, other (expense) income, net totaled $(61.2) million and $88.3 million, respectively, representing a year over year negative impact to profits of $150 million. The decrease is primarily related to the prior-year net gain of $98.0 million associated with the settlement of our Series B Convertible Preferred Stock and $61.1 million of charges in 2017 related to extinguishment of debt, partially offset by the $10.8 million net gain related to a legal settlement agreement.
Income Tax
 
Year Ended December 31,
  ($ amounts in millions)
2017
 
2016
Income tax expense
$
(6.6
)
 
$
(28.6
)
Effective tax rate
(2.3
)%
 
(59.5
)%
The income tax expense for 2017 totaled $6.6 million, as compared to $28.6 million for 2016. The change in the effective tax rate is primarily attributable to the increased level of goodwill impairment in 2017 as compared to 2016 for which there was no corresponding tax benefit, the benefit for the provisional estimate of the TCJA, the 2016 settlement gain of the Series B Convertible Preferred Stock which was treated as a non-taxable purchase price adjustment, and favorable reductions in foreign tax rates for changes in tax law.
Other Comprehensive (Loss) Income
Other comprehensive income for 2017 totaled $256 million, as compared to $214 million of income in the prior year. The change was driven primarily by foreign currency translation gains associated with the euro, Canadian Dollar and Chinese Yuan, partially offset by losses primarily associated with the British Pound.
Segment Performance
Our operations are organized into two reportable segments: Performance Solutions and Agricultural Solutions. Both segments share a common focus on attractive niche markets, which we believe will grow faster than the diverse end-markets we serve. For additional information regarding our segments, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, under the heading "Our Business," and Note 23, Segment Information, to our Consolidated Financial Statements included in this 2017 Annual Report.


52




Adjusted EBITDA
We utilize Adjusted EBITDA as one of the measures to evaluate the performance of our operating segments. Adjusted EBITDA for each segment includes an allocation of corporate costs, such as compensation expense and professional fees. See Note 23, Segment Information, to our Consolidated Financial Statements included in this 2017 Annual Report, for more information and a reconciliation of Adjusted EBITDA to net income.
 
Year Ended December 31,
 
Change
  ($ amounts in millions)
2017
 
2016
 
Reported
 
Constant Currency
Adjusted EBITDA:
 

 
 

 
 
 
 
Performance Solutions
$
432.7

 
$
401.3

 
8%
 
8%
Agricultural Solutions
388.2

 
368.2

 
5%
 
6%
Total
$
820.9

 
$
769.5

 
7%
 
7%
For 2017 and 2016, corporate costs allocated to each segment totaled $31.4 million and $32.8 million, respectively.
Performance Solutions' Adjusted EBITDA for 2017 increased 8% on a reported and constant currency basis. The increase was primarily driven by growth of our Assembly, Industrial and Electronic Solutions businesses resulting in higher gross profits, as well as cost savings from integration synergies, partially offset by the impact of volume declines in our Graphics Solutions business.
Agricultural Solutions' Adjusted EBITDA for 2017 increased 5% (6% at constant currency). The constant currency increase was primarily driven by an increase from market expansion in Europe and new product launches in Asia and Latin America, volume growth in higher-margin products and cost reduction initiatives in Europe and Latin America. These increases were partially offset by a change in our selling strategy of certain lower-margin businesses in West Africa, and investments made in STG&A, as noted above.
Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
Net Sales
 
Year ended December 31,
 
Change
 ($ amounts in millions)
2016
 
2015
 
Reported
 
Constant Currency
 
Organic
Performance Solutions
$
1,770.1

 
$
800.8

 
121%
 
123%
 
1%
Agricultural Solutions
1,815.8

 
1,741.5

 
4%
 
6%
 
3%
Total
$
3,585.9

 
$
2,542.3

 
41%
 
43%
 
2%
Performance Solutions' net sales for 2016 increased by 121% (123% on a constant currency and 1% on an organic basis) compared to the prior period. The increase in organic net sales was driven by growth in global paste solder product demand in Assembly Solutions, share gains in industrial product offerings sold into the automotive supply chain in Asia, specifically in China, and a recovery of product demand in Electronic Solutions in the second half of 2016. Organic sales growth in these businesses was partially offset by under-performance in Offshore Solutions due to softness in the oil and gas end market as declines in oil prices resulted in reduced capital investment and project startup delays. The impact of oil prices was twofold: (1) reduced demand for offshore production control and drilling fluids, and (2) reduced demand for plating chemistry sold into the supply chain for onshore oil production rigs and stripping/cleaning chemistry utilized in polyethylene terephthalate recycling.
Agricultural Solutions' net sales for 2016 increased by 4% (6% on a constant currency and 3% on an organic basis) compared to the prior period. The increase in organic net sales was driven by volume growth in our insecticide and herbicide businesses in Latin America and Europe, our anti-malarial insecticides in Africa, and our BioSolutions business. The volume growth was primarily boosted by several new product launches and continued focus on promoting proprietary brands. These effects were partially offset by lower volumes in North America, mainly due to low commodity prices, declining farmer incomes and soft demand for crop protection products, as well as our continued integration efforts to reduce volumes related to low-margin products across geographic markets. Additionally, although generic competition and low commodity prices led to some pricing pressure, overall Agricultural Solutions achieved an improvement in pricing driven primarily by Latin America and Europe.


53




Gross Profit
 
Year ended December 31,
 
Change
 ($ amounts in millions)
2016
 
2015
 
Reported
 
Constant Currency
 
Organic
Gross profit
 
 
 
 
 
 
 
 
 
Performance Solutions
$
776.8

 
$
387.9

 
100%
 
103%
 
1%
Agricultural Solutions
730.9

 
604.0

 
21%
 
23%
 
19%
Total
$
1,507.7

 
$
991.9

 
52%
 
55%
 
12%
 
 
 
 
 
 
 
 
 
 
Gross margin