Business context and reporting period
This is Platform Specialty Products Corporation’s unaudited Form 10-Q for the quarter and six months ended June 30, 2016. The filing identifies the issuer as Platform Specialty Products Corporation; the request metadata names Element Solutions Inc. The company operates Performance Solutions and Agricultural Solutions, and its recent acquisitions—particularly Alent, OMG and OMG Malaysia—materially affect comparisons with 2015.
Financial results and position
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Net sales | $921.6 million | $675.1 million | $1,745.4 million | $1,209.9 million |
| Gross profit / margin | $380.6 million / 41.3% | $268.6 million / 39.8% | $736.6 million / 42.2% | $475.7 million / 39.3% |
| Operating profit | $94.9 million | $44.0 million | $147.0 million | $46.2 million |
| Net loss | $8.1 million | $9.1 million | $142.4 million | $35.4 million |
| Net loss attributable to common stockholders | $8.8 million | $12.2 million | $143.6 million | $38.9 million |
| Adjusted EBITDA | $192.9 million | $167.8 million | $361.3 million | $299.8 million |
| Net cash from (used in) operating activities | Not presented by quarter | $(113.3) million | $100.3 million |
Q2 sales rose 36.5% reported, but only 1.7% after adjustment for acquisitions and currency. Six-month sales rose 44.3% reported and 7.3% on that adjusted basis. Q2 operating margin was 10.3%, versus 6.5% a year earlier. Net interest expense increased to $97.4 million in Q2 and $191.2 million for the half, reflecting acquisition-related borrowing. Six-month foreign-exchange losses were $46.2 million; Q2 recorded a $25.0 million gain.
At June 30, cash and cash equivalents were $341.7 million, down from $432.2 million at year-end. Total debt and capital-lease obligations were $5.35 billion, including $161.5 million current. The company reported $410 million available under its revolving facility and $89.8 million available under other credit and overdraft facilities. Total current assets were $2.27 billion and current liabilities $1.14 billion. The filing states the company was in compliance with debt covenants.
Material changes and management commentary
- Reported revenue and profit growth reflects acquisitions. Performance Solutions’ Q2 adjusted sales declined 1.3%, with softness in offshore markets and Asian electronics; Agricultural Solutions’ adjusted sales increased 2.8%, led by Latin America and Africa, partly offset by weak North American demand.
- Management attributed improved gross margin to favorable product mix, lower raw-material costs and procurement synergies. Adjusted segment EBITDA for Q2 was $97.9 million in Performance Solutions and $95.0 million in Agricultural Solutions.
- Six-month operating cash flow was negative, with working-capital movements—especially lower accounts payable and accrued expenses—identified as a major use of cash. Capital expenditures were $22.6 million and product-registration investments $15.4 million in the half.
- No specific earnings or revenue guidance is provided. Management said cash, operating cash generation and credit availability should meet working-capital, capital-expenditure and other needs for at least 12 months, while warning that acquisitions, working-capital needs or a Series B preferred-stock make-whole payment could require additional borrowing or securities issuance.
Risks, contingencies and unusual items
- Debt and preferred stock: Expected annual interest payments exceed $300 million; $3.21 billion of principal payments, primarily term loans, are due in 2020. A potential April 2017 Series B preferred-stock make-whole payment was estimated at approximately $404 million at the June 30 share price, subject to terms and possible offsets. Holders may also receive $4 million monthly from October 2016 through April 2017 while shares remain outstanding.
- Controls and restatement: Management concluded disclosure controls were ineffective due to continuing material weaknesses in financial-reporting controls. The filing discusses prior restatements related to the Arysta acquisition and tax accounting. Remediation remained ongoing; acquired businesses were excluded from the period-end controls evaluation.
- Compliance investigation: An internal investigation into potentially improper third-party payments in Arysta’s West African government-tender business, including possible FCPA issues, remained ongoing. The company said it had informed and was cooperating with the SEC and Department of Justice; management did not then consider the payments or related revenue or operating income material.
- Environmental and legal matters: Environmental reserves were $50.6 million, up from $25.7 million at year-end, primarily relating to acquired Alent sites. The company could not estimate reasonably possible losses above recorded reserves. A securities class action remained pending; other disclosed matters include agricultural product claims, Brazilian litigation and contested tax assessments.
- Other factors: Management highlighted Brexit-related currency and operating uncertainty. A $21.7 million Q2 valuation allowance contributed to the 143.1% effective tax rate; the six-month tax provision included an $81.4 million valuation allowance. The company filed a shelf registration statement permitting up to $1.0 billion of securities after quarter-end.
Important facts for investors to verify
- Confirm the issuer identity and relationship, if any, between the filing’s named Platform Specialty Products Corporation and the company specified in the request metadata.
- Assess sustainable organic sales and segment profitability separately from acquisition, currency, inventory purchase-accounting and integration effects.
- Track working-capital conversion and cash generation against substantial interest expense and the 2020 debt maturities.
- Review the Series B preferred-stock terms, potential 2017 cash make-whole exposure and available funding sources.
- Monitor remediation of material weaknesses, any further restatements, and developments in the FCPA investigation and legal or environmental contingencies.