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As filed with the Securities and Exchange Commission on April 15, 2013

Registration No. 333-185244

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

AMENDMENT NO. 6

TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

TAMINCO CORPORATION

 

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   2860   45-4031468

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification No.)

Two Windsor Plaza, Suite 411

7540 Windsor Drive

Allentown, Pennsylvania 18195

(610) 366-6730

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Edward Yocum

Executive Vice President and General Counsel

Two Windsor Plaza, Suite 411

7540 Windsor Drive

Allentown, Pennsylvania 18195

(610) 366-6730

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

With copies to:

 

Joshua N. Korff, Esq.

Taurie M. Zeitzer, Esq.

Michael Kim, Esq.

Kirkland & Ellis LLP

601 Lexington Avenue

New York, New York 10022

(212) 446-4800

 

Michael Kaplan, Esq.

Davis Polk & Wardwell LLP

450 Lexington Avenue

New York, New York 10017

(212) 450-4000

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

 

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box:  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

 

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this prospectus is not complete and may be changed. We and the selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. The prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to Completion, dated April 15, 2013

PRELIMINARY PROSPECTUS

15,789,474 Shares

 

LOGO

Taminco Corporation

Common Stock

$         per share

 

 

This is an initial public offering of our common stock. We are offering 15,789,474 shares of our common stock.

After the completion of this offering, funds affiliated with Apollo Global Management, LLC will continue to own a majority of the voting power of our outstanding common stock. As a result, we expect to be a “controlled company” within the meaning of the corporate governance standards of the New York Stock Exchange (“NYSE”). See “Principal Stockholders.”

We expect the public offering price to be between $18.00 and $20.00. Currently, no public market exists for the shares. We intend to apply to list our common stock on the NYSE under the symbol “TAM.”

 

 

Investing in our common stock involves risks that are described in the “Risk Factors” section beginning on page 15 of this prospectus.

 

 

 

     Per Share      Total  

Price to public

   $                    $                

Underwriting discounts and commissions

   $         $     

Proceeds, before expenses, to us

   $         $     

The underwriters have an option to purchase up to an additional 2,368,421 shares from certain selling stockholders at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares of common stock against payment on or about              , 2013.

 

 

Citigroup   Goldman, Sachs & Co.   Credit Suisse   J.P. Morgan
Deutsche Bank Securities   Jefferies   Morgan Stanley   UBS Investment Bank

 

 

C&Co/PrinceRidge   ING   KBC Securities USA, Inc.   Lebenthal Capital Markets
Rabobank International   SMBC Nikko   Apollo Global Securities

 

 

The date of this prospectus is                     , 2013


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LOGO


Table of Contents

TABLE OF CONTENTS

 

     Page  

PROSPECTUS SUMMARY

     1   

RISK FACTORS

     15   

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     37   

MARKET, RANKING AND OTHER INDUSTRY DATA

     39   

USE OF PROCEEDS

     40   

DIVIDEND POLICY

     41   

CAPITALIZATION

     42   

DILUTION

     43   

UNAUDITED PRO FORMA FINANCIAL INFORMATION

     44   

SELECTED HISTORICAL FINANCIAL INFORMATION

     48   

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     49   

INDUSTRY OVERVIEW

     69   

BUSINESS

     73   

MANAGEMENT

     97   

EXECUTIVE COMPENSATION

     103   

PRINCIPAL AND SELLING STOCKHOLDERS

     124   

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     126   

DESCRIPTION OF INDEBTEDNESS

     128   

DESCRIPTION OF CAPITAL STOCK

     133   

SHARES ELIGIBLE FOR FUTURE SALE

     138   

MATERIAL U.S. FEDERAL TAX CONSIDERATIONS FOR NON-U.S. HOLDERS

     140   

UNDERWRITING (CONFLICTS OF INTEREST)

     144   

LEGAL MATTERS

     151   

EXPERTS

     151   

WHERE YOU CAN FIND ADDITIONAL INFORMATION

     151   

APPENDIX A: GLOSSARY OF TECHNICAL TERMS

     152   

INDEX TO FINANCIAL STATEMENTS

     F-1   

 

 

We have not authorized anyone to provide any information other than that contained in this prospectus or to which we have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted.

Dealer Prospectus Delivery Obligations

Until     , 2013 (25 days after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the dealers’ obligation to deliver a prospectus when acting as an underwriter and with respect to their unsold allotments or subscriptions.

 

 

 

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PROSPECTUS SUMMARY

This summary highlights selected information contained in greater detail elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, especially the risks of investing in our common stock discussed under “Risk Factors,” our consolidated financial statements and related notes, and supplemental pro forma financial information included elsewhere in this prospectus, before making an investment decision.

Except as otherwise indicated herein or as the context otherwise requires, references in this prospectus to “Taminco,” “the Company,” “we,” “our,” and “us” refer collectively to Taminco Corporation and its consolidated subsidiaries for the Successor Period (as defined below) and to Taminco Group Holdings S.à r.l. for the Predecessor Period (as defined below).

The consolidated financial statements for 2012 are presented in this prospectus for two periods: January 1 through February 14, 2012, which relates to the period immediately preceding the Acquisition (as defined below) and the year ended December 31, 2012. Prior to the Acquisition, Taminco Corporation had no operations or activity other than transaction costs related to the Acquisition. See “—Summary Historical Consolidated Financial Information” for more information. For a list of certain industry terms used herein, see “Appendix A: Glossary of Technical Terms.”

Our Company

We are the world’s largest pure play producer of alkylamines and alkylamine derivatives. Our products are used by our customers in the manufacturing of everyday products primarily for the agriculture, water treatment, personal & home care, animal nutrition and oil & gas end-markets. Our products provide these goods with a variety of ancillary characteristics required for optimal performance, such as neutralizing acidity, and removing contaminants. We have an extensive offering of differentiated value-added products that typically represent a small portion of our customers’ overall costs and are sold into diversified, global end-markets that benefit from favorable underlying economic and population growth trends. We currently operate in 19 countries with seven production facilities and, as of December 31, 2012, had an installed production capacity of 1,272 kt. According to the report issued by Arthur D. Little Benelux S.A./N.V. (the “ADL Report”), we hold the #1 or #2 market position globally in the vast majority of the chemicals we produce, including an approximately 50% and 75% share of certain products, respectively, in North America and Europe. During the pro forma year ended December 31, 2012, eight of our products accounted for more than 57% of our revenue, with six of the eight products holding a leading global market position. During the pro forma year ended December 31, 2012, through our worldwide network of production facilities, we sold 48% of our volume in North America, 36% of our volume in Europe, and 16% of our volume in the emerging markets (7% in Latin America and 9% in Asia). Furthermore, we expect to increase the portion of our volume from the Americas and Asia with our recent capital investments. As a result of our leading market positions, attractive end-markets, and significant recent capital investments, we believe we are well positioned for significant growth over the coming years. In the pro forma year ended December 31, 2012, we generated revenue of $1,116 million, Adjusted EBITDA of $240 million, and Adjusted EBITDA margin of 22%. See “—Summary Historical Consolidated Financial Information” for a discussion and reconciliation of Adjusted EBITDA and Adjusted EBITDA margin.

Alkylamines are organic compounds produced through the reaction of an alcohol with ammonia. The immediate results of these processes are the production of methylamines and higher alkylamines, which can then be further reacted with other chemicals to produce alkylamine derivatives. Our products are primarily used in the agriculture, water treatment, personal & home care, animal nutrition and oil & gas end-markets, which combined accounted for approximately 79% of our volume during the pro forma year ended December 31, 2012. Our end-markets tend to be non-cyclical and benefit from strong underlying fundamentals such as increasing global population, urbanization of emerging markets and rising income levels.

 

 

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We currently operate seven plants worldwide dedicated to the production of alkylamines and alkylamine derivatives, including two larger facilities in each of the United States and Europe that are among the world’s largest methylamine and higher alkylamines production facilities, a joint-venture facility with Mitsubishi Gas Chemical Company and certain of its affiliates (the “MGC Group”) in China, and two other 100% Taminco-owned facilities in China.

We are also in the process of pursuing numerous growth projects to further bolster our global footprint and leverage our strategic advantages. Our currently budgeted future investments include significantly extending production capacity at our Pace, Florida methylamine facility by the end of 2014 and further development of other derivative capacity. In total, we have spent $136 million in growth capital expenditures over the past three years, which is more than we have spent in any similar historical period. We expect to realize significant growth in our financial results from these investments.

We are organized into three segments: Functional Amines, Specialty Amines, and Crop Protection.

 

   

Functional Amines. This segment serves the needs of external customers that use our alkylamines products as the integral element in their chemical processes for the production of formulated products applied in a variety of end-markets such as agriculture, personal & home care, animal nutrition, and oil & gas. Through this segment, we also produce basic amines, which are captively used as building blocks to produce our downstream derivatives through our Specialty Amines and Crop Protection segments, serving a variety of attractive, non-cyclical end-markets. Approximately 30% of the Functional Amines production is used internally and forms the basis of our vertically integrated model. In the pro forma year ended December 31, 2012, the Functional Amines segment accounted for 51% of Adjusted EBITDA.

 

   

Specialty Amines. This segment sells alkylamine derivatives for use in the water treatment, personal & home care, oil & gas and animal nutrition end-markets, and specialty additives for use in the pharmaceutical, industrial coatings and metal working fluid end-markets. This segment is downstream from the Functional Amines segment and uses that segment’s production as one of its key raw materials. The Specialty Amines segment’s customers are typically large, multinational enterprises who are leading players in their industry. In the pro forma year ended December 31, 2012, the Specialty Amines segment accounted for 33% of Adjusted EBITDA.

 

   

Crop Protection. This segment sells alkylamine derivatives, active ingredients and formulated products for use in the agriculture and crop protection end-markets. The majority of the segment’s customers range from multinational crop protection and agricultural enterprises to large local farms. In the pro forma year ended December 31, 2012, the Crop Protection segment accounted for 16% of Adjusted EBITDA.

Our Strengths

We believe the following competitive strengths, in addition to our industry leading alkylamine production technology, have been instrumental to our success and position us well for future growth and strong financial performance.

Serve strong end-markets with attractive global growth prospects

Our products are generally sold into large end-markets with attractive global growth prospects. We develop products mainly for use in the agriculture, water treatment, personal & home care, animal nutrition, and oil & gas end-markets. These targeted end-markets, which have been relatively resistant to economic downturns, represent over $1.0 trillion in market value as of 2012 and are projected by ADL to grow by an average of 6% per year from 2012 to 2016 (with certain of these end-markets expected to grow at 7% per year).

 

 

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A steadily increasing world population, rising income levels (particularly in the emerging markets), increasing global urbanization and an aging global population are expected to help continue driving strong demand in our key end-markets. In the pro forma year ended December 31, 2012, approximately 79% of our volume was generated from these key end-markets and we expect that to increase over the next few years.

Market leader in global amines industry targeting niche markets with very few competitors

We focus exclusively on the production of alkylamines and alkylamine derivatives and have not entered into the production of other chemical products. According to the ADL Report, we are the world’s largest pure play producer of alkylamines and alkylamine derivatives, as we hold the #1 position in alkylamine and methylamine production in North America and the #2 position in alkylamine and methylamine production in Europe.

We benefit from long-standing relationships with blue-chip, industry-leading companies in each of our key end-markets, as well as from low customer churn (our average customer relationship among our top 10 customers is thirteen years). Overall, we believe our market position provides us with a stable and flexible platform for profitable operation and positions us to capitalize on growth opportunities quickly.

We believe that our extensive expertise and technology, our existing investments in profitable, vertically integrated manufacturing facilities, and our current set of product registrations from environmental, health and safety regulatory authorities give us a significant advantage over our competitors and new entrants. We also find it advantageous that some of our competitors have chosen to enter into certain downstream products that we do not manufacture and that compete directly with their customers.

Significant room for near-term growth due to recent capital investments

Our vertically integrated business model is one of our key strengths, differentiating us from almost all of our competitors. As we have succeeded with this model in Europe, we recently completed our vertically integrated production model in the United States, which we believe ideally positions us to capture growth in several attractive end-markets, including oil & gas (driven by shale gas demand), water treatment, feed additives, and crop protection. These recent investments in derivative capacity in the United States (AAA, DIMLA, and DMAPA, which are important production inputs for several end-markets) have large growth potential. These investments increased our derivatives capacity by 11% and further distanced ourselves from the nearest competitor in each of these product lines.

In addition, as a result of our competitive cost position and recent capacity additions at our United States-based plants and our Latin America-based sales force, we believe we are well positioned to fully serve the Latin American market, which has limited local competition.

Demonstrated financial resilience through various economic environments

For the past several years, our revenue, gross profit and Adjusted EBITDA have been growing throughout various economic environments. Due to our resilient end-markets and the integral nature of alkylamines and their derivatives to our customers, we are less vulnerable to economic cycles. In addition, we benefit from being able to grow sales volume with a limited addition of fixed costs as a result of our vertically integrated global production model. Also, we have relatively low maintenance capital expenditure requirements, which allow us to easily maintain high cash flow conversion rates in any economic environment.

As an example of our resilient end-markets, during the 2008 to 2009 economic downturn, our volume declined only 7%, compared to an average decline of 20% for the specialty chemical industry according to the ADL Report, and our Adjusted EBITDA grew 20% in that same time period. We strongly believe that our end-markets will continue to grow in various economic environments given their resilient nature.

 

 

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Ability to pass through raw material price increases

We believe one of the key reasons for our historical success is our ability to manage fluctuating raw material prices by passing through the majority of price changes to our customers. During the pro forma year ended December 31, 2012, our top four raw materials (methanol, ethylene oxide, ammonia and acetone) accounted for 37% of our total cost of sales. Our main raw materials are readily available commodity chemicals. Approximately half of our total revenue for the pro forma year ended December 31, 2012 was generated from contracts that allow cost increases for key raw materials to be directly passed through to customers (“CPT Contracts”).

We play an important role in our customers’ value chains but our products represent a relatively small percentage of our customers’ overall cost structures. Because of the value of our products, for the portion of sales that are not generated under CPT Contracts, we are often able to pass through raw material price increases to our customers through market-based sales contracts that are typically renegotiated quarterly. Positive market dynamics and our relative insulation from raw material price volatility have historically enabled us to maintain profitability in each of our segments. We have also deployed a strategic sourcing approach for critical raw materials, which, coupled with our CPT Contracts and market-based contracts, significantly mitigates the impact of raw material volatility on our margin.

Attractive product pipeline with significant value creation opportunities

We have a strong track record of identifying and exploiting growth opportunities for new applications of our existing products. We also have expertise in new product development and we are the preferred partner for many of our key customers to jointly develop new amine-based derivative products. Our current pipeline includes several products covering each of our key end-markets that we expect will reach the market in the next few years and represents significant incremental revenue opportunities. We have a suite of products in development that are nearing realization, such as the expected launch during the course of 2013 of Tenaz, a proprietary formulation of bio available silicate that is used as a plant fortifier. Our research and development is focused on five key application areas: surfactants, water treatment, oil & gas, feed additives and crop protection. Our patent portfolio is actively managed and contains 76 patents as of December 31, 2012.

Well-positioned to continue exploiting fast growing emerging markets in partnership with blue-chip customer base

With manufacturing operations and sales operations in China, sales offices in several Latin American countries and manufacturing operations in North America which can serve Latin America cost effectively, we believe we have a strong platform for further growth in these regions. Our joint venture with the MGC Group in Nanjing provides us with a base for expanding high value-added amine derivative products in China in the coming years. According to the ADL Report, Brazil is one of the largest markets in the world for crop protection and herbicide systems, and our operations in the region are positioned towards serving that growing agriculture market. In addition, recent expansion at our U.S. operations provide us with fully-vertically integrated amine derivatives manufacturing facilities that will help meet demand for our higher value-added products in Latin America. We have a number of strong relationships as a trusted supplier to global industry leaders within our key developed end-markets. We will continue to leverage these relationships in order to grow alongside our customers in these and other emerging markets.

Industry leading margins and cash flow generation

We believe we have been maintaining industry leading margins and strong cash flow generation throughout economic cycles as a result of our low cost position, leadership role in niche markets, and scalable fixed cost structure. Our ability to mitigate raw material pricing fluctuations provides stability to our margins. Our EBITDA

 

 

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margin has averaged approximately 20.1% over the period from 2007 to 2012, compared to approximately 17.9% for our industry peers over the same period according to the ADL Report. As a testament to our competitive strength, our cash flow conversion, measured by EBITDA minus capital expenditures divided by EBITDA, has averaged approximately 73% over the period from 2007 to 2012, compared to approximately 66% for our industry peers according to the ADL Report.

Proven management and employee culture with meaningful employee equity ownership

We believe that our management team is among the deepest and most experienced in the chemical industry. On average, the tenure of our executive management team is 16 years with the Company and 18 years in the chemical industry. Our management team has been responsible for developing and executing our strategy that has generated consistent year-over-year sales and Adjusted EBITDA growth. We believe our employees have developed a unique culture in which each employee throughout the entire company is aligned, focused and holds each other accountable to achieve goals that drive value creation for all of our stakeholders. Our employee ownership pool is deep with approximately 42 individual employees owning equity in the Company. As of December 31, 2012, employees owned over 10% of the shares in our Company on a fully diluted basis before giving effect to this offering.

Our Strategy

Our long-term growth drivers revolve around our continued ability to work closely with market industry leaders and to further expand into emerging markets through the principal strategies outlined below.

Capitalize on key fundamental drivers of our end-markets

The primary end-markets we serve have strong exposure to numerous positive, non-cyclical macroeconomic trends. According to ADL, key factors, including a steadily increasing world population, a growing middle class in emerging markets, clean water scarcity, and enhanced oil & gas recovery techniques (especially driven by the shale gas demand in the United States), will continue to drive strong demand for agriculture, water treatment, personal & home care, animal nutrition and oil & gas products. ADL projects that the agriculture, water treatment, personal & home care, animal nutrition and oil & gas end-markets will grow by 6%, 6%, 7%, 5% and 8%, respectively, per annum from 2012 to 2016, or on average 6%. We believe we are well positioned and intend to utilize our best-in-class business optimization and manufacturing processes to meet our customers’ increased supply needs in light of this anticipated growth in end-market demand.

Continue to partner with industry leaders to provide foundation for future growth

We currently have strong positions in each of our key end-markets, which we have achieved in part due to our strong customer relationships with leading global companies in each of those markets. A fundamental element of our strategy is to continue to work directly with our core customers to develop new products and new applications for our existing products that address their specific needs. In addition, we deploy a more customer-focused marketing approach, rather than a more traditional product-based approach. Our specialized sales force includes 29 professionals and six marketing managers with individual responsibility for particular end user markets in various regions. In addition, we employ approximately 35 other commercial professionals, including divisional managers, product managers and new business development specialists. We believe that a deeper understanding of customer needs will better enable our marketing professionals to identify future sources of demand for our products and, working in close cooperation with our research and development function, address that demand through product innovation. As a result, we believe our customer-focused approach will make us a more attractive partner and allow us to achieve greater penetration of our end-markets.

 

 

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Leverage platform to expand emerging market presence

We have strong, leading positions in our product markets in North America and Europe as a result of our commitment to strategic capital investments and selective acquisitions. We expect to leverage this success to capture a significant portion of our future growth in demand from Asia and Latin America. One of our strategic priorities is to position ourselves for profitable growth in these markets. We currently have two production facilities in China serving the animal nutrition end-market as well as a joint venture with the MGC Group to manufacture amines and amine derivatives. We plan to use our facilities, including our joint venture, as a platform for further expansion in Asia, including potentially in the fast-growing markets of Malaysia, Indonesia, India and Vietnam, and become a partner of choice for our customers in that region by leveraging our high-quality products, standards and technical expertise and moving closer to end users. We plan to capture global growth through our continuous investment in the U.S., which also serves as a platform for export to Latin America. In addition, our joint venture with the MGC group is expected to capture growth in Asia, primarily in China. We believe our technological and process knowledge should give us a significant advantage over our competitors in that region. As we grow in Asia, we are very focused on pursuing growth opportunities and selective acquisitions that are attractive from a margin profile.

Further expand our vertically integrated model

Our vertically integrated business model is one of our key strengths, differentiating us from almost all of our competitors. Our vertically integrated model focuses on both the alkylamine and their associated derivatives, versus just focusing on the alkylamines, which some of our competitors do. By having a fully integrated value-chain we are able to maintain a sustainable low cost position, benefiting from energy optimization, limited recycling needs, optimized logistics, and a limited number of well positioned world-scale production units.

A cornerstone of our expansion strategy is the extension of our vertically integrated business and production approach to all our operations around the world. We are already vertically integrated to a high degree in our European operations, in particular at our facility in Ghent and more recently in the United States, where we have completed new derivative units at our St. Gabriel and Pace facilities. We have announced significant methylamine capacity expansion at Pace to be completed by the end of 2014 that will further increase our leadership in North America.

Furthermore, through our joint venture with the MGC Group, we produce amine derivatives in China to pursue profitable growth downstream. Equally important to our performance is the continuous pursuit of production efficiencies and regular debottlenecking projects, which yield significant benefits in exchange for modest capital expenditures. As part of the philosophy behind our vertically integrated business model, we will continue to seek and implement best-in-class process optimization and efficiency gains within each of our facilities and apply that expertise throughout our global operations.

Continue to develop new processes, markets and products to enhance growth and profitability

Another key element of our strategy is to capitalize on our technological leadership to develop new processes, new products and new applications for our existing products. Working closely with our customers to better understand our end-markets and our customers’ individual requirements, we will seek to continue developing new products that increase the overall value of our customers’ offerings. We will also focus on providing more efficient alternatives to existing formulations, using a wide range of technologies including green technologies for our solvents, plant physiologies for our agriculture products and genomics screening for our feed additives. In addition, we will seek to maintain and improve our knowledge of market trends and developments in order to find new and innovative applications for our existing products. Our product pipeline currently includes developments which we expect to reach our customers in the next few years in each of our key end-markets. We are focused on developing products which provide improved performance and, in most cases, represent safer, non-toxic and “greener” alternatives to existing chemicals.

 

 

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Our Principal Stockholder

Apollo Investment Fund VII, L.P. and its parallel funds (the “Apollo Funds”) collectively have committed capital of approximately $14.7 billion and are our principal stockholders.

The Apollo Funds are affiliates of Apollo Global Management, LLC (together with its subsidiaries, “Apollo”). Founded in 1990, Apollo is a leading global alternative investment manager with over 22 years experience managing investments across all economic environments in companies, both domestically and internationally. As of December 31, 2012, Apollo employed approximately 250 investment professionals and had offices in New York, Houston, Los Angeles, London, Frankfurt, Luxembourg, Singapore, Hong Kong and Mumbai.

Apollo has total assets under management of approximately $113 billion as of December 31, 2012, of which approximately $38 billion is invested in the private equity business. Over the past 23 years, funds affiliated with Apollo have been large investors in industrial assets and a builder of businesses, nurturing the growth of several chemical companies in particular. The chemical industry is one of Apollo’s largest focus areas and it has completed 13 major transactions in the chemical industry since its funding, all with positive returns and most with full or partial realizations. Selected investments by funds affiliated with Apollo relevant to us include Lyondell Basell, Momentive Performance Materials, Berry Plastics, Covalence Specialty Materials Corp., Borden Chemical, Compass Minerals and United Agri Products, as well as numerous other prior investments in chemical businesses.

Our Formation

Our business was formed through the carve-out from Union Chimique Belge (“UCB”) in 2003. On December 15, 2011, an affiliate of Apollo Global Management, LLC entered into a share purchase agreement (the “Acquisition”) with the previous sponsor pursuant to which Taminco Global Chemical Corporation acquired all of the issued share capital of Taminco Group Holdings S.à r.l. and its subsidiaries. The Acquisition was consummated on February 15, 2012.

Risk Factors

Our business is subject to numerous risks and uncertainties including those highlighted in the section titled “Risk Factors” immediately following this summary. Some of these risks include the following, among others:

 

   

our substantial indebtedness could adversely affect our financial health and our ability to raise additional capital, and prevent us from fulfilling our obligations under our existing agreements;

 

   

our debt agreements contain restrictions that limit our flexibility in operating our business, which may lead to default under our debt agreements;

 

   

an increase in energy costs, in particular natural gas costs, or a disruption in the supply of energy for our operations may significantly increase operational costs;

 

   

the price and availability of raw materials, energy and equipment, and our inability to pass on increased costs to customers may significantly increase operational costs;

 

   

a loss of major customers would result in a decline in our revenues;

 

   

a lack of commercial viability of our new products and products under development could harm our results of operations; and

 

   

changes in macroeconomic conditions could adversely affect our business.

 

 

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After consummation of this offering, funds affiliated with Apollo will continue to control a majority of our common stock. As a result, we will be a “controlled company” within the meaning of the applicable stock exchange corporate governance standards and we will qualify for, and intent to rely on, exemptions from certain stock exchange corporate governance requirements. As a result, we will not have a majority of independent directors and our nominating/corporate governance and compensation committees will not consist entirely of independent directors and we will not be required to have an annual performance evaluation of the nominating/corporate governance and compensation committees. See “Risk Factors—Risks Relating to This Offering and Ownership of Our Common Stock—Following the offering, we will be classified as a “controlled company” and, as a result, we will qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements” for more information on the risks we face in connection with the Apollo Fund’s ownership of a majority of our common stock.

Additional Information

We were incorporated on December 12, 2011 in the state of Delaware. Our principal executive offices in the U.S. are located at Two Windsor Plaza, Suite 411, 7540 Windsor Drive, Allentown, Pennsylvania 18195, and the telephone number there is (610) 366-6730. Our website address is www.taminco.com. The contents of and information contained on our website do not form a part of this prospectus.

Recent Developments

Senior Securities Credit Facilities Amendment

On January 23, 2013, Taminco Global Chemical Corporation entered into an amendment to its Senior Secured Credit Facilities (“Amendment No. 2”). This amendment resulted in a 0.75% reduction in interest rates effective as of January 23, 2013 on the outstanding term loans and revolving credit facility. As a result of this amendment reducing the interest rate on our Senior Secured Credit Facilities, we expect our cash flow generation to improve.

Amendment to Non-recourse Factoring Facility

On March 28, 2013, we entered into an amendment to the Non-recourse Factoring Facility, which extends the term to December 31, 2017 and increases the limit from €100 million to €150 million.

 

 

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THE OFFERING

 

Common stock offered

15,789,474 shares.

 

Common stock to be outstanding after this offering

65,228,438 shares.

 

Listing

We intend to apply to list our common stock on the NYSE under the symbol “TAM.”

 

Over-allotment option

The underwriters have an option to purchase up to an additional 2,368,421 shares from certain selling stockholders at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus.

 

Use of proceeds

Assuming an initial public offering price of $19.00 per share, which is the midpoint of the offering price range set forth on the cover page of this prospectus, we estimate that the net proceeds to us from the sale of our common stock in this offering will be $281 million, after deducting estimated underwriting discounts and commissions and offering expenses. We will not receive any proceeds from sales by the selling stockholders pursuant to the over-allotment option to purchase additional shares.

 

  We intend to use the net proceeds received by us in this offering, along with readily available cash, to (i) redeem all of the outstanding $250 million principal amount of our PIK Toggle Notes, (ii) pay the redemption premiums and fees in connection with the redemption of the foregoing indebtedness, (iii) pay interest of approximately $7 million, representing interest payable from December 18, 2012 through the anticipated prepayment date that the indebtedness will be redeemed and (iv) pay a $35 million fee in connection with the termination of the Management Consulting Agreement with Apollo. For additional information, see “Use of Proceeds” and “Certain Relationships and Related Party Transactions—Management Consulting Agreement.”

 

Dividend policy

We do not currently anticipate paying dividends on our common stock following this offering. Any declaration and payment of future dividends to holders of our common stock may be limited by restrictive covenants in our debt agreements, and will be at the sole discretion of our board of directors and will depend on many factors, including our financial condition, earnings, capital requirements, level of indebtedness, statutory and contractual restrictions applying to the payment of dividends and other considerations that our board of directors deems relevant. See “Dividend Policy,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition, Liquidity and Capital Resources,” and “Description of Capital Stock.”

 

Risk factors

For a discussion of risks relating to the Company, our business and an investment in our common stock, see “Risk Factors” and all other information set forth in this prospectus before investing in our common stock.

 

 

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Conflicts of interest

Affiliates of Apollo Global Securities, LLC own more than 10% of our outstanding common stock. Because Apollo Global Securities, LLC is an underwriter for this offering, it is deemed to have a “conflict of interest” within the meaning of FINRA Rule 5121(f)(5)(B). In addition, affiliates of Apollo Global Securities, LLC will be deemed to receive more than 5% of net offering proceeds and will have a “conflict of interest” pursuant to Rule 5121(f)(5)(C)(ii). Accordingly, this offering is being made in compliance with the requirements of FINRA Rule 5121. Since Apollo Global Securities, LLC is not primarily responsible for managing this offering, pursuant to FINRA Rule 5121, the appointment of a qualified independent underwriter is not necessary. Apollo Global Securities, LLC will not confirm sales to discretionary accounts without the prior written approval of the customer.

Except as otherwise indicated, all information in this prospectus reflects:

 

   

the completion of a 9.0824 for 1 stock split; and

 

   

our amended and restated certificate of incorporation and amended and restated bylaws, pursuant to which the provisions described under “Description of Capital Stock” are operative.

Except as otherwise indicated, all information in this prospectus assumes:

 

   

no exercise of the underwriters’ option to purchase up to 2,368,421 additional shares of common stock from certain selling stockholders; and

 

   

the initial offering price of $19.00 per share, which represents the midpoint of the range set forth on the cover page of this prospectus.

Except as otherwise indicated, all information with respect to our outstanding common stock that we present in this prospectus does not give effect to:

 

   

3,525,415 shares of our common stock issuable upon the exercise of outstanding options as of December 31, 2012 at a weighted average exercise price of $6.23 per share; or

 

   

5,000,000 shares of common stock reserved for future issuance under our 2013 LTIP Plan that we intend to adopt in connection with this offering.

 

 

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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION

The following table presents our summary historical consolidated financial data and operating statistics. The consolidated statement of operations data and cash flow data for the years ended December 31, 2012, 2011 and 2010 and the consolidated balance sheet data as of the years ended December 31, 2012 and 2011 have been derived from our audited consolidated financial statements included elsewhere in this prospectus.

The consolidated financial statements for 2012 are presented for two periods: January 1 through February 14, 2012 (the “Predecessor Period”), which relates to the period immediately preceding the Acquisition, and the year ended December 31, 2012 (the “Successor Period”). The results of the Successor Period are not comparable to the results of the Predecessor Period due to the difference in the basis of presentation of purchase accounting as compared to historical cost. The consolidated statement of operations data for the period January 1, 2012 to February 14, 2012 are derived from the audited financial statements of the Predecessor Period included elsewhere in this prospectus, and the consolidated statement of operations data for the year ended December 31, 2012 are derived from the audited financial statements of the Successor Period included elsewhere in this prospectus. Prior to the Acquisition, Taminco Corporation had no operations or activity other than transaction costs related to the Acquisition.

 

 

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The summary historical consolidated financial information should be read in conjunction with “Risk Factors,” “Selected Historical Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Unaudited Pro Forma Financial Information” and our financial statements and related notes thereto included elsewhere in this prospectus. Historical results are not necessarily indicative of results that may be expected for any future period.

 

    Pro Forma
year ended
December 31,
2012
    Successor(1)          Predecessor(2)  
      Year ended
December 31,

2012
         January 1
through
February 14,
2012
    Year ended
December 31,
 
(In millions, other than per share information)               2011             2010      

Statement of Operations Data:

             

Net sales

  $ 1,116      $ 972          $ 144      $ 1,123      $ 951   

Cost of sales

    928        810            111        906        757   
 

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

Gross profit

    188        162            33        217        194   

Selling, general and administrative expense

    58        52            66        49        52   

Research and development expense

    10        9            1        12        13   

Other operating expense

    8        49            1        16        2   
 

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

Operating income

    112        52            (35     140        127   

Interest expense, net

    79        70            8        75        74   

Other non-operating (income) expense, net

    13        11            2        1        (2
 

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes and results from companies consolidated under equity method

    20        (29         (45     64        55   

Income tax expense (benefit)

    15        (3         9        32        33   
 

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

Income from continuing operations before earnings from equity method investments

    5        (26         (54     32        22   

Loss from companies consolidated under equity method

    2        2            —          2        —     
 

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

Net income (loss) for the period

  $ 3      $ (28       $ (54   $ 30      $ 22   
 

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

Earnings per share:

             

Basic

  $ 0.05      $ (0.57       $ (0.05   $ 0.03      $ 0.02   

Diluted

  $ 0.05      $ (0.57       $ (0.05   $ 0.03      $ 0.02   

Cash Flow Data:

             

Cash flows provided by (used in) operating activities

    N/M      $ 10          $ 44      $ 117      $ 112   

Cash flows provided by (used in) investing activities

    N/M        (214         (6     (75     (68

Cash flows provided by (used in) financing activities

    N/M        272            —          (19     (22

 

 

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    Pro Forma
year ended
December 31,
2012
    Successor(1)                                       Predecessor(2)                              
      Year ended
December 31,

2012
         January 1
through
February 14,
2012
    Year ended December 31,  
(In millions, other than as indicated)               2011             2010      

Other financial and operating statistics:

             

Total volume (in kt)

    546        489            57        540        528   

Adjusted EBITDA(3)

    240        210            30        229        203   

Adjusted EBITDA margin(3)

    21.5     21.6         20.8     20.4     21.3

Capital improvement expenditures

    16        15            1        13        8   

Growth capital expenditure

    41        36            5        41        54   

Toxicology and regulatory capital expenditure

    8        8            —          7        5   

Total capital expenditures

    65        59            6        61        67   

 

     As of December 31,  
     Successor(1)           Predecessor(2)  
(In millions)    2012           2011  

Balance Sheet Data:

         

Cash and cash equivalents

   $ 67           $ 131   

Property, plant and equipment, net

     434             249   

Total assets

     1,847             1,334   

Long-term debt

     1,155             1,102   

Total liabilities

     1,576             1,366   

Stockholders’ equity

     271             (32

 

(1) Taminco Corporation, which had no operations or activity prior to the Acquisition on February 15, 2012 other than transaction costs related to the Acquisition.
(2) Taminco Group Holdings S.à r.l.
(3) We present Adjusted EBITDA and Adjusted EBITDA margin to enhance a prospective investor’s understanding of our results of operations and financial condition. EBITDA consists of profit for the period before interest, taxation, depreciation and amortization. Adjusted EBITDA consists of EBITDA and eliminates (i) transaction costs, (ii) restructuring charges, (iii) foreign currency exchange gains/losses, (iv) non-cash equity in earnings/losses of unconsolidated affiliates net of cash dividends received (as we receive cash only when these unconsolidated affiliates pay us a dividend, regardless of equity-based earnings), (v) stock option compensation and (vi) sponsor management and director fees and expenses (Successor Period only). Adjusted EBITDA margin reflects Adjusted EBITDA as a percentage of net sales. We believe that making such adjustments provides investors meaningful information to understand our operating results and ability to analyze financial and business trends on a period-to-period basis.

You should not consider Adjusted EBITDA or Adjusted EBITDA margin as an alternative to (a) operating profit or profit for the period, as reported in accordance with U.S. GAAP, as a measure of our operating performance, (b) cash flows from operating investing and financing activities as a measure to meet our cash needs or (c) any other measures of performance under generally accepted accounting principles. You should exercise caution in comparing Adjusted EBITDA and Adjusted EBITDA margin as reported by us to similar measures of other companies.

In evaluating Adjusted EBITDA, you should be aware that we are likely to incur expenses similar to the adjustments in this presentation in the future and that certain of these items could be considered recurring in nature. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by non-recurring items.

 

 

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We present Adjusted EBITDA and Adjusted EBITDA margin because we believe Adjusted EBITDA and Adjusted EBITDA margin are useful as supplemental measures in evaluating the performance of our operating businesses and provide greater transparency into our results of operations. Adjusted EBITDA should not be considered in isolation or as a substitute for net income or other statement of operations data prepared in accordance with U.S. GAAP.

Our management, including our chief operating decision makers, uses Adjusted EBITDA as a factor in evaluating the performance of our business. This measure is not recognized in accordance with U.S. GAAP and should not be viewed as an alternative to U.S. GAAP measures of performance. The most directly comparable financial measure presented in accordance with U.S. GAAP in our consolidated financial statements for Adjusted EBITDA is net income.

Adjusted EBITDA has limitations as an analytical tool, and you should not consider Adjusted EBITDA either in isolation or as a substitute for analyzing our results as reported under U.S. GAAP. Some of these limitations include:

 

   

it does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

 

   

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often need to be replaced in the future and Adjusted EBITDA does not reflect any cash requirements that would be required for such replacements;

 

   

its does not reflect the interest expense, or the cash requirements necessary, to service interest or principal payments on our debt;

 

   

it does not reflect stock option expense or its potentially dilutive impact;

 

   

some of the exceptional items that we eliminate in calculating Adjusted EBITDA reflect cash payments that were made, or will be made in the future; and

 

   

other companies in our industry may calculate Adjusted EBITDA differently than we do, which limits its usefulness as a comparative measure.

The following table provides reconciliations of net income (loss) to Adjusted EBITDA for the periods presented.

 

    Pro Forma
year ended
December 31,
2012
    Successor                            Predecessor                  
      Year ended
December 31,

2012
          January 1
through
February 14,
2012
     Year ended
December 31,
 
(In millions)             2011     2010  

Net income (loss) attributable to Taminco

  $ 3      $ (28        $ (54    $ 30      $ 22   

Income tax expense (benefit)

    15        (3          9         32        33   

Interest expense, net

    79        70             8         75        74   

Depreciation and amortization

    104        90             7         72        74   
 

 

 

   

 

 

        

 

 

    

 

 

   

 

 

 

EBITDA

  $ 201      $ 129           $ (30    $ 209      $ 203   
 

 

 

   

 

 

        

 

 

    

 

 

   

 

 

 

Transaction costs

    28        70             —           5        2   

Restructuring charges

    —          —               —           11        —     

Foreign exchange gains (losses)

    4        4             —           2        (2

Sponsor management and director fees and expenses

    5        5             —           —          —     

Losses of equity method investment

    2        2             —           2        —     

Share-based compensation expense

    —          —               60         —          —     
 

 

 

   

 

 

        

 

 

    

 

 

   

 

 

 

Adjusted EBITDA

  $ 240      $ 210           $ 30       $ 229      $ 203   
 

 

 

   

 

 

        

 

 

    

 

 

   

 

 

 

 

 

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risk factors set forth below as well as the other information contained in this prospectus before investing in our common stock. The risks described below are not the only risks facing us. Additional risks and uncertainties not currently known to us or those we currently view to be immaterial may also materially and adversely affect our business, financial condition, results of operations or cash flows. If any of the following risks actually occurs, our business, financial condition, results of operations or cash flows would suffer. In such case, you may lose part or all of your investment.

Risks Relating to Our Business

Our substantial indebtedness could adversely affect our financial health and our ability to raise additional capital, and prevent us from fulfilling our obligations under our existing agreements.

At December 31, 2012, we had $1,161 million of total indebtedness outstanding on a consolidated basis, all of which was secured. As of December 31, 2012, there were no borrowings outstanding under our revolving credit facility; however $3 million of the total capacity of $194 million was utilized to support outstanding letters of credit (as described under “Description of Indebtedness”). In addition, we had drawn $86 million under the Non-recourse Factoring Facility (as described under “Description of Indebtedness”). As of March 1, 2013, our annual debt service obligation is approximately $95 million. This amount includes principal and interest payments under the Senior Secured Credit Facilities and interest payments under the Second-Priority Senior Secured Notes and the PIK Toggle Notes. Additionally, principal payments of $400 million of Second-Priority Senior Secured Notes and $250 million of PIK Toggle Notes (which will be redeemed in connection with this offering) are due in 2020 and 2017, respectively. See “Description of Indebtedness” for more information on our indebtedness.

Our substantial indebtedness could:

 

   

make it more difficult for us to satisfy our obligations with respect to our indebtedness, and any failure to comply with the obligations of any of our debt instruments, including restrictive covenants and borrowing conditions, could result in an event of default under the agreements governing our indebtedness;

 

   

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

 

   

expose us to the risk of increased interest rates, as borrowings under the Senior Secured Credit Facilities will be subject to variable rates of interest;

 

   

place us at a competitive disadvantage compared to certain of our competitors that have less debt;

 

   

limit our ability to borrow additional funds;

 

   

make us more vulnerable to downturns in our business or the economy;

 

   

limit our flexibility in planning for, or reacting to, changes in our operations or business; and

 

   

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

Also, we may still incur significantly more debt, which could intensify the risks described above.

 

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Our debt agreements contain restrictions that limit our flexibility in operating our business, which may lead to default under our debt agreements.

The agreements governing our existing indebtedness contain, and any future indebtedness of ours would likely contain, a number of covenants that impose significant operating and financial restrictions on us and our subsidiaries, including restrictions on our and our subsidiaries’ ability to among other things:

 

   

incur additional debt or issue certain preferred shares;

 

   

pay dividends on or make distributions in respect of our common stock or make other restricted payments;

 

   

make certain investments;

 

   

sell certain assets;

 

   

create liens on certain assets;

 

   

consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;

 

   

enter into certain transactions with our affiliates; and

 

   

designate our subsidiaries as unrestricted subsidiaries.

As a result of these covenants, we are limited in the manner in which we conduct our business, and we may be unable to engage in favorable business activities or finance future operations or capital needs.

We have pledged and will pledge a significant portion of our assets as collateral under our Senior Secured Credit Facilities and Notes (as described under “Description of Indebtedness”). If repayment is accelerated, there can be no assurance that we will have sufficient assets to repay our indebtedness.

Under our Senior Secured Credit Facilities, we are required to satisfy and maintain specific financial ratios. Our ability to meet those financial ratios can be affected by events beyond our control, and there can be no assurance that we will meet those ratios. A failure to comply with the covenants contained in our Senior Secured Credit Facilities or our other indebtedness could result in an event of default under the facilities or the existing agreements, which if not cured or waived, could have a material adverse effect on our business, financial condition and results of operations. In the event of any default under our Senior Secured Credit Facilities or our other indebtedness, the lenders thereunder:

 

   

will not be required to lend any additional amounts to us;

 

   

could elect to declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be due and payable and terminate all commitments to extend further credit; or

 

   

require us to apply all of our available cash to repay those borrowings.

Such actions by the lenders could cause cross defaults under our other indebtedness. If we are unable to repay those amounts, the lenders and noteholders under our Senior Secured Credit Facilities and the Notes could proceed against the collateral granted to them to secure that indebtedness.

Difficult and volatile conditions in the overall economy and in the capital, credit and commodities markets could materially adversely affect our financial position, results of operations and cash flows, and we do not know if these conditions will improve in the near future.

Our financial position, results of operations and cash flows could be materially adversely affected by continuation of difficult global economic conditions and significant volatility in the capital, credit and commodities markets and in the overall economy. These factors, combined with low levels of business and

 

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consumer confidence and increased unemployment, have precipitated a slow recovery from the global recession and concern about a return to recessionary conditions. The difficult conditions in these markets and the overall economy affect our business in a number of ways. For example:

 

   

weak economic conditions, especially in our key markets in North America and Europe, could reduce demand for our products, impacting our revenues and margins;

 

   

as a result of the recent volatility in commodity prices, we may encounter difficulty in achieving sustained market acceptance of past or future price increases, which could have a material adverse effect on our financial position, results of operations and cash flows;

 

   

under difficult market conditions, there can be no assurance that borrowings under our revolving credit facility would be available or sufficient, and in such a case, we may not be able to successfully obtain additional financing on reasonable terms, or at all;

 

   

in order to respond to market conditions, we may need to seek waivers from various provisions in our Senior Secured Credit Facilities, and there can be no assurance that we can obtain such waivers at a reasonable cost, if at all; and

 

   

market conditions could result in our key customers experiencing financial difficulties and/or electing to limit spending, which in turn could result in decreased sales and earnings for us.

We do not know if market conditions or the state of the overall economy will improve in the near future. In particular, a significant portion of our revenues are generated in Europe and in Euro. As a result, we could be adversely affected by the current economic crisis in Europe, particularly if such crisis worsens. We could also be affected if some or all European countries exit the Euro.

Our ability to obtain additional capital on commercially reasonable terms may be limited, which could reduce funds available for our operations and place us at a competitive disadvantage.

Although we believe that our cash, cash equivalents and short-term investments, as well as future cash from operations and availability under our revolving credit facility, will provide adequate resources to fund ongoing operating requirements, we may need to seek additional financing to compete effectively. Our debt ratings affect both our ability to raise capital and the cost of that capital. Future downgrades of our debt ratings may increase our borrowing costs and affect our ability to access the debt or equity markets on terms and in amounts that would be satisfactory to us.

If we are unable to obtain capital on commercially reasonable terms, it could:

 

   

reduce funds available to us for purposes such as working capital, capital expenditures, research and development, strategic acquisitions and other general corporate purposes;

 

   

restrict our ability to introduce new products or capitalize on business opportunities;

 

   

increase our vulnerability to economic downturns and competitive pressures in the markets in which we operate; and

 

   

place us at a competitive disadvantage.

We are dependent upon our lenders for financing to execute our business strategy and meet our liquidity needs. If our lenders are unable to fund borrowings under their credit commitments or we are unable to borrow, our business could be negatively impacted.

During periods of volatile credit markets, there is a risk that lenders, even those with strong balance sheets and sound lending practices, could fail or refuse to honor their credit commitments and obligations, including but not limited to extending credit up to the maximum permitted by a credit facility and otherwise accessing capital

 

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and/or honoring loan commitments. If our lenders are unable to fund borrowings under their revolving credit commitments or if we are unable to borrow, it could be difficult to replace our revolving credit facility on similar terms.

An increase in energy costs, in particular natural gas costs, or a disruption in the supply of energy for our operations may significantly increase operational costs or adversely affect production.

The main energy sources used in our operations are natural gas and electricity. Natural gas in particular represents a significant part of our raw material and consumables expenses and any increase in the price of natural gas would significantly increase our costs and reduce our operating margin. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Drivers of Our Business—Raw Materials.”

Fluctuations in energy costs may be market-driven or government-driven. We do not hedge our natural gas costs. If we are not able to increase the prices we charge as a result of increases in natural gas and electricity prices, or if we are unable to pass on the full increase in electricity costs to our wholesale customers, our business and results of operations may be materially adversely affected. Although our financial conditions have not been materially impacted by recent fluctuations in natural gas prices, we may be negatively impacted by future price increases.

In addition, any disruption in the supply of energy may impair our ability to conduct our business and meet customer demands and may have a material adverse effect on our results of operations. Since the number of energy suppliers is generally limited, we may not be able to negotiate favorable terms when our energy supply agreements are up for renewal and we may be required to accept significant increases in the costs of our energy purchases. In Germany and the United States, we are dependent on monopolist and/or government-controlled companies for a significant portion of our electricity needs. Unexpected changes in a government’s policy of electricity supply may occur from time to time. Such changes may negatively impact our production capacity or our operating expenses and may materially adversely affect our business and results of operations.

Our production facilities can also be disrupted due to maintenance and routine shutdowns.

We derive a significant portion of our revenue from sales to several large customers, including chemical distributors, and significant reductions of sales to one or more of these customers could harm our business, financial condition and results of operations.

We derive a substantial amount of revenue from sales to several large customers, with our top 10 customers accounting for approximately 38% of our total revenue in the pro forma year ended December 31, 2012. Such loss of revenue could have an adverse impact on our future revenues. For more information, please see “—Risks Relating to Our Industry—We may face increasing competition, which could have a material adverse effect on our business and results of operations.” See “Business—Our Operations—Marketing and Sales.” The loss of, or significant reduction in demand from, one or more of these customers could have a material adverse effect on our business, financial condition and results of operations.

In addition, certain of our revenue is generated through sales to customers that are chemical distributors and that, in turn, sell our products to their customers. Sales of our products could decline if the performance of these customers deteriorates. Furthermore, because we do not have exclusive relationships with these customers, they may sell competitors’ products. There is a risk that these customers may give higher priority to the products of, or form alliances with, our competitors. If these customers do not continue to sell our products or to provide them with similar levels of promotional support as provided for our competitors’ products, our sales performance could decline and our business and results of operations could be materially adversely affected.

 

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We purchase our key raw materials and some of our equipment from a relatively limited number of suppliers. As a result, any disruption or delay in the supply could have a material adverse effect on our business.

We purchase methanol, ammonia, ethylene oxide and acetone from a relatively limited number of sources. See “Business—Our Operations—Raw Materials.” As a result, any disruption or delay in the supply of those materials from a particular supplier, or loss of a supplier where we are unable to find a suitable alternative, could force us to curtail our production and adversely affect our business.

Similarly, we are only able to purchase certain components of our production equipment from a limited number of contractors and suppliers. Any interruption in the operations of our suppliers and/or the inability to obtain timely delivery of key equipment of acceptable quality or significant increases in the prices of such equipment could result in material production delays, increased costs and reductions in shipments of our products, any of which could increase our operating costs, harm our customer relationships or have a material adverse effect on our business and results of operations.

We depend on a variety of raw materials, the prices of which may vary based on market conditions. Changes in raw material prices and our supply arrangement could materially adversely affect our business and results of operations.

The prices of the raw materials on which our business depends vary based on market conditions. In particular, the prices of certain raw materials, such as methanol and ammonia, are highly volatile. Increased costs of raw materials and/or their delivery that cannot be passed on to our customers through price increases impact our operating costs and liquidity and could have a material adverse effect on our cash flow, business and results of operations.

The main raw materials by volume used in the manufacture of alkylamines and their derivatives are methanol, ammonia, ethylene oxide and acetone. We depend upon raw materials supplied by third parties by pipeline, railcar, barge or truck. We typically enter into supply agreements for terms of one year or longer. Certain of these agreements are automatically renewable each year, subject to termination by either party upon as little as 30 days’ notice. In addition, certain of our supply arrangements are not subject to written contracts and therefore can be terminated by either party at any time. If our contractual relationships with our suppliers were terminated or were insufficient to meet our needs, or if we were otherwise unable to secure these or other necessary raw materials or to acquire them at commercially reasonable prices, then our business and results of operations could be materially adversely affected. In addition, there is a risk that the regulation of the transportation of ethylene oxide and ammonia may become more stringent, which could raise the cost of the raw materials. The supply of ethylene oxide has been constrained recently, which could impact availability and pricing of ethylene oxide in the future.

In addition, some of our current contracts allow us to purchase raw materials at advantageous prices. If our counterparties suffer financial problems or are for other reasons unable to fulfill their requirements under these contracts, or if we are unable to renew these contracts on the same or similar terms, then our business and results of operations could be materially adversely affected. In particular, we have a methanol supply contract with Methanex Methanol Company (“Methanex”) that contains favorable pricing and expires in 2019, but Methanex has invoked force majeure on a number of occasions in the last several years, resulting in a reduction in the amount of methanol supplied under the contract at the favorable price, and it is possible that Methanex may do so again in the future. When force majeure is invoked, we are required to source our methanol at higher prices, adversely impacting our margins and results.

For our production of solvents, such as dimethylformamide (“DMF”), access to low cost carbon monoxide (“CO”), is essential to profitability. As DMF is by far our largest solvent product, any disruption in access to low cost CO could have a material adverse effect on our business and results of operations.

 

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For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Drivers of Our Business—Raw Materials” and “Business—Our Operations—Raw Materials.”

We may not be able to pass on the costs of raw materials, energy or other inputs to customers in future contracts, which may have a material adverse effect on our business and results of operations.

Many of our current contracts with customers allow us to pass on much of any increase in the cost of our key raw materials, energy and other inputs to those customers as part of the price of the products they purchase. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Drivers of Our Business—Volume, Product Mix and Pricing.” When the terms of our current contracts with customers expire in the future, we may not be able to negotiate new contracts that allow us to pass the costs of inputs on to our customers and this may have a material adverse effect on our business and results of operations. While approximately 48% of our contracts for the pro forma year ended December 31, 2012 permit pass-throughs of key raw material increases, we have generally been able to pass along increases, subject to a time lag, in our other sales. We cannot assure you that we will be able to do so in the future. In addition, decreases in raw material costs are passed through to our customers, which may decrease our net sales.

Our new products and products under development may not prove to be commercially viable. Failure to develop commercially successful products or keep pace with our competitors could harm our business and results of operations.

The development of new and innovative products is a key driver of our growth. However, developing new products is a costly, lengthy and uncertain process, and it is difficult to estimate the commercial success of new products unproven in the marketplace.

New product candidates may appear promising in development, but may fail to reach the market or have only limited commercial success. This, for example, could be the result of efficacy or safety concerns, an inability to obtain necessary regulatory approvals in certain geographic markets, difficulty manufacturing or excessive manufacturing costs, erosion of patent terms as a result of a lengthy development period, infringement of patents or other intellectual property rights of others or an inability to differentiate the product adequately from its competitors.

A failure to develop commercially successful products or to develop additional uses for existing products could materially and adversely affect our financial results. For example, Taminizer D is a new product for which the market is unproven. If our expectations for the market performance of this product are not borne out, we may be unable to recover our development costs, which could have an adverse effect on our business and results of operations. In addition, our sales are concentrated in a few key products. As a result, failure to keep pace with the innovations of new or existing competitors could reduce demand for any of these key products and may have a material adverse effect on our business and results of operations.

We may not be able to obtain patents protecting some of our intellectual property that is the subject of applications for patents and existing rights may be challenged and will eventually expire, which could reduce our growth potential.

Our intellectual property rights are important to our business and will be critical to our ability to grow and succeed in the future. See “Business—Our Operations—Research and Product Development—Intellectual Property.” As of December 31, 2012, we had 76 patents, 159 pending patent applications and numerous registered trademarks in various jurisdictions around the world. These pending patent applications are for the products and technologies that our research and development team has developed. There can be no assurance that these pending patent applications will not be challenged by third parties or that such applications will eventually be issued by the applicable patent offices as patents. It is possible that none of the pending patent applications will result in issued patents, which may have a materially adverse effect on our business and results of

 

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operations. Even if patents do issue from our pending applications, such patents may not provide us with any competitive advantage and there is no certainty that others will not independently develop similar or alternative technologies, each of which may have a material adverse effect on our business and results of operations. Furthermore, our existing patents are subject to challenges from third parties which may result in invalidations and will all eventually expire after which we will not be able to prevent our competitors from using our previously patented technologies, which could materially adversely affect our competitive advantage stemming from those products and technologies.

If we are sued for infringing intellectual property rights of third parties, it will be costly and time consuming, and an unfavorable outcome in any litigation would harm our business.

We cannot assure you that our activities will not, unintentionally or otherwise, infringe on the patents and other intellectual property rights owned by others. We may spend significant time and effort and incur significant litigation costs if we are required to defend ourselves against intellectual property rights claims brought against us, regardless of whether the claims have merit. If we are found to have infringed on the patents or other intellectual property rights of others, we may be subject to substantial claims for damages, which could materially impact our cash flow, business, financial condition and results of operations. We may also be required to cease development, use or sale of the relevant products or processes, or we may be required to obtain a license on the disputed rights, which may not be available on commercially reasonable terms, if at all.

We conduct some operations through a joint venture with a third party, which we cannot operate solely for our own benefit.

We have a 50% interest in a joint venture with the MGC Group in Nanjing, China. Our ability to receive dividends, royalties and other payments from this joint venture depends not only on the joint venture’s cash flows and profits, but also upon the terms of the joint venture agreement with our partner. Due to the nature of the joint venture agreement, we do not retain complete control over all decisions with respect to its operation. Conflicts with our joint venture partner may lead to deadlock and may result in our inability to pursue our desired strategy or exit the joint venture on advantageous terms. In addition, the sale or transfer of our interest in the joint venture is generally subject to the written approval of MGC Group, to the right of first offer owed to MGC Group and to the approval of certain Chinese regulatory authorities. Furthermore, the bankruptcy, insolvency or severe financial distress of us or our joint venture partner could adversely affect the joint venture.

While we do not expect the joint venture with MGC Group to contribute materially to revenue and Adjusted EBITDA, we intend it to serve as a platform for our expansion into Asia and other emerging markets. Should it not perform as expected, our efforts to expand into those markets could be materially adversely affected.

Future acquisitions and joint ventures we pursue may present unforeseen integration obstacles and costs, increase our leverage and negatively impact our performance.

We have made acquisitions of related businesses, and entered into joint ventures in the recent past and may selectively pursue acquisitions of, and joint ventures with, related businesses as one element of our growth strategy. There can be no assurance whether we decide to pursue or will be successful in completing these acquisitions, and we cannot predict the timing of any such transaction. These acquisitions may require us to assume or incur additional debt financing, resulting in additional leverage and complex debt structures. Subject to certain limitations, the covenants governing our existing indebtedness permit us to pursue additional indebtedness as part of acquisitions or joint ventures.

Although we have not had issues integrating acquired businesses in the past, we may encounter unforeseen obstacles or costs in the integration of acquired businesses in the future. Our acquisition and joint venture strategy may not be successfully received by customers, and we may not realize any anticipated benefits from acquisitions or joint ventures.

 

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Our competitive position and future prospects depend on our senior management’s experience and expertise and our ability to recruit and retain qualified personnel.

Our ability to maintain our competitive position and to implement our business strategy is dependent to a large degree on our senior management team. The loss or diminution in the services of members of our senior management team, or the inability to attract and retain additional senior management personnel, could have a material adverse effect on our business and results of operations. Competition for personnel with relevant expertise is intense due to the relatively small pool of qualified individuals, and this situation affects our ability to retain existing senior management and attract additional qualified senior management personnel. If we were to experience difficulties in recruiting or retaining qualified senior management and other personnel, it could have a material adverse effect on our business and results of operations.

Exchange rate fluctuations may have an impact on our financial results and condition.

Our operations are global. The impact of foreign currencies on our operating results, including revenue and operating expenses, includes foreign currency transaction risk and foreign currency translation risk.

We have currency exposures related to buying, selling and financing in currencies other than the local currencies of the countries in which we operate. A significant portion of our revenue for the pro forma year ended December 31, 2012 was denominated in currencies other than the U.S. Dollar, and we expect net sales from non-U.S. Dollar markets to continue to represent a significant portion of our net sales. Price increases caused by currency exchange rate fluctuations may make our products less competitive or have an adverse effect on our margins. Currency exchange rate fluctuations may also disrupt the business of our suppliers by making their purchases of raw materials more expensive and more difficult to finance. Historically, we have reduced our exposure by aligning our costs in the same currency as our revenues or, if that is impracticable, through financial instruments that provide offsets or limits to our exposures, which are opposite to the underlying transactions. However, any measures that we may implement to reduce the effect of volatile currencies and other risks of our global operations may not be effective. We cannot provide assurance that fluctuations in currency exposures will not otherwise have a material adverse effect on our financial condition or results of operations, or cause significant fluctuations in quarterly and annual results of operations.

In addition, foreign currency translation risk arises upon the translation of statement of financial position and income statement items of our foreign subsidiaries whose functional currency is a currency other than the U.S. dollar into the U.S. dollar for purposes of preparing the consolidated financial statements included elsewhere in this prospectus, which are presented in U.S. dollar. The assets and liabilities of our non-U.S. dollar denominated subsidiaries are translated at the closing rate at the date of reporting and income statement items are translated at the average rate for the period. All resulting exchange differences are recognized in a separate component of equity, “Foreign currency translation reserve” and are recorded in “Other comprehensive income.” These currency translation differences may have significant negative or positive impacts. Upon the disposal of a non-U.S. dollar denominated subsidiary, the cumulative amount of exchange differences relating to that non-U.S. dollar denominated subsidiary are reclassified from equity to profit or loss. Our foreign currency translation risk mainly relates to our operations in Europe and China. Foreign currency transaction risk arises when we or our subsidiaries enter into transactions where the settlement occurs in a currency other than the functional currency of the Company or the subsidiary. Exchange differences (gains and losses) arising on the settlement of monetary items or on translation of monetary items at rates different from those at which they were translated on initial recognition during the period or in previous financial statements are recognized in profit or loss in the period in which they arise. In order to reduce significant foreign currency transaction risk from our operating activities, we may use forward exchange contracts to hedge forecasted cash inflows and outflows. Furthermore, most non-U.S. dollar denominated debts are held by non-U.S. dollar denominated subsidiaries in the same functional currency of their operations. In certain instances, we hedge such foreign currency exposures, in which case the impact of foreign currency movement on the transaction is offset, to the extent hedged, and accounted for in the income statement concurrently with the underlying transaction.

 

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The section “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosure About Market Risk—Foreign Currency Risk” sets out the impact of the foreign currency transaction and translation risks for the operating periods included in this prospectus.

Economic, regulatory, political and local business risks in developing countries could materially adversely affect our business and results of operations.

We currently operate production facilities in China and, in the future, we may expand our business and operations into other high growth emerging markets, including Asian markets and potentially including India. Our operations in those countries are subject to the risks inherent in operating in developing countries. These risks may include, but are not limited to, the following:

 

   

legal rights, including intellectual property rights, may be difficult to enforce and receivables may be difficult to collect through enforcement proceedings;

 

   

withholding taxes or other taxes on our foreign income may be more likely to be imposed by these countries, or other restrictions on foreign trade or investment, including currency exchange controls, may be adopted;

 

   

export and import licenses may be difficult to obtain and maintain;

 

   

regulatory requirements, particularly those affecting product requirements and the use of raw materials and labor, and environmental, health and safety standards or regulations, may be subject to change; and

 

   

economic or political conditions in emerging markets may change rapidly and such markets may be subject to greater risks of inflation and fluctuations in exchange rates and interest rates.

If any of the risks described above materialize, our business, financial condition and results of operations may be materially adversely affected.

We are subject to risks inherent in foreign operations, including changes in social, political and economic conditions that could negatively impact our business prospects or operations.

We have operations in the United States, Europe, Latin America and Asia, and generate a portion of our sales in foreign countries, primarily in Europe. Similar to other companies with foreign operations and sales, we are exposed to market risks relating to fluctuations in interest rates and foreign currency exchange rates. We are also exposed to risks associated with changes in the laws and policies governing foreign investments in these countries and, to a lesser extent, changes in United States laws and regulations relating to foreign trade and investment. While such changes in laws, regulations and conditions have not had a material adverse effect on our business or financial condition, we cannot assure you as to the future effect of any such changes.

We are subject to the U.S. Foreign Corrupt Practices Act and other anti-corruption laws, as well as other laws governing our operations. If we fail to comply with these laws, we could be subject to civil or criminal penalties, other remedial measures, and legal expenses, which could adversely affect our business, financial condition and results of operations.

Our operations are subject to anti-corruption laws, including the U.S. Foreign Corrupt Practices Act (“FCPA”), the UK Bribery Act, and other anti-corruption laws that apply in countries where we do business. The FCPA, UK Bribery Act and these other laws generally prohibit us and our employees and intermediaries from bribing, being bribed or making other prohibited payments to government officials or other persons to obtain or retain business or gain some other business advantage. We operate in a number of jurisdictions that pose a high risk of potential FCPA/UK Bribery Act violations, and we participate in joint ventures and relationships with third parties whose actions could potentially subject us to liability under the FCPA, UK Bribery Act or local anti-corruption laws. In addition, we cannot predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws might be administered or interpreted.

 

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We are also subject to other laws and regulations governing our international operations, including regulations administered by the U.S. Department of Commerce’s Bureau of Industry and Security, the U.S. Department of Treasury’s Office of Foreign Asset Control, and various non-U.S. government entities, including applicable export control regulations, economic sanctions on countries and persons, customs requirements, currency exchange regulations and transfer pricing regulations (collectively, the “Trade Control laws”).

However, there is no assurance that we will be completely effective in ensuring our compliance with all applicable anticorruption laws, including the FCPA, the UK Bribery Act, or other legal requirements, including Trade Control laws. If we are not in compliance with the FCPA, the UK Bribery Act and other anti-corruption laws or Trade Control laws, we may be subject to criminal and civil penalties, disgorgement and other sanctions and remedial measures, and legal expenses, which could have an adverse impact on our business, financial condition, results of operations and liquidity. Likewise, any investigation of any potential violations of the FCPA, the UK Bribery Act, other anti- corruption laws or Trade Control laws by U.S. or foreign authorities could also have an adverse impact on our reputation, business, financial condition and results of operations.

If we are unable to continue to obtain government authorizations regarding the export of our products, or if current or future export laws limit or otherwise restrict our business, we could be prohibited from shipping our products to certain countries, which would harm our ability to generate revenue.

We must comply with U.S. and foreign laws regulating the export of our products. In certain cases, we are required to obtain a license from the U.S. federal government and foreign governments to export certain of our products. We cannot be sure of our ability to obtain any licenses required to export our products or to receive government authorizations for international sales. Moreover, the export regimes and the governing policies applicable to our business are subject to change. We cannot assure you of the extent that such export authorizations will be available to us, if at all, in the future. If we cannot obtain required government approvals under applicable regulations in a timely manner or at all, we would be delayed or prevented from selling our products in international jurisdictions, which could adversely affect our business and financial results.

We are subject to risks from litigation that may materially impact our operations.

We face an inherent business risk of exposure to various types of claims and lawsuits. We are involved in various legal proceedings that arise in the ordinary course of our business. Although it is not possible to predict with certainty the outcome of every pending claim or lawsuit or the range of probable loss, we believe these pending lawsuits and claims will not individually or in the aggregate have a material adverse impact on our results of operations. However, we could in the future be subject to various lawsuits, including intellectual property, product liability, personal injury, product warranty, environmental or antitrust claims, among others, and incur judgments or enter into settlements of lawsuits and claims that could have a material adverse effect on our results of operations in any particular period.

Tax audits and changes in tax law may adversely affect our cash flows.

The application of the tax laws of the various tax jurisdictions in which we operate are subject to interpretation. Tax audits in these jurisdictions could adversely affect our cash flows. In addition, changes in the tax laws of these jurisdictions could increase our tax expense and as a consequence reduce our cash flows.

Risks Relating to Our Industry

We may face increasing competition, which could have a material adverse effect on our business and results of operations.

Although the alkylamine industry is highly consolidated, we may face increased competition from existing and new foreign and domestic amines and derivatives producers. Competition within the alkylamines industry depends on regional market dynamics and varies significantly according to the specific products and applications

 

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involved. In addition, competition within the markets for our products is affected by a variety of factors, including but not limited to demand, product prices, reliability of product supply, relevant production capacity, customer service, product quality and availability to the markets of potential substitute materials. We cannot guarantee that we will be able to compete effectively against our current and future competitors. Increased competition from our competitors or the entrance of new competitors into the markets in which we operate could have a material adverse effect on our business and results of operations. See “Industry Overview.”

Some of our international competitors may also have better process management and may utilize more advanced technology than we do or may open new facilities that increase their installed capacity and ability to produce more products that compete with ours.

Our competitors in any particular market may also benefit from raw material suppliers or production facilities that are closer to such markets, which provide them with competitive advantages in terms of cost and proximity to customers. For example, much of the future growth in global demand for methylamines and methylamine derivatives, especially various types of solvents and choline chloride, is expected to originate in China. China’s small producers may be able to better capture this growth due to their proximity to certain industrial and agricultural customers in that region. In addition, there may be new market entrants that would increase the level of competition we face.

Our business and financial condition may be negatively impacted by new production methods or ingredients that offer alternatives to our products.

We believe our alkylamines and alkylamine derivatives are sustainable and key building blocks that are generally difficult to substitute in the production of the various chemical products which currently use alkylamines and alkylamine derivatives. However, our competitors and customers may develop new methods of producing the chemical products that currently rely on the use of alkylamines or develop new ingredients that are viable alternatives to our products. For example, one of our products used in the production of herbicides, MIPA, has been substituted for other derivatives used in glyphosate formulations. The successful development of such new production methods or ingredients that offer an alternative to or substitute for alkylamines could cause our sales to decrease, which would materially adversely affect our business, financial condition and results of operation.

We are subject to product registration and authorization regulations in many of the jurisdictions in which we operate and/or distribute our products, including the United States and member states of the European Union. Such regulations may lead to governmental restrictions or cancellations of, or refusal to issue, certain registrations or authorizations, or cause us or our customers to make product substitutions in the future. Such regulations may also lead to increased third party scrutiny and personal injury or product liability claims.

We are subject to regulations related to testing, manufacturing, labeling, registration and safety analysis in order to lawfully distribute many of our products, including, for example, in the U.S., the federal Toxic Substances Control Act, federal Insecticide, Fungicide, and Rodenticide Act and U.S. state and local pesticide laws, and, in the European Union (“E.U.”), the Regulation on Registration, Evaluation, Authorization and Restriction of Chemical Substances (“REACH”). We are also subject to similar requirements in many of the other jurisdictions in which we operate and/or distribute our products. In some cases, such registrations are subject to periodic review by relevant authorities. Compliance with these regulations can be difficult, costly and time consuming and liabilities or costs relating to such regulations could have a material adverse effect on our business, financial condition and results of operations.

Currently, three of our products are classified under REACH as carcinogenic, mutagenic or toxic to reproduction (“CMR”). These CMR classifications could result in increased costs to us, marketing and use restrictions in other jurisdictions, additional authorization requirements, or product substitutions, each of which could have a material adverse effect on our business, financial condition and results of operations.

 

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In addition, REACH could require a costly and time-consuming authorization process for any chemical deemed a Substance of Very High Concern (“SVHC”), and listed by the European Commission in Annex XIV to REACH, to remain on the market. Currently, our products NMP, DMF and DMAC are each listed as a SVHC and certain of our other products may be listed in the future. This and future listings and classifications as CMRs or otherwise could result in increased costs, product substitution by customers, marketing or use restrictions, or potential product bans without European Commission authorization, each of which could have a material adverse effect on our business, financial condition and results of operations. It is possible that the REACH authorization process or other marketing and use restrictions could be imposed on some chemicals that we use as raw materials or that are manufactured and/or imported into the E.U. by ourselves or our suppliers. If this were to occur, this could have a material adverse effect on our business, financial condition and results of operations.

Further, the CMR classifications and SVHC listings under REACH as well as any future classifications or listings of our products as CMRs, SVHCs or otherwise may result in increased third party scrutiny and personal injury or product liability litigation. Any such scrutiny or litigation could have a material adverse effect on our business, financial condition and results of operations.

Also in the E.U., our plant protection products require approval under Article 28 of Regulation 1107/2009 (the “EU PPPR”) by each Member State where they are sold. Other of our products must have E.U. level approval pursuant to the Biocidal Product Regulation (EU) No. 528/2012 (the “EU BPR”) concerning the placing of biocidal products on the market in order for us to market and sell them for particular uses. We are currently seeking European Commission authorization for several of our products to be marketed as biocidal products, which as of April 2013, had not yet been granted. We cannot assure you that these authorizations will be granted. In addition, as existing authorizations under the EU PPPR and EU EPR expire or if there are future regulatory changes affecting the authorization process, we may be unable to obtain reauthorization or maintain authorization for such products. In such case, we would be unable to market and sell any such plant protection or biocidal product not reauthorized in the E.U. going forward. The failure to obtain these authorizations or reauthorizations could have a material adverse effect on our business, financial condition and results of operations.

Our permits, licenses, registrations or authorizations and those of our customers or distributors may be modified, suspended, terminated or revoked before their expiration or we and/or they may be unable to renew them upon their expiration. We may bear liability for failure to obtain, maintain or comply with required authorizations.

We are required to obtain and maintain, and may be required to obtain and maintain in the future, various permits, licenses, registrations and authorizations for the ownership or operation of our business, including the manufacturing, distribution, sale and marketing of our products and importing of raw materials. See “Business—Our Operations—Environmental, Health and Safety Matters.” These permits, licenses, registrations and authorizations could be modified, suspended, terminated or revoked or we may be unable to renew them upon their expiration for various reasons, including for non-compliance. These permits, licenses, registrations and authorizations can be difficult, costly and time consuming to obtain and could contain conditions that limit our operations. Our failure to obtain, maintain and comply with necessary permits, licenses, registrations or authorizations for the conduct of our business could result in fines or penalties, which may be significant. Additionally, any such failure could restrict or otherwise prohibit certain aspects of our operations, which could have a material adverse effect on our business, financial condition and results of operations.

Many of our customers and distributors require similar permits, licenses, registrations and authorizations to operate. If a significant customer, distributor or group thereof were to have an important permit, license, registration or authorization revoked or such permit, license, registration or authorization was not renewed, forcing them to cease or reduce their business, our sales could decrease, which would have a material adverse effect on our business, financial condition and results of operations.

 

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We are subject to stringent environmental, health and safety laws and regulations across multiple jurisdictions, which could become more stringent in the future and increase our operating expenses. Failure to comply with these laws and regulations could result in fines and penalties, injunctions and other enforcement action.

Similar to other chemical producers, we are subject to increasingly stringent environmental, health and safety laws and regulations in all of the jurisdictions in which we operate, including those governing pollution; protection of the environment; air emissions; greenhouse gas emissions; energy efficiency; water supply, use and discharges; construction and operation of sites; the use, generation, handling, transport, treatment, recycling, presence, release and threatened release, management, storage and disposal of and exposure to hazardous substances, materials or waste; public health and safety and the health and safety of our employees; product safety; noise, odor, mold, dust and nuisance; the investigation and remediation of contaminated soil and groundwater; the protection and restoration of plants, wildlife and natural resources; and cultural and historic resources, land use and other similar matters as well as numerous related reporting and record keeping requirements. See “Business—Our Operations—Environmental, Health and Safety Matters.”

In addition, we are required to comply with environmental, health and safety laws and regulations in relation to our production and distribution processes, and the relevant regulatory authorities carry out regular inspections to ascertain our compliance with applicable laws, regulations and permits. The demands of compliance may require us to incur substantial costs, fines or penalties and/or may restrict our ability to conduct our operations, or to do so profitably, and therefore could have a material adverse effect on our business, financial condition and results of operations. Failure to comply with applicable laws and regulations may also lead to public reprimand, fines and penalties, enforcement actions, injunctions, loss of sales and damage to our goodwill and reputation. Further, such laws and regulations, and the interpretation or enforcement thereof, are subject to change and may become more stringent in the future, each of which may result in substantial future capital expenditure requirements or compliance costs. See “Business—Our Operations—Environmental, Health and Safety Matters.”

We cannot assure you that our costs of complying with current and future environmental health and safety laws, and our liabilities arising from past or future releases of, or exposure to, hazardous substances will not materially adversely affect our business, financial condition or results of operations.

Our operations or products may impact the environment or cause or contribute to contamination or exposure to hazardous substances, which could result in material liabilities for us.

Our operations generate substantial air emissions, water discharges and hazardous waste requiring treatment or disposal. We could become subject to investigation or clean-up obligations, related third-party personal injury or property damage claims or other liabilities in connection with emissions, spills and releases of hazardous materials at current or former properties or at off-site locations. For example, under certain U.S. environmental laws, current and former property owners and operators, as well as hazardous waste generators, arrangers and transporters, can be held liable for investigation and clean-up costs at properties where there has been a “release” or “threatened release” of hazardous substances. Some of these laws can also require so-called “potentially responsible parties” to fund the restoration of damaged natural resources or agree to restrictions on future uses of impacted properties. Liability under such laws can be strict, joint, several and retroactive. Accordingly, we could incur liability, whether as a result of government enforcement or private claims, for known or unknown liabilities at, or caused by migrations from or hazardous waste transported from, any of our current or former facilities or properties, including those owned or operated by predecessors or third parties. We could also incur liability under common law or state law theories, including, for example, nuisance theories for noise, odor or vibration caused by our operations. We are subject to similar laws in other jurisdictions where we operate. See “Business—Our Operations—Environmental, Health and Safety Matters.” In addition, we occasionally evaluate various strategic alternatives with respect to our facilities, including possible dispositions or closures. Investigations undertaken in connection with these activities may lead to discoveries of contamination that must be remediated, and closures of facilities may trigger remediation requirements that are not currently applicable to our operating facilities.

 

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Certain contamination at several of our properties is currently being directly addressed by third parties at their expense in accordance with contractual obligations and a governmental order. See “Business—Our Operations—Environmental, Health and Safety Matters—Contamination and Hazardous Substance Risks.” There can be no assurances that these third parties will continue to honor these obligations in the future. If third parties refuse to or are unable in the future to perform or pay in accordance with contractual or other obligations, if their contractual or other obligations expire, or if certain contamination or other liability for which we are or become obligated is not subject to an indemnity, we may be responsible for cleanup of contamination and could incur significant unanticipated costs. It is possible that we will not be able to recover a substantial portion, if any, of the costs that we may incur. Although costs incurred by us in connection with contamination matters to date have not been material, future cleanup costs could have a material adverse effect on our business, financial condition and results of operations.

Furthermore, exposure of our employees, the environment, neighbors and others to risks connected with the manufacturing of our products may result in claims. In connection with contaminated properties, as well as with our operations generally, we could be subject to claims by government authorities, individuals and other third parties seeking damages for alleged personal injury or property damage resulting from hazardous substance contamination or exposure caused by our operations, facilities or products. Our insurance may not be sufficient to cover any of these exposure, product, injury or damage claims.

We are subject to federal regulations aimed at increasing the security of chemical manufacturing facilities and the transportation of hazardous materials. If the costs of complying with these and future regulations increase, our business and results of operations may be negatively impacted.

The U.S. Department of Homeland Security issued regulations aimed at decreasing the risk, and effect, of potential terrorist attacks on chemical plants located within the United States. Our facilities in the United States are subject to these regulations, including the Chemical Facility Anti-Terrorism Standard as well as regulations regarding the transportation of chemicals in the United States. In addition, local and state governmental authorities have instituted various regulatory processes that could lead to new regulations impacting the security of chemical plant locations and the transportation of hazardous chemicals. We are a participant in certain voluntary supply chain programs, such as the U.S. Customs and Border Protections’ Customs–Trade Partnership Against Terrorism (“C–TPAT”) program and the E.U. Authorized Economic Operator (“AEO”) program. It is possible that growth of our production facilities may trigger new regulation and that future legislation or other related legislation may require a substantial increase in costs attributable to complying with such new regulations, which could have a material adverse effect on our business, financial condition and results of operations.

We are exposed to fluctuations in supply and demand for our products, which could decrease our net sales.

Fluctuations in the supply and demand for alkylamines and derivatives in our primary markets may trigger fluctuations in the average selling prices of our products. For example, recent low natural gas prices in the United States have impacted new investments for shale gas exploration and, by extension, demand for certain of our Specialty Amines products. The fluctuations in the average selling prices of our products are primarily caused by market competition, changes in raw material costs and other macroeconomic factors that are beyond our control. For more information about the price fluctuations of our raw materials, see “Business—Our Operations—Raw Materials.”

A number of macroeconomic factors drive demand for chemicals, including changes in world population, availability of arable land per capita and income growth. See “Industry Overview—Markets for Our Products.” Negative trends in any one of these factors may result in a decrease in demand for our products and could have a material adverse effect on our business and results of operations.

 

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As a result of fluctuations in supply and demand for our products, we may experience volatile or declining average selling prices for our products in the future or our average selling prices may not remain at consistent levels. This may result in pressure on our operating margins as average selling prices fall but fixed costs remain constant. Any decrease in the demand for alkylamines and derivatives in our primary markets or any other factor which negatively impacts upon our ability to sell our alkylamines and derivatives could have a material adverse effect on our business and results of operations.

Our business, reputation and products may be affected by product liability claims, complaints or adverse publicity in relation to our products.

Our products involve an inherent risk of injury that may result from tampering by unauthorized third parties or from product contamination or degeneration, including through the presence of foreign contaminants, chemicals, substances or other agents or residues during the various stages of the procurement, production, transportation and storage process. We cannot guarantee that our products will not cause any health related illness or injury in the future or that we will not be subject to claims or lawsuits relating to such matters. Although we carry customary third-party liability and product liability insurance, in the event that a product liability or third-party liability claim is brought against us, we cannot guarantee that we will be successful in making an insurance claim under our policies or that the claimed proceeds will be sufficient to compensate the actual damages suffered. For more information, see “Business—Insurance.”

We may be required to recall our products in certain jurisdictions if they fail to meet relevant quality or safety standards. We cannot guarantee that product liability claims will not be asserted against us as a result. A product liability judgment against us or a product recall could have a material adverse effect on our business and results of operations. In addition, we could be required to increase our debt or divert resources from other investments in our business to discharge any such claims. In addition, adverse publicity in relation to our products could have a significant affect on future sales, which could result in a material adverse affect on the profitability of our operations.

Poor weather conditions could have a material adverse effect on our business.

Poor weather conditions can reduce our sales, particularly in the Crop Protection segment. Sales of our Crop Protection products are affected by weather patterns because crop harvests, and decisions about whether to plant crops, vary according to whether the growing season is excessively wet or dry. Undesirable weather conditions lead to smaller harvests and, accordingly, less demand for our products. The effects of poor weather conditions may have a delayed impact on our results of operations as we sell our products to distributors who may have excess supply, or buy raw materials from suppliers who may have reduced supply, after a poor growing season, resulting in lower order volume the following season. For example, poor weather conditions negatively impacted our volumes in early 2009, which resulted in the loss of two suppliers of our raw materials and, ultimately, a decrease in gross profit margin for 2010.

A variety of force majeure events and the volatile nature of our chemical products could have a material adverse effect on our business. In addition, our production facilities are subject to significant operating hazards and shutdowns.

Our manufacturing operations may be disrupted by a variety of risks and hazards that are beyond our control, such as environmental hazards, strikes and certain catastrophic events, including fires, inclement weather conditions or events, major equipment failures, natural disasters, terrorist strikes and other accidents or events causing stoppages which could lead to shutdowns in operations. Any damage to our facilities, including our information systems, causing short-term disruptions or prolonged delay in the operations of the facilities and distribution and logistics services for repairs or other reasons could have a material adverse effect on our business and results of operations. Additionally, similar risks faced by our suppliers may result in force majeure events under our supply contracts that disrupt our production or increase our costs or both. For example, in 2010,

 

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an explosion at the plant of a methanol supplier in Leuna and a catalyzation problem at another methanol supplier for our Pace facility disrupted contracted-for supply for approximately one month and two months, respectively. While we were able to source replacement methanol on the market during those periods, there is no guarantee that in the future we could do so. Additionally, market rates for methanol purchased during a force majeure event have been higher than under contract. In addition, we experienced a power outage at the Ghent facility and a plant outage following difficulties with an ethylene oxide scrubber at the St. Gabriel facility in the summer of 2011. While we were able to correct these problems, we cannot assure you that in the future, similar outages will not take place, or that the impact will be effectively contained if they do. Such disruptions or cost increases could have a material adverse effect on our business and results of operations.

We use, manage, process, manufacture, store, transport and dispose of substantial quantities of chemicals, hazardous raw materials and liquid and solid wastes at our chemical facilities. Some of these materials are very volatile and could be harmful if handled or disposed of improperly. See “Industry Overview.” Accidents involving these substances, which are often subject to high pressures and temperatures during the production process, storage and transport, could cause severe damage or injury to property, the environment and human health, as well as possible disruptions, restrictions or delays in production. Any injuries or damage to persons, equipment or property or other disruption in the production or distribution of our products could result in a significant decrease in operating revenue and significant increase in costs to replace or repair and insure our assets, which could materially adversely affect our business and results of operations. It could also have legal consequences, such as violations of regulatory requirements and/or lawsuits for personal injuries, property damage or diminution, and similar claims.

Our insurance policies may not cover, or fully cover, us against natural disasters, global conflicts, environmental risk or the inherent hazards of our operations and products.

We currently have insurance policies for certain operating risks, which include certain property damage, including certain aspects of business interruption for certain sites, operational and product liability, marine stock, transit, directors’ and officers’ liability, pollution legal liability and industrial accident insurance. See “Business—Insurance.” However, we may become subject to liability (including in relation to pollution, occupational illnesses, injury resulting from tampering, product contamination or degeneration or other hazards) against which we have not insured or cannot fully insure.

For example, military action, terrorist attacks or hurricanes may affect our facilities. In particular, the failure of our information systems as a result of breakdown, malicious attacks, unauthorized access, viruses or other factors could severely impair several aspects of operations, including, but not limited to, logistics, sales, customer service and administration. See “Business—Information Technology.” In the past, hurricanes have caused some damage to our facilities in Florida and Louisiana and have affected our ability to deliver products on time. In addition, in the event that a product liability or third-party liability claim is brought against us, we may be required to recall our products in certain jurisdictions if they fail to meet relevant quality or safety standards, and we cannot guarantee that we will be successful in making an insurance claim under our policies or that the claimed proceeds will be sufficient to compensate the actual damages suffered.

Should we suffer a major uninsured loss, a product liability judgment against us or a product recall, future earnings could be materially adversely affected. We could be required to increase our debt or divert resources from other investments in our business to discharge product related claims. In addition, adverse publicity in relation to our products could have a significant effect on future sales, and, insurance may not continue to be available at economically acceptable premiums. As a result, our insurance coverage may not cover the full scope and extent of claims against us or losses that we incur, including, but not limited to, claims for environmental or industrial accidents, occupational illnesses, pollution and product liability and business interruption. See “Business—Insurance.”

 

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We are subject to the risk of labor relations actions which may disrupt our operations.

Approximately 35% of our workforce is part of a trade union. There can be no assurance that our operations will not be affected by labor relations actions in the future, and there can be no assurance that work stoppages or other labor-related developments will not materially adversely affect our business and results of operations in the future. Future labor contracts may be on terms that result in higher labor costs to us, which also could adversely affect our business.

Risks Relating to This Offering and Ownership of Our Common Stock

An active trading market for our common stock may not develop.

Prior to this offering, there has been no public market for our common stock. The initial public offering price for our common stock will be determined through negotiations between us and the underwriters, and market conditions, and may not be indicative of the market price of our common stock after this offering. If you purchase shares of our common stock, you may not be able to resell those shares at or above the initial public offering price. We cannot predict the extent to which investor interest in the Company will lead to the development of an active trading market or how liquid that market might become. An active public market for our common stock may not develop or be sustained after the offering. If an active public market does not develop or is not sustained, it may be difficult for you to sell your shares of common stock at a price that is attractive to you, or at all.

Our stock price may be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares at or above the initial public offering price.

After this offering, the market price for our common stock is likely to be volatile, in part because our shares have not been traded publicly. In addition, the market price of our common stock may fluctuate significantly in response to a number of factors, many of which we cannot control, including those described under “—Risks Relating to Our Business” and the following:

 

   

changes in financial estimates by any securities analysts who follow our common stock, our failure to meet these estimates or failure of those analysts to initiate or maintain coverage of our common stock;

 

   

downgrades by any securities analysts who follow our common stock;

 

   

future sales of our common stock by our officers, directors and significant stockholders;

 

   

market conditions or trends in our industry or the economy as a whole;

 

   

investors’ perceptions of our prospects;

 

   

announcements by us or our competitors of significant contracts, acquisitions, joint ventures or capital commitments; and

 

   

changes in key personnel.

In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. The changes frequently appear to occur without regard to the operating performance of the affected companies. Hence, the price of our common stock could fluctuate based upon factors that have little or nothing to do with us, and these fluctuations could materially reduce our share price.

Apollo controls us and its interests may conflict with or differ from your interests as a stockholder.

After the consummation of this offering, funds affiliated with Apollo will beneficially own approximately 71.8% of our common stock, assuming the underwriters do not exercise their option to purchase additional shares, or 68.2% if the underwriters exercise their option in full. In addition, representatives of Apollo comprise

 

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5 of our 10 directors and funds affiliated with Apollo have the power to elect all of our directors. As a result, Apollo will continue to have the ability to prevent any transaction that requires the approval of our board of directors or stockholders, including the approval of significant corporate transactions such as mergers and the sale of substantially all of our assets.

The interests of Apollo could conflict with or differ from your interests as a holder of our common stock. For example, the concentration of ownership held by funds affiliated with Apollo could delay, defer or prevent a change of control of us or impede a merger, takeover or other business combination that you as a stockholder may otherwise view favorably. Apollo is in the business of making or advising on investments in companies and holds, and may from time to time, in the future, acquire interests in or provide advice to businesses that directly or indirectly compete with certain portions of our business or are suppliers or customers of ours. They may also pursue acquisitions that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us.

Our certificate of incorporation will provide that we expressly renounce any interest or expectancy in any business opportunity, transaction or other matter in which Apollo or any of its members, directors, employees or other affiliates (the “Apollo Group”) participates or desires or seeks to participate in, even if the opportunity is one that we would reasonably be deemed to have pursued if given the opportunity to do so. The renouncement does not apply to any business opportunities that are presented to an Apollo Group member solely in such person’s capacity as a member of our board of directors and with respect to which no other member of the Apollo Group independently receives notice or otherwise identifies such business opportunity prior to us becoming aware of it, or if the business opportunity is initially identified by the Apollo Group solely through the disclosure of information by or on behalf of us.

So long as funds affiliated with Apollo continue to beneficially own a significant amount of our equity, even if such amount is less than 50%, it may continue to be able to strongly influence or effectively control our decisions.

Following the offering, we will be classified as a “controlled company” and, as a result, we will qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.

Upon the closing of this offering, funds affiliated with Apollo will continue to control a majority of our common stock. As a result, we will be a “controlled company” within the meaning of the applicable stock exchange corporate governance standards. Under the NYSE rules, a company of which more than 50% of the outstanding voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain stock exchange corporate governance requirements, including:

 

   

the requirement that a majority of the board of directors consists of independent directors;

 

   

the requirement that we have a nominating/corporate governance committee that is composed entirely of independent directors;

 

   

the requirement that we have a compensation committee that is composed entirely of independent directors; and

 

   

the requirement for an annual performance evaluation of the nominating/corporate governance and compensation committees.

Following this offering, we intend to utilize these exemptions. As a result, we will not have a majority of independent directors and our nominating/corporate governance and compensation committees will not consist entirely of independent directors and we will not be required to have an annual performance evaluation of the nominating/corporate governance and compensation committees. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the stock exchange corporate governance requirements.

 

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If you purchase shares of common stock sold in this offering, you will incur immediate and substantial dilution.

If you purchase shares of common stock in this offering, you will incur immediate and substantial dilution in the amount of $27.37 per share because the initial public offering price of $19.00 is substantially higher than the pro forma net tangible book value per share of our outstanding common stock. This dilution is due in large part to the fact that our earlier investors paid substantially less than the initial public offering price when they purchased their shares. In addition, you may also experience additional dilution upon future equity issuances or the exercise of stock options to purchase common stock granted to our employees, consultants and directors under our stock option and equity incentive plans. See “Dilution.”

Because we do not anticipate paying dividends on our common stock in the foreseeable future, you should not expect to receive dividends on shares of our common stock.

We have no present plans to pay dividends to our stockholders and, for the foreseeable future, intend to retain all of our earnings for use in our business. The declaration of any future dividends by us is within the discretion of our board of directors and will be dependent on our earnings, financial condition and capital requirements, as well as any other factors deemed relevant by our board of directors. Accordingly, if you purchase shares in this offering, realization of a gain on your investment will depend on the appreciation of the price of our common stock, which may never occur.

We may be restricted from paying cash dividends on our common stock in the future.

We are a holding company that does not conduct any business operations of our own. As a result, we are largely dependent upon cash dividends and distributions and other transfers from our subsidiaries to make dividend payments on our common stock. The amounts available to us to pay cash dividends may be restricted by law, regulation, or any debt agreements entered into by us or our subsidiaries. For example, our Senior Secured Credit Facilities contain covenants limiting the payment of cash dividends without the consent of the lenders and the indentures governing our Notes contain covenants limiting the payment of cash dividends without the consent of the holders of the Notes. We cannot assure you that these agreements or the agreements governing any future indebtedness of us or our subsidiaries, or applicable laws or regulations, will permit us to pay dividends on our common stock or otherwise adhere to any dividend policy we may adopt in the future.

Future sales of our common stock, or the perception in the public markets that these sales may occur, may depress our stock price.

Sales of substantial amounts of our common stock in the public market after this offering, or the perception that these sales could occur, could adversely affect the price of our common stock and could impair our ability to raise capital through the sale of additional shares. Upon completion of this offering, we will have 65,228,438 shares of common stock outstanding. The shares of common stock offered in this offering will be freely tradable without restriction under the Securities Act of 1933, as amended (the “Securities Act”) except for any shares of our common stock that may be held or acquired by our directors, executive officers and other affiliates, as that term is defined in the Securities Act, which will be control securities under the Securities Act. Control securities may not be sold in the public market unless the sale is registered under the Securities Act or an exemption from registration is available.

We, each of our officers and directors and all of our other security holders that collectively hold 49,438,964 shares of our common stock outstanding prior to this offering have agreed, subject to certain exceptions, with the underwriters not to dispose of or hedge any of the shares of common stock or securities convertible into or exchangeable for shares of common stock during the period from the date of this prospectus continuing through the date that is 180 days after the date of this prospectus, except, in our case, for the issuance of common stock upon exercise of options under existing option plans. The underwriters may, in their sole discretion, release any of these shares from these restrictions at any time without notice. See “Underwriting (Conflicts of Interest).”

 

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After this offering, subject to any lock-up restrictions described above with respect to certain holders, holders of approximately 40,838,521 shares of our common stock will have the right to require us to register the sales of their shares under the Securities Act, under the terms of an agreement between us and the holders of these securities, and an additional 6,001,196 shares of our common stock held by Taminco Co-Investors, L.P. will have the benefit of piggy-back registration rights, as described under “Certain Relationships and Related Party Transactions—Manager Investor Rights Agreement” and “Shares Eligible for Future Sale—Registration Rights.”

In the future, we may also issue our securities in connection with investments or acquisitions. The amount of shares of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding shares of our common stock.

As a public company, we will become subject to additional financial and other reporting and corporate governance requirements that may be difficult for us to satisfy and may divert management’s attention from our business.

As a public company, we will be required to file annual and quarterly reports and other information pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), with the SEC. We will be required to ensure that we have the ability to prepare financial statements that comply with SEC reporting requirements on a timely basis. We will also be subject to other reporting and corporate governance requirements, including the applicable stock exchange listing standards and certain provisions of the Sarbanes-Oxley Act and the regulations promulgated thereunder, which impose significant compliance obligations upon us. Specifically, we will be required to:

 

   

prepare and distribute periodic reports and other stockholder communications in compliance with our obligations under the federal securities laws and applicable stock exchange rules;

 

   

create or expand the roles and duties of our board of directors and committees of the board;

 

   

institute compliance and internal audit functions that are more comprehensive;

 

   

evaluate and maintain our system of internal control over financial reporting, and report on management’s assessment thereof, in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act (“Section 404”) and the related rules and regulations of the SEC and the Public Company Accounting Oversight Board;

 

   

enhance our investor relations function;

 

   

maintain internal policies, including those relating to disclosure controls and procedures; and

 

   

involve and retain outside legal counsel and accountants in connection with the activities listed above.

As a public company, we will be required to commit significant resources and management time and attention to the above-listed requirements, which will cause us to incur significant costs and which may place a strain on our systems and resources. As a result, our management’s attention might be diverted from other business concerns. In addition, we might not be successful in implementing these requirements. The cost of preparing and filing annual and quarterly reports, proxy statements and other information with the SEC and furnishing audited reports to stockholders will cause our expenses to be higher than they would be if we remained a privately held company. Our management and other personnel will need to devote a substantial amount of time to comply with these rules and regulations.

In addition, the Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal control over financial reporting. To maintain and improve the effectiveness of our disclosure controls and procedures, significant resources and management oversight will be required. We will be implementing additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies. We expect to incur certain additional annual expenses related to these activities and, among other things, additional directors’ and officers’ liability insurance, director fees, reporting requirements, transfer agent fees, hiring additional accounting, legal and administrative personnel, increased auditing and legal fees and similar expenses.

 

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Failure to design, implement and maintain effective internal controls could have a material adverse effect on our business and stock price.

As a public company, we will have significant requirements for enhanced financial reporting and internal controls. The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. If we are unable to establish or maintain appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations on a timely basis, result in material misstatements in our financial statements and harm our operating results. In addition, we will be required, pursuant to Section 404, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting for the first fiscal year beginning after the effective date of this offering. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting, as well as a statement that our auditors have issued an attestation report on effectiveness of our internal controls. Testing and maintaining internal controls may divert our management’s attention from other matters that are important to our business. We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 or our independent registered public accounting firm may not issue a favorable assessment. If either we are unable to conclude that we have effective internal control over financial reporting or our independent registered public accounting firm is unable to provide us with an unqualified report, investors could lose confidence in our reported financial information, which could have a material adverse effect on the trading price of our stock.

Our organizational documents may impede or discourage a takeover, which could deprive our investors of the opportunity to receive a premium of their shares.

Provisions of our certificate of incorporation and bylaws may make it more difficult for, or prevent a third party from, acquiring control of us without the approval of our board of directors. These provisions include:

 

   

having a classified board of directors;

 

   

establishing limitations on the removal of directors;

 

   

empowering only the board to fill any vacancy on our board of directors, whether such vacancy occurs as a result of an increase in the number of directors or otherwise;

 

   

authorizing the issuance of “blank check” preferred stock without any need for action by stockholders;

 

   

prohibiting stockholders from acting by written consent if less than 50.1% of our outstanding common stock is beneficially owned by funds affiliated with Apollo;

 

   

to the extent permitted by law, prohibiting stockholders from calling a special meeting; and

 

   

establishing advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings.

Our issuance of shares of preferred stock could delay or prevent a change in control of us. Our board of directors has the authority to cause us to issue, without any further vote or action by the stockholders, shares of preferred stock, par value $0.001 per share, in one or more series, to designate the number of shares constituting any series, and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, voting rights, rights and terms of redemption, redemption price or prices and liquidation preferences of such series. The issuance of shares of our preferred stock may have the effect of delaying, deferring or preventing a change in control without further action by the stockholders, even where stockholders are offered a premium for their shares.

 

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In addition, as long as funds affiliated with Apollo beneficially own a majority of our outstanding common stock, Apollo will be able to control all matters requiring stockholder approval, including the election of directors, amendment of our certificate of incorporation and certain corporate transactions. Together, these charter, bylaw and statutory provisions could make the removal of management more difficult and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our common stock. Furthermore, the existence of the foregoing provisions, as well as the significant common stock beneficially owned by funds affiliated with Apollo and its rights to nominate a specified number of directors in certain circumstances, could limit the price that investors might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of us, thereby reducing the likelihood that you could receive a premium for your common stock in an acquisition. For a further discussion of these and other such anti-takeover provisions, see “Description of Capital Stock—Certain Corporate Anti-takeover Provisions.”

We will have broad discretion in how we use the proceeds of this offering and we may not use these proceeds effectively. This could affect our results of operations and cause the price of our common stock to decline.

Our management team will have considerable discretion in the application of the net proceeds of this offering, and you will not have the opportunity, as part of your investment decision, to assess whether we are using the proceeds appropriately. We currently intend to use the net proceeds that we receive from this offering for repayment of indebtedness and other general corporate purposes. We may use the net proceeds for corporate purposes that do not improve our results of operations or which cause our stock price to decline.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If no securities or industry analysts commence coverage of the Company, the trading price for our common stock would be negatively impacted. If we obtain securities or industry analyst coverage and if one or more of the analysts who covers us downgrades our common stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our common stock could decrease, which could cause our stock price and trading volume to decline.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Any statements made in this prospectus that are not statements of historical fact, including statements about our beliefs and expectations, are forward-looking statements within the meaning of the federal securities laws, and should be evaluated as such. Forward-looking statements include information concerning possible or assumed future results of operations, including descriptions of our business plan and strategies. These statements often include words such as “anticipate,” “expect,” “suggests,” “plan,” “believe,” “intend,” “estimates,” “targets,” “projects,” “should,” “could,” “would,” “may,” “will,” “forecast,” and other similar expressions. These forward-looking statements are contained throughout this prospectus, including the sections entitled “Prospectus Summary,” “Risk Factors,” “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” We base these forward-looking statements or projections on our current expectations, plans and assumptions that we have made in light of our experience in the industry, as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances and at such time. As you read and consider this prospectus, you should understand that these statements are not guarantees of performance or results. The forward-looking statements and projections are subject to and involve risks, uncertainties and assumptions and you should not place undue reliance on these forward-looking statements or projections. Although we believe that these forward-looking statements and projections are based on reasonable assumptions at the time they are made, you should be aware that many factors could affect our actual financial results or results of operations and could cause actual results to differ materially from those expressed in the forward-looking statements and projections. Factors that may materially affect such forward-looking statements and projections include:

 

   

increases in energy costs, in particular natural gas costs, or a disruption in the supply of energy for our operations;

 

   

the price and availability of raw materials, energy and equipment, and our ability to pass on increased costs to customers;

 

   

loss of major customers;

 

   

commercial viability of our new products and products under development;

 

   

changes in macroeconomic conditions;

 

   

inability to secure or protect intellectual property rights;

 

   

conduct of our operations through a joint venture with a third party;

 

   

loss of senior management expertise or inability to recruit and retain qualified personnel;

 

   

exchange rate fluctuations;

 

   

economic, regulatory, political and local business risks in developing countries;

 

   

the impact of the U.S. Foreign Corrupt Practices Act and other anti-corruption laws, as well as other laws governing our operations, and our compliance therewith;

 

   

inability to obtain government authorizations regarding the export of our products, or limitation or restrictions on our business imposed by current or future export laws;

 

   

increased competition;

 

   

inability to obtain, modify and/or renew permits, licenses, registrations or other regulatory authorizations;

 

   

the impact of environmental, health and safety laws and regulations, including those relating to greenhouse gas emissions, and compliance therewith;

 

   

costs associated with environmental contamination and/or exposure to hazardous substances, including natural resource damages;

 

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refusal by or inability of third parties to perform or pay under indemnification or similar agreements;

 

   

fluctuations in supply and demand for our products;

 

   

product liability claims, complaints or adverse publicity in relation to our products;

 

   

adverse weather conditions affecting sales or events of force majeure;

 

   

inadequacy of insurance coverage;

 

   

labor relations actions or other litigation;

 

   

our debt obligations and ability to raise additional financing in the future;

 

   

our ability to generate sufficient cash to service our debt and to control and finance our capital expenditures and operations; and

 

   

other factors discussed in more detail under “Risk Factors.”

These cautionary statements should not be construed by you to be exhaustive and are made only as of the date of this prospectus. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. If we do update one or more forward-looking statements, there should be no inference that we will make additional updates with respect to those or other forward-looking statements.

 

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MARKET, RANKING AND OTHER INDUSTRY DATA

In this prospectus we rely on and refer to information and statistics regarding our industry, the size of certain markets and our position within the sectors in which we compete. Some of the market and industry data contained in this prospectus are based on independent industry publications or other publicly available information and data from a report issued by Arthur D. Little Benelux S.A./N.V. that we commissioned in October 2012, which is not publicly available, while other information is based on our good faith estimates, which are derived from our review of internal surveys, as well as independent sources listed in this prospectus, and our management’s knowledge and experience in the markets in which we operate. Our estimates have also been based on information obtained from our customers, suppliers and other contacts in the markets in which we operate. While we are not aware of any misstatements regarding any industry data presented herein, our estimates, in particular as they relate to market share and our general expectations, involve risks and uncertainties and are subject to change based on various factors, including those discussed under “Risk Factors,” “Cautionary Statement Regarding Forward-Looking Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus.

ADL conducted its analysis and prepared its report utilizing reasonable care and skill in applying methods of analysis consistent with normal industry practice. All results are based on information available at the time of review. Changes in factors upon which the review was based could affect the results. Forecasts are inherently uncertain because of events or combinations of events that cannot reasonably be foreseen, including the actions of government, individuals, third parties and competitors.

In this prospectus, references to market position and ranking information are based on volume or installed capacity unless otherwise indicated.

 

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USE OF PROCEEDS

Assuming an initial offering price of $19.00 per share, which is the midpoint of the offering price range set forth on the front cover page of this prospectus, we estimate that the net proceeds to us from the sale of the shares of our common stock in this offering will be $281 million, after deducting estimated underwriting discounts and offering expenses.

We intend to use the net proceeds received by us in this offering, along with readily available cash, to (i) redeem all of the outstanding $250 million principal amount of our PIK Toggle Notes, (ii) pay the redemption premiums of $5 million and fees in connection with the redemption of the foregoing indebtedness, (iii) pay interest of approximately $7 million, representing interest payable from December 18, 2012 through the anticipated date that the indebtedness will be redeemed and (iv) pay a $35 million fee in connection with the termination of the Management Consulting Agreement with Apollo. For additional information, see “Certain Relationships and Related Party Transactions—Management Consulting Agreement.”

The PIK Toggle Notes bear interest at a rate of 9.125% per annum and mature on December 15, 2017. We used the net proceeds from the offering of the PIK Toggle Notes to make a return of capital to our shareholders and pay certain related transaction costs and expenses. See “Description of Indebtedness” for further information on the terms of the PIK Toggle Notes.

Certain affiliates of the underwriters hold a portion of the notes being redeemed with a portion of the proceeds of this offering as described above. See “Underwriting (Conflicts of Interest)—Other Relationships.”

A $1.00 increase (decrease) in the assumed initial public offering price of $19.00 per share, the midpoint of the offering price range set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by $16 million assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and offering expenses.

 

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DIVIDEND POLICY

We do not currently anticipate paying dividends on our common stock following this offering. Any declaration and payment of future dividends to holders of our common stock will be at the discretion of our board of directors and will depend on many factors, including our financial condition, earnings, capital requirements, level of indebtedness, statutory and contractual restrictions applying to the payment of dividends and other considerations that our board of directors deems relevant. Because we are a holding company and have no direct operations, we will only be able to pay dividends from our available cash on hand and any funds we receive from our subsidiaries. The terms of our indebtedness may restrict us from paying dividends, or restrict our subsidiaries from paying dividends to us. Under Delaware law, dividends may be payable only out of surplus, which is our net assets minus our liabilities and our capital, or if we have no surplus, out of our net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. See “Description of Indebtedness” and “Description of Capital Stock.”

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents, indebtedness and our capitalization as of December 31, 2012:

 

   

on an actual basis; and

 

   

on a pro forma basis giving effect to this offering at an assumed initial public offering price of $19.00, which represents the midpoint of the range on the cover page of this prospectus, and our expected use of the net proceeds of this offering.

You should read the following table in conjunction with our financial statements and the related notes thereto, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Use of Proceeds” and “Description of Indebtedness” included elsewhere in this prospectus.

 

     As of December 31, 2012  
(In millions)    Actual     Pro Forma(7)  
     (Unaudited)  

Cash and cash equivalents(1)

   $ 67      $ 57   
  

 

 

   

 

 

 

Debt:

    

Capital leases

     9        9   

Revolving credit facility(2)

     —          —     

Term loan credit facility—USD

     347        347   

Term loan credit facility—EUR

     157        157   

9.750% Second-priority senior secured notes due 2020

     400        400   

9.125%/9.875% Senior PIK Toggle Notes due 2017(3)

     248        —     

Total debt

   $ 1,161      $ 913   

Equity:

    

Common stock, $0.001 par value, 64,977,545 shares authorized and issued(4)

     —          —     

Additional paid-in capital(5)

     298        579   

Retained earnings (deficit)(6)

     (28     (56

Accumulated other comprehensive income (loss)

     1        1   
  

 

 

   

 

 

 

Total equity

     271        524   
  

 

 

   

 

 

 

Total capitalization

   $ 1,432      $ 1,437   
  

 

 

   

 

 

 

 

(1) Reflects the use of $10 million of readily available cash in excess of the net proceeds of this offering. An additional $6 million will be utilized to pay interest accrued subsequent to December 31, 2012 through the anticipated date the PIK Toggle Notes will be redeemed.
(2) As of December 31, 2012, there were no borrowings outstanding under this facility, which has capacity of $194 million; however, $3 million of the total capacity was utilized to support outstanding letters of credit.
(3) The PIK Toggle Notes were issued at a discount of 99% of face value, or approximately $248 million. We will use the net proceeds of this offering to redeem the principal amount outstanding at a redemption price of 102% plus accrued interest.
(4) We completed a 9.0824 for 1 stock split of our common stock on April 4, 2013. All share amounts have been retroactively adjusted to give effect to this stock split at the time of its effectiveness.
(5) Reflects the net proceeds of this offering of $281 million, net of transaction fees of approximately $19 million.
(6) Reflects (a) an $11 million loss on the early extinguishment of the PIK Toggle Notes, inclusive of a premium of approximately $5 million, unamortized discount of $2 million and unamortized deferred costs of approximately $4 million and (b) a $35 million expense related to the termination of the Management Consulting Agreement and related payment to be made to Apollo. The retained earnings impact of these amounts is net of U.S. income taxes of approximately 37%.
(7) A $1.00 increase (decrease) in the assumed initial public offering price of $19.00 per share, which represents the midpoint of the range set forth on the cover page of this prospectus, would increase (decrease) each of cash, additional paid-in capital and total capitalization by $16 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us.

 

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DILUTION

If you invest in our common stock, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per share of our common stock and the net tangible book value per share of our common stock after this offering. Dilution results from the fact the initial public offering price per share of the common stock is substantially in excess of the book value per share of common stock attributable to the existing stockholders for the presently outstanding shares of common stock. This discussion does not give effect to the 250,893 shares of common stock issued in the first quarter of 2013 to holders of our common stock who decided to reinvest part of their receipt from the December 2012 return of capital in our common stock.

Our net tangible book value (deficit) as of December 31, 2012 was $(825) million, or $(16.77) per share of common stock. Net tangible book value per share represents the amount of our total tangible assets (which for the purpose of this calculation excludes capitalized debt issuance costs) less total liabilities, divided by the basic weighted average number of shares of common stock outstanding.

After giving effect to the sale of the 15,789,474 shares of common stock offered by us in this offering at an assumed initial public offering price of $19.00, which is the midpoint of the price range set forth on the cover of this prospectus, less estimated underwriting discounts and commissions and estimated offering expenses, our pro forma net tangible book value (deficit) as of December 31, 2012 would have been approximately $(544) million, or $(8.37) per share of common stock. This represents an immediate increase in net tangible book value to our existing stockholders of $8.40 per share and an immediate dilution to new investors in this offering of $27.37 per share. The following table illustrates this pro forma per share dilution in net tangible book value to new investors.

 

Assumed initial public offering price per share

     $ 19.00   

Net tangible book value (deficit) per share before this offering

   $ (16.77  

Increase per share attributable to new investors in this offering

     8.40     
  

 

 

   

 

 

 

Pro forma net tangible book value (deficit) per share after this offering

       (8.37

Dilution per share to new investors

     $ 27.37   
    

 

 

 

A $1.00 increase (or decrease) in the assumed initial public offering price of $19.00 per share, the midpoint of the price range set forth on the cover of this prospectus, would increase (or decrease) our pro forma net tangible book value by $16 million, or $0.25 per share, and would increase (or decrease) the dilution per share to new investors by $0.25 based on the assumptions set forth above.

The following table summarizes as of December 31, 2012, on an as adjusted basis, the number of shares of common stock purchased, the total consideration paid and the average price per share paid by existing and by new investors, based upon an assumed initial public offering price of $19.00 per share (the midpoint of the price range set forth on the cover of this prospectus) and before deducting estimated underwriting discounts and commissions and offering expenses:

 

     Shares Purchased     Total Consideration     Average Price
Per Share
 
     Number      Percent     Amount
(in millions)
     Percent    

Existing stockholders

     49,188,071         76   $ 298         50   $ 6.05   

Investors in this offering

     15,789,474         24        300         50        19.00   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

     64,977,545         100   $ 598         100   $ 9.20   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

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UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following pro forma statement of operations data for the year ended December 31, 2012 has been derived from our historical consolidated financial statements included elsewhere in this prospectus and have been prepared to give effect to the Acquisition, the issuance of the PIK Toggle Notes and the expected use of the net proceeds of this offering as described in “Use of Proceeds,” assuming that all events occurred on January 1, 2012.

The unaudited pro forma statement of operations for the year ended December 31, 2012 has been adjusted to exclude material non-recurring items as well as the increase of certain expenses directly attributable to the Acquisition, the issuance of the PIK Toggle Notes and this offering and reflect:

 

   

additional depreciation and amortization that resulted from changes in the preliminary estimated fair value of assets and liabilities, as discussed in more detail below;

 

   

incremental operating expenses, representing the annual management fee to be paid by the Company to Apollo;

 

   

elimination of transaction fees related to the Acquisition totaling $42 million;

 

   

increase in interest expense resulting from new indebtedness incurred in connection with the Acquisition;

 

   

elimination of incremental share-based compensation expense incurred in connection with the Acquisition triggering vesting of certain outstanding share-based compensation;

 

   

incremental interest expense associated with the PIK Toggle Notes; and

 

   

redemption of the PIK Toggle Notes and elimination of the related interest expense.

The pro forma statement of operations for the year ended December 31, 2012 includes a $22 million fair value step up in inventory resulting from the Acquisition. This step up has temporarily increased our cost of sales in the period subsequent to the Acquisition until such inventory is sold, as reflected in our historical statement of operations for the year ended December 31, 2012.

In addition, the unaudited pro forma statement of operations does not give effect to certain of the adjustments reflected in our Adjusted EBITDA, as presented under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Performance Indicators—Adjusted EBITDA.”

Assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with this pro forma statement of operations.

Management believes that the assumptions used to derive the pro forma statement of operations are reasonable given the information available; however, such assumptions are subject to change and the effect of any such change could be material. For instance, the Company has made preliminary estimates of the values of the assets acquired and liabilities assumed. Accordingly, the Company believes that the initial estimates of fair value of assets and liabilities could be subsequently revised and any such revision could be material. The pro forma combined statement of operations has been provided for informational purposes only and is not necessarily indicative of the results of future operations or the actual results that would have been achieved had the Acquisition occurred on the date indicated.

On December 18, 2012, we issued the PIK Toggle Notes. The interest associated with the PIK Toggle Notes may be paid in cash, through an increase in the principal amount of the PIK Toggle Notes or by issuing new PIK Toggle Notes to satisfy the obligation. Interest expense is calculated at a rate of 9.125% for cash payments or 9.875% for payments made through an increase in the principal amount of PIK Toggle Notes outstanding, respectively. The net proceeds of the offering of approximately $243 million were distributed to the shareholders of the Company as a return of capital. This transaction resulted in an increase to long term debt of $248 million, an increase to deferred financing costs of $4 million and a decrease to shareholders equity of $243 million.

 

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Taminco Corporation

Unaudited Pro Forma Statement of Operations

For the year ended December 31, 2012

 

    Predecessor(1)          Successor(2)                                              
(In millions, except share
information)
  Period from
January 1
through
February 14,

2012
         Year ended
December 31,
2012
        Acquisition
related

adjustments
        PIK Toggle
Notes
related
adjustments
        Offering
related
adjustments
        Pro Forma      

Net sales

  $ 144          $ 972        $ —          $ —          $ —          $ 1,116     

Cost of sales

    111            810      (f)     7      (a)     —            —            928     
 

 

 

       

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Gross profit

    33            162          (7       —            —            188     

Selling, general and other administrative expenses

    66            52          (60   (b)     —            —            58     

Research and development expenses

    1            9          —            —            —            10     

Other operating expenses

    1            49          (42   (c)     —            —            8     
 

 

 

       

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Operating income

    (35         52          95          —            —            112     

Interest expense (income), net

    8            70          1      (d)     23      (g)     (23   (h)     79     

Other non-operating expense, net

    2            11          —            —            —            13     
 

 

 

       

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Income before income taxes, equity in earnings

    (45         (29       94          (23       23          20     

Income tax expense (benefit)

    9            (3       9      (e)     (9   (e)     9      (e)     15     
 

 

 

       

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Income before equity in earnings

    (54         (26       85          (14       14          5     

Equity in losses of unconsolidated entities

    —              2          —            —            —            2     
 

 

 

       

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Net income (loss)

  $ (54       $ (28     $ 85        $ (14     $ 14        $ 3     
 

 

 

       

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Net income (loss) per common share:

                         

Basic

  $ (0.05       $ (0.57                 $ 0.05      (i)

Diluted

  $ (0.05       $ (0.57                 $ 0.05      (i)

Number of common shares:

                         

Basic

    1,000,000,000            49,020,506                      64,809,980     

Diluted

    1,000,000,000            49,020,506                      64,809,980     

 

(1) Taminco Group Holdings S.à r.l.
(2) Taminco Corporation

 

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Notes to Unaudited Pro Forma Statement of Operations

(In millions)

 

(a) Reflects the incremental depreciation and amortization expense resulting from the preliminary estimated fair value adjustments for purchase accounting.

 

     January 1
through
February 14,
2012
 

Depreciation of:

  

Land and improvements

   $ —     

Building, structures and related improvements

     —     

Plant, machinery and equipment

     6   

Furniture and vehicles

     —     

Construction-in-process

     —     

Software

     —     
  

 

 

 

Total estimated depreciation expense

     6   

Elimination of previously recorded depreciation

     4   
  

 

 

 

Pro forma adjustment to depreciation

   $ 2   
  

 

 

 
     January 1
through
February 14,
2012
 

Amortization of:

  

Regulatory costs

   $ 1   

Customer relationships

     3   

Technology, patents and license costs

     1   

Various contracts

     3   
  

 

 

 

Total estimated amortization expense

     8   

Elimination of previously recorded amortization

     3   
  

 

 

 

Pro forma adjustment to amortization

   $ 5   
  

 

 

 

 

(b) Reflects the elimination of incremental share-based compensation expense of $60 million recorded for the period from January 1 to February 14, 2012 directly as a result of the Acquisition.
(c) Reflects (i) incremental operating expenses, representing the annual management fee to be paid by the Company to Apollo for the period from January 1, 2012 through February 14, 2012 in the amount of $1 million and (ii) the elimination of the transaction fees in the amount of $42 million recorded during the year ended December 31, 2012 directly in relation to the Acquisition, which were comprised mainly of professional fees.

 

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(d) Represents the net change in interest expense related to the indebtedness incurred in connection with the Acquisition compared to the interest expense previously recorded:

 

     January 1
through
February 14,
2012
 

Estimated interest expense for USD Term Loan Credit Facility (5.25%)

   $ 3   

Estimated interest expense for EUR term loan credit facility (5.50%)

     1   

Estimated interest expense for second-priority senior secured notes (9.75%)

     5   
  

 

 

 

Total estimated interest expense

     9   

Eliminate interest expense for subordinated capitalized bonds, Facility A, B, C and D

     (8
  

 

 

 

Net change in interest expense

   $ 1   
  

 

 

 

 

(e) Reflects the estimated tax effect resulting from the pro forma adjustments (except for the adjustment of share based compensation expense and certain transaction costs) at the statutory rate for the relevant tax jurisdiction. The primary jurisdictions are the United States (37%) and Belgium (34%). No pro forma tax benefit was assumed for the non-cash share-based compensation expense and a portion of the transaction expenses since the amounts are not deductible in the local jurisdictions and therefore represent permanent items.
(f) Historical results for the year ended December 31, 2012 include incremental expense of $22 million in cost of goods sold related to the sale of inventory that was subject to a fair value step up for purchase accounting at the date of the Acquisition.
(g) Represents additional interest expense of the PIK Toggle Notes issued on December 18, 2012, calculated at a rate of 9.125%, which assumes cash interest payments. If at our election, future interest payments are paid with PIK interest as opposed to cash interest, the interest rate will increase to 9.875% and interest expense will increase accordingly. The pro forma adjustment for the (i) additional interest expense is $22 million, inclusive of the amortization of the original issue discount; and (ii) amortization of debt issuance costs is $1 million.
(h) Represents the elimination of interest expense due to the redemption of the PIK Toggle Notes using the net proceeds from this offering. We have not included in the pro forma statement of operations the loss of $11 million on the early extinguishment of debt associated with the redemption of the PIK Toggle Notes as it is non-recurring.
(i) Basic earnings per share is computed based upon weighted average shares outstanding during the period. Dilutive earnings per share is computed consistently with the basic computation while giving effect to all dilutive potential common shares and common share equivalents that were outstanding during the period. We use the treasury stock method to reflect the potential dilutive effect of unvested stock awards and unexercised options.

At December 31, 2012, the number of shares of common stock issuable under the stock options that were not included in the computation given the anti-dilutive impact was 3,525,415.

The weighted average pro forma shares used in the calculation of earnings per share gives effect to 15,789,474 incremental shares issued in connection with this offering needed to repay the $248 million PIK Toggle Notes outstanding at December 31, 2012, as well as a portion of the $35 million fee related to the termination of the Management Consulting Agreement with Apollo. The original proceeds from the PIK Toggle Notes that were issued in December 2012 were use to fund a dividend to the existing stockholders.

 

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SELECTED HISTORICAL FINANCIAL INFORMATION

The following table sets forth our selected historical financial information. The selected historical balance sheet data as of December 31, 2012 and 2011, and historical statement of operations data for the years ended December 31, 2012, 2011 and 2010, have been derived from our audited financial statements included elsewhere in this prospectus. The selected historical balance sheet data as of December 31, 2010 and the historical statement of operations data for the year ended December 31, 2009 have been derived from audited financial statements not included in this prospectus. The selected historical balance sheet data as of December 31, 2009 and 2008, and the historical statement of operations data for the year ended December 31, 2008 have been derived from our unaudited financial statements not included in this prospectus. The consolidated financial statements for the year ended December 31, 2012 are presented for two periods: January 1 through February 14, 2012 and the year ended December 31, 2012, which relate to the period immediately preceding and succeeding the Acquisition, respectively. The Acquisition was consummated on February 15, 2012 and the results of the Successor Period include the results of operations of Taminco Group Holdings S.à r.l. beginning on February 15, 2012. The results of the Successor Period are not comparable to the results of the Predecessor Period due to the difference in the basis of presentation of purchase accounting as compared to historical cost. The consolidated statement of operations data for the period January 1, 2012 to February 14, 2012 are derived from the audited financial statements of the Predecessor Period included elsewhere in this prospectus, and the consolidated statement of operations data for the year ended December 31, 2012 are derived from the audited financial statements of the Successor Period included elsewhere in this prospectus. Prior to the Acquisition, Taminco Corporation had no operations or activity other than transaction costs related to the Acquisition.

The selected historical financial information and operating statistics presented below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes thereto included elsewhere in this prospectus. Historical results are not necessarily indicative of results that may be expected for any future period.

 

    Successor(1)          Predecessor(2)  
    Year ended
December 31,
2012
         January 1
through
February 14,
2012
    Year ended December 31,  
            
(In millions, other than per share information)            2011     2010     2009     2008  

Statement of Operations Data:

               

Net sales

  $ 972          $ 144      $ 1,123      $ 951      $ 825      $ 1,024   

Net income

    (28         (54     30        22        1        (18

Earnings per share:

               

Basic

    (0.57         (0.05     0.03        0.02        —          (0.02

Diluted

    (0.57         (0.05     0.03        0.02        —          (0.02

 

     As of December 31,  
(In millions)    2012      2011      2010      2009      2008  

Balance Sheet Data:

              

Total assets

   $ 1,847       $ 1,334       $ 1,314       $ 1,374       $ 1,385   

Long-term debt

     1,155         1,102         1,124         1,174         1,121   

Total liabilities

     1,576         1,366         1,369         1,444         1,465   

 

(1) Taminco Corporation, which had no operations or activity prior to the Acquisition on February 15, 2012 other than transaction costs related to the Acquisition.
(2) Taminco Group Holdings S.à r.l.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our consolidated financial statements and accompanying notes thereto included elsewhere herein. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors” for a discussion of the uncertainties, risks and assumptions associated with these statements. Actual results may differ materially from those contained in any forward-looking statements.

Overview

We are the world’s largest pure play producer of alkylamines and alkylamine derivatives according to the ADL Report. Our products are used by our customers in the manufacturing of everyday products primarily for the agriculture, water treatment, personal & home care, animal nutrition and oil & gas end-markets. Our products provide these goods with a variety of ancillary characteristics required for optimal performance, such as neutralizing acidity, and removing contaminants. We have an extensive offering of differentiated value-added products that typically represent a small portion of our customers’ overall costs and are sold into diversified, global end-markets that benefit from favorable underlying economic and population growth trends. We currently operate in 19 countries with seven production facilities and, as of December 31, 2012, had an installed production capacity of 1,272 kt. According to the ADL Report, we hold the #1 or #2 market position globally in the vast majority of the chemicals we produce, including an approximately 50% and 75% share of certain products in North America and Europe. During the pro forma year ended December 31, 2012, eight of our products accounted for more than 57% of our revenue, with six of the eight products holding a leading global market position. During the pro forma year ended December 31, 2012, through our worldwide network of production facilities, we sold 48% of our volume in North America, 36% of our volume in Europe, and 16% of our volume in the emerging markets (7% in Latin America and 9% in Asia). Furthermore, we expect to increase the portion of our volume from the Americas and Asia with our recent capital investments. As a result of our leading market positions, attractive end-markets, and significant recent capital investments, we believe we are well positioned for significant growth over the coming years. In the pro forma year ended December 31, 2012, we generated revenue of $1,116 million, Adjusted EBITDA of $240 million, and Adjusted EBITDA margin of 22%. See “Prospectus Summary—Summary Historical Consolidated Financial Information” for a discussion and reconciliation of Adjusted EBITDA and Adjusted EBITDA margin.

We currently operate seven plants worldwide dedicated to the production of alkylamines and alkylamine derivatives, including two larger facilities in each of the United States and Europe that are among the world’s largest methylamine and higher alkylamines production facilities, a joint-venture facility with the MGC Group in China, and two other 100% Taminco owned facilities in China.

We are also in the process of pursuing numerous growth projects to further bolster our global footprint and leverage our strategic advantages. Our currently budgeted future investments include significantly extending production capacity at our Pace, Florida methylamine facility by the end of 2014 and further development of other derivative capacity. In total, we have spent $136 million in growth capital expenditures over the past three years, which is more than we have spent in any similar historical period. We expect to realize significant growth in our financial results from these investments.

We are organized into three segments: Functional Amines, Specialty Amines, and Crop Protection.

 

   

Functional Amines. This segment serves the needs of external customers that use our alkylamines products as the integral element in their chemical processes for the production of formulated products applied in a variety of end-markets such as agriculture, personal & home care, animal nutrition, and oil & gas. Through this segment, we also produce basic amines, which are captively used as building

 

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blocks to produce our downstream derivatives through our Specialty Amines and Crop Protection segments, serving a variety of attractive, non-cyclical end-markets. Approximately 30% of the Functional Amines production is used internally and forms the basis of our vertically integrated model. In the pro forma year ended December 31, 2012, the Functional Amines segment accounted for 51% of Adjusted EBITDA.

 

   

Specialty Amines. This segment sells alkylamine derivatives for use in the water treatment, personal & home care, oil & gas and animal nutrition end-markets, and specialty additives for use in the pharmaceutical, industrial coatings and metal working fluid end-markets. This segment is downstream from the Functional Amines segment and uses that segment’s production as one of its key raw materials. The Specialty Amines segment’s customers are typically large, multinational enterprises who are leading players in their industry. In the pro forma year ended December 31, 2012, the Specialty Amines segment accounted for 33% of Adjusted EBITDA.

 

   

Crop Protection. This segment sells alkylamine derivatives for use in the agriculture and crop protection end-markets. The majority of the segment’s customers range from multinational crop protection and agricultural enterprises to large local farms. In the pro forma year ended December 31, 2012, the Crop Protection segment accounted for 16% of Adjusted EBITDA.

Share Purchase Agreement with an Affiliate of Apollo

On December 15, 2011, Taminco Group Holdings S.à r.l. and Taminco US Inc. (formerly Taminco Inc.) entered into an Agreement for the Sale of the Share Capital of Taminco Group Holdings S.à r.l. and Taminco US Inc. (formerly Taminco Inc.) (the “Share Purchase Agreement”) with Taminco Global Chemical Corporation, which is an entity controlled by certain private equity funds affiliated with Apollo Global Management LLC. Under the Share Purchase Agreement, Taminco Global Chemical Corporation acquired all of the issued and outstanding share capital of Taminco Global Holdings S.à r.l. and Taminco US Inc. (formerly Taminco Inc.) (the “Acquisition”). The Acquisition was consummated on February 15, 2012.

Basis of Presentation

The consolidated statements of operations and cash flows for 2012 are presented for two periods: January 1 through February 14, 2012 (the “Predecessor Period”), which relates to the period immediately preceding the Acquisition, and the year ended December 31, 2012 (the “Successor Period”). Prior to the Acquisition, Taminco Corporation had no activity other than transaction costs related to the Acquisition. The pro forma results for the year ended December 31, 2012 represent the addition of the Predecessor and Successor Periods as well as the pro forma adjustments to reflect the Acquisition as if it had occurred prior to the beginning of the period presented (“pro forma”), in accordance with Article 11 of Regulation S-X and included in “Unaudited Pro Forma Financial Information.” The consolidated financial statements for the Successor Period reflect the acquisition of Taminco under the purchase method of accounting. The results of the Successor Period are not comparable to the results of the Predecessor Period due to the difference in the basis of presentation of purchase accounting as compared to historical cost. The pro forma results do not reflect the actual results we would have achieved had the Acquisition been completed as of the beginning of the year and are not indicative of our future results of operations.

Key Performance Indicators

Adjusted EBITDA

We present Adjusted EBITDA to enhance a prospective investor’s understanding of our results of operations and financial condition. EBITDA consists of profit for the period before interest, taxation, depreciation and amortization. Adjusted EBITDA consists of EBITDA and eliminates (i) transaction costs, (ii) restructuring charges, (iii) foreign currency exchange gains/losses, (iv) non-cash equity in earnings/losses of unconsolidated affiliates net of cash dividends received, (v) stock option compensation and (vi) sponsor management and director fees and expenses (Successor Period only). We believe that making such adjustments

 

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provides investors meaningful information to understand our operating results and ability to analyze financial and business trends on a period-to-period basis. Adjusted EBITDA for the pro forma year ended December 31, 2012 is calculated in the same manner as Adjusted EBITDA. See “Unaudited Pro Forma Financial Information.”

We believe Adjusted EBITDA is useful as supplemental measure in evaluating the performance of our operating businesses and provides greater transparency into our consolidated results of operations. Adjusted EBITDA is a measure used by our management, including our chief operating decision maker, to perform such evaluation, and is a factor in measuring compliance with debt covenants relating to certain of our borrowing arrangements, including our Senior Secured Credit Facilities and the indenture governing our Notes.

You should not consider Adjusted EBITDA in isolation or as an alternative to (a) operating profit or profit for the period (as reported in accordance with U.S. GAAP), (b) cash flows from operating, investing and financing activities as a measure to meet our cash needs or (c) any other measures of performance under generally accepted accounting principles. You should exercise caution in comparing Adjusted EBITDA as reported by us to similar measures of other companies. In evaluating Adjusted EBITDA, you should be aware that we are likely to incur expenses similar to the adjustments in this presentation in the future and that certain of these items could be considered recurring in nature. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by non-recurring items. For a discussion of additional limitations of Adjusted EBITDA as well as a reconciliation from profit for the period to EBITDA and Adjusted EBITDA, see “Prospectus Summary—Summary Historical Consolidated Financial Information,” respectively. For a discussion of trends affecting Adjusted EBITDA, see “—Results of Operations.”

The following table presents our net sales and Adjusted EBITDA for the periods presented. See “—Basis of Presentation” for an explanation on the Predecessor Period and Successor Period and “—Results of Operations” below for a discussion of trends affecting Adjusted EBITDA for the periods presented.

 

     Pro Forma      Successor            Predecessor  
     Year ended
December 31,
2012
     Year ended
December 31,

2012
           January 1
through
February 14, 2012
     Year ended
December 31,

2011
     Year ended
December 31,

2010
 
                 

Net sales

   $ 1,116       $ 972            $ 144       $ 1,123       $ 951   

Adjusted EBITDA

   $ 240       $ 210            $ 30       $ 229       $ 203   

Significant Factors Affecting Our Results of Operations

Volume, Product Mix and Pricing

Volume and our ability to control margins by passing the cost of raw materials onto customers through our pricing strategy are important variables in explaining our financial performance. We believe we occupy strong positions in growing niche markets with a relatively small group of suppliers. We enjoy positive gross profit across most of our product portfolio. In addition, a substantial portion of our sales is made pursuant to cost pass through contracts (“CPT Contracts”) under which the prices we receive for our products are automatically adjusted on a quarterly basis to reflect changes in key raw material prices. An equally substantial portion of our sales are made pursuant to contracts under which sales prices are renegotiated quarterly, generally permitting us to incorporate any increases in key raw material costs in revised sales prices. With respect to both types of contracts, however, price adjustments are made based on the experience of the previous quarter. Accordingly, changes to selling prices will lag behind changes in key raw material costs incurred. This means that in an environment of rising key raw material prices, we will not recover our increased key raw material costs in full until prices stabilize or fall. Conversely, in an environment of falling key raw materials prices, the sales prices we achieve may generate high gross profit and Adjusted EBITDA until prices stabilize or increase. Product mix also significantly impacts our results of operations as the average selling price and gross margin associated with our products varies significantly. For instance, due to the different cost structure and market prices, the selling prices in our Functional Amines business are significantly lower than prices in our Specialty Amines and Crop Protection businesses. On a volume basis for the pro forma year ended December 31, 2012, Functional Amines

 

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represented approximately 53% of total volume, Specialty Amines represented approximately 38% and Crop Protection represented approximately 9%. Changes in the share by segment will impact the average selling price and, consequently, gross margin. As a result, although we may experience significant top line growth, the ultimate profitability of our operations will be dependent upon our efforts to promote our higher margin products or increase volumes associated with those that produce lower margins.

Raw Materials

The majority of our operating expenses are comprised of costs for raw materials and consumables. Our most significant raw materials, in order of importance based on volume, are methanol, ammonia, ethylene oxide and acetone. Energy, primarily natural gas, also represents a material operating expense to us. Generally, all of our main raw materials are readily available commodity chemicals with multiple suppliers, and are bought in low volumes relative to total global capacities. Prices fluctuate widely, and our raw materials and consumables expenses are highly variable from year to year. As discussed above, the contracts under which we sell our products help to insulate us, via CPT Contracts and quarterly repricing provisions, from the negative impact of fluctuations in raw material prices.

Results of Operations

The following table presents our consolidated results for the periods presented:

 

     Pro
Forma(1)
     Successor           Predecessor  
     Year Ended
December 31,
2012
     Year Ended
December 31,
2012
          January 1
through

February  14, 2012
    Year Ended
December 31,
2011
     Year Ended
December 31,
2010
 
(In millions)                                       

Net sales

   $ 1,116       $ 972           $ 144      $ 1,123       $ 951   

Cost of sales

     928         810             111        906         757   

Selling, general and administrative expense

     58         52             66        49         52   

Research and development expense

     10         9             1        12         13   

Other operating expense

     8         49             1        16         2   

Interest expense (income), net

     79         70             8        75         74   

Other non-operating (income) expense, net

     13         11             2        1         (2

Income tax expense (benefit)

     15         (3          9        32         33   

Loss from companies consolidated under equity method

     2         2             —          2         —     
  

 

 

    

 

 

   

 

  

 

 

   

 

 

    

 

 

 

Net income (loss) for the period

   $ 3       $ (28        $ (54   $ 30       $ 22   
  

 

 

    

 

 

   

 

  

 

 

   

 

 

    

 

 

 

 

(1) Pro Forma year ended December 31, 2012 gives effect to the Acquisition and the PIK Toggle Notes as if they had occurred on January 1, 2012. See “Unaudited Pro Forma Financial Information.”

Pro Forma Year Ended December 31, 2012 vs. Year Ended December 31, 2011

Net Sales

Net sales for the pro forma year ended December 31, 2012 were $1,116 million compared to $1,123 million in the corresponding period of 2011, which represents a decrease of $7 million or 0.6%. The decrease was primarily due to declining raw materials prices that are contractually tied to, or passed through under, a significant share of our contracts, offset by a change in product mix. In addition, the proportion of volumes in the Specialty Amines segment increased while the proportion in Functional Amines decreased. Average selling price is lower in the Functional Amines segment due to the different cost structure and the related market prices.

 

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Cost of Sales

Cost of sales for the pro forma year ended December 31, 2012 were $928 million, compared to $906 million in the corresponding period of 2011, which represents an increase of $22 million or 2.4%. This increase was primarily related to the higher cost of sales due to the inventory step-up to fair value, partially offset by changes in product mix and decreased volume within our Crop Protection segment and the higher proportion of Specialty Amines volumes which have a higher product cost. Margins in the pro forma year ended December 31, 2012 were 16.8% compared to 19.3% in the previous year. Excluding the inventory step up, margins in the pro forma year ended December 31, 2012 were 18.8%. This decline compared to the previous year was due to the higher depreciation and amortization related to the step up in asset value related to the Acquisition.

Selling, General and Administrative Expense

Selling, general and administrative expense for the pro forma year ended December 31, 2012 were $58 million, compared to $49 million in the corresponding period of 2011. This was due to the increased selling, general and administrative costs related to the Acquisition.

Other Operating Expense

Other operating expenses for the pro forma year ended December 31, 2012 were $8 million, compared to $16 million in the corresponding period of 2011. The $8 million decrease in 2012 was due to the elimination of costs in the prior year related to the Brazil operation shutdown.

Interest Expense

Interest expense was $79 million for the pro forma year ended December 31, 2012, an increase of $4 million, or 5.3%, compared to $75 million for the year ended December 31, 2011. The change was primarily related to increased interest costs on the new credit facilities.

Other Non-Operating Expense

Other non-operating expense for the pro forma year ended December 31, 2012 was $13 million, an increase of $12 million, compared to $1 million for the year ended December 31, 2011. This increase was primarily attributable to expenses related to the currency swap entered into for the Acquisition and impact of foreign exchange rates.

Income Tax Expense

Income tax expense was $15 million for the pro forma year ended December 31, 2012, a decrease of $17 million compared to $32 million for the year ended December 31, 2011. The change was primarily related to lower income before taxes.

Period from January 1, 2012 to February 14, 2012 (Predecessor Period) and Year Ended December 31, 2012 (Successor Period) vs. Year Ended December 31, 2011

Net sales were $144 million for the Predecessor Period and $972 million for the Successor Period, compared to $1,123 million for the year ended December 31, 2011.

Cost of sales was $111 million for the Predecessor Period and $810 million for the Successor Period, compared to $906 million for the year ended December 31, 2011. Raw materials as a percentage of cost of sales for the Predecessor Period, Successor Period and year ended December 31, 2011 represented 57.3%, 63.2% and 66.7%, respectively. The gross profit margin derived from these periods was 22.9%, 16.7% and 19.3%,

 

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respectively. Gross profit margin was negatively impacted in the Successor Period by additional depreciation and amortization by approximately 2.6% as well as the adjustment to record existing inventory at fair value resulting from the Acquisition by approximately 2.3%.

Selling, general and administrative expense was $66 million for the Predecessor Period and $52 million for the Successor Period, compared to $49 million for the year ended December 31, 2011. Selling, general and administrative expenses for the Predecessor Period was impacted by a one-time management compensation expense, which was accounted for upon the sale of the Company by the former management stockholders, of $60 million. This expense resulted from the agreements entered into by certain management members in August 2007, in connection with the acquisition of our then predecessor. These agreements related to stock options granted to management, subordinated loans and shares of the Company, all of which were contingent on continuing employment of management until the occurrence of a sale of the Company, change in control or an initial public offering (the “Exit Event”). The grant date fair value of the stock options ($8 million), the fair value of the subordinated loans plus accrued interest ($49 million) on the Exit Event, and the fair value of the shares at the investment date ($3 million) were recorded as compensation expense upon the Exit Event on February 14, 2012.

Other operating expense for the Predecessor Period was $1 million and other operating expense was $49 million for the Successor Period, compared to $16 million for the year ended December 31, 2011. The amount during the Successor Period was related to the Acquisition and included fees paid to Apollo, legal fees and general advisory fees.

Interest expense was $8 million for the Predecessor Period and $70 million for the Successor Period, compared to $75 million for the year ended December 31, 2011.

Other non-operating expense was $2 million for the Predecessor Period and $11 million for the Successor Period, compared to $1 million for the year ended December 31, 2011.

Year Ended December 31, 2011 vs. Year Ended December 31, 2010

Net Sales

Net sales were $1,123 million for the year ended December 31, 2011, an increase of $172 million, or 18.1%, compared to $951 million in the corresponding period of 2010. Approximately $146 million of this increase was due to price increases including those experienced under our CPT Contracts as well as product mix. The proportion of volumes in the Specialty Amines segment increased while the proportion in Functional Amines decreased. In general, Specialty Amines volumes recognize higher average selling price due to their cost structure and market prices. Additionally, approximately $26 million of this increase was due to increased demand. This demand was primarily driven by increased sales of water treatment products of approximately 500 metric tons, which were primarily utilized within developing countries. We were also able to utilize increased capacity at our St. Gabriel facility to capture additional market share. Ultimately, this resulted in increased sales of approximately 4,100 metric tons of products utilized by manufacturers of fabric softeners and oil and gas products. We also experienced increased Crop Protection volumes of 2,700 metric tons due to a strong fungicide and soil fumigation season.

Cost of Sales

Cost of sales was $906 million for the year ended December 31, 2011, an increase of $149 million, or 19.7%, compared to $757 million in the corresponding period of 2010. The change was primarily related to the higher sales volumes representing approximately $21 million or 14.0% of the increase. The remaining increase of $128 million or 86.0% related to increased cost for key raw materials, such as acetone, ammonia and ethanol as well as product mix due to higher sales of Specialty Amines products which have a higher cost base. Raw materials as a percentage of cost of sales totaled 57.2% and 66.7% for the years ended December 31, 2010 and

 

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2011, respectively. However, given the pass through of raw material costs, the gross profit margin was not affected. The gross profit margin was 20.4% and 19.3% for the years ended December 31, 2010 and 2011, respectively.

Selling, General and Administrative Expense

Selling, general and administrative expense for the year ended December 31, 2011 were $49 million, compared to $52 million in the corresponding period of 2010. This decrease was primarily due to non-recurring costs associated with our IPO attempt on the Belgian stock exchange of $3 million during 2010.

Other Operating Expense

Other operating expense primarily represents legal and other third-party advisory fees as well as restructuring expenses. Other operating expense was $16 million for the year ended December 31, 2011, an increase of $14 million, compared to $2 million in the corresponding period of 2010. This increase was due to our commitment to a restructuring plan primarily associated with our Brazilian operations of $11 million offset by restructuring in the United States of $2 million in the prior year as well as increased third party vendor costs of $5 million incurred during our efforts to market the Company prior to the Acquisition. Other operating expense represented approximately 1.4% and 0.2% of net sales for the years ended December 31, 2011 and 2010, respectively.

Interest Expense/Income

Interest expense was $75 million for the year ended December 31, 2011, an increase of $1 million, or 1.4%, compared to $74 million in the corresponding period of 2010. The change was primarily related to increased interest costs on Euro-denominated debt.

Other Non-operating (Income) Expense

Other non-operating (income) expense for the year ended December 31, 2011 was $1 million, a decrease of $3 million, or 150.0%, compared to other non-operating income of $2 million in the corresponding period of 2010. This decrease was related to foreign exchange rate movements related to our operations.

Income Tax Expense

Income tax expense was $32 million for the year ended December 31, 2011, a decrease of $1 million, or 3.0%, compared to $33 million in the corresponding period of 2010. The Company’s annual effective tax rate was 60.6% and 50.2% for the year ended December 31, 2010 and 2011, respectively, while the statutory tax rate was 28.59 % for both fiscal years. The primary drivers of the high effective tax rate relate to foreign tax rate differentials and to an increase in the valuation allowance against deferred tax assets in certain jurisdictions due to uncertainty regarding the Company’s ability to realize the assets. The increase in the effective tax rate from foreign tax rate differentials is driven by jurisdictions where the statutory tax rate in those jurisdictions is higher than the statutory tax rate in Luxembourg, primarily in Belgium and the United States.

 

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Segment Level Financial Results

Following is a more detailed discussion of the results of each of our reportable segments during the years ended December 31, 2012, 2011 and 2010:

 

     Net Sales  
     Pro Forma (1)      Successor            Predecessor  
     Year Ended
December 31,
2012
     Year Ended
December 31,
2012
           January 1
through

February  14, 2012
     Year Ended
December 31,
2011
     Year Ended
December 31,
2010
 
(In millions)                                         

Functional Amines

   $ 501       $ 437            $ 64       $ 515       $ 465   

Specialty Amines

     478         417              61         460         357   

Crop Protection

     137         118              19         148         129   
  

 

 

    

 

 

         

 

 

    

 

 

    

 

 

 

Total Company

   $ 1,116       $ 972            $ 144       $ 1,123       $ 951   
  

 

 

    

 

 

         

 

 

    

 

 

    

 

 

 

 

(1) Pro Forma year ended December 31, 2012 gives effect to the Acquisition and the PIK Toggle Notes as if they had occurred on January 1, 2012. See “Unaudited Pro Forma Financial Information.”

 

     Adjusted EBITDA  
     Pro Forma(1)     Successor           Predecessor  
     Year Ended
December 31,
2012
    Year Ended
December 31,
2012
          January 1
through
February 14, 2012
    Year Ended
December 31,
2011
    Year Ended
December 31,
2010
 
(In millions)                                     

Functional Amines

   $ 122      $ 107           $ 15      $ 110      $ 106   

Specialty Amines

     80        71             9        78        57   

Crop Protection

     38        32             6        41        40   
  

 

 

   

 

 

        

 

 

   

 

 

   

 

 

 

Total Adjusted EBITDA

   $ 240      $ 210           $ 30      $ 229      $ 203   
  

 

 

   

 

 

        

 

 

   

 

 

   

 

 

 

Reconciling items:

               

Transaction costs

     (28     (70          —          (5     (2

Restructuring charges

     —          —               —          (11     —     

Foreign currency exchange gains/loss

     (4     (4          —          (2     2   

Loss of equity method investment

     (2     (2          —          (2     —     

Stock option compensation

     —          —               (60     —          —     

Apollo fees

     (5     (5          —          —          —     

Depreciation and amortization

     (104     (90          (7     (71     (74

Interest expense, net

     (79     (70          (8     (75     (74

Income tax expense

     (15     3             (9     (33     (33
  

 

 

   

 

 

        

 

 

   

 

 

   

 

 

 

Net income (loss) for the period

   $ 3      $ (28        $ (54   $ 30      $ 22   
  

 

 

   

 

 

        

 

 

   

 

 

   

 

 

 

 

(1) Pro Forma year ended December 31, 2012 gives effect to the Acquisition and the PIK Toggle Notes as if they had occurred on January 1, 2012. See “Unaudited Pro Forma Financial Information.”

 

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Net Sales

Net sales derived from the Functional Amines segment were $501 million for the pro forma year ended December 31, 2012, which was a decrease of $14 million or 2.7% from the corresponding period in 2011. The decrease was primarily due to lower methylamines and solvent volumes offset by an increase in higher amines volumes, which accounted for an $18 million net decrease. This decrease was offset by a $4 million increase due to changes in pricing and product mix. Specifically, higher amines and solvents, as compared to methylamines and salts, made up a greater percentage of volumes. Higher amines and solvents maintain a higher average selling price due to their cost structure and market pricing.

Net sales derived from the Functional Amines segment were $515 million for the year ended December 31, 2011, an increase of $50 million, or 10.8%, compared to $465 million for the corresponding period in 2010. Approximately $65 million of this increase was due to price increases and product mix. This increase was offset by a reduction in volume resulting in a reduction in revenue of $15 million.

Net sales derived from the Specialty Amines segment was $478 million for the pro forma year ended December 31, 2012, an increase of $18 million or 3.9% compared to $460 million in the corresponding period of 2011. The increase was primarily due to increases in volumes of $36 million in the Feed Additives products as well as the impact of the new DIMLA and DMAPA plant in the United States. The volume increase was partially offset by changes in pricing and product mix that accounted for an $18 million decrease. Specifically, the volume growth was in specialty intermediates, which has a lower average selling price.

Net sales derived from the Specialty Amines segment were $460 million in the year ended December 31, 2011, an increase of $103 million, or 28.9%, compared to $357 million for the corresponding period in 2010. Approximately $58 million of this increase was due to price increases, including those experienced under our CPT Contracts as well as changes in product mix which was a result of an increase in specialty intermediate volumes in proportion to performance products. Specialty intermediates have a higher average selling price due to their cost structure and market pricing. Additionally approximately $45 million of this increase was due to increased demand in the water treatment and oil & gas end-markets.

Net sales in Crop Protection for the pro forma year ended December 31, 2012 were $137 million, a decrease of $11 million, or 7.4%, compared to the corresponding period in 2011. $4 million of the decrease was due to decreased volumes as a result of adverse economic and weather conditions in the south of Europe, weak performance in the rubber chemicals industry and delays in orders from Latin America. The remainder of the decrease was due to changes in pricing and product mix.

Net sales derived from the Crop Protection segment for the year ended December 31, 2011 were $148 million, an increase of $19 million, or 14.7%, compared to $129 million for the corresponding period in 2010. Approximately $7 million of this increase was due to increased demand. The increase was primarily related to a strong fungicide and soil fumigant season. Additionally, approximately $12 million of this increase was due to price increases, including those experienced under our CPT Contracts.

Adjusted EBITDA

Adjusted EBITDA derived from the Functional Amines segment increased by $12 million to $122 million for the pro forma year ended December 31, 2012 from $110 million in the corresponding period of 2011. The increase was mainly due to stronger Higher Amine volumes to a major customer who had an outage in the prior year as well as a recovery of volumes in Latin America.

Adjusted EBITDA derived from the Functional Amines segment was $110 million in the year ended December 31, 2011, an increase of $4 million, or 3.8%, compared to $106 million for the corresponding period in 2010. This increase was primarily related to increased net sales of $50 million, offset by increased cost of sales

 

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of $54 million inclusive of higher raw material costs, which increased from 57.2% of cost of sales in 2010 to 66.7% of cost of sales in 2011. The increase in cost of sales was offset by savings in selling, general and administrative and research and development expenses.

Adjusted EBITDA derived from the Specialty Amines segment increased by $2 million to $80 million for the pro forma year ended December 31, 2012 from $78 million in the corresponding period of 2011, which was mainly due to the increased volumes from the new DIMLA unit at our Pace, Florida facility and in the feed additives industry.

Adjusted EBITDA derived from the Specialty Amines segment was $78 million in the year ended December 31, 2011, an increase of $21 million, or 36.8%, compared to $57 million for the corresponding period in 2010. This increase was primarily related to increased demand in the water treatment and oil & gas end-markets that increased net sales by $103 million, partially offset by the related cost of sales of $79 million to maintain margins.

Adjusted EBITDA derived from the Crop Protection segment decreased by $3 million to $38 million for the pro forma year ended December 31, 2012 from $41 million in the corresponding period of 2011. The decrease was due to adverse economic and weather conditions in the south of Europe, weak performance in the rubber chemicals industry and delays in orders from Latin America.

Adjusted EBITDA derived from the Crop Protection segment was $41 million in the year ended December 31, 2011, an increase of $1 million or 2.5%, compared to $40 million for the corresponding period in 2010. This increase was primarily related to higher sales volume and increasing net sales of $19 million.

Adjusted EBITDA for the pro forma year ended December 31, 2012 was $240 million, compared to $229 million in the corresponding period of 2011, which represented an increase of $11 million or 4.8%. The increase was mainly due to improved product/customer mix, pricing discipline, addition of new derivative capacities in the U.S. and a strong season in the herbicide amines.

Period from January 1, 2012 to February 14, 2012 (Predecessor Period) and Year Ended December 31, 2012 (Successor Period) vs. Year Ended December 31, 2011

Net Sales

Net sales derived from the Functional Amines segment were $64 million for the Predecessor Period and $437 million for the Successor Period, compared to $515 million for the year ended December 31, 2011. Net sales derived from the Specialty Amines segment were $61 million for the Predecessor Period and $417 million for the Successor Period, compared to $460 million for the year ended December 31, 2011. Net sales derived from the Crop Protection segment were $19 million for the Predecessor Period and $118 million for the Successor Period, compared to $148 million for the year ended December 31, 2011.

Adjusted EBITDA

Adjusted EBITDA derived from the Functional Amines segment was $15 million for the Predecessor Period and $107 million for the Successor Period, compared to $110 million for the year ended December 31, 2011. Adjusted EBITDA derived from the Specialty Amines segment was $9 million for the Predecessor Period and $71 million for the Successor Period, compared to $78 million for the year ended December 31, 2011. Adjusted EBITDA derived from the Crop Protection segment was $6 million for the Predecessor Period and $32 million for the Successor Period, compared to $41 million for the year ended December 31, 2011.

 

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Liquidity and Capital Resources

Our principal sources of liquidity are cash from operations and short-term and long-term borrowings. We also make use of an off-balance sheet, non-recourse factoring facility (the “Non-recourse Factoring Facility”) to help manage our liquidity position. The Non-recourse Factoring Facility has a limit of $132 million, the U.S. Dollar equivalent of the €100 million commitment amount, and applies solely to the accounts receivable of Taminco BVBA (formerly Taminco NV) and Taminco US Inc. (formerly Taminco Inc.). Financing for each borrower is limited to a maximum of 15% of the amount of approved outstanding accounts receivable for all borrowers assigned to the bank acting as factor with the exception of certain agreed upon borrowers, the financing for whom is limited to 30% of the amount of approved outstanding accounts receivable. The Non-recourse Factoring Facility is committed until July 1, 2015 with a provision for indefinite extension and a notice period prior to termination of one year. Financing was approved on 85% of the relevant outstanding accounts receivable.

The costs associated with the Non-recourse Factoring Facility consist of a commission fee on the factored receivables and an interest charge on the amount drawn under the facility. The commission fee for the year ended December 31, 2012 and for the Predecessor Period ended February 14, 2012 were $0.9 million and $0.2 million, respectively. The commission fee is included in selling, general and administrative expense on the income statement. The interest charge for the year ended December 31, 2012 and for the Predecessor Period ended February 14, 2012 were $0.5 million and $0.1 million, respectively. The Non-recourse Factoring Facility is an off-balance sheet obligation, and is not included in calculations of our indebtedness. The amount drawn under the Non-recourse Factoring Facility was $86.3 million at December 31, 2012 and $75.4 million at December 31, 2011. For additional information, please see “Description of Indebtedness—Non-recourse Factoring Facility Agreement.”

We also have senior secured credit facilities totaling $698 million (the “Senior Secured Credit Facilities”), consisting of a $194 million revolving credit facility, none of which was drawn as of December 31, 2012, and a $347 million USD term loan facility and €119 million EUR term loan facility, $400 million in aggregate principal amount outstanding of 9.75% second-priority senior secured notes due 2020 (the “2020 Notes”) and $250 million in aggregate principal amount outstanding of 9.125%/9.875% senior PIK toggle notes due 2017 (the “PIK Toggle Notes” and, together with the 2020 Notes, the “Notes”). The Senior Secured Credit Facility and the indenture governing the Notes contain customary covenants. We may be required to comply with a specific financial ratio under our revolving credit facility. Under the revolving credit facility, if we have indebtedness under the revolving credit facility or if more than $20 million of letters of credit that are not cash-collateralized are outstanding, we must maintain a maximum net first lien coverage ratio of 3.75 to 1.00, tested quarterly and upon each credit extension. As of December 31, 2012, there were no amounts drawn under our revolving credit facility and we had a net first lien coverage ratio of 1.9 to 1.00, which would have been in compliance with the ratio requirement if we were under an obligation to comply. This restriction may affect our ability to operate our business and may limit our ability to take advantage of potential business opportunities as they arise. For a description of the covenants and material terms under the indenture governing the Notes and the Senior Secured Credit Facilities, see “Description of Indebtedness” and “Note 11—Short and Long Term Debt” of our audited consolidated financial statements included elsewhere in this Prospectus.

Future Cash Needs

Our primary future cash needs will be to meet debt service requirements, working capital requirements, capital commitments and capital expenditures. Capital expenditures in 2013 are expected to be approximately $86 million (of which $62 million are for growth capital expenditures). We may also pursue strategic acquisition opportunities, which may impact our future cash requirements. We believe that our cash flows from operations, combined with availability under our revolving credit facility and our factoring facility, will be sufficient to meet our presently anticipated future cash needs. We may, from time to time, increase borrowings under our revolving credit facility or issue securities, if market conditions are favorable, to meet our future cash needs or to reduce our borrowing costs.

 

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We or our affiliates may from time to time seek to retire the Notes or loans through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions, tenders or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

Cash Flows

Cash and cash equivalents decreased from $131 million at December 31, 2011 to $67 million at December 31, 2012. This decrease was primarily attributable to refinancing upon the closing of the Acquisition, including related Acquisition costs. Cash and cash equivalents increased from $111 million at December 31, 2010 to $131 million at December 31, 2011. This increase was primarily attributable to increased cash generation from our operating activities, partially offset by cash used in investing and financing activities. Of the total cash balance, the majority is in the United States and Belgium, which is where the cash needs are. Management believes the cash is located in the regions needed.

Cash flows from operating, investing and financing activities are presented in the following table:

 

    Successor          Predecessor  
    Year Ended
December 31,
2012
         January 1
through
February 14,
2012
    Year Ended
December 31,
2011
    Year Ended
December 31,
2010
 
(In millions)                             

Cash provided by (used in):

           

Operating activities

  $ 10          $ 44      $ 117      $ 112   

Investing activities

    (214         (6     (75     (68

Financing activities

    272            —          (19     (22

Effects of change in exchange rates on cash and cash equivalents

    (1         2        (3     (2
 

 

 

       

 

 

   

 

 

   

 

 

 

Net change in cash and cash equivalents

  $ 67          $ 40      $ 20      $ 20   
 

 

 

       

 

 

   

 

 

   

 

 

 

Net cash flows from operating activities consist of profit after tax adjusted for changes in net working capital and non-cash items such as depreciation, amortization and write-offs, and movements in provisions and pensions. For the year ended December 31, 2012, total depreciation and amortization expense resulting from the estimated step-up in fair value of assets and liabilities related to the Acquisition was $52 million. The estimated step-up in fair value of assets will generally be amortized over 8 to 12 years. For the year ended December 31 2012, cash from operating activities was $10 million compared to $117 million in the corresponding period of 2011, primarily as a result of the transaction costs of $46 million, offset by a decrease in our working capital position of $1 million. Adjusted for the transaction costs, cash from operating activities for the year ended December 31, 2012 would have been $56 million. For the year ended December 31, 2011, we generated $117 million of cash flow from operating activities, following strong cash flow from operating activities, partially offset by $26 million working capital increase primarily related to higher inventory associated with increased raw material prices. For the year ended December 31, 2010, we generated $112 million of cash flow from operating activities, following strong operating results for the period, partially offset by a $35 million working capital increase primarily related to higher inventory associated with increased raw material prices.

 

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Trade working capital represents trade receivables plus inventories less trade payables as presented on our consolidated statement of financial position. Trade working capital margin represents trade working capital as a percentage of net sales. We use the Non-recourse Factoring Facility to manage fluctuations in our trade working capital. The following table presents trade working capital and trade working capital margin as of the periods presented:

 

       As of the year ended December 31,  
(In millions)      2012              2011        2010  

Trade receivables

     $ 74              $ 76         $ 77   

Inventories

       126                117           87   

Trade payables

       80                72           69   
    

 

 

           

 

 

      

 

 

 

Trade working capital(1)

     $ 120              $ 121         $ 95   
    

 

 

           

 

 

      

 

 

 

 

(1) Trade working capital represents trade receivables plus inventories, less trade payables.

Trade Working Capital

Trade working capital at December 31, 2012 was $120 million, down by $1 million from $121 million at the end of 2011. The increase in inventories is offset by a similar increase in accounts payable. Trade working capital at December 31, 2011 was $121 million, up by $26 million from $95 million at the end of 2010 primarily due to an increase in inventories.

Trade Receivables

Trade receivables at December 31, 2012 were $74 million, a decrease of $2 million from $76 million at the end of 2011. The decrease is primarily driven by lower quarterly revenues in December 2012 compared to the corresponding period in 2011. Trade receivables at December 31, 2011 were $76 million, a decrease of $1 million from $77 million at the end of 2010 due to normal fluctuations in accounts receivable.

Inventories

Inventories at December 31, 2012 were $126 million, an increase of $9 million from $117 million at the end of 2011. This increase was mainly due to an increase in quantities. This increase was split evenly between raw materials and finished goods and was offset by an increase in accounts payable. Inventories at December 31, 2011 were $117 million, an increase of $30 million from $87 million at the end of 2010. This increase was due to the build-up in inventory required for an upcoming scheduled outage during the first quarter of 2012 at our new DIMLA plant as well as an increase in the price of our raw materials.

Non-current Interest-bearing Loans and Borrowings

Interest-bearing loans and borrowings increased by $53 million to $1,155 million between December 31, 2011 and December 31, 2012, reflecting a new debt structure subsequent to the Acquisition and the issuance of the PIK Toggle Notes on December 18, 2012.

Cash used in investing activities was $214 million for the year ended December 31, 2012 primarily due to the new DIMLA unit at our Pace, Florida facility, in addition to major maintenance and growth projects, as well as the Acquisition. Cash used in investing activities for the year ended December 31, 2011 was $75 million, also related to initial spending on the new DIMLA unit, as well as the investment in a new DMAPA unit at our St. Gabriel, Louisiana facility. Cash used in investing activities was $68 million for the year ended December 31, 2010, primarily due to increased capital expenditures on our new DMAPA units in the United States, major maintenance projects with respect to our production units and the initial payment for the acquisition of our interest in the joint venture in China.

 

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The table below sets forth information with respect to our capital expenditures for the year ended December 31, 2012, 2011 and 2010.

 

    Successor          Predecessor  
    Year ended
December 31,
2012
         January 1
through
February 14,
2012
    Year ended
December 31,
2011
    Year ended
December 31,
2010
 
(In millions)   (Unaudited)          (Unaudited)     (Unaudited)     (Unaudited)  

Tangible capital expenditures

  $ 51          $ 6      $ 54      $ 62   
 

 

 

       

 

 

   

 

 

   

 

 

 

Growth and optimization

    36            5        41        54   

Maintenance

    15            1        13        8   

Intangible capital expenditures

    8            —          7        5   
 

 

 

       

 

 

   

 

 

   

 

 

 

Total capital expenditures

  $ 59          $ 6      $ 61      $ 67   
 

 

 

       

 

 

   

 

 

   

 

 

 

Generally, our capital expenditures are directed to one of three main categories of tangible assets, growth projects, optimization projects and capital improvements. A relatively small part of our capital expenditures are spent on intangible assets, including information and communications technology and toxicological and regulatory studies in connection with product registrations and re-registrations.

Cash generated in financing activities was $272 million for the year ended December 31, 2012 as a result of the refinancing upon the closing of the Acquisition, which included the unwinding of the outstanding interest rate swaps, as well as the debt premium and debt issuance costs of $63 million. In addition, cash generated in financing activities was impacted by the net proceeds from the issuance of the PIK Toggle Notes of $243 million, offset by the shareholder distribution of $236 million prior to year end. The remaining $7 million was distributed during February 2013. Cash used in financing activities for the year ended December 31, 2011 and 2010 was $19 million and $22 million, respectively, consisting of repayments on our Senior Credit Facilities.

Contractual Obligations

The following table summarizes our future contractual obligations as of December 31, 2012:

 

     2013      2014      2015      2016      2017      Thereafter            Total        
(In millions)                                                 

Senior Secured Credit Facilities

                    

Revolving credit facility

   $  —         $  —         $  —         $  —         $  —         $ —         $ —     

USD term loan credit facility

     3         3         3         3         3         332         347   

EUR term loan credit facility

     2         2         2         2         2         147         157   

Second-priority senior secured notes

     —           —           —           —           —           400         400   

Senior PIK Toggle Notes

     —           —           —           —           250         —           250 (a) 

Interest expense

     90         88         88         88         87         126         567 (b) 

Operating leases

     10         9         8         7         6         8         48   

Capital leases

     1         1         1         2         2         2         9   

Purchase commitments(c)

     4         3         3         3         3         16         32   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 110       $ 106       $ 105       $ 105       $ 353       $ 1,031       $ 1,810   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) The PIK Toggle Notes will be redeemed with a portion of the proceeds from this offering.
(b)

Our term loans bear interest at variable rates, which are assumed to reflect the LIBOR currently in effect for purposes of this table; actual rates could differ materially. Following this offering, our interest expense will be reduced by $23 million per year due to redemption of the PIK Toggle Notes.

 

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(c) We are a party to certain obligations to purchase products and services, principally related to the purchase of raw materials. These commitments are designed to assure sources of supply and historically have not and are not expected to be in excess of our manufacturing requirements. Under a limited number of these obligations, which are structured as take-or-pay contracts, we are obligated to make minimum payments whether or not we take the contractual minimum. The amounts disclosed in the above table represent these minimum payments to be made in accordance with the contracts in place. We have historically always required the minimum levels in each of these contracts.

Off-Balance Sheet Arrangements

Our primary off-balance sheet commitment is the Non-recourse Factoring Facility described above under “—Liquidity and Capital Resources.”

Critical Accounting Policies

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” discusses our consolidated financial statements, which have been prepared in accordance with GAAP.

Use of Estimates

The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements, as well as revenues and expenses during the reported periods.

On an on-going basis, management evaluates its estimates and judgments regarding impairment on goodwill, pension benefits, stock-based compensation and income taxes. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. The results from this evaluation form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Under different assumptions or conditions, alternative estimates and judgments could be derived which would differ from the estimates being used by management. Actual results could differ from any or all of these estimates.

Impairment on Goodwill

We assess goodwill for impairment annually, or more frequently if circumstances indicate impairment may have occurred. We perform our required annual impairment testing in the fourth quarter of each year subsequent to completing our annual forecasting process. Each of our operating segments represents a reporting unit.

We assess goodwill for impairment by first comparing the carrying value of each reporting unit to its fair value using the present value of expected future cash flows. If the fair value is less than the carrying value, then we would perform a second test for that reporting unit to determine the amount of impairment loss, if any. We determine the fair value of our reporting units utilizing our best estimate of future revenues, operating expenses, cash flows, market and general economic conditions as well as assumptions that we believe marketplace participants utilize, including discount rates, cost of capital and long term growth rates. When available and as appropriate, we use comparable market multiples and other factors to corroborate the discounted cash flow results. Given the proximity of our annual impairment test to the date of the Acquisition, fair values of the reporting units approximate book values of the reporting units.

Pension Benefits

The costs of the granted pension plans and the current value of the pension liabilities are determined using an actuarial valuation. The actuarial valuation involves making assumptions about the discount rate, expected yield of the pension funds, future increases in compensations, mortality tables and future pension increases. Due to the long-term nature of these plans, such estimates are subject to uncertainty. All assumptions are reviewed on each reporting date. The net employee liability was $16 million at December 31, 2012 and $13 million at December 31, 2011.

 

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We believe the current assumptions used to estimate obligations and pension expense are appropriate in the current economic environment. However, as economic conditions change, we may change some of our assumptions, which could have a material impact on our financial condition and results of operations.

The following table presents the sensitivity of our project pension benefit obligation (“PBO”), accumulated benefit obligation (“ABO”), deficit (“Deficit”) and 2012 pension expense to the following changes in key assumptions:

 

     Increase/(Decrease) at December 31, 2012     Increase/(Decrease)  
           PBO                 ABO                 Deficit           2012 Expense  

Assumptions:

        

Increase in discount rate of 0.5%

   $ (1   $ (1   $ (1   $  —     

Decrease in discount rate of 0.5%

   $ 1      $ 1      $ 1      $ —     

Increase in estimated return on assets of 1.0%

     N/A        N/A        N/A      $  —     

Decrease in estimated return on assets of 1.0%

     N/A        N/A        N/A      $ —     

Share-Based Compensation

The Company uses the Black-Scholes option pricing model to estimate the fair value of time vested stock options and a lattice based valuation model to estimate the fair value of performance-based awards on the date of grant which requires certain estimates by management including the expected volatility and expected term of the option. The fair value of the performance vesting options was determined using the Monte Carlo model.

Management also makes decisions regarding the risk-free interest rate used in the models and makes estimates regarding forfeiture rates. Fluctuations in the market that affect these estimates could have an impact on the resulting compensation cost. For non-performance based employee stock awards, the fair value of the compensation cost is recognized on a straight-line basis over the requisite service period of the award. Compensation cost for restricted stock (non-vested stock) is recorded based on its market value on the date of grant and is expensed in the Company’s consolidated statements of operations ratably over the vesting period. For a description of the assumptions used in our fair value determination of share based compensation, see “Note 12—Stock-Based Compensation” of our audited condensed consolidated financial statements included elsewhere in this prospectus.

In April 2012, the Compensation Committee of our Board of Directors granted 1,298,438 time vested stock options and 1,997,519 performance-based awards to certain management employees. Our expected volatility for these options is based on the average volatility rates of similar actively traded companies. The expected holding period of the time vested options was initially calculated based on the simplified method and extended to eight years based upon certain provisions where the Company may repurchase shares acquired through the exercise of the options at the lesser of cost or fair value. The risk-free rate is derived from the U.S. Treasuries, the period of which relates to the grant’s holding period. If these factors change and we employ different assumptions, the fair value of future awards and resulting stock-based compensation expense may differ significantly from what we have estimated historically. During the third and fourth quarters of 2012, 76,492 time vested stock options and 152,966 performance-based awards were granted to certain management employees.

The estimated fair value of common shares used in the fair value calculation of the time vested and performance-based options granted in April 2012 was determined based on the common share value agreed upon between two unrelated third parties, namely CVC Capital Partners and Apollo, during Apollo’s acquisition of the Company. As the Acquisition occurred near the grant of the above stock options and the Company’s operations and structure remained unchanged during this time, management believes this value best represents the fair value of the Company’s common shares in the absence of having a quoted market price on an active exchange. For the options issued during the third and fourth quarters of 2012, management contemporaneously, with input from a third-party specialist, used a market comparables approach to estimate the fair value of the Company’s common shares in the absence of having a quoted price on an active exchange. The most significant assumption used in our valuation is the EBITDA to enterprise value multiple for comparable companies. The comparable companies used include Balchem Corp., Rockwood Holdings Inc. and Albemarle Corporation, among others.

 

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The below table details the grant prices and grant totals as adjusted for the cash dividend for the periods indicated:

 

    April 2012     Third Quarter 2012     Fourth Quarter 2012  

Type of Grant

  Number
of options
granted
    Estimated
share value

used for fair
value
calculation(1)
    Fair
value
at
grant
date
    Option
exercise
price(1)
    Number
of
options
granted
    Estimated
share value

used for fair
value
calculation(1)
    Fair
value  at

grant
date
    Option
exercise

price(1)
    Number
of
options
granted
    Estimated
share value

used for fair
value
calculation(1)
    Fair
value  at

grant
date
    Option
exercise

price(1)
 

Time vested

                       

Tranche A

    1,298,438      $ 6.05      $ 4.88      $ 6.05        40,162      $ 8.47      $ 5.79      $ 8.47        36,330      $ 9.24      $ 6.12      $ 9.24   

Performance-based

                       

Tranche B-1

    665,840        6.05        1.67        6.05        26,766        8.47        1.98        8.47        24,223        9.24        2.09        9.24   

Tranche B-2

    665,840        6.05        1.16        6.05        26,766        8.47        1.38        8.47        24,223        9.24        1.45        9.24   

Tranche B-3

    665,840        6.05        0.75        6.05        26,766        8.47        0.89        8.47        24,223        9.24        0.94        9.24   

 

(1) The estimated share value used for fair value calculation and the option exercise price have been reduced by $4.96 per share as a result of the extraordinary cash dividend.

On December 18, 2012, we distributed approximately $243 million as a return of capital to our existing shareholders. This dividend represented an extraordinary dividend for us and we have no prior history of cash dividends. Noting the significant change in capital structure as a result of the extraordinary return of capital, our compensation committee referenced the anti-dilution provisions of the existing stock option plan. As such, we amended the stock options to reduce the strike price of the existing options by $4.96 per share. This represented the cash dividend per share.

The awards were adjusted based on an anti-dilution provision within our existing stock option plan that requires the adjustment in the event of an equity restructuring, which is structured to preserve the value of the awards upon completion of the equity restructuring. As such and based upon the guidance of ASC 718-20-35-6, we determined that incremental fair value, and therefore incremental compensation expense, should not result from the modification. In our situation, the fair value of the award immediately before the modification reflected the required adjustment to the award’s terms in accordance with the anti-dilution provision. Thus, the fair value of the award immediately before the modification was equal to its fair value immediately after the modification.

Based upon an estimated offering price of $19.00 per share, which is the midpoint of the offering price range set forth on the cover page of this prospectus, the options would have an intrinsic value of approximately $45 million.

Prior to this offering, there has been no public market for our common stock. The estimated initial public offering price range was determined by discussions between us, the selling stockholders and the representatives of the underwriters. Among the factors considered in determining the estimated initial public offering price range were our future prospects and those of our industry in general, our earnings and certain other financial and operating information from recent periods, and certain other financial and operating information of public companies engaged in activities similar to ours.

We believe the increase in fair value of our common shares from the Acquisition to the fair values estimated in conjunction with our third and fourth quarter 2012 stock option grants, and ultimately the valuation of the initial public offering price range, is attributable to the overall increase in equity markets and other Company specific factors described below. For example, those specialty chemical companies which we have identified as our market comparables or peer group have traded at increased EBITDA multiples during the third and fourth quarters of 2012. The EBITDA multiple grew 0.9x from the second to third quarter and grew 1.0x from the third quarter to the fourth quarter. Additionally, we noted that this peer group trading EBITDA multiple grew from 8.3x to 10.7x during the last twelve months. In addition, we considered the following Company specific factors:

Increased Company Financial Performance. We have experienced strong economic performance and have a more favorable outlook on our future growth prospects. We achieved 2012 Adjusted EBITDA growth of 5%, or $11 million, compared to the comparable period in 2011.

 

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Recapitalization. The estimated initial public offering price range takes into account the repayment of the PIK Toggle Notes as well as the termination of the Management Consulting Agreement with Apollo. Consequently, the recapitalization is expected to eliminate annual cash interest expense of approximately $23 million and our annual management fee to Apollo of approximately $4 million. Therefore, this has a material impact on our valuation from the enhancement of our earnings and free cash flow profile that it provides.

Trading Liquidity with a Public Market. The valuation associated with our stock option grants included a valuation multiple discount to reflect our stock illiquidity in the absence of a public trading market. The estimated initial public offering range reflects a value that is consistent with common stock that is freely tradable with an active public trading market.

Income Taxes

Our provision for income taxes is determined using the asset and liability method, under which deferred tax assets and liabilities are calculated based upon the temporary differences between the financial statement and income tax bases of assets and liabilities using currently enacted tax rates and operating loss and tax credit carryforwards.

Our deferred tax assets are recorded net of a valuation allowance when, based on the weight of available evidence, it is more likely than not that all or some portion of the recorded deferred tax balances will not be realized in future periods. The amount of deferred tax assets considered realizable could be reduced in the near period if estimates of future taxable income in the carryforward period are reduced.

ASC 740-10 requires the recognition of a tax benefit when it is more likely than not, based on the technical merits, that the position would be sustained upon examination by a taxing authority. The amount to be recognized is measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement with a taxing authority.

We record interest accrued related to unrecognized tax benefits as income tax expense.

The Company’s deferred tax assets are recorded, net of valuation allowance, when, based on the weight of available evidence, it is more likely than not that all or some portion of the recorded deferred tax balances will not be realized in future periods. Decreases to the valuation allowance are recorded as deductions to the Company’s provision for income taxes and increases to the valuation allowance result in an additional provision for income taxes.

Quantitative and Qualitative Disclosure About Market Risk

Foreign Currency Risk

We operate on a global basis and face foreign exchange risk arising from various currency exposures, primarily with respect to U.S. Dollar and Euro. We are exposed to currency risks from our investing, financing and operating activities. We intend to utilize a hedging strategy to mitigate the cash flow impact of foreign currency exchange risk.

We frequently enter into transactions with third parties that are settled in currencies other than our current functional and reporting currency, the U.S. Dollar. This risk is partially mitigated by matching the currency of third party transactions with the currency denomination of our indebtedness and intercompany loans. To the extent that such matching is insufficient to ameliorate exchange risk, we may consider entering into swap or other hedging contracts to provide additional protection from foreign exchange fluctuations.

We intend, among other things, to effectuate our general policy to reduce this risk:

 

   

by funding working capital and capital expenditures in the currency in which they generate the majority of their operational cash flows; and

 

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through otherwise strategically denominated borrowings in the functional currencies of our companies, principally either U.S. Dollar or Euro.

Currency risks from investing activities

Foreign-currency risks arise in the area of investing activities, such as from the acquisition and disposal of non-U.S. Dollar denominated investments. We may hedge these risks, however, this risk has not historically affected our company.

Currency risks from financing activities

Foreign currency risks in the financing area arise from our financial liabilities vis-à-vis third parties in foreign currencies and from intercompany loans denominated in foreign currencies that are extended between our companies for financing purposes. We intend to convert financial obligations and intercompany loans denominated in foreign currencies into our functional currency or a currency that otherwise offsets related risk.

Currency risks from operating activities

Foreign currency risks in the operating area result from transactions with third parties that are not denominated in the functional currency of the respective group company. Some of our group companies with the Euro as the functional currency do experience significant U.S. Dollar denominated cash flows. However, currency risks resulting from operating activities in non-functional currencies are naturally hedged by matching the denomination of loans to and from our companies and third parties to the denomination of operating cash flows in non-functional currencies.

Cash flow and fair value interest rate risk

Our interest rate risk arises from external borrowings. Borrowings issued at variable rates expose us to cash flow interest rate risk. Borrowings issued at fixed rates expose us to fair value interest rate risk. Approximately one-half of our borrowings are variable rate indebtedness. We currently do not intend to employ interest rate hedges.

We assess our market risk based on changes in interest rates utilizing a sensitivity analysis. The sensitivity analysis measures the potential impact on earnings, fair values and cash flows based on a hypothetical 10% change (increase and decrease) in interest rates. A hypothetical 10% increase in our interest rate would have resulted in $68 million and $75 million in interest expense for the year ended December 31, 2012 and 2011, respectively.

Credit risk

Credit risk arises from cash, cash equivalents and deposits with banks and financial institutions, as well as credit exposures to customers, including outstanding receivables. Our internal policies require that credit exposures with banks and other financial institutions be regularly measured and actively managed and that results reported to senior management to ensure relevancy in volatile credit markets. Credit risks related to trade receivables are systematically analyzed, monitored and managed. We have policies in place to ensure that sales of products and services on credit are made to customers with an appropriate credit history.

Change in Accountants

On June 21, 2012, the audit committee of our board of directors approved the decision to dismiss Ernst & Young Bedrijfsrevisoren BCVBA (the “Former Auditors”) and appoint PricewaterhouseCoopers LLP as our independent registered public accounting firm. We were not an SEC filer at the time of the Former Auditors’

 

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replacement by PricewaterhouseCoopers LLP. The Former Auditors’ audit reports on our consolidated financial statements for the years ended December 31, 2010 and 2011 did not contain any adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles.

During the subsequent interim period on or prior to replacement, there were no disagreements between us and the Former Auditors on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of the Former Auditors, would have caused the Former Auditors to make reference to the subject matter of the disagreement in connection with its report.

During the years ended December 31, 2010 and 2011 and the subsequent interim period from January 1, 2012 through February 14, 2012, we did not consult with PricewaterhouseCoopers LLP regarding the application of accounting principles to a specified transaction, either completed or proposed, or any of the matters or events set forth in Item 304(a)(2) of Regulation S-K.

 

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INDUSTRY OVERVIEW

Description of our products

Alkylamines are organic compounds produced through the reaction of an alcohol with ammonia. The largest alkylamine product category by volume consists of methylamines, where the alcohol used is methanol. Higher alkylamines are produced when alcohols containing chains of two or more carbon atoms are used instead of methanol. International and regional competition in the alkylamine industry can be affected by the cost and logistical difficulties involved in the shipping of alkylamine building blocks. Alkylamine derivatives production tends to be regional to minimize shipping costs. As a result of these factors, production in the industry is generally regional.

We believe that our extensive expertise and technology, our existing investments in profitable, vertically integrated manufacturing facilities, and our current set of product registrations from environmental, health and safety regulatory authorities give us a significant advantage over our competitors and new entrants. We also find it advantageous that some of our competitors have chosen to enter into certain downstream products that we do not manufacture and that compete directly with their customers.

Over the past decade, producers in the alkylamine industry that compete in our geographies have consolidated significantly. Key consolidation events include Air Products’s UK closure of a 50 kt production line in 2004, Chinook Canada’s closure of a 68 kt production line in 2004 and sale of contracts to DuPont, our purchase of Air Products’s North American and Latin American amines business in 2006, Akzo Nobel’s Netherlands closure of a 22 kt production line in 2006 and sale of contracts to us and Balchem’s purchase of Akzo Nobel’s 18 kt Italian operations in 2007.

The largest alkylamine building block product by volume is methylamines, followed by higher alkylamines. Methylamines are manufactured by combining methanol with ammonia in a catalytic reactor. Three different methylamine isomers are produced: mono methylamine (“MMA”), di methylamine (“DMA”) and tri methylamine (“TMA”). The proportion in which these three isomers are produced depends upon pressure, temperature and the specific catalyst present in the catalytic reactor. If an excess of any isomer is produced, it is returned to the catalytic reactor and recycled. The isomers are then distilled and used as raw materials for the production of alkylamine derivatives, or in other manufacturing processes.

The term higher alkylamines refers to the C2-C6 alkylamines, that is, ethyl, n butyl, n propyl, isopropyl and cyclohexyl amines. The manufacturing process for higher alkylamines is similar to that for methylamines, as ammonia is combined with various alcohols in catalytic reactors and subsequently distilled. The use of different alcohols results in the creation of different higher alkylamines.

According to the ADL Report, consumption of methylamines accounted for 74% of global consumption of alkylamines by volume. Higher alkylamines made up the remainder of global consumption, with ethylamines accounting for 7%, isopropylamines, which include MIPA, for 13% and butylamines for 2% of total global consumption by volume.

The four producers of methylamines in North America are Taminco, DuPont, BASF and Celanese Mexicana, with Taminco having the largest share of production capacity at approximately 50% in 2012 according to the ADL Report and DuPont having the next largest share. The two producers of higher alkylamines in North America are Taminco and U.S. Amines, with Taminco’s share of production capacity at 75% in 2012. The European methylamine producers are Taminco (Belgium and Germany), BASF (Germany), Balchem (Italy), Ak-Kim Kimia (Turkey) and CEPSA (Spain), with Taminco having the largest share of European production capacity at 52% and BASF having the majority of the remaining capacity share. In Asia, the significant methylamine producers include Zheijiang Jiangshu, Shandong Huala Hengsheng, Luxi Chemical Corp. and Taminco, with Taminco’s share representing 4% of Asian production capacity in 2012.

 

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In general, because alkylamines are key intermediates in numerous end-market products, there is a reduced threat of substitution by other products. In addition, although there has recently been increasing interest in the use of renewable-based precursors, such as biomethanol, bioethanol and bioammonia, in the production of alkylamines, we believe our production facilities, equipment and production processes would be able to readily adapt to such developments. For example, bioethanol is already used as feedstock in ethylamine production in the United States. We are also in the process of developing new amines produced from renewable precursors, which are intended for products in the personal care and agricultural end-markets.

Methylamines are expensive to transport in gaseous form due to their volatile nature and logistical complexity. As such, supply and demand for methylamines is typically matched on a regional basis. Competition in higher alkylamines production is generally regional. With few exceptions, producers tend to focus on producing a small number of higher alkylamines, which results in a limited number of producers of each type of higher alkylamine in each region.

Methylamines and higher alkylamines are the principal building blocks that can, following reaction with various other chemical compounds, be used for the manufacture of a wide range of specialty alkylamine derivatives.

Markets for Our Products

We are the world’s largest pure play producer of alkylamines and alkylamine derivatives according to the ADL Report. Our products are used by our customers in the manufacturing of everyday products primarily for the agriculture, water treatment, personal & home care, animal nutrition and oil & gas end-markets. Our products provide these goods with a variety of ancillary characteristics required for optimal performance, such as neutralizing acidity, and removing contaminants. We have an extensive offering of differentiated value-added products that typically represent a small portion of our customers’ overall costs and are sold into diversified, global end-markets that benefit from favorable underlying economic and population growth trends. We currently operate in 19 countries with seven production facilities and, as of December 31, 2012, had an installed production capacity of 1,272 kt. According to the ADL Report, we hold the #1 or #2 market position globally in the vast majority of the chemicals we produce, including an approximately 50% and 75% capacity share of certain products, respectively, in North America and Europe. During the pro forma year ended December 31, 2012, eight of our products accounted for more than 57% of our revenue, with six of the eight products holding a leading global market position. During the pro forma year ended December 31, 2012, through our worldwide network of production facilities, we sold 48% of our volume in North America, 36% of our volume in Europe, and 16% of our volume in the emerging markets (7% in Latin America and 9% in Asia). Furthermore, we expect to increase the portion of our volume from the Americas and Asia with our recent capital investments. As a result of our leading market positions, attractive end-markets, and significant recent capital investments, we believe we are well positioned for significant growth over the coming years. In the pro forma year ended December 31, 2012, we generated revenue of $1,116 million, Adjusted EBITDA of $240 million, and Adjusted EBITDA margin of 22%. See “Prospectus Summary—Summary Historical Consolidated Financial Information” for a discussion and reconciliation of Adjusted EBITDA and Adjusted EBITDA margin.

Agriculture (30% of Volume)

The total market for agricultural chemicals is estimated at $51 billion, having grown by 7% per annum between 2005 and 2009, and by about 5% per annum between 2009 and 2012. According to the ADL Report, the market is projected to increase at approximately 6% per annum from 2012 to 2016. The top global producers in this market include Syngenta, Bayer, BASF, Dow, Monsanto and DuPont. We believe demand for agricultural chemicals will be driven by numerous factors, including the need for increased agricultural yields to serve a growing world population as arable surface area available for agricultural production is limited; rising disposable incomes among a growing middle class in emerging markets being spent on more high quality food; increased use of biofuels which is diverting more agriculture away from food supply; and desire among governments to increase food supply in order to limit domestic food price volatility.

 

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We expect that increasing yield from existing land will require more productive plants, and crop protection products, such as fungicide, soil fumigation and plant growth regulators will be key components to achieving greater yield with minimal crop loss. We also expect demand for agricultural yields to drive growth in the market for herbicide systems, particularly in developing countries, albeit at a slower rate than certain other agricultural chemicals, and that this growth will be partially offset by increasingly commoditized pricing, as low cost producers in China and elsewhere enter the market. According to the ADL Report, on average, amines and their derivatives account for approximately 15% of the end product cost structure for those products.

In the pro forma year ended December 31, 2012, products serving the agriculture end-market represented approximately 30% of our total volume. We serve this end-market through our Crop Protection segment, which produces active ingredients and formulated products that are used to control pests such as fungi, insects, worms and weeds that would detrimentally impact the health and productivity of useful crops. We also serve this end-market through our Functional Amines segment, which sells a variety of intermediate alkylamines that are used as building blocks or formulation aids in a variety of other agricultural chemicals.

Water Treatment (13% of Volume)

According to the ADL Report, the total market for water treatment chemicals is estimated at $25 billion in 2012 and is projected to increase at approximately 6% per annum from 2012 to 2016. The top global producers by sales in the water treatment industry include Ashland, BASF, Ecolab, GE Water, Kemira and SNF Florger. We believe demand for water treatment will continue to grow as increased water consumption will require greater sanitizing and higher water recycling rates to combat overall water scarcity. Key drivers of demand include the increasing scarcity of potable water and water used for agriculture and industry; rising urban populations, particularly in emerging markets such as China and India, which are placing greater stress on aging water treatment facilities; enhanced environmental standards across the globe; increasing demand from the expanding middle class for products that require higher water intensity in their production process, such as food; and an increasing backlog of undeveloped water treatment facilities, particularly in China, as governments try to undo much of the environmental degradation that resulted from their recent rapid economic expansion. According to the ADL Report, amines and their derivatives account for approximately 15% of the end product cost structure for water treatment products on average.

In the pro forma year ended December 31, 2012, products serving the water treatment end-market represented approximately 13% of our total volume. We serve this end-market through our Specialty Amines segment, which mainly produces the building blocks for water sanitation chemicals and active water treatment ingredients. We produce advanced chemicals for use in preventing corrosion and scaling, processing in recycling facilities and sanitizing with agents to prevent microbial and algae proliferation, which will become increasingly important in the treatment of water around the world as sources of fresh water become increasingly scarce.

Personal & Home Care (14% of Volume)

According to the ADL Report, the total market for personal & home care is estimated at $210 billion in 2012, including $54 billion of functional ingredients, and is projected to increase at approximately 7% per annum from 2012 to 2016. Significant producers of personal & home care products include Colgate, Henkel, Kao, Lever, Procter & Gamble and Unilever. We believe the personal & home care industry will grow strongly over the near term driven by many factors, including increasing demand from emerging markets such as Asia, as purchasing power among a growing middle class in these regions continues to advance; product innovation designed to meet the diverse range of needs of different consumers; and an increased focus on environmental sustainability, which is driving new products to incorporate “green chemistry.” According to the ADL Report, amines and their derivatives account for less than 10% of the end product cost structure for products in the personal & home care end-market on average.

In the pro forma year ended December 31, 2012, products serving the personal & home care end-market represented approximately 14% of our total volume. We serve this end-market through our Specialty Amines segment, which primarily produces building blocks for surfactants, key ingredients in the development of milder

 

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cleaning agents and aroma chemicals, as well as skin-sensitive product formulations such as baby shampoos and foam baths. We also produce intermediate alkylamines that constitute building blocks for surfactants used in other personal & home care products.

Animal Nutrition (15% of Volume)

According to the ADL Report, the total market for animal nutrition is estimated at $830 billion in 2012 and is projected to increase at approximately 5% per annum from 2012 to 2016. Important players in the animal nutrition end-market include ADM, Cargill, CP Group Thailand, New Hope Group China and Nutreco. We believe demand for animal nutrition will be driven by many factors, including increasing world population; global dietary habits shifting toward higher meat consumption, particularly white meat, as a result of rising incomes; increasing adoption of modern farming practices, particularly in Asia, leading to an increase in feed additive usage; and the desire among governments to increase food supply in order to limit domestic food price volatility and import dependency.

The animal nutrition end-market encompasses both compounded feed (often corn and soy byproducts from agricultural processing) and feed additives. Feed additives supplement the food for animals, enhancing conversion yields while positively contributing to animal health, contributing to higher overall productivity. One of the primary feed additives is choline chloride, and we expect the market for this additive to grow steadily over the near term. According to the ADL Report, on average, amines and their derivatives account for less than 1% of the end product cost structure for animal nutrition products.

In the pro forma year ended December 31, 2012, products serving the animal nutrition end-market represented approximately 15% of our total volume. We serve this end-market mainly through our Specialty Amines segment, which mainly produces feed additives based on choline chloride, a vitamin commonly incorporated into feed for poultry and swine that helps achieve higher feed conversion yields while reducing animal morbidity. We also serve this end-market through our Functional Amines segment selling the amine used to produce feed additives as well as functional ingredients such as vitamins and amino acids and processing aids that facilitate the storage of animal feed.

Oil & Gas (7% of Volume)

According to the ADL Report, the total market for chemicals used in oil & gas exploration and production is estimated at $7.5 billion in 2012 and is projected to increase at approximately 8% per annum from 2012 to 2016. The top oil & gas service companies include Baker Hughes International, Halliburton, Schlumberger and Weatherford International. Chemicals used in the exploration and production of oil & gas include desulphurization solutions for absorbing and removing sulphur contaminants, consisting of blends of various amines, drilling muds containing various ingredients for the cooling and lubrication of drilling heads, dispersion of rock fragments and prevention of pressure blow-outs, and enhanced recovery systems consisting of complex surfactant blends for facilitating recovery of oil & gas in reservoirs. According to the ADL Report, amines and their derivatives account for approximately 4% of the end product cost structure for these oil & gas products, on average.

Demand for oil & gas exploration and production chemicals has grown steadily in recent years, and we expect that trend to continue, driven by increasing demand for oil & gas, particularly in rapidly growing emerging markets, such as China; rising energy prices; decreasing quality of oil & gas deposits; and increasing oil & gas prices, leading producers to seek minerals from more complex reservoirs and requiring additional chemical inputs for extraction, such as in the nascent shale gas fracturing market. We estimate that in 2012, global demand for choline chloride for fracturing was approximately 25 kt, and that up to 65% of natural gas and oil wells drilled in North America over the next decade will require hydraulic fracturing.

In the pro forma year ended December 31, 2012, products serving the oil & gas exploration and production market represented approximately 7% of our total volume. We serve this end-market through our Specialty Amines segment.

 

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BUSINESS

Our Company

We are the world’s largest pure play producer of alkylamines and alkylamine derivatives according to the ADL Report. Our products are used by our customers in the manufacturing of everyday products primarily for the agriculture, water treatment, personal & home care, animal nutrition and oil & gas end-markets. Our products provide these goods with a variety of ancillary characteristics required for optimal performance, such as neutralizing acidity, and removing contaminants. We have an extensive offering of differentiated value-added products that typically represent a small portion of our customers’ overall costs and are sold into diversified, global end-markets that benefit from favorable underlying economic and population growth trends. We currently operate in 19 countries with seven production facilities and, as of December 31, 2012, had an installed production capacity of 1,272 kt. According to the ADL Report, we hold the #1 or #2 market position globally in the vast majority of the chemicals we produce, including an approximately 50% and 75% capacity share of certain products, respectively, in North America and Europe. During the pro forma year ended December 31, 2012, eight of our products accounted for more than 57% of our revenue, with six of the eight products holding a leading global market position. During the pro forma year ended December 31, 2012, through our worldwide network of production facilities, we sold 48% of our volume in North America, 36% of our volume in Europe, and 16% of our volume in the emerging markets (7% in Latin America and 9% in Asia). Furthermore, we expect to increase the portion of our volume from the Americas and Asia with our recent capital investments. As a result of our leading market positions, attractive end-markets, and significant recent capital investments, we believe we are well positioned for significant growth over the coming years. In the pro forma year ended December 31, 2012, we generated revenue of $1,116 million, Adjusted EBITDA of $240 million, and Adjusted EBITDA margin of 22%. See “Prospectus Summary—Summary Historical Consolidated Financial Information” for a discussion and reconciliation of Adjusted EBITDA and Adjusted EBITDA margin.

Alkylamines are organic compounds produced through the reaction of an alcohol with ammonia. The immediate results of these processes are the production of methylamines and higher alkylamines, which can then be further reacted with other chemicals to produce alkylamine derivatives. Our products are primarily used in the agriculture, water treatment, personal & home care, animal nutrition and oil & gas end-markets, which combined accounted for approximately 79% of our volume during the pro forma year ended December 31, 2012. Our end-markets tend to be non-cyclical and benefit from strong underlying fundamentals such as increasing global population, urbanization of emerging markets and rising income levels.

We currently operate seven plants worldwide dedicated to the production of alkylamines and alkylamine derivatives, including two larger facilities in each of the United States and Europe that are among the world’s largest methylamine and higher alkylamines production facilities, a joint-venture facility with the MGC Group in China, and two other 100% Taminco-owned facilities in China.

We are also in the process of pursuing numerous growth projects to further bolster our global footprint and leverage our strategic advantages. Our currently budgeted future investments include significantly extending production capacity at our Pace, Florida methylamine facility by the end of 2014 and further development of other derivative capacity. In total, we have spent $136 million in growth capital expenditures over the past three years, which is more than we have spent in any similar historical period. We expect to realize significant growth in our financial results from these investments.

We are organized into three segments: Functional Amines, Specialty Amines, and Crop Protection.

 

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Our segments are organized as follows:

 

LOGO

 

   

Functional Amines. This segment serves the needs of external customers that use our alkylamines products as the integral element in their chemical processes for the production of formulated products applied in a variety of end-markets such as agriculture, personal & home care, animal nutrition, and oil & gas. Through this segment, we also produce basic amines, which are captively used as building blocks to produce our downstream derivatives through our Specialty Amines and Crop Protection segments, serving a variety of attractive, non-cyclical end-markets. Two of this segment’s products, DMA (water treatment and household cleaners) and MIPA (herbicides), contributed to more than 10% of our consolidated net sales. DMA accounted for 9%, 9% and 10% for the pro forma year ended December 31, 2012 and the years ended December 31, 2011 and 2010, respectively. MIPA accounted for 8%, 9% and 10% for the pro forma year ended December 31, 2012 and the years ended December 31, 2011 and 2010, respectively. Approximately 30% of the Functional Amines production is used internally and forms the basis of our vertically integrated model. In the pro forma year ended December 31, 2012, the Functional Amines segment accounted for 51% of Adjusted EBITDA.

 

   

Specialty Amines. This segment sells alkylamine derivatives for use in the water treatment, personal & home care, oil & gas and animal nutrition end-markets, and specialty additives for use in the pharmaceutical, industrial coatings and metal working fluid end-markets. This segment is downstream from the Functional Amines segment and uses that segment’s production as one of its key raw materials. One of this segment’s products, DMAE (water treatment), contributed 11%, 11% and 12% to our consolidated net sales for the pro forma year ended December 31, 2012 and the years ended December 31, 2011 and 2010, respectively. The Specialty Amines segment’s customers are typically large, multinational enterprises who are leading players in their industry. In the pro forma year ended December 31, 2012, the Specialty Amines segment accounted for 33% of Adjusted EBITDA.

 

   

Crop Protection. This segment sells alkylamine derivatives, active ingredients and formulated products for use in the agriculture and crop protection end-markets. The majority of the segment’s customers range from multinational crop protection and agricultural enterprises to large local farms. In the pro forma year ended December 31, 2012, the Crop Protection segment accounted for 16% of Adjusted EBITDA.

Please see “Note 18—Segment Information” to our audited consolidated financial statements included elsewhere in this prospectus for financial information by segments and geography.

 

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Our Strengths

We believe the following competitive strengths, in addition to our industry leading alkylamine production technology, have been instrumental to our success and position us well for future growth and strong financial performance.

Serve strong end-markets with attractive global growth prospects

Our products are used by our customers in the manufacturing of everyday products primarily for the agriculture, water treatment, personal & home care, animal nutrition and oil & gas end-markets. Our products provide these goods with a variety of ancillary characteristics required for optimal performance, such as neutralizing acidity, and removing contaminants. Our products are generally sold into large end-markets with attractive global growth prospects. We develop products mainly for use in the agriculture, water treatment, personal & home care, animal nutrition, and oil & gas end-markets. These targeted end-markets, which have been relatively resistant to economic downturns, represent over $1.0 trillion in market value as of 2012 and are projected by ADL to grow by an average of 6% per year from 2012 to 2016. Specifically, ADL projects that the agriculture, water treatment, personal & home care, animal nutrition and oil & gas end-markets will grow by 6%, 6%, 7%, 5% and 8%, respectively, per annum from 2012 to 2016.

Our key earnings drivers are generally macroeconomic trends created through non-discretionary spending by industries and consumers. A steadily increasing world population, rising income levels (particularly in the emerging markets), increasing global urbanization and an aging global population are expected to help continue driving strong demand in our key end-markets. We believe we can achieve growth rates above these industry estimates as a result of our commitment to develop high value-add products alongside our blue-chip customers, our continued investment in very accretive capacity additions, and our demonstrated operational expertise that allows each new growth stage to be done more efficiently. In the pro forma year ended December 31, 2012, approximately 79% of our volume was generated from these key end-markets and we expect that to increase over the next few years.

Market leader in global amines industry targeting niche markets with very few competitors

We focus exclusively on the production of alkylamines and alkylamine derivatives and have not entered into the production of other chemical products. We are the only amines producer that pursues this strategy and we believe it is a key differentiator of our success. According to the ADL Report, we are the world’s largest pure play producer of alkylamines and alkylamine derivatives, as we hold the #1 position in alkylamine and methylamine production in North America and the #2 position in alkylamine and methylamine production in Europe. We achieved these market positions due to our ongoing commitment to balance growing our profitability while achieving significant scale. We believe we have been a market leader in the alkylamines industry and its derivatives for our entire existence.

We benefit from long-standing relationships with blue-chip, industry-leading companies in each of our key end-markets, as well as from low customer churn (our average customer relationship among our top 10 customers is thirteen years). Some of our blue-chip customers include Arkema, Dow Agro Sciences, Procter & Gamble, SNF and Syngenta. We develop products alongside each of these key customers. Overall, we believe our market position provides us with a stable and flexible platform for profitable operation and positions us to capitalize on growth opportunities quickly. In addition, our customer base is diverse both in terms of industries and geographies, all of which contribute to protection in economically challenging environments.

We believe that our extensive expertise and technology, our existing investments in profitable, vertically integrated manufacturing facilities, and our current set of product registrations from environmental, health and safety regulatory authorities give us a significant advantage over our competitors and new entrants. We also find it advantageous that some of our competitors have chosen to enter into certain downstream products that we do not manufacture and that compete directly with their customers.

 

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Significant room for near-term growth due to recent capital investments

Our vertically integrated business model is one of our key strengths, differentiating us from almost all of our competitors. Through our vertical integration we gain significant operational efficiencies, which enhances the overall profitability of our products. As we have succeeded with this model in Europe, we recently completed our vertically integrated production model in the United States, which we believe ideally positions us to capture growth in several attractive end-markets, including oil & gas (driven by shale gas demand), water treatment, feed additives, and crop protection. These recent investments in derivative capacity in the United States (AAA, DIMLA, and DMAPA) have large growth potential. These investments increased our derivatives capacity by 11% and further distanced ourselves from the nearest competitor in each of these product lines.

In addition, as a result of our competitive cost position, recent capacity additions at our United States-based plants and our Latin America-based sales force, we believe we are well positioned to fully serve the Latin American market, which has limited local competition. On a relative basis, we do not believe our peers have this competitive advantage.

Going forward, there are a variety of accretive, global growth projects to further expand our footprint, product portfolio, and customer base. We will continue to evaluate these on a systematic basis with a strong focus on ensuring a rapid payback and sustained earnings stream. We have a dedicated group focused on evaluating these opportunities on a regular basis.

Demonstrated financial resilience through various economic environments

For the past several years, our revenue, gross profit and Adjusted EBITDA have been growing throughout various economic environments. Due to our resilient end-markets, diverse customer base and the integral nature of alkylamines and their derivatives to our customers, we are less vulnerable to economic cycles. In addition, we benefit from being able to grow sales volume with a limited addition of fixed costs as a result of our vertically integrated global production model. Also, we have relatively low maintenance capital expenditure requirements, which allow us to easily maintain high cash flow conversion rates in any economic environment.

As an example of our resilient end-markets, during the 2008 to 2009 economic downturn, our volume declined only 7%, compared to an average decline of 20% for the specialty chemical industry according to the ADL Report, and our Adjusted EBITDA grew 20% in that same time period. Similarly, our European originated sales continue to do well despite the challenging economic environment in Europe. We strongly believe that our end-markets will continue to grow in various economic environments given their resilient nature, which we believe makes us a unique specialty chemical company.

Ability to pass through raw material price increases

We believe one of the key reasons for our historical success is our ability to manage fluctuating raw material prices by passing through the majority of price changes to our customers through both CPT Contracts and through diligent management of pricing with customers. During the pro forma year ended December 31, 2012, our top four raw materials (methanol, ethylene oxide, ammonia and acetone) accounted for 37% of our total cost of sales. Our main raw materials are readily available commodity chemicals. Approximately half of our total revenue for the pro forma year ended December 31, 2012 is generated from CPT Contracts.

We play an important role in our customers’ value chains (providing a variety of ancillary characteristics required for optimal performance, such as neutralizing acidity, and removing contaminants) but our products represent a relatively small percentage of our customers’ overall cost structures. Because of the value of our products, for the portion of sales that are not generated under CPT Contracts, we are often able to pass through raw material price increases to our customers through market-based sales contracts that are typically renegotiated

 

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quarterly. Positive market dynamics and our relative insulation from raw material price volatility have historically enabled us to maintain profitability in each of our segments. We have also deployed a strategic sourcing approach for critical raw materials, which, coupled with our CPT Contracts and market-based contracts, significantly mitigates the impact of raw material volatility on our margin. Going forward, we continue to evaluate the impact of raw materials on our business through a significant focus on mitigating volatility from raw material costs as new capacity additions come online.

Attractive product pipeline with significant value creation opportunities

We have a strong track record of identifying and exploiting growth opportunities for new applications of our existing products. We also have expertise in new product development and we are the preferred partner for many of our key customers to jointly develop new amine-based derivative products. Our current pipeline includes several products covering each of our key end-markets that we expect will reach the market in the next few years and represents significant incremental revenue opportunities. We have a suite of products in development that are nearing realization, such as the expected launch during the course of 2013 of Tenaz, a proprietary formulation of bio available silicate that is used as a plant fortifier. Our research and development is focused on five key application areas: surfactants, water treatment, oil & gas, feed additives and crop protection. Our patent portfolio is actively managed and contains 76 patents as of December 31, 2012.

Past achievements in the Crop Protection segment include Banguard fungicide, used to control banana diseases, which was first introduced in Asia in 2009 and is being introduced into Central and Latin America. In the Specialty Amines segment, we have introduced formulations of MDEA for use in refineries and gas plants as solvents for sulfur and carbon dioxide extraction. We have also introduced a new feed additive, Taminizer C, in 2009, which is a new version of dry choline chloride that is very pure and concentrated, leading to transportation cost savings and higher food safety standards. We believe we are the most technologically advanced amines producer.

Well-positioned to continue exploiting fast growing emerging markets in partnership with blue-chip customer base

With manufacturing operations and sales operations in China, sales offices in several Latin American countries and manufacturing operations in North America which can serve Latin America cost effectively, we believe we have a strong platform for further growth in these regions. Our joint venture with the MGC Group in Nanjing provides us with a base for expanding high value-added amine derivative products in China in the coming years. According to the ADL Report, Brazil is one of the largest markets in the world for crop protection and herbicide systems, and our operations in the region are positioned towards serving that growing agriculture market. In addition, recent expansion at our U.S. operations provide us with fully-vertically integrated amine derivatives manufacturing facilities that will help meet demand for our higher value-added products in Latin America. We have a number of strong relationships as a trusted supplier to global industry leaders within our key developed end-markets. We will continue to leverage these relationships in order to grow alongside our customers in these and other emerging markets. We are focused on only pursuing geographical expansion that we believe will be highly accretive to Taminco, which we believe exists in a number of countries through new and existing customer relationships.

Industry leading margins and cash flow generation

We believe we have been maintaining industry leading margins and strong cash flow generation throughout economic cycles as a result of our low cost position, leadership role in niche markets, and scalable fixed cost structure. Our ability to mitigate raw material pricing fluctuations provides stability to our margins. Our EBITDA margin has averaged approximately 20.1% over the period from 2007 to 2012, compared to approximately 17.9% for our industry peers over the same period according to the ADL Report. As a testament to our competitive strength, our cash flow conversion, measured by EBITDA minus capital expenditures divided by EBITDA, has

 

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averaged 73% over the period from 2007 to 2012 compared to approximately 66% for our industry peers according to the ADL Report. Our cost structure and limited maintenance capital expenditures allows us to be very nimble in economically challenging environments.

Proven management and employee culture with meaningful employee equity ownership

We believe that our management team is among the deepest and most experienced in the chemical industry. On average, the tenure of our executive management team is 16 years with the Company and 18 years in the chemical industry. Our management team has been responsible for developing and executing our strategy that has generated consistent year-over-year sales and Adjusted EBITDA growth. We believe our employees have developed a unique culture in which each employee throughout the entire company is aligned, focused and holds each other accountable to achieve goals that drive value creation for all of our stakeholders. Our employee ownership pool is deep with approximately 42 individual employees owning equity in the Company. As of December 31, 2012, employees owned over 10% of the shares in our Company on a fully diluted basis before giving effect to this offering.

Our Strategy

Our long-term growth drivers revolve around our continued ability to work closely with market industry leaders and to further expand into emerging markets through the principal strategies outlined below.

Capitalize on key fundamental drivers of our end-markets

The primary end-markets we serve have strong exposure to numerous positive, non-cyclical macroeconomic trends. According to ADL, key factors, including a steadily increasing world population, a growing middle class in emerging markets, clean water scarcity, and enhanced oil & gas recovery techniques (especially driven by the shale gas demand in the United States), will continue to drive strong demand for agriculture, water treatment, personal & home care, animal nutrition and oil & gas products. ADL projects that the agriculture, water treatment, personal & home care, animal nutrition and oil & gas end-markets will grow by 6%, 6%, 7%, 5% and 8%, respectively, per annum from 2012 to 2016, or an average of 6%. We believe we are well positioned and intend to utilize our best-in-class business optimization and manufacturing processes to meet our customers’ increased supply needs in light of this anticipated growth in end-market demand.

Continue to partner with industry leaders to provide foundation for future growth

We currently have strong positions in each of our key end-markets, which we have achieved in part due to our strong customer relationships with leading global companies in each of those markets. A fundamental element of our strategy is to continue to work directly with our core customers to develop new products and new applications for our existing products that address their specific needs. In addition, we deploy a more customer-focused marketing approach, rather than a more traditional product-based approach. Our specialized sales force includes 29 professionals and six marketing managers with individual responsibility for particular end user markets in various regions. In addition, we employ approximately 35 other commercial professionals, including divisional managers, product managers and new business development specialists. We believe that a deeper understanding of customer needs will better enable our marketing professionals to identify future sources of demand for our products and, working in close cooperation with our research and development function, address that demand through product innovation. As a result, we believe our customer-focused approach will make us a more attractive partner and allow us to achieve greater penetration of our end-markets.

Examples of successful products we have developed with our customers include: (i) Amietol M201, a gas sweetening solution based on methylamines that helps with CO2 removal in natural gas plants and oil refineries, which we co-developed with Shell and (ii) Banguard, a formulation to cure a banana disease (Black Sikatoka), which we developed in partnership with Dole and Delmonte for use in the Philippines and is now rolling out in Latin America.

 

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Leverage platform to expand emerging market presence

We have strong, leading positions in our product markets in North America and Europe as a result of our commitment to strategic capital investments and selective acquisitions. We expect to leverage this success to capture a significant portion of our future growth in demand from Asia and Latin America. One of our strategic priorities is to position ourselves for profitable growth in these markets. We currently have two production facilities in China serving the animal nutrition end-market as well as a joint venture with the MGC Group to manufacture amines and amine derivatives. We plan to use our facilities, including our joint venture, as a platform for further expansion in Asia, including potentially in the fast-growing markets of Malaysia, Indonesia, India and Vietnam, and become a partner of choice for our customers in that region by leveraging our high-quality products, standards and technical expertise and moving closer to end users. We plan to capture global growth through our continuous investment in the U.S., which also serves as a platform for export to Latin America. In addition, our joint venture with the MGC group is expected to capture growth in Asia, primarily in China. We believe our technological and process knowledge should give us a significant advantage over our competitors in that region. As we grow in Asia, we are very focused on pursuing growth opportunities and selective acquisitions that are attractive from a margin profile.

In Latin America, we hold a strong market position in the agricultural chemicals, including crop protection and herbicides, that we sell and we seek to continue developing our presence in that region. We believe our competitive cost position in the United States and our network of sales offices in Latin America provide us with a strong platform for organic growth, and we will also aim to build strategic partnerships in Latin America and work with our global customers to develop business in that region. We will also continue to invest in our vertically integrated production capability in the United States and strategically pursue acquisitions, which we believe will facilitate further expansion of our derivative products for end-markets such as personal & home care and oil & gas in both North and South America.

Further expand our vertically integrated model

Our vertically integrated business model is one of our key strengths, differentiating us from almost all of our competitors. Our vertically integrated model focuses on both the alkylamine and their associated derivatives, versus just focusing on the alkylamines, which some of our competitors do. By having a fully integrated value-chain we are able to maintain a sustainable low cost position, benefiting from energy optimization, limited recycling needs, optimized logistics, and a limited number of well positioned world-scale production units.

A cornerstone of our expansion strategy is the extension of our vertically integrated business and production approach to all our operations around the world. We are already vertically integrated to a high degree in our European operations, in particular at our facility in Ghent and more recently in the United States, where we have completed new derivative units at our St. Gabriel and Pace facilities. We have announced significant methylamine capacity expansion at Pace to be completed by the end of 2014 that will further increase our leadership in North America.

Furthermore, through our joint venture with the MGC Group, we produce amine derivatives in China to pursue profitable growth downstream. Equally important to our performance is the continuous pursuit of production efficiencies and regular debottlenecking projects, which yield significant benefits in exchange for modest capital expenditures. As part of the philosophy behind our vertically integrated business model, we will continue to seek and implement best-in-class process optimization and efficiency gains within each of our facilities and apply that expertise throughout our global operations.

Continue to develop new processes, markets and products to enhance growth and profitability

Another key element of our strategy is to capitalize on our technological leadership to develop new processes, new products and new applications for our existing products. Working closely with our customers to better understand our end-markets and our customers’ individual requirements, we will seek to continue

 

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developing new products that increase the overall value of our customers’ offerings. We will also focus on providing more efficient alternatives to existing formulations, using a wide range of technologies including green technologies for our solvents, plant physiologies for our agriculture products and genomics screening for our feed additives. In addition, we will seek to maintain and improve our knowledge of market trends and developments in order to find new and innovative applications for our existing products. Our product pipeline currently includes developments which we expect to reach our customers in the next few years in each of our key end-markets. We are focused on developing products which provide improved performance and, in most cases, represent safer, non-toxic and “greener” alternatives to existing chemicals.

History and Development

Our business originated with the formation of Taminco N.V., a Belgian public limited liability company, through the carve-out from Union Chimique Belge (“UCB”) in 2003. We entered the U.S. market in 2006 through the acquisition of certain assets of Air Products Americas. Taminco Group N.V. was incorporated in 2007 as a vehicle to effect the acquisition by funds advised by the previous sponsor. On December 15, 2011, an affiliate of Apollo Global Management, LLC entered into a share purchase agreement pursuant to which Taminco Global Chemical Corporation acquired all of the issued share capital of Taminco Group Holdings S.à r.l., the parent of Taminco Group NV, and its subsidiaries.

In addition to increasing our production capabilities through acquisitions, we have also selectively acquired various supply contracts to increase the capacity at each of our plants. In 2004, we acquired Air Products’ European methylamines and derivatives customer portfolio and in 2006, we acquired Akzo Nobel’s customer portfolio following the closure of their Delfzijl plant. In 2007, we acquired Arkema’s U.S. methylamine and higher alkylamines ethoxylated derivatives business, which added 15 new products to our portfolio for both methylamine and higher alkylamines. We also acquired patented technology relating to plant growth regulators for use in cereals and formulations of chlorocholine chloride from Mandops UK in 2007. In 2008, we opened a more energy efficient, fourth generation methylamine unit in Ghent. In 2009, we closed our Riverview facility as the first step in integrating our production in the United States, and in 2010, we completed the transfer of its equipment to our plant at St. Gabriel, Louisiana. Also in 2010, we launched a joint venture in Nanjing, China with the MGC Group and acquired the remaining shares in our Yixing facility from our joint venture partner at that facility, in order to take advantage of continuing growth opportunities in that market and the rest of Asia. Under the joint venture agreement with MGC Group, we have a 50% interest in the joint venture and are responsible, jointly along with MGC Group, for all activities related to the business of the joint venture. We also have shared power with MGC Group to appoint the board of directors and other management members. The term of the joint venture agreement is indefinite and may be terminated if circumstances arise where the operation of the joint venture is no longer practical, such as the revocation of its business license or occurrence of an event that materially discriminates against foreign investors. For additional information, see “Note 7—Equity Method Investments” to our audited consolidated financial statements included elsewhere in this prospectus.

Our Primary End-Markets

We are an amines company and our principal products consist of basic amines, including methylamines and higher alkylamines, solvents, specialty amine derivatives, and other intermediate chemicals. We evaluate our business in terms of the end-markets we serve with these chemicals, namely the agriculture, water treatment, personal & home care, animal nutrition and oil & gas end-markets, as well as various other niche markets. We divide our business into three primary segments, Functional Amines, Specialty Amines and Crop Protection. Our Functional Amines segment focuses on methylamines and salts, higher alkylamines and solvents. Our Specialty Amines segment focuses mainly on alkylamine derivatives for the water treatment, personal & home care, animal nutrition and oil & gas end-markets. Our Crop Protection segment focuses mainly on the agriculture and crop protection end-markets. All segments also serve certain additional niche industrial and other end-markets.

 

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Functional Amines

Segment Overview

Our Functional Amines segment produces amines through the reaction of primary alcohols with ammonia. The products generated from this reaction are methylamines and higher alklylamines, the key building blocks that are used in the production of specialty chemicals and active ingredients for an array of widely applicable chemical products in diversified end-markets. Our Functional Amines segment had net sales and Adjusted EBITDA of $515 million and $110 million, respectively, in the year ended December 31, 2011, and $501 million and $122 million, respectively, for the pro forma year ended December 31, 2012.

Methylamines and Salts

We produce several basic amines, including methylamines (mono-, di- and tri-methylamine) and higher alkylamines that are used as intermediates in more than 200 different downstream applications across many growing end-markets. We are the largest global producer of methylamines, by installed capacity, with approximately 25% market share. Our amines businesses differ from region to region. In Europe, we manufacture methylamines but not higher alkylamines; in the United States, we manufacture both methylamines and higher alkylamines. We also have a presence in China through a joint venture producing methylamines and solvents.

Our products include MMA, DMA and TMA (methylamines) and DEA, TEA, MNPA, DIPA, N-Butyls and Iso-Butyls and Amylamines (higher alkylamines). We are the top global producer by volume of MMA, DMA, TMA, TEA and DEA. These products are available as gases and solutions, and are packaged in various forms including rail trucks and ISO tanks. Several of the products produced by our Functional Amines segment, including DMA, DMAc and TMA, have applications in the animal nutrition and agriculture end-markets and are sold to customers, including Dow, Nufarm, Balchem and Nutrinova. We are also developing new products through customer partnerships, as with Choline Agro Grade, a neutralizing amine that allows different herbicides to perform better together.

The customer base for our amines products is broad, comprising a wide array of customers, both large and small. In Europe and in the United States, our most significant competitor in methylamines is BASF. We enjoy very strong market positions in our amines business in all of the regions in which we operate. In Europe we have shifted our focus toward increased integrated production of higher-value specialty derivatives using our own amines, ensuring a secured outlet for our basic amines products through our integrated production model and partially/incrementally insulating our amines business from competition.

Solvents

Our Functional Amines segment produces a number of solvents for industrial and professional uses for a diverse set of customers in the global market, with a focus on Europe, including manufacturers of textile fibers, artificial leather and electronics, which include C-base, NMP, DMF and DMAc. Our overall solvents business is considerably smaller than our methylamines and higher amines business, and is decreasing in relative importance over time. We are estimated to be the fourth-largest global producer of DMF (a solvent used predominately in the production of artificial leather, electronics and acrylic fibers) by installed capacity, with a market share of approximately 9%, and have a market leading position in Europe. Our most significant competitor in the European solvents market is BASF. We do, however, compete with Chemanol and Chinese producers in the DMF market. We expect that demand for our solvents products will continue to grow.

Higher Alkylamines

We also supply higher alkylamines. The agriculture end-market is the largest single outlet for our products as they are primarily used in the formulation of major herbicide amines, including MIPA and MEA, key ingredients in glyphosate and atrazine. In the pro forma year ended December 31, 2012, 30% of our total volume was attributable to products developed for the agriculture end-market.

 

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We are one of the leading global producers of MIPA by installed capacity and the largest global producer of MEA by installed capacity, which are used in the production of herbicides, and have a global market share by volume of approximately 30% in each product with only one primary competitor in the U.S. The market for MIPA in North America is relatively concentrated, consisting of large crop protection companies. We sell most of the MEA we produce to one such company, Syngenta, with which we have a long-standing relationship, and which we supply by pipeline from a facility neighboring our St. Gabriel plant. We compete with only one other major supplier of these products, U.S. Amines, and, to a lesser extent, with the increasing Chinese presence in the glyphosate market. Another large manufacturer, Oxea, mainly produces out of Europe. Our large and highly flexible manufacturing capabilities allow us to serve our customers in a timely manner and to accommodate seasonal demand effectively, despite the short growing season. Although alternatives to these products are available, our customers would be required to seek re-registration of the herbicides they produce in order to effect a substitution. For all of these reasons, our competitive position in the North American market is very strong. Our customer base consists of local affiliates of major international crop companies and local formulators.

Specialty Amines

Segment Overview

Our Specialty Amines segment produces amine derivatives and other chemical intermediates, the building blocks that are used in the production of specialty chemicals and active ingredients for the water treatment, personal & home care, oil & gas and animal nutrition end-markets, as well as for industrial and other applications. This segment, through our integration model, sources its raw materials from the Functional Amines segment and other chemical companies. Our Specialty Amines segment had net sales and Adjusted EBITDA of $460 million and $78 million, respectively, in the year ended December 31, 2011, and $478 million and $80 million, respectively, for the pro forma year ended December 31, 2012.

We produce many specialty amine derivative products, and we expect the market for these products, in particular the water treatment, personal & home care and oil & gas end-markets, to experience additional growth over the near term. We believe we hold strong market positions in Europe, where we produce several specialty derivatives, and in the United States, where we have been actively investing in expanding our specialty derivatives capacity. Led by our DIMLA and DMAPA products, which are used in the production of detergents and other personal & home care products, we believe we can continue to reinforce our market position in the United States and therefore grow our business above the underlying market growth rate. In particular, we plan to capture growth in the water treatment and personal & home care end-markets in Latin America through our low-cost production facilities in the United States and significant sales force in Latin America. We also plan to expand our presence in China, introducing specialty derivatives as a way to counteract the growing competition among simpler amine products. In China, we are currently focused on growing our business and gaining market share. We plan to capitalize on ongoing investment in the new AAA unit with a planned capacity of 30 kt at our joint venture facility in Nanjing, targeting rapidly growing water treatment, personal & home care and oil & gas markets in Asia. We also plan to invest in developing a local platform in China for surfactant intermediates.

Originally in Europe, but for also for the last several years in North America, we have been increasingly focused on building an integrated production of higher-value specialty derivatives using our own amines, ensuring a secured outlet for our basic amines products through our integrated production model and partially insulate our amines business from competition. In total, we have spent $136 million in growth capital expenditures over the past three years to enhance our footprint and product mix.

Water Treatment

We serve the water treatment end-market primarily through specialty derivatives such as DMAE (Amietol M21), DEAE and DEHA, and other derivatives. Our products primarily include intermediates for coagulants and flocculants used to eliminate particles and impurities from liquids in industrial applications, to treat municipal

 

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wastewater and boiler water, and to prevent corrosion and scaling in closed circuits. We also supply basic methylamines, including MMA, DMA and TMA, and higher alkylamines, including DEA, TNPA and TNBA, to customers in the water treatment end-market. In the year ended December 31, 2012, 13% of our total volume was derived from the water treatment end-market.

The key markets for water treatment products are the United States and Europe, where living standards are higher and regulatory requirements stricter. In both of these markets, the customer base for our water treatment intermediates is highly concentrated, comprising a small group of major chemicals manufacturers with whom we have long-standing and ongoing relationships, including Nalco, General Electric, SNF Floerger and Arkema. We and BASF are the two most significant suppliers of precursors for cationic monomers used in water treatment products with Taminco having a 45% market share. In addition, we are the largest global producer, by installed capacity, of DMAE, which is primarily used as a precursor for water treatment chemicals. Due to increasing demands placed upon global water supply systems, growth in demand for our water treatment products has historically been strong, proving resilient even under challenging macroeconomic conditions. Our products are used in the most efficient water treatment technologies, which we believe will increase their growth in emerging markets. Our presence in Asia is still limited but certain of our key customers are moving into Asia, and our objective is to grow with them and secure our position in that market. Water is becoming an increasingly scarce resource in many parts of the world as economies develop and populations grow. Demand for our water treatment products is expected to grow in line with the expected growth rate for the global water treatment products market of 4% per annum.

Personal & Home Care

We serve the personal & home care end-market primarily through a type of specialty amine derivative that is used as a chemical intermediate in the production of surfactants. These chemicals are key building blocks for use in the production of fabric softeners, detergents, biocides and personal & home care products such as shampoos. In the pro forma year ended December 31, 2012, 14% of our total volume was attributable to the personal & home care industry.

Our two main derivative products are DMAPA, which is used in personal & home care products and DIMLA, which is used in the production of detergents and biocides. We are also developing next generation products, such as an “enabling” molecule that increases the compatibility of surfactants with different characteristics to create new products. We are one of the top three global producers of DIMLA, by installed capacity. We are the second-largest global producer of DMAPA, by installed capacity, following our U.S. capacity expansion. We are also expanding our DIMLA capacity in the United States, and a substantial portion of our new U.S. DMAPA capacity has already been committed. We are a growing participant in the two largest markets, the United States and Europe. The customer base for our surfactant products is relatively concentrated, dominated by larger consumer products companies such as Procter & Gamble, and chemical manufacturers such as Huntsman, Evonik Industries and Stepan. In Europe, we are one of three major producers of DMAPA, along with Albemarle, BASF and Huntsman, and compete with a number of producers of DIMLA, including Kao and Clariant. Our primary market is Europe, where we believe our position is strong as a result of our long-term stable relationships with certain key customers and bolstered by our position as a “neutral” player in the market, meaning that we do not produce the same products as our customers and therefore do not compete with them. Our presence in the North American surfactants market is growing, and we believe that we are well positioned to increase our share in this market by leveraging our global customer relationships. In 2011 we began operation of a new DMAPA unit at our St. Gabriel facility, and in June 2012 we began operation of a new DIMLA unit at our Pace facility. Growth in demand for our surfactant products is expected to outpace the expected growth rate of approximately 6% per annum for the global amine-based surfactants market, driven by increasing demand in Eastern Europe, Russia, the Middle East and the United States. We are also accompanying the move of certain large customers, such as SNF Floerger, into emerging markets.

 

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Oil & Gas

We serve the oil & gas end-market primarily through a range of basic methylamines, such as MMA, DMA and TMA, higher alkylamines, such as DEA, TEA, MNBA, DNBA and TNBA, and specialty derivatives, such as Amietol M12, ACT M12, MDEA and choline chloride, which are used in refineries and off-shore production facilities to remove impurities from crude oil and natural gas, principally, hydrogen sulphide and carbon dioxide, and referred to as oil & gas “sweeteners.” We also supply basic methylamines and higher alkylamines to customers in the oil & gas end-market for use in offshore oil & gas treatment as well as natural gas fracturing fluids such as choline chloride. In the year ended December 31, 2012, 7% of our total volume was attributable to the oil & gas end-market.

Currently, Europe and the Middle East are the key markets for our oil & gas treatment chemicals, and there is a broad customer base for our products in both regions. Customers in these regions include Baker Petrolite, Ineos and Shell. The two markets differ in that European customers typically place recurrent orders with a chosen supplier, while customers in the Middle East generally supply a larger portion of their needs through tender processes. In Europe and the Middle East, we compete with a number of suppliers of alkylamine-based oil & gas treatment products, primarily large chemicals companies such as BASF, Dow, Huntsman, Balchem and Ineos. We are the second-largest global producer of MDEA, which is used in the manufacturing of fabric softners and in the oil & gas end-market, by installed capacity, with approximately 30% market share. We are the second-largest global producer of choline chloride, by installed capacity. We also have strong relationships with many key customers, and our alkylamines systems are based on an advanced technology that we believe is superior to traditional ethanolamines currently in use. In 2010, we commenced production of oil & gas treatment products including MDEA at our plant in St. Gabriel and we believe that this will enable us to establish a presence within this end-market in North America. Generally, the demand for oil & gas treatment products is increasing, both as a result of global growth in energy demand and because an increasing proportion of the oil & gas fields now being tapped have higher impurity levels than traditional oil & gas assets, requiring greater use of sweeteners. We are developing a new product, Amietol M43, to help these fields. In China, we are continuing to develop relationships with customers and increasing product penetration as the domestic oil & gas market develops. We will be able to serve this end-market from the AAA unit being constructed at our joint venture facility in Nanjing. Growth in demand for our products is expected to grow at a rate of approximately 6% per annum from 2012 to 2016 for the global oil & gas market.

Animal Nutrition

We serve the animal nutrition end-market primarily through choline chloride, a methylamine derivative also known as vitamin B4. Choline chloride is chiefly used in poultry feed, swine, fish and pet feed to allow better nutrient conversion and therefore reduce overall feed costs for the industry’s customers. In the pro forma year ended December 31, 2012, 15% of our total volume was attributable to the animal nutrition end-market. Our strategy going forward is to develop safer substitutes, such as Taminizer C, for existing products, and to develop new products corresponding to unmet market demand, such as Taminizer D. Taminizer C is a patented solid form of concentrated choline chloride used in premium feed additives, containing almost double the amount of choline compared to other commonly used products. Taminizer D is a patented feed additive based on amines rather than choline chloride, which provides a more efficient metabolism of lipids, and therefore higher food conversion yields. It is currently undergoing field trials and has been approved by regulatory authorities in Brazil, Mexico and Europe.

We operate primarily in Europe, where our customers include MIAVIT and C.P. Group and our main competitors are Balchem, BASF and Be-Long. We expect the global market for choline chloride to grow steadily over the near term, and we believe we will be able to grow our volumes in line with or above the overall market. In addition, we believe our presence in China gives us a good platform to capitalize on increased demand for feed additives and expand our operations in that region. As a result, we expect our growth within this end-market will be driven by volume gains over the near term while we expect our gross profit margins to remain relatively flat or decline slightly due to potential declines in unit prices. In Asia, we plan to increase our market share through investment in existing production facilities.

 

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We are the second-largest producer of choline chloride by installed capacity, with a global market share of approximately 17% in 2012. Our European customer base consists of a number of major integrated meat companies that purchase choline chloride in liquid form and spray it directly onto poultry and swine feed. In Asia, our customers are primarily small, specialized feed mills, to whom we sell choline chloride applied to a carrier (typically corn cobs). Our competitors include a large number of local producers. The demand for our choline chloride is expected to grow in line with the expected growth rate of approximately 3% per annum for the global choline chloride market, driven by increasing demand for poultry as it forms a growing part of the diet in emerging markets.

Specialty Additives

Pharmaceuticals

Our products for the pharmaceuticals end-market include a variety of basic methylamines, higher alkylamines and solvents, as well as specialty amine derivative products, each with their own specific properties and particular market dynamics. These products include DMA HCl and 2-Pyrrolidone. We believe we have strong market positions in small niches within Europe. Our pharmaceuticals end-market customers include UCB, Merck and Sanofi Aventis.

Other Specialty Derivative Products

Our Specialty Amines segment also supplies a number of specialty products for use in coatings and metalworking fluids, fuel additives and polymer additives to manufacturers and other industrial customers. Among these products, our chemicals developed for use in coatings, Advantex, Vantex T, Amietol M21 and Amietol M12, and metalworking fluids are the largest by a significant margin. Chemicals used in fuel additives include specialty additives used to enhance the properties of fuel and chemicals used in polymer additives, Terminator P and AN/FMI. Polymer additives are special additives used to enhance the properties of plastics. Both our polymer additives and fuel additives product lines are in the early stages of development. The markets for these specialty products are relatively small compared to products for the other end-markets served by our Specialty Amines segment. Our customers for these products include Akzo Nobel, Valspar, BASF, 3M, Sachem, Dow and Kaltex Fibers. We believe the primary driver of growth in these end-markets will be continued product and application development. We expect to continue to grow volumes for these specialty products over the near term while maintaining the high margins these products generally achieve, although we do not expect these products to comprise a substantial portion of our total revenue in the near to medium term.

Crop Protection

Segment Overview

Our Crop Protection segment produces alkylamine and alkylamine derivatives that are used directly in the agriculture and crop protection end-markets. Our Crop Protection segment had net sales and Adjusted EBITDA of $148 million and $41 million, respectively, in the year ended December 31, 2011, and $137 million and $38 million, respectively, for the pro forma year ended December 31, 2012. Demand for our crop protection products is generally increasing as a result of growth in world population and overall wealth, coupled with the growing scarcity of arable land per person, which we believe means crop protection products are becoming increasingly important. Advances in the bio-engineering of crops are also contributing to increased demand for some of our products. We are also developing new products through customer partnerships and internally, such as a “green,” plant strengthener undergoing proof of concept trials with certain customers.

We hold leading positions in niche markets for many of our crop protection products. One of the key issues facing producers of agricultural products is the need to obtain and maintain product registrations from environmental, health and safety authorities in order to be permitted to use and sell such products. Within many of our product markets, we are one of a small number of main producers holding the required registrations. In

 

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addition, registrations held by our customers in many cases depend on products we supply. In addition, we believe that we have established a reputation for advanced knowledge and strict quality control in our Crop Protection segment, which has contributed to the loyalty of our customer base.

We serve the agriculture end-market by supplying several crop protection products designed to increase the yields and longevity of crops, including fungicides, soil disinfectants, plant growth regulators and formulation of third party active ingredients.

We believe that crop protection represents a key growth area for the Company, and we expect to increase volumes at or above the overall market trend by introducing new products and broadening our overall product portfolio. In 2011, we committed a majority of our total group research and development expenditures to the development of crop protection products, and we expect that trend to continue over the near term. Within our crop protection product portfolio, we expect volume growth to be driven by growth in our fungicide and growth regulator lines. We believe we can achieve volume growth without reducing our overall gross profit margins, by successfully introducing new products, maintaining our pricing strategy and broadening the range of countries in which our existing products are registered. We are continuing to develop uses for our products on new crops such as avocados, with an added focus on tropical crops, such as rice and mangoes, to capture more emerging market demand.

Fungicides

We produce three fungicide end-products for use as fungicides or seed treatment agents: Thiram, Ziram and Ferbam. The key market for these products is Europe, where we are the largest producer of Ziram and Thiram. According to the ADL Report, we have a leading position in Ziram and Thiram production. Our primary competitors in the fungicides market are Bayer and United Phosphorus. We have product registrations for fungicides in numerous countries around the world. We sell fungicides to large multinationals, which then resell them under their own brands, as well as to national distributors of leading crop protection companies, which sell them under our brand names. These products have a broad range of applications for many different crops and a long track record in the market. Over time, our fungicides have faced competition from more selective fungicides, developed for use against a narrower range of diseases. As disease resistance to these more specialized products has increased, the need for effective alternatives has enabled our fungicides to gain additional market share. We are currently exploring new “non-residue” applications for our fungicides in crops with skins that are not consumed, such as bananas. These products are also used to protect plant seeds from soil fungal disease during the early germination phase, which is achieved by coating the seed with a special form of the fungicide before planting. We expect the market for these products to grow broadly in line with the expected growth rate for the global crop protection market of 4% per annum, provided that we have all of the required registrations.

Soil Fumigation

Our soil fumigation products comprise two active ingredients, metam sodium and metam potassium, which are used prior to planting or sowing in order to clean soil of bacteria, weed seeds and nematodes, primarily in connection with growing high value fruit and vegetable crops, such as strawberries. We have product registrations for soil disinfectants in numerous countries around the world. The key markets for these products are North America and Europe. We sell soil fumigation products to a broad range of customers, both directly and through distributors of leading crop protection companies. We face a relatively limited range of competitors, two in Europe, Lainco and FMC Foret, and two large producers in North America, TKI and Amvac. We believe we are the largest global producer, by installed capacity, of metam sodium, with market share of approximately 40%, and our primary customers include Certis and Simplot. We currently sell our soil fumigation products in Europe under product registrations, which extend to 2014, and are in the process of seeking extensions for a further 10 years. Demand for our soil fumigation products is expected to grow in line with the expected growth rate for the global crop protection market of 4% per annum, provided that we have all of the required registrations.

 

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Formulations

Our formulations products comprise free formulation Water Dispersible Granules (“WDG”), a specific technique that we use to formulate third parties’ active ingredients. Each of the regions in which we operate is a key market for our formulations products, which are shipped globally from our production facilities in Ghent. Our customer base is highly concentrated and consists of crop protection companies seeking high-quality formulation capacity. We compete with a limited number of large formulations producers, as well as with a broader range of manufacturers who have a lower capacity and less advanced technology than ours. We have developed our own technology, which we allow crop protection companies to globally access through tolling agreements. Demand for our products is driven by a number of large companies willing to enter into tolling agreements, which has shifted volumes in our favor as manufacturers seek a technologically-advanced player with the capacity to provide high volumes of product and a willingness to share its resources through tolling arrangements. Demand for our formulations products is expected to grow in line with the expected growth rate for the global crop protection market of 4% per annum, provided that we have all of the required registrations.

Plant Growth Regulators

Our plant growth regulators comprise products such as chlormequat chloride formulations, which regulate plant hormones to strengthen root systems and stems in cereals. These products include CCC, C5, Adjust, Barlequat, Stimul, Bettaquat, Tyran/Regus and Desikote. We acquired this line of products from our Mandops acquisition, but we are expanding it with several products currently in the development phase, focusing on high-margin niches. We have product registrations for plant growth regulators in numerous countries around the world. The key market for these products is Europe, where we have a strong position. Our customer base is concentrated and consists of major crop protection companies. Competition is relatively concentrated, with two other companies, BASF and Nufarm, holding significant market positions. We participate in an industry group, the European Task Force, whose members share the costs and benefits of obtaining product registrations in this area. Demand for plant growth regulators is expected to grow above the expected growth rate for the general crop protection market of 4% per annum due to an increase in the development of specialty formulations, provided that we have all of the required registrations.

Industrial Applications

Our Crop Protection segment also produces biocides that serve a variety of industrial uses as well as rubber chemicals. These products are produced alongside our crop protection products within our Crop Protection segment because of their similar chemical properties.

Our biocides are used in industrial processes to protect products, such as sugar, paper and leather, from bacterial erosion. In addition, our biocides are used to treat cooling water. Our rubber chemicals are used in niche plastics or rubber markets and include, for example, vulcanization accelerators used to solidify rubber on a molecular level. The key market for our biocide and rubber chemicals products is Europe. We sell biocides primarily to a relatively concentrated customer group, consisting of companies that provide industrial water treatment services to large manufacturers. We have relatively few competitors, and product registrations significantly support our strong competitive position. We are the leading global producer, by volume, of Thiram, a key product in crop protection fungicide and the biocides and rubber chemicals group. We sell rubber chemicals to a relatively concentrated group comprised of major rubber producers, such as manufacturers of tires and belts. Competition in this market consists primarily of imports from Asia. Following expected near-term recovery, demand for both biocides and rubber chemicals is expected to grow thereafter in line with GDP in each of our key regions where the products are sold.

 

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Our Operations

Integrated Production Model

A key strength of our business is our integrated production model, which involves using the methylamines and higher alkylamines manufactured in a given plant within the same facility as inputs in manufacturing derivatives. This enables us to lower costs through heat and steam recycling within the facilities, and to redirect resources to the manufacture of those derivatives for which demand is highest. In addition, we have selectively chosen not to enter into certain downstream products that would directly compete with our key customers, which we believe is a competitive advantage. Our decision to not enter into certain downstream end-markets that compete with our customers and our specialization in amines and their derivatives are the reasons we believe we are the chosen partner for the largest and fastest growing companies in the industry.

The following chart illustrates our integrated production model:

 

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Research and Product Development

In addition to growing through acquisitions, we have also experienced significant growth in revenue and Adjusted EBITDA from organic growth in the end-markets we serve, as well as from the introduction of new products.

Research

Our research and development department focuses on product development within our key end-markets, and improving existing processes, clean technologies and energy efficiency. We operate a well-equipped lab and pilot unit, and we employ 34 full-time employees, including PhDs, lab and pilot technicians and business developers, located in Ghent. We pursue research and development according to an open innovation model, meaning that we develop products both on a stand-alone basis and in partnership with several departments of the Universities of Ghent and Leuven. We also have partnerships with the University of Prague and the University of Rostock. In the pro forma year ended December 31, 2012 and the years ended December 31, 2011 and 2010, our research and development expenditures amounted to approximately $10 million, $12 million and $13 million, respectively.

 

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Past achievements of the department include the development of processes allowing feedstock flexibility for some of our existing products. We also improved our Thiram production process by making it cleaner and lower-cost by using an oxygen-based, low-waste process, and we believe we remain the sole producer in the world to use this production methodology.

Technology

In addition to our efforts on growth projects and improving plant efficiency, our engineering department has also pursued energy initiatives that have generated significant energy savings.

Examples include our energy-efficient, fourth-generation methylamine plant in Ghent on which we began operating in 2008, leading to approximately 50% primary energy savings compared to the previous unit with the same product mix. In 2009, we initiated a new cogeneration unit at Ghent, which produces highly efficient energy and steam and that has led to additional energy savings and a reduction in carbon dioxide emissions.

Product Development

The product development group is responsible for the development of both new and existing products. The group also provides valuable market, product and competitor intelligence to assist us in making strategic acquisitions. The team works closely with the marketing, production and engineering departments to align the objectives of product development with our general business objectives. Every new project is assigned a steering committee, which includes representatives from each of these departments and adopts a goal-oriented approach to product development. The average timeline for product development from conception to execution is three to five years.

Past achievements include the Banguard42 SC fungicide, used as an aerial spray to control certain banana diseases and the new feed additive Taminzer C, a new version of dry choline chloride that is very pure and concentrated, which results in transportation cost savings and has a unique micro-granular structure that allows it to mix well with other chemicals. The development pipeline currently includes projects within each segment. Within the Functional Amines segment, we are focused on the development of green solvents from renewable raw materials, alkylamine-based surfactants and, enhanced performance molecules for gas sweetening. Within the Specialty Amines segment, we are focused on developing products for the water treatment, personal & home care, oil & gas and feed additives end-markets. Within the Crop Protection segment, we are focused on plant physiologics, developing sustainable products that help plants overcome diseases (curative) or stimulate the plant’s strength (preventive) to become less vulnerable to pests, drought stress, salinity and other extreme weather conditions. Our other area of focus is pre- and post-harvest management, which includes improvement of the conservation of crops to overcome yield losses due to exposure to adverse weather conditions (pre-harvest), and the interruption of natural ripening or decaying processes by either a physical barrier or by triggering the reverse mechanisms of the plant (post-harvest).

Intellectual Property

We currently have 76 patents issued in various jurisdictions worldwide, covering production processes for fatty alkylamines and specialty alkylamine applications in coatings and metal working fluids, as well as new formulations for plant protection, plant biomodulators and feed additives. We have developed some of this intellectual property internally in our state of the art laboratory and pilot unit in Ghent, and have also added to our intellectual property portfolio through the Air Products, Arkema and Mandops acquisitions. The technologies in the research and development pipeline constitute significant innovations, and we strive to protect them all with patents. We currently have 159 pending patent applications relating both to products still in the development phase, including plant protection agents and feed additive products, and products and applications that are already on the market, such as basic and specialty higher alkylamines. We have pending patent applications in the United States, Canada, Brazil, Mexico, Japan, China, Korea and the European Union. In cases where we

 

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collaborate with universities, we have contracts in place which will give us full ownership of any intellectual property developed in the collaboration, in exchange for a fixed amount of royalties, and other compensation. In addition to patents, we have over 69 brand names and logos protected as registered trademarks, including the TAMINCO MOLECULES brand name and logo as well as names for individual products such as AMIETOL, GRANUFLO, METAM CL, METAM KLR, TAMINIZER and ZIRAM GRANUFLO.

Environmental, Health and Safety Matters

We and our operations and facilities are subject to extensive federal, state, local and foreign environmental, health and safety laws and regulations, including those governing pollution; protection of the environment; licenses and permits; air emissions; greenhouse gas emissions; energy efficiency; water supply, use and discharges; construction and operation of sites; the use, generation, handling, transport, treatment, recycling, presence, release and threatened release, management, storage and disposal of and exposure to hazardous substances, materials or waste; public health and safety and the health and safety of our employees; chemical plant security; product safety, registration, and authorization; noise, odor, mold, dust and nuisance; the investigation and remediation of contaminated soil and groundwater; the protection and restoration of plants, wildlife and natural resources; and cultural and historic resources, land use and other similar matters as well as numerous related reporting and record keeping requirements. Governmental authorities have the power to enforce compliance with their regulations and violators of environmental, health and safety laws may be subject to civil, criminal and administrative penalties, injunctions or both. In addition, private lawsuits for personal injury, property damage, diminution in value or similar claims may be initiated as a result of our operations. Environmental, health and safety laws and regulations, and the interpretation or enforcement thereof, are subject to change and may become more stringent in the future which may result in substantial future costs or capital or operating expenses. We cannot estimate the impact of increased and more stringent regulation on our operations, future capital expenditure requirements or the cost of compliance.

Chemical Product Registration Requirements. We must comply with regulations related to the testing, manufacturing, labeling, registration and safety analysis of our products in order to distribute many of our products, including, for example, in the U.S., the federal Toxic Substances Control Act, federal Insecticide, Fungicide, and Rodenticide Act and U.S. state and local pesticide laws, and in the European Union, the Regulation on Registration, Evaluation, Authorization and Restriction of Chemical Substances (“REACH”). Currently, three of our products are classified under REACH as carcinogenic, mutagenic or toxic to reproduction (“CMR”). As a result of this CMR classification, these products may be subject to restrictions in other jurisdictions, may require additional authorization or may be substituted in the future by other products. In addition, our products NMP, DMF and DMAC are each listed as a Substance of Very High Concern (“SVHC”) under REACH and certain of our other products may be listed in the future. This designation may require us to apply for the European Chemical Agency’s authorization to continue to use or place these substances on the market. Alternatively, the European Commission could instead impose marketing and use restrictions under REACH or other E.U. directives to address risks posed by an SVHC.

Also in the E. U., plant protection products require approval under Article 28 of Regulation 1107/2009 (the “EU PPPR”) by each Member State where they are sold. Other of our products must have E.U. level approval pursuant to the Biocidal Product Regulation (EU) No. 528/2012 (the “EU BPR”) concerning the placing of biocidal products on the market in order for us to market and sell them for particular uses. We are currently seeking European Commission authorization pursuant to the EU BPR for several of our products to be marketed as biocidal products, which as of April 2013, were not yet permitted. In addition, as existing authorizations under the EU PPPR and EU BPR expire or if there are future regulatory changes affecting the authorization process, we may be unable to obtain reauthorizations or maintain authorizations for such products. In such case, we would be unable to market and sell any such plant protection or biocidal product not reauthorized in the E.U. going forward.

 

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Air Emissions. The U.S. federal Clean Air Act (the “CAA”) and comparable U.S. state and foreign statutes and regulations, regulate emissions of various air pollutants and contaminants into the air. Certain of the CAA’s regulatory programs are the subject of ongoing review and/or are subject to ongoing litigation, such as the rules establishing new Maximum Achievable Control Technology for industrial boilers, and significant emissions control expenditures may be required to meet these current and emerging standards. Regulatory agencies can also impose administrative, civil and criminal penalties for non-compliance with air permits or other legal requirements regarding air emissions. In addition, some states do, and further states may, choose to set more stringent air emissions rules than those in the CAA.

There has been a broad range of proposed or promulgated state, national and international laws focusing on greenhouse gas (“GHG”) reductions. In the U.S., the Environmental Protection Agency (“EPA”) has promulgated federal GHG regulations under the CAA affecting certain sources. In addition, a number of state, local and regional GHG initiatives are also being developed or are already in place. In the European Union, implementation of the Kyoto Protocol requirements regarding GHG emission reductions consists of energy efficiency regulations, carbon dioxide emissions allowances trading and renewable energy requirements.

Waste Management. Our operations are subject to statutes and regulations addressing the remediation, removal, treatment, storage, disposal, remediation and transportation of solid and hazardous wastes and hazardous substances. In the U.S., the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, (“CERCLA”), also known as the “Superfund” law, and comparable state laws, generally impose joint, strict and several liability for costs of investigation and remediation, natural resources damages, and certain health studies, on potentially responsible parties (“PRPs”). All such PRPs (or any one of them) can be required to bear all of such costs regardless of fault, the legality of the original disposal or ownership of the disposal site. Accordingly, we may become subject to liability under CERCLA for cleanup costs or investigation or clean up obligations or related third-party claims in connection with releases of hazardous substances at or from our current or former sites or offsite waste disposal facilities, including those caused by predecessors or relating to divested properties or operations. The Federal Resource Conservation and Recovery Act, as amended, (“RCRA”) and comparable state laws regulate the treatment, storage, disposal, remediation and transportation of solid and hazardous wastes by imposing management requirements on generators and transporters of such wastes and on the owners and operators of treatment, storage and disposal facilities. It is possible that our operations may generate wastes that are subject to RCRA and comparable state statutes.

We are or may be required to comply with a number of additional foreign, federal, state and local environmental, health, safety and similar laws and regulations in addition to those discussed above, including those addressing discharges to surface and groundwater, emergency planning, chemical plant security, notice to governmental authorities, and occupational health and safety.

We have incurred and expect to continue to incur significant costs to maintain compliance with environmental, health and safety laws and regulations. We expect to incur approximately $18.5 million in capital expenditures relating to environmental, health and safety regulations in 2013. We estimate that our capital expenditures relating to environmental, health and safety regulations will be $13.9 million in 2014 and $8-$14 million per year through 2016; however, these estimates are subject to change given the uncertainty of future environmental, health and safety laws and regulations and the interpretation and enforcement thereof, as further described in this prospectus. Our environmental capital expenditure plans cover, among other things, the currently expected costs associated with known permit requirements relating to plant improvements.

Contamination and Hazardous Substance Risks

Certain U.S. and foreign environmental laws (including CERCLA discussed above) assess liability on current or previous owners or operators of real property for the cost of removal or remediation of hazardous substances. Contamination has been identified at several of our properties, including our Ghent, Leuna, Yixing, and Camaçari, Bahia, Brazil sites. We are, however, the beneficiary of certain environmental indemnities

 

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(including an indemnity contained in a governmental order) and contractual obligations of third parties received in connection with certain past transactions. Pursuant to some of these indemnities and obligations, third parties are currently conducting remediation at our Ghent and Leuna sites, respectively. There is currently no indemnification coverage applicable to the Yixing or Camaçari, Bahia, Brazil sites. There can be no assurances that these and the other third parties will be able to or will otherwise agree to continue to perform under these indemnities or obligations, or that these indemnities or obligations, as drafted, will cover other remedial obligations at these or other sites that may arise in the future.

Furthermore, a third-party owned and operated railcar collision at the St. Gabriel site caused a release of acrylonitrile in December 2012. Following the railcar incident, we received an Investigation Work Plan Request from the State of Louisiana Department of Environmental Quality. There is potential coverage for this incident pursuant to our pollution legal liability insurance policy, subject to the terms and conditions of the policy and the policy self-insured retention, and we have submitted a claim with respect to this incident.

In addition to cleanup obligations, we could also be held liable for any and all consequences arising out of human exposure to hazardous substances or other environmental damage, which liability may not be covered by the above described indemnities or insurance we may have.

Environmental Reserves, Asset Retirement Obligations and Financial Assurance

Following our decision in August 2011 to close our production facility located in Camaçari, Bahia, Brazil, Brazilian authorities required us to conduct environmental sampling and analysis at the site, which identified some localized soil contamination. The estimated cost to remediate the identified contamination is less than $1 million which is accrued for on the balance sheet.

We have accrued approximately $1.5 million to address all currently probable and estimable costs (including site investigation and remediation, property damage, and product loss) related to the St. Gabriel railcar incident, which includes our self-insured retention under our pollution legal liability insurance policy.

We have an asset retirement obligation (“ARO”) relating to the future closure of our Pace site at the end of our long-term lease in 2056. The lease provides that at the end of the term or upon earlier termination, we shall, among other obligations, return the premises in the condition in which we agreed in the lease to maintain them, subject to normal wear and tear, and remove certain improvements to the premises.

We maintain a letter of credit in the amount of $1,124,775 for closure and post-closure care of solid waste sludge impoundments under RCRA at our plant in St. Gabriel, Louisiana.

Workplace Health and Safety

We are committed to manufacturing safe products and achieving a safe workplace. Our Quality, Safety, Health and Environment department specializes in the health and safety aspects of our production. To protect employees, we have established health and safety policies, programs and processes at all our manufacturing sites, including the creation of a global best practice exchange program that seeks to optimize our safety policies and procedures. Our safety management is founded on safe design of production processes, governed by hazard and operability analysis (“HAZOP”) and layer of protection analysis (“LOPA”) techniques to analyze safety hazards in the operation of chemical plants. Likewise, all process changes are governed by “management of change” procedures which are based on guidelines to manage mechanical or operational changes in chemical plants. An external health and safety audit is performed at each of our plants on a yearly basis, in accordance with local health and safety standards. In addition, we have an internal health and safety audit system, with an internal committee that reports on health and safety issues on a monthly basis on each of our seven manufacturing plants.

 

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Raw Materials

Our key raw materials are methanol, ethylene oxide, ammonia and acetone. The main raw materials required for the production of methylamines and higher alkylamines are ammonia, methanol and acetone. The key raw materials used in the production of derivative products include ethylene oxide, acrylonitrile and acetic acid, in combination with methylamines and higher alkylamines. All of our main raw materials are readily available commodity chemicals, and we purchase them in relatively low volumes compared to total global capacity. Specifically, we source a significant portion of our methanol requirements through a long term contract. We have a secure supply of key raw materials, which are provided by truck, railcar, barge and pipeline from a relatively limited number of suppliers. Our key sources of energy are electricity, steam and natural gas. All of our energy is readily available and supplied by local producers. As we engage in CPT Contracts for approximately 48% of revenues for the pro forma year ended December 31, 2012, we can largely pass raw material price increase through to customers. For information on how raw material and energy costs influence our results of operations, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Drivers of Our Business—Raw Materials.”

We have a purchase and supply agreement with Methanex Methanol Company (the “Methanex Agreement”) for the purchase by us of methanol at certain quantities and prices from Methanex. The Methanex Agreement permits increases or decreases to such specified quantities in certain circumstances. The Methanex Agreement will expire in December 2019.

Our Production Facilities and Properties

Total Production Capacity by Plant Facility as of December 31, 2012 (in kT)

 

     Methylamines      Derivatives      Higher
Alkylamines