Platform Specialty Products Corporation
Platform Specialty Products Corp (Form: 10-Q, Received: 08/09/2017 16:14:00)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________

FORM 10-Q
_______________

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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
_______________

PLATFORMSPECIALTYLOGOA13.JPG

(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
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (561) 207-9600
_______________
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 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 ý
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
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.
Class
August 4, 2017
Common Stock, par value $0.01 per share
286,722,831 shares



TABLE OF CONTENTS



 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
Condensed Consolidated Statements of Operations
 
 
 
Condensed Consolidated Statements of Comprehensive Income (Loss)
 
 
 
Condensed Consolidated Balance Sheets
 
 
 
Condensed Consolidated Statements of Cash Flows
 
 
 
Condensed Consolidated Statements of Changes in Stockholders' Equity
 
 
 
 
 
 
 
 
 
 
 
 
 



GLOSSARY OF DEFINED TERMS


Terms     
 
Definitions
Platform; We; Us; Our; the Company; PSP
 
Platform Specialty Products Corporation, a Delaware corporation, and its subsidiaries, collectively.
Acquisitions
 
Agriphar Acquisition, Alent Acquisition, Arysta Acquisition, CAS Acquisition, MacDermid Acquisition, OMG Acquisition and OMG Malaysia Acquisition, collectively.
Agriphar Acquisition
 
Acquisition of a 100% interest in Percival S.A., a formerly Belgium société anonyme, including its agrochemical business, Agriphar, completed on October 1, 2014.
AIs
 
Active ingredients.
Alent Acquisition
 
Acquisition of a 100% interest in Alent plc, a formerly public limited company registered in England and Wales, 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 on August 6, 2014 (Amendment No. 2), October 1, 2014 (Incremental Amendment No. 1), February 13, 2015 (Amendment No. 3), December 3, 2015 (Amendment No. 4) and October 14, 2016 (Amendment No. 5), December 6, 2016 (Amendment No. 6) and April 18, 2017 (Amendment No. 7).
Annual Report
 
Platform's annual report on Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC on March 13, 2017.
AROs
 
Asset retirement obligations.
Arysta
 
Arysta LifeScience Limited, a formerly 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, who became the seller in the Arysta Acquisition pursuant to an amendment to the share purchase agreement dated February 11, 2015.
Asset-Lite, High-Touch
 
Platform’s philosophy and business model focused on dedicating extensive resources to research and development and highly technical customer service teams, while limiting investments in fixed assets and capital expenditures.
ASU
 
Accounting Standards Update.
Board
 
Platform’s board of directors.
CAS Acquisition
 
Acquisition of a 100% interest in the Chemtura AgroSolutions business of Chemtura Corporation, a Delaware corporation, completed on November 3, 2014.
CODM
 
Chief operating decision maker.
Cortron
 
Cortron Corporation.
Credit Facilities
 
The First Lien Credit Facility and the Revolving Credit Facility, collectively, available under the Amended and Restated Credit Agreement.
DuPont
 
E.I. du Pont de Nemours and Company.
EBITDA
 
Earnings before interest, taxes, depreciation and amortization.
EPS
 
Earnings per share.
ESPP
 
Platform Specialty Products Corporation 2014 Employee Stock Purchase Plan, adopted by the Board on March 6, 2014 and approved by Platform’s stockholders at the annual meeting held on June 12, 2014.
Exchange Act
 
Securities Exchange Act of 1934, as amended.
FASB
 
Financial Accounting Standard Board.
February 2015 Notes Offering
 
Platform's private offering of $1.10 billion aggregate principal amount of 6.50% USD Senior Notes due 2022 and €350 million aggregate principal amount of 6.00% EUR Senior Notes due 2023, completed on February 2, 2015.
First Lien Credit Facility
 
First lien credit facility available under the Amended and Restated Credit Agreement.


G-1


GLOSSARY OF DEFINED TERMS


Terms     
 
Definitions
Founder Entities
 
Mariposa Acquisition, LLC and Berggruen Holdings Ltd. and its affiliates, collectively.
GAAP
 
Generally accepted accounting principles in the United States.
GBP
 
Platform's Global BioSolutions Portfolio within its Agricultural Solutions segment, which includes biostimulants, innovative nutrition and biocontrol products.
GVAP
 
Platform’s Global Value Added Portfolio within its Agricultural Solutions segment, which includes products in the herbicides, insecticides, fungicides and seed treatment categories, based on patented or proprietary off-patent AIs.
H3 Priority Segments
 
Agricultural Solutions' five priority product offerings selected for their high growth and value potential, namely Crop Establishment, Plant Stress and Stimulation, Resistant Weed Management, Specialty Protection Niches and Crop Residue Management.
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. As a result, Platform became a holding company for the MacDermid business. 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.
November 2015 Notes Offering
 
Platform's private offering of $500 million aggregate principal amount of 10.375% USD Senior Notes due 2021, completed on November 10, 2015.
NYSE
 
New York Stock Exchange.
OMG
 
OM Group, Inc., a Delaware corporation.
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 Acquisition
 
Platform's acquisition of 100% interest in OMG's Electronic Chemicals and Photomasks businesses, collectively, other than OMG Malaysia, completed on October 28, 2015.
OMG Malaysia Acquisition
 
Platform's acquisition of 100% interest in OMG Malaysia completed on January 31, 2016.
PDH Common Stock
 
Shares of common stock of Platform Delaware Holdings, Inc., a subsidiary of Platform.
Quarterly Report
 
This quarterly report on Form 10-Q for the three and six months ended June 30, 2017.
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.
ROIC
 
Return on invested capital.
RSUs
 
Restricted stock units issued by Platform from time to time under the 2013 Plan.
SEC
 
Securities and Exchange Commission.
Senior Notes
 
Platform's 6.00% EUR Senior Notes due 2023, 6.50% USD Senior Notes due 2022 and 10.375% USD Senior Notes due 2021, collectively.
Series A Preferred Stock
 
2,000,000 shares of Platform’s Series A convertible preferred stock which were automatically converted from ordinary shares held by the Founder Entities upon Platform’s change of jurisdiction of incorporation from the British Virgin Islands to Delaware on January 22, 2014. Shares of Series A Preferred Stock 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.


G-2


GLOSSARY OF DEFINED TERMS


Terms     
 
Definitions
Series B Convertible Preferred Stock
 
600,000 shares of Platform’s Series B convertible preferred stock issued to the Arysta Seller in connection with the Arysta Acquisition on February 13, 2015. At December 31, 2016, none of the Series B Convertible Preferred Stock remained outstanding.
SERP
 
Supplemental Executive Retirement Plan for executive officers of Platform.
Tartan
 
Tartan Holdings, LLC, a Delaware limited liability company, formed at the time of the MacDermid Acquisition to hold the PDH Common Stock received in exchange of the equity interests of MacDermid Holdings, LLC held by certain Retaining Holders, members of Tartan.
TSR
 
Total stockholder return.
2013 Plan
 
Platform Specialty Products Corporation Amended and Restated 2013 Incentive Compensation Plan adopted by the Board on October 31, 2013, as amended on December 16, 2013 and approved by Platform’s stockholders at the annual meeting held on June 12, 2014.
6.00% EUR Senior Notes due 2023
 
Platform’s 6.00% senior notes due 2023 denominated in Euros issued in the February 2015 Notes Offering.
6.50% USD Senior 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 Senior Notes due 2021
 
Platform's 10.375% senior notes due 2021 denominated in U.S. Dollars issued in the November 2015 Notes Offering.


G-3


PART I. FINANCIAL INFORMATION



Item 1. Condensed Consolidated Financial Statements
 
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In millions, except per share amounts)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Net sales
$
941.1

 
$
921.6

 
$
1,802.9

 
$
1,745.4

Cost of sales
541.2

 
541.0

 
1,024.6

 
1,008.8

Gross profit
399.9

 
380.6

 
778.3

 
736.6

Operating expenses:
 

 
 
 
 

 
 

Selling, technical, general and administrative
284.4

 
265.2

 
541.9

 
549.2

Research and development
25.1

 
20.5

 
46.7

 
40.4

Total operating expenses
309.5

 
285.7

 
588.6

 
589.6

Operating profit
90.4

 
94.9

 
189.7

 
147.0

Other expense:
 

 
 

 
 

 
 

Interest expense, net
(85.0
)
 
(97.4
)
 
(174.4
)
 
(191.2
)
Foreign exchange (loss) gain
(59.9
)
 
25.0

 
(72.5
)
 
(46.2
)
Other income (expense), net
5.6

 
(3.7
)
 
3.4

 
(6.7
)
Total other expense
(139.3
)
 
(76.1
)
 
(243.5
)
 
(244.1
)
(Loss) income before income taxes and non-controlling interests
(48.9
)
 
18.8

 
(53.8
)
 
(97.1
)
Income tax expense
(11.1
)
 
(26.9
)
 
(29.8
)
 
(45.3
)
Net loss
(60.0
)
 
(8.1
)
 
(83.6
)
 
(142.4
)
Net income attributable to the non-controlling interests
(1.1
)
 
(0.7
)
 
(1.9
)
 
(1.2
)
Net loss attributable to common stockholders
$
(61.1
)
 
$
(8.8
)
 
$
(85.5
)
 
$
(143.6
)
Loss per share
 

 
 

 
 

 
 

Basic
$
(0.21
)
 
$
(0.04
)
 
$
(0.30
)
 
$
(0.63
)
Diluted
$
(0.21
)
 
$
(0.04
)
 
$
(0.30
)
 
$
(0.63
)
Weighted average shares outstanding
 

 
 
 
 

 
 

Basic
286.1

 
229.6

 
285.3

 
229.5

Diluted
286.1

 
229.6

 
285.3

 
229.5

 
See accompanying notes to the condensed consolidated financial statements


1


PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In millions)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Net loss
$
(60.0
)
 
$
(8.1
)
 
$
(83.6
)
 
$
(142.4
)
 
 

 
 

 
 

 
 

Other comprehensive (loss) income
 
 
 
 
 
 
 
Foreign currency translation adjustments
(37.3
)
 
131.0

 
143.3

 
452.5

Pension and post-retirement plans:
 
 
 
 
 
 
 
Other comprehensive loss before reclassifications, net of tax of $0.0 for the three and six months ended June 30, 2017 and 2016

 

 
(0.3
)
 

Reclassifications, net of tax of $0.0 for the three and six months ended June 30, 2017 and 2016

 

 

 

Total pension and post-retirement plans

 

 
(0.3
)
 

Unrealized loss on available for sale securities:
 
 
 
 
 
 
 
Other comprehensive loss before reclassifications, net of tax of $0.0 and $0.6 for the three months ended June 30, 2017 and 2016, and $0.0 and $0.7 for the six months ended June 30, 2017 and 2016, respectively
(1.3
)
 
(1.2
)
 
(1.7
)
 
(1.6
)
Reclassifications, net of tax of $0.0  for the three and six months ended June 30, 2017 and 2016

 

 

 

Total unrealized loss on available for sale securities
(1.3
)
 
(1.2
)
 
(1.7
)
 
(1.6
)
Derivative financial instruments revaluation:
 
 
 
 
 
 
 
Other comprehensive loss before reclassifications, net of tax of $0.0 for the three and six months ended June 30, 2017 and 2016
(4.8
)
 
(8.8
)
 
(6.2
)
 
(22.7
)
Reclassifications, net of tax of $0.0 for the three and six months ended June 30, 2017 and 2016
3.0

 
3.0

 
6.0

 
5.9

Total unrealized loss arising on qualified hedging derivatives
(1.8
)
 
(5.8
)
 
(0.2
)
 
(16.8
)
Other comprehensive (loss) income
(40.4
)
 
124.0

 
141.1

 
434.1

Comprehensive (loss) income
(100.4
)
 
115.9

 
57.5

 
291.7

Comprehensive loss (income) attributable to the non-controlling interests
4.0

 
(10.7
)
 
(2.2
)
 
(22.9
)
Comprehensive (loss) income attributable to common stockholders
$
(96.4
)
 
$
105.2

 
$
55.3

 
$
268.8

 

See accompanying notes to the condensed consolidated financial statements


2


PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions)
 
June 30,
 
December 31,
 
2017
 
2016
Assets
 
 
 
Cash and cash equivalents
$
427.1

 
$
422.6

Accounts receivable, net
1,168.2

 
1,054.8

Inventories
536.6

 
416.4

Prepaid expenses
67.5

 
71.3

Other current assets
143.0

 
106.1

Total current assets
2,342.4

 
2,071.2

Property, plant and equipment, net
455.8

 
460.5

Goodwill
4,274.7

 
4,178.9

Intangible assets, net
3,184.6

 
3,233.3

Other assets
128.8

 
110.2

Total assets
$
10,386.3

 
$
10,054.1

Liabilities and Stockholders' Equity
 

 
 

Accounts payable
$
432.6

 
$
383.6

Current installments of long-term debt and revolving credit facilities
188.8

 
116.1

Accrued salaries, wages and employee benefits
77.0

 
103.5

Accrued income taxes payable
56.9

 
82.5

Accrued expenses and other current liabilities
449.6

 
397.0

Total current liabilities
1,204.9

 
1,082.7

Debt and capital lease obligations
5,271.1

 
5,122.9

Pension and post-retirement benefits
73.5

 
73.8

Deferred income taxes
665.7

 
663.2

Contingent consideration
78.0

 
75.8

Other liabilities
140.8

 
145.9

Total liabilities
7,434.0

 
7,164.3

Commitments and contingencies (Note 15)


 


Stockholders' Equity
 

 
 

Preferred stock - Series A

 

Common stock: 400.0 shares authorized (2017: 286.3 shares issued; 2016: 284.2 shares issued)
2.8

 
2.8

Additional paid-in capital
4,012.8

 
3,981.3

Treasury stock (2017: 0.0 shares)
(0.1
)
 

Accumulated deficit
(659.0
)
 
(573.5
)
Accumulated other comprehensive loss
(533.8
)
 
(674.5
)
Total stockholders' equity
2,822.7

 
2,736.1

Non-controlling interests
129.6

 
153.7

Total equity
2,952.3

 
2,889.8

Total liabilities and stockholders' equity
$
10,386.3

 
$
10,054.1


See accompanying notes to the condensed consolidated financial statements


3


PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
 
Six Months Ended June 30,
 
2017
 
2016
Cash flows from operating activities:
 

 
Net loss
$
(83.6
)
 
$
(142.4
)
Reconciliation of net loss to net cash flows used in operating activities:
 

 
 

Depreciation and amortization
172.9

 
168.0

Deferred income taxes
(19.9
)
 
(24.1
)
Amortization of inventory step-up

 
11.7

Unrealized foreign exchange loss
70.2

 
33.4

Other, net
41.2

 
28.6

Changes in assets and liabilities, net of acquisitions:
 
 
 
Accounts receivable
(94.8
)
 
(91.0
)
Inventories
(86.5
)
 
(41.3
)
Accounts payable
41.1

 
(56.7
)
Accrued expenses
(14.7
)
 
(11.3
)
Prepaid expenses and other current assets
(22.2
)
 
6.0

Other assets and liabilities
(16.9
)
 
5.8

Net cash flows used in operating activities
(13.2
)
 
(113.3
)
Cash flows from investing activities:
 

 
 

Capital expenditures
(28.7
)
 
(22.6
)
Investment in registrations of products
(18.1
)
 
(15.4
)
Proceeds from disposal of property, plant and equipment
4.0

 
12.1

Other, net
(5.2
)
 
(4.3
)
Net cash flows used in investing activities
(48.0
)
 
(30.2
)
Cash flows from financing activities:
 

 
 

Change in lines of credit, net
69.9

 
104.1

Debt proceeds, net of discount and premium
1,927.6

 

Repayments of borrowings
(1,946.7
)
 
(17.4
)
Change in on-balance sheet factoring arrangements
5.1

 
(36.9
)
Other, net
(8.6
)
 
(2.3
)
Net cash flows provided by financing activities
47.3

 
47.5

Effect of exchange rate changes on cash and cash equivalents
18.4

 
5.5

Net increase (decrease) in cash and cash equivalents
4.5

 
(90.5
)
Cash and cash equivalents at beginning of period
422.6

 
432.2

Cash and cash equivalents at end of period
$
427.1

 
$
341.7


  See accompanying notes to the condensed consolidated financial statements


4


PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
(In millions, except share amounts)
 
Preferred Stock
 
Common Stock
 
Additional
Paid-in
Capital
 
Treasury Stock
 
Accumulated
Deficit
 
Accumulated Other Comprehensive (Loss) Income
 
Total
Stockholders'
Equity
 
Non-
controlling Interests
 
Total Equity
 
Shares
 
Amount
 
Shares
 
Amount
 
 
Shares
 
Amount
 
 
 
 
 
Balance at December 31, 2016
2,000,000

 
$

 
284,221,168

 
$
2.8

 
$
3,981.3

 

 
$

 
$
(573.5
)
 
$
(674.5
)
 
$
2,736.1

 
$
153.7

 
$
2,889.8

Net (loss) income

 

 

 

 

 

 

 
(85.5
)
 

 
(85.5
)
 
1.9

 
(83.6
)
Other comprehensive income, net of taxes

 

 

 

 

 

 

 

 
140.7

 
140.7

 
0.4

 
141.1

Exercise/ vesting of share based compensation

 

 
93,300

 

 

 
6,618

 
(0.1
)
 

 

 
(0.1
)
 

 
(0.1
)
Conversion of PDH Common Stock into common stock

 

 
1,908,554

 

 
23.2

 

 

 

 

 
23.2

 
(23.2
)
 

Issuance of common stock under ESPP

 

 
67,984

 

 
0.6

 

 

 

 

 
0.6

 

 
0.6

Equity compensation expense

 

 

 

 
5.7

 

 

 

 

 
5.7

 

 
5.7

Changes in non-controlling interests

 

 

 

 
2.0

 

 

 

 

 
2.0

 
(3.2
)
 
(1.2
)
Balance at June 30, 2017
2,000,000

 
$

 
286,291,006

 
$
2.8

 
$
4,012.8

 
6,618

 
$
(0.1
)
 
$
(659.0
)
 
$
(533.8
)
 
$
2,822.7

 
$
129.6

 
$
2,952.3



 
Preferred Stock
 
Common Stock
 
Additional
Paid-in
Capital
 
Treasury Stock
 
Accumulated
Deficit
 
Accumulated Other Comprehensive (Loss) Income
 
Total
Stockholders'
Equity
 
Non-
controlling Interests
 
Total Equity
 
Shares
 
Amount
 
Shares
 
Amount
 
 
Shares
 
Amount
 
 
 
 
 
Balance at December 31, 2015
2,000,000

 
$

 
229,464,157

 
$
2.3

 
$
3,520.4

 

 
$

 
$
(532.7
)
 
$
(886.1
)
 
$
2,103.9

 
$
169.4

 
$
2,273.3

Net (loss) income

 

 

 

 

 

 

 
(143.6
)
 

 
(143.6
)
 
1.2

 
(142.4
)
Other comprehensive income, net of taxes

 

 

 

 

 

 

 

 
412.4

 
412.4

 
21.7

 
434.1

Issuance of common stock to former non-founder director for exercise of stock options

 

 
7,642

 

 

 

 

 

 

 

 

 

Conversion of PDH Common Stock into common stock

 

 
53,944

 

 
0.6

 

 

 

 

 
0.6

 
(0.6
)
 

Issuance of common stock under ESPP

 

 
71,503

 

 
0.4

 

 

 

 

 
0.4

 

 
0.4

Equity compensation expense

 

 

 

 
2.8

 

 

 

 

 
2.8

 

 
2.8

Changes in non-controlling interests

 

 

 

 

 

 

 

 

 

 
(0.3
)
 
(0.3
)
Balance at June 30, 2016
2,000,000

 
$

 
229,597,246

 
$
2.3

 
$
3,524.2

 

 
$

 
$
(676.3
)
 
$
(473.7
)
 
$
2,376.5

 
$
191.4

 
$
2,567.9


See accompanying notes to the condensed consolidated financial statements



5


PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)


1. BACKGROUND AND BASIS OF PRESENTATION
Background
Platform Specialty Products Corporation, a global diversified producer of high-technology specialty chemical products, was incorporated in Delaware in January 2014 and its common stock, par value $0.01 per share, trades on the NYSE under the ticker symbol “PAH.” Platform's chemistry combines a number of ingredients to produce proprietary formulations. The Company operates in a wide variety of niche markets across multiple industries, including automotive, agricultural, animal health, electronics, graphic arts, and offshore oil and gas production and drilling. Platform delivers its products to customers through its sales and service workforce, regional distributors and manufacturing representatives.
As its name implies, Platform is an acquisition vehicle with a strategy of acquiring and maintaining leading positions in niche segments of high-growth markets. As such, the Company continually seeks opportunities to act as an acquirer and consolidator of specialty chemical businesses on a global basis, particularly those meeting its “Asset-Lite, High-Touch” philosophy, which involves prioritizing resources to research and development, offering highly technical sales and customer service, and managing conservatively its investments in fixed assets and capital expenditures.
Basis of Presentation
The accompanying unaudited interim Condensed Consolidated Financial Statements and related information in this Quarterly Report include the accounts of Platform and all of its respective controlled subsidiaries, and have been prepared on a basis that is substantially consistent with the accounting principles applied in the Company’s Annual Report. In the opinion of management, these unaudited interim Condensed Consolidated Financial Statements reflect all adjustments that are normal, recurring, and necessary for a fair presentation of the Company's financial position, results of operations, and cash flows for the interim periods, but are not necessarily indicative of the results of operations that may be expected for the fiscal year ended December 31, 2017 due to seasonal and other factors. These unaudited interim Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and the related notes thereto included in the Company’s Annual Report.

The process of preparing the Company’s unaudited interim Condensed Consolidated Financial Statements requires the use of estimates and judgments that affect the reported amount of assets, liabilities, net sales, and expenses. These estimates and judgments are based on historical experience, future expectations, and other factors and assumptions the Company believes to be reasonable under the circumstances. These estimates and judgments are reviewed on an ongoing basis and revised when necessary. Actual amounts may differ materially from these estimates.
Certain prior year amounts have been reclassified to conform to the current year’s presentation.
2. RECENT ACCOUNTING PRONOUNCEMENTS
Recently Issued Accounting Pronouncements Not Yet Adopted
Intangibles - Goodwill and Other (Topic 350) - In January 2017, the FASB issued ASU No. 2017-04, “ Simplifying the Test for Goodwill Impairment.” This ASU simplifies the testing for goodwill impairments by eliminating "Step 2" from the goodwill impairment test. Under the new guidance, goodwill impairment losses are calculated based on the "Step 1" computation with the impairment loss being equal to the amount by which a reporting unit's carrying amount exceeds its implied fair value, limited to the amount of goodwill allocated to the reporting unit. The guidance is effective prospectively as of January 1, 2020, with early adoption permitted. This ASU may impact the conclusion about whether there is an impairment of goodwill and the amount of the impairment may be different than current guidance once this standard is adopted.


6

PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)



Income Taxes (Topic 740) - In October 2016, the FASB issued ASU No. 2016-16, " Intra-Entity Transfers of Assets Other than Inventory. " This ASU requires the recognition of income tax consequences of intra-entity transfers of assets other than inventory when the transfer occurs and removes the exception to postpone recognition until the asset has been sold to an outside party.  The guidance is effective on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of January 1, 2018. The Company continues to evaluate the impact of this ASU.
Statement of Cash Flows (Topic 230) - In August 2016, the FASB issued ASU No. 2016-15, " Classification of Certain Cash Receipts and Cash Payments. " This ASU was issued to reduce diversity in practice for how certain cash receipts and cash payments are classified and presented in the statement of cash flows. The eight specific cash flow issues addressed include: debt prepayment and extinguishment costs, zero coupon bond settlement, contingent consideration payments, insurance claim settlements, company-owned life insurance receipts/payments, distributions from equity method investments, beneficial interests in securitization transactions, and separately identifiable cash flows. The guidance is effective on a retrospective basis as of January 1, 2018, with early adoption permitted. The Company continues to evaluate the impact of the ASU.
Leases (Topic 842) - In February 2016, the FASB issued ASU No. 2016-02, “Leases.” This ASU requires lessees to recognize most leases on their balance sheets, but record expenses on their income statements in a manner similar to current accounting. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. The guidance is effective on a modified retrospective basis as of January 1, 2019, with early adoption permitted. The Company continues to evaluate the impact of this ASU.
Revenue from Contracts with Customers (Topic 606) - In May 2014, the FASB issued ASU 2014-09, " Revenue from Contracts with Customers, " as a new Topic, ASC Topic 606. The core principle of the guidance is that a company should recognize revenue to depict the transfer of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The new guidance will require expanded disclosures of qualitative and quantitative information about the Company's revenues from contracts with customers. In August 2015, the FASB issued ASU No. 2015-14, “Deferral of the Effective Date,” which deferred the effective date to January 1, 2018. This standard can be adopted either retrospectively or as a cumulative-effect adjustment as of the date of adoption.
The Company assembled a project implementation team and is assessing the impact of the guidance by reviewing its current accounting policies and practices to identify potential differences that would result from applying the new requirements to its revenue contracts, including evaluating its performance obligations, principal versus agent considerations, contract costs, and variable consideration. The Company continues to make significant progress on its contract reviews and is also in the process of evaluating the impact, if any, on changes to its business processes, systems, and controls to support recognition and disclosure under the new guidance. Based on the foregoing, the Company currently does not expect this guidance to have a material impact on its financial statements as the timing and pattern of revenue recognition will predominantly continue to be recognized as the Company’s performance obligation to ship or deliver its products is completed and the transfer of control has passed to the customer in accordance with the new standard. The Company is continuing with its implementation plan and intends to adopt the new guidance effective January 1, 2018 using the modified retrospective method. Under this method, companies would recognize the cumulative effect of initially applying the standard as an adjustment to opening retained earnings at the date of initial application.
3.  ACQUISITIONS OF BUSINESSES
OMG Malaysia Acquisition
On January 31, 2016, the Company completed the OMG Malaysia Acquisition for approximately $124 million , net of acquired cash and closing working capital adjustments. The Company acquired OMG Malaysia by issuing a note payable for $125 million which was offset against a note receivable from the seller of the same amount. The Company acquired OMG Malaysia to further enhance its Performance Solutions segment in which OMG Malaysia is included. The impact of this acquisition on the Company's results of operations was not material.


7

PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)



4. ACCOUNTS RECEIVABLE
 (amounts in millions)
June 30,
2017
 
December 31,
2016
Total accounts receivable, net
$
1,184.6

 
$
1,058.0

Non-current accounts receivable, net
(16.4
)
 
(3.2
)
Current accounts receivable, net
$
1,168.2

 
$
1,054.8

Total accounts receivable are net of an allowance for doubtful accounts of $47.1 million and $36.7 million at June 30, 2017 and December 31, 2016 , respectively. Accounts receivable classified as non-current at June 30, 2017 and December 31, 2016 were recorded in "Other assets" in the Condensed Consolidated Balance Sheets.
5. INVENTORIES
The major components of inventory, on a net basis, were as follows: 
 (amounts in millions)
June 30,
2017
 
December 31,
2016
Finished goods
$
357.7

 
$
273.8

Work in process
40.7

 
37.1

Raw materials and supplies
159.2

 
135.9

Total inventory, net
557.6

 
446.8

Non-current inventory, net
(21.0
)
 
(30.4
)
Current inventory, net
$
536.6

 
$
416.4

Inventory classified as non-current at June 30, 2017 and December 31, 2016 was recorded in "Other assets" in the Condensed Consolidated Balance Sheets.
In connection with the Alent and OMG Malaysia Acquisitions, the value of finished goods inventory was increased at the respective dates of acquisition to reflect fair value. For the six months ended June 30, 2016 , $11.7 million of the inventory step-up was amortized to "Cost of sales" in the Condensed Consolidated Statements of Operations based on inventory turnover. The amount was immaterial for the three months ended June 30, 2016.
6. PROPERTY, PLANT AND EQUIPMENT
The major components of property, plant and equipment were as follows:
 (amounts in millions)
June 30,
2017
 
December 31,
2016
Land and leasehold improvements
$
108.2

 
$
103.4

Buildings and improvements
146.9

 
147.5

Machinery, equipment, fixtures and software
318.3

 
293.3

Construction in process
33.0

 
36.7

Total property, plant and equipment
606.4

 
580.9

Accumulated depreciation
(150.6
)
 
(120.4
)
Property, plant and equipment, net
$
455.8

 
$
460.5



8

PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)



For the three months ended June 30, 2017 and 2016 , the Company recorded depreciation expense of $19.7 million and $18.8 million , respectively. For the six months ended June 30, 2017 and 2016 the Company recorded depreciation expense of $37.1 million and $37.0 million , respectively.
7. GOODWILL AND INTANGIBLE ASSETS
The changes in the carrying amount of goodwill by segment were as follows:
   (amounts in millions)
 
 
Performance
Solutions
 
Agricultural
Solutions
 
Total
December 31, 2016
(*)  
 
$
2,132.4

 
$
2,046.5

 
$
4,178.9

Foreign currency translation and other
 
 
60.8

 
35.0

 
95.8

June 30, 2017
(*)  
 
$
2,193.2

 
$
2,081.5

 
$
4,274.7

(*)     Includes accumulated impairment losses totaling $46.6 million associated with the Company's Performance Solutions segment.
The carrying value of indefinite-lived intangible assets other than goodwill, which consists solely of tradenames, was $382 million and $377 million at June 30, 2017 and December 31, 2016 , respectively.
Intangible assets subject to amortization were as follows:
 
June 30, 2017
 
December 31, 2016
 (amounts in millions)
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net Book
Value
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net Book
Value
Customer lists
$
1,273.7

 
$
(216.0
)
 
$
1,057.7

 
$
1,245.9

 
$
(174.5
)
 
$
1,071.4

Developed technology
2,178.0

 
(452.0
)
 
1,726.0

 
2,022.1

 
(254.9
)
 
1,767.2

Tradenames
29.1

 
(10.9
)
 
18.2

 
25.1

 
(8.2
)
 
16.9

Non-compete agreements
1.7

 
(0.9
)
 
0.8

 
1.9

 
(1.1
)
 
0.8

Total
$
3,482.5

 
$
(679.8
)
 
$
2,802.7

 
$
3,295.0

 
$
(438.7
)
 
$
2,856.3

For the three months ended June 30, 2017 and 2016 , the Company recorded amortization expense on intangible assets of $67.3 million and $66.6 million , respectively. For the six months ended June 30, 2017 and 2016 , the Company recorded amortization expense on intangible assets of $136 million and $131 million , respectively.
8. LONG-TERM COMPENSATION PLANS
At June 30, 2017 , a total of 466,734 shares of common stock had been issued and 3,742,171 awarded RSUs and stock options were outstanding under the 2013 Plan.
 
Six Months Ended June 30, 2017
 
Total
 
RSUs
 
Stock Options
 
 
Equity
Classified
 
Liability
Classified
 
Outstanding at December 31, 2016
3,003,003

 
2,117,493

 
320,312

 
565,198

Granted
1,325,965

 
1,069,763

 

 
256,202

Exercised/Issued
(93,300
)
 
(93,300
)
 

 

Forfeited
(318,497
)
 
(243,979
)
 
(634
)
 
(73,884
)
Outstanding at June 30, 2017
3,917,171

 
2,849,977

 
319,678

 
747,516



9

PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)



Equity Classified RSUs
During the six months ended June 30, 2017 , the Company granted RSUs under the 2013 Plan as follows:
 
RSUs
 
Weighted average grant date fair value
 
Weighted average vesting period (months)
RSUs granted
1,069,763

 
$
16.32

 
32.1
Certain of the RSUs granted during the period contain performance or market vesting conditions in addition to a service vesting condition. RSUs granted with service or performance vesting conditions were valued at the grant date stock price. The grant date fair value of RSUs containing a market vesting condition were estimated using a Monte Carlo simulation of the performance of the Company's common stock relative to the S&P MidCap 400. Certain of the RSUs with performance or market vesting conditions also contain provisions for additional share awards in the event certain performance or market conditions are met at the end of certain applicable measurement periods. These conditions are generally based on ROIC or TSR targets.
The following assumptions were used to estimate the grant date fair value of RSUs containing a market vesting condition:
 
Monte Carlo input assumptions
Weighted average expected term (years) (1)
3.00
Expected volatility (2)
52.1%
Risk-free rate (3)
1.50%
(1)  
Weighted average expected term is calculated based on the award service period.
(2)  
Expected volatility is calculated based on a blend of the implied and historical equity volatility of an index of comparable companies over a period equal to the expected term.
(3)  
Risk-free rate of return is based on an interpolation of U.S. Treasury rates to reflect an expected term of three years at the date of grant.
At June 30, 2017 , the following equity classified RSUs were outstanding:
 
June 30, 2017
Vesting Conditions:
Outstanding
 
Weighted average remaining service period (months)
 
Potential additional awards
Service-based
1,012,913

 
22.5
 

Performance-based
1,018,161

 
22.9
 
683,954

Market-based
818,903

 
26.8
 
1,589,720

Total
2,849,977

 
23.9
 
2,273,674

In addition, the Board had approved 83,333 RSUs under the 2013 Plan which are subject to achieving the 2018 adjusted EBITDA performance target, with a maximum payoff of 100% . The performance target will be established as a part of the 2018 planning process and, therefore, these RSUs have been excluded from the above grant activity until the target is set.
For the three months ended June 30, 2017 and 2016 , total compensation expense associated with RSUs classified as equity totaled $2.9 million and $1.7 million , respectively. For the six months ended June 30, 2017 and 2016 , total compensation expense associated with RSUs classified as equity totaled $5.3 million and $2.6 million , respectively.


10

PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)



Stock Options
During the six months ended June 30, 2017 , the Company granted non-qualified stock options under the 2013 Plan as follows:
 
Stock Options
 
Weighted average strike price per share
 
Weighted average grant date fair value per share
Stock options granted
256,202

 
$
13.30

 
$
6.05

Stock options are subject to graded vesting over a three -year period and have contractual lives of ten years from the grant date. Fair value of the grants is calculated using the Black-Scholes option pricing model at the grant date.
The following table provides the range of assumptions used in valuing stock option grants using the Black-Scholes option pricing method:
 
Black-Scholes input assumptions
Weighted average expected term (years) (1)
6.0
Expected volatility (2)
45.0%
Risk-free rate (3)
2.09%
Expected dividend rate
—%
(1)  
Weighted average expected term is calculated based on the simplified method for plain vanilla options as the Company has concluded that its historical share option exercise experience does not provide a reasonable basis upon which to estimate expected term and certain alternative information to assist with estimating it is not easily obtainable.
(2)  
Expected volatility is calculated based on a blend of the implied and historical equity volatility of an index of comparable companies over a period equal to the expected term.
(3)  
Risk-free rate of return is based on an interpolation of U.S. Treasury rates to reflect an expected term of six years at the date of grant.
For the three months ended June 30, 2017 and 2016 , compensation expense associated with stock options was $0.2 million and $0.1 million , respectively. For the six months ended June 30, 2017 and 2016 , compensation expense associated with stock options was $0.3 million and $0.2 million , respectively.
9. PENSION AND POST-RETIREMENT PLANS
The components of net periodic pension and post-retirement benefit costs for the three and six months ended June 30, 2017 and 2016 were as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 (amounts in millions)
2017
 
2016
 
2017
 
2016
Pension & SERP Benefits
Domestic
 
Foreign
 
Domestic
 
Foreign
 
Domestic
 
Foreign
 
Domestic
 
Foreign
Service cost
$

 
$
0.4

 
$

 
$
0.4

 
$

 
$
0.9

 
$

 
$
0.9

Interest cost on the projected benefit obligation
2.2

 
0.6

 
2.5

 
0.8

 
4.4

 
1.2

 
5.1

 
1.5

Expected return on plan assets
(2.5
)
 
(0.5
)
 
(2.9
)
 
(0.7
)
 
(5.0
)
 
(1.0
)
 
(5.8
)
 
(1.3
)
Amortization of prior service cost

 

 

 
0.2

 

 

 

 
0.3

Amortization of actuarial net loss

 
0.1

 

 

 

 
0.1

 

 

Net periodic (benefit) cost
$
(0.3
)
 
$
0.6

 
$
(0.4
)
 
$
0.7

 
$
(0.6
)
 
$
1.2

 
$
(0.7
)
 
$
1.4



11

PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)



 
Three Months Ended June 30,
 
Six Months Ended June 30,
 (amounts in millions)
2017
 
2016
 
2017
 
2016
Post-retirement Benefits
Domestic
 
Foreign
 
Domestic
 
Foreign
 
Domestic
 
Foreign
 
Domestic
 
Foreign
Service cost
$

 
$
0.1

 
$

 
$

 
$

 
$
0.1

 
$

 
$

Interest cost on the projected benefit obligation
0.1

 
0.1

 
0.1

 
0.1

 
0.2

 
0.2

 
0.2

 
0.1

Net periodic cost
$
0.1

 
$
0.2

 
$
0.1

 
$
0.1

 
$
0.2

 
$
0.3

 
$
0.2

 
$
0.1

The Company expects to make contributions totaling approximately $6.5 million to its pension and other post-retirement benefit plans during 2017, of which approximately $1.3 million was contributed at June 30, 2017 .
10.  DEBT, FACTORING AND CUSTOMER FINANCING ARRANGEMENTS
The Company’s debt and capital lease obligations consisted of the following:
   (amounts in millions)
 
June 30,
2017
 
December 31,
2016
USD Senior Notes due 2022,
interest at 6.5%
(1)  
$
1,084.6

 
$
1,083.2

EUR Senior Notes due 2023,
interest at 6.00%
(1)  
394.6

 
362.4

USD Senior Notes due 2021,
interest at 10.375%
(1)  
490.1

 
489.0

First Lien Credit Facility - U.S. Dollar Term Loans due 2020,
interest at the greater of 4.50% or LIBOR plus 3.50%
(2)  
583.0

 
582.5

First Lien Credit Facility - U.S. Dollar Term Loans due 2021,
interest at the greater of 5.00% or LIBOR plus 4.00%
(2) (3)  

 
1,444.2

First Lien Credit Facility - U.S. Dollar Term Loans due 2021,
interest at the greater of 4.00% or LIBOR plus 3.00%
(2) (3)  
1,210.9

 

First Lien Credit Facility - Euro Term Loans due 2020,
interest at the greater of 4.25% or EURIBOR plus 3.25%
(2)  
786.5

 
726.5

First Lien Credit Facility - Euro Term Loans due 2021,
interest at the greater of 4.75% or EURIBOR plus 3.75%
(2) (3)  

 
450.7

First Lien Credit Facility - Euro Term Loans due 2021,
interest at the greater of 3.5% or EURIBOR plus 2.75%
(2) (3)  
737.0

 

Borrowings under the Revolving Credit Facility
(4)  
105.0

 

Borrowings under lines of credit
(4)  
49.7

 
86.0

Other
 
18.5

 
14.5

Total debt and capital lease obligations
 
5,459.9

 
5,239.0

Less: current installments of long-term debt and revolving credit facilities
 
(188.8
)
 
(116.1
)
Total long-term debt and capital lease obligations
 
$
5,271.1

 
$
5,122.9

(1)  
Net of unamortized premium, discounts, and debt issuance costs of $30.5 million and $33.4 million at June 30, 2017 and December 31, 2016 , respectively. Weighted average effective interest rate of 7.78% and 7.81% at June 30, 2017 and December 31, 2016 , respectively.
(2)
First Lien Credit Facility term loans net of unamortized discounts and debt issuance costs of $50.2 million and $64.0 million at June 30, 2017 and December 31, 2016 , respectively. Weighted average effective interest rate of 4.95% and 5.64% at June 30, 2017 and December 31, 2016 , respectively, including the effects of interest rate swaps. See Note 11, Derivative Instruments, to our unaudited interim Condensed Consolidated Financial Statements included in this Quarterly Report for further information regarding the Company's interest rate swaps.
(3)
The maturity date will extend to June 7, 2023, provided that the Company is able to prepay, redeem or otherwise retire and/or refinance in full its $1.10 billion 6.50% USD Senior Notes due 2022, as permitted under the Amended and Restated Credit Agreement, on or prior to November 2, 2021.
(4)
Weighted average interest rate of 5.64% and 4.48% at June 30, 2017 and December 31, 2016 , respectively.


12

PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)



Amended and Restated Credit Agreement
The Company is party to the Amended and Restated Credit Agreement, which governs the First Lien Credit Facility and the Revolving Credit Facility (in U.S. Dollar or multicurrency). A portion of the Revolving Credit Facility not in excess of $30.0 million is available for the issuance of letters of credit. At June 30, 2017 , the maximum borrowing capacity under the Amended and Restated Credit Agreement totaled $500 million , which consisted of (i) an aggregate principal amount of up to $250 million under the Revolving Credit Facility to be denominated in U.S. Dollars, and (ii) an aggregate principal amount of up to $250 million under the Revolving Credit Facility to be denominated in multicurrency. Loans under the Revolving Credit Facility bear interest at a rate per annum equal to 3.00% plus an adjusted eurocurrency rate, or 2.00% plus an adjusted base rate, each as calculated as set forth in the Amended and Restated Credit Agreement. The Revolving Credit Facility will mature on June 7, 2018, and for lenders that consented to an extension, June 7, 2019. The Company is required to pay a quarterly commitment fee of 0.50% on the unused balance of the Revolving Credit Facility.
The Amended and Restated Credit Agreement also provides the Company with the ability to incur certain amounts of additional incremental term loans in the future, subject to pro-forma compliance with a financial maintenance covenant and certain other requirements.
On April 18, 2017, the Company entered into Amendment No. 7 to the Second Amended and Restated Credit Agreement, which provided for the prepayment in full of previously existing tranche B-4 term loans denominated in U.S. Dollars and tranche C-3 term loans denominated in Euros with the aggregate proceeds of newly created tranche B-6 term loans denominated in U.S. Dollars in an aggregate principal amount of $1.23 billion and tranche C-5 term loans denominated in Euros in an aggregate principal amount of €650 million . The refinanced term loans were created in connection with the Company's repricing, extension and amendment closed on October 14, 2016. The amendment effectively reduced interest rates by 100 basis points for each of the new U.S. Dollar denominated term loans and the new Euro denominated term loans. In addition, the EURIBOR floor was reduced from 1.00% to 0.75% on the new Euro denominated term loans. The new tranche B-6 term loans bear interest at 3.0% per annum, plus an applicable eurocurrency rate, or 2.0% plus and applicable base rate, and the new Euro tranche C-5 term loans bear interest at 2.75% per annum, plus an applicable eurocurrency rate, in each case as calculated in the Amended and Restated Credit Agreement. In the event the Company is able to prepay, redeem or otherwise retire and/or refinance in full its $1.10 billion , 6.50% USD Senior Notes due 2022, as permitted under the Amended and Restated Credit Agreement, on or prior to November 2, 2021, the maturity date of the new term loans will be extended to June 7, 2023 from November 2, 2021. In connection with this term loan refinancing, the Company wrote-off $8.5 million , consisting primarily of deferred financing fees and original issuance discounts on the modification of the existing debt, which was recorded in "Other income (expense) net" in the Condensed Consolidated Statement of Operations, and expensed $5.3 million of debt issuance costs, which was recorded in "Selling, technical, general and administrative" expenses in the Condensed Consolidated Statement of Operations.
Except as set forth in Amendment No. 7 and above, the new USD tranche B-6 term loans have identical terms as the existing U.S. Dollar denominated tranche B-5 term loans and the new Euro tranche C-5 term loans have identical terms as the existing Euro denominated tranche C-4 term loans and are, in each case, otherwise subject to the provisions of the Amended and Restated Credit Agreement.
The obligations incurred under the Amended and Restated Credit Agreement are guaranteed by substantially all of the Company’s domestic subsidiaries and, with respect to the obligations denominated in Euros, the Company and certain of its international subsidiaries. Substantially all of the Company’s domestic subsidiaries, and certain of its international subsidiaries, have also granted security interests in substantially all of their assets in connection with such guarantees, including, but not limited to, the equity interests and personal property of such subsidiaries.
Covenants and Events of Default
The Amended and Restated Credit Agreement contains customary representations and warranties, and affirmative and negative covenants, including limitations on additional indebtedness, dividends and other distributions, entry into new lines of business, use of loan proceeds, capital expenditures, restricted payments, restrictions on liens, transactions with affiliates, amendments to organizational documents, accounting changes, sale and leaseback transactions, and dispositions. The Restricted Payments basket, as defined in the Amended and Restated Credit Agreement, limits select forms of restricted payments if such payments would cause the total net leverage ratio, calculated as set forth in the Amended and Restated Credit Agreement, to exceed 6.0 to 1.0 . The Revolving Credit Facility also imposes a financial covenant to maintain a first lien net leverage ratio of 6.25 to 1.0 , subject to a


13

PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)



right to cure. A violation of this financial covenant can become an event of default under the Credit Facilities and result in the acceleration of all of the Company's indebtedness. Borrowings under the Amended and Restated Credit Agreement are subject to mandatory prepayment from the proceeds of certain dispositions of assets and from certain insurance and condemnation proceeds, excess cash flow and debt incurrences, in each case, subject to customary carve-outs and exceptions.
The Amended and Restated Credit Agreement also contains customary events of default that include, among others, non-payment of principal, interest or fees, violation of certain covenants, inaccuracy of representations and warranties, failure to make payment on, or defaults with respect to, certain other material indebtedness, bankruptcy and insolvency events, material judgments, and change of control provisions. Upon the occurrence of an event of default, and after the expiration of any applicable grace period, payment of any outstanding loans under the Amended and Restated Credit Agreement may be accelerated and the Company's lenders could foreclose on their security interests in the Company's assets, which may have a material adverse effect on the consolidated financial condition, results of operation or cash flows of the Company. Borrowings under the Amended and Restated Credit Agreement are also subject to mandatory prepayment provisions in the case of excess cash flow, calculated as set forth in the Amended and Restated Credit Agreement, of 75% with step-downs to 50% , 25% and 0% based on the applicable first lien net leverage ratio on the prepayment date.
In addition, the Amended and Restated Credit Agreement contains a yield protection provision wherein the yield on any current indebtedness issued under the Amended and Restated Credit Agreement would be increased to within 50 basis points of the yield on any additional incremental term loan(s), in the event the incremental term loan(s) provided an initial yield, including original issue discount (OID), subject to the yield calculation provisions, as defined, is in excess of 50 basis points of the yield on existing term loan indebtedness.
At June 30, 2017 , the Company was in compliance with the debt covenants contained in the Credit Facilities and, in accordance with such debt covenants, had full availability of its unused borrowing capacity of $376 million , net of letters of credit, under the Revolving Credit Facility.
Senior Notes
The Senior Notes are governed by indentures which provide, among other things, for customary affirmative and negative covenants, events of default, and other customary provisions. The Company also has the option to redeem the Senior Notes prior to their maturity, subject to, in certain cases, the payment of an applicable make-whole premium. The Senior Notes are unsecured and are fully and unconditionally guaranteed on a senior unsecured basis by generally all of the Company’s domestic subsidiaries that guarantee the Amended and Restated Credit Agreement.
Lines of Credit and Other Debt Facilities
The Company has access to various revolving lines of credit, short-term debt facilities, and overdraft facilities worldwide which are used to fund short-term cash needs. At June 30, 2017 and December 31, 2016 , the aggregate principal amount outstanding under such facilities totaled $155 million and $86.0 million , respectively. The Company also had letters of credit outstanding of $29.6 million and $32.6 million at June 30, 2017 and December 31, 2016 , respectively, of which $19.0 million and $11.8 million at June 30, 2017 and December 31, 2016 , respectively, reduced the borrowings available under the various facilities. At June 30, 2017 and December 31, 2016 , the availability under these facilities was approximately $473 million and $561 million , respectively, net of outstanding letters of credit.
Accounts Receivable Factoring Arrangements
Off-balance sheet arrangements
The Company has arrangements to sell trade receivables to third parties without recourse to the Company. Under these arrangements, the Company had capacity to sell approximately $327 million and $256 million of eligible trade receivables at June 30, 2017 and December 31, 2016 , respectively. The Company had utilized approximately $91.7 million and $167 million of these arrangements at June 30, 2017 and December 31, 2016 , respectively. The receivables under these arrangements are excluded from the Consolidated Balance Sheets and the proceeds are included in "Operating Activities" in the Condensed Consolidated Statements of Cash Flows. Costs associated with these programs are included in "Selling, technical, general and administrative" expenses in the Condensed Consolidated Statements of Operations.


14

PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)



On-balance sheet arrangements
The Company has arrangements to sell trade receivables to a third party with recourse to the Company. Under these arrangements, the Company had capacity to sell approximately $65.2 million and $65.3 million of eligible trade receivables at June 30, 2017 and December 31, 2016 , respectively. The Company had utilized approximately $42.9 million and $38.3 million at June 30, 2017 and December 31, 2016 , respectively. The proceeds from these arrangements are accounted for as "Financing activities" in the Condensed Consolidated Statements of Cash Flows. Costs associated with these programs are included in "Interest expense, net" in the Condensed Consolidated Statements of Operations.
Certain subsidiaries of the Company in the United States and the Netherlands periodically enter into arrangements with financial institutions for consignment and/or purchase of precious metals. The present and future indebtedness and liability relating to such arrangements are guaranteed by the Company. The Company’s maximum guarantee liability under these arrangements is limited to an aggregate of $18.0 million .
11. DERIVATIVE INSTRUMENTS
In the normal course of business, the Company is exposed to risks relating to changes in foreign currency exchange rates, interest rates and commodity prices. Derivative financial instruments, such as foreign currency exchange forward contracts, interest rate swaps, and commodities futures contracts are used to manage the risks associated with changes in foreign markets conditions. All derivatives are recognized in the Condensed Consolidated Balance Sheets at fair value at the end of each period. The counterparties to the Company’s derivative agreements are primarily major international financial institutions. The Company continually monitors its positions and the credit ratings of its counterparties, and currently does not anticipate nonperformance by any counterparties.
Foreign Currency
The Company conducts a significant portion of its business in currencies other than the U.S. Dollar and a portion of its business in currencies other than the functional currencies of its subsidiaries. As a result, the Company’s operating results are impacted by foreign currency exchange rate volatility.
At June 30, 2017 , the Company held foreign currency forward contracts to purchase and sell various currencies primarily with the U.S. Dollar and Euro, with less significant amounts with Japanese Yen. The Company has not designated any foreign currency exchange forward contracts as eligible for hedge accounting. The total notional value of foreign currency exchange forward contracts held at June 30, 2017 and December 31, 2016 were approximately $566 million and $552 million , respectively, and generally have settlement dates within one year .
The following table details the notional value of the Company's significant outstanding foreign exchange derivative contracts at June 30, 2017 :
(in millions)
Traded against USD
 
Traded against Euro
(USD equivalent)
Currency
Purchasing
 
Selling
 
Purchasing
 
Selling
Euro
$
70.9

 
$
86.5

 
$

 
$

Brazilian Real
47.7

 
118.8

 

 
2.3

Japanese Yen
44.4

 
11.1

 
2.5

 
1.9

British Pound
16.0

 

 
86.5

 

Other
37.4

 
27.7

 

 
1.0

Total
$
216.4

 
$
244.1

 
$
89.0

 
$
5.2

Changes in the fair value of foreign currency forward contracts are recorded in "Other income (expense), net" in the Condensed Consolidated Statements of Operations.


15

PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)



Interest Rates
The Company entered into interest rate swaps to effectively fix the floating base rate portion of its interest payments on approximately $1.14 billion of USD denominated debt and €280 million of Euro denominated debt at 1.96% and 1.20% , respectively, through June 2020.
Changes in the fair value of a derivative that is designated as, and meets all the required criteria of, a cash flow hedge are recorded in "Other comprehensive income (loss)" and reclassified from "Accumulated other comprehensive income (loss)" into earnings as the underlying hedged item affects earnings. Amounts reclassified into earnings related to the interest rate swaps are included in "Interest expense, net" in the Condensed Consolidated Statements of Operations.
Commodities
As part of its risk management policy, the Company enters into commodities futures contracts on an ongoing basis for the purpose of mitigating its exposure to fluctuations in prices of certain metals it uses in the production of its finished goods.  The Company held futures contracts to purchase and sell various metals, primarily tin and silver, with a notional value of $38.7 million and $42.0 million at June 30, 2017 and December 31, 2016 , respectively. Substantially all contracts outstanding at June 30, 2017 have delivery dates within one year . The change in the fair value of the commodities futures contracts is recorded in "Other income (expense), net" in the Condensed Consolidated Statements of Operations.
Certain subsidiaries of the Company have entered into supply agreements with a third party that have been deemed to constitute financing agreements with an embedded derivative feature whose fair value is determined by the change in the market value of the underlying metals between delivery date and measurement date.  Amounts associated with these supply agreements, which serve as the notional value of the embedded derivative, have been recorded in "Inventories" and "Current installments of long-term debt and revolving credit facilities" in the Condensed Consolidated Balance Sheets and totaled $13.0 million and $9.9 million at June 30, 2017 and December 31, 2016 , respectively, and primarily relate to gold and palladium purchases. The fair value of these contracts has been bifurcated and recorded as a derivative liability in "Accrued expenses and other current liabilities" in the Condensed Consolidated Balance Sheets and was immaterial at June 30, 2017 and December 31, 2016 .
Fair Value of Derivative Instruments
The following table summarizes the fair value of derivative instruments reported in the Condensed Consolidated Balance Sheets:
 (amounts in millions)
 
Balance sheet location
 
June 30,
2017
 
December 31, 2016
Derivatives designated as hedging instruments:
 
 
 
 
 
 
Interest rate swaps
 
Accrued expenses and other current liabilities
 
$
7.3

 
$
10.2

Interest rate swaps
 
Other liabilities
 
3.1

 

Derivatives not designated as hedging instruments:
 
 
 
 

 
 

Foreign exchange and metals contracts
 
Other current assets
 
7.4

 
8.5

Foreign exchange and metals contracts
 
Accrued expenses and other current liabilities
 
8.5

 
10.7

Net derivative contract liability
 
 
 
$
(11.5
)
 
$
(12.4
)


16

PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)



For the three and six months ended June 30, 2017 and 2016 , the Company recorded the following realized and unrealized losses associated with derivative contracts designated as hedging instruments and made the following reclassifications from "Accumulated other comprehensive income:"
 
 
Amount of loss recognized in Other Comprehensive Income
 
 
 
Amount of loss reclassified from Accumulated Other Comprehensive Income into income
 (amounts in millions)
 
Three Months Ended 
 June 30,
 
Location of loss reclassified from Accumulated Other Comprehensive Income
 
Three Months Ended 
 June 30,
Derivatives designated as hedging instruments:
 
2017
 
2016
 
 
2017
 
2016
Interest rate swaps
 
$
4.8

 
$
8.8

 
Interest expense, net
 
$
3.0

 
$
3.0

 
 
Amount of loss recognized in Other Comprehensive Income
 
 
 
Amount of loss reclassified from Accumulated Other Comprehensive Income into income
 (amounts in millions)
 
Six Months Ended 
 June 30,
 
Location of loss reclassified from Accumulated Other Comprehensive Income
 
Six Months Ended 
 June 30,
Derivatives designated as hedging instruments:
 
2017
 
2016
 
 
2017
 
2016
Interest rate swaps
 
$
6.2

 
$
22.7

 
Interest expense, net
 
$
6.0

 
$
5.9

The interest rate swaps were deemed highly effective, with no ineffective portions, for the three and six months ended June 30, 2017 . During the next twelve months, the Company expects to reclassify $7.3 million from "Accumulated other comprehensive income" to "Interest expense, net" in the Condensed Consolidated Statements of Operations.
For the three and six months ended June 30, 2017 and 2016 , the Company recorded the following realized and unrealized losses associated with derivative contracts not designated as hedging instruments:
 
 
 
 
Amount of loss recognized in income on derivatives
 (amounts in millions)
 
Location of loss recognized in income on derivatives
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
Derivatives not designated as hedging
instruments:
 
 
2017
 
2016
 
2017
 
2016
Foreign exchange and metals contracts
 
Other income (expense) net
 
$
1.1

 
$
5.4

 
$
2.5

 
$
10.7



17

PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)



Master Netting Arrangements
In the normal course of business, the Company enters into contracts with certain counterparties to purchase and sell foreign currency exchange forwards and metal futures that contain master netting arrangements, typically in the form of an International Swaps and Derivatives Association (ISDA) or similar agreements. The right to set-off within these agreements is limited to certain termination events, such as bankruptcy or default of either party to the agreement. The Company has made an accounting policy decision not to offset and recognizes gross derivative asset and liability balances in the Condensed Consolidated Balance Sheets.
The following tables present recognized derivative assets and liabilities that are subject to master netting arrangements but not offset, at June 30, 2017 and December 31, 2016 . The "Net" column shows what the net impact would have been on the Condensed Consolidated Balance Sheets should all set-off rights had been exercised:
 
June 30, 2017
 (amounts in millions)
Amounts offset
 
Amounts not offset
 
Net
 
Gross
 
Gross offset
 
Net amounts presented
 
Financial instruments
 
Cash collateral paid
 
 
Derivative assets
$
7.1

 
$

 
$
7.1

 
$
(0.2
)
 
$

 
$
6.9

Derivative liabilities
7.7

 

 
7.7

 
(4.6
)
 
(0.7
)
 
2.4

 
December 31, 2016
 (amounts in millions)
Amounts offset
 
Amounts not offset
 
Net
 
Gross
 
Gross offset
 
Net amounts presented
 
Financial instruments
 
Cash collateral paid
 
 
Derivative assets
$
6.3

 
$

 
$
6.3

 
$
(2.5
)
 
$

 
$
3.8

Derivative liabilities
8.9

 

 
8.9

 
(2.6
)
 
(1.0
)
 
5.3

Collateral paid to counterparties is recorded in "Other current assets" in the Condensed Consolidated Balance Sheets.
12. FAIR VALUE MEASUREMENTS
Inputs used in the valuation techniques to derive fair values are classified based on a three-level hierarchy. The basis for fair value measurements for each level within the hierarchy is described below, with Level 1 having the highest priority, and Level 3 having the lowest. The three levels of the fair value hierarchy are as follows:
Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in non-active markets; and model-derived valuations whose inputs are observable or whose significant valuation drivers are observable.
Level 3 – significant inputs to the valuation model are unobservable and/or reflect the Company’s market assumptions.


18

PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)



The following tables present the Company’s financial instruments, assets and liabilities that are measured at fair value on a recurring basis:
 
 
 
Fair Value Measurement Using
 (amounts in millions)
June 30,
2017
 
Quoted prices in
active markets
(Level 1)
 
Significant
other observable
inputs
(Level 2)
 
Significant
unobservable
inputs
(Level 3)
Asset Category
 
 
 
 
 
 
 
Cash equivalents
$
78.6

 
$

 
$
78.6

 
$

Available for sale equity securities
5.3

 
4.7

 
0.6

 

Derivatives
7.4

 

 
7.4

 

Total
$
91.3

 
$
4.7

 
$
86.6

 
$

 
 
 
 
 
 
 
 
Liability Category