Notes to the Condensed Consolidated Financial Statements
(Unaudited)
1. BACKGROUND AND BASIS OF PRESENTATION
Background
Platform Specialty Products Corporation was incorporated in Delaware in January 2014 and its shares of common stock, par value
$0.01
per share, trade on the NYSE under the ticker symbol “PAH.”
Platform is a global and diversified producer of high-technology specialty chemical products. Platform's business involves the blending of a number of key ingredients to produce proprietary formulations. The Company operates in a wide variety of niche markets across multiple industries, including automotive, electronics, graphics, 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.
Platform has leading positions in niche segments of high-growth markets. The Company continually seeks opportunities to grow and enhance its strategic position by pursuing inorganic initiatives and focusing on specialty chemical businesses or assets within existing or complementary end-markets, 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 capital investments. Platform regularly reviews acquisition opportunities and may acquire businesses that meet its acquisition criteria when it deems it to be financially prudent.
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 controlled subsidiaries, and have been prepared on a basis that is substantially consistent with the accounting principles applied in the Company’s 2017 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 interim periods, but are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2018. 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 2017 Annual Report.
On July 20, 2018, the Company entered into the Arysta Sale Agreement to sell its Agricultural Solutions business to UPL for
$4.20 billion
. Accordingly, Agricultural Solutions' assets, liabilities, operating results and cash flows for all periods presented have been classified as discontinued operations within the unaudited interim Condensed Consolidated Financial Statements. See Note 4,
Discontinued Operations
, for information related to Agricultural Solutions. Subject to the covenants, events of default and provisions discussed in Note 8,
Debt
, the Company's existing Senior Notes and term loans are not required to be immediately redeemed or repaid in connection with the Announced Arysta Sale. As such, the related liabilities and interest expense are not included in discontinued operations and therefore fully burden continuing operations.
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 as well as assumptions the Company believes to be reasonable under the circumstances. These estimates and judgments are reviewed on an ongoing basis and revised as necessary. Actual amounts may differ materially from these estimates.
Certain other prior year amounts have been reclassified to conform to the current year’s presentation.
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
2. RECENT ACCOUNTING PRONOUNCEMENTS
Recently Adopted Accounting Pronouncements
Revenue from Contracts with Customers (Topic 606)
- In May 2014, the FASB issued ASU No. 2014-09, "
Revenue from Contracts with Customers,
" as a new FASB Accounting Standards Codification (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 requires expanded disclosure of qualitative and quantitative information about the Company's revenues from contracts with customers.
The new guidance did not have a material impact on the Company's financial statements since the timing and pattern of revenue recognition predominantly continued to be recognized as the Company’s performance obligation to ship or deliver its products was completed and the transfer of control passes to the customer in accordance with the new standard. The Company adopted the new guidance effective January 1, 2018 using the modified retrospective method. See Note 3,
Significant Accounting Policies,
to the Company's unaudited interim Condensed Consolidated Financial Statements included in this Quarterly Report for more information.
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 with respect to how certain cash receipts and cash payments are classified and presented in the statement of cash flows. The Company adopted the new guidance effective January 1, 2018 and retrospectively reclassified
$6.1 million
of cash payments for debt prepayments and debt extinguishment costs from "Cash flows from operating activities" to "Cash flows from financing activities" in the Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2017.
Recently Issued Accounting Pronouncements Not Yet Adopted
Leases (Topic 842)
- In February 2016, the FASB issued ASU No. 2016-02,
“Leases.”
This ASU requires lessees to recognize most leases in their balance sheets, but to 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 two permitted adoption methods under this ASU are the modified retrospective approach, which requires application of the guidance in all comparative periods presented, and the cumulative-effect-adjustment approach, which allows for application at the adoption date without restating prior periods. The Company is in the process of implementing a new software system and corresponding controls for administering its leases and facilitating compliance with the ASU, including the required disclosures, upon adoption. The Company is currently evaluating the impact of this ASU to its financial statements and related disclosures, and expects to utilize the cumulative-effect-adjustment approach.
Derivatives and Hedging (Topic 815)
- In August 2017, the FASB issued ASU No. 2017-12, “
Targeted Improvements to Accounting for Hedging Activities.”
This ASU improves the financial reporting of hedge relationships by updating hedging designation and measurement guidance. The update also simplifies the application of existing hedge accounting guidance related to assessing hedge effectiveness. The guidance is effective prospectively as of January 1, 2019, and is applied to contracts in existence at the date of adoption, with its effects required to be reflected as of January 1 of the year of adoption. The Company is evaluating the impact of this ASU.
3. SIGNIFICANT ACCOUNTING POLICIES
In connection with the Company's adoption of ASU No. 2014-09, "
Revenue from Contracts with Customers,
" and ASU No. 2016-01, "
Recognition and Measurement of Financial Assets and Financial Liabilities,
" the Company has updated its significant accounting policies for revenue recognition and equity securities as noted below.
Revenue Recognition
– The Company recognizes 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 the customer, and the Company's performance obligations have been fulfilled and collectability is reasonably assured. Estimates for sales rebates, incentives and discounts, as well as sales returns and allowances, are accounted for as reductions of revenue when the earnings process is complete.
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Sales rebates, incentives and discounts are typically earned by customers based on annual sales volume targets. The Company records an estimate for these accruals based on contract terms and its historical experience with similar programs. An estimate for future expected sales returns is recorded based on historical experience with product returns; however, changes to these estimates may be required if the historical data used in the calculation differ from actual experience. Differences between estimated expense and actual costs are typically immaterial and are recognized in earnings in the period such differences are determined. Variable consideration for volume discounts, rebates and returns are recorded as contract liabilities and settled with the customer in accordance with the terms of the applicable contract, typically when annual program requirements are achieved by the customer.
Most performance obligations relate to contracts with a duration of less than one year, in which the Company has the right to invoice the customer at the time the performance obligation is satisfied for the amount of revenue recognized at that time. Accordingly, the Company has elected the practical expedient available under ASC Topic 606,
Revenue from Contracts with Customers
, not to disclose remaining performance obligations under its contracts. The Company has also elected the practical expedient to expense incremental costs for obtaining contracts with terms of less than one year.
See Note 15,
Segment Information,
to the Company's unaudited interim Condensed Consolidated Financial Statements included in this Quarterly Report for a disaggregation of net sales.
Equity Securities
– Equity securities that have readily determinable fair values are classified as available for sale and are carried at fair value. Unrealized holding gains and losses are recorded in the Condensed Consolidated Statements of Operations as "Other (expense) income." Equity securities which do not have readily determinable fair values are recorded at cost and are evaluated whenever events or changes in circumstances indicate that the carrying values of such investments may be impaired. Equity securities are included in the Condensed Consolidated Balance Sheets as "Other assets."
4. DISCONTINUED OPERATIONS
On July 20, 2018, the Company entered into the Arysta Sale Agreement to sell its Agricultural Solutions business, which consists of Arysta and its subsidiaries, to UPL for
$4.20 billion
in cash, subject to adjustments. The Announced Arysta Sale is currently targeted to close on December 31, 2018, subject to customary closing conditions and outstanding regulatory clearances. The Company expects the Announced Arysta Sale to maximize long-term value for its stockholders by enabling investors to focus on its specific and differentiated high-quality businesses that serve the specialty chemicals industry.
The Agricultural Solutions business was previously its own reportable segment and has been presented for all periods as discontinued operations in this Quarterly Report as the sale represents a significant strategic shift and was determined to have a major effect on the Company's operations and financial results. Previously allocated corporate costs to the Agricultural Solutions segment have been reallocated to the Performance Solutions segment for all periods presented as these costs are not clearly identifiable as costs of the Agricultural Solutions segment.
In the third quarter of 2018, the Company recorded an estimated asset impairment loss of
$376 million
as the carrying value of its discontinued operations exceeded the estimated fair value less costs to sell. This estimated impairment loss primarily reflected the recognition of foreign currency translation adjustments that have been recorded in "Accumulated Other Comprehensive Loss" within Stockholders’ Equity. The estimated impairment loss reflects Platform’s best estimate of the amount of the charge at this time. The actual loss on sale will be dependent on a number of factors, including foreign exchange rates on the closing date of the Announced Arysta Sale and other closing adjustments.
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
The following table details the components comprising Net income (loss) from the Company's discontinued operations attributable to common stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(amounts in millions)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net sales
|
$
|
422.1
|
|
|
$
|
423.7
|
|
|
1,414.6
|
|
|
1,317.2
|
|
Cost of sales
|
(260.0
|
)
|
|
(260.8
|
)
|
|
(850.7
|
)
|
|
(769.4
|
)
|
Selling, technical, general and administrative
|
(103.6
|
)
|
|
(123.9
|
)
|
|
(375.5
|
)
|
|
(385.6
|
)
|
Research and development
|
(12.0
|
)
|
|
(12.2
|
)
|
|
(38.9
|
)
|
|
(36.3
|
)
|
Impairment loss
|
(376.0
|
)
|
|
—
|
|
|
(376.0
|
)
|
|
—
|
|
Operating (loss) profit
|
(329.5
|
)
|
|
26.8
|
|
|
(226.5
|
)
|
|
125.9
|
|
Other expense items
|
(30.3
|
)
|
|
(17.1
|
)
|
|
(14.5
|
)
|
|
(55.7
|
)
|
(Loss) income from discontinued operations, before income taxes
|
(359.8
|
)
|
|
9.7
|
|
|
(241.0
|
)
|
|
70.2
|
|
Income tax expense
|
(41.8
|
)
|
|
(39.1
|
)
|
|
(52.3
|
)
|
|
(47.1
|
)
|
(Loss) income from discontinued operations, net of tax
|
(401.6
|
)
|
|
(29.4
|
)
|
|
(293.3
|
)
|
|
23.1
|
|
Net income from discontinued operations attributable to the non-controlling interests
|
(1.0
|
)
|
|
(2.1
|
)
|
|
(0.8
|
)
|
|
(2.0
|
)
|
Net (loss) income from discontinued operations attributable to common stockholders
|
$
|
(402.6
|
)
|
|
$
|
(31.5
|
)
|
|
$
|
(294.1
|
)
|
|
$
|
21.1
|
|
The carrying value of major classes of assets and liabilities related to the Company's discontinued operations at September 30, 2018 and December 31, 2017 were as follows:
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
2018
|
|
2017
|
Assets
|
|
|
|
Cash and cash equivalents
|
$
|
151.2
|
|
|
$
|
219.4
|
|
Accounts receivable, net
|
815.4
|
|
|
740.5
|
|
Inventories
|
402.1
|
|
|
304.0
|
|
Other current assets
|
176.3
|
|
|
168.2
|
|
Current assets of discontinued operations
|
$
|
1,545.0
|
|
|
$
|
1,432.1
|
|
|
|
|
|
Property, plant and equipment, net
|
$
|
156.2
|
|
|
$
|
164.9
|
|
Goodwill
|
1,784.1
|
|
|
1,948.5
|
|
Intangible assets, net
|
1,750.3
|
|
|
1,976.5
|
|
Other assets
(1)
|
(307.1
|
)
|
|
78.7
|
|
Non-current assets of discontinued operations
|
$
|
3,383.5
|
|
|
$
|
4,168.6
|
|
|
|
|
|
Liabilities
|
|
|
|
Accounts payable
|
$
|
329.8
|
|
|
$
|
350.6
|
|
Current installments of revolving credit facilities
|
71.9
|
|
|
28.8
|
|
Accrued expenses and other current liabilities
|
440.7
|
|
|
385.5
|
|
Current liabilities of discontinued operations
|
$
|
842.4
|
|
|
$
|
764.9
|
|
|
|
|
|
Deferred income taxes
|
$
|
357.2
|
|
|
$
|
409.6
|
|
Other liabilities
|
49.2
|
|
|
63.0
|
|
Non-current liabilities of discontinued operations
|
$
|
406.4
|
|
|
$
|
472.6
|
|
(1)
Includes an estimated impairment loss of
$376 million
on discontinued operations.
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
5. INVENTORIES
The major components of inventory, on a net basis, were as follows:
|
|
|
|
|
|
|
|
|
(amounts in millions)
|
September 30,
2018
|
|
December 31,
2017
|
Finished goods
|
$
|
118.4
|
|
|
$
|
107.6
|
|
Work in process
|
15.3
|
|
|
14.5
|
|
Raw materials and supplies
|
76.5
|
|
|
64.3
|
|
Total inventory, net
|
$
|
210.2
|
|
|
$
|
186.4
|
|
6. PROPERTY, PLANT AND EQUIPMENT
The major components of property, plant and equipment were as follows:
|
|
|
|
|
|
|
|
|
(amounts in millions)
|
September 30,
2018
|
|
December 31,
2017
|
Land and leasehold improvements
|
$
|
67.7
|
|
|
$
|
68.9
|
|
Buildings and improvements
|
101.2
|
|
|
94.6
|
|
Machinery, equipment, fixtures and software
|
205.4
|
|
|
195.6
|
|
Construction in process
|
16.6
|
|
|
18.1
|
|
Total property, plant and equipment
|
390.9
|
|
|
377.2
|
|
Accumulated depreciation
|
(120.8
|
)
|
|
(89.8
|
)
|
Property, plant and equipment, net
|
$
|
270.1
|
|
|
$
|
287.4
|
|
For the three months ended September 30, 2018
and
2017
, the Company recorded depreciation expense of
$10.9 million
and
$12.3 million
, respectively.
For the nine months ended September 30, 2018
and
2017
, the Company recorded depreciation expense of
$33.8 million
and
$34.8 million
, respectively.
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
7. GOODWILL AND INTANGIBLE ASSETS
Goodwill
The changes in the carrying amount of goodwill were as follows:
|
|
|
|
|
(amounts in millions)
|
|
Balance at December 31, 2017
|
|
Goodwill
|
$
|
2,299.2
|
|
Accumulated impairment losses
|
(46.6
|
)
|
|
2,252.6
|
|
Additions from acquisitions
|
11.1
|
|
Foreign currency translation and other
|
(76.3
|
)
|
Balance at September 30, 2018
|
|
Goodwill
|
2,234.0
|
|
Accumulated impairment losses
|
(46.6
|
)
|
|
$
|
2,187.4
|
|
In May 2018, the Company completed the acquisition of HiTech Korea Co., Ltd. The impact of this acquisition on the Company's results of operations was not material.
Indefinite-Lived Intangible Assets
The carrying value of indefinite-lived intangible assets other than goodwill, which consisted solely of tradenames, was
$150 million
and
$153 million
at
September 30, 2018
and
December 31, 2017
, respectively.
Finite-Lived Intangible Assets
Intangible assets subject to amortization were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
(amounts in millions)
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Book
Value
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Book
Value
|
Customer lists
|
$
|
929.7
|
|
|
$
|
(266.3
|
)
|
|
$
|
663.4
|
|
|
$
|
952.0
|
|
|
$
|
(222.5
|
)
|
|
$
|
729.5
|
|
Developed technology
|
382.3
|
|
|
(146.0
|
)
|
|
236.3
|
|
|
393.0
|
|
|
(119.9
|
)
|
|
273.1
|
|
Tradenames
|
5.9
|
|
|
(1.5
|
)
|
|
4.4
|
|
|
6.1
|
|
|
(1.1
|
)
|
|
5.0
|
|
Non-compete agreements
|
1.6
|
|
|
(1.2
|
)
|
|
0.4
|
|
|
1.7
|
|
|
(1.1
|
)
|
|
0.6
|
|
Total
|
$
|
1,319.5
|
|
|
$
|
(415.0
|
)
|
|
$
|
904.5
|
|
|
$
|
1,352.8
|
|
|
$
|
(344.6
|
)
|
|
$
|
1,008.2
|
|
For the three months ended September 30, 2018
and
2017
, the Company recorded amortization expense on intangible assets of
$27.8 million
and
$27.7 million
, respectively.
For the nine months ended September 30, 2018
and
2017
, the Company recorded amortization expense on intangible assets of
$84.7 million
and
$81.7 million
, respectively.
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
8. DEBT
The Company’s debt and capital lease obligations consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in millions)
|
Maturity Date
|
|
Interest Rate
|
|
September 30,
2018
|
|
December 31,
2017
|
USD Senior Notes
(1)
|
2022
|
|
6.50%
|
|
$
|
1,088.4
|
|
|
$
|
1,086.1
|
|
EUR Senior Notes
(1)
|
2023
|
|
6.00%
|
|
402.1
|
|
|
415.1
|
|
USD Senior Notes
(1)
|
2025
|
|
5.875%
|
|
784.5
|
|
|
783.2
|
|
First Lien Credit Facility - USD Term Loans
(2)
|
2020
|
|
> of 3.50% or LIBOR plus 2.50%
|
|
623.3
|
|
|
620.4
|
|
First Lien Credit Facility - USD Term Loans
(2) (3)
|
2021
|
|
> of 4.00% or LIBOR plus 3.00%
|
|
1,123.8
|
|
|
1,121.2
|
|
First Lien Credit Facility - Euro Term Loans
(2)
|
2020
|
|
> of 3.25% or EURIBOR plus 2.5%
|
|
673.6
|
|
|
694.3
|
|
First Lien Credit Facility - Euro Term Loans
(2) (3)
|
2021
|
|
> of 3.50% or EURIBOR plus 2.75%
|
|
693.4
|
|
|
716.0
|
|
Borrowings under the Revolving Credit Facility
|
|
|
LIBOR plus 3.00%
|
|
—
|
|
|
—
|
|
Other
|
|
|
|
|
10.5
|
|
|
10.9
|
|
Total debt and capital lease obligations
|
|
|
|
|
5,399.6
|
|
|
5,447.2
|
|
Less: current installments of long-term debt and revolving credit facilities
|
|
|
|
|
9.7
|
|
|
10.1
|
|
Total long-term debt and capital lease obligations
|
|
|
|
|
$
|
5,389.9
|
|
|
$
|
5,437.1
|
|
|
|
(1)
|
Senior Notes, net of unamortized premium, discounts and debt issuance costs of
$31.3 million
and
$35.5 million
at
September 30, 2018
and
December 31, 2017
, respectively. Weighted average effective interest rate of
6.5%
at
September 30, 2018
and
December 31, 2017
.
|
|
|
(2)
|
First Lien Credit Facility term loans, net of unamortized discounts and debt issuance costs of
$25.2 million
and
$33.3 million
at
September 30, 2018
and
December 31, 2017
, respectively. Weighted average effective interest rate of
4.7%
and
4.5%
at
September 30, 2018
and
December 31, 2017
, respectively, including the effects of interest rate swaps. See Note 9, Financial Instruments, to the Company's unaudited interim Condensed Consolidated Financial Statements 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.
|
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
September 30, 2018
, the maximum borrowing capacity under the Amended and Restated Credit Agreement totaled
$485 million
, which consisted of (i) an aggregate principal amount of up to
$240 million
under the Revolving Credit Facility to be denominated in U.S. dollars, and (ii) an aggregate principal amount of up to
$245 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.
On March 21, 2018, the Company entered into Amendment No. 9 to the Second Amended and Restated Credit Agreement, which extended the maturity date of a portion of the amount then outstanding under the Revolving Credit Facility to June 7, 2020, subject to certain conditions. The Company's total borrowing capacity amounts to
$485 million
through June 7, 2019 and
$410 million
from June 8, 2019 to June 7, 2020.
The Amended and Restated Credit Agreement also provides the Company with the ability to incur certain amounts of additional incremental term loans, subject to pro-forma compliance with financial maintenance covenants and certain other requirements.
The Company is required to pay a quarterly commitment fee of
0.50%
on the unused balance of the Revolving Credit Facility.
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
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, by 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, their equity interests and personal property.
Covenants, Events of Default and Provisions
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. In particular, the Revolving Credit Facility imposes a financial covenant to maintain a first lien net leverage ratio of no greater than
6.25
to
1.0
; provided that in the event that the Company or certain of its subsidiaries (i) incur incremental facilities in an aggregate amount in excess of
$250 million
or (ii) make restricted payments in an aggregate amount in excess of
$50 million
, the first lien net leverage ratio will be reduced from the ratio stated above to
4.0
to
1.0
, in each case subject to a right to cure. A violation of this financial covenant can become an event of default under the Credit Facilities and result in the acceleration of all of the Company's indebtedness. 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, including the option for the Company to reinvest such proceeds in its businesses within
360 days
of receipt, in all cases subject to the satisfaction of financial covenants. 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.
The Amended and Restated Credit Agreement 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.
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 such incremental term loan(s) provided an initial yield, including original issuance discount (calculated pursuant to the yield calculation provisions in the Amended and Restated Credit Agreement), in excess of
50 basis points
of the yield on any existing term loan indebtedness.
At
September 30, 2018
, the Company was in compliance with the debt covenants contained in the Credit Facilities and, in accordance with applicable debt covenants, had full availability of its unused borrowing capacity of
$468 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 fully and unconditionally guaranteed on a senior unsecured basis by generally all of the Company’s domestic subsidiaries that are guarantors under the Amended and Restated Credit Agreement.
In addition, 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 Platform's Agricultural Solutions business may be designated as unrestricted subsidiaries and, as applicable, released from their guarantees of the
5.875%
USD Notes due 2025. Subsequent to such "Arysta Unrestricted Designation," a sale of Platform's Agricultural Solutions business through the sale of
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
capital stock or assets may be considered a “Qualified Arysta Equity Offering.” In general, Platform may have the right to use an aggregate amount of net cash proceeds from a Qualified Arysta Equity Offering, not to exceed
50%
of such net cash proceeds, for permitted restricted payments (including dividends and repurchases of capital stock) to the extent that an equal amount of net cash proceeds is used to permanently reduce debt in accordance with the
5.875%
USD Notes Indenture. In addition, after or contemporaneously with the Arysta Unrestricted Designation, any dividend or sale of common shares of unrestricted subsidiaries constituting all or part of Platform's Agricultural Solutions business, such as contemplated with respect to the Announced Arysta Sale, shall not be considered an Asset Sale (as defined in the
5.875%
USD Notes Indenture).
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
September 30, 2018
and
December 31, 2017
, there were
no
principal amounts outstanding under such facilities. The Company also had letters of credit outstanding of
$17.5 million
and
$19.3 million
at
September 30, 2018
and
December 31, 2017
, respectively, of which
$16.8 million
and
$18.6 million
at
September 30, 2018
and
December 31, 2017
, respectively, reduced the borrowings available under the various facilities. At
September 30, 2018
and
December 31, 2017
, the availability under these facilities totaled approximately
$497 million
and
$509 million
, respectively, net of outstanding letters of credit.
Precious Metals Contracts
Certain subsidiaries of the Company periodically enter into arrangements with financial institutions for consignment and/or purchase of precious metals. The present and future indebtedness and liability relating to such arrangements are guaranteed by the Company. The Company’s maximum guarantee liability under these arrangements is limited to an aggregate of
$18.0 million
.
9. FINANCIAL INSTRUMENTS
Derivatives and Hedging
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 risks associated with changes in market conditions. All derivatives are recognized in the Condensed Consolidated Balance Sheets at fair value. The counterparties to the Company’s derivative agreements are primarily major international financial institutions. The Company continually monitors its positions and the credit ratings of its counterparties and does not anticipate nonperformance by 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
September 30, 2018
, the Company held foreign currency forward contracts to purchase and sell various currencies in order to mitigate such foreign currency exposure, primarily with the U.S. dollar and euro. The Company has not designated any foreign currency exchange forward contracts as eligible for hedge accounting and, as a result, changes in the fair value of foreign currency forward contracts are recorded in the Condensed Consolidated Statements of Operations as "
Other (expense) income, net
." The total notional value of foreign currency exchange forward contracts held at
September 30, 2018
and
December 31, 2017
was approximately
$125 million
and
$201 million
, respectively, with settlement dates generally within
one year
.
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Commodities
As part of its risk management policy, the Company enters into commodities futures contracts for the purpose of mitigating its exposure to fluctuations in prices of certain metals used 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
$30.5 million
and
$31.8 million
at
September 30, 2018
and
December 31, 2017
, respectively. All contracts outstanding at
September 30, 2018
had delivery dates within
one year
. The Company has not designated these derivatives as hedging instruments and, accordingly, records changes in their fair values in the Condensed Consolidated Statements of Operations as "
Other (expense) income, net
."
Unrealized gains and losses on derivative contracts are accounted for as "Operating activities" in the Condensed Consolidated Statements of Cash Flows.
Interest Rates
The Company entered into interest rate swaps to effectively fix the floating base rate portion of its interest payments on approximately
$1.13 billion
of U.S. dollar denominated debt and
€277 million
of euro denominated debt at
1.96%
and
1.20%
, respectively, through June 2020.
Changes in the fair value of a derivative instrument that is designated as, and meets all the required criteria of, a cash flow hedge are recorded in "Other comprehensive (loss) income" and reclassified from "Accumulated other comprehensive loss" into earnings as the underlying hedged item affects earnings. Amounts reclassified into earnings related to interest rate swaps are included in the Condensed Consolidated Statements of Operations as "Interest expense, net."
For the
three and nine
months ended
September 30, 2018
, the Company's interest rate swaps were deemed highly effective utilizing the dollar-offset method of assessing hedge effectiveness. The ineffectiveness resulting from the repriced portion of the Company's euro-denominated debt in 2017 totaled
$0.2 million
and
$0.8 million
for the
three and nine
months ended
September 30, 2018
, respectively, and was recorded in the Condensed Consolidated Statements of Operations as "
Other (expense) income, net
." The Company expects to reclassify
$6.7 million
of income from "Accumulated other comprehensive loss" to "Interest expense, net" in the Condensed Consolidated Statements of Operations within the next twelve months.
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Fair Value Measurements
The following table presents the Company’s financial assets and liabilities that are measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in millions)
|
Balance sheet location
|
|
Classification
|
|
September 30,
2018
|
|
December 31,
2017
|
Asset Category
|
|
|
|
|
|
|
|
Foreign exchange and metals contracts not designated as hedging instruments
|
Other current assets
|
|
Level 2
|
|
$
|
0.3
|
|
|
$
|
2.0
|
|
Interest rate swaps designated as cash flow hedging instruments
|
Other current assets
|
|
Level 2
|
|
7.3
|
|
|
—
|
|
Interest rate swaps designated as cash flow hedging instruments
|
Other assets
|
|
Level 2
|
|
7.9
|
|
|
3.4
|
|
Available for sale equity securities
|
Other assets
|
|
Level 1
|
|
0.3
|
|
|
2.4
|
|
Available for sale equity securities
|
Other assets
|
|
Level 2
|
|
—
|
|
|
0.6
|
|
Total
|
|
|
|
|
$
|
15.8
|
|
|
$
|
8.4
|
|
|
|
|
|
|
|
|
|
Liability Category
|
|
|
|
|
|
|
|
Foreign exchange and metals contracts not designated as hedging instruments
|
Accrued expenses and other liabilities
|
|
Level 2
|
|
$
|
2.5
|
|
|
$
|
1.4
|
|
Interest rate swaps designated as cash flow hedging instruments
|
Accrued expenses and other liabilities
|
|
Level 2
|
|
0.6
|
|
|
2.8
|
|
Interest rate swaps designated as cash flow hedging instruments
|
Other liabilities
|
|
Level 2
|
|
0.4
|
|
|
0.8
|
|
Long-term contingent consideration
|
Contingent consideration
|
|
Level 3
|
|
81.7
|
|
|
79.2
|
|
Total
|
|
|
|
|
$
|
85.2
|
|
|
$
|
84.2
|
|
The following methods and assumptions were used to estimate the fair value of each class of the Company’s financial assets and liabilities:
Derivatives
-
Derivative assets and liabilities include foreign currency, metals and interest rate derivatives. The values are determined using pricing models based upon observable market inputs, such as market spot and futures prices on over-the-counter derivative instruments, market interest rates, and consideration of counterparty credit risk.
Available for sale equity securities
-
Available for sale equity securities classified as Level 1 assets and are measured using quoted market prices at the reporting date multiplied by the quantity held. Available for sales equity securities classified as Level 2 assets are measured using quoted prices for similar instruments in active markets.
Long-term contingent consideration
-
The long-term contingent consideration represents a potential liability of up to
$100 million
tied to the achievement of certain common stock trading price performance metrics and Adjusted EBITDA targets over a
seven
-year period ending December 2020 in connection with the MacDermid Acquisition.
|
|
•
|
Common Stock - The common stock performance target, which represents an expected future payment value of
$40.0 million
, has been satisfied and is recorded at its present value utilizing a discount rate of approximately
2.84%
. An increase or decrease in the discount rate of
1%
changes the fair value measure of the metric by approximately
$0.9 million
.
|
|
|
•
|
Adjusted EBITDA - The estimated fair value of the Adjusted EBITDA performance metric is derived using the income approach with unobservable inputs, based on future forecasts and present value assumptions which include a discount rate of approximately
10.00%
and expected future payment value of
$60.0 million
calculated using a probability weighted Adjusted EBITDA assessment with higher probability associated with the Company achieving the maximum Adjusted EBITDA targets. An increase or a decrease in the discount rate of
1%
, within a range of probability
between
80%
and
100%
, changes the estimated fair value measure of the metric by approximately
$1.3 million
.
|
Changes in the estimated fair value of the long-term contingent consideration are recorded in the Condensed Consolidated Statements of Operations as "Selling, technical, general and administrative" expenses. During the
three and nine
months ended
September 30, 2018
, the only change to the long-term contingent consideration liability was to adjust the instrument to its estimated fair value.
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
There were no significant transfers between the fair value hierarchy levels for the
three and nine
months ended
September 30, 2018
.
The carrying value and estimated fair value of the Company’s long-term debt totaled
$5.39 billion
and
$5.50 billion
, respectively, at
September 30, 2018
, and
$5.44 billion
and
$5.58 billion
, respectively, at
December 31, 2017
. The carrying values noted above include unamortized premiums, discounts and debt issuance costs. The estimated fair value of long-term debt is measured using quoted market prices at the reporting date multiplied by the gross carrying amount of the related debt, which excludes unamortized premiums, discounts and debt issuance costs. Such instruments are valued using Level 2 inputs.
10. STOCKHOLDERS’ EQUITY
Preferred Stock
The Company is authorized to issue
5,000,000
shares of preferred stock. The Board has designated
2,000,000
of those shares as "Series A Preferred Stock." At
September 30, 2018
and
December 31, 2017
, a total of
2,000,000
shares of Series A Preferred Stock were issued and outstanding. Shares of preferred stock have no voting rights, except in respect of any amendment to the Company's Certificate of Incorporation, as amended, that would alter or change their rights or privileges. Each share of Series A Preferred Stock is convertible into
one
share of the Company's common stock at the option of the holders until December 31, 2020. All outstanding shares of Series A Preferred Stock will be automatically converted into shares of common stock on a
one
-for-one basis (i) in the event of a change of control of the Company following an acquisition or (ii) on December 31, 2020 (which may be extended by the Board for
three
additional years).
As holders of the Series A Preferred Stock, the Founder Entities are entitled to receive dividends in the form of shares of the Company's common stock. The dividend amount is calculated based on the appreciated stock price compared to the highest dividend price previously used in calculating the Series A Preferred Stock dividends, which is currently
$22.85
per share.
Non-Controlling Interest
In connection with the MacDermid Acquisition, approximately
$97.5 million
was raised in new equity consisting of
8,774,527
shares of PDH Common Stock. The PDH Common Stock is recorded in the Condensed Consolidated Balance Sheets as "Non-controlling interests" and will continue to be classified as such until it is fully converted into shares of the Company's common stock. Of the shares initially issued,
4,688,854
have been converted and a like number of shares of the Company's common stock have been issued through
September 30, 2018
. Non-controlling interest at
September 30, 2018
and
2017
, totaled
3.27%
and
4.02%
, respectively.
For the three months ended September 30, 2018
and
2017
approximately
$2.0 million
and
$0.7 million
, respectively, of net income has been allocated to the Retaining Holders, as included in the Condensed Consolidated Statements of Operations. For each of the nine month periods ended
September 30, 2018
and
2017
, approximately
$2.6 million
of net income has been allocated to the Retaining Holders.
Conditional Board Approval of Share Repurchases of up to
$750 million
The Board has authorized up to
$750 million
in potential share repurchases, conditioned upon the closing of the Announced Arysta Sale. The timing, method and ultimate amount of any share repurchases cannot be determined at this time.
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
11. LOSS PER SHARE
A computation of loss per share from continuing operations and weighted average shares of the Company's common stock outstanding for the
three and nine
months ended
September 30, 2018
and
2017
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(amounts in millions, except per share amounts)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net loss from continuing operations
|
$
|
(4.3
|
)
|
|
$
|
(36.9
|
)
|
|
$
|
(62.8
|
)
|
|
$
|
(173.0
|
)
|
Net income attributable to the non-controlling interests
|
(2.0
|
)
|
|
(0.8
|
)
|
|
(2.7
|
)
|
|
(2.8
|
)
|
Net loss from continuing operations attributable to common stockholders
|
(6.3
|
)
|
|
(37.7
|
)
|
|
(65.5
|
)
|
|
(175.8
|
)
|
Numerator adjustments for diluted EPS:
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net loss from continuing operations attributable to common stockholders for diluted EPS
|
$
|
(6.3
|
)
|
|
$
|
(37.7
|
)
|
|
$
|
(65.5
|
)
|
|
$
|
(175.8
|
)
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding
|
288.2
|
|
|
286.7
|
|
|
288.1
|
|
|
285.8
|
|
Denominator adjustments for diluted EPS:
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Dilutive weighted average common shares outstanding
|
288.2
|
|
|
286.7
|
|
|
288.1
|
|
|
285.8
|
|
|
|
|
|
|
|
|
|
Loss per share from continuing operations attributable to common stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.02
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.23
|
)
|
|
$
|
(0.62
|
)
|
Diluted
|
$
|
(0.02
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.23
|
)
|
|
$
|
(0.62
|
)
|
|
|
|
|
|
|
|
|
Dividends per share paid to common stockholders
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
For the
three and nine
months ended
September 30, 2018
and
2017
, the following securities were not included in the computation of diluted shares outstanding because the effect would be anti-dilutive or because performance targets were not yet achieved for RSUs contingent upon performance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(amounts in millions)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Shares issuable upon conversion of PDH Common Stock
|
4.1
|
|
|
5.4
|
|
|
4.2
|
|
|
6.3
|
|
Shares issuable upon conversion of Series A Preferred Stock
|
2.0
|
|
|
2.0
|
|
|
2.0
|
|
|
2.0
|
|
Shares issuable for the contingent consideration
|
6.9
|
|
|
7.5
|
|
|
7.7
|
|
|
6.7
|
|
Shares issuable upon vesting and exercise of stock options
|
0.1
|
|
|
0.1
|
|
|
0.1
|
|
|
0.1
|
|
Shares issuable upon vesting of RSUs
|
2.1
|
|
|
0.9
|
|
|
1.5
|
|
|
0.8
|
|
Total
|
15.2
|
|
|
15.9
|
|
|
15.5
|
|
|
15.9
|
|
12. CONTINGENCIES, ENVIRONMENTAL AND LEGAL MATTERS
Asset Retirement Obligations (AROs)
The Company has recognized AROs for properties where it can make a reasonable estimate of the future expenditures necessary to satisfy the related obligations. When calculating its ARO liability, the Company considers identified legally-enforceable obligations, estimated settlement dates and appropriate discount and inflation rates.
The Company's ARO liabilities included in the Condensed Consolidated Balance Sheets as "Accrued expenses and other current liabilities" and "Other liabilities," totaled
$7.0 million
and
$6.9 million
at
September 30, 2018
and
December 31, 2017
, respectively.
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Environmental
The Company is involved in various claims relating to environmental matters at a number of current and former plant sites and waste management sites. The Company engages or participates in remedial and other environmental compliance activities at certain of these sites. At other sites, it has been named as a potential responsible party pursuant to the federal Superfund Act and/or state Superfund laws comparable to the federal law for site remediation. The Company analyzes each individual site, considering the number of parties involved, the level of its potential liability or contribution relating to the other parties, the nature and magnitude of the hazardous wastes involved, the method and extent of remediation, the potential insurance coverage, the estimated legal and consulting expense with respect to each site, and the time period over which any costs would likely be incurred. Based on this analysis, the Company estimates the clean-up costs and related claims for each site. The estimates are based in part on discussions with other potential responsible parties, governmental agencies, and engineering firms.
The Company accrues 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. While uncertainty exists with respect to the amount and timing of its ultimate environmental liabilities, the Company does not currently anticipate any material losses in excess of the amount recorded. However, it is possible that new information about the sites referred to above, such as results of investigations, could make it necessary for the Company to reassess its potential exposure related to these environmental matters.
The Company's environmental liabilities, which are included in the Condensed Consolidated Balance Sheets as "Accrued expenses and other current liabilities" and "Other liabilities," totaled
$18.6 million
and
$27.9 million
at
September 30, 2018
and
December 31, 2017
, respectively, primarily driven by environmental remediation, clean-up costs, and monitoring of sites that were either closed or disposed of in prior years. As of the date hereof, management does not believe it is possible to develop an estimate of the range of reasonably possible environmental loss in excess of the Company's recorded liabilities, and is unable to ascertain the ultimate aggregate amount of monetary liability or financial impact with respect to these matters.
Legal Proceedings
From time to time, the Company is involved in various legal proceedings, investigations and/or claims in the normal course of its business. Although it cannot predict with certainty the ultimate resolution of these matters which involve judgments that are inherently subjective, the Company believes that their resolutions, to the extent not covered by insurance, will not, individually or in the aggregate, have a material adverse effect on its consolidated financial position, results of operations or cash flows.
In June 2017, MacDermid Printing and DuPont reached an agreement to settle and dismiss their respective lawsuits against each other, as well as MacDermid Printing's lawsuit against Cortron Corporation, involving MacDermid Printing's flexographic printing technology and related business. In connection with the settlement, in July 2017, DuPont made a payment of
$20.0 million
to MacDermid Printing, and the Company recorded a net settlement gain in the second quarter of 2017 totaling
$10.6 million
in the Condensed Consolidated Statement of Operations as "
Other (expense) income, net
." The settlement resolved all outstanding litigation between MacDermid Printing, DuPont and Cortron Corporation.
13. INCOME TAXES
The Company's quarterly tax provision is measured using an estimated annual effective tax rate, adjusted for discrete items, within the periods presented. The comparison of the Company's effective tax rate between periods is significantly impacted by the level and mix of earnings and losses by tax jurisdiction, foreign income tax rate differentials and discrete items.
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Tax Reform
On December 22, 2017, the TCJA was enacted into law in the United States. The legislation contains several key tax provisions including the reduction of the corporate income tax rate to
21%
, effective January 1, 2018, a one-time transition tax on foreign earnings which have not previously been subject to tax in the United States, as well as a variety of other changes, including limitation of the tax deductibility of interest expense, limitations on the deduction of net operating losses, new taxes on certain foreign-sourced earnings, and modification or repeal of certain business deductions and credits.
The SEC staff issued Staff Accounting Bulletin (SAB) 118, which allows companies to record provisional amounts related to the impact of the TCJA during a one-year measurement period. At December 31, 2017, the Company had not completed its accounting for the tax effects of the enactment of the TCJA; however, the Company estimated what it anticipates the effects of the TCJA will be on its existing deferred tax balances, unrecognized tax benefits and the one-time transition tax, and recorded a provisional estimate for these tax effects. The Company has not recorded any measurement period adjustments to the provisional estimates recorded at December 31, 2017 and is still evaluating its reinvestment assertion for foreign earnings due to the changes associated with the TCJA.
The TCJA subjects a U.S. shareholder to tax on global intangible low-taxed income (GILTI) earned by certain foreign subsidiaries for which an entity can make an accounting policy election to either i) recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or ii) provide for the tax expense related to GILTI in the year the tax is incurred. Given the complexity of the GILTI provisions, the Company is still evaluating the effects of the GILTI provisions and has not yet determined its accounting policy. The Company has included GILTI related to current-year operations only in its estimated annual effective tax rate.
The Company will continue to assess the impact of the TCJA on its business and its Consolidated Financial Statements and provide updates in subsequent filings.
14. RELATED PARTY TRANSACTIONS
The Company is party to an Advisory Services Agreement with Mariposa Capital, LLC, an affiliate of one of its founder directors, whereby Mariposa Capital, LLC is entitled to receive an annual fee equal to
$2.0 million
, which is accrued quarterly and payable in quarterly installments, and reimbursement for expenses. This agreement automatically renews for successive
one
-year terms unless either party notifies the other party in writing of its intention not to renew no later than
90
days prior to the expiration of the applicable term.
15. SEGMENT INFORMATION
The Company's operations are organized into
two
reportable segments: Performance Solutions and Agricultural Solutions. These segments represent businesses for which separate financial information is utilized by the chief operating decision maker, or CODM, for purpose of allocating resources and evaluating performance. Each of the reportable segments has its own president, who reports to the CODM.
As discussed in Note 4,
Discontinued Operations
, in the three months ended September 30, 2018, the Agricultural Solutions segment met the requirements to be classified as discontinued operations. As a result, the Agricultural Solutions' operations have been excluded from the segment reporting below.
Segment Performance
The Company allocates resources and evaluates the performance of its operating segment based primarily on net sales and Adjusted EBITDA. Adjusted EBITDA is defined as earnings from continuing operations attributable to common stockholders before interest, taxes, depreciation and amortization, as further adjusted for additional items included in earnings that are not considered to be representative or indicative of the segment's ongoing business. Adjusted EBITDA also includes corporate costs, such as compensation expense and professional fees.
PLATFORM SPECIALTY PRODUCTS CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
The following table summarizes financial information regarding Performance Solutions’ results from continuing operations, including disaggregated net sales by product category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(amounts in millions)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net Sales:
|
|
|
|
|
|
|
|
Assembly Solutions
|
$
|
152.1
|
|
|
$
|
151.2
|
|
|
$
|
454.2
|
|
|
$
|
429.9
|
|
Electronics Solutions
|
139.7
|
|
|
137.9
|
|
|
421.3
|
|
|
398.8
|
|
Industrial Solutions
|
137.2
|
|
|
133.6
|
|
|
424.7
|
|
|
390.8
|
|
Graphics Solutions
|
40.1
|
|
|
39.1
|
|
|
119.5
|
|
|
115.8
|
|
Offshore Solutions
|
19.4
|
|
|
18.8
|
|
|
62.9
|
|
|
54.7
|
|
Total net sales
|
$
|
488.5
|
|
|
$
|
480.6
|
|
|
$
|
1,482.6
|
|
|
$
|
1,390.0
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
$
|
108.3
|
|
|
$
|
107.8
|
|
|
$
|
321.8
|
|
|
$
|
297.7
|
|
The following table reconciles "
Net loss attributable to common stockholders
" to Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine Months Ended September 30,
|
(amounts in millions)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net loss attributable to common stockholders
|
$
|
(408.9
|
)
|
|
$
|
(69.2
|
)
|
|
$
|
(359.6
|
)
|
|
$
|
(154.7
|
)
|
Add (subtract):
|
|
|
|
|
|
|
|
Net income attributable to the non-controlling interests
|
3.0
|
|
|
2.9
|
|
|
3.5
|
|
|
4.8
|
|
Loss (income) from discontinued operations, net of tax
|
401.6
|
|
|
29.4
|
|
|
293.3
|
|
|
(23.1
|
)
|
Income tax (benefit) expense
|
(18.8
|
)
|
|
(1.6
|
)
|
|
21.1
|
|
|
20.2
|
|
Interest expense, net
|
77.9
|
|
|
84.7
|
|
|
233.4
|
|
|
256.3
|
|
Depreciation expense
|
10.9
|
|
|
12.3
|
|
|
33.8
|
|
|
34.8
|
|
Amortization expense
|
27.8
|
|
|
27.7
|
|
|
84.7
|
|
|
81.7
|
|
EBITDA
|
93.5
|
|
|
86.2
|
|
|
310.2
|
|
|
220.0
|
|
Adjustments to reconcile to Adjusted EBITDA:
|
|
|
|
|
|
|
|
Restructuring expense
|
1.0
|
|
|
8.9
|
|
|
4.3
|
|
|
16.2
|
|
Acquisition and integration costs
|
5.2
|
|
|
0.4
|
|
|
9.7
|
|
|
3.9
|
|
Legal settlement
|
—
|
|
|
—
|
|
|
—
|
|
|
(10.6
|
)
|
Foreign exchange loss on foreign denominated external and internal long-term debt
|
3.8
|
|
|
11.5
|
|
|
0.7
|
|
|
49.3
|
|
Debt refinancing costs
|
—
|
|
|
0.8
|
|
|
—
|
|
|
14.6
|
|
Gain on sale of equity investment
|
—
|
|
|
—
|
|
|
(11.3
|
)
|
|
—
|
|
Other, net
|
4.8
|
|
|
—
|
|
|
8.2
|
|
|
4.3
|
|
Adjusted EBITDA
|
$
|
108.3
|
|
|
$
|
107.8
|
|
|
$
|
321.8
|
|
|
$
|
297.7
|
|