Registration Statement No. 333-196235


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NameRegistration Statement No. 333-196235
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We have made investments in and are expanding our business into emerging markets and regions, which exposes us to certain risks.

 

As the regional sales mix in the Performance Materials segment has shifted from more industrialized nations towards emerging markets, we have increased our presence in emerging markets, including greater China, Southeast Asia and South America, by investing significantly in these regions.  For example, we have developed state-of-the-art facilities in Săo Paulo, Brazil and Suzhou, China to better serve our customers and we remain focused on further increasing our presence in these markets.  Furthermore, sales into Asia (excluding the non-emerging markets of Australia, Hong Kong, Japan and Singapore) and Brazil represented 27% and 27% of all net sales for the year ended December 31, 2013 and the three months ended March 31, 2014, respectively.  Our operations in these markets may be subject to a variety of risks including economies that may be dependent on only a few products and therefore subject to significant fluctuations, consumers with limited or fluctuating disposable income and discretionary spending on which the end users of our products depend, weak legal systems which may affect our ability to enforce our intellectual property and contractual rights, exchange controls, unstable governments and privatization, changes in customs or tax

 

 

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regimes, or other government actions affecting the flow of goods and currency.  Accordingly, changes in any of these areas may have significant negative impacts on our financial condition and operating results.

 

We are exposed to fluctuations in foreign exchange rates, which may adversely affect our operating results and may significantly affect the comparability of our results between financial periods.

 

The results of operations and financial condition of each of our foreign operating subsidiaries are reported in the relevant local currency and then translated to U.S. Dollars for inclusion in our audited consolidated financial statements.  Exchange rates between these currencies and the U.S. Dollar in recent years have fluctuated significantly and are likely to continue to do so in the future.  For the combined Successor and Predecessor 2013 Periods, an average of approximately 67% of our net sales were denominated in currencies other than the U.S. Dollar.  These foreign currencies included predominantly the Brazilian Real, British Pound Sterling, Chinese Yuan, Euro, Hong Kong Dollar and Japanese Yen.  A depreciation of these currencies against the U.S. Dollar will decrease the U.S. Dollar equivalent of the amounts derived from operations reported in these foreign currencies and an appreciation of these currencies will result in a corresponding increase in such amounts.  From time to time we may engage in exchange rate hedging activities in an effort to mitigate the impact of exchange rate fluctuations.  We cannot, however, assure you that this arrangement or any other exchange rate hedging arrangements we may enter into from time to time will be effective.  If our hedging activities are not effective or if additional hedging transactions are not available, changes in currency exchange rates may have a more significant impact on our results of operations.

 

Because we do not manage our foreign currency exposure in a manner that would eliminate the effects of changes in foreign exchange rates on our net sales, cash flows and reported amount of assets and liabilities, our financial performance can be positively or negatively impacted by changes in foreign exchange rates in any given reporting period.

 

Besides currency translation risks, we incur currency transaction risk whenever one of our operating subsidiaries enters into either a purchase or a sales transaction using a different currency from their functional currency.  Given the volatility of exchange rates, we cannot assure you that we will be able to effectively manage our currency transaction or translation risks or that any volatility in currency exchange rates will not have an adverse effect on our financial condition or results of operations.

 

Failure to comply with the FCPA, and other similar anti-corruption laws, could subject us to penalties and damage our reputation.

 

We are subject to the Foreign Corrupt Practices Act of 1977 (the “FCPA”), which generally prohibits U.S. companies and their intermediaries from making corrupt payments to foreign officials for the purpose of obtaining or keeping business or otherwise obtaining favorable treatment, and requires companies to maintain certain policies and procedures.  Certain of the jurisdictions in which we conduct business are at a heightened risk for corruption, extortion, bribery, pay-offs, theft and other fraudulent practices.  Under the FCPA, U.S. companies may be held liable for actions taken by their strategic or local partners or representatives.  If we, or our intermediaries, fail to comply with the requirements of the FCPA, or similar laws of other countries, governmental authorities in the United States or elsewhere, as applicable, could seek to impose civil and/or criminal penalties, which could damage our reputation and have a material adverse effect on our business, financial condition and results of operations.

 

Changes in our customers’ products and processes can reduce the demand for our specialty chemicals.

 

Our specialty chemicals are used for a broad range of applications by our customers.  Changes, including technological changes, in our customers’ products or processes may make our specialty chemicals unnecessary, which would reduce the demand for those chemicals.  We have had, and may continue to have, customers that find alternative materials or processes and therefore no longer require our products, which would have a material adverse effect on our business, financial condition and results of operations.

 

We generally do not have long-term contracts with the customers in our Performance Materials segment.

 

With some exceptions, our relationships with the customers in our Performance Materials segment are based primarily upon individual sales orders.  As such, our customers in the Performance Materials segment could cease buying our products from us at any time, for any reason, with little or no recourse.  If multiple customers, or a material

 

 

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customer, within this segment elected not to purchase products from us, our business prospects, financial condition and results of operations could be adversely affected.

 

The loss of certain customers or independent, third-party distributors in either our Performance Materials or Graphic Solutions segment could adversely affect our overall sales and profitability.

 

In both our Performance Materials and our Graphic Solutions segment, we have customers and independent, third-party distributors, the loss of which could have a material adverse effect on our results of operations for the affected earnings periods.  The principal products purchased by such customers are surface finishing chemicals in our Performance Materials segment and solid sheet printing elements in our Graphic Solutions segment.

 

Our net sales, gross profit and financial condition could be reduced by decreases in the average selling prices of products in the specialty chemicals industry.

 

Decreases in the average selling prices of our products may have a material adverse effect on our net sales, gross profit and financial condition.  Our ability to maintain or increase our gross profit margin will continue to be dependent, in large part, upon our ability to offset decreases in average selling prices by improving production efficiency or by shifting to higher margin chemical products.  In the past, MacDermid has elected to discontinue selling certain products as a result of sustained material decreases in the selling price of its products and its inability to effectively offset such decrease through shifts in operations.  If we are unable to respond effectively to decreases in the average selling prices of our products in the future, our net sales, gross profit and financial condition could be materially and adversely affected.  Further, while we may elect to discontinue products that are significantly affected by such price decreases, we cannot assure you that any such discontinuation will mitigate the related declines in our financial condition.

 

Increases in costs or reductions in the supplies of specialty and commodity chemicals we use in our manufacturing process could materially and adversely affect our results of operations.

 

We use a variety of specialty and commodity chemicals in our manufacturing processes.  Our manufacturing operations depend upon obtaining adequate supplies of raw materials on a timely basis.  We typically purchase our major raw materials on a contract or as needed basis from outside sources.  The availability and prices of raw materials may be subject to curtailment or change due to, among other things, the financial stability of our suppliers, suppliers’ allocations to other purchasers, interruptions in production by suppliers, new laws or regulations, changes in exchange rates and worldwide price levels.  Further, in some cases, we are limited in our ability to purchase certain raw materials from other suppliers by our supply agreements which contain certain minimum purchase requirements.  Additionally, we cannot assure you that, as our supply contracts expire, we will be able to renew them or, if they are terminated, that we will be able to obtain replacement supply agreements on terms favorable to us.  Our results of operations could be adversely affected if we are unable to obtain adequate supplies of raw materials in a timely manner or if the costs of raw materials increase significantly.

 

From time to time, suppliers may extend lead times, limit supplies or increase prices due to capacity constraints or other factors.  In addition, some of the raw materials that we use are derived from petrochemical-based feedstocks, and there have been historical periods of rapid and significant upward and downward movements in the prices of these feedstocks.  We cannot always pass on these price increases to our customers due to competitive pricing pressure, and, even when we have been able to do so, there has historically been a time delay between increased raw material prices and our ability to increase the prices of our products.  Any limitation on, or delay in, our ability to pass on any price increases could have an adverse effect on our results of operations.

 

We may incur material costs relating to environmental and health and safety requirements or liabilities.

 

As a manufacturer and distributor of specialty chemicals and systems, we are subject to extensive U.S. and foreign laws and regulations relating to environmental protection and worker health and safety, including those governing discharges of pollutants into the air and water, the management and disposal of hazardous substances and wastes, the cleanup of contaminated properties and occupational safety and health matters.  We could in the future incur significant costs, including cleanup costs, fines and sanctions and third-party claims for property or natural resource damage or personal injuries as a result of past or future violations of, or liabilities under, such laws and regulations.

 

 

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Liability under some environmental laws relating to contaminated sites can be imposed retroactively, regardless of fault or the legality of the activities that gave rise to the contamination.  Some of our manufacturing facilities have an extended history of chemical manufacturing operations or other industrial activities, and contaminants have been detected at some of our sites and offsite disposal locations.  We are actively remediating certain of these properties.  As of March 31, 2014, we had appropriate reserves for various non-material environmental matters.  Ultimate environmental costs are difficult to predict and may vary from current estimates and reserves, and the discovery of additional contaminants at these or other sites, or the imposition of additional cleanup obligations at these or other sites, or third-party claims relating thereto, could result in significant additional costs.

 

In addition, MacDermid in the past has incurred, and will in the future incur, significant costs and capital expenditures in complying with environmental, health and safety laws and regulations.  Future events, such as changes in or more rigorous enforcement of environmental laws and regulations could require us to make additional expenditures, modify or curtail our operations or install pollution control equipment.

 

Global climate change legislation could negatively impact our results of operations or limit our ability to operate our business.

 

We operate production facilities in several countries.  In many of the countries in which we operate, legislation has been passed, or proposed legislation is being considered, to limit greenhouse gases through various means, including emissions credits.  Greenhouse gas regulation in the jurisdictions in which we operate could negatively impact our future results from operations through increased costs of production.  We may be unable to pass such increased costs on to our customers, which may decrease our gross profit and results of operations.  In addition, the potential impact of climate change regulation on our customers is highly uncertain and may also adversely affect our business.

 

We may be unable to respond effectively to technological changes in our industry, which could reduce the demand for our products and adversely affect our results of operations.

 

Our future business success will depend upon our ability to maintain and enhance our technological capabilities, develop and market products and applications that meet changing customer needs and successfully anticipate or respond to technological changes on a cost effective and timely basis.  Our inability to anticipate, respond to or utilize changing technologies could have an adverse effect on our business, financial condition or results of operations.

 

Our substantial indebtedness may adversely affect our cash flow and our ability to operate our business and fulfill our obligations under our indebtedness.

 

We are party to an amended and restated credit agreement (the “Amended and Restated Credit Agreement”) pursuant to which we have (i) a $755 million first lien credit facility and (ii) a $50 million revolving credit facility.  As of March 31, 2014, we had approximately $749 million of indebtedness outstanding under the first lien credit facility and there were no borrowings under the revolving credit facility, other than certain stand-by letters of credit issued in the amount of $3.8 million, which reduce the borrowings available under the revolving credit facility to approximately $46.2 million.

 

Our substantial indebtedness could have important consequences to you.  For example, it could:

 

 

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require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, dividends, research and development efforts and other general corporate purposes;

 

 

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increase the amount of our interest expense, because our borrowings are at variable rates of interest, which, if interest rates increase, would result in higher interest expense;

 

 

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increase our vulnerability to general adverse economic and industry conditions;

 

 

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limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

 

 

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limit our ability to make strategic acquisitions, introduce new technologies or exploit business opportunities; and

 

 

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place us at a competitive disadvantage compared to our competitors that have less indebtedness.

 

In addition, the Amended and Restated Credit Agreement governing our credit facilities contain covenants that restrict our operations.  These covenants restrict, among other things, our ability to incur additional debt, grant liens, pay cash dividends, enter new lines of business, repurchase our shares of common stock, make certain investments and engage in certain merger, consolidation or asset sale transactions.  These restrictions could limit our ability to plan for or react to market conditions, meet extraordinary capital needs or otherwise take actions that we believe are in our best interest.  Further, a failure by us to comply with any of these covenants and restrictions could result in an event of default.  Furthermore, substantially all of our domestic assets (including equity interests) secure our indebtedness under our Amended and Restated Credit Agreement.  If an event of default under our Amended and Restated Credit Agreement occurs and is continuing then the lenders in respect of our credit facilities (i) may request the acceleration of the related indebtedness and (ii) could foreclose on their security interests, which would have a material adverse effect on our business, results of operations and financial condition.

 

Our ability to borrow under the Revolving Facility depends on our level of indebtedness and our financial performance, and any deterioration in our results of operations or increase in our indebtedness could therefore have a material adverse effect on our liquidity.

 

Deterioration in our results of operations or an increase in our indebtedness may limit our access to borrowings under the Revolving Facility.  Under the terms of our Amended and Restated Credit Agreement governing our credit facilities, if our borrowings under the Revolving Facility (including letter of credit borrowings) exceed $12.5 million in the aggregate as of the last day of any fiscal quarter, we must maintain a 6.5 to 1.0 ratio of (x) consolidated indebtedness that is secured by a first priority lien minus unrestricted cash and cash equivalents to (y) consolidated EBITDA for the four most recent fiscal quarters, subject to a right to cure.

 

Our ability to comply with this financial covenant depends, in part, on our financial performance and may be affected by events beyond our control.  Any material deviations from our operating forecasts could require us to seek waivers or amendments of these covenants, alternative sources of financing or reductions in expenditures.  We may not be able to obtain such waivers, amendments or alternative financings, or if we obtain them, they may not be on terms favorable to us.

 

Despite the restrictions set forth in the agreements governing our existing indebtedness, we may be able to incur substantial additional indebtedness in the future.  Increases in the aggregate amount of our indebtedness may also result in our being unable to comply with the financial covenant, and our inability to borrow under the Revolving Facility as a result of such non-compliance could have an adverse effect on our cash flow and liquidity.

 

Chemical manufacturing is inherently hazardous and could result in accidents that disrupt our operations or expose us to significant losses or liabilities.

 

The hazards associated with chemical manufacturing and the related storage and transportation of raw materials, products and wastes are inherent in our operations.  These hazards could lead to an interruption or suspension of operations and have a material adverse effect on the productivity and profitability of a particular manufacturing facility or on our business as a whole.  These potential risks include:

 

 

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pipeline and storage tank leaks and ruptures;

 

 

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explosions and fires;

 

 

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inclement weather and natural disasters;

 

 

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terrorist attacks;

 

 

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mechanical failure;

 

 

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unscheduled downtime;

 

 

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labor difficulties;

 

 

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transportation interruptions; and

 

 

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chemical spills and other discharges or releases of toxic or hazardous substances or gases.

 

These hazards may result in personal injury and loss of life, damage to property and contamination of the environment, which may result in a suspension of operations and the imposition of civil or criminal fines, penalties and other sanctions, cleanup costs and claims by governmental entities or third parties.  We are dependent on the continued operation of our production facilities, and the loss or shutdown of operations over an extended period at our Morristown, Tennessee facility, which is our only Graphic Solutions segment sheet production facility, or any of our other major operating facilities could have a material adverse effect on our financial condition and results of operations.

 

Our offshore industry products are subject to the hazards inherent in the offshore oil production and drilling industry, and we may incur substantial liabilities or losses as a result of these hazards.

 

We produce water-based hydraulic control fluids for major oil companies and drilling contractors to be used for potentially hazardous offshore deep water production and drilling applications.  Offshore deep water oil production and drilling are subject to hazards that include blowouts, explosions, fires, collisions, capsizing, sinking and damage or loss to pipeline, subsea or other facilities from severe weather conditions.  These hazards could result in personal injury and loss of life, severe damage to or destruction of property and equipment, pollution or environmental damage and suspension of operations.  A catastrophic occurrence at a location where our products are used may expose us to substantial liability for personal injury, wrongful death, product liability or commercial claims.  To the extent available, we maintain insurance coverage that we believe is customary in our industry.  Such insurance does not, however, provide coverage for all liabilities, and we cannot assure you that our insurance coverage will be adequate to cover claims that may arise or that we will be able to maintain adequate insurance at rates we consider reasonable.  The occurrence of a significant offshore deep water oil production or drilling event that results in liability to us that is not fully insured could materially and adversely affect our results of operations and financial condition.

 

We are not insured against all potential risks.

 

To the extent available, we maintain insurance coverage that we believe is customary in our industry.  Such insurance does not, however, provide coverage for all liabilities, including certain hazards incidental to our business, and we cannot assure you that our insurance coverage will be adequate to cover claims that may arise or that we will be able to maintain adequate insurance at rates we consider reasonable.  For example, the occurrence of a significant offshore deep water oil production or drilling event, or a significant business interruption in the operation of one or more of our facilities, could result in liability to us that is not insured and therefore could materially and adversely affect our results of operations and financial condition.  In addition, our products are used in or integrated with many high-risk end products and therefore if such products were involved in a disaster or catastrophic accident, we could be involved in litigation arising out of such incidents and susceptible to significant expenses or losses.

 

Compliance with government regulations, or penalties for non-compliance, could prevent or increase the cost of the development, distribution and sale of our products.

 

We, our business, our products and our customers’ products are subject to regulation by many U.S. and non-U.S. supranational, national, federal, state and local governmental authorities.  These regulations include customs, imports and international trade laws, export control, antitrust laws, environmental requirements and zoning and occupancy laws that regulate manufacturers generally or govern the importation, promotion and sale of our products, the operation of our factories and warehouse facilities and our relationship with our customers, suppliers and competitors.  Our products and manufacturing processes are also subject to ongoing reviews by certain governmental authorities.

 

New laws and regulations may be introduced, or existing laws and regulations may be changed or may become subject to new interpretations, which could result in additional compliance costs, seizures, confiscations,

 

 

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recalls, monetary fines or delays that could affect us or our customers.  These effects could prevent or inhibit the development, distribution and sale of our products and may harm our reputation.  In addition, changes in foreign governmental, federal and state minimum wage laws and other laws relating to employee benefits could cause us to incur additional wage and benefit costs, which could negatively impact our profitability.  Further, if any of the regulations to which we are subject were violated by our management, employees, suppliers, buying agents or trading companies, the costs of certain goods could increase, or we could experience delays in shipments of our goods, be subject to fines or penalties, or suffer reputational harm, which could reduce demand for our products, hurt our business and negatively impact our results of operations and share price.

 

Further, in some circumstances, before we may sell some of our products, governmental authorities must approve these products, our manufacturing processes and facilities.  In order to obtain regulatory approval of certain new products, we must, among other things, demonstrate to the relevant authority that the product is safe and effective for its intended uses and that we are capable of manufacturing the product in accordance with current regulations.  The approval process can be costly, time consuming and subject to unanticipated and significant delays.

 

We cannot assure you that approvals will be granted to us on a timely basis, or at all.  Any delay in obtaining, or any failure to obtain or maintain, these approvals would adversely affect our ability to introduce new products and to generate revenue from those products.

 

We are exposed to intangible asset risk.

 

We have recorded intangible assets, including goodwill in connection with the MacDermid Acquisition. Such valuation amounts are preliminary and will be updated with a third party valuation report in conjunction with purchase accounting. Goodwill represents the excess of the acquisition cost over the amount of recognized identifiable assets and liabilities. We do not amortize goodwill and other intangible assets that have indefinite useful lives; rather, goodwill and other intangible assets with indefinite useful lives are tested for impairment periodically. Indefinite-lived intangible assets are reviewed for potential impairment on an annual basis or when events or changes in circumstances indicate that indefinite-lived intangible assets might be impaired by comparing the estimated fair value of the indefinite-lived intangible assets to their carrying value. Goodwill will be tested for impairment at the reporting unit level annually, or when events or changes in circumstances indicate that goodwill might be impaired.

 

Obligations and expenses related to our defined benefit pension plans and other postretirement benefit plans could negatively affect our financial condition and results of operations.

 

We have defined benefit pension plans and other postretirement benefit plans in the United States and a number of other countries.  Changes in the market value of plan assets, investment returns, discount rates, mortality rates, regulations and the rate of increase in compensation levels may affect the funded status of our plans and could cause volatility in the net periodic benefit cost, future funding requirements of the plans and the funded status of the plans.  As of March 31, 2014, our U.S. pension plans were underfunded by approximately $10.4 million and our U.S. post-retirement benefits plans were underfunded by approximately $6.8 million.  A significant increase in our obligations or future funding requirements could have a negative impact on our results of operations and cash flows for a particular period and on our financial condition.

 

We may not be able to consummate future acquisitions or successfully integrate acquisitions into our business, which could result in unanticipated expenses and losses.

 

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Related:

Registration Statement No. 333-196235 iconRegistration Statement No. 333-182785

Registration Statement No. 333-196235 iconRegistration Statement No. 333-199817

Registration Statement No. 333-196235 iconFiled Pursuant to Rule 424(b)(4) Registration No. 333-194899

Registration Statement No. 333-196235 iconAs filed with the Securities and Exchange Commission on March 31, 2015 Registration No. 333

Registration Statement No. 333-196235 iconSec ”) a Registration Statement on Form s-4 that will include a joint...

Registration Statement No. 333-196235 iconPreparation of the Registration Statement

Registration Statement No. 333-196235 iconRegistration statement pursuant to section 12(b)

Registration Statement No. 333-196235 iconO Registration statement pursuant to Section 12(b) or (g)

Registration Statement No. 333-196235 iconO Registration statement pursuant to Section 12(b) or (g)

Registration Statement No. 333-196235 icon¨ registration statement pursuant to section 12(b) or (g) of the securities exchange act of 1934

Registration Statement No. 333-196235 iconO registration statement pursuant to section 12(b) or (g) of the securities exchange act of 1934

Registration Statement No. 333-196235 iconRegistration statement pursuant to section 12(b) or 12(g) of the securities exchange act of 1934

Registration Statement No. 333-196235 iconX registration statement pursuant to section 12(b) or (g) of the securities exchange act of 1934

Registration Statement No. 333-196235 iconRegistration statement pursuant to section 12(b) or (g) of the securities exchange act of 1934

Registration Statement No. 333-196235 iconRegistration statement pursuant to section 12(b) or 12(g) of the securities exchange act of 1934

Registration Statement No. 333-196235 iconRegistration statement pursuant to section 12(b) or (g) of the securities exchange act of 1934

Registration Statement No. 333-196235 iconRegistration statement pursuant to section 12(b) or 12(g) of the securities exchange act of 1934

Registration Statement No. 333-196235 iconRegistration statement pursuant to section 12(b) or (g) of the securities exchange act of 1934

Registration Statement No. 333-196235 icon[ ] registration statement pursuant to section 12(b) or (g) of the...

Registration Statement No. 333-196235 iconRegistration statement pursuant to section 12(b) or (g) of the securities exchange act of 1934




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